ULBI

Ultralife Corporation (ULBI)

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Ultralife Corporation (ULBI)

Q2 2010 Earnings Call

July 29, 2010 10:00 am ET

Executives

Jody Burfening - Lippert/Heilshorn & Associates

John Kavazanjian - President & CEO

Philip Fain - CFO & Treasurer

Analysts

Walter Nasdeo - Ardour Capital

James Mcllree - Merriman

Sam Bergman - Bayberry Asset Management

Presentation

Operator

Good day and welcome to the Ultralife Corporation Second Quarter Earnings Conference Call. At this time, I would like to turn the conference 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 for joining us this morning for the Ultralife Corporation's earnings conference call for the second quarter of fiscal 2010.

With us on today's call are John Kavazanjian, Ultralife's President and CEO; and Philip 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 contains 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, should management decide to retire one or more brands of acquired companies.

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 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.

John Kavazanjian

Thank you and welcome everybody to the Ultralife Corporation conference call for the second quarter of 2010. Joining me today is Philip Fain, our Chief Financial Officer.

Today, we reported revenue of $37 million for the second quarter of 2010, with an operating profit of $400,000 and an adjusted EBITDA of $1.8 million. Despite the lower revenue, we showed an operating profit due to the continuation of strong gross margin performance and disciplined financial and expense control.

Revenue was flat due to government contracting delays along with continued weakness in the energy services market. We expect a sequential growth in revenue for the third quarter and have shipped over $20 million worth of products in July already. We also expect energy services revenue to start to grow in the third quarter, as capital equipment expenditures start to recover.

In Battery and Energy products, we've continued to see delays in contracting and order activity for standard battery products with the Defense Logistics Agency. Despite order history and contract estimates that are significant, we've seen no orders on standard battery products since the fall of 2009 as contracting efforts continue.

International defense business and commercial business continued strong in ever and operational improvements continued to effect margins positively. Communication Systems sales were on target at $11.2 million with a gross margin performance at 35%. We commenced shipments on our SATCOM on the move order in the first week of July and expect to complete this order in the fourth quarter of this year, which will contribute to further revenue growth this year in communication systems.

While, energy services revenue continue to be weak, bookings have seen a significant pick up, which will result in a return to revenue growth in the third quarter. Activity is strong for the second half of the year and we see signs that could indicate permanent recovery in this sector, as deferred capital projects have been reactivated. With our continuing work on operational improvement and overhead costs firmly entrenched, we are also focusing on new product development.

In energy products, much of our work is on international variance of our Land Warrior product line, initially developed for the US military. We are now in discussions with a number of international military organizations interested in adapting this product line for their use. With the US now deploying this system and others looking to adopt our power system, we see this area as a major growth sector of our defense business.

On the commercial side, we have several new medical applications either in starting production or in final development qualification testing. Utilization of our SmartCircuit technology is capturing interest and design programs in the medical space, as designers of advanced medical equipment start to utilized smart battery technology.

As we’ve finalized the contracts process with the state of New York, we haven't got the go ahead to start some work on our large scale energy storage batteries. Interest in this work is high, as both the wind and solar industries start to understand that energy storage is intracle to the long-term success of both of these alternative energy technologies.

While, we do not expect to have finished megawatt size product until next year, we expect to apply to intermediate-sized products that we will develop on the way, that have applications in many of our existing markets.

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