00:02 Good day, and welcome to this Ultralife Corporation's Fourth Quarter 2021 Earnings Release Conference Call. 00:10 At this time, for opening remarks and introductions, I’d like to turn the call over to Ms. Jody Burfening. Please go ahead.

00:19 Thank you, Diana, 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 2021. With us on today's call are Mike Popielec, Ultralife's President and CEO; and Phil Fain, Ultralife's Chief Financial Officer. 00:37 The earnings press release was issued earlier this morning. 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. 00:52 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. 01:08 The potential risks and uncertainties that could cause actual results to differ materially include the impact of COVID-19, potential reductions in revenue from key customers, acceptance of our new products on a global basis, and uncertain global economic conditions. 01:22 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. 01:39 Further information on these factors and other factors that could affect Ultralife's financial results are included in Ultralife's filings with the Securities and Exchange Commission, including the latest annual report on Form 10-K. 01:51 In addition, on today's call, management will refer to certain non-GAAP financial measures that management considers to be useful metrics that differ from GAAP. These non-GAAP measures should be considered as supplemental to corresponding GAAP figures. 02:06 With that, I would now like to turn the call over to Mike. Good morning, Mike.

02:11 Good morning, Jody, and thank you, everyone, for joining the call. Today, I'll start by making some brief overall comments about our Q4 2021 operating performance, after which I'll turn the call over to Phil, who will take you through the detailed financial results. After Phil is finished, I'll provide an update on the progress against our 2021 revenue initiatives, and the focus areas for 2022 before opening it up for questions. 02:37 For the fourth quarter of 2021, current COVID supply chain component lead time and inflation challenges continue to weigh heavily on both revenue and earnings with revenue impacted by as much as $5.4 million, earnings by approximately $1.8 million, and EPS by $0.09. Driven primarily by the supply chain impact and some non-recurring military sales, revenues in our core end-markets of government defense and medical were both down year-over-year. 03:09 We did once again see improvement in our oil and gas and [China revenues] [ph], up 72% and 42% respectively year-over-year, which drove our fourth quarter commercial revenues up 10%. Nevertheless, total company revenues for Q4 were down almost $5 million year-over-year, while an operating profit loss of $1.2 million was reported, reflecting the supply chain impact, our ongoing investing and future revenue opportunities, and one-time acquisition cost. 03:43 Operationally, key revenue generating event highlights for the quarter included the closing of a $23.5 million Excell Battery acquisition, the $4.2 million Leader Radio [BAA] [ph] follow-on contract, the next $9.9 million BA-5390 IDIQ [acquire] [ph], and progress on several of our new production development projects. 04:08 Despite the COVID supply chain constraints on revenue, order intake levels remained healthy, and the Q4 2021 ending core business backlog, not including the acquisition or IDIQ awards was over $53 million, up $11 million or approximately 27% from Q3 2021 and up $14 million or 35% year-over-year. 04:37 To address the supply chain lead time, logistics and cost challenges, we continue to work very close with our suppliers and customers, and in many cases are raising prices. I like to thank each and every one of our employees, channel partners and customers for their tremendous effort and cooperation in fulfillment execution given the present supply chain situation. 04:59 In a few minutes, I’ll give you further updates on our revenue initiatives, but first I would like to ask Ultralife’s CFO, Phil Fain to take you through additional details of the fourth quarter 2021 financial performance. Phil?

05:13 Thank you, Mike and good morning everyone. Earlier this morning we released our fourth quarter results for the quarter ended December 31, 2021. We also updated our investor presentation, which you can find in the investor relations section of our website and plan on filing our Form 10-K on or before our acquired dead line of March 16, upon completion of certain reporting requirements relating to our December 13 acquisition of Excell. 05:45 Before starting my review, I want to point out to everyone that our fourth quarter includes Excell’s operating results for the period December 13 through December 31, along with the purchase accounting adjustments and direct cost related to the acquisition. As I go through my prepared remarks, I will point out the impact of the acquisition on various line items and earnings per share. 06:13 For reference purposes, Excell’s revenues on a trailing 12-months basis were approximately 21 million and we expect Excell to be accretive inclusive of all acquisition and financing costs within the first 12 months. 06:31 Now, I will take you through our fourth quarter results. Consolidated revenues for the 2021 fourth quarter totaled $23.8 million, compared to $29.0 million reported for the fourth quarter of 2020, a decrease of 18%. Commercial sales increased 9.9%, reflecting a rebound in oil and gas and some international industrial markets and the initial sales contribution of Excell, partially offset by a reduction in Medical sales from the initial surge of batteries for ventilators, respirators, and infusion pumps in response to COVID-19 last year. 07:13 Government defense sales declined 50.5% relative to the shipment of an order for 5390 batteries in last year's period and lower shipments for our Communications Systems business. As Mike mentioned, for the 2021 fourth quarter, increased lead times on components from suppliers…

16:10 Thank you, Phil. For 2022, we are continuing to focus on driving revenue growth by market and sales reach expansion, primarily through diversification. New product development and strategic CapEx for competitive advantage, and a disciplined approach to accretive acquisitions. 16:30 For the Battery & Energy Products business, the strategy for market and sales reach expansion is about diversifying more into the global commercial markets and the international government defense markets to lessen any dependence on the U.S. Government defense market. 16:47 To that end, we are very excited to have completed the acquisition of the Excell Battery Group based in Canada and with operations also in the U.S. for $23.5 million on December 13. This acquisition supports our diversification in the commercial markets, while providing further scale of our Battery & Energy Products business, realizing cost synergies and driving the proven operating leverage of our business model. 17:16 It expands our participation in a variety of industrial markets, including downhole drilling, OEM industrial and medical devices, and further exposes us to currently unserved OEM device verticals such as automated meter reading, ruggedized computers and mining, and other mission critical applications, which demand uncompromised safety, service reliability, and quality. 17:42 As a profitable and well-run company, Excell is a leading independent designer and manufacturer of high performance smart battery systems, battery packs and monitoring systems to customer specifications. 17:57 Excell is processing an organizational culture and business model similar to our own with experienced tactical and sales resources, which we plan to utilize and progressing our global new product and selling initiatives. The initial 100 day functional integration plans are in full execution mode and the acquisition transaction is expected to be accretive on an EPS basis within 12 months. 18:25 For Q4 2021, overall global B&E medical revenue represented…

31:12 Thank you. [Operator Instructions] And we will take our first question from Josh Sullivan with The Benchmark Company. Please…

31:40 Hey good morning.

31:42 Good morning, Josh.

31:45 Just as far as the supply chain issues, can you just expand on some of the specifics? How much of the headwind is lack of receiving needed components to make your products versus customers [hopefully] [ph] not taking the product at this point?

32:01 Yeah. I think we divide into two pieces, and the piece we can control, I'll call the much easier piece that's our supply chain. So, in our case, we purchased cells on a forward basis. You see our inventory increased, we probably spent $3 million just to pay in advance for the opportunity to supply needed cells to fill the back orders. And it wasn't easy being in a position to obtain those cells and it hurts even more when you have to pay in advance, but that's reality. 32:42 So, the piece that we can control, our supply chain for the most part is something that I think our folks have done a very good job at. The parts we can control when certain individuals in our supply chain despite all the precautions we take come down with COVID or are exposed to COVID and it puts a line on the lamp for a week or possibly longer that certainly hurts. 33:13 One of the tougher parts, Josh is the part we can't control and that's the customer's supply chain because the customer in a lot of cases is, of course, is telling us when they want to accept the goods. Now, they want our components, but our customers, our OEM device companies, with a lot of different components coming in, ours being just one of many. So, that's the really the part that we can't control. 33:41 So, I would say, if I have to split it up, 50% of it is what we can control, 50% of it is what we can't control. The part that we can't control, we see the big increase in backlog and we have not had any cancellations of any orders whatsoever, and it's just forcing what used to be weekly now daily and sometimes hourly communications with our supply chain.

34:13 Got it. Thanks for that. And then on the defense business, what are your thoughts on the continuous solution? If we get a budget, spring, summer, ahead of the midterm elections, what do orders look like versus maybe a worser case scenario for a full-year CR?

34:31 Yes we really found a lead of our major OEM primes. There's been a number of recent announcements and activities that would suggest that we could be in a favorable position. In terms of some of the transactions that would come straight from DLA, we have much less visibility to those. So, I would say we're cautiously optimistic, but we're not counting anything for sure and in the backlog comments that we provided, we certainly didn't have anything included in there in our IDIQ. 35:03 So, we don't really count anything in our backlog, unless we have a firm delivery order for it. So, I would say, we're cautiously optimistic, but it's been a pretty up and down year over the last couple of years. And so, we're not trying to get ahead of ourselves in terms of expectations.

35:20 Got it. And then on the Excell acquisition, where did you see the biggest opportunity? Was it in the new products and oil and gas? Was it synergies on capacity or something else, maybe if you could just walk through some of the thought process there?

35:36 When we look at any acquisition, Josh, and we go through a lot of, you know dozens and dozens of different opportunities. The things that we consistently look for, is we look for acquisitions where the day after we buy them, it's not their high watermark for revenue. We look for businesses that in their own right are growing. And we saw that certainly with Excell. 36:03 The second thing we look for is, we look for clear visibility to return to an operating margin rate that was equal to or better than the operating margin rate that we had as a company prior to the acquisition, meaning that there has to be visibility to profitability, it’s not just some future expectation that's not – we're not able to connect the dots on yet. 36:26 Thirdly, we look for accretion on an EPS basis within 12 months. And in this case, this was an ongoing viable business as we understood the culture, we understood the markets, we understood the business model for, and we could see a clear path to accretion within 12 months. And then of course, a reasonable return on investment. 36:51 So, we go through lots of different deals and we're constantly having new deals brought to us. And if we put it through those four criteria and essentially Excell checked every single box. And then, that's just really from a financial perspective and making sure it makes sense on economic basis, but what the other thing that really excites us about it is that the people that we get, we've talked about it and other acquisitions in the past. 37:20 We get a great bunch of people in terms of their technical capabilities to apply our product to new markets. They get the opportunity to sell some of our products that they may not have had access to before, we could just sell some of their products, but fundamentally, it's an ongoing operation that's profitable, that will continue to grow organically after the acquisition. And those are some of the things that we saw in Excell and made us want to do the acquisition.

37:47 Got it. And then just, on the communications commercial [throughout] [ph], how should we think of investment versus timing the returns versus historical business? How are you going to balance those two?

38:01 That's a good question. They both involve extensive development and customer evaluation and acceptance testing. I think that the way we're looking at it is, that they accentuate our capability to provide highly technical integrated solutions in, sort of a battle hardened enclosure and capability. That's very consistent with our military defense, but isn't so subject to the ups and downs and cyclicality of the military defense business. 38:37 So, I think it's a good complementary fit to our overall capability. It is a good diversification from a government defense business. And we're cautiously optimistic about it. They do have some long cycle times, but we've been commenting and now I know for several quarters, we're starting to see some low rate production shipments. And so, we're quite optimistic about it. But like anything else, we've got to execute and we've got to deliver and get the results.

39:11 Great. Thank you for the time.

39:13 Thanks Josh.

39:17 [Operator Instructions] In appears we have no further questions at this time. So, I would like to turn the conference back to our speakers for any additional or closing remarks.

39:37 Okay. Well, thank you once again for joining our fourth quarter 2021 earnings call. We look forward to sharing with you our quarterly progress in each quarter's conference call in the future. As Phil mentioned, we also updated our investor presentation on the website. So, please check it out and have a great day.

39:55 Ladies and gentlemen, this concludes today's call. Thank you for your participation. You may now disconnect.