Executive Summary

Q3 revenue was $43.4M (+21.5% y/y; -10.6% q/q), but gross margin compressed to 22.2% and GAAP EPS fell to -$0.07 on $1.1M of one-time costs (Calgary facility closure, Electrochem transition, cyber claim litigation) and quality-driven manufacturing inefficiencies; backlog ticked up to $90.1M (+$5.6M q/q) .
Battery & Energy Products grew 22.8% y/y (to $39.9M) with defense +19% y/y; Communications Systems sales rose 8.2% y/y to $3.4M, but continued order delays and a young product cycle weighed on earnings .
Management is consolidating facilities (Calgary closure; ~$0.8M annual savings expected in 2026), completing the Electrochem systems transition, and running lean/process improvements to restore margins; adjusted EBITDA was $2.0M (4.7% margin) .
Catalysts into 2026: $5.2M DLA BA‑5390 award (shipments mostly in 2026), growing defense demand, vertical integration with Electrochem, and a broadening new-product pipeline (amplifiers, ruggedized server solutions, thin-cell batteries) .

What Went Well and What Went Wrong

What Went Well
- Defense strength and backlog: Government/Defense sales +19% y/y in Battery & Energy; consolidated backlog rose to $90.1M from $84.5M in Q2, with a balanced 55% commercial / 45% Gov/Def mix .
- Strategic wins: $5.2M BA‑5390 DLA award for 2026–early 2027 delivery; management continues to highlight opportunities across BA53, conformal wearable, XR123A, thin-cell, and server/amp platforms .
- Cost actions and integration: Calgary closure underway (~$0.8M annual savings targeted in 2026); Electrochem transition to ULBI systems completed; external lean initiatives deployed to lift gross margins .
- Quote: “We have initiated several actions … to improve our gross margins, reduce redundant facilities, consolidate operations, diversify our supply chain, and better promote our Ultralife brand” .
What Went Wrong
- Margin pressure: Gross margin fell 210 bps y/y to 22.2% on incoming raw-material quality issues disrupting throughput and less favorable mix (weaker medical and oil & gas) .
- One-time costs and opex mix: $1.1M non-recurring costs (Calgary closure, Electrochem transition, cyber litigation) drove an operating loss of $1.0M vs $0.5M operating income in 3Q24; opex rose to 24.4% of revenue (21.9% ex one-time) .
- Higher below-the-line costs: Other expense increased to $0.8M (interest on Electrochem acquisition debt and FX), contributing to GAAP net loss of $1.2M (-$0.07) .
- CEO context: “We saw revenue growth year over year but faced several challenges with gross margin, primarily due to incoming supply chain quality issues… Our communications business continues to weigh on earnings as new products are launched and sell-through gains momentum” .

Financial Results

Metric	Q1 2025	Q2 2025	Q3 2025
Revenue ($M)	$50.7	$48.6	$43.4
GAAP Diluted EPS ($)	$0.11	$0.05	($0.07)
Gross Margin (%)	25.1%	23.9%	22.2%
Operating Income ($M)	$3.4	$2.3	($1.0)
Adjusted EBITDA ($M)	$5.4	$4.1	$2.0
Adjusted EBITDA Margin (%)	10.7%	8.5%	4.7%

Segment breakdown

Segment	Q1 2025	Q2 2025	Q3 2025
Battery & Energy Products Revenue ($M)	$46.3	$45.9	$39.9
Battery & Energy Products Gross Margin (%)	24.7%	23.6%	22.1%
Communications Systems Revenue ($M)	$4.4	$2.7	$3.4
Communications Systems Gross Margin (%)	29.5%	28.4%	23.3%

Key operating metrics

KPI	Q1 2025	Q2 2025	Q3 2025
Backlog / High-Confidence Orders ($M)	$95.0	$89.0	$90.1
Working Capital ($M)	$70.0	$69.1	$66.9
Current Ratio (x)	3.2x	3.3x	3.0x
Debt Principal Reduction YTD ($M)	N/A	$3.4	$4.1

Additional context (mix and geography)

Battery & Energy commercial vs Gov/Def split Q3: 70/30; domestic vs international 72/28; consolidated commercial/Gov/Def 65/35 .

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Formal quantitative guidance (revenue, EPS, margins, opex, tax, capex)	FY/Q4 2025	Not provided	Not provided	N/A

Note: No quantitative guidance was mentioned in the Q3 2025 press release or on the earnings call; management instead outlined operational initiatives (lean, consolidation, vertical integration) and product/program milestones .

Earnings Call Themes & Trends

Topic	Previous Mentions (Q1 2025 and Q2 2025)	Current Period (Q3 2025)	Trend
Supply chain quality / tariffs	Q1: Tariff mitigation plan, surcharges, supply-chain adjustments . Q2: Tariffs ~100 bps GM headwind; mix ~200 bps; discrete inefficiencies 30–40 bps; net ~$0.4M tariff impact; passing surcharges .	Quality issues on incoming materials disrupted throughput, contributing to lower GM; continued efforts to diversify and improve resiliency .	Stabilizing (tariff spike subsiding), but quality issues persisted in Q3
Electrochem integration / vertical integration	Q1: ERP carve-out and integration underway; expected benefits from internal cell sourcing . Q2: ERP and back-office transitioned; further manufacturing systems in Q3 .	Transition completed; focus on using Electrochem cells in oil & gas packs, with benefits expected in 2026 .	Integration completed; benefits shift to 2026 ramp
Communications Systems	Q1: Down 36% y/y on prior-year shipments; new products (server cases, DC power supply, amplifiers) entering market . Q2: Sales down 57% y/y on order delays; margins healthy; rebound expected H2 .	Still weighing on earnings as new products launch; pipeline progressing (amps, ruggedized server initiatives) .	Rebound pushed out; 2026 initial production for several programs
Defense demand	Q1: Gov/Def +53.6% y/y (B&E); robust backlog . Q2: Gov/Def +61.1% y/y (B&E); strong demand from U.S. prime .	Gov/Def +19% y/y (B&E); $5.2M BA‑5390 DLA award for 2026 .	Strong and expanding
Cost actions / consolidation	Q1: Mississauga closure to remove fixed costs . Q2: Continued lean projects; margin initiatives .	Calgary closure ($0.5M charge; ~$0.8M annual savings from 2026); external lean at Newark .	Intensifying; savings visibility improving
Rebranding	—	Company-wide branding alignment to emphasize Ultralife brand, reduce redundancy .	New 2025–2026 initiative

Management Commentary

Strategy and margin actions: “We are intensifying our lean and process improvement initiatives, improving supply chain resiliency and rationalizing our manufacturing operations… critical to ensuring we are best prepared to optimize the operating leverage of our business model” .
Integration and 2026 benefits: “We continue to expand vertical integration opportunities enabled by the acquisition of [Electrochem]… qualifying cells with several oil and gas customers… expect to see benefit… in 2026” .
Pipeline and product development: “We showcased our new amplifier and Crescent server products at [DSEI]… sampled amplifiers with partners for trials… expected orders inbound and production shipments starting in 2026” .
Tone: “Although we’ve had a challenging 2025, I am confident we are making the right moves to stabilize and grow the business over the long term” .

Q&A Highlights

The Q3 call had no analyst Q&A; management delivered prepared remarks only .
Continuity from prior quarter (Q2) Q&A:
- Tariffs and margin impacts: Net tariff cost ~$0.4M; tariffs ~100 bps GM headwind; mix ~200 bps; discrete inefficiencies ~30–40 bps; passing surcharges to customers .
- End-market color: Oil & gas orders sensitive to WTI/Brent; medical demand timing tied to replacement cycles; confidence in H2 improvement signaled .
- Cyber insurance litigation: ~$235k received; lawsuit in process with trial expected in 2026, seeking damages in the millions .

Estimates Context

S&P Global consensus estimates: We attempted to retrieve Q3 2025 Revenue and EPS consensus; no consensus values were available in the S&P Global dataset for ULBI for this period, so a beat/miss vs estimates could not be determined (we relied on company-reported actuals) .
Implication: In absence of published consensus, near-term estimate revisions will likely focus on gross margin trajectory, the pace of Communications Systems sell-through, and 2026 revenue visibility from defense awards and product ramps .

Key Takeaways for Investors

Near-term focus is margin repair: Q3 GM fell to 22.2% on quality issues and mix; ULBI is executing lean/process improvements, consolidating facilities, and pushing vertical integration to restore profitability .
Operating leverage potential remains intact: Backlog rose to $90.1M; with fewer facilities and the Electrochem transition complete, incremental revenue should carry higher flow-through as quality/mix headwinds ease .
Defense is the anchor growth vector: Gov/Def demand remains solid; $5.2M BA‑5390 award adds 2026 visibility; multiple new defense-oriented products (amps, Crescent server) could ramp in 2026 .
Communications Systems is a swing factor: Order timing and product adoption delayed H1–Q3; margins are structurally higher than B&E, so a sustained recovery here would meaningfully lift consolidated margins .
Opex normalization should help optics: Q3 included $1.1M non-recurring costs; excluding one-time items, opex was 21.9% of revenue; closure savings (~$0.8M annualized) begin in 2026 .
Balance sheet manageable: No revolver draws; YTD debt principal reduction reached $4.1M by Q3; working capital remains solid (3.0x current ratio) .
Trading setup: Absent formal guidance or consensus, near-term stock reaction will key off evidence of GM stabilization in Q4, Communications Systems order flow, and additional contract wins; medium-term, 2026 execution (defense awards, product ramps, integration synergies) is the thesis .

Supporting detail excerpts

Consolidated revenue $43.4M; GM 22.2%; operating loss $1.0M; GAAP EPS -$0.07; adjusted EBITDA $2.0M; backlog $90.1M .
Segment revenue and margins (Q3): B&E $39.9M; GM 22.1%; Comms $3.4M; GM 23.3% .
Mix/geo (Q3): Battery & Energy 70/30 commercial/Gov-Def; domestic/international 72/28; consolidated 65/35 .
One-time costs and savings: $0.5M Calgary closure charge; ~$0.8M annual savings expected from 2026 .
Electrochem transition completed; focus shifts to vertical integration and 2026 benefits .

ULTRALIFE CORP (ULBI)·Q3 2025 Earnings Summary