Good day, and welcome to this Ultralife Corporation Fourth Quarter 2015 Earnings Release Conference Call. At this time, for opening remarks and introductions, I'd like to turn the conference over to Jody Burfening. Please go ahead.

Thank you, Robert, 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 2015. 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 who has not yet received a copy, I invite you to visit the Company's Web site, at www.ultralifecorp.com, where you will 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 will contain 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 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 Company'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 this morning. Today, I'll start off by making some overall comments about our total year and Q4 2015 operating performance then 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 2015 revenue initiatives, talk about the focus areas for 2016 then open it up for questions. For Q4 of 2015 we were very pleased to deliver our fifth consecutive quarter of total company profitability and positive EPS generating an operating profit of $0.5 million on revenues of $19.3 million for an operating margin of 2.7%. The Q4 revenue level was very consistent with the first three quarters of 2015 and helped us deliver on our 2015 goal of achieving full year revenue growth and profitability. B&E revenues of $16.6 million with a highest level of any quarter this year and roughly flat year-over-year with G&D sales up strong 29% driven by several global OEM and DLA shipments versus the prior year's fourth quarter. This quarterly G&D increase was offset by lower commercial sales driven by a non-recurring initial supply chain stocking order for OEM medical device battery packs and the Surgon-9 [ph] bulk orders in the fourth quarter 2014. For our communication systems business, fourth quarter revenues of $2.6 million were lower than the previous year fourth quarter revenues of $3.1 million primarily driven by one ongoing project for a new product used in fixed winged aircraft for which we shipped approximately $600,000 products in the fourth quarter of 2014, not in the fourth quarter 2015, but we're expecting more throughout 2016. As we closed out 2015, we were delighted the financial performance delivered in the last quarter of 2015 cabbed a key milestone the company hadn’t seen in a number of years and that was achieving total year top line revenue growth and bottom line profitability. Total year 2015 revenue was $76.4 million, up $9.9 million or 15% year-over-year. Gross margin was 30.5% up 140 basis points. Operating profit was $3.3 million, up almost $5 million year-over-year and EPS came in at $0.18, up $0.30 year-over-year. We are encouraged to see that our commercial revenue diversification strategy, new product development focus, and operating business model is leading to leveraged earnings growth. In a few minutes I’ll talk about some of the other actions we took in the last half of 2015 that position us well for further top and bottom line growth in 2016. But first I’d like to ask Ultralife’s CFO, Phil Fain, to take you through additional details of the fourth quarter and total year 2015 financial performance. Phil?

Thank you, Mike, and good morning everyone. Earlier this morning, we released our fourth quarter and total year results for the period ended December 31, 2015. For the fourth quarter, consolidated revenues totaled $19.3 million compared to $19.9 million for the fourth quarter of 2014, a decline of $0.7 million or 3.5%. Revenues from our Battery and Energy product segment were $16.6 million.

Revenues for our Battery and product segment were $16.6 million $0.1 million lower or less than 1% from the prior year. Government and Defense revenues increased by $2 million or 29% over 2014 due primarily to higher shipments to a large global defense client and continued shipments of primary batteries to U.S. government defense DLA. Commercial sales for the fourth quarter of 2015 were $2.1 million or 22% below last year when we had a large selling order form some customers. As results of the higher growth of government defense sales, the split between the commercial and government defense shifted to 46:54 compared to 58:42 for the 2014 period.

Thank you, feeling much better now. Communication systems sales of $2.6 million decreased by $0.6 million or 18% from the prior year, primarily reflecting the timing of the large order in the prior year period. On a consolidated basis, the commercial, the government and defense split was 39:61 versus 48.52 for the year earlier period. Our consolidated gross profit was $5.6 million compared to $6.3 million for the 2014 period, a decrease of 12%. As a percentage of total revenues, consolidated gross margin was 28.8% versus 31.7% for last year’s fourth quarter, a 290 basis points decrease. The reduction in overall gross margin resulted from a greater weighting of product mix towards government and defense. Cost in our Communication Systems segment associated with the ramp up of some new products to large scale production and incremental social pension costs related to increased employment in our China facility to meet 9 volt battery demand. Gross margin for our Batter and Energy product segment was 27.6% a 240 basis points decrease from the 30.0% reported last year. For our communications system segment, gross margin was 36.4%, representing a 420 basis point reduction from the 40.6% for 2014. Operating expenses represented 26.1% of revenues versus 26.5% for the 2014 period, a reduction of 40 basis points. Operating expenses totaled $5.0 million a reduction of $0.3 million or 5% from the $5.3 million reported for the 2014 fourth quarter. The 2015 operating expenses included higher R&D spending, resulting from intensified new product development activities in response to a market increase in quoting request and cost to conduct due diligence in advance of our January 13, 2016 acquisition of Accutronics. Our Q4 expenses also included $0.15 million non-cash impairment charge related to our McDowell Research Corporation trademark in accordance with Generally Accepted Accounting Principles to…

Thanks, Phil. Over the last several years our focus on revenue growth has consisted of three core elements expanding our market and sales reach, new product development and pursuing acquisition. As we entered 2015, the Battery and Energy products business was starting to capitalize on commercial market diversification with several newly developed revenue streams to offset what had been at that point a noticeable government and defense decline. Our new medical device products were gaining traction and we were seeing a surge for 9 volt batteries driven by some legislative changes for smoke detectors particularly overseas. For our Communication Systems business, after several years of new product development in pursuit of larger program projects our focus in 2015 was actually contracted deal and start realizing revenue. Looking back at 2015, we hit on each of our revenue initiatives. Driven by market and sales reach expansion and new product development, each segment of our Battery and Energy products business, commercial and government defense as well as the total Communication Systems business all grew by double-digit rates. In addition at Comm Systems we also did indeed receive a major contract award of $8.2 million, and finally at Battery and Energy products with most of the due diligence performance in 2015 we've recently completed a strategic bolt-on acquisition. For 2016, our strategy is unchanged. We will continue to build on our progress towards more sustainable revenue growth, by remaining focused on expanding our market in sales reach, new product development and pursuing acquisitions. For market and sales reach expansion in our Battery and Energy products business we will continue to work on diversifying our customer based outside of our core U.S. government, defense market by growing our commercial and international revenue, to that end, we're very excited to have completed the acquisition of…

Thank you [Operator Instructions]. And we will take our first question from Gary Siperstein with Eliot Rose Asset Management.

Mike just starting off, I was looking for $0.05 in the fourth quarter, so the headline number caused me concern and I guess I didn’t see the full news release yet. So if we take out the onetime charges I guess you were probably there in terms of the 150,000 on intangibles, it looks like you had an extra 100,000 plus in expense on foreign currency translations and then you mentioned some startup expenses for the VIPER contract and some expenses for Accutronics. Can you break out how much the expense was to ramp up for VIPER and can you break out the Accutronics expense in the quarter?

On a qualitative basis I think your logic is exactly correct, that's how we're seeing the result on EPS from some of the events we mentioned in our prepared remarks, I mean Phil can [multiple speakers].

Yes, Gary when you look at the truly onetime items, there's really a handful of those. We mentioned in the release the 1.5 million, a 150,000 MRC trademark impairment charge, that's clearly we believe a onetime item, the other is an increase in our social pension liability related to China and that is the result of increasing our headcount by over 200 individuals to meet a spike in nine-fold demand which has been met and in accordance with Generally Accepted Accounting Principles, it's not just matching the social pension contributions that they make, it's simply putting a liability on your books based on the total payroll. So, when I take those two items, it's almost $300,000 and it equates to $0.02 a share and that's a reconciliation back to your $0.05. The other items that you mentioned, I would not characterize as onetime events, because our strategy is clearly to get additional major project wins and we're going to be going through these ramp ups to larger scale production. So, my hope is that in certain periods we will -- can certainly continue to see those.

Yes, that's a high level problem, spend a little more in the quarter to ramp up for a big order. Yes, that's great. Sort of apples-and-apples it would have come in a nickel-versus-nickel and as you said Mike in your prepared remarks it was the highest quarter in the year for B&E. So, starting out with government, can you sort of give me a little more color on the cadence? So you sort of average between 19 million and 19.2 million full quarters for the year and government B&E trended up so that the fourth quarter number in that area was the highest. Do you see that strength continuing? You just talked about going into the year with a backlog there, higher than previously. Is it a combination of all the new products which is doing it? Is the government a little looser? Just a little more color on that B&E side?

Sure, it's -- when you look at the breakout, clearly I think you have to look back and then you have to look forward because one of the things that we experienced this year Gary and you asked this I think a couple of times on earlier calls, you asked about seasonality, you asked about spike. And our response has been that we haven't seen a lot of that by going into more commercial opportunities and building our business on long standing commercial relationships especially within medical, we have truly smoothed out the seasonality that we use to see in our business or the spikes, not to say it won't happen in the future. But when we do look ahead, we look at the backlog and as Mike mentioned we do see a rather dramatic increase in both G&D and both commercial which is very encouraging to us and normally this information is buried in the 10-K, but it's clearly an important measure to us of what to expect from both sides of our business as we go forward.

That’s super Phil, that’s very good. So, my initial concern then was misplaced because it would have been a $0.05 versus $0.05 and the revenue continued sequentially what you accomplish each quarter of the year and it was a tougher comparison versus last year because I think I have forgotten the stopping order and that onetime communications order that you had in the quarter last year, it didn't repeat this year. So, all-in-all it looked like a very-very strong finish to the year in line with what we thought. And just moving on to the medical portion, your overall corporate margins I guess have been blended around 30%, what are actually the medical, exclusively the medical margins?

We don't provide those individual by market segments, but I think qualitatively they're pretty consistent with the overall corporate margins. We look at the two business units, the Communication Systems margins are higher. That's indicated in a number of public reports that we put out, but associated with that is a much higher new product development expenses from some of these projects. One of the reasons why we like this acquisition we recently did is when we looked at the underpinnings of their business model, their margin rates, their growth rates, their operating expenses, their sort of philosophy, it's just was such a good fit with our core Battery and Energy products business. So, we like the margins in the medical business, they're not higher necessarily than say the Communication Systems business, they're more consistent with the B&E business. But within that framework of those types of margins, it gives us a headroom to continue to develop new products required of the space, not only to meet individual transactions, but to have an ongoing sticky relationship with those customers.

Okay. Moving on to Comm Systems, Mike, you mentioned you had some initial shipments against the startup cost in the fourth quarter on the $8.2 million contract, can you tell us how much shipped of the contract, shipped in the fourth quarter?

It was in the low hundreds of thousands of dollars.

Okay. So you have roughly 8 million going forward and you mentioned that it should be fully shipped by Q3, would that be equal dollars in each quarter or is it going to be a ramp?

Fairly equal, sometime it takes so long to get these contracted and then as soon as they're contracted everybody wants it right away. So, we're trying to do it in a balanced fashion to make sure that we can produce the highest quality and that it serves the needs of our end user. But right now as we see it, we think it is being reasonably equal throughout the first three quarters of next year.

Okay, so 8 million divided by 3, so whatever that is -- 2.6 million, 2.7 million per quarter roughly?

More or less, yes.

Okay. Moving to Accutronics. As you mentioned that their margins were consistent with our own medical margins. It sounds like a one and one equals three, bet it's wonderfully complementary and additive. Can you give me some color on the cross selling opportunities with our own medical products to sell to their customers in Europe and their products possibly to sell to our medical customers here domestically?

Yes, I mean, there is very limited, if any overlap. And so, some of the resources we talked about bringing on board, in addition to some of the other channel partners and marque type customers who are trying to develop, we're really looking at taking immediately the opportunity to use what this new acquisition brings us in terms of additional products to storm through United States and then we're equally looking for having a real genuine platform to drive not only the existing Accutronics products into Europe but some of our other products that we have in the United States with medical space. I mean interestingly when we talk to the customers in our due diligence phase and it’s something that we're very careful about and do it in very late stages, we wanted to ensure that there was no hidden things, we weren’t seeing relative to ongoing revenue streams and so we go and talk to their major customers and what we were delighted to find out was that not always did they have any issue and we didn't see any immediate issues in terms of the revenue stream, but a comment that we heard back from a coupled of those customers were that they were delighted to see that Accutronics will now have a broader global presence. So I think it was good for our standpoint and achieve our objectives, I think it was the good soft landing for them, with their customers and their longevity as well.

How many customers do they have doing the 12.5 million business? Roughly, is it 10 to 50, 100 to 200?

It's in the 100s but it seems like there is top four to five customers who do lot of the business, and that's no different than our business.

Okay. In that financing for the deal, were there any contingent payments based on achieving certain milestones?

No, Gary, the only adjustment it was the traditional adjustment for working capital, net-cash to net-debt, final [ph].

Okay and so, how do you expect to finance it, how much of your cash are you going to use, how much debt?

It's already been taking care of, it's already been paid entirely 100% out of cash on hand.

Okay and then can you tell me what their growth profile has been for the last three years, have they gone from 10 million to 12 million, or 8 million to 12 million?

Over the last four to five years, it's been similar in high single-digits, low double-digits, depending on particular projects.

Okay and has profitability been steady or is that been increasing as well?

That's what we can see, it's been pretty steady.

Okay, and can you just refresh me on, where we stand with the NOL carry forward, what the value of that is? How much is left?

The value of that is still around $80 million, the U.S. portion of it is $73 million to $74 million. So not too much change since we talked about it during the Q3 investor call.

Okay and what's the -- again just to refresh me, what’s the auditor’s rule on when we can recognize that and put it in the balance sheet, is it two years of profitability?

The general way of looking at this is demonstrated in sustained profitability, which certainly is open for interpretation. However, five quarters of profitability certainly works in our favor, as we move towards hopefully a very successful 2016.

Okay so let say, if we remain profitable through 2016, whether it's the second, third, or fourth quarter when the order has allowed you to recognize that? Is it 30% times the 80 million Phil that would be put on the balance sheet, or is it 25%.

You’re a bit low, it's approximately 35%.

So it could be in excess of $25 million?

Yes, give or take. My other comment my only comment on that Gary is, these are types of conversations that we look forward to discussing with our auditors.

When I look at -- the Company currently has $4.20 roughly book value. If they allow you at some point during calendar 2016 to put that asset on the balance sheet, 25 million on 15 million share so that at least $1.50, so that would get book up to $5.80 [ph] and then if you are profitable for the four quarters for calendar ’16 that will obviously add to book as well. So we could be standing by year end 2016 close to $6 book value, are my number kosher?

Your numbers are kosher and as usual they are very well thought out, very logical.

And then we had spoken on the last couple of conference calls about, the due diligence on M&A is sometimes equal whether the Company that you’re looking to buy does $12.5 million in revenue or $35 million in revenue. And I guess we -- this was such a spectacular deal that it made sense to do. But I think some of us are looking also for more of a transformative acquisition that is accretive on day one to really utilize that NOL and that really moves the needle. I know you can’t make them happen by magic, it’s when they show up and this one as wonderful as it was showed up first. But is that sort of as well the opportunity you’re looking at, if something larger comes up down the pipe this year or next year that could almost add $0.10 or $0.20 in earnings that will be covered by the NOL and really move the needle. Stuff like that in the pipeline that you’re looking at or that could happen it in the future and you’d be willing to do it.

I think we’re looking at the same exactly way, I mean you’re correct. This acquisition opportunity came up and it was just way too good to pass up. If we look at trying to do the same thing organically and get a business of this size and just try to do it ourselves as a Greenfield start up, you’d fool around for two or three years with operating losses before you start to make money. I mean, to be able to go and get into the game immediately at this rate and pay from our own cash flow, just a really sweet opportunity for us. The other thing that it does for us is it creates a muscle memory, it gives us an experience in integrating a smaller acquisition, so that as we become a more attractive buyer and I think our results are making us a more attractive buyer that when we undertake a larger acquisition that we do it successfully as well. So we’re really excited about this. I mean I would continue to be looking for acquisitions, trying to refer to that in my prepared remarks and certainly this thing might work for $10 million acquisition and $70 million acquisition, so if we could achieve a larger acquisition in the future that would fit really well with our thinking.

Just a couple more and then I’ll give someone else a chance. Mike in your prepared remarks you mentioned a three year, with two one year option IDIQ award the company got. What was the value on that?

Maximum value was $3.1 million.

Now you mentioned it in your remarks but it wasn’t a separate news release is it because it was an IDIQ or it didn’t meet materiality?

It was really because it's sort of an ongoing product line that we’ve continued to sold, it wasn’t particularly new or material and we made that judgment that it was sort of business as usual. But we also want to try to show and to be very transparent about the fact that we’re continuing to get core government defense business and that’s what’s going into our backlog and in our confidence moving to next year.

Lastly, in terms of -- I know you don’t give guidance, but when I look at the business at $76 million if I layer on $12.5 million for Accutronics and I assume no organic growth even though you grew the base business by 15% last year. And I keep that at $76 million and I add $12.5 million for Accutronics and I conservatively say no growth there, just $12.5 million and then you add on $8 million from the Comm Systems contract, which will be delivered. I get $95 million and then obviously if there is any organic growth for the base business in Accutronics that could push towards $100 million. And obviously during the calendar year we have 10.5 months left you could secure another comp systems order or you could make another accretive acquisition. And then I go to the base business doing $0.18 for the year and again if I am conservative and assume no growth from -- no EPS growth on the flat revenue and I assume a penny or two for Accutronics later in the year, and then if the Comm Systems business has roughly the same general margins as normal company revenue, 8 million times 30%, so 2.4 million so there is $0.15, $0.16. So when I slice and dice it and I'm not asking you to comment because I know you don't give guidance but when I look at the situation, we could have a company that goes from 76 million to 95 million to a 100 million and from $0.18 to $0.35 or $0.40 very conservatively. So I'm laying that out because you always talked about, say what you do -- doing what you say and about getting some sponsorship for the stocks, some analyst reports, some coverage, so we can get…

Gary I now that's a very thoughtful and appropriate input you make. We may not have done a lot of conferences over the last year or so, but we have talked to between 25 and 30 new investors. We've also spent a lot of time going out and seeing customers. I personally engaged on a one-on-one over 45 key customers in the last year. I think the story continues to get out while we continue to build the story. We will continue to work on trying to talk to as many potential investors as possible and we're just trying to allocate our time as best as we possibly can between our shareholders and investors to new potential customers particularly in some of the market conditions that we’re facing on a global scale right now, which you read about every day and trying to keep our employees, while heading in the right direction, we run our operation. So whether or not we do it with a different IR firm, I don't -- not even going to address that at this point, but we hear your comments, we build -- we're continuing to tell the story, we're continuing to build the story and there is really not much more I can say about it at this point.

[Operator Instructions] There appear to be no further questions from the phone. I will turn the call back to our moderator for any additional or closing remarks.

Great, well thank you once again everybody for joining us for our fourth quarter 2015 earnings call. We look forward to sharing with you our quarterly progress on each quarter's conference call in the future. Have a great day.

And this does conclude today's conference call. Thank you again for your participation.