Ultralife Corporation Aktie

Good day, and thank you for standing by. Welcome to the Ultralife Corporation First Quarter 2026 Results Call.

[Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Jody Burfening. Please go ahead.

Speaker 1.

Thank you, Marvin, and good morning, everyone, and thank you for joining us this morning for Ultralife Corporation's Earnings Conference Call for the first quarter of fiscal 2026. 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 and 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 cause or affect Ultralife's financial results is 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.

Good morning. Welcome to Ultralife's Q1 2026 Earnings Call. Earlier today, we announced Q1 revenue of $47.4 million with an operating profit loss of $0.2 million, which resulted in a loss of $0.03 per share. We had a challenging start to the year on both sides of the business due to several factors, including order shipment timing, shipment delays to our Middle East customers, plant shutdowns for reorganization and weather events and consultation fees. We have a growing backlog and product portfolio due to new product releases that we need to support this year. So we have added and trained direct labor resources in our Random and Newark facilities to staff lines for the increased demand expected in 2026. This expense comes free revenue is critical given the nature of our products to ensure product quality. We now have new experienced plant leadership in both of those locations to drive manufacturing efficiencies and gross margin initiatives. Our Communication Systems business, which I acknowledge had another underwhelming quarter, has multiple new products and projects underway to grow the baseline revenue and stabilize the business. We believe in the upside of this business and continue to invest in product development to capture large, sustained revenue opportunities. A large part of the communications business continues to be government-related with long development and procurement cycles for the products we sell. We exited the quarter with a record backlog of $115.1 million with over $12 million of backlog from products released within the last year. These new product launches are dependent on the launch schedules of our customers' product and often we incur training and ramp costs prior to revenue capture. We continue our brand realignment under the Ultralife brand, which will bring clear concise messaging to our customers that we design and deliver critical RF and portable power products. 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 first quarter results for the quarter ended March 31, 2026. We have also filed our Form 10-Q with the SEC. Consolidated revenues totaled $47.4 million compared to $50.7 million for the first quarter of 2025. Revenues from our Battery & Energy Products segment were $44.2 million compared to $46.3 million last year, a 4.7% decrease. The year-over-year decrease reflects a 5.5% decline in commercial sales attributable to oil and gas customers and a 2.7% decline in government defense sales relative to the shipment of a very large order for an allied country last year. Medical sales increased 5.9% for the 2026 quarter. The sales split between commercial and government defense for our battery business was 69-31 compared to 64-36 reported for the 2025 quarter, and the domestic to international split was 66-34 compared to 78-22 for the 2025 period, reflecting the global demand for our products. Revenues from our Communications Systems segment of $3.3 million declined 25.7% from the $4.4 million we reported last year, resulting from the timing of expected orders. On a consolidated basis, the commercial to government defense sales split was 64-36 compared to 58-42 for the 2026 and 2025 quarters, respectively. Our total backlog exiting the first quarter was $115.1 million, the highest level in the company's history and representing a $20.1 million or a 21.1% increase over the comparable 2025 period. The backlog remains diverse in nature across our commercial and government defense customer base and the replenishment rate remains high, representing 61% of trailing 12-month sales. Our consolidated gross profit was $10.1 million, down 20.7% from the 2025 period. As a percentage of total revenues, consolidated gross margin was 21.3%, a 380 basis point decline from the 25.1% reported for last year's first quarter. Gross profit for our Battery & Energy Products business was $9.4 million compared to $11.4 million last year, a decrease of 18.2%. Gross margin was 21.2% compared to 24.7% last year. The year-over-year reduction primarily resulted from nonrecurring events resulting in lost production days in the 2026 period, negatively impacting gross margin by approximately $0.8 million. This included 3-plus days due to the failure of the substation that provides power to our Newark facility and 16 days equivalent to over 25% of the total Q1 production days for our Ranum facility for multiple reasons. including the preparation, execution and reconciliation of our initial wall-to-wall physical inventory with full integration into the new ERP system, the disposal of fully reserved obsolete inventory and overall realignment to minimize our use of costly outside warehousing, all of which was further compounded by severe weather. In addition to the aforementioned, also impacting gross margin were higher energy costs experienced in our Northeast facility and our sales mix, which resulted in higher net tariff costs. For our Communications Systems segment, gross profit was $0.8 million compared to $1.3 million for the year earlier period. Gross margin was 21.2% compared to 29.5% last year, primarily due to lower factory volume and product mix. Operating expenses were $10.3 million, an increase of $1 million or 10.5% from the year earlier quarter. The majority of the year-over-year increase is comprised of onetime costs exceeding $0.8 million related to certain consulting fees to help expedite our gross margin improvement in our 2 largest manufacturing facilities, litigation expenses incurred for our cybersecurity claim and the final costs for our Random systems transition. In addition, new product development costs increased 23.3% related to the continued investment in our product offering and vertical integration opportunities within our portfolio. As a percentage of revenues, operating expenses were 21.8% compared to 18.4% for last year's first quarter. We incurred an operating loss of $0.2 million compared to income of $3.4 million last year, primarily reflecting the lost production days and onetime costs in our Battery & Energy Products segment and the 25.7% decline in Communication Systems sales. Other expense reported below operating income was $0.4 million for the quarter, primarily comprised of interest expense from the financing of our [ Electrochem ] acquisition, partially offset by the first quarter estimated portion of a refundable tax credit for certain qualifying battery cells and packs we manufacture under the 45x advanced manufacturing production tax credit. This tax credit was established by the Inflation Reduction Act and runs through 2032. This compares to expense of $1 million for the year earlier period, reflecting the acquisition financing. Our resulting tax benefit for the first quarter was $0.2 million compared to a provision of $0.6 million computed on a GAAP basis at statutory rates. Net loss was $0.5 million or $0.03 per share compared to income of $1.9 million or $0.11 per share on a GAAP basis. Adjusted EBITDA, defined as EBITDA, including noncash stock-based compensation expense and onetime acquisition and other nonrecurring costs, not reflective of our ongoing operations was $3.2 million or 6.8% of sales compared to $5.4 million or 10.7% for the prior year quarter. Adjusted EBITDA on a TTM basis is $15 million or 8% of sales. Turning to our balance sheet. We ended the first quarter with working capital of $67.1 million and a current ratio of 2.6 compared to $68.5 million and 2.8 for 2025 year-end. Looking beyond our first quarter results, our backlog, the sheer number of our growth initiatives, including our conformal wearable battery order now in hand, upgraded leadership in our 2 largest manufacturing facilities focused on gross margin improvement, progress with our vertical integration opportunities and the transition of our various sub-brands to the Ultralife master brand keep us positioned to realize the leverage of our business model. I will now turn it back to Mike.

Thank you, Phil, for the detailed review of the Q1 2026 results. For 2026, we have 4 distinct priorities underway. Our first priority is to improve the revenue capture of the Communication Systems business. We have several new products in the commercial capture phase with initial orders received and multiple new products slated for release this year. We're actively working with multiple partners on long-term programs of record and long-term projects that we believe will bring recurring baseline revenue back into the business over the next year. The second priority, which is in our Battery and Energy business is improved gross margin with the initial target being our Newark operation. We have identified a corrective action for the largest contributor of scrap, which has been implemented and will start eliminating the issue midyear as we work through existing parts supply with ongoing efforts to identify root cause and corrective actions and other major scrap contributors. We continue to work lean and process improvements at all facilities to existing lines and on new product lines is added in the facilities. We continue to add -- expand vertical integration opportunities enabled by the acquisition of Electrochem, allowing us to incorporate Electrochem cells into existing pack assemblies and broaden our addressable pack assembly market. We have combined the like entities into a single subdivision within the Battery & Energy Products business, now internally known as the Telemetry Power Systems business. We expect to more than double the use of our own cells internal packs this year as customer qualifications are completed. Lastly, we are focused on the company-wide branding alignment, which is well underway and will be completed this year, clarifying our customer messaging and market positioning. Switching to development projects. We continue to invest in products on both sides of the business to drive revenue and opportunities for organic growth. Our Communication Systems business continues to expand our global military vehicle business, highlighted by a recent $4 million multiyear award from an international partner for our universal vehicle adapter, a handheld radio charger supporting legacy and current radios. We're integrating multiple HPE server products and configurations to expand opportunity in the ruggedized computing market. We received several smaller orders and are pursuing additional program awards with expected Q2 deliveries while continuing customer engagements to capture voice of customer feedback and improve the performance and adaptation of these kits. We received funding from a special operations organization to develop and field initial prototypes of a vehicle-based tactical network hub, Strike Hub, integrating HPE servers, switches and power management. Strike Hub is a potential solution for the emerging next-gen command and control NGC2 tactical network requirements initiative. Our new 20-watt amplifier has received multiple orders with deliveries expected in Q2 and Q3 2026. We are engaging radio manufacturers to pair the amplifier with OEM radios to drive pull-through sales. Later this year, we plan to introduce an advanced variant, a 20-watt amplifier that supports the newest high-speed single-channel and frequency hoppening mini waveforms in a compact body warm form factor. We are developing new radio mounts that integrate our amplifiers with various handheld radios, providing a cost-effective adaptical vehicle mounting solution, which is planned for availability later in 2026. Our crushing small form factor wearable AI compute solution continues to advance. We have assembled a strong partner team supporting hardware development, integration and software tools to capture voice of customer requirements and accelerate the progress toward initial prototypes expected in 2026. On the Battery and Energy side of the business, we are focused on new business growth through our transformational projects and OEM partnerships. We have multiple OEM projects ongoing to bring new customer bespoke products to market over the coming years and with existing customers to revise existing products to increase performance and/or refresh designs. On the conformal wearable battery used to power dismounted soldier systems, I am pleased to say we shipped our first order in full and have current backlog in excess of $8 million. This backlog is expected to ship in 2026, and we have quoted multiple large volume opportunities mainly for international customers. This is the first larger transformational project revenue stream and shows the potential that all of our development projects have. Our 19 amp power, final cell has passed all performance validation testing requirements, and we're now waiting on our customers' device certification and initial production planning to complete. We've begun new product development activities with an OEM powering a remote surveillance system with a rechargeable power pack. This development is anticipated to complete in Q3 with anticipated production deliveries beginning late year. As mentioned in the last call, we received production orders for a battery pack to provide power backup for a new pump application for a major medical OEM. This project started with them over 7 years ago, and their product is now finally launching. These orders are scheduled to start shipping in mid-2026 concurrently as our customer ramps their device manufacturing. We have established initial production capabilities for our thin cell technology to support customers in the medical wearable sector in various item tracking applications. The sales pipeline continues to strengthen with several projects now in the qualification phase. These smaller thinner designs will enable a more discrete wearable sensor than typically available in today's marketplace, allowing better patient experience and longer device life. Investing in new product development is essential to continuing to diversify and strengthen our product portfolio, driving future growth and building on our legacy of delivering critical power products. Our priorities remain converting long-term development efforts into revenue, advancing vertical integration where possible and maintaining a strong focus on operational efficiency initiatives. With a hefty backlog, including over $12 million of new products as we exit Q1, I believe we are well positioned for future revenue growth. Our focus remains on increasing product offering and sales engagement for our Communication Systems business increased gross margin and revenue in our Battery Energy business, along with vertical integration opportunities in our Telemetry Power Systems business. I will now pass it back to the operator for questions.

[Operator Instructions]

And I'm showing no questions at this time. I'll now turn it back to Mike Manna for closing remarks.

All right. Thanks for listening today's call, everyone. We look forward to talking to you next time during the Q2 2026 earnings call. Bye now.

Thank you for your participation in today's conference. This concludes the program. You may now disconnect.

Good day, and thank you for standing by. Welcome to the Ultralife Corporation Fourth Quarter 2025 Results Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I'd now like to hand the conference over to Jody Burfening. Please go ahead.

Thank you, Liz, and good morning, everyone, and thank you for joining us this morning for Ultralife Corporation's earnings conference call for the fourth quarter of fiscal 2025.

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, www.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 new products on a global basis and 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 is included in the company's filings with the Securities and Exchange Commission.

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.

Good morning. Welcome to Ultralife's Q4 and full year 2025 results call. Earlier today, we announced Q4 revenue of $48.5 million, an increase of 10.6% year-over-year, with an operating profit loss of $10.6 million after a onetime noncash impairment, which results in a loss of $0.45 EPS.

We finished the year 2025 with revenue of $191.2 million, with over $30 million from new products less than 5 years old, which is a growth of 16.2% year-over-year, which after the noncash write-down resulted in a full year operating profit loss of $5.9 million, which equates to a full year loss of $0.35 EPS.

During 2025, we completed the Electrochem transition and various operational initiatives to reduce ongoing costs. I am excited to see our backlog grow to $110 million exiting the year, diversified across several markets and applications with over $6 million of it driven from new products released in 2025. In 2026, I expect the Communication Systems business to rebound as new product sales begin and long-delayed programs start selling through, with the Battery & Energy business improving gross margin and revenue from new product launches. Our improved brand promotion and collaboration of worldwide resources will drive organic growth and new customer opportunities.

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 fourth quarter results for the quarter ended December 31, 2025. We have also updated our investor presentation in the Investor Relations section of our website and plan to file our Form 10-K with the SEC in the near future.

Turning to our financial results for the fourth quarter. Consolidated revenues totaled $48.5 million compared to $43.9 million for the fourth quarter of 2024, driven by strong performance for our Battery & Energy Products segment. Revenues for this segment were $45.9 million compared to $39.9 million last year, a 15.1% increase. Excluding third-party sales for Electrochem acquired on October 31, 2024, from both periods, sales for this segment increased 9.5% year-over-year.

This organic growth was driven by a 39.6% increase in medical, a 20.4% increase in industrial and other commercial and a 1.2% increase in government defense, partially offset by a 3.6% decrease in oil and gas market sales.

The sales split between commercial and government defense for our battery business was 73-27 compared to 70-30 reported for the 2024 quarter, and the domestic to international split was 71-29 compared to 62-38 for the 2024 period, primarily reflecting our acquisition of Electrochem.

Revenues from our Communications Systems segment of $2.6 million declined 35.2% from the $4 million we reported last year, primarily attributable to timing of expected orders, which were delayed by the U.S. government shutdown. On a consolidated basis, the commercial to government defense sales split was 66-34 compared to 62-38 for the 2025 and 2024 full years, respectively.

Our total backlog exiting the fourth quarter was $110.2 million, an increase of $20 million or 22.1% from the $90.3 million exiting the third quarter and remains diverse in nature across our commercial and government defense customer base. The replenishment rate remains high, and the backlog represents a very healthy 58% of TTM sales. Virtually all of the backlog is expected to ship in 2026.

Our consolidated gross profit was $12.1 million, up 13.7% from the 2024 period. As a percentage of total revenues, consolidated gross margin was 24.9%, a 70 basis point improvement from the 24.2% reported for last year's fourth quarter. Gross profit for our Battery & Energy Products business was $11.5 million compared to $9.5 million last year, an increase of 23.7%. Gross margin was 25.1%, a 170 basis point increase from the 23.4% reported for last year's quarter, primarily due to product mix and higher factory cost absorption.

For our Communications Systems segment, gross profit was $0.5 million compared to $1.3 million for the year earlier period. Gross margin was 19.9% compared to 31.9% last year, primarily due to lower factory volume.

Operating expenses were essentially flat year-over-year, when excluding the $12.2 million noncash intangible asset impairment charge as we transition from numerous sub-brands reflecting the names of our acquisitions to the Ultralife master brand and the onetime costs of completing the transition of Electrochem to Ultralife systems, legal fees associated with our cyber insurance claim and certain consulting costs to help expedite our gross margin improvement and upgrade our operations leadership.

Operating loss was $10.6 million, reflecting the intangible asset impairment charge and the onetime costs compared to operating income of $1.5 million last year. Other income was $0.4 million for the fourth quarter of 2025 as the interest expense from the financing of our Electrochem acquisition was more than offset by our expected $1.4 million refundable tax credit for certain qualifying battery cells and packs we manufacture under the 45X Advanced Manufacturing Production Tax Credit established by the Inflation Reduction Act of 2022, which runs through 2032.

This compares to other expense of $1 million for the year earlier period, primarily reflecting the acquisition financing. Our resulting tax benefit for the fourth quarter was $2.8 million compared to a provision of $0.3 million last year, computed on a GAAP basis at statutory rates. The benefit primarily reflects the reversal of deferred tax liabilities associated with the impairment charge.

Net loss was $7.4 million or $0.45 per share on a GAAP basis, which includes $0.57 for the intangible asset impairment charge, net of the related tax benefits. This compares to net income of $0.2 million or $0.01 per share for the 2024 quarter.

Adjusted EBITDA, defined as EBITDA, including noncash stock-based compensation expense and onetime acquisition and other costs not reflective of our ongoing operations was $5.7 million or 11.7% of sales compared to $3.9 million or 8.9% for the prior year quarter. Adjusted EBITDA on a TTM basis is $17.3 million or 9% of sales.

Turning to our balance sheet. We ended the fourth quarter with working capital of $68.5 million and a current ratio of 2.8 compared to $67.9 million and 3.3 for 2024 year-end. Our liquidity remains solid. During 2025, we reduced our acquisition debt principal by $4.8 million, which exceeds the $2.8 million amortization required for the full year under our debt agreement.

Going forward, the increase in our backlog, the sheer number of our growth initiatives, consulting expertise in our largest facilities to expedite the execution of our gross margin improvement plans and help transition our new upgraded plant leadership, the transition of various sub-brands to the Ultralife master brand and the realignment of our oil and gas thionyl chloride operations into a unified business under a single leader position us well to realize the leverage of our business model.

I will now turn it back to Mike.

Thank you, Phil, for the detailed review of the Q4 and full year 2025 results.

As mentioned in the last call, we closed out a year with a lot of momentum and focus on preparation for future growth expectations. During 2025, we transitioned our largest acquisition to date, Electrochem, out of their parent systems and in Ultralife systems for ERP, MRP, networking, mail and office.

We closed 2 of our smaller manufacturing facilities in North America, which decreased our North American locations from 7 to 5. We began systems consolidation at our Houston facilities, brought in external lean and operational support for our Newark facility and launched global rebranding efforts to eliminate customer confusion and better align sales and marketing resources worldwide.

As we transition into 2026, we have 4 distinct priorities underway. We need our Communication Systems business to be profitable and growing. We have several new products in the commercial capture phase with initial orders received and multiple new products slated for release in 2026. We are actively working with multiple partners on large programs of record and long-term projects that we will bring -- that we believe will bring recurring baseline revenue back into the business.

The second priority, which is in the Battery & Energy side of the business is improved gross margin with the initial target being our Newark operation. We have several recurring yield issues and inefficiencies that we continue to address with the help of external consultants in conjunction with the new leadership team that recently joined. We have revised pricing in several product areas and have cost-down projects ongoing with multiple customers.

We continue to expand vertical integration opportunities enabled by the acquisition of Electrochem, allowing us to incorporate Electrochem cells into existing pack assemblies and broaden our addressable pack assembly market in areas such as pipeline inspection, seismic telemetry and sonobuoys. Internally, we decided as part of our strategic planning process to align several of our Battery & Energy facilities under single leadership to drive these transitions and maximize the synergies.

The facilities that will encompass the newly formed Telemetry Power Systems division are the U.S. locations of Houston and Raynham, our Surrey location in Canada and our wholly owned facility in Shenzhen, China. This reorganization is expected to be completed in Q1.

Lastly, we will focus on the company-wide branding alignment. We had a complex and confusing number of brands and trade names for a company of our size. This effort will reduce the redundant costs of supporting and justifying multiple brands and trade names, shore up messaging both internally and externally to customers that we are a global critical power provider of energy and RF products.

Switching to development projects. We continue to invest in products on both sides of the business to drive revenue and opportunities for organic growth. The Communication Systems business continues to focus on the market expansion of ruggedized server cases through new programs and multiple server variants, providing greater opportunity to increase the market share in ruggedized computing environments. Several military programs are reviewing this solution now for possible fielding as components of the broader readiness upgrades.

We have a road map to enhance our current DC power supply supporting a forward vehicular and DC power applications to the open compute standard. Being OPC compliant opens the business aperture for our power supply to support other computer manufacturer hardware in forward field environments.

Our new A-2303 amplifier has completed testing with multiple customers and initial orders received with deliveries expected in Q2 2026. We are currently engaged with multiple radio manufacturers to pair a new amplifier solution with radios globally. Our Crescent man wearable compute solution continues to evolve as we held meetings with multiple agencies refining the voice of customer requirements. This critical feedback enables us to accelerate progress and ensure form fit and function for initial prototypes expected in 2026.

On the Battery & Energy side of the business, we are focused on new business growth through transformational projects and OEM partnerships. I will start with the conformal wearable battery used to power dismounted soldier systems, where we've now begun shipping production quantities and shipped our first order in full. We have orders in backlog that will ship in the first half of 2026 and have quoted multiple large volume opportunities, mainly for international customers with expected awards for 2026 deliveries. We will continue to refine the production process as we receive and ship additional orders.

Our 19 amp-hour Thin Cell has passed all performance validation testing requirements, and we're now waiting for our customers' device certifications and initial production planning to complete. We have begun new product development activities with an OEM powering a remote surveillance system with a rechargeable power pack. This development is anticipated to be completed in Q3 with productions and deliveries beginning in Q4.

On a project we have not mentioned due to its long development cycle, now just over 7 years, we have received production orders for a battery pack to provide power backup for a new pump application for a major medical OEM. These orders are scheduled to start shipping in mid-2026 concurrently as our customer ramps their device manufacturing.

As mentioned earlier, we have established initial production capabilities for our thin cell technology to support customers in the medical wearable sector and various item tracking applications. The sales pipeline continues to strengthen with several new projects now in the qualification phase. We are investing additional development effort in the product line with unique cell designs that further reduce the thickness of the product, while reducing manufacturing complexity with an eye on large-scale automation as we expect thin wearable sensors will continue to proliferate. These smaller thinner designs will enable a more discrete wearable sensor than typically available in today's marketplace, allowing for better patient experience and longer device life.

Growing our medical cart power options, we released the X5-SuperLite, a USB-C hot-swappable power system, which has now completed all certifications and is in production. We have received initial production orders for shipment in 2026. This product will be on display at the HIMS Show in Las Vegas this week.

Investing in new product development is essential to continuing to diversify and strengthen our product portfolio, driving future growth and building on our legacy of delivering critical power solutions. Our priorities remain converting long-term development efforts into revenue, advancing vertical integration where possible and maintaining a strong focus on operational efficiency initiatives.

As I continue to focus on the strategic projects and future of the business, we entered 2026 with the Electrochem transition completed, the largest number of new products for sale ever in our Communication Systems business, multiple large opportunities for both sides of the businesses, a reduced North American facility count, a unified back-office systems across most of North America and a strong brand architecture evolution underway. With a healthy backlog, including over $6 million of new products to begin the year, I believe we are well positioned for future growth with the overall reduced operating costs throughout 2026.

I'll now pass it back to the operator for questions.

[Operator Instructions] We have a question from Gregory Weaver with Invicta Capital Management.

It sounds like there's a lot of good growth as well as margin expansion opportunities. Would you care to help us frame that a little bit and kind of what your goals are in terms of organic growth rate or kind of where you want to get that 9% EBITDA margin?

Yes. I mean, overall, we started really a road map a few years ago really to get our new product pipeline on both sides of our business really humming and delivering organic growth. And as much as we'd like to have it just happen immediately, there's time. It's not -- we're often part of someone else's solution. We're very seldom selling an end solution to the marketplace. So it's not only us developing our stuff, it's our customers getting their things through all their quals and certifications into market.

But overall, we're targeting to be 2x GDP as a minimum in our organic growth side. We'd love to be greater than 10% EBITDA to start short term. Long term, we'd love it to be higher. And long term, we continue to look for other ways we can grow the business. As we pay down the debt on this last acquisition, we'll be looking for what's next.

All right. I appreciate that. So on the Comm Systems business, I mean, when I was involved in the company years, probably 20 years ago, you had a huge order in that business, and you were right in that and now it's extremely low levels here, I guess, but you said you want to get it back to a baseline revenue. I guess kind of what's your definition of baseline revenue for that business.

Baseline is $25 million. That's where we need to be with the potential for breakaway large orders, maybe not to the extent of what we experienced years ago with SATCOM, but there are some very, very large opportunities out there, starting with Joint Fires that's received a lot of publicity. It's through the R&D stage and into the solicitation stage. And I think we're aligned with the right parties to be in a position to execute on what we see going forward for the business.

Okay. I appreciate that, Phil. And I guess just last one. You mentioned offhand, Mike, about -- I've listened to some old calls here about this medical order. As I remember, that was kind of a -- if it's the same one, it was kind of a topic for quite a while and then I guess the customer kept dragging their feet. So I guess what's the ramp look like there? And is that a sizable opportunity?

Well, the new medical order, we don't often talk about a lot of the medical projects just because the history has been that they drag on for an extended period of time. And no one wants to hear about something that's 5 years out typically. We still have some of that in the thin cell area where we have some medical projects with thin cell that we expected to see revenue by now, and we're still kind of waiting for these POs.

On the order that we have, it's an OEM that we've been working with for a number of years, obviously. We already have a pretty good relationship with the customer, and we have a good revenue stream already. This will be a 6-figure plus opportunity per year, and it's just beginning to be a product launch. So we expect this to be a good little pop to the business.

Okay. Maybe it was the thin film one that I was thinking of beforehand that you've been waiting for, right?

Yes. We're still waiting for.

Yes. Okay.

[Operator Instructions] I'm showing no further questions at this time. I'd like to turn the call back to Mike Manna for closing remarks.

All right. Thanks, everyone. We look forward to talking to you at the next call for the Q1 2026 earnings. Have a great day. Bye now.

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

Good day, and thank you for standing by. Welcome to the Ultralife Corporation Third Quarter 2025 Results Call. [Operator Instructions]

Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Jody Burfening. Please go ahead.

Thank you, Antonio, 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 2025. 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, www.ultralifecore.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 revenue from key customers, delays or reductions in U.S. and foreign military spending, acceptance of new products on a global basis disruptions or delays in our supply of raw materials and components due to business conditions, global conflicts, whether or other factors not under the company's 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 is included in the company's filings with the Securities and Exchange Commission including the latest 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, Jody. Good morning. Welcome to our call on Ultralife's Q3 operating results. Earlier this morning, we reported Q3 sales of $43.4 million with an operating loss of $1 million, including a onetime adjustment of $1.1 million for various costs related to the final services transition of Electrochem and the planned closure of our Calgary location, which resulted in a GAAP net loss of $0.07.

In Q3, we saw revenue growth year-over-year but faced several challenges with gross margin. primarily due to incoming supply chain quality issues, which affected product mix and line efficiencies in our Battery & Energy business. Our communications business continues to weigh on earnings as new products are launched and sell-through gains momentum.

Our overarching strategy of diversification through M&A and new product development remains critical to stabilizing and improving the profitability as many of our existing products service components or accessories within our customer systems giving us limited control over order timing, volume and mix. As we've grown through M&A, periodically, we need to review our infrastructure and align it properly to serve our customers in a cost-effective manner.

With that said, -- with that in mind, we have decided to close our Calgary location, which is a smaller facility supporting oil and gas battery packs acquired with the Excel acquisition, with production being relocated to our Houston facility.

Additionally, we are progressing through a company-wide rebranding initiative with the first phase targeted for completion in Q4. This effort will emphasize the Ultralife brand as our unified market identity enabling more cohesive marketing efforts, stronger brand equity and reduced redundancy.

Ultimately, this alignment will enhance our global position as a leading critical power provider. With that said, because of the investment in new products and our M&A activity, we continue to see large opportunities develop on both sides of our business with favorable discussions with various partners and customers. With our leveraged business model and reduced facility count, we can add significant revenue with interval increase to overall costs.

I will now 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, 2025. We filed our Form 10-Q with the SEC yesterday and have updated our investor presentation in the Investor Relations section of our website.

As noted in our November 7 press release, we requested an extension to file our Form 10-Q with the SEC to allow for the completion of our accounting close for Electrochem -- the service agreement under which Electrochem's former parent maintained their books and records concluded in the third quarter, and we have now transitioned Electrochem to Ultralife's information systems.

A summary of our third quarter results follows. Consolidated revenues totaled $43.4 million compared to $35.7 million for the third quarter of 2024. Revenues from our Battery & Energy Products segment were $39.9 million compared to $32.5 million last year. Excluding third-party sales for Electrochem which we acquired on October 31, 2024.

Sales for this segment increased 1.9% year-over-year. Government defense sales for the 2025 quarter increased 19%, reflecting strong demand from the U.S.-based global Prime. This growth was partially offset by a 5.7% decrease in commercial sales resulting from declines of 13.3% in oil and gas sales due to macroeconomic and geopolitical factors and 10.4% in medical battery sales due to the timing of orders.

The sales split between commercial and government defense for our battery business was 70-30, almost identical to 69-31 reported for the 2024 quarter, and the domestic to international split was 72-28 compared to 56-44 for the 2024 period, reflecting our acquisition of Electrochem and the heightened domestic shipments of our government defense products.

Revenues from our Communications Systems segment of $3.4 million increased 8.2% from the $3.2 million we reported last year. On a consolidated basis, the commercial to government defense sales split was 65-35, almost identical to 63-37 for the 2024 third quarter.

Our total backlog exiting the third quarter was $90.1 million, a 6.5% increase over the $84.5 million exiting the second quarter. The replenishment rate remains diverse in nature with commercial customers comprising approximately 55% of the backlog and government defense customers comprising the remaining 45%. Our consolidated gross profit was $9.6 million, an increase of 10.8% over the $8.7 million for the 2024 period.

As a percentage of total revenues, consolidated gross margin was 22.2%, a 210 basis point decline from the 24.3% reported for last year's third quarter. Gross profit for our Battery & Energy Products business was $8.8 million compared to $8 million last year, an increase of 9.6%. Gross margin was 22.1% compared to 24.7% last year. The year-over-year reduction resulted from manufacturing inefficiencies primarily due to quality issues associated with key incoming raw materials and components that disrupted our operations and, to a lesser extent, sales mix, reflecting the declines in generally higher-margin medical and oil and gas sales.

For our Communications Systems segment, gross profit was $0.8 million compared to $0.6 million for the year earlier period. Gross margin was 23.3% compared to 20% last year. Operating expenses were $10.6 million, an increase of $2.4 million or 29.4% from the year earlier quarter. The year-over-year increase is comprised of $1.3 million related to the inclusion of Electrochem and $1.1 million of nonrecurring costs.

The onetime costs include a $0.5 million provision to close our Calgary facility costs related to our transition of Electrochem to Ultralife information systems and litigation costs for our cyber insurance claim. We anticipate annual savings from our closure of Calgary of approximately $0.8 million throughout 2026. As a percentage of revenues, operating expenses were 24.4% compared to 22.9% for last year's third quarter.

Excluding the onetime costs, operating expenses were 21.9% of revenues for the third quarter of 2025. Operating loss was $1.0 million compared to operating income of $0.5 million last year reflecting the decline in Battery & Energy Products gross margin due in large part to quality issues and incoming materials, the onetime nonrecurring costs totaling $1.1 million and Communication Systems delayed sales orders.

Other expense reported below operating income was $0.8 million for the quarter compared to $0.2 million for the year earlier period, primarily resulting from the increase in interest expense on the acquisition debt and the impact of foreign currency fluctuations. Our resulting tax benefit for the third quarter was $0.5 million compared to a provision of $0.1 million for the 2024 quarter computed on a GAAP basis at statutory rates.

Net loss was $1.2 million or $0.07 per share on a GAAP fully diluted basis. This compares to net income of $0.3 million or $0.02 per share for the 2024 quarter. Adjusted EBITDA, defined as EBITDA, including noncash stock-based compensation expense and onetime acquisition and other costs not reflected of our ongoing operations was $2.0 million or 4.7% of sales compared to $1.9 million or 5.4% for the prior year quarter.

Adjusted EBITDA on a TTM basis is $15.5 million or 8.3% of sales.

Turning to our balance sheet. We ended the third quarter with working capital of $66.9 million and a current ratio of 3.0 compared to $67.9 million and $3.3 million for 2024 year-end. Our liquidity remains solid. In the first 9 months of 2025, we have reduced our debt principal by $4.1 million, which already exceeds the $2.8 million amortization required for the full year under our debt agreement.

While we do not have any draws on the $30 million revolver portion of our debt agreement and no present plans to do so, our balance sheet provides the borrowing base capacity for this amount.

In closing, we have initiated several actions, which Mike will cover, which position us to improve our gross margins, reduce redundant facilities, consolidate operations diversify our supply chain and better promote our Ultralife brand on a global basis. These actions better position us to more fully realize the profitability leverage associated with our increasing sales funnel.

I will now turn it back to Mike.

Thank you, Phil. For the detailed review of the Q3 2025 results. As mentioned in our last call, our priorities remain clear for 2025. First, completion of the Electrochem transition, which over the last few quarters has been completed in full. We continue to expand vertical integration opportunities enabled by the acquisition of Electrochem, allowing us to incorporate Electrochem cells into existing pack assemblies and broaden our addressable market in areas such as pipeline inspection, seismic telemetry and sonobuoys.

We are qualifying cells with several oil and gas customers to enable transition of their battery packs to utilize Electrochem cells and expect to see benefit of these efforts in 2026. Secondly, we remain focused on strengthening our sales opportunity pipeline to drive growth through 2026 and beyond. While continuing to strategically diversify our business and customer base.

Our efforts are aimed not only at expanding the overall size of the funnel but also prioritizing opportunities that can generate consistent, repeatable annual revenue. We've been reviewing our multiple brands and market initiatives and have started a company-wide branding alignment. We currently have a complex and confusing number of brands and trade names for a company of our size. This effort will reduce the redundant costs of supporting and justifying multiple brands and trade names, short messaging, both internally and external linked to customers that we are a global critical power provider of energy and RF products.

Third, we are intensifying our efforts in improving and stabilizing gross margin through pricing, material cost deflation and lean productivity projects in both the Battery and Energy and communications businesses.

As we enter Q4, we have had an external expertise to drive targeted lean exercises and process improvements at our Newark location to increase gross margin. We are closing our Calgary location which is focused on providing production -- focused on providing production centers of excellence with all the necessary systems to support our customers and prepare for expected growth.

Switching to development projects. We continue to invest in products on both sides of the business to drive revenue and opportunities for organic growth. The Communications Systems business is expanding the ruggedized server case portfolio to service new programs and server variants, which will provide greater opportunity to expand the market share in the ruggedized computing environment.

We completed an initial design for the latest next-gen communication and control solution, utilizing our ruggedized server expertise in HPE's line of exceptional servers for AI and edge computing. Several military programs are using this solution now for possible fielding its components to the broader readiness initiatives.

We showcased our new amplifier in Crescent Server products at the Defense Security Equipment International Show in September, which is one of the U.K. EU's largest defense trade shows, where we met with multiple OEM and governmental representatives. We have sampled amplifiers out with specific partners for trials currently with expected orders inbound and production shipments starting in 2026. Crescent Server continues to evolve, and we have received critical feedback and direction to fully develop this tip of the spear compute capability for forward field applications with initial production expected in 2026.

Meanwhile, we are finalizing the design of our next high-performance amplifier, targeting advanced radio platforms with the latest high-speed waveforms utilized by the U.S. and armed forces. We have preproduction parts in-house for testing and final validation and expect to have preproduction units for evaluation in Q1 2026.

Lastly, on the communications side of the business, we read an initial PO from an international customer for prototype electronic warfare amplifiers. This is our first project leveraging our amplification expertise to counter electronics in the battlefield. On the Battery and Energy side of the business, we have a great deal of activity across several products with new business being the key focus.

But first, I will mention we received the BA 53 Battery award in Q3 for $5.2 million which will be delivered throughout 2026, our first sizable award for this product in over 4 years. On the new business side, I will start with the confirma wearable battery, where we've now begun shipping production quantities -- we've quoted multiple large volume opportunities, mainly for international customers with expected awards for 2026 deliveries. We've passed 2 critical quality audits in our China location, the most important 1 being for our high-capacity thinochlorideD cell with an opportunity in the space.Testing continues to go well, and we expect you all testing and validation testing to complete in Q4 with initial production volume commitments to come soon after.

On the 123A side of our business, we have received a follow-on PEO from a major illumination company which will begin deliveries in Q4 and throughout the first half of 2026. We're working on several new products for battery packs utilizing our XR123a cells, which offer 30% increase in energy density over the standard 123A cell.

As mentioned earlier, we established initial production capabilities for our thin cell technology to support customers in the medical wearable sector and various item tracking application. The sales pipeline continues to strengthen with several projects now in the qualification phase. We are investing additional development effort in this product line with the unique cell designs that further reduce the thickness of the product, while reducing manufacturing complexity with an in large-scale automation as we expect thin wearable sensors will continue to proliferate.

We've expanded our family of X5 medical card products -- with the release of our latest product, a portable power bank that provides power to pull mounted equipment or any other item that requires extended run time utilizing USB-C, mostly targeting tablet and portable computers.

Production validation and certification are finishing up, and we have samples out the key partners in support of product quotations. Investing in new product development is essential to diversifying and strengthening our product portfolio, driving future growth and building our legacy of delivering critical power solutions. Our priorities remain: converting long-term development product development efforts in the revenue, advancing vertical integration where possible, and maintaining a strong focus on the operational efficiency initiatives.

I continue to focus on the long-term projects and future of the business. And although we've had a challenging 2025 I'm confident we are making the right moves to stabilize and grow the business over the long term.

As we go through the end of the year, we will enter 2026 with the Electrochem transition completed, the largest number of new products for sale ever in our Communication Systems business, multiple large opportunities for both sides of the business, a reduced North American facility count unified back office systems across most of North America and a strong brand architecture evolution underway. I believe we are well pitioned for future growth with overall reduced operational costs. We'll go back to the operator for questions.

[Operator Instructions]

And I'm showing no questions at this time. I would now like to hand the call to Mike for closing remarks.

All right. Thanks, everyone, for listening to today's call. We look forward to talking to you again next time during the Q4 2025 earnings call. Bye now.

And this concludes today's program. Thank you for participating. You may now disconnect.

Welcome to the Ultralife Corporation Second Quarter 2025 Conference Call. [Operator Instructions] After the speaker's presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Alex Villalta of -- excuse me line, please go ahead.

Thank you, operator. and good afternoon, everyone. Thank you for joining us for Ultralife Corporation Earnings Conference Call for the Second Quarter of 2025. With us on today's call are Mr. Mike Manna, Ultralife's CEO; and Mr. Phil Fain. Ultralife's Chief Financial Officer. The earnings press release was issued earlier today, and if anyone has not received a copy, I invite you to visit the company's website at ultralifecorporation.com, where you will find the release in the Investor Relations section.

Before turning the call over to management, I'd 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 and disruptions or delays in our supply of raw materials and components due to business conflicts, global conflicts, whether 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 is included in the company's filings with the SEC included in the latest quarterly form on Form 10-Q. In addition, on today's call, management will refer to 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 Ultralife's CEO, Mike Manna. Please go ahead, Mike.

Good afternoon. Welcome to our call on Ultralife's Q2 operating results. Earlier this morning, we reported Q2 sales of $48.6 million with an operating income of $2.3 million including a onetime adjustment of $0.3 million. Net profit was $0.9 million, which resulted in $0.05 EPS on a GAAP basis and $0.07 on an adjusted basis. In Q2, we faced direct headwinds from tariffs, unfavorable product mix shifts across the business, softness in our oil and gas business as customers were hesitant to commit to capital projects. and anticipated order timing challenges, particularly in our Communication Systems segment, which negatively affected gross margin.

Despite these pressures, we maintained our focus on growth continuing to invest in new product development with several offerings advancing into validation and production. This is the second full quarter reporting with the Electrochem results, and as planned, we successfully transitioned their ERP and office systems to Ultralife systems in Q2. With the Ultralife back office now in place, several manufacturing support systems related to execution and quality will finalize transition in Q3. Our overall strategy of continued diversification through M&A and new product development is key to stabilizing and increasing the profitability of the business.

But it is important to note that we are still often a component of an accessory to a customer product, and therefore, we have limited ability to control order flow timing and mix. On the consolidation front, we completed the closure of our [ Misago ] operation and incurred some onetime costs associated with that effort, which will not repeat going forward. With that said, we continue to generate cash, and I'm pleased to report that we're ahead of schedule in paying down our debt from the Electrochem acquisition, with over $0.7 million repaid in Q2. I will now turn it over to Phil to talk through the detailed numbers.

Thank you, Mike, and good afternoon, everyone. This morning, we released our second quarter results for the quarter ended June 30, 2025. We have also updated our investor presentation in the Investor Relations section of our website and will file our Form 10-Q with the SEC shortly. Consolidated revenues totaled $48.6 million compared to $43 million for the second quarter of 2024. Revenues from our Battery & Energy Products segment were $45.9 million compared to $36.7 million last year.

Excluding third-party sales for Electrochem, which we acquired on October 31, 2024, sales for the segment were essentially flat year-over-year. Government defense sales for the 2025 quarter increased 61.1% reflecting strong demand from the U.S.-based global Prime. This growth was offset by a 20.4% decrease in commercial sales resulting from declines in medical battery sales of 39% due to the timing of orders and in oil and gas sales of 23.1% due to macroeconomic and geopolitical factors. The sales split between commercial and government defense for our battery business was 68-32 compared to 75-25 reported for the 2024 quarter, and the domestic to international split was 73-27 compared to 53-47 for the 2024 period, representing the heightened domestic shipments of our government defense products.

Revenues from our Communications Systems segment of $2.7 million declined 57.2% from the $6.3 million we reported last year, primarily attributable to large shipments in the prior year of integrated systems of amplifiers and radio vehicle mounts to a major international defense contractor, magnified by delays in the timing of purchase orders during the 2025 second quarter of approximately $2.7 million, which have been pushed out to the second half by the respective customers. On a consolidated basis, the commercial to government defense sales split was 65-35, almost identical to 64-36 for the 2024 second quarter, highlighting our acquisition of Electrochem and lower communication system sales. Our total backlog with high confidence orders exiting the second quarter was $89 million and remains diverse in nature across our commercial and government defense customer base.

The replenishment rate remains solid, especially after almost $100 million of sales in the first half of 2025. Our consolidated gross profit was $11.6 million, essentially flat with the 2024 period. As a percentage of total revenues, consolidated gross margin was 23.9%, a 300 basis point decline from the 26.9% reported for last year's second quarter. primarily related to product mix, tariffs and lower factory throughput at some of our operations. Gross profit for our Battery & Energy Products business was $10.8 million compared to $10 million last year, an increase of 8.9%.

Gross margin was 23.6% compared to 27.1% last year. The year-over-year reduction resulted from sales mix, reflecting the declines in generally higher margin, medical and oil and gas sales, higher tariff costs due to the need to purchase components at inopportune times to fulfill certain orders and the onetime write-off of some discrepant materials. For our Communications Systems segment, gross profit was $0.8 million, compared to $1.6 million for the year earlier period. Gross margin was 28.4% compared to 25.6% last year, primarily due to favorable sales mix although negatively impacted by the lower factory volume.

Operating expenses were $9.3 million, an increase of $1.7 million or 22.2% from the year earlier quarter. The year-over-year increase is comprised of $0.7 million related to the inclusion of Electrochem, a 25.3% increase in new product development costs related to continued investments in our product offering and certain onetime nonrecurring expenses, which include costs related to our acquisition and integration of Electrochem.

As a percentage of revenues, operating expenses were 19.2% compared to 17.8% for last year's second quarter. Operating income was $2.3 million compared to $3.9 million last year, reflecting the 57.2% decline in Communication Systems sales the decline in Battery & Energy products gross margin and the onetime nonrecurring costs totaling $0.3 million. Accordingly, the operating margin decreased to 4.6% for the second quarter compared to 9.1% for the 2024 second quarter.

Other expense reported below operating income was $1.2 million for the quarter compared to $0.1 million for the year earlier period, primarily resulting from the increase in interest expense and the acquisition debt and the impact of foreign currency fluctuations. The 2024 period benefited from the receipt of $0.2 million from our insurance carrier related to the ransomware cyberattack experienced by the company in the first quarter of 2023.

Our tax provision for the second quarter was $0.2 million compared to $0.9 million for the 2024 quarter, computed on a GAAP basis at statutory rates. Net income was $0.9 million or $0.05 per share on a GAAP fully diluted basis. This compares to net income of $2.7 million or $0.18 per share for the 2024 quarter. Excluding the provision for noncash U.S. taxes expected to be fully offset by our net operating loss carryforwards and other tax credits, adjusted fully diluted EPS was $0.07 per share for the second quarter of 2025 compared to $0.22 for the 2024 period.

Adjusted EBITDA, defined as EBITDA, including noncash stock-based compensation expense and onetime acquisition and other costs as well as noncash purchase accounting adjustments, not reflective of our ongoing operations was $4.1 million or 8.5% of sales compared to $5.4 million or 12.6% for the prior year quarter. Adjusted EBITDA on a TTM basis is $15.4 million or 8.6% of sales.

Turning to our balance sheet. We ended the second quarter with working capital of $69.1 million in a current ratio of 3.3 compared to $67.9 million and $3.3 million for 2024 year-end. Our liquidity remains solid. I am happy to report that in the second quarter, we received $1.8 million from our employee retention credit, including interest, which we filed under the Coronavirus Aid Relief and Economic Security Act in June of 2023. These funds in their entirety were used to reduce our acquisition debt during the quarter. In the first half of 2025 we have reduced our debt principal by $3.4 million, which already exceeds the $2.8 million amortization required for the full year under our debt agreement.

While we do not have any draws on the $30 million revolver portion of our debt agreement and no plans to do so, our balance sheet provides the borrowing base capacity for this amount. Looking forward, our increasing sales funnel diversified government defense, medical and oil and gas end markets, the sheer volume and pending traction of our growth initiatives and the further actions we will be taking to improve our gross margins, including the vertical integration opportunities associated with our acquisition of Electrochem position us well to recognize the leverage of our business model. I will now turn it back to Mike.

Thank you, Phil, for the detailed review of the Q2 2025 results. As mentioned in the last call, our priorities remain clear for 2025. First, we completed the main system transition of the Electrochem acquisition into Ultralife back office, successfully migrating e-mail office and ERP systems as planned in Q2. We are transitioning the balance of manufacturing support systems in Q3, which will conclude the onetime costs associated with these activities.

We continue to expand vertical integration opportunities enabled by the acquisition of Electrochem, allowing us to incorporate Electrochem cells into existing pack assemblies and broaden our addressable market in areas such as pipeline inspection seismic telemetry and sonobuoys. We are qualifying cells with several oil and gas customers to enable transition of their battery packs to utilize Electrochem cells and expect to see benefit of these efforts in 2026.

Secondly, we are committed to improving our sales opportunity pipeline to support growth throughout 2025, while continuing to focus on strategically diversifying our business and customer base. We have made a concerted effort to improve our marketing through search engine optimization, targeted ads and contact engagement within specific customers initially focused on our transformational projects. I'm happy with the quality of leads, and the opportunity sizes are increasing as our funnel grows across a variety of end markets.

Third, we are focused on improving and stabilizing gross margin through pricing, material cost deflation and lean productivity projects in both the Battery and Energy and communications businesses. We experienced headwinds in both product mix and order flow in Q2 and that muted some of these efforts. We continued multiple initiatives across our facilities, including a major lean project completed in Q2 at our Electrochem site. This effort eliminated the need to hire 30 additional employees to support increased cell sales, including a new purchase order from a major defense contractor scheduled for delivery this year and increased sale volumes expected from the vertical integration of our oil and gas battery packs. Switching to the organic growth projects and new product development underway for the businesses, there is positive momentum on several fronts. The Communications Systems business is expanding the ruggedizer server case portfolio to service new programs and server variants which will provide greater opportunity to expand market share in ruggedized computing environments.

Our newest 3U portable server case is complete and now available for orders. Our recently launched DC power supply supporting various server platforms where no AC power is available, most notably tactical vehicles, is now undergoing tests with multiple customers prior to expected contract awards. The newly developed 20-Watt amplifier, which provides radio agnostic functionality to support international markets is in the hands of multiple partners for evaluation and systems tests with initial orders expected later this year.

We developed this radio agnostic amplifier to further support the needs of the war fighter with what we believe is the smallest, lightest and most power-efficient 20-watt manned portable amplifier in the marketplace. We believe our total addressable market for this amplifier starts at $5 million per year. So happy to see this out in customer testing. Meanwhile, we are finalizing the design of our next high-performance amplifier targeting advanced radio platforms with the latest high-speed wave forms utilized by U.S. and allied forces.

This amplifier continues our heritage of small radio agnostic high-efficiency man-worn vehicular amplification products with this new variant available in late 2025 for customer testing. Both amplifiers will be showcased at our booth at the Defense and Securities Equipment International Show in London starting September 9.

In a project we haven't covered previously, we received the production purchase order for a new advanced speaker, which we developed for a prime partner with initial shipments completing in 2025. We expect this to be a recurring revenue stream going forward, which further diversifies the business and builds on our history of having exceptional audio quality and ruggedness found in our McDowell product line of radio speakers. On the Battery and Energy side of the business, we have a great deal of activity across several new products with new business being the key focus. As mentioned earlier, we established initial production capabilities for our thin cell technology to support customers in the medical wearable sector and various item tracking application.

The sales pipeline continues to strengthen with 7 new projects now in the qualification phase. Our main current medical patch customer continues to build their system and test their software, and we are awaiting orders for the product. Meanwhile, we received initial purchase orders to qualify 2 thin cells for a major contract manufacturer for portable industrial tracking applications with revenue beginning in 2026 once we successfully complete validation.

The 123 product line, which currently service the IoT and illumination markets is seeing growing interest and medical battery pack assemblies from both domestic and international customers. We have samples of both the manganese and carbon monofluoride cells being tested by multiple customers currently and these applications include flashlights night vision and tracking products. Meanwhile, our advanced final chloride technology metering and telemetry applications continues to progress through customer qualification and field testing with all reports to date positive. This has been a long qualification cycle, but we anticipate multiple commercial discussions in the metering space to commence in the back half of 2025 for deliveries beginning in 2026.

We continue to roll out the family of xFi medical care products with a prerelease of our latest product, the portable power bank that provides power to pull mounted equipment or any item that requires extended run time utilizing USB-C, mostly targeting tablet and portable computers. Samples are shipping now to various partners, with production volumes available later this year. The conformal wearable battery originally developed for the integrated Visual Augmentation System, or IVAS, continues to evolve as a commercial product to our international our internal development efforts. We have received a new PO from an initial partner in Q2, which is expected to ship this year.

Lastly, on the Battery and Energy side of the business, we have several ongoing projects with existing customers to modernize legacy designs and tradition of newer technologies. -- as reflected in increased R&D spend in Q2. These initiatives are essential to sustaining our base business, strengthening customer relationships and ensuring our product lines are optimized for manufacturability and long-term component availability. Investing in new product development is essential to diversifying and strengthening our product portfolio, driving future growth and building on our legacy of delivering critical power solutions.

Our priorities remain converting long-term development efforts into revenue, advancing vertical integration in an oil and gas segment and maintaining a strong focus on operational efficiency initiatives. While I remain cautious due to ongoing challenges with scaling, tariff impacts and product mix, I see encouraging signals pointing to growth -- so I'm optimistic about the second half of the year and into 2026. Our Communication Systems Group is expected to rebound from a tough first half.

We're beginning to see early purchase orders from long-term new product programs selling new products to new customers, a rebound from our medical and oil and gas customers and sustained growth in global defense spending and an expanding opportunity pipeline across both businesses. Now we'll go back to the operator for questions

Our first question today is from John Deysher from Pinnacle.

Just a couple of quick questions. Do you have any feel for what the tariffs cost you this past quarter?

Absolutely. $539,482 less $126,000 received back from customers. So bottom line hit was $400,000 and John, what hurts most about that is we were forced into a situation to purchase some components at the very peak of the China tariffs that makes you sick when you look back and you have to go through something like they have to meet certain delivery orders.

It was bad timing of the arrival during that peak 150-plus percent period.

Okay. I guess that's my second question. Based on what you know now with the current tariffs, how do you see that impacting the third quarter tariffs? .

Well, I think it's important to note, we've been -- I wouldn't say we've been experiencing the Section 301 tariffs from the first Trump's presidency the entire time. So the tariff rate that's there currently is not that much higher for us than what it's been the entire time since years ago, except for that period of time when it really expanded to over 100%. So we don't expect with what we know right today that it's going to have as much impact as it did in Q2 because we don't expect to see that really exorbinant tariffs, but we're kind of sitting and waiting with some of that goes on every day with every day, it's changing. So it's definitely a very fluid situation, I would say.

And we're also passing a tariff surcharge on to our customers as well. .

You are, okay.

Yes.

Yes.

Okay. That's good to hear. Regarding the employee retention credit that you received and applied to the debt, which we're happy to see, do you -- is there any more of that credit that's going to flow through in the balance of the year? Or have you captured everything? .

No, we captured penny plus interest, very happy that, that came through. .

Okay. Great. And I guess, finally, in terms of the insurance reimbursement for the cyber attack, I think you said it was $200,000 in the quarter. How much have you received so far from the insurance company? And how much more are you looking to receive?

Sure. It's $235,000 is what we have received. And as you probably know, John, that is now a lawsuit that we have commenced in the Supreme Court of Wayne County where we are located for a jury trial that's going to happen in 2026. So right now, we're going through all the discovery and all that. We believe our case is very, very solid and we're looking at an amount that's in the millions because it's the business interruption, the business impact that happened to our business. And which we feel is covered by the policy that we had in place. So to answer your question, it's in the millions of dollars.

Okay. And the trial date is sometime in 2026, you say?

Yes. Discovery ends, It's all public information, the discovery ends in the first quarter of 2026, with the trial planned for midyear of 2026. SP-3 Okay. .

It's all public. So is the amount that you were actually seeking to obtain disclosed in the complaint. .

In the court documents, I don't believe so. It's all in the discovery documents that's going to be coming out. .

Okay. They've not been...

Should it actually go to trial. .

Okay. But the complaint has been filed in the Supreme Court of New York Wayne County? .

Yes, it has. Yes. .

Okay. Without specifying the amount of damages that you're seeking correct? .

I believe that, that is the case. If not, I will go through it, and I will personally call you and let you know if it is publicly disclosed. .

Okay. That's great. I appreciate the color. Good luck.

Our next question is from Jake Patterson with Talanta Investment Group.

Just a quick question on the B&E Commercial segment. I know last time we talked, it sounded like oil and gas was pretty stable. I know the macro and whatnot has probably impacted orders there. But I mean, as we sit here today and maybe have a little more certainty than we did mid-quarter. Is there anything to call out maybe on orders returning or demand? Just any updates you can provide on the 2 end markets, medical and oil and gas? .

Sure. When it comes to oil and gas, it comes down to 2 numbers. It comes down to what is the index and the WTI this morning was a tad under $65. And the Brent index is about $4, $5 over that. So the oil and gas customers. And believe me, we cover all of them. We cover all the blue chippers, international, domestic we cover the wildcatters and they're all playing the profit games of when they're going to order and how much they're going to make on it.

And we know over the last couple of years, these companies just didn't sit around idly and wait for the WTI to go up. They've restructured. They've made improvements. They've made efficiencies. So their profit -- their breakeven point is lower than what it once was, but it's a numbers game for those, and they'll come right out and tell us that.

Got it. Okay...

It's just the for orders. And I will point, Jake, that what was interesting about the comparison, Q2 of last year of 2024 was the second largest medical sales volume in the history of the company. And it's just on the timing of the orders. And of course, we're very, very bullish with the relationships we have with the new products that have been introduced, and it's just a time game it all evens out. .

Yes. And what we've been hearing from customers is some of them are -- they're being cautious with their cash. They're trying to manage cash. They're paying for tariff charges on things that -- when they show up. So you got to make sure that you can pay your tariffs and they're being very careful and studious with their order flow.

Got it. Okay. And then I guess kind of just staying on that discussion, the margins, I know you guys mentioned a few drivers of the decline. Is there any way to kind of bucket like where the impacts were felt the most. I know the tariffs were what, $400,000 and then probably...

I can break that off for you. I can do that. I look at it this way. the tariffs, the net amount of the tariffs cost us 100 basis points of margin. The mix impact caused us around -- almost 200 basis points of margin. And the rest of it was throwing out some materials that we couldn't use going forward, some overtime in labor inefficiencies and just the impact of some volumes going through some of the other facilities, which in total was probably 30 or 40 basis points. .

Okay. So I mean, I guess, visibility into those kind of higher margin markets returning is limited, but I mean if you guys get back to kind of a normalized demand environment, a reason we shouldn't see margins kind of back into a high to mid-20s range at some point?

Yes. In my closing remarks that I did say we are seeing a somewhat of a return on our medical and oil and gas business so far with what we have visibility to in the second half compared to Q2. So far, it's looking up.

And then once Comm Systems, the order flows returned to a more expected level their margins are generally higher than battery and energy products. So the mix impact on the Comm Systems -- it's worth 100 basis points when all is said and done or slightly less than that, but it does have a pretty significant impact because their margins are generally in the -- approaching 30% or in some cases, higher.

So our focus is the officers of the company is what do we have to do, what our actions that we need to execute when the mix isn't the ideal mix of how do we get the margins up to the levels that we expect. And we're not just sitting around waiting for mix and waiting for orders. We're out there early day with looking at best alternatives for execution to get the margins up on, let's say, on a static mix.

[Operator Instructions] Our next question comes from Will Lauber with Visionary Wealth Advisors.

Yes. That was a pretty crappy quarter. But you did -- I've never remember you guys highlighting so many potential kind of things for later this year and next year. Can you put any kind of quantification or kind of how certain you are on some of these opportunities materializing?

Well, Will, and we agree, it was a crappy quarter. Let's start there. We're not proud of it by any means. The -- there's a lot going on. There has been a lot going on. I sit on these calls time after time saying we're in qual, we're in qual, we're in qual. And I get sick of hearing my voice sometimes saying it. So I'm sure it rings hollow in some cases on these calls. But Unfortunately, we're -- like I said in the open air, we're hostage to a lot of our customers' success in their product launches in some cases.

So it's been a long wait, but I will say we're starting to see some initial POs. We're seeing some qualification activity beyond just we're doing testing. It's more site visits and things like that, more on the preproduction launch areas. But I don't have paper in hand to talk about dollars and figures and things like that. I wish I did. But we're definitely -- we have a lot of hooks in the water, as we've talked about on every call, and it's been part of our diversification strategy is to really not rely on 1 growth initiative to carry us through, and we're working hard to land multiples.

And I'm hoping over the next 12 to 18 months here, we land multiple large opportunities and I'm in a much different spot talking about the revenue increases and the profit increases than the waiting for Quala complete position?

I mean can you kind of -- maybe if you can't quantify it qualitatively, how you guys feel about the potential opportunities now compared to historically and...

Well, we believe in all the opportunities, and we're doing them all because they're what we call chunks of additional revenue to the business. Nothing's a $1 million adder. They're all $5 million to $20 million potential adders to the business so that if we actually hit a couple of them, it becomes a meaningful increase to the bottom line and gets us closer to our scale ambitions because we're still subscale at this point.

And we also want to be in the unique position where we're a sole supplier or we're locked in with a great relationship I guess, the testimony being we've been through it as partners for like 3, 4, 5 years with these companies, and they're depending on us. We're depending on them. And things are progressing. And that's -- the glimmer of light when you see the progress is what this is all about because we're incredibly impatient in the roles that we do and as shareholders with the insiders owning almost 40% of the company, we're incredibly impatient.

So we're pushing as hard as we possibly can but then again, we have a much better understanding of the process and what they're going through. They're playing for the Big W 2 in the markets with our products.

Okay. So maybe you can refresh my memory. I know you guys have obviously had some big deals over time here, but you ever had multiple I would call it a couple of million plus dollars deals hit all within like the same year, 1.5 years or 2?

Not in recent memory. No, it would be back before probably 2010 that we really were in some of those activities.

And so what you're saying is that is -- the potential is there for that to happen again?

Well, that's the position that we're playing for. .

Yes. I mean we've invested a lot of money and effort in a lot of new products across both businesses, not just to spend the money. Obviously, we're spending the money ahead of revenue to fuel some of our growth ambitions. And some of these projects just take a lot longer than you ever would expect. I mean our biggest customer in medical -- it was 6 years from when our battery was developed before the product actually launched with the medical customer. So it was a lot of hand sitting on your hands waiting, but now they're one of our best customers and one of our bigger customers, which is fantastic, and we have a great relationship. So it takes longer than you want in some cases for sure.

Thank you. I am showing no other questions at this time. So I would now like to turn it back to Mike Manna for closing remarks.

Thank you, everyone, for participating in today's call. We look forward to seeing you next time on our Q3 2025 call. Have a great day. Bye now.

This does conclude the program. You may now disconnect.