Good day, and thank you for standing by. Welcome to the Ultralife Corporation First Quarter 2025 Results. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Alex Villalta of Alliance Advisors IR. Please go ahead.

Thank you, operator, and good morning, everyone. Thank you for joining us for Ultralife Corporation's earnings conference call for the first quarter of fiscal 2025. With us on today's call are Mr. Mike Manna, Ultralife's President and CEO; and Mr. 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 at ultralife.com, where you'll find the release under the 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 uncertain global economic conditions, reductions in revenues from key customers, delays or reductions in U.S. and foreign military spending, acceptance of our new products on a global basis and disruptions or delays in the supply of raw materials and components due to business conditions, global conflicts, weather or other factors not under our control. 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 is included in the company's filings with the SEC included in the 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 and differ from GAAP. These non-GAAP measures could be considered supplemental to corresponding GAAP figures. With that, I would now like to turn the call over to Mike Manna. Good morning, Mike, please go ahead.

Good morning. Welcome to our call on Ultralife's Q1 operating results. Earlier this morning, we reported Q1 sales of $50.7 million with an operating income of $3.4 million which resulted in $0.11 EPS on a GAAP basis and $0.13 on an adjusted basis. Q1 was the first full reporting quarter in which our latest acquisition, Electrochem was fully included in our results. I'm pleased to say they were a positive addition in Q1, even with some remaining onetime costs as we work through the transition of their systems from their previous parent, which is on track to complete in Q2 of this year. I want to briefly cover the major subject of tariffs and the expected impact. We have a diverse business with multiple supply chain flows, each with multiple levels of tariffs and duties depending on which product it is. So we do expect some impact due to the tariff situation. We have a detailed evolving analysis of the major suspected impacts and are passing along the known full tariff cost as a surcharge. Specifically reviewing our China location produced end products, typically 10% to 15% ships directly to the United States with most other sales being the other international locations. We are executing our mitigation plan, which includes reviewing sources of supply, managing inventory flow to reduce upfront expenses at the border and examining our manufacturing locations. Being heavily involved in medical and government markets, it is often not quickly possible to change supply source without requalification and customer involvement, which also creates competitive barriers to entry. We believe our North American-based manufacturing locations will give us long-term strategic advantages, especially in the government and defense and the oil and gas markets and provide future opportunities for growth. We are committed to continued investment in NPD projects and increase marketing efforts, both of which are required to continue our targeted growth goals. I will now turn it over to Phil to talk through the detailed numbers.

Thank you, Mike. And good morning, everyone. Earlier this morning, we released our first quarter results for the quarter ended March 31, 2025. We have also updated our investor presentation in the Investor Relations section of our website and will file our Form 10-Q with the SEC on Monday. Consolidated revenues totaled $50.7 million compared to $41.9 million for the first quarter of 2024. Revenues from our Battery & Energy Products segment were $46.3 million compared to $35 million last year. Excluding third-party sales for Electrochem, which we acquired on October 31, 2024, sales for the segment increased 10.6% year-over-year. This organic growth was driven by very strong performance in our government-defense sales, which increased 53.6%, partially offset by a 12.3% decrease in medical battery sales. The sales split between commercial and government defense for our battery business was 64-36 compared to 69-31 reported for the 2024 quarter, and the domestic to international split was 78-22 compared to 58-42 for the 2024 period representing the inclusion of Electrochem in the heightened demand for our government defense products by U.S. primes. Revenues from our Communications Systems segment of $4.4 million declined 36.2% from the $6.9 million we reported last year, primarily attributable to large shipments in the prior year of integrated systems of amplifiers and radio vehicle mounts to a major international defense contractor. The year-over-year comparison was compounded by a follow-on Leader Radio order received in October 2024, which we pushed out beyond the first quarter due to material lead times. On a consolidated basis, the commercial-to-government defense sales split was 58-42 for both the 2025 and 2024 first quarters. Our total backlog with high-confidence orders exiting the first quarter was $95 million and remains diverse in nature across our commercial and government-defense customer base. The replenishment rate remains high,…

Thank you, Phil, for the detailed review of the Q1 2025 results. As mentioned in the last call, we have some new priorities to accomplish in 2025. First, complete the transition of the Electrochem acquisition into the Ultralife back office, which includes such items as cloud storage, e-mail and the main one being the ERP system. These are expected to complete by the end of Q2. We continue to leverage and grow vertical integration opportunities due to the newly acquired business, which allows Electrochem cells to be using some of our current pack assemblies and expands our addressable market for products like pipeline inspection, seismic telemetry and sonobuoys. Secondly, we need to improve our sales opportunity pipeline to support growth throughout 2025, we have made a concerted effort to improve our marketing through search engine optimization, targeted ads and contact engagements at specific customers initially focused on our transformational projects. Third, we need to improve and stabilize gross margin through pricing, material cost deflation and lean productivity projects in both the Battery & Energy and Communications businesses. We made the decision in Q1 to close our smallest manufacturing location in [ Mississauga ] and move that production into various other facilities. All production activity in [ Mississauga ] was completed by the end of April. This move will eliminate some fixed costs and redundant operations as well as improve the engineering support for the products going forward. Pricing was adjusted as we moved into Q1 for both the Battery & Energy business, and the Communications business to offset known inflationary cost increases and regain gross margin parity on products. We continue to work various lean projects in the facilities with one major lean initiative completed in Q1 in Newark, and several new projects identified for Q2 at the Electrochem facility.…

[Operator Instructions] And our first question comes from the line of Josh Sullivan of the Benchmark Company.

Just given the qualification realities and the barriers of your products, how have the conversations with customers on tariff pass-throughs evolved? I imagine they're thinking of their own pass-throughs at this point as well. But curious on where you are in those conversations.

Well, obviously, no one is excited about the fact that these tariff situations are in play right now. Overall, I think everyone understands that it's a cost that everyone is going to bear at some level. We're trying our best to reduce tariff impacts where we can. But overall, the customers, from the conversations I've had, they're really more worried about the cash flow and the amount of cash being consumed at the border bringing product in. I mean, whether it's us or them with some of their suppliers, it's a definite impact on the upfront cash, and that could have impacts later on what are you're going to spend your cash on. You need to keep your business flowing, you need production to keep flowing. But if you're spending it on tariffs at the border, it becomes harder to spend it on some of your product development and other things you need to invest in. That's kind of how some of the conversations have went with me.

And Josh, it's been circuitous. I think between our supply chain and our customers. We're all asking ourselves the same questions. We're all asking each other same questions. And the letters and the commentary, it's really -- it's all the same. It's "not a price increase." It's a variable surcharge that will -- absolutely, it could go up, it could go down, it could be eliminated. So we're all kind of holding our breath, but it's -- being in this situation where we're all facing the same hurdle, brings some camaraderie and some understanding along the way.

Got it. Got it. And then just on Electrochem, you mentioned some of the ERP carve-out and some of the milestones. What are the major milestones left here? Are you confident in that 2Q close and ending of it? And then you mentioned some of the vertical integration advantages in the prepared remarks there. Can you just expand on those and highlight those?

Yes. I can start off. Basically, we've been kind of knocking down things in their system side over the last 13, 14 weeks to begin with. We have the networks up and running at all the facilities. We're rolling out new laptops, the mail and office and all the back stuff is actually set up. It's just a matter of transitioning all the people in -- over to it. I mean, really, the biggest transition piece is really finishing all the setup of the Ultralife ERP with the Electrochem's items. We've got the data, all the data has been transitioned, but there's other things that need to be set up specifically for the ERP system we use like work centers and certain things like that. And we're working through that now. But right now, it looks like we're on track. I don't see any big hurdles to that. There may be some smaller side system things that linger into Q3, but they're not the priority to run the business and they're not the big cost items that we need to worry about right now. As far as the integration activities go, we buy a lot of cells in our oil and gas business. Electrochem was not a main supplier to us prior to the acquisition. So there's obviously a world of opportunity there with what they weren't supplying, to move their cells into some of those packs. So we're working through that. But we do have supply agreements with the old partners, and they're good partners as well that we don't necessarily want to just totally move away from. So it's a balancing act, but we'll start seeing some of those benefits as we go into Q3 and Q4.

And Josh, I'll just add this from a financial standpoint, Electrochem's contribution margin is very, very favorable. And what I'm most excited about is recognizing that contribution margin through the internal use through pure vertical integration, recognizing that into our P&L. It's very accretive.

Got it. Got it. And then just on the commercial options for the IVAS battery, what markets would those be -- or products would those be?

Well, I wouldn't necessarily say they're commercial, Josh. I would say they're foreign military, more than U.S. military at this point. There are some commercial engagements going on, but we really believe the main the main sales focus is still going to be military in nature, just offshore to begin with.

Got it. And then Mike, you noted in the press release, increased confidence in profitable growth and -- just wanting to hear you expand on that, just given some of the macros and uncertainties out there.

Well, we're progressing -- it's -- we talk a lot about a lot of our transformational projects in all these calls. And it seems like we're in a never-ending state of qualification and validation and field testing and whatnot. But we are coming to the end of some of those. So we do see some light at the end of the tunnel there. Q1 actually was a better quarter than we anticipated, and it was stronger. Q2 right now seems good. So at least right now, I think our business is in a pretty good place. And our first quarter, you saw the medical sales were down year-over-year quite a bit. We expect that to come full circle back in probably the back half of the year. It's a little bit of a cyclicality with battery replacement cycles and some of the production items going on there. So I think we're comfortable in 2025 here. The biggest probably wildcard is really our Comms Systems business, which has still got quite a bit of business involved with government contracts, which flow as they flow. We don't have a lot of control over those orders and that timing.

[Operator Instructions] And our next question comes from the line of Justin Mechetti of Sidoti & Company.

Can you provide detail on the current trends you're seeing across key end markets, particularly in government, defense and medical and how those dynamics are shaping your expectations for backlog and overall demand visibility?

Yes, I can give you some color from my seat. I mean on the medical side, a lot of the applications that we're in are, what I would call, necessary applications, and a lot of the products that we support have known replacement cycles as far as the battery life and how long it's allowed to be in field. So we're actually coming up on a period where some of the late fielded COVID devices will probably need battery or well, will need battery replacements. So the medical side, it's relatively steady at this point. It has some quarter-to-quarter variation, but I don't see it just going away at all. On the government and defense side, we sell a lot to primes. We sell a little bit to the -- direct to the U.S. military. Again, a little bit of cyclicality, but overall, it's still been pretty strong through the first quarter. We have a pretty good backlog in Q2. And right now, at least the customers that we're talking to don't seem to see really any falloff in 2025. And you look around the world right now, we're not in necessarily the safest environment, and it seems like conflicts are breaking out in a lot of different areas. So we don't expect our government and defense business to really suffer much. If anything, we expect to possibly see some increases from the conflict areas and also some increased NATO spend, which we expect to happen over the next 18 to 24 months to catch up.

Great. And then on free cash flow, can you discuss how you expect free cash flow to trend over the remainder of 2025?

Yes. Free cash flow, we expect that to be very consistent also. We look at last year, Justin, and the first half of last year was absolutely fantastic. In the first half of last year, we paid down $20 million of debt and things got a little bit softer in the latter half of the year. And then you learn from your past. So the lessons learned are very clear. It's level loading, level loading across the board from purchase of your supplies to your production, even through your sales results in exactly what we're looking for, more consistency in the cash flows. And right now, our positive cash GAAP receivables greater than payables is in very, very good shape. That's why I made the comment that we're looking at being in a position, continuing to pay down our debt in advance of the bank's amortization schedules. And I expect, based on what I'm seeing right now with the backlog and certain other things that Mike and I are privy to, we expect cash flow to be even throughout the year based on what we're seeing right now.

I'm showing no further questions at this time. I would now like to turn it back to Ultralife management for closing remarks.

All right. Thanks for listening to today's call. We look forward to talking to you next time during the Q2 2025's earnings call. Bye, everyone.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.