Ultralife's (ULBI) CEO Mike Popielec on Q1 2016 Results - Earnings Call Transcript

| About: Ultralife Corporation (ULBI)

Ultralife Corporation (NASDAQ:ULBI)

Q1 2016 Earnings Conference Call

April 28, 2016 10:00 AM ET

Executives

Jody Burfening - IR

Mike Popielec - CEO

Phil Fain - CFO

Analysts

Gary Siperstein - Eliot Rose Asset Management

Operator

Good day, and welcome to this Ultralife Corporation First Quarter 2016 Earnings Release Conference Call. At this time, for opening remarks and introductions, I'd like to turn the call over to Ms. Jody Burfening. Please go ahead.

Jody Burfening

Thank you, Katie, and good morning, everyone and thank you for joining us this morning for Ultralife Corporation's earnings conference call for the first quarter of fiscal 2016. With us on today's call are Mike Popielec, Ultralife's President and CEO; and Phil Fain, Ultralife's Chief Financial Officer. The earnings press release was issued earlier this morning. If anyone has not yet received a copy, I invite you to visit the Company's website, 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 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. These include potential reductions in US military spending, uncertain global economic conditions and acceptance of the Company's new products on a global basis. The Company cautions investors not to place undue reliance on forward-looking statements, which reflects 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 Securities and Exchange Commission, including the latest Annual Report on Form 10-K.

In addition on today's call, management will refer to certain non-GAAP financial measures that management considers to be useful metrics and 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 Mike. Good morning, Mike.

Mike Popielec

Good morning, Jody and thank you everyone for joining the call this morning. Today, I'll start by making some overall comments about our Q1 2016 operating performance, then I'll turn the call over to Phil, who will take you through the detailed financial results. After Phil is finished, I'll provide an update on the progress against our 2016 revenue initiatives, then open it up for questions.

For Q1 of 2016 we were very pleased to deliver our sixth consecutive quarter of total company profitability and positive EPS generating an operating profit of $0.5 million on revenues of $20.8 million for an operating margin of 2.3%. Included in these results was the favorable contribution to revenue of the Battery & Energy Products UK acquisition completed in mid-January, as well as the negative impact to operating profit of the one-time acquisition cost.

Battery & Energy Products Q1 revenues were $16.4 million, and up slightly over the prior year driven entirely by the Accutronics acquisition, which delivered $2.5 million in revenue and performed solidly to expectations. Despite strong organic growth in our core business medical battery and charger products and some momentum in our international government defense business, the existing B&E business was not able to fully compensate for a large government defense charger order and the 9-Volt battery demand surge that occurred in Q1 of 2015. This led to the core B&E business to be down $2.3 million year-over-year.

For our communication systems business, first quarter revenues were $4.4 million, up 51% year-over-year, the highest quarterly revenue in three years and driven by the initial deliveries under the Vehicle Installed Power Enhanced Riflemen Appliqué or VIPER large program contract announced last year. In aggregate, total company revenue was up $1.7 million or 8.6% year-over-year resulting primarily from the strong increase in our Communication Systems business with the revenue from the B&E acquisition fully offsetting the decline in the core B&E business.

Despite the Q1 pluses and minuses, and fully knowing there is still many top line opportunities and much to improve, we are encouraged to start the New Year with another quarter of achieving top line revenue growth and bottom-line profitability. Our new acquisition has started off well, and we know that our commercial revenue diversification strategy, new product development focus and operating business model is leading to leveraged earnings growth.

In a few minutes I will talk more about our revenue initiatives for 2016, but first I like to ask Ultralife’s CFO, Phil Fain, to take you through additional details of the first quarter 2016 financial performance. Phil?

Phil Fain

Thank you, Mike, and good morning everyone. Earlier this morning, we released our first quarter results for the period ended March 27, 2016. Before I begin my review of our first quarter results, I want to remind everyone that we completed the acquisition of Accutronics on January 13. For accounting purposes, the effective date of the transaction was January 1. Included in our results are purchase accounting adjustments and direct costs related to the acquisition.

As I go through my prepared remarks I will point out the impact of the acquisition on various line items and earnings per share. Consolidated revenues for the first quarter totaled $20.8 million, representing $1.7 million or 8.6% increase from the $19.2 million for the first quarter of 2015.

Revenues from our Battery & Energy Products segment were $16.4 million, an increase of $0.2 million or 1% from last year. The year-over-year increase was attributable to the $2.5 million revenue contribution from Accutronics, which along with other increases in the core business more than offset a large 9-Volt and a large battery charger order fulfilled in the first quarter of 2015.

Commercial revenue for the first quarter of 2016 increased 20% over the prior year reflecting Accutronics sales. Excluding Accutronics, we experienced a 27% year-over-year increase in our commercial rechargeable battery sales, primarily comprised of increased shipments to medical customers. This increase was offset by higher year earlier orders for 9-Volt batteries from large global smoke detector OEMs in response to legislation and demand trends in certain European Union countries.

Government and Defense sales decreased 13.6% from the 2015 period due to a large charger order to an international prime defense supplier, which was partially offset by a 107% increase in rechargeable battery sales and higher charger shipments to international defense customers.

As a result, Battery & Energy Products sales were split 56:44 between commercial and government and defense, compared to 50:50 for the 2015 period. Communication Systems sales of $4.4 million increased by $1.5 million or 51.4% from the prior year. This increase is attributable to shipments of VIPER systems.

Our consolidated gross profit was $6.4 million compared to $6.0 million for the 2015 period, an increase of 7%. As a percentage of total revenues, consolidated gross margin was 30.7% versus 31.3% for last year’s first quarter, a 60 basis points decrease. Of this 60 basis points decrease, 44 basis points are due to purchase accounting adjustments related to the acquisition of Accutronics. The purchase accounting adjustments primarily relate to the write-up of beginning inventory to fair market value, thereby eliminating the majority of the gross profit, which was realized upon the sale of this inventory in the first quarter.

Gross profit for our Battery & Energy Products business increased by 9%, reflecting the addition of Accutronics. Gross margin was 31.7%, a 230 basis points increase from the 29.4% reported last year due primarily to sales mix and good manufacturing performance. Excluding the impact of the purchase accounting adjustments, the gross margin would have been 32.2%, the highest quarterly level ever achieved for this business.

For our Communication Systems segment, gross profit was essentially flat with the year earlier period. Gross margin was 27.0%, compared to 42.2% reported for last year's first quarter due to sales mix and startup costs associated with the competitively bid VIPER program’s transition to high volume production.

Operating expenses totaled $5.9 million compared to $5.2 million last year, an increase of $0.7 million or 14.2%. The increase was fully attributable to Accutronics, which contributed to operating expenses of $1.0 million, including $0.2 million of one-time direct acquisition costs, including customary legal, audit and due diligence expenses. Excluding Accutronics, operating expenses decreased $0.3 million or 5.1% due primarily to strict control over discretionary spending, offsetting an increase in new product development expenses resulting from a heightened level of request for proposal.

As a percentage of revenue, operating expenses represented 28.4% compared to 27.0% for the year earlier period. Also related to Accutronics, we began to amortize the intangible assets in the amount of $95,000 per quarter based upon an independent appraisal.

Operating income for the first quarter of 2016 was $0.5 million compared to $0.8 million for the 2015 period. The year-over-year decrease in operating income primarily reflects the $0.3 million impact of the purchase accounting adjustments and the non-recurring direct acquisition costs included in operating expenses. Operating margin was 2.3% for the 2016 period compared to 4.3% for the first quarter of 2015.

First quarter non-cash operating expenses including depreciation, intangible asset amortization, and stock compensation expenses amounted to $0.9 million compared to $0.8 million for the year earlier period. This brings us to adjusted EBITDA, defined as EBITDA including non-cash stock-based compensation expense of $1.5 million or 7.2% of sales, even with the $1.5 million reported for 2015, which represented 7.9% of sales.

Other expenses primarily comprised of foreign currency translation and interest expense totaled 113,000 versus 188,000 in 2015. The 2016 amount includes 48,000 of non-recurring acquisition related expenses and also reflects our actions to minimize the impact of foreign currency fluctuations as compared to the year-earlier period. And our tax provision was 88,000 primarily reflecting income taxes for our China operation and the timing of deferred taxes. Our tax provision was 111,000 for the 2015 first quarter.

Net income was $0.3 million or $0.02 per share compared to $0.5 million or $0.03 per share for the same period last year. In total, the impact of the nonrecurring purchase accounting adjustments and direct costs for the acquisition of Accutronics on our first quarter results amounted to $343,000, equivalent to $0.02 per share.

The company's liquidity remained solid with cash on hand of $2.9 million, working capital of $33.7 million in the current ratio of 3.4. By comparison the cash on hand at year-end 2015 was $14.4 million. The use of cash since year-end primarily reflects the acquisition of Accutronics, consistent with our capital allocation plan of balancing longer-term investments and revenue growth, including new product development and acquisitions with enhancing returns in the near-term.

In summary, the actions we have taken to optimize our business model while executing our capital allocation plan to our strategic investments are demonstrated with our sixth consecutive profitable quarter. Our intent remains on driving volume and sales through organic and synergistic initiatives to unleash the full leverage potential of our business model.

I'll now turn it back to Mike.

Mike Popielec

Thanks, Phil. For 2016, our focus on revenue growth continues to consist of three core elements; expanding our market and sales reach, new product development and pursuing acquisition. In the Battery & Energy Products business we are capitalizing on commercial market and international diversification with several newly developed revenue streams to supplement revenue from less in our historical concentration in the US government and defense markets. To that end as announced in the first quarter, we completed the acquisition of Accutronics Limited, based in Newcastle-under-Lyme in UK, which supports our diversification into commercial markets by expanding our smart battery and charger systems participation in medical devices, while providing broader global market reach with European OEMs.

Other benefits include establishing a broader commercial platform in Europe in addition to medical, leveraging a local presence for serving our European government and defense customers and OEMs, and providing logistical support and product positioning for selling our other global products into Europe. The first 100-day integration plan execution is going well, and we are on track for the acquisition’s earnings contribution to be EPS accretive within the first 12 months.

In the core Battery & Energy Products business revenue streams continue to remain active from a broad range of international and domestic prime and OEM business partners. Key customers’ shipment increases in the first order included medical card battery systems with a new smart display, large format multi-kilowatt module products as part of our hybrid power solution, primary sales for AED medical applications, and thin cells for China toll passes.

We also had multiple shipments to international primes with a variety of military batteries and chargers such as shipments for vehicle chargers in Australia, military communication batteries to the UK, 2590 and Land Warrior Batteries to the Middle East, military batteries for specialized communications network to an international customer, primary military batteries to Canada, and solid shipments for the US DOD through DOA.

So while we were impacted in Q1 2016 by a challenging year-over-year comparable based on a large US government defense OEM charger contract in the 9-Volt surge in Q1 2015, we continue to diversify our overall revenue by more penetration of commercial markets, international government defense markets and a broader range of US government defense customers. In fact, as Phil mentioned, even before including the favorable impact of the acquisition, the rechargeable battery business driven by medical sales grew 27% year-over-year, while rechargeable sales to international government and defense customers grew 107%.

Regarding new product development, at B&E in Q1 revenues derived from products introduced less than or equal to three years ago was 23% of our sales, continuing to illustrate the vitality of new products on our ongoing revenue streams. For 2016, we are continuing to develop new products and evolve existing products through multigenerational product plan for a number of applications throughout many of our served markets.

For instance, we have IEC certify several of our 2590 battery products, so they will be available with the markings needed for international customers. We have samples of our Sealed Lead Acid replacement line of products deployed for evaluation in several different commercial applications, including motorized wheelchairs, warehouse robotics and solar lighting. We recently received a small test order for our energy storage large format multi-kilowatt modules to be mounted on vehicles for the powering of remote field hospitals in hard to access areas.

We continue to upgrade existing medical battery products for ongoing customer product enhancements, as well as for value-added installed [Indiscernible], and we have new multiple bay charger products under test by the US Army research development engineering group to support high throughput needs for field tactical communications applications.

In China, where we have been quietly growing our participation in the traditional toll pass market, we are working with the tier one China manufacturers as they develop the next generation of smart identification toll passes, which enable more accurate reading at different car speeds and also more flexibility in revenue allocation by the billing entity.

For the communication systems business, we are continuing to evolve and integrate new and existing products that serve our core customer demands, while also positioning ourselves through new product development and relationships expansion to capture larger project programs.

The beginning of 2016 was extremely active in terms of new opportunities and program development. The Communication Systems business segments continued sales to US telecom for the Family of Special Operations vehicle program has opened doors to further expand our reach within the [community] for newly developed products.

Our team participated in US telecom’s tactical experiment 16.2 at Camp Roberts California with our new McDowell Research branded MRC-MC4 integrated communications system. This system represents 18 months of co-development effort with an international partner, multiple US OEMs and US telecom.

We received our first purchase order for this system in Q1 and are positioned to serve its forthcoming program level purchases throughout the year. Also the Communication Systems business has recently added another large international channel partner to expand our sales reach into the Middle East, Latin American, Asia-Pacific in areas where we do not have an established sales network.

They also provide some formal contract mechanisms utilized for foreign military sales. Our core business development team maintains its sharp focus on developing programs with repeat customers and partners and this new channel partner with its extended global reach will help us expand our opportunities with presently unserved new customers.

With respect to Communication Systems new-product development activities, in Q1 of 2016 new products represent over 96% of the total Communication Systems revenue, driven largely by the MRC VIPER shipments. We continue to see consistent new product development sales into funded programs for our universal radio vehicle adapter, legacy power supplies and 20-Volt amplifier products.

New product development activity continues to be focused on integrated tactical communication systems, included but not limited to next-generation amplifier and vehicle adapter products, supporting known tactical requirements of our core customer base.

In closing, in Q1 of 2016 we were delighted to deliver another consecutive quarter of profitability and to start the New Year by achieving top line revenue growth. For the remainder of 2016, we will continue to build on our progress towards more sustainable revenue growth, by focusing on expanding our market and sales reach, new product development and pursuing acquisitions.

Whereas due to ongoing lack of visibility, we are cautious about the magnitude and timing of US government defense business, we remain optimistic about our overall revenue growth prospects in 2016. In Battery & Energy Products, we continue to gain traction in our commercial business, particularly in the medical market and in our international business, both commercially and in government defense.

In addition to a broad range of organic revenue streams for our communication, safety and security, medical, energy storage, asset tracking vehicles, and other applications we also have the benefit of the Accutronics acquisition, which itself presents us with a new platform in Europe from which to capture new revenue growth opportunities.

At Communication Systems we continue to ship units against the current VIPER contract, while pursuing other new product development driven integrated communication systems program opportunities. Our Communication Systems global OEM business partner and end-user activity remains high, and we remain very selective in allocating the engineering investments required to support the product integration, evaluation and testing necessary to secure the next large program win in 2016.

For both B&E and Communication Systems, new product development remains a fundamental part of our organic growth strategy and commitment to our customers to help them achieve their mission and competitive advantage. With the addition of Accutronics, we now aspire to do new product development on a global scale in each of our businesses by taking full advantage of a terrific talent base, which has been added to our team, and by driving execution synergies among sales, marketing and engineering resources to not only develop new products, but also new customer relationships.

Our strategy, business model, and operational execution have resulted in more consistent profitability and positioned us for more sustainable total year top line revenue growth. The Company’s solid balance sheet and liquidity give it the flexibility to fund organic revenue growth opportunities through new product development and market reach expansion and to seek out and integrate bolt-on acquisitions.

Going forward, we will continue to pursue accretive acquisition opportunities to more quickly gain scale, particularly market access to our technology, new products and/or skilled resources as the case maybe.

Operator, this concludes my prepared remarks and we’d be happy to open the call for questions.

Question-and-Answer Session

Operator

We will take our first question from [Indiscernible] a private investor. [Operator Instructions] Hearing no response, we will take our next question from Gary Siperstein with Eliot Rose Asset Management.

Gary Siperstein

Good morning Mike and Phil, congratulations on a profitable first quarter.

Mike Popielec

Thank you Gary.

Gary Siperstein

So going into the quarter I wasn't sure you are going to be able to make money knowing upfront about the closing costs on the acquisition, and obviously startup costs on the VIPER shipments, so I was pleasantly surprised, can you tell me Mike starting with the Accutronics acquisition, you said the $2.5 million in the quarter was on plan from what you guys were looking for, I just want to try to get an understanding of the cadence of what you expect from them because when you filed your 8-K about the acquisition, I think they showed $12 million in revenues last year and $1 million profit, so I am curious, was that a down quarter for them, or is there seasonality in their business, or is it just, lumpy, they did the $12 million, but it wasn't 3, 3, 3, and 3 that kind of thing?

Mike Popielec

It is a great question Gary. Thank you very much. About a third of that difference is clearly from currency fluctuation, and then there was another component of it where we knew that there was an existing revenue stream from a contract manufacturer that wasn't going to be continuing on into this year and so these revenue results were entirely consistent with our expectations in the first quarter, as well as in how we evaluate the original company.

Gary Siperstein

Okay, all right. That is good. And in terms of their profitability that was shown on the 8-K, the million dollars, again was that ratably like $250,000 a quarter or did it come -- was it mostly second half of 2015, how was the cadence for that?

Mike Popielec

Gary that varied throughout the course of the year depending on certain pulls made by some of their larger customers. So we do see somewhat of a variation with an up tick generally in the latter part of the year.

Gary Siperstein

Okay, and so excluding the closing cost, you did mention Phil the – I guess some of the assets had to be stepped up and there is amortization going forward, roughly what is the going forward rate of the amortization of the assets?

Phil Fain

The amortization Gary is $370,000 a year, approximately $95,000 or so per quarter.

Gary Siperstein

Okay. So once they clear let us say $100,000 in operating income, since the closing costs were one time in the first quarter, subsequent quarters had to be the only bar you have to get over before they start contributing?

Phil Fain

That is correct. However, as you know amortization is an add back when you look at things on a cash basis or on an EBITDA basis.

Gary Siperstein

Right, okay, and speaking of that so what was the – Phil, what was the cash flow in the quarter?

Phil Fain

The cash flow in the quarter Gary, as you will see in the Form 10-Q that is going to be issued today, you are going to see that cash went from $14.3 million down to approximately $3 million, $2.9 million, and as you are going to see, just a preview of what you are going to see in the statement of changes in cash flow, you are going to see obviously the acquisition of Accutronics for $11,161 million, you then have to net out the cash that was acquired as part of the deal of $1,304 million.

You are also going to see a build in receivables from our end compared to the prior period primarily resulting purely from the timing of sales in accordance with customer wishes, and you are also going to see an inventory build of $1.1 million primarily in-line to service backlogged items, including shipments to the US government and VIPER system shipments. But it is all laid out in all the detail you will want that you will see later today.

Gary Siperstein

Okay, it sounds good. So, in addition to the added inventory from Accutronics, there was a build into the VIPER and would that be consistent going forward of inventory or Mike, you mentioned the one-time startup costs with the $8.2 million contract hitting the quarter, so is that something that will in terms of inventory, will it remain high or do you build and then ship and certainly by the end of the contract that will come out off inventory completely?

Mike Popielec

Absolutely. I still think we have long ways to go operationally to get our overall inventory turns higher than they are currently as well.

Gary Siperstein

Okay, and do you still feel that the $8.3 million VIPER will average the historical company average or about 30% on margins?

Mike Popielec

I don't know if we have commented on the individual margin for individual contracts. But you did see a little bit of a dilution of the overall gross margins this quarter because of the volume of the VIPER contract flowing through the communication systems P&L.

Phil Fain

Garry, one comment to add, when we are involved in competitively bidding on very, very large projects such as VIPER, our focus is on what it is going to bring to operating margin and to win some of these competitively bid contracts, you give some in gross margin, but you're truly focused on what it brings to the bottom line and that has been and will be how we approach winning – being successful and winning large projects.

Gary Siperstein

That makes sense, Phil. I guess I am just trying to get some color on the Q1 contribution from the beginning shipments. So with the one-time cost and I did see the margin go down in Communication Systems, so obviously you have to give a good price to get a contract that size. So I understand that, but obviously we have the substantial increase in sales, but I'm trying to isolate the bottom line contribution, so was it slightly profitable or breakeven in the first quarter because of startup costs, and it will be accretive to the bottom line going forward as you complete shipments in Q2 and Q3, is that how we should look at it?

Phil Fain

I think the way to look at it is in a large project, just how the project flows is you spend the R&D money in advance, you win the project of proving what you have through the competitive bid process and then there is a huge, huge rush, once you know you win to get the product out the door. So inevitably in the first tranche of products that are going out, you don't want to go ahead and order on risk a whole bunch of inventory that might bite you later on, you generally pay higher for inventory to get out as a portion of the first tranche, causing these startup type costs. We call it like a purchase price variance over what we would expect. But it did meet our expectations because the R&D money had been spent in the past and VIPER does and will bring a positive contribution to the bottom line.

Gary Siperstein

Okay. So in other words could we say was it 50 grand in the first quarter, 100 grand in terms of you said paying that high price inventory to get going and now that you are…?

Phil Fain

Our policy is really not to comment on competitively bid large type of…

Gary Siperstein

Okay, that is fair. Mike, you also called out on the year-over-year revenue comparison here in the second paragraph, the variability in the timing of order fulfillment, can you give me a little more color on what that means and how it impacted the first quarter?

Mike Popielec

That was specifically attributable to the large charger award in the first quarter of 2015 that didn't recur again in 2016 as well as the surge in the 9-Volt. That was exactly related to those two specific components.

Gary Siperstein

Okay, and the 9-Volt I believe also hurt us in the fourth quarter last year on a comparable basis, is that still going to be an issue in Q2 or is that sort of phased out by now by the end of the first quarter?

Mike Popielec

I don't know if I would say it hurt us. I mean we were real proud of the accomplishment in getting the surge at the end of 2014 and early part of 2015, and it just creates a high bar for us to continue to show positive results on a year-over-year basis. But I would never look at getting surges in 9-Volt as a bad thing.

That being said, generally speaking it was through the fourth quarter, first and second quarter of 2014, early 2015, but I think we are starting to get through that. But it is our job to find offsetting new business and in fact we offset a large amount of those two large contracts. We just think it would have offset 100%.

Gary Siperstein

Got you, okay, and you also called out medical was up 27% in the quarter year-over-year, is any of that increase organic or is it all Accutronics?

Mike Popielec

That was all organic.

Gary Siperstein

It was all organic?

Mike Popielec

Yes, I think I will preface that by saying excluding the contribution from Accutronics.

Gary Siperstein

Okay, I missed that. Beautiful, okay, and is that just due to more sales of the products we were selling previously, or did that include any new products in the quarter that might have gotten, FDA 510(k) approvals.

Mike Popielec

Nothing sort of at the level of press releasable kind of event. They were constantly evolving the products, and I tried to say that in my script to have new opportunities and to contribute to grow our medical business. So I would say just solid organic growth by continuing to evolve the product line and the customer relationships in a very attractive market segment.

Gary Siperstein

And you also called out international B&E being up 107%, was that just the way the ball bounces in terms of order variability or is there something new going on internationally that caused that spike?

Mike Popielec

No, I tried to mention that in my comments on trying to demonstrate there is a wide breadth of opportunities, so that is why we have confidence overall for growth on an annual basis is that it is not pigeonholed to one or two opportunities. That is so broad spectrum of international opportunities in that case both commercially as well as in government defense. But it was notable in the fact that the rechargeable part of the government defense international business was up quite dramatically.

Gary Siperstein

and you also talked about new toll passes in China, what is the – if that comes to fruition and we become a participant in that, what is the revenue opportunity there and what is the timing on when that could result in orders for us?

Mike Popielec

Gary, I don't have a specific number that I am comfortable talking about right now, but in any new revenue stream, we think of in terms of points of organic revenue growth. We are trying to on a regular basis as we said numerous times get single – high digit organic revenue basis no matter what the economic climate is.

So, we look at those as adding up a point or two over time to the revenue stream, but we don't have specific dollar value that a specific contract would yield, because it is sort of an ongoing revenue stream as opposed to just a single contract.

Gary Siperstein

Just to be clear, so are there – you are saying there are revenues coming from toll passes now, or they could be in the future?

Mike Popielec

No, they are right now and we are sort of doing it quietly under the radar, a little bit at a time and it sort of builds momentum over time, but it is highly competitive in China. I think we have a great product. We are continuing to get 100,000 here, 100,000 there, but we want to continue to make it into a mature sustainable revenue stream to add to our overall organic revenue growth stream.

Gary Siperstein

Got you, okay. And back to Comm Systems, so it took a couple of years to get that $8.2 million contract, but I believe that was awarded last September, so here we are maybe 7 months later, 6 or 7 months later, can you give us some color on the pipeline of different opportunities you are going after there and I know obviously by the recent history, it is like impossible to tell when one of those contracts are going to be awarded, but is there movement on the various things you are bidding on and involved on and do you think there is another one that could happen in the next 6 to 7 months?

Mike Popielec

Absolutely. We mentioned in our script how we have gone through some initial testing of our MC4 integrated communication system. It is something we demoed over a year ago at the SOFIC conference, and had great feedback from our customers. We know that it provides a very vital integrated solution to data, video and voice communications in the battlefield, it just goes through an extremely lengthy qualification, testing and simulation process with the military.

So it is almost impossible as you say to say when it is going to happen. We have several different opportunities like that that I wish I had much better visibility. I love to be able to tell you when it is going to happen, but it is those types of products and projects that we are working on trying to grow that revenue stream, and as much as we did receive a small quantity order for that system in the early part of this year. We know that usually there has to be sort of a small introductory order first for it to go to the next step, and we are glad to have at least gone through that first step.

Gary Siperstein

Can you tell us who the customer was on that?

Mike Popielec

I think we mentioned that was going to be the US military.

Gary Siperstein

Okay, directly to the military. That doesn't go through a prime?

Mike Popielec

I have – I think it is way too soon to say.

Gary Siperstein

Okay, and…

Mike Popielec

In fact, I'm not trying to be evasive Gary. It is just that as you are probably aware there is numerous contracting mechanisms for the DOD, and once a specific need has been identified, a product serves that need, a specific requirement has been given and funding has been allocated, then there is just a whole other level of three dimensional chats in terms of what contract structure it is going to be lead through, and it is impossible to say how that will be at this point in the game.

Gary Siperstein

No, I understand Mike. Thank you. Back to B&E, I saw I guess it's a couple of months ago now that the government awarded a $12 billion IDIQ to three prime contractors. I believe [Indiscernible] and Raytheon were two out of the three for tactical radios, and I know we have some involvement with batteries and amplifiers to maybe one of those or possibly two out of three of the companies involved, and I think they talked about that maybe going into production at some point in 2017, can you give us any color on that and maybe some possible parameters on what it could mean for us?

Mike Popielec

I wish I could Gary, I think that qualitatively that our amplifier products and our battery products in many cases in the military segment support communications, whether it is hand-held radios or man packs and the like. You could go as far as to say that in many cases you even have a demand for our product unless it was a tactical [communication] and project.

So I don't have any specifics about timing or magnitude of dollar. I alluded to that in my prepared remarks, but anytime there is a major award to multiple OEM primes we view that as a good thing. We have independent, very professional, very private, confidential relationships with each one of those, work on very closely in a sticky relationship to develop technology to support their endeavors with the end-user customers. And so anytime there is a large announcement like that, we get excited, so we also know that the development cycle is extremely long, sometimes IDIQs, sometimes it is a firm contract. It is just way too premature to say when it will start to be a revenue stream from that. But we are excited that those contracts are being led, because we know that there will be a trickle down and a pull through in the products that we make.

Gary Siperstein

Okay, cool, and finally I know it is early days on Accutronics, just coming back to that, has there been any opportunity for cross-selling at, showing their medical customers some of Ultralife’s domestic medical products or our domestic customers in the medical field some of their products, is it too early or is that being worked on?

Mike Popielec

I would say that is actually a core part of our strategy. We look at the aspect of the integration in multiple ways. First and foremost tactically they are going to achieve on all of the commitments that we forecasted and put together in our performance to acquire the company, but it is much more than that. And we look at this as a strategic investment to be able to expand our geographic presence, our product presence.

We have organic revenue initiatives where we would take their existing products and try to continue to grow them in the United States. We want to try to leverage their platform in Europe to take our other commercial and military products that we have on a global scale more into Europe. And so I think the cross-selling isn’t just sort of a high-level, Fifth or sixth item down on the list of [wide] deal kind of things, but a fundamental part of how we think we are going to get the value out of it going forward.

One thing that we have been told that it is quite encouraging is that, this was a small operation in the UK, and they served their end users in the supply chains for some of those multinational device manufacturers local to Europe, and in as much as they were a small player, perhaps their upside was limited because they were viewed to be just a small regional type of supplier.

I think in the case of our due diligence and talking to some of the customers prior to the acquisition closing, we are delighted to find out that a lot of their customers actually saw it as a positive thing because they were looking for a more global supplier, and by bringing our US presence and some of our Asian presence now it puts them in a different light with respect to their customers.

So, at this point we are very optimistic about the future and the last thing I will say it is a custom product. It is a long gestation cycle, great stability and stickiness once in play, but we think there is some really good opportunities for organic growth subsequent to just a basic combination from an acquisition standpoint.

Gary Siperstein

Okay, and last question speaking of acquisitions, again I know it is early days with Accutronics, but you guys had talked for a while about a transformative acquisition, so anything new on the pipeline on the M&A side, and I guess something a little more significant, maybe a little more significant than a bolt-on that could utilize the 20 million or so tax loss carry forwards.

Mike Popielec

Absolutely. Gary, I mean, we haven't slowed down one iota in terms of pursuing new acquisition opportunities. We know that this initial acquisition was smaller in nature. We just thought it was just such a sweet spot achievement that it just made so much sense for us to do especially do it from our own cash flow. Looking down the road in a transformative way, we will be delighted to have an opportunity for $30 million or $50 million or $70 million type of acquisition because I think we have demonstrated that we are able to get the profitability out if we can get the revenue in. And so we are very keen to find a very attractive acquisition going forward.

Gary Siperstein

Sound good. Thanks so much for taking all my questions.

Mike Popielec

Thank you and welcome Gary. Thank you.

Operator

At this time there are no additional questions in queue. I like to turn the conference back over to Mr. Popielec for any additional or closing remarks.

Mike Popielec

Thank you operator, and thank you everyone for joining us for our first quarter 2016 earnings call today. We look forward to continuing to share our quarterly progress on each quarter's conference call in the future, and have a very good day.

Operator

That concludes today's conference. We appreciate your participation.

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