ULBI

ULTRALIFE CORP (ULBI) - 10-Q Summary for Period Ended June 30, 2026

Business Context and Reporting Period

This Form 10-Q covers the quarterly period ended June 30, 2026, and the six-month period ended on the same date. Ultralife Corporation designs and manufactures power solutions (batteries, charging systems) and communications systems for government, defense, and commercial sectors. The company operates through two reportable segments: Battery & Energy Products and Communications Systems. As of June 30, 2026, the company had 16,663,269 shares of common stock outstanding.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Decline: Q2 2026 revenue decreased 1.3% year-over-year, driven by a 4.7% drop in commercial sales (specifically oil & gas and industrial sectors) partially offset by a 5.0% increase in government/defense sales. YTD revenue declined 3.9%.
• Margin Expansion: Gross margin improved significantly to 28.9% in Q2 2026 from 23.9% in Q2 2025. This 500-basis point increase was primarily due to favorable product mix and a $1.10 million net refund of IEEPA tariffs recognized as a reduction in cost of products sold.
• Operating Expenses: Operating expenses increased 11.6% in Q2 2026. This was driven by a 39.1% increase in R&D spending for new product development and $0.88 million in one-time non-recurring costs (litigation and consulting).
• Profitability: Despite lower revenue, Net Income attributable to Ultralife increased 189% in Q2 2026 compared to the prior year, largely due to the tariff refund and lower interest expense.
• Backlog: Total backlog reached a record high of $117.5 million at the end of Q2 2026, up from $84.5 million in Q2 2025.

Guidance, Outlook, Risks, and Unusual Items

• Unusual Items: The financial results were materially impacted by a $1.10 million cash refund of previously paid IEEPA tariffs. Additionally, the company incurred one-time costs related to a cyber-insurance claim and consulting for manufacturing efficiency.
• Tax Credits: The company recognized income from the 45X Advanced Manufacturing Production Tax Credit, which contributed to a lower effective tax rate (15.7% in Q2 2026 vs. 21.8% in Q2 2025).
• Rebranding: A comprehensive rebranding initiative consolidating sub-brands under "Ultralife" resulted in a non-cash write-down of intangible assets in late 2025, reducing amortization expenses in 2026.
• Outlook: Management expects positive operating cash flow and sufficient liquidity to meet funding requirements. The company is focused on converting new product development into revenue and reducing debt.
• Risks & Controls: The company disclosed a material weakness in internal control over financial reporting related to IT general controls and accounting personnel, which was not fully remediated as of June 30, 2026. Other risks include reliance on key customers, supply chain disruptions, and foreign currency fluctuations.

Investor Verification Checklist

• Tariff Refund Sustainability: Verify the likelihood of future IEEPA tariff refunds, as the $1.10 million gain was a non-recurring item that significantly boosted margins.
• Internal Control Remediation: Monitor progress on the remediation of the material weakness in IT general controls and accounting personnel to ensure future financial reporting reliability.
• Commercial Sector Recovery: Assess the trajectory of commercial sales, particularly in the oil & gas and industrial segments, which drove the revenue decline.
• Debt Servicing: Review the company's ability to service its $45.13 million term loan, noting the current borrowing rate of 6.11% and the requirement to maintain specific leverage and coverage ratios.
• Backlog Conversion: Track the conversion rate of the record $117.5 million backlog into actual revenue in subsequent quarters.