Good day, and welcome to this Ultralife Corporation First Quarter 2022 Earnings Release Conference Call. At this time, for opening remarks and introductions, I'd like to turn the call over to Ms. Jody Burfening. Please go ahead.

Thank you, Ashley, 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 2022. With us on today's call are Mike Popielec, Ultralife's President and CEO; and Phil Fain, Ultralife's Chief Financial Officer. 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 Web site, 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 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. The company cautions investors not to place undue reliance on forward-looking statements, which reflect the company's analysis only as of today's date. The company undertakes no obligation to publicly update forward-looking statements to reflect subsequent events or circumstances. Further information on these factors and other factors that could affect Ultralife's financial results are included in Ultralife'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 metrics and differ from GAAP. These non-GAAP measures should be considered as supplemental to corresponding GAAP figures. With that, I would now like to turn the call over to Mike. Good morning, Mike.

Good morning, Jody, and thank you everyone for joining the call. Today, I'll start by making some brief overall comments about our Q1 2022 operating performance, after which I'll turn the call over the Phil who will take you through the detailed financial results. After Phil has finished, I'll provide an update on the progress against our 2022 revenue initiatives, before opening it up for questions. For the first quarter of 2022, strong demand drove our Battery & Energy Products' medical revenues up 9%, and oil and gas revenues up 20% year-over-year, organically growing our Battery & Energy Products business, and when combined with the revenue boost from our Excell Battery Group acquisition, more than off set continued supply chain-impacted government defense revenues in both Battery & Energy Products and Communications Systems. This resulted in a 17% total company revenue increase over the prior year. We also exited Q1 2022 with approximately $92 million in backlog, an increase of 45% from the end of the previous quarter. Operating earnings in Q1 continue to be pressured by global supply chain challenges, with seemingly daily raw material and input component price inflation not yet fully recovered with our price increases to customers. Other gross margin headwinds included substitute product identification, qualification, and procurement costs, long lead time and manufacturing inefficiencies, and new product transitions. Nevertheless, through price increases, cost control, and the positive earnings contribution of Excell, our team significantly [nilled] [Ph] the operating loss from the fourth quarter. In a few minutes, I'll give you further updates on our revenue initiatives, but first I'd like to ask Ultralife's CFO, Phil Fain, to take you through additional details of the first quarter 2022 financial performance. Phil?

Thank you, Mike, and good morning, everyone. Earlier this morning, we released our first quarter results for the quarter ended March 31, 2022. We also filed our Form 10-Q with SEC, and have updated our investor presentation, which you can find in the Investor Relations section of our Web site. Consolidated revenues for the 2022 first quarter totaled $30.4 million, compared to $26.0 million reported for the first quarter of 2021, an increase of 16.9%. Commercial sales increased 62.1%, reflecting the contribution of Excell and solid growth across virtually all commercial end markets, including medical, oil and gas, and industrial. Government defense sales declined 38.8% due to continued supply chain disruptions, including increased lead times on components from suppliers, and other related logistics matters impacting both our internal and customer manufacturing delivery schedules, resulting in delays in our shipments to future periods. Revenues from our Battery & Energy Products segment were $29.2 million, compared to $22.1 million last year, an increase of 31.8% attributable to Excell sales of $6.4 million and $2.5 million or 17.2% increase in commercial sales, partially offset by a $1.9 million or 24.1% decrease in government defense sales. The increase in commercial sales excluding Excell consisted of a $1.1 million or 30.5% increase in industrial end market sales, a $800,000 or 20% increase in SWE's oil and gas market sales, and a $600,000 or 8.5% increase in medical battery sales. The backlog for our Battery & Energy Products business of $82.9 million, the highest in our history, includes $66.2 million requested for shipping in 2022, representing an increase of $14.3 million over the comparable amount at year-end 2021. The sales split between commercial and government defense for our battery business was 80/20, compared to 65/35 for the 2021 first quarter, and the domestic to international split…

Thank you, Phil. For 2022, we continue 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 acquisitions. For the Battery & Energy Products business, diversification and market and sales reach expansion has meant further penetrating the global commercial markets as well as the international government defense markets, which has helped deleverage our historical concentration in the U.S. government defense market. This was nicely demonstrated in the first quarter as our medical and energy markets' revenue increases led to 3% of net B&E organic revenue growth. In Q1, and including Excell, the total commercial and international government defense revenues represented approximately 82% of our total B&E sales. We remain very excited about the recent Excell Battery Group acquisition as it is another step in diversifying our end markets, while providing further scale of our Battery & Energy Products business. It bolsters our engineering and sales capabilities, [participation] [Ph] expansion of existing energy, industrial, and medical markets, and penetration of new commercial markets such as automated meter reading, ruggedized computers, and mining. The initial 100-day functional tech reintegration plans are substantially complete, and we are now transitioning Excell into the regular Ultralife operating cadences. The acquisition was EPS-accretive in Q1, and revenues met expectations its first total quarter as part of the Ultralife portfolio. Overall global B&E medical revenues represented approximately 26% of total Battery & Energy products sales. Demand from current customers was for applications such as ventilators, respirators, infusion pumps, digital x-ray, and surgical robots. We also received over $4 million in delivery orders from existing medical customer blanket and/or multiyear agreements. Q1 oil and gas and subsea electrification commercial revenue was approximate 31% of total B&E sales. Driven by…

Thank you. [Operator Instructions] We will now take our first question from Josh Sullivan of The Benchmark Company. Please go ahead.

Very good morning.

Morning.

Morning, Josh.

Just as far as supply chain dynamics here, last year seemed to me maybe a little more related to transit and other factors. Now, we're staring down inflation. Can you just give us some color on what supply chain issues are maybe improving versus those that are maybe going to grow throughout 2022?

Josh, thanks for the question. I think it would be difficult at this point to really call any victories of supply chain issues improving at this point. I just think that we probably have a better process of understanding what to be looking for, working very closely with our suppliers to try to get a real beat on what deliveries look like, what cost increases potentially look like. And then working very, very closely with our customers to pass along that information, evaluate how their supply chain is looking, and then try to balance out the things that are coming into us and the things going out from us with our customers, to make prudent decisions. But I think it'd be difficult at this point to really point out anything in the overall supply chain situation that's dramatically improving at this point. It's probably just more we're getting more used to it and getting better at handling it, and have real broad and open lines of communication with both our suppliers and our customers.

Got it. And then with new products moving into revenue generation, here in '22, how should we think of margin -- margin progression? Should we expect an inventory build or marketing effort impacting margin? Just trying to get an idea of sequential -- the cadence through the year.

Yes, I think our cadence for the year, if you look at all the various new products and where they are and the transition process from the new product group, putting it over the wall into high-volume manufacturing, historically, we can look back and we can see how long it's generally taken. And it seems that the timeframe that it's taking now has been extended because of the sheer quantity of the new products. So, for us, the challenge is with how we deploy best our manufacturing engineer and our operations leadership and personnel. And I think, Josh, that we're going to see margins build over the year, because we [cradle] [Ph] everything, just like our cost increases with our suppliers, we cradle everything, we know what to attack. And we're -- the attack is in full gear. And what we're attacking, I'll quantify it. What we're attacking is $0.02 to $0.03. $0.02 to $0.03, I look at various buckets, and I think we feel that there is improvement in the $300,000 to $500,000 range, and it's getting to that improvement as quickly as we possibly can. And in doing so, we're methodical, we want to make sure that the mission critical products that we're providing are meeting the specs with absolutely no shortcuts, and that has been our approach.

Got it. And then just kind of related to that, that $83 million in backlog, how much of that is related to some of these new products you're launching this year, 3-volt [crash carts] [Ph] thin cell, et cetera?

I would say a relatively small part of the 90 -- let me just take you through the backlog. The backlog is $92 million. And then we break it down as to what is requested for shipping this year. It's $74 million of what is being requested this year, versus $58 million, what was requested for shipping last year. The $92 million compares to $63 million as we exited the year. So, it -- as Mike said, it's this big 45% increase, but a lot of it is just either new products that are in the process of transitioning or have transitioned to high-volume manufacturing, and I would say that the majority is ongoing products, a handful of products that are in the process of transitioning, which includes some of the military batteries, some of the public safety batteries, and as Mike had mentioned, are the $2 million order that we received for the medical carts. So, the large majority are ongoing products that were -- I would say, comfortable with on the operations side, not so comfortable with on the supply and component side.

And just on the Excell acquisition, how is the integration progressing? Any new opportunities that you have seen, you had some time to get acquainted?

No, I mean actually it has been very exciting and very positive, like as mentioned in the prepared remarks, you know, the tactical stuff you want to go to immediately to make sure if he gets paid, all the collections are being, you know, put into the right bank accounts, and our customers are receiving the products they deserve. And so, now we are moving along the next phase, where we can get more deeply into -- where are some larger level cost synergies, what are some more strategic revenue synergies. We've found that actually on the revenue side there is actually very little overlap. So, we are participating in a broader energy market than we were before the acquisition. We're looking at some short-term small cost synergies to take advantage of, but at the end of the day it's the thing and I always say that it certainly isn't pandering, it's the absolute truth. I just love getting talented people on our space, and we have between the acquisition we did in the U.K., the acquisition that we did with SWE a couple of years ago, and now with Excell, I think we have some of the smartest and most experienced battery and battery pack, engineers and sales people that are on the marketplace, and that's the most -- to me the thing I get most excited about. But so far so good, I mean we will come across issues from time to time, and that's just the way business is, but I'm very confident that with our position today and with the talent that we have onboard, with help of our teams, issues that do come up we will be able to solve pretty quickly.

Got it, got it. And then just one last one, on the aircraft application, you're testing, I think you mentioned there in the prepared remarks, can you just expand on what markets or airframes you're going after there?

It's definitely in the military, that's really what I can say about at this point, Josh. It's the military segment.

Got it. Thank you for the time.

Thank you, Josh, for the questions.

We will take our next question from [Barry Lewis of Sandler] [Ph]. Please go ahead.

Hi. Thank you for taking my call. The purpose of the call is to ask you, you mentioned the wearables battery, and you mentioned you got the order in May. Where do we stand with that order? I think I heard you talk about the end of the year, but I wanted to clarify that.

Yes, Barry. As we mentioned, and what is pretty common for these larger IDIQ contracts, there is a pretty substantial development period, and one of the milestone events at the conclusion of that development period is the first article testing, and we expect to be in sort of the formal first article testing really towards the middle part of this year, and depending on the outcome of that, which let's say, integral process with the army, and completion of that first article testing and checking of that box, then we would be in a position to potentially receive delivery orders. So, the next major milestone is the initiation and completion of the first article testing, which we expect to start in the middle part of this year.

Thank you very much for answering the question.

Quite welcome. Thanks for the question.

We will take our next question from [Stuart Pitchel], a private investor. Please go ahead.

Good morning, gentlemen. This has been a very professional presentation. I have enjoyed it. Recently I read where Mr. Fain exercised some stock options. And I'm wondering when were those stock options set to expire?

The options were set to expire two days of -- let's see, past the day I exercised those options. So, I held those options for the life of the option absent two days, which was a full seven years. Now, when I exercised those options I used what's called the Net Exercise Method, so I retained all of the shares. It's unanimous with the way I look at it with the purchase of the shares.

Yes, that makes sense. I just wondered when they were set to expire, and so, are you saying they were set to expire two days after you exercised them?

Yes, absolutely.

Okay. Well, thank you very much. Have a nice day. Thanks for taking my call.

Thank you.

[Operator Instructions] There are no further questions at this time. I would like to hand the call back to Michael for any additional or closing remarks.

Well, thank you once again everybody for joining us for this call and the first quarter of 2022 recap. We look forward to sharing with you our quarterly progress on each quarter's conference call in the future. As Phil mentioned, we updated our Investor presentation that's on the Web site. So, please check it out. And everybody have a great and safe day. Thank you very much.

Thank you. That concludes the call. Thank you for your participation. You may now disconnect.