[Management View]
Ultralife Corporation reported higher consolidated revenues driven by the inclusion of Electrochem and increased government defense sales. However, profitability declined due to a sharp drop in Communication Systems sales, unfavorable product mix, and significant tariff-related costs. Management emphasized ongoing supply chain challenges and order timing unpredictability, while focusing on pricing, cost controls, and vertical integration from the Electrochem acquisition.

[Outlook]
Management expects continued growth through new product development and vertical integration. The final manufacturing system integration of Electrochem is anticipated in Q3, which should support gross margin and product innovation. Litigation over cyberattack-related insurance claims could materially impact future results if successful.

[Financial Performance]
- Consolidated Revenue: $48.6 million, up from $43 million in Q2 2024.
- Net Income: $900,000 ($0.05 per share GAAP; $0.07 adjusted), down from $2.7 million ($0.18 per share) in Q2 2024.
- Operating Income: $2.3 million, down from $3.9 million last year.
- Adjusted EBITDA: $4.1 million (8.5% of sales) vs. $5.4 million (12.6%) in Q2 2024.

[Q&A Highlights]
Question 1: Do you have any feel for what the tariffs cost you this past quarter?
Answer: $539,482 less $126,000 received back from customers, resulting in a bottom line hit of $400,000. The timing of component purchases during peak tariffs significantly impacted costs.

Question 2: Based on what you know now with the current tariffs, how do you see that impacting the third quarter?
Answer: The current tariff rate is not expected to have as much impact as in Q2. The company is also passing a tariff surcharge onto customers.

Question 3: Regarding the employee retention credit that you received and applied to the debt, is there any more of that credit that's gonna flow through in the balance of the year?
Answer: No, the full employee retention credit has been received and applied.

Question 4: In terms of the insurance reimbursement for the cyberattack, how much have you received so far from the insurance company, and how much more are you looking to receive?
Answer: $235,000 has been received. The company has initiated a lawsuit seeking millions in damages, with a trial expected in 2026.

Question 5: Is there anything to call out maybe on orders returning or demand in the oil and gas and medical markets?
Answer: Oil and gas orders are influenced by WTI and Brent index prices. Medical sales are affected by order timing, with a significant volume in 2024. Customers are cautious with cash and managing tariffs.

Question 6: Can you bucket where the impacts on margins were felt the most?
Answer: Tariffs cost 100 basis points of margin, mix impact around 200 basis points, and other inefficiencies around 30-40 basis points.

Question 7: Can you put any kind of quantification or certainty on potential opportunities materializing later this year and next year?
Answer: The company is seeing initial purchase orders and qualification activities but cannot yet quantify the impact. Multiple large opportunities are being pursued.

[Sentiment Analysis]
Analysts expressed concerns over profitability and order timing but were optimistic about future growth opportunities. Management acknowledged the challenges but highlighted ongoing efforts to improve margins and diversify revenue streams.

[Quarterly Comparison]
| Metric | Q2 2025 | Q2 2024 |
|---------------------------------|-----------------|-----------------|
| Consolidated Revenue | $48.6 million | $43 million |
| Net Income | $900,000 | $2.7 million |
| Operating Income | $2.3 million | $3.9 million |
| Adjusted EBITDA | $4.1 million | $5.4 million |
| Operating Margin | 4.6% | 9.1% |
| Gross Margin | 23.9% | 26.9% |

[Risks and Concerns]
- Tariff-related costs and supply chain disruptions.
- Dependence on customer order timing and product mix.
- Ongoing litigation over cyberattack-related insurance claims.
- Macroeconomic and geopolitical pressures affecting commercial sales.

[Final Takeaway]
Ultralife Corporation demonstrated revenue growth driven by strategic acquisitions and increased government defense sales. However, profitability was challenged by declining Communication Systems sales, unfavorable product mix, and significant tariff-related costs. Management remains focused on new product development, vertical integration, and operational efficiency to drive future growth. Investors should monitor the resolution of ongoing litigation and the impact of macroeconomic factors on commercial sales.