Good day, and thank you for standing by. Welcome to the Ultralife Corporation Third Quarter 2024 Results Conference Call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Jody Burfening, Managing Director, Alliance Advisors Investor Relations. Please go ahead.

Thank you, Dede, and good morning, everyone. And thank you for joining us this morning for Ultralife Corporation's earnings conference call for the third quarter of fiscal 2024. With us on today's call are Mike Manna, Ultralife's President and CEO; and Phil Fain, Ultralife's Chief Financial Officer. The earnings press release was issued earlier this morning. And if anyone has not yet received a copy, I invite you to visit the company's website, ultralifecorp.com, where you'll find the release under Investor News in the Investor Relations section. Before turning the call over to management, I would like to remind everyone that some statements made during this conference call contain forward-looking statements based on current expectations. Actual results could differ materially from those projected as a result of various risks and uncertainties. The potential risks and uncertainties that could cause actual results to differ materially include uncertain global economic conditions, reductions in revenues from key customers, delays or reductions in U.S. and foreign military spending, acceptance of our new products on a global basis, disruptions or delays in our supply of raw materials and components due to business conditions, global conflicts, weather or other factors not under our control. The company cautions investors not to place undue reliance on forward-looking statements, which reflect the company's analysis only as of today's date. The company undertakes no obligation to publicly update forward-looking statements to reflect subsequent events or circumstances. Further information on these factors and other factors that could affect Ultralife's financial results are included in the company's filings with the Securities and Exchange Commission, including the latest Annual Report on Form 10-K. In addition, on today's call, management will refer to certain non-GAAP financial measures that management considers to be useful and differ from GAAP. These non-GAAP measures should be considered supplemental to corresponding GAAP figures. With that, I would now like to turn the call over to Mike. Good morning, Mike.

Thank you. Good morning. Welcome to our call on Ultralife's Q3 operating results. Earlier today, we reported Q3 sales of $35.7 million and operating income of $0.5 million, resulting in $0.02 of EPS. Battery & Energy Products sales increased 1.9% over the prior year's Q3, with Communication Systems sales decreasing 58% to $3.2 million as we continue to diversify that business. Our top three initiatives for the year: material cost deflation, lean productivity, and sales funnel improvement continued progress in Q3, with multiple lean events completed in both businesses and captured future material cost deflation in several important areas, including lithium metal and printed circuit boards. We are seeing sales funnel opportunity growth, especially in thin cell and Thionyl Chloride products and are focused on closing long-term supply agreements with several customers in our target spaces. I will turn it over to Phil to talk through the detailed numbers.

Thank you, Mike, and good morning, everyone. Earlier this morning, we released our third quarter results for the quarter ended September 30, 2024. We will be filing our Form 10-Q with the SEC in the next few days and have updated our investor presentation in the Investor Relations section of our website, which includes a summary and status of our transformational new products and a recap of our most recent acquisition, Electrochem. Consolidated revenues totaled $35.7 million compared to $39.5 million for the third quarter of 2023. Revenues from our Battery & Energy Products segment were $32.5 million compared to $31.9 million last year. Sales to our government defense customers increased 28.9%, and oil and gas market sales increased 1.5%. These increases were, for the most part, offset by declines in medical battery and industrial market sales of 12.4% and 10.9%, respectively. The sales split between commercial and government defense for our battery business was 69-31 compared to 78-22 reported for the 2023 full year, and the domestic to international split was 56-44 compared to 49-51 for the 2023 full year, demonstrating the heightened domestic demand for our U.S. government defense products. Revenues from our Communications Systems segment of $3.2 million declined 58.2% from the $7.6 million we reported last year, primarily attributable to large shipments in the 2023 period of vehicle amplifier adapter orders to a global defense contractor for the U.S. Army and of integrated systems of amplifiers and radio vehicle mounts to a major international defense contractor for which shipments had been delayed from earlier periods due to supply chain constraints. The year-over-year comparison was compounded by the timing of a follow-on Leader Radio Order expected in the third quarter of 2024 that was not received until October. On a consolidated basis, the commercial to government defense sales split was 63-37, almost identical to the 64-36 reported for the 2023 full year. Our total backlog exiting the third quarter was $78 million, and remains diverse in nature across our commercial and government defense customer base. The backlog decline from recent post-COVID periods reflects the return of more normalized recurring order flow with our larger customers, with the resolution of significant supply chain disruptions and long lead times despite occasional blips. Our consolidated gross profit was $8.7 million, down 11.2% from the 2023 period. As a percentage of total revenues, consolidated gross margin was 24.3%, a 50 basis point decline from the 24.8% reported for last year's third quarter. Gross profit for our Battery & Energy Products business was $8 million compared to $7.7 million last year, an increase of 4.1%. Gross margin was 24.7%, a 50 basis point increase from the 24.2% reported for last year's quarter. The year-over-year increase was primarily due to higher factory volume in our Newark, New York facility, partially offset by some inefficiencies resulting from delays in the receipt of a key raw material component now rectified. Our lean initiatives continued as our internal lean expert has now expanded his reach into our operations beyond Newark. For our Communications Systems segment, gross profit was $0.6 million compared to $2.0 million for the year earlier period. Gross margin was 20.1% compared to 27.0% last year, primarily due to lower factory volume and unfavorable sales product mix as compared to the year earlier period. Operating expenses were $8.2 million, an increase of $0.5 million or 7% from the year earlier quarter. The year-over-year increase is attributable to $0.3 million of legal and other fees directly related to the signing of the stock purchase agreement on September 27 to acquire Electrochem and an increase of $0.2 million, or 12.4% in new product development spending as we aggressively pursue both government defense major programs and large commercial opportunities. Our spending on the addition of experienced sales resources to drive future growth was offset by lower G&A expenses. As a percentage of revenues, operating expenses were 22.9% compared to 19.3% for last year's third quarter. The sales decline and the increase in operating expenses resulted in an operating margin of 1.4% for the third quarter compared to 5.4% for the 2023 third quarter. Other income reported below operating income was $0.2 million for the quarter compared to $0.4 million for the year earlier period, primarily resulting from the decrease in interest expense with our 2024 reduction in debt. Our tax provision for the third quarter was $0.1 million versus $0.4 million reported for the 2023 quarter, computed on a GAAP basis at statutory rates. Net income was $0.3 million, or $0.02 per share on a GAAP fully diluted basis. This compares to net income of $1.3 million, or $0.08 per share for the 2023 quarter. Adjusted EBITDA, defined as EBITDA including non-cash stock-based compensation expense and expense or income that we do not consider reflective of our ongoing operations, was $1.9 million, or 5.4% of sales compared to $3.5 million, or 8.8% for the prior year quarter. Adjusted EBITDA on a TTM basis is $17.5 million, or 10.5% of sales. Turning to our balance sheet. We ended the third quarter with working capital of $60.2 million and a current ratio of 3.3 compared to $66.5 million and 3.8 for 2023 year-end. During the third quarter, we further reduced our debt by $4.1 million, or 33.4% from $12.1 million at the end of the second quarter to $8.0 million. This represents a $17.2 million, or 68.2% reduction over the last two quarters. With delays in the receipt of certain purchase orders, our inventory increased sequentially by $2.6 million or 6.3%. Going forward, our backlog, diversified end markets, the sheer volume of our growth initiatives and ongoing actions to improve our gross margins position us well to realize the leverage of our business model. Before turning it back to Mike, I just want to mention that we filed our Form 8-K on Wednesday for our completion of the Electrochem acquisition on October 31. As this is considered a material acquisition for SEC reporting purposes, we have 71 calendar days to file an amended Form 8-K, which will include stand-alone audited financial statements for Electrochem's 2023 year, along with other required financial disclosures. 71 days equates to January 16, 2025. I will now turn it back to Mike.

Thank you, Phil, for the detailed review of the Q3 results. As I've mentioned on previous calls, we have three major 2024 priorities to accomplish. First, continued material deflation. In Q3, we favorably negotiated our lithium metal contracts in several of our printed circuit boards and expect to realize savings in the hundreds of thousands of dollars per year. We continue to work on Kanban and pull systems with key suppliers to smooth material and cash flow and positively impact inventory turns, which was hampered in Q3 with customer pushouts and inventory builds for a large order shipping partially in Q4 and the remainder next year. Second, lean productivity. We continue to reduce waste and inefficiencies in all of our processes throughout the business. We completed high-value lean events at our Newark, Virginia Beach, and Houston facilities in Q3, with expected cost improvements of 2% to 3% in each area. These target areas produce items we ship at a regular cadence, and we expect to see benefits as we go into Q4 and next year. Lastly, sales funnel improvement. We are seeing sales funnel growth, especially in thin cells and Thionyl Chloride, and are currently reviewing how we best deploy our business development resources to align sales assets to the target markets of medical, government and defense, and oil and gas, especially with the Electrochem acquisition now completed. I expect there will be some realignment of the team in Q4 to better focus and drive growth. Next, I will give updates on the organic growth projects and new product development underway for the businesses, which are key to future sales and market expansion. On our Communications Systems business, we continue to ship EL8000 server cases to several customers. We have several alternate systems in the development pipeline to better service a broader range of customer applications, including a smaller 3U size variant versus the current 5U size variant. We are in validation testing with the earlier mentioned DC power supply to support vehicular remote use of the EL8000 case products, expecting that to be production ready and available for sale next year. The MRC 2104 radio power supply supporting airborne communications platforms transitioned to production in Q3, and the initial low-rate initial production quantity was delivered to our customer. We anticipate this project to ramp over the next few years with our prime partner, who is supplying the system radios. Lastly, I'm happy to say we've launched a new amplification product targeted to be radio agnostic, which we believe is the smallest, lightest, most power-efficient 20-watt man portable amplifier in the marketplace, which are all key benefits to our government and defense customers. This product is sampling now to partners and expected to be available for production orders by the end of the year. Meanwhile, we are advancing our next-generation high-performance amplifier engine to be used across all advanced frequency hopping radio platforms. This amplifier will add to our portfolio of high-efficiency amplification products, with the first variant available in 2025. On the Battery and Energy side of the business, we are excited about the opportunity funnel growth across a variety of new and existing products and expect to see continued incremental orders this year. As previously mentioned, we have initial production equipment in place for our thin cell to support customers in the medical wearable space and several applications in item tracking. The thin cell sales funnel continues to strengthen with multiple projects now in the qualification phase, primarily in the medical and tracking application space, with several new large volume opportunities added to the sales funnel in Q3. The 123A product line supporting IoT and illumination markets has seen opportunity funnel growth in medical battery pack assemblies, both domestic and international customers. We are in negotiation to supply several battery packs servicing international medical customers and expect to start pack development this year for a 2025 production launch. Our improved Thionyl Chloride product line, targeting monitoring and telemetry applications, continues qualification and field testing with several customers. We have successfully completed the year-plus test cycle with a major metering company for our flagship 19 amp-hour D cell and are in discussions now for initial production and deliveries in 2025. We continue to advance the commercial version of the Conformal Wearable Battery and continue validation and production readiness activities. We have quoted multiple international production opportunities in Q3 and expect award decisions in 2025. We expect a small low-rate initial production quantity to ship in Q4 to an international customer for evaluation and test. Sales funnel and opportunity pipeline growth in both businesses continues to be a key for 2024 and into 2025. And I expect with the added focus and resources, we will continue to expand our aperture and opportunity wins. We continue our gross margin initiatives and expect to see continued steady improvement as our CapEx investments, lean projects, and material efforts enter the production lines. Lastly, I would like to welcome the Electrochem business, a manufacturer of high-temp, high-reliability non-rechargeable lithium cells and thionyl and sulfuryl chemistries with revenue of approximately $34 million over the trailing 12 months to the Ultralife portfolio. Having closed this acquisition October 31, we see this as a synergistic business with little customer and product overlap, vertical integration opportunities with our SWE and Excell business, producing products for similar high-reliability niche markets and positioned for future growth. We now look forward to working closely with Khristine Carroll, President of Electrochem, and her experienced team to jointly implement our integration playbook. Together, we will advance our strategy to realize the operating leverage of our business model through scale and manufacturing cost efficiencies while creating highly attractive opportunities to drive revenue growth. We expect the main integration activities to complete in the first half of 2025. Thanks, everyone. That concludes the prepared remarks for today. Now, we'll go back to the operator for questions.

And our first question comes from Josh Sullivan of The Benchmark Company. Your line is open.

Hi, good morning.

Hi, good morning.

As far as within the Battery & Energy Products segment, if you were to bucket how much of the headwinds you're talking about were due to the supply chain versus the order delays, how would you frame that?

I would frame that, Josh, probably almost 50-50, I would say. And in this day and age, you don't expect things to happen. You think that everything after post-COVID and after all the bumps in the road in the supply chain that things are ironed out. But certainly, I'll just say stuff does happen, and it hit us during this quarter, but it's now rectified. And also, we're in an interesting position because when you look at our customers, we're part of their large supply chain. We're one component of many in the supply chain, and we may be all set and ready and willing to go with ready-to-ship products and recognize the revenue, but there may be a delay in other components that they're experiencing or something going on with their customer. So at the end of the day, Josh, it's this. We try to control everything that we can control. We try to significantly influence everything we can't control. But then again, there are certain things that happen that you just can't control. But that's why our inventory has gone up. But I would say to answer your question, it's probably in the 50-50 range. Got it. And as far as the delays, was it related to any one industry? Or was it broad-based?

It was quite widespread. We had some medical customers delay their orders, which made the battery side of the business a bit weaker this quarter. On the Communication Systems side, there were several orders we anticipated for Q3, for which we had the materials ready to service, leading to an increase in our inventory. However, the orders didn't arrive in time to fulfill them. Additionally, we encountered some issues with labels on a FedEx truck for Helene that we couldn't obtain for shipping. While these minor setbacks may not drastically alter our quarterly outlook, they are frustrating and can impact our results in small ways.

And I think it's important to say, we have not lost any orders.

Yes. We typically don't lose orders. It's just, can we get them out the door based on their timing and our timing?

Got it. And then as far as the thin cell opportunity, where are your medical customers as far as the approval timeline, do you think? Or what can you share there? And then the customers you mentioned added to the funnel, what products might those be?

The thin cell sector is currently an exciting space due to numerous opportunities emerging, some of which have significant volume potential. The primary opportunity we have been discussing for years is still entangled in a qualification process involving software and AI, as we need to ensure that the supporting back-end system functions properly. Our customers are facing a complex challenge in navigating this qualification while ensuring all requirements are met. Additionally, various new opportunities are arising in electronic shelf labeling and RFID tracking. We've also encountered several substantial prospects in medical wearables, which may still be a few years away from realization, but the potential volume is quite promising.

Got it. And then just on the EL8000 direct current vehicle opportunity, how big of an opportunity do you think that is?

We've approached this from a few different angles. In the commercial sector, there are a lot of tough applications, and we see an opportunity in the range of $5 million to $10 million. On the military side, we estimate the opportunity to be between $20 million and $30 million. Overall, we are looking at a market potential of about $10 million to $50 million. Last quarter, we experienced some delays, which were beyond our control, related to the availability of server blades. The market potential is strong and appears to be just beginning. We are at a tipping point with the emergence of AI. The DC power supply currently undergoing validation is crucial for implementation in vehicles and forward operating bases where only DC power is available. Once this is finalized, it will create a significant new avenue for that product line.

And it's nice to know that we're the only authorized supplier for the EL8000 cases.

Yes. And as we expand into a couple of different case sizes for different uses, I expect us to have a pretty rounded out portfolio of offerings there that could help to the aperture of the opportunity.

Got it. That's great. And then just any early customer indication on Electrochem and what the capabilities might be? Is it driving any early interest?

We have received a lot of congratulations and excitement about the acquisition from both customers and within our organization. The company we acquired specializes in lithium metal primary batteries but has been somewhat isolated in the market, lacking the synergies we can provide globally. We can enhance their operations not just in manufacturing and supply chain efficiency, but also in how we sell products across our industry, which includes cells, packs, and various ancillary devices. They have primarily focused on cell production with limited pack business, and we believe we can significantly increase their pack offerings. Additionally, we are purchasing a small amount of their products for our own use, and we see a substantial opportunity to boost our internal purchases from them, creating beneficial vertical integration. As we work together, I am confident we will discover even more opportunities that will excite us.

Perfect. Thanks for the time.

All right. Thank you.

Thank you. Our next question comes from John Deysher of Pinnacle. Your line is open.

Good morning. Just a couple of quick questions. You mentioned, I think, an order that you expected to ship in third quarter that was pushed out to shipping in the fourth quarter. Could you give us an idea of how large that order was?

For the Comm Systems business, the total order was just under $2.5 million, which is substantial, and that's just one of the items. There is often a shuffling between quarters where you may gain or lose in a specific quarter. That’s why Mike and I take a longer-term view of this business. We consider it over a 12-month period, or sometimes even longer, because we recognize that we are just one of many components involved in the end product, and many factors can influence the outcome.

Okay. Great. That's helpful. On the Electrochem acquisition, were there other bidders for that property?

There were, or at least we've been told there were. And we do know that our bid was not the highest, but we could execute the transaction in the timeline that it wanted to be done. And there was a lot more synergies with us versus the other business is what we've heard.

Okay. So it was an auction process, you're saying?

It didn't go to auction. It went to targeted participants before it may have gone to auction if it was decided.

But you never reached the auction process?

It never reached the auction process. Correct.

Okay. Fair enough. And on the disclosure, the coming disclosure of Electrochem, I think, by January 16, that will include audited financial statements for 2023. And will it include year-to-date perhaps through September of 2024, even if it's unaudited?

You're absolutely right about the first part. The initial step will involve audited financial statements. Since it's a very minor component of Integer Holdings Corporation, it was never audited as it fell well below materiality levels. We certainly have a lot to do, but completing the carve-out and getting the audit done won't be a costly endeavor. I understand what you're aiming for with your next question. This will occur as we finalize our future filings. In Integer's report, released on October 30, they mentioned expected sales of $36 million and an EBITDA of $5 million. That was Integer's disclosure. We, of course, will wait until we've completed substantial work and due diligence. The audit is crucial for us as it is also essential for establishing the opening balance sheet.

Okay. So, will we see stand-alone results for 2024 for Electrochem?

Well, at some point, you certainly will, yes.

Okay. As a carve-out?

When we announce the report.

Okay. That will be very helpful to see. '23 as well as '24.

Yes. There is pro forma. We have to show what our results would have looked like in future filings if we acquired Electrochem earlier.

Okay. The more disclosure, the better, I think. So it sounds like you're on the right track.

Yes. We're totally transparent. We're happy, and we will be disclosing the information. Absolutely. We're very proud of the work that was done going into this acquisition.

Okay, great. Sounds good. Thank you very much.

Thank you, John.

Sure. Thank you.

Thank you. Our next question comes from an individual investor.

Good morning, gentlemen, and congratulations for the progresses in the product pipeline and the acquisition. The first one is about the backlog reduction end of the quarter. So, this reduction is mostly due to a post-COVID normalization rather than the timing of expected orders, you said?

Yes. If you look at our backlog in our investor presentation, we have a series of backlogs per year going back even before COVID. Historically, we've been in the $40 million to $50 million range for backlog. Over the last couple of years, however, it's been much higher due to the COVID-related increase. Another factor in the transition from Q3 to Q4 is that we have some yearly purchase orders that begin to fill in toward the end of the year as the volume decreases throughout the year. Therefore, we expect to see additional purchase orders in Q4 for next year's volume from those specific customers.

And I'll just say this, the information that we've reported on Page 15 in our investor presentation, it's as of a single day. So, just as an example, a week later after a week into Q4, it went up from $78 million to $83 million. So it depends on what you're looking at it because of a more continual flow of POs.

Okay. I have a second one on Electrochem acquisition. So, you have already given some characteristics now in the call, but what is the one thing about the company that made you say this is the one?

For us, it's a crucial element of the gap we identified in our portfolio regarding Thionyl Chloride chemistry. We have been exploring Thionyl for the last decade, and over the past three to four years, we have invested significantly in smaller, lower temperature cells to specifically target metering applications and some telemetry RFID products. We considered high temperature, high-reliability large cells like DDs and CCs as a 5-to 10-year development cycle for market adoption. It became a decision of whether to make or buy, and to develop it ourselves would take a decade. Therefore, we looked for someone to buy who has the leading product globally in this chemistry. Since 1979, Electrochem has been that leader, and that is what attracted us.

Great. Thanks a lot.

Thank you.

I'm showing no further questions at this time. I'd like to turn it back to Mike Manna for closing remarks.

Thanks, everyone, for listening to today's call. We look forward to you during the 2024 Q4 conference call and earlier in December for those of you that may be attending The Benchmark event. We'll see you then. That's it. Thank you for...

This concludes today's conference call. Thank you for participating, and you may now disconnect.