Welcome to Ultralife Corporation Fourth Quarter 2014 Earnings Release Conference Call. At this time for opening remarks and introduction, I would like to turn the call over to Ms. Jody Burfening. Please go ahead.

Thank you, Joey and good morning everyone. This is Jody Burfening of LHA. Thank you for joining us this morning for the Ultralife Corporation’s earnings conference call for the fourth quarter of fiscal 2014. 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 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 some statements made during this conference call contains forward-looking statements based on current expectations. Actual results could differ materially from those projected as a result of various risks and uncertainties. These include potential reductions in the U.S. military spending, uncertain global economic conditions and acceptance of the company’s new products on a global basis. The company cautions investors not to place undue reliance on forward-looking statements, which reflects 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 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 considered to be useful metrics that 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 this morning. Today I will start by making some overall comments about our fourth quarter and total year 2014 operating performance and then I will turn the call over to Phil who will take you through the detailed financial results. After Phil is finished I will provide an update on the progress against our 2014 revenue initiatives and then talk about focus areas for 2015 before opening up for questions. For the fourth quarter of 2014 we were pleased to report the total company to quarterly profitability and generate an operating profit of $1 million on revenues of $19.9 million for an operating margin of 5%. Continuing the trend from the third quarter, commercial revenues for our battery and energy products business increased 47% year-over-year driven in large part by battery pack sales to global manufacturers of medical devices for respiratory applications of medical carts and for nine volt sales to manufacturers of safety and security devices such as smoke detectors. This more than offset a 24% decline in B&E government defense revenues and led to year-over-year B&E quarterly revenue growth of 6%. In our communication systems business slower demand for amplifiers for government defense tactical communications drove revenues down 26% year-over-year which led to a total company revenue decline of approximately 1% year-over-year. Also noteworthy in Q4, 2014 was a solid increase in gross margins of each business. Driven by a higher mix of commercial products and overall volume leverage for our B&E segment and a favorable mix of new products for our communication systems unit, the total company gross margins improved 400 basis points year-over-year to 31.7%. Looking at the total year, we demonstrated the solid operating leverage potential to be realized with even modest top line…

Thank you, Mike and good morning everyone. Earlier this morning we released our fourth quarter results for the period ended December 31, 2014. Consolidated revenues for the fourth quarter totaled 19.9 million representing a 0.2 million or 1% decline from the 20.2 million for the fourth quarter of 2013. And this 24% sequential increase over our third quarter. Revenues from our battery and energy product segment were 16.8 million, an increase of 0.9 million or 6% from last year. The year-over-year growth was fully attributable to an increase in commercial sales which exceeded the decrease in government and defense sales. Commercial sales increased $3.1 million or 47% over the fourth quarter of 2013 primarily driven by shipments of new products including those specifically designed for medical devices in carts as well as higher demand for our nine volt batteries. This marks the fourth consecutive quarter of double digit commercial sales gains and brings the 2014 annual increase to 32%. Sales to government and defense customers declined 2.2 million or 24% from the fourth quarter of 2013. As a result the mix of commercial sales increased from 42% to 58%, in government and defense sales fell from 58% to 42% versus last year. Communication system sales of 3.2 million decreased by 1.1 million or 26% from the prior year. Continuing the trend that started in the second quarter of 2013, we experienced slowness in the daily order flow of amplifiers for U.S. department of defense tactical radios and delays in the final sign-off and purchase order issuance of several large projects. Our consolidated gross profit was 6.3 million compared to 5.6 million for the 2013 period, an increase of 13%. As a percentage of total revenues consolidated gross margin was 31.7% versus 27.7% for last year's fourth quarter, a 400 basis…

Thank you, Phil. As you may recall we entered 2014 with improving value propositions leading to higher gross margins, a business model to fund new product development and sales reach expansion as a function of revenue level, a strong balance sheet and liquidity and we were diversifying our customer base to grow our opportunity pipeline and return to revenue growth. For the battery and energy products business, we carry their momentum of 2014 forward into 2015 to try to capitalize on several newly developed revenue streams to fully offset the government defense decline and obtain total revenue growth. For the communication systems business, after a few years of new product development and testing for several larger projects and for larger we mean individual transaction sizes ranging anywhere from several million dollars to 10s of millions of dollars. Our focus in 2015 is to continue to move towards actually capturing these larger contracts and realizing revenue. Operationally in 2015 both businesses will continue to aggressively pursue variable and base cost productivity building on gains mainly in 2014. Therefore our investor earnings call commentary for 2015 will again be focused on revenue growth initiatives and consistent three core elements. Expanding our market and sales reach, new product development and pursuing acquisitions. In our battery and energy products business to expand our market and sales reach, we will continue to focus on diversifying our customer base outside of our core U.S. government defense market by growing our commercial and international revenue. The inflection point of when the increase of the commercial business and international business overcame the decrease in U.S. government and defense business to deliver total net revenue growth occurred in the third quarter of 2014 was validated in the fourth quarter and is viewed as a key revenue growth indicator for…

[Operator Instructions]. And we will take our first question from Sam Bergman with Bayberry Asset Management.

Couple of questions, first of all in couple of defense contracts that get delayed and pushed into the first quarter or pushed in 2015. Have any of those being signed off at this point now that we’re six weeks into the quarter?

No anytime that we receive a formal contract of any material magnitude, we will let you guys know that.

Okay, and can you talk about R&D what you expect R&D to look like in 2015? It's running like roughly 1.4 million a quarter if you go by the fourth quarter. What do you expect it to be in 2015?

Sam, I expect it to be a very similar to that and the reason why I say that is because new product development is such a critical part of our overall strategic plan it's not something that we would say that once a product has launched we’re going to turn it off. It's going to continue to be I would say at the level that you’re seeing in Q4 and the only change hopefully will be the continued recognition of what happens with the successful launch both in terms of the business that we’re seeing as well as the major project win associated with those.

Okay and in terms of newly developed revenue streams, can you talk about those and can you tell us if you got any estimates on how large these revenues could grow to in 2015?

The revenue streams that we referred to, we talk about new revenue streams. The medical cart revenue stream that it has taken a couple of years for us to develop. There are some ongoing other medical device revenue streams that are coming on. They are not huge individually but in aggregate they sum to where we are actually seeing overall top line growth for battery and energy products business. The other area is I mentioned a little bit in the prepared remarks about some of the portable power solutions which essentially we’re providing a large format battery to an OEM who is developing a product and we’re getting some positive feedback about making it through what has been quite frankly a rather lengthy testing and evaluation process. So we know that that will spiral into other opportunities as the few major installations are more well-known. The China product line, we had some products in China where we were providing those products for sale into China pretty much exclusively into China and we’re really trying to drive some of those products which have held the same quality and performance standards as any of our products and take some of those products overseas and to globalize that product line by taking into for instance European or South American market. So it's hard to comment on what the specific magnitude of each of those individual markets would actually be, and what the potential could be but on a collective basis those are the revenue streams that I tend to refer in the prepared remarks.

Which one is the largest opportunity?

I would say the medical space just demographically is extremely attractive to us. It's attractive to us because not only of aging populations and for people wanting to be continue to be active and [inaudible] to carry their devices with them. But also it's very consistent with our core customer base and that been sort of our history being in the military area where the product just absolutely has to work and be reliable, I think it's a very good fit to branch off in some of these commercial markets where we have that same type of high level conservatism and needing for the product to preform so I think that the medical space is a very attractive one for us and ultimately I believe you know the portable power solutions can be a very large market but there is a lot of rhetoric about battery solutions and their different applications around the globe and what we have been trying to do is just keep our head down and get some really strong install base references so we can grow that business, but those two could be quite attractive for the long term.

And last question is management blacked out on buying stock because of M&A activities or do you expect management to or insiders to buy stock after the earnings report?

Let me answer that on two levels, there is an overall black out that is customary for the management team, many of the management team members over the last two weeks of the quarter and all the way through till roughly 24 hours after we announced earnings. There is also a small subset of that group that are involved in the stock buyback decisions and those the members of that subset are unable to trade it all.

Our next question comes from Gary Siperstein with Eliot Rose Asset Management.

I just wanted to start off with -- you mentioned these new areas that we’re going into in the commercial side and had some traction on the medical side with carts and other products. Can you give me a little more color on what some of the uses are for some of the other medical products in that space?

Sure. I mean some of the more common ones are a the infusion pump applications for pain management, diabetes, other kinds of things. There is also portable battery packs for respiration devices, CPAPs and things like that.

Is this trend towards battery powered? What's the rationale behind that? Is it -- in case they lose power, I mean most hospital have backup generators, a lot of redundancy. Can you just give me some color on the rationale?

You know [inaudible] certainly an expert on the medical side of it but what we have been led to believe by our OEMs and some of our value added resellers is that it's all about mobility. People don’t want to be tethered to an outlet and whether that’s in hospital for a nurse or staff member implementing data per employee record, it could not be stocked to a certain room to be able to use the medical cart wherever they need to be able to type information in or if it's too the vital signs, the statistics to not be tethered to a single room. Those are the kinds of things from some of the devices perspective that drive the demand for more mobile products and then as we said some of the quality of life issues relative to infusion pumps and other kind of personal medical devices.

Mike, you mentioned other commercial products in the border security area, testing measurements and surveillance. Can you give me some color on what the actual products are and what they are going to do in each segment there?

Number of the border security, other of things are very confidential and secretive so I really can't give you a lot of commentary on that. But essentially just about all the applications, as the name of the product suggest it's for very remote locations, places which are difficult to get to maintain battery say for instance versus lead acid solution places where you may have a really wide temperature range which ends us up to lithium-ion solution to having a high number of cycles and not have to replace the batteries. I mean those are some of the attributes that are associated with some of those products but a lot of them as you may would think they would be either for temporary power in many cases or they are in remote locations where they are likely to be hidden and not many people know they are actually there. So that’s sort of a represented view of where some of those applications without revealing more than I'm able to review.

And testing and measurement side?

The applications that we’re looking at is, there is some inspection equipment for operating machinery where the devices, a lot of this testing and measurement equipment are you know involves using batteries, they are portable type devices and we’ve one customer in particular that has worked over several years with us to develop a lithium-ion solution for one of their inspection devices and that’s starting to take off.

And you mentioned surveillance, what was surveillance using prior to investigation batteries with you guys?

Can you repeat that question Gary?

On the surveillance side you mentioned some stuff going on, I'm just curious what the power supply of surveillance were you using prior that looking at batteries or external energy?

You know sometimes they would use, like I said lead acid solution or they would use earlier generation lithium batteries.

Okay, and you talked about communications system. It's low for a couple of years. In terms of your pipeline had there been any awards to competitors, is just that awards hadn't been I guess awarded or is it with lost some of those opportunities to competitors?

No we’re not aware of any of those major contracts being lost.

Okay and what did you a sense of movement in that area now that another 12 months has gone by nothing material?

Well as I said in my comments I mean there, a lot of these activities are maturing. They take a couple of years, there are multiple opportunities being pursued simultaneously where I would say 2 or 3 years ago it was a small number of opportunities being pursued at any given time. Some of the military stuff that obviously we’re talking about has to go through NEI type testing and validation. So we now have the benefit of knowing that a lot of our equipment has made it through those test, we know the good, bad, ugly of those devices and products in those applications and what the feedback is and I’ve had a chance to fix anything we need to. So it just all sums up to being a maturing of some of these ongoing opportunities. The hardest thing I know is and we’re trying to understand it better with both internal and external resources is the timing and with the lot of the budget activity that has caused us to take a cautious approach to the actual timing of activity even though from a demand and requirement perspective it would seem on the surface that these opportunities are just right around the corner and so that’s why we have been a little more cautious in how we have described what we see for 2015, that being said the spending levels that we have now sort of migrated towards are encouraging and as much as we’re continuing to be able to invest in new products and the people in these margin re-expansion activities and at the same time show profit. Whereas it was more difficult about a year ago or so where we knew we had to make the spending for some of the new product development and market reach expansions and we didn’t have any revenue against the liquidated and our results showed some losses. I'm not looking at spending a lot more than we are currently spending at this time to pursue those new opportunities but as I said I think a couple of times in my prepared remarks, we’re looking for at least some of that to start happening in 2015.

And Mike in terms of seasonality or exception of seasonality, a lot of on the commercial side of the business a lot of people believe there is a fourth quarter budget wash or they spend a budget spent to empty out the budgets and yet the government's fiscal year is a few months prior on the military side. So I guess what I'm asking is, is it an automatic [ph] that our revenues in Q1 had the decline from Q4 due to that seasonality or is that seasonality a myth?

I really would provide individual quarter commentary but if you do look at the last several years and the fourth quarter it's been sort a high watermark for revenue. That’s been the empirical experience but I don’t think there is any fundamental market drivers that would suggest that the first quarter has to be lower than the fourth quarter. The U.S. government defense business particularly gets smaller and smaller by design as a percent of our overall revenues. The dynamic of seeing spike I guess in historical years in our third quarter because of that government spending and we haven't seen that in the last couple of years and as military gets smaller I don’t see a big seasonality based on the U.S. government fiscal budget and relative to commercial for whatever reason the fourth quarter seems to be a high watermark but I don’t see any fundamental as I’ve said just couple of things about that, there is no fundamental reason why the first quarter has to be lower. It is what it is based on individual customer projects and demand and where we’re in maturing those opportunities.

And then in terms of the government battery orders, I think that one point I don’t know if this is two quarters ago or even a year ago due to the sequester and all the budget craziness on the military side I think I recall at some point our factory at least domestically was operating four days a week. Has there been a pickup in that from the government starting to replenish inventories on the battery side so that maybe we’re running at 5 or 6 a week now?

The comment that we made about having a backlog for everybody to hear is exactly that point. It's not huge, it's not dramatic in terms of volume but it's pretty steady and we have been getting some operational leverage by more consistent volume, you know a little uptick in revenue helps our liquidations of overhead. So I would say that government contract is extremely helpful to help us -- base load our operations.

In terms of -- I think we had a move in the third quarter in China, were all the expenses of that move expensed in the third quarter or was there any carry over into the fourth?

Well there was carry over into the fourth, Gary and that is now all behind us and I will say when all is said and done recognizing the expenses and getting a negotiating or reimbursement with the local [inaudible] government. It turned out not to have a significant impact on our 2014 results but as of the end of the year the relocation was complete.

So Phil, was there any expense in the fourth quarter or related to that and just quantify it?

Yes there was but it was offset by reimbursements that we negotiated with the local governments.

And in terms of inventory, I guess we started the year at 26 million, we finished it at 26 million since we saw -- Mike, you called out maybe the bottoming on the military side in Q3 and then we saw more evidence in Q4. So what's an appropriately inventory figure, if we indeed are going to start growing again at least an intent to get an acquisition at least on an organic basis, is that inventory going to trend out as trend up or is it going to work, are we going to be able to make some more progress on that as news turn out.

Gary, we’re certainly going to make more progress on that and one of the things that you do see in the 26.1 million that was reported at the end of the year was some safety stock of relating to the China relocation, we didn’t want any drop off in our ability to cover the needs of the customer. So we purposely built up inventory in China to get through the relocation into Q1 as the China New Year is coming up very shortly. But there were some, I would say a good accomplishments in 2014 that really sets the table for us to make some good quantitative progress that you will see that we will all see in 2015.

Can you give me a range? I mean [Technical Difficulty] 22 million, 18 million, 20 million, can you give us some goal?

Absolutely Gary, and I look at this as the cheapest form of financing and my personal target is at least in the $3 million to $4 million reduction range and I think that’s a very reasonable.

And then lastly on the buyback there wasn’t a lot of stock in the buyback in the quarter and I know about the restriction in volume and percentage of volume and black out days etcetera and I’ve mentioned on other calls perhaps expanding the program so black out days don’t apply. In light of book value of over $4 working capital almost $3 now over a buck of share in cash, EBITDA positive, you generated 10 million in cash in the quarter on an EBITDA basis. Sequentially cash went up almost 3 million in the quarter. So I guess you know what I'm asking the program is through May, 1.8 million shares with 56,000 a quarter prior to that. So we’re not even denting [ph] the 1.8 million. So I would again you know again within this $3 and working capital that relation is just ridiculously cheap. So I would just ask you guys to look other mechanism to maybe take advantage of the disconnect in the public market price from that you guys have accomplished and it would be extremely accretive going forward if we take out a nice chunk of stock here, that’s tender orders, I forgot what they call them 5B1, or 501 plan whatever they call which has no blackout dates etcetera.

Gary, thank you and I can assure you and the other listeners on the call that we continuously review with the different alternatives of repurchasing the shares both internally and with those who are helping us externally with the share repurchase program as well but thank you for your thoughts.

And just last question and I will give someone else a chance. Mike, what's your gross margin target going forward? I know there has been a lot of moving parts commercial military and the sequester and so forth but once you get to the more normalized steady state and some of the confusion comes off the military budget, what sort of are your goal on gross margin?

I think we’ve said, our business model is built on sort of as a starting point, the interim target was 30% which were starting to be able to hit. I think the way I look at it is that, the gross margins of comm systems are fully capable in the 40% range, you know B&E gross margins are fully capable to be in the 30% range. I don’t have any theoretical limit. I think as long as we can continue to develop products that are highly valued and the customer really recognizes that and what we’re able to sell in the market place and he gets economic value add. I don’t think there is any theoretical upper limit, but I can say I'm very pleased that we’re starting to hover around the 30% and we just have an all employee meeting this day as well and we still think there is room for improvement, I mean there is so much that we can do to continue to improve efficiency. So I don’t set a target that we just stop at. I'm glad we’re at 30% overall and we will continue to move up forward. You know sometimes we may want to be more optimistic about what margins could be but every now and then you get an opportunity where maybe the price levels have to be a little differently than what they are currently are to help manage our overall business model. So I'm going to maintain some flexibility but I don’t think that we have plateaued in our achievement of gross margin improvement.

Okay, and I lied I got one more question. If you sort of globally like a mile up in a year, now that the Republican, Congress and an election a couple of years from now and even if a democrat were to win it seems like either a republican victory or even the democrat either way can probably be a little more focused than Obama is with the defense budget and Obama just presented a budget which actually broke the deal and the Congressional budget deal with military request in excess of the agreed upon amount. So is there any chatter out there that things might finally in lieu of all that and of course what's going on with special forces and Obama has request the other day to go after ISIL. Is there any chatter that things might be loosening up for us both on battery and energy income?

I mean we didn’t hear and see same things you do, I mean our approach has been to hope for the best, prepare for the worst and try to make money and grow our business in any environment.

[Operator Instructions]. And it appears there are no further questions at this time. So I would like to turn the conference back to Michael for any additional or closing remarks.

Great. Well thank you once again everyone for joining us for our fourth quarter 2014 earnings call. We look forward to sharing with your our quarterly progress in each quarter's conference call in the future. Thank you very much for your time today. Bye, bye.

Thank you for your participation. This does conclude today's call.