ULBI

Ultralife Corporation (ULBI)

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Ultralife Corporation (ULBI)

Q1 2010 Earnings Conference Call

April 29, 2010 10:00 AM ET

Executives

Jody Burfening – Lippert/Heilshorn & Associates

John Kavazanjian – President and CEO

Phil Fain – CFO

Analysts

Trey Cobb – Stephens Inc.

Jim McIlree – Merriman

Ted Kundtz – Needham

Presentation

Operator

Good day and welcome to this Ultralife Corporation first quarter earnings 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, operator and good morning, everyone. This is Jody Burfening of Lippert/Heilshorn & Associates. Thank you for joining us this morning for the Ultralife Corporation’s earnings conference call for the first quarter of fiscal 2010.

With us on today’s call are John Kavazanjian, Ultralife’s President and Chief Executive Officer; 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 Ultralife website 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’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, and possibility of intangible asset impairment charges that may be taken.

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, 2009.

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 2010. Joining me today is Phil Fain, our Chief Financial Officer. Today, we reported revenue of $38.5 million for the first quarter of 2010 with an operating profit of $900,000 and an adjusted EBITDA of $2.7 million.

Quarter-over-quarter revenue was down from the fourth quarter revenue of $50.4 million. Despite the lower revenue, we showed an operating profit due to strong gross margin and disciplined expense control.

Even with a very weak gross margin in energy services, strong operational performance in battery and energy products and in communication systems led to this result.

As we continue to grow our sales of more highly engineered products and as energy services gains momentum as the economy recovers, we expect further margin growth moving forward.

In our battery business, there has been a hiatus in the ordering of some battery products by the Defense Logistics Agency while they resolicit some of the contracts that expired at the end of last year. This includes the BA 5372, the BA 5347 and the BA 5390.

While we are the only currently qualified source for several of these products, there will be competition and we're engaged in the proposal process. We anticipate contract awards to be made this quarter with shipments to resume in the second half of the year and we assume that any awardees will be the beneficiaries of catch up in demand orders.

We also saw weakness in the energy services area. A large part of our backlog was pushed out as we saw further delays in capital projects. However, we are seeing a significant pickup in orders and proposals and expect revenue to pick up this quarter and expect to be back on track in the second half of the year.

Battery and energy products, we continue to make operational progress and our China operation, we will start production of our new 9 volt product of major shipment starting in the third quarter.

At operation, we'll also commence shipments of a new version of our thionyl chloride batteries targeted at the automated meter reading market with world leading performance.

Ultralife China is growing and will be a major contributor to profitability moving forward. We also expect process improvements in our growing rechargeable business and our existing nonrechargeable business to help to grow margins.

A few weeks ago we announced a $2.4 million grants from the state of New York, the development of a large scale energy storage system for alternative energy. We will be using that grant to further develop large scale smart lithium battery systems to be integrated with wind and solar installations.

We know that efficient energy storage can cut the payback time of these systems in half if properly designed and managed. Together with the lithium battery systems that we're developing for backup power, this area would be a major part of our growth strategy in this segment.

In communication systems, a gross margin of 38% was a major contributor to profitability. The addition of the AMTI Amplifier business acquired last year and operational process improvements were the major reasons for this performance.

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