ULTRALIFE CORP Q4 FY2024 earnings call

• Material Cost Deflation: Negotiated lower pricing on lithium foil, electrolytes, and printed circuit boards; signed a long-term supply agreement with a major customer for a three-year horizon to enhance supply chain efficiency and cost leverage.
• Lean Productivity: Completed six major lean projects in 2024, resulting in at least 30% greater throughput and efficiency in production lines, freeing up labor and space.
• Sales Funnel Improvement: Modified sales leadership in the battery products group and updated sales funnel tools; a new Chief Marketing Officer joined to drive messaging, brand strategy, and customer capture activities.
• Electrochem Integration: Transitioned payrolls and benefits to Ultralife systems, formed working groups for materials procurement and lean activities; ERP system transition expected to complete by the end of Q2 2025.
• New Product Developments: Communications Systems: Expanded ruggedized server case portfolio; DC power supply for EL8000 case validated and available; portable case in prototype; new amplifier in pre-production sampling. Battery & Energy: Initial production equipment set up for thin cell in medical wearable space; key medical wearable partner completed FDA and EU MDR certifications; 123A product line enhanced for high temperature capability; thionyl chloride product in field testing; 19 amp-hour D cells in testing; conformal wearable battery to start shipping in Q1 2025.

Battery & Energy Products segment: Q4 2024 revenues were $39.9 million compared to $35.7 million in the prior year. Excluding the $6.1 million of Electrochem sales for November and December, sales for the segment declined $1.9 million or 5.3% year-over-year. Government/defense sales increased 48.1%, oil and gas sales rose 1.6%, but this was offset by a 47.2% decline in medical battery sales and a 4.4% decline in industrial market sales. Communications Systems segment: Q4 2024 revenues were $4 million, a 55.1% decrease from the $8.8 million reported in the prior year, primarily due to delayed shipments and timing of orders related to large contracts.

• Anticipate a strong 2025 with added resources from the Electrochem acquisition, a pipeline of new products, and an expanded sales funnel.
• Complete the full transition of the Electrochem acquisition into Ultralife's back-office, including ERP system integration by end-Q2 2025.
• Grow the sales opportunity pipeline and improve gross margin through pricing, material cost deflation, and lean productivity projects in both segments.

• Uncertain global economic conditions that could impact revenues.
• Reductions in revenues from key customers.
• Delays or reductions in US and foreign military spending.
• Challenges in gaining global acceptance of new products.
• Disruptions or delays in raw material and component supply due to business conditions, global conflicts, or weather.

Q: Where are Ultralife ahead of schedule with Electrochem and what are the major hurdles?

A: Ahead in integrating Electrochem cells into current pack assemblies and expanding market opportunities; major hurdles include delays in closing books with the previous parent company affecting reporting timelines.

Q: What part of industrial sales timing is push-out vs. macro related?

A: All industrial sales timing is due to push-out; no macroeconomic weakness is seen, just customers managing inventories and cash flow.

Q: What's the outlook for the thin cell medical opportunity in 2025?

A: Expect about $1 million in sales from this customer in 2025, with a large growth trajectory depending on hospital adoption and macroeconomic conditions.