Good day and welcome to the Ultralife Corporation Second Quarter 2020 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, Anita and good morning everyone and thank you for joining us this morning for Ultralife Corporation's Earnings Conference Call for the second quarter of fiscal 2020. 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 website ultralifecorporation.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. These include potential reductions in revenues from key customers, uncertain global economic conditions, and acceptance of new products on a global basis. 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 and other factors that could affect Ultralife's financial results is included in Ultralife's filings with the Securities and Exchange Commission, including the latest annual report on Form 10-K and latest quarterly report on Form 10-Q. 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 Q2 2020 operating performance, after which I'll turn the call over to Phil who will take you through the detailed financial results. When Phil is finished, I'll provide an update on the progress against our 2020 revenue initiatives, and then open it up for questions. For the second quarter of 2020, in the face of ongoing market, supply chain and operational headwinds due to the COVID-19 pandemic, Battery & Energy Products core revenues were up organically 23% year-over-year, driven by strong increases in both our medical and government defense revenues. When combined with the three acquisition revenues, B&E nearly fully offset the expected decline in Communication Systems year-over-year quarterly revenues, as existing Communication Systems contracts under the U.S. Army's network modernization initiatives reach completion. Total company Q2 revenues were within 3% of the prior year and Q2 adjusted earnings per share were $0.13 per share. The team built on the momentum from Q1 and delivered solid sequential improvements in revenue, up over 10% quarter-to-quarter and operating profit and earnings per share each up over 55% quarter-to-quarter. Regarding the COVID impact, as an essential supplier to the end-markets in which we serve, our workforce make quick adjustments to customer changes, such that the areas in Q2 where COVID issues result in a revenue decreases were almost entirely offset by areas where COVID demand led to revenue increases. This resulted in a relatively neutral net financial effect in terms of revenue and operating profit. Although difficult to quantify, the other areas where we saw an impact from COVID was a lengthening in time to receive supplier and customer responses to complete transaction processes, as well as in the customer testing the new products, which is understandable given the large mix of people working out of their homes versus their work offices and/or testing facilities. In a few minutes, I'll give you further information on our revenue initiatives but first, I'd like to ask Ultralife's CFO, Phil Fain, to take you through additional details of the second quarter 2020 financial performance. Phil?

Thank you, Mike, and good morning everyone. Earlier this morning we released our second quarter results for the quarter ended June 30, 2020. We also filed our Form 10-Q and Form 8-K with the SEC this morning and have our updated our investor presentation, which you can find in the Investor Relations section of our website. I would like to thank all those that helped make this happen. For the second quarter, consolidated revenues totaled $28.6 million, representing a $0.8 million or 2.8% decrease from the $29.41 million reported for the second quarter of 2019. The year-over-year variances reflect a significant increase in battery sales across diversified end markets, offset by lower communication systems sales, reflecting the completion of contracts. We estimate that the net financial impact of COVID-19 was neutral to our financial results for the second quarter. Revenues from our Battery & Energy Products segment were $24.0 million, an increase of 18.4% over last year attributable to a 71.7% increase in medical battery sales, and a 49.8% increase in government defense sales, partially offset by a 33.7% decline in oil and gas market sales. U.S. government and defense sales for the second quarter were at the highest quarterly level in over five years. The sales split between commercial and government and defense was 67/33, compared to 74/26 for the 2019 second quarter, and the domestic to international split was 59/41, compared to 53/47 last year, driven by the higher domestic government and defense sales. Revenues from our Communication Systems segment were $4.5 million, a decrease of 50.3% from last year. The decrease reflects higher 2019 shipments of mounted power amplifiers to support the U.S. Army's network modernization initiatives under delivery orders announced in October 2018. These contracts were completed in the second quarter of 2020. On a consolidated…

Thank you, Phil. During the quarter, we continued to advance our revenue growth strategy, which presently consists of the following three elements; market and sales reach expansion primarily through diversification, new product development and multi-generational product planning with strategic CAPEX when appropriate to drive competitive advantage, and a disciplined approach to acquisitions to quickly gain scale and obtain market access, technology, new products, and skilled resources. At our Battery & Energy Products business, market and sales reach expansion is about diversifying more into the global commercial and international government defense markets to lessen our revenue fluctuation, as a result of lumpiness in our core U.S. government defense business. One of our first commercial diversification focus areas was medical, an end-market of mission-critical niche applications, competitive differentiation based on quality and reliability, and long-term high-value proposition customer relationships. When we initiated our diversification strategy in 2011, medical represented approximately 3% of total company sales. In Q2 2020, it represented approximately 33% of total company sales. We continue to be the beneficiary of our diversification in the medical, as we currently find our battery and charger products well positioned in devices serving several critical areas of a current COVID-19 crisis. We saw particularly strong demand from existing customers for applications and ventilators, respirators and infusion pumps. In Q2 2020, our medical revenues were up over 70% year-over-year, bringing our nine-year medical revenue compounded annual growth rates to 33%, including the acquisition of Accutronics in January of 2016. In fact, Accutronics saw record revenues in Q2 2020, up 45% year-over-year driven by strong demand for its medical battery packs. Looking more closely at Q2 2020, core business key medical devices, battery and charger product shipments, were made for a wide range of applications including breathing devices, infusion pumps, digital X-ray, and surgical robots.…

Thank you. [Operator Instructions]. And now, we will take our first question from Gary Siperstein from Eliot Rose Wealth Management. Please go ahead.

Hi, good morning guys. Congratulations on another solid quarter.

Thank you.

My first question is, I've been on some conference calls for some of the prime defense contractors and that said on various calls, this is more than one company that they had been able to get from DoD some reimbursement on COVID expenses. I know you're not a prime contractor but have you been able to get any compensation for your COVID expenses, I think they cost you $0.03 in the first quarter?

Yeah, that's correct, Gary. We reported $0.08 of EPS in the first quarter and it cost us $0.03. COVID cost us $0.03. The $0.03 that we speak of is most directly associated with the five-week shutdown of our China operation. And it was unabsorbed overhead and all of the expenses of keeping the facility intact with nobody able to do any work. So we're not going to getting any reimbursements from the U.S. Department of Defense regarding that. Where the U.S. Department of Defense has been extremely helpful is the timing of their reimbursements and the direct contracts that we have with the DOD. The payments as -- I think we may have talked about this before, usually we expect 30 days. We're seeing reimbursement in a much quicker pace than that, which is always greatly appreciated. But that is really the extent of the assistance that we're receiving in addition to the plethora of orders that we've seen coming through.

Okay. And they've also mentioned on some of these calls with the primes that there are subcontractors, I guess as you just mentioned that sell directly to the DoD but these primes are paying their subcontractors much quicker. Are you seeing that also from some of your customers in addition from DOD?

Yes, we are definitely because when you're producing a product for a critical application, rule one is keeping your supply chain intact from the customer's standpoint and they're certainly able to do that and it puts us in a position where we're able to keep a positive cash GAAP which is always the goal of a prudent careful cash management.

Okay. And I know you had your hands full with COVID and digesting SWE, but I'm just curious what the pipeline looks like on M&A, have prices come down, are you seeing more companies that blocked previously due to price getting more realistic, and have more companies come on the market for sale in light of the recession and COVID?

Yeah, this is Mike, we're still very active in the M&A area. We have multiple discussions given in any given time. We continue to look for companies that the day two of after we own them they'll still continue to grow organically. There's a clear roadmap to return and exceeding of our existing operating margin rate that are EPS accretive in the first year and that there is a reasonable return on investment overall. And so applying that criteria, we continue to be very active, multiple discussions in any given time, and as I've mentioned I think on previous calls that it takes several years to get somebody to actually get to the point where they're willing to sell. But we like our position. We like our profitability. We like our cash flow. We like our access to capital and we're certainly very, very interested in doing acquisitions and we don't have anything to announce today and we wouldn't until we're actually in a position to close and having closed the deal before we make an announcement, but it's still a very important part of our overall growth strategy.

Okay, thank you. And in terms of the balance sheet, you guys have done a marvelous job on that. It seems like in the first six months of the year cash is up about a million bucks, payables are down about a million to million and a half and long-term debts almost down $7 million. Cash is just about equal to long term debt. With that being said, is there any appetite for stock buybacks with the stock trading at book value, with that solid first half?

No, our options continue to be on the table, Gary. We have said before, sort of our priorities are for organic growth first including CAPEX, acquisitions, as we just talked about what our interest were, and that if we still should have excess funds available that we don't want to have sit idle we would consider stock buybacks. But at this point we're not talking about anything like that.

It's been a while Mike since we've had any announcements on major contracts, I mean, you did have the major contract with Thales and then a year or two or two ago or couple of years ago, you had a bunch of IDIQs in a row, but it's been quiet since then. You've mentioned smaller orders here and there. What does the pipeline look like on potentially larger contract awards and announcements?

I mean it's a good plan. I mean I was looking back and there were specific announcements in 2016, 2017, 2018, 2019 and a lot of those were IDIQs. And I think those are obviously the first step in terms of getting revenues from one of our largest customers being the DoD, but I think another really important aspect of that is, is that it really doesn't count against the ledger until we actually ship revenue against it. So whereas we -- I think we have right now close to $100 million of IDIQs, our intense focus is on getting those throughout the first article testing and all the other requirements of the government so that we start getting delivering orders and showing revenue. That being said, we have some large projects that we've talked about in my prepared remarks, particularly for Communication Systems and we don't have any clear visibility to exact timing of when those contracts would hit. There's something we spend a lot of our time on. So we would anticipate larger contracts in the future. But in the meantime, we're trying to deliver for revenue realization the ones that we have.

Okay, thanks for that. And finally, just a little bit of commentary on my part. I just want to congratulate you guys for doing an amazing job these last five years through thick and thin, the economy is up and down, the DoD fickleness, and now COVID, you guys have managed to increase revenues, increase earnings, increase book value, mind the balance sheet, etcetera wonderfully for the last five years. But that being said, we're trading at book value where we have $0.21 in six months earnings, $0.24 adjusted for COVID. We're annualizing over $0.40 in earnings, should be at $0.41 last year. Next year the IDIQ as you mentioned $100 million, the IDIQs would start contributing. Next year, 3 Volt will start contributing, next year, the Internet of Things will start contributing, next year the Leader Radio could go into full production from the LRIPs that it's going on now. So you're trading at like a 15, 16 current PE in the stock market that has a 21 PE with the S&P. And one could reasonably conclude with all those things I mentioned starting to contribute starting next year in a post-COVID environment where $0.50 to $0.60 in earnings or more is possible in 2021-2022, which would put us at about a 12 PE. So, while I give you kudos on what you've done and accomplished, I think you guys have done a horrible job on Investor Relations, with all this potential and all the success over the last five years this stock shouldn't be trading at book at 12 times forward earnings. So, I think you guys could seriously consider a new IR firm, you should consider getting an investment banker, you should consider hiring possibly a full time IR person, and you should start attending these virtual conferences where you don't even have to travel. You're part of the Russell 2000 now. You're competing with 1999 other public companies that are looking for investor attention. So just to get a fair valuation on your company, I think as a function of getting that investor attention and besides the 2000 companies in Russell 2000, there's another 5,000 or 10,000 other publicly traded small companies. So, I think if you picked up that effort, we would have a much better valuation on the company which would give you guys, first of all, it'd be nice for your shareholders to have the company properly valued for all you've accomplished and all the potential, but also obviously having the currency at a higher valuation, it gives you more options with M&A. So, I hope you'd consider some of those ideas.

Thank you very much. Really appreciate the input Gary.

Alright, guys. Thanks very much and congratulations again.

Thank you.

Thank you. [Operator Instructions]. It appears there are no further questions at this time. Mr. Popielec, I'd like to turn the call back to you for any additional or closing remarks.

Alright, operator. Thank you very much and thank you once again for joining us for our second quarter 2020 earnings call. We look forward to sharing with you our quarterly progress in each quarter's conference call in the future. As Phil noted and I'd also like to note that we updated our investor presentation on our website. So, please check that out and everybody have a safe and a great day.

This concludes today's call. Thank you for your participation, you may now disconnect.