Ultralife's Q3 2025: Contradictions Emerge on Tariff Costs, Medical Sales Timing, and Electrochem Acquisition Status

Date of Call: November 7, 2025

Financials Results

• Revenue: $43.4M, up 21.6% YOY (from $35.7M in Q3 2024); Battery & Energy $39.9M vs $32.5M prior year
• EPS: GAAP net loss of $0.07 per share (net loss $1.2M), compared to net income of $0.02 per share in Q3 2024
• Gross Margin: 22.2%, down 210 basis points from 24.3% in Q3 2024; Battery & Energy margin 22.1% vs 24.7% prior year; Communications margin 23.3% vs 20.0% prior year
• Operating Margin: Operating loss of $1.0M (~-2.3% of revenue) vs operating income of $0.5M in prior-year quarter; operating expenses 24.4% of revenues vs 22.9% prior year (21.9% ex one-time costs)

Guidance:

• Expect benefits from Electrochem integration and vertical integration to materialize in 2026, with BA 53 award ($5.2M) delivering throughout 2026.
• Preproduction units for next‑gen amplifier expected Q1 2026; sampled amplifiers and Crescent Server-related shipments anticipated in 2026.
• Closing Calgary and relocating production to Houston; estimated annual savings of ~$0.8M in 2026.
• Focus on margin improvement via pricing, material-cost deflation and lean productivity projects (Newark lean exercises underway).
• Expect strengthened sales pipeline and multiple large opportunities to drive revenue growth in 2026.

Business Commentary:

• Revenue Growth and Diversification Strategies:
• Ultralife Corporation reported Q3 sales of $43.4 million, with an operating loss of $1 million, including a $1.1 million onetime adjustment.

• Revenue growth was attributed to strategic diversification through M&A and new product development, as well as strong demand in government defense sales.

• Gross Margin Challenges and Supply Chain Issues:

• The company's consolidated gross margin was 22.2%, a 210 basis point decline from the previous year's 24.3%.

• Gross margin reductions were primarily due to supply chain quality issues affecting product mix and line efficiencies, particularly in the Battery & Energy business.

• Communications Business Impact and New Product Efforts:

• The Communications Systems segment reported $3.4 million in revenues, an 8.2% increase from the previous year.

• New product launches and improved sell-through momentum are expected to mitigate the negative impact on earnings as the business expands its product portfolio.

• Transition and Cost Optimization Initiatives:

• Ultralife initiated actions to improve gross margins, reduce redundant facilities, and consolidate operations, including the closure of the Calgary location.

• These actions are aimed at enhancing global market positioning and profitability by leveraging increasing sales funnel opportunities.

• Strong Backlog and Sales Funnel Expansion:

• The company's total backlog exiting Q3 was $90.1 million, a 6.5% increase over the previous quarter's $84.5 million.
• The diverse replenishment rate, with approximately 55% from commercial customers and 45% from government defense customers, supports the stabilization and growth of the business.

Sentiment Analysis:

Overall Tone: Neutral

• Management reported a Q3 GAAP net loss and gross‑margin decline due to supply quality issues but emphasized actions (Calgary closure, Electrochem transition, lean projects) and stated: "I'm confident we are making the right moves to stabilize and grow the business over the long term."

Contradiction Point 1

Tariff Impact on Costs and Margins

It directly impacts the financial performance of the company, particularly in terms of costs, margins, and revenue.

[No specific question mentioned in the provided transcript] - [No specific questioner mentioned]

20251118-2025 Q3: Current tariff rates are not much higher than the past few years. We expect less impact compared to the second quarter. We are closely monitoring the situation and passing the tariff costs on to our customers. - Philip A. Fain(CFO)

What was the cost of tariffs in the past quarter? - John Deysher (Pinnacle)

2025Q2: The net tariff cost was $400,000 after receiving $126,000 back from customers. The timing of component purchases coincided with peak tariff rates, impacting costs significantly. - Philip A. Fain(CFO)

Contradiction Point 2

Medical Segment Sales and Timing

This inconsistency impacts expectations about revenue and growth for Ultralife's medical segment, which could influence investor perceptions and strategic planning.

[No specific question mentioned in the provided transcript] - [No specific questioner mentioned]

20251118-2025 Q3: We continue to expect strong bookings in the medical segment, which is experiencing a resurgence in demand. We expect additional orders for battery and charger solutions as customers transition to new healthcare technology. - Philip A. Fain(CFO)

Can you update us on the B&E Commercial segment's performance in the medical and oil & gas sectors? - Jake Patterson (Talanta Investment Group)

2025Q2: Medical sales were strong in Q2 2024 but are timing-based now. The company is confident in the pipeline and expects a return later this year. - Philip A. Fain(CFO)

Contradiction Point 3

Electrochem Acquisition Status

It involves the status and timeline of a major acquisition, which impacts strategic planning and financial expectations.

[No question provided in the transcript] - [Not specified in the transcript]

20251118-2025 Q3: We've completed the purchase price allocation process and the regulatory filing and approval. We're now moving forward with the integration. We're implementing Ultralife's systems like ERP and transitioning their operations over to Ultralife's systems. - Mike Manna(CEO)

What are the remaining key milestones for the Electrochem acquisition? Are you confident the deal will close by Q2? - Josh Sullivan(The Benchmark Company)

2025Q1: We closed the acquisition of Electrochem effective December 28th. And as we said in our press release, we expect to complete the transition of Electrochem to Ultralife's systems by the end of Q2. - Mike Manna(CEO)

Contradiction Point 4

Free Cash Flow Expectations

It involves expectations for free cash flow, a critical financial metric for investors.

[Not specified in the transcript] - [Not specified in the transcript]

20251118-2025 Q3: We're seeing a tight cash flow position, and we're managing the working capital very tightly to get the cash conversion factor up to the 50% to 60% range. - Phil Fain(CFO)

How do you expect free cash flow to trend over the remainder of 2025? - Justin Mechetti(Sidoti & Company)

2025Q1: Phil Fain: Free cash flow is expected to be consistent throughout the year. Lessons from 2024's cash flow trends will be applied to maintain better consistency. - Phil Fain(CFO)

Contradiction Point 5

Industrial Sales Timing Issue

It involves the explanation for the industrial sales timing issue, affecting customer demand and order patterns, which have significant impacts on revenue forecasting.

[Operator Instructions] - Operator

20251118-2025 Q3: Some customers overbought early in the year and are trying to manage their inventories and spend. They pushed orders into 2025. - Mike Manna(CEO)

What progress has been made ahead of schedule with Electrochem and what are the key challenges? What portion of the industrial sales timing delay is due to internal factors versus macroeconomic conditions? - Josh Sullivan (The Benchmark Company)

2024Q4: The industrial sales decline was due to customer push-out, not any macroeconomic trends or market weakness. The markets we operate in are considered resilient. - Phil Fain(CFO)