ULBI

Ultralife Corporation (ULBI)

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Ultralife Corporation (ULBI)

Q1 2009 Earnings Call Transcript

April 30, 2009 10:00 am ET

Executives

Jody Burfening – IR, Lippert/Heilshorn & Associates, Inc.

John Kavazanjian – President and CEO

Bob Fishback – VP of Finance and CFO

Analysts

Trey Grooms – Stephens Inc.

Ted Kundtz – Needham & Company

James McIlree – Collins Stewart

Richard Baxter – Ardour Capital Investments

Jill Mastoloni [ph] – Catapult Capital

Presentation

Operator

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

Jody Burfening

Thank you, and good morning, everyone. This is Jody Burfening of Lippert/Heilshorn & Associates. Thank you all for joining us this morning for Ultralife Corporation's earnings conference call for the first quarter of fiscal 2009.

The earnings press release was issued earlier this morning and if anyone has not yet received a copy, I invite you to visit the Ultralife website at www.ulbi.com where you will find the release under Investor News in the Investor Relations section.

A replay of today’s call will be made available starting at 1 o’clock today through 1 p.m. on May 7. To access the replay, please dial 800-203-1112 pass code 2784675. In a minute, I'll turn the call over to John Kavazanjian, Ultralife's President and CEO, who along with Bob Fishback, Ultralife's Chief Financial Officer, will provide their formal remarks.

Before turning the call over to John, I'd 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 worsening global economic conditions, increased competitive environment, and pricing pressures, disruptions related to restructuring actions and delays.

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. A more detailed description of such uncertainties is contained in the company's filings with the Securities and Exchange Commission such as the company's Annual Report on Form 10-K for the period ending December 31, 2008.

In addition, on today's call, management will refer to certain non-GAAP financial measures that management considers 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 John. Good morning, John.

John Kavazanjian

Thank you, Jody. Good morning and welcome to the Ultralife Corporation conference call for the first quarter of 2009. I have joining me today Bob Fishback, our Chief Financial Officer; Julius Cirin, our Vice President of Corporate Marketing and Technology; and Bill Schmitz, our Chief Operating Officer.

Today, we reported revenue of $39.8 million for the first quarter of 2009 and an operating loss of $2.3 million. Compared to last year when we were starting to fill more than $100 million in advanced communications systems, revenue declined. Revenue was also lower than the fourth quarter due to continued delays in contracting associated with funded government programs. Additionally, revenues in Non-Rechargeable Products was down from last quarter.

Significant decrease in revenue in Communications Systems had a negative effect on operating income and was the primary cause of the quarter’s operating loss. In Communications Systems, we still expect the award of significant business particularly in the area of SATCOM-On-The-Move systems. Updating of the DoD fleet replenishment of worn-out vehicle, and deployment of new platforms is budgeted and proceeding. These vehicles systems are all planned with SATCOM communication.

A severe shortage of contracting officers combined with high level of new activity and new working relationships with new civilian leadership has caused a delay in the issuance of contract. We expect this situation to improve, but cannot count on the delays to be caught up by year’s end. We do expect that one of the remedies for this will be more multi-year contracts eliminating the need for annual renewals. Although our other business segments are relatively stable, in the context of a weakened economy, inventory corrections are restricting growth.

In our standby power business in particular, price erosion in component parts driven by inventory liquidations by our competitors had a negative effect on margin. In the Design and Installation Services segment, which is primarily driven by standby power, gross margin was 8%. While we have continued investment and expenses related to our expansion to a National Organization, severe price competition in component parts led to this compressed margin.

During the quarter, we made progress towards our model of integrated sales and design installation and maintenance packages, and we expect to ameliorate a good deal of this in the second quarter. Non-rechargeable products continued to show strong demand, despite a small drop in our 9-volt business and continued weakness in automotive telematics due to lower vehicle demand. Telematics revenue was down from the previous quarter because of the extended shutdown of production at the beginning of the year. We have started shipments again and the lower level of production has been factored into our guidance.

Although we had a slight drop in revenue of certain military products, this was based on timing of production lot releases, and bookings are strong with almost two full quarters of backlog. Last Friday, we were notified that as a result of a competitive procurement, we have been selected as the new battery supplier of the main communication system used by the UK Ministry of Defense. This involves chargers as well as multiple battery types, and we will commence shipments in the third quarter. Program is managed by a prime contractor and orders will come through that contractor.

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