ULTRALIFE CORP Q3 FY2024 earnings call

Management Statement and Operational Highlights: - Material Cost Deflation: Favorably negotiated lithium metal contracts, expecting savings in the hundreds of thousands annually. Working on Kanban and pull systems with suppliers to improve cash flow and inventory turns. - Lean Productivity: Completed high-value lean events at multiple facilities, expecting cost improvements of 2-3% in each area. - Sales Funnel Improvement: Growth in thin cell and Thionyl Chloride products. Updates on Communications Systems: Shipping EL8000 server cases, developing alternate systems, and validating a DC power supply. Updates on Battery & Energy: Growth in thin cell sales funnel, 123A product line growth, and Thionyl Chloride product qualification. Electrochem Acquisition: Closed on October 31, a synergistic business with high-temp, high-reliability lithium cells, expected to integrate by H1 2025.

Segment Performance: Battery & Energy Products segment had revenues of $32.5 million in Q3 2024, a 1.9% increase from the prior year's Q3. Sales to government defense customers rose 28.9%, while medical battery and industrial market sales declined. Gross profit for this segment was $8 million, up 4.1% year-over-year, with a gross margin of 24.7% (a 50 basis point increase). Communications Systems segment had revenues of $3.2 million in Q3 2024, a 58.2% decrease from the prior year. Gross profit was $0.6 million, down from $2.0 million year-over-year, with a gross margin of 20.1% (a decrease from 27.0% year-over-year). Consolidated revenues totaled $35.7 million, down from $39.5 million the prior year. Consolidated gross profit was $8.7 million, a 11.2% decrease year-over-year, with a consolidated gross margin of 24.3% (a 50 basis point decrease).

Guidance: Total backlog exiting Q3 was $78 million, diverse across commercial and government defense customers. Expect gross margin improvement as CapEx investments, lean projects, and material efforts enter production. Anticipate continued sales funnel growth and integration of Electrochem to drive revenue.

Risks: Uncertain global economic conditions, reductions in revenues from key customers, delays or reductions in U.S. and foreign military spending, acceptance of new products globally, supply chain disruptions due to business conditions, global conflicts, weather, etc.

Q: How much of the headwinds in Battery & Energy Products were due to supply chain vs order delays?

A: Phil Fain said approximately 50-50.

Q: Where are medical customers in thin cell approval timeline?

A: Mike Manna said it's complex, tied up in qualification and software loops, with large medical wearable opportunities a couple years out.

Q: Size of EL8000 vehicle opportunity?

A: Mike Manna said commercial opportunity ~$5-10M, military ~$20-30M, total ~$10-50M.

Q: Early customer indication on Electrochem?

A: Mike Manna said there's excitement, Electrochem is a key lithium metal primary battery company with vertical integration synergies.

Q: Size of order pushed from Q3 to Q4 in Comm Systems?

A: Phil Fain said it was just under $2.5 million.

Q: Were there other bidders for Electrochem?

A: Mike Manna said there were targeted participants, not an auction process.

Q: Backlog reduction reason?

A: Mike Manna said due to post-COVID normalization and yearly POs depleting.