Item 7. Management’s Discussion and Analysis
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with our Consolidated Financial Statements and the related Notes thereto appearing in Item 8 of this Form 10-K.
The financial information in this Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is presented in thousands of dollars, except for share and per share amounts. This MD&A includes forward-looking statements that involve risks and uncertainties; actual results may differ materially. See “Forward-Looking Statements” and Item 1A – Risk Factors.
All figures presented below represent results from continuing operations, unless otherwise specified.
General
We offer products and services ranging from power solutions to communications and electronics systems to customers across the globe in the government, defense and commercial sectors. With an emphasis on strong engineering and a collaborative approach to problem solving, we design, manufacture, install and maintain power and communications systems including rechargeable and non-rechargeable batteries, communications and electronics systems and accessories and custom engineered systems. We sell our products internationally through a variety of trade channels, including original equipment manufacturers (“OEMs”), industrial and defense supply distributors and directly to U.S. and international defense departments.
We report our results in two operating segments: Battery & Energy Products and Communications Systems. The Battery & Energy Products segment includes Lithium 9-volt, cylindrical, thin cell and other non-rechargeable batteries, in addition to rechargeable batteries, uninterruptable power supplies, charging systems and accessories. The Communications Systems segment includes RF amplifiers, power supplies, cable and connector assemblies, amplified speakers, equipment mounts, case equipment, man-portable systems, integrated communication systems for fixed or vehicle applications and communications and electronics systems design. We believe that reporting performance at the segment contribution level, as defined by gross profit less direct selling, general and administrative (“SG&A”) and research and development expenses, is the best indicator of segment performance. This metric is used as a consistent benchmark for comparison across reporting periods. Corporate general and administrative (“G&A”) expenses, including costs associated with our acquisitions, include corporate functions including board of directors, executive officers, accounting & finance, human resources, legal, information technology and their related functional expenses. These costs are not directly allocable to the operating segments. As such, we report segment performance at the contribution level and Corporate G&A expenses as Corporate charges.
We continually evaluate ways to grow, including opportunities to expand through mergers, acquisitions and joint ventures, which we believe can broaden the scope of our products and services, expand operating and market opportunities and provide the ability to enter new lines of business synergistic with our portfolio of product offerings.
In January 2016, we acquired Accutronics Limited (“Accutronics”), a U.K. corporation based in Newcastle-under-Lyme, U.K., a leading independent designer and manufacturer of smart batteries and charger systems for high-performance, feature-laden portable and handheld electronic devices. Our acquisition of Accutronics advanced our strategy of commercial revenue diversification, expanded our geographic penetration, and achieved revenue growth from new product development.
On May 1, 2019, we acquired Southwest Electronic Energy Corporation, a Texas corporation (“SWE”), and a leading designer and manufacturer of high-performance smart battery systems and battery packs to customer specifications using Lithium cells. SWE serves a variety of industrial markets, including oil and gas, remote monitoring, process control and marine, which demand uncompromised safety, service, reliability and quality. We acquired SWE as a bolt-on acquisition which has supported our strategy of commercial revenue diversification by providing entry to the oil and gas exploration and production, and subsea electrification markets, which were previously unserved by us. Another key benefit has been obtaining a highly valuable technical team of battery pack and charger system engineers and technicians which has added to our new product development based revenue growth initiatives in our commercial end-markets particularly asset tracking, smart metering and other industrial applications.
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On December 13, 2021, we acquired Excell Battery Canada Inc., a British Columbia corporation (“Excell Canada”) and 656700 B.C. Ltd., a British Columbia corporation (“656700”) and its wholly owned subsidiary, Excell Battery Corporation USA, a Texas corporation (“Excell USA” together with Excell Canada and 656700, collectively, “Excell”), which operate under the name Excell Battery Group. Based in Canada with U.S. operations, the Excell Battery Group is a leading independent designer and manufacturer of high-performance smart battery systems, battery packs and monitoring systems to customer specifications. Excell serves a variety of industrial markets including downhole drilling, OEM industrial and medical devices, automated meter reading, and mining, marine and other mission critical applications which demand uncompromised safety, service, reliability and quality. We acquired Excell as an important component of our strategy to diversify commercial revenue and expand the end markets we serve. Acquiring Excell has allowed us to further scale our Battery & Energy Products business and drive the operating leverage of our business model, expand into OEM device verticals that we did not previously serve, enhance our contributed value to our customers and realize cost synergies. Furthermore, we utilize Excell’s experienced technical resources in our global new product initiatives and add a complementary line of highly engineered products, both existing and in development, that are costly for our customers to substitute with products of a competitor.
On October 31, 2024, we acquired Electrochem Solutions, Inc, a Massachusetts corporation (“Electrochem”). Based in Raynham, Massachusetts with over forty years of battery technology experience in critical applications, Electrochem designs and manufactures primary Lithium metal and ultracapacitor cells and battery packs serving energy, military and various environmental, industrial and utility end markets on a global basis. Acquiring Electrochem advances our strategy of more fully realizing the operating leverage of our business model through scale and creates opportunities for gross margin expansion through the realization of manufacturing cost efficiencies, U.S.-based vertical integration, supply chain and lean initiatives. Electrochem primarily services a blue-chip customer base which has little or no overlap with Ultralife’s other customers, has long-tenured technical resources which we are utilizing in advancing our global new product initiatives, and has a complimentary portfolio of highly engineered Thionyl, Sulfuryl and Bromine Chloride cells and packs which can be commercially cost prohibitive to substitute or switch out. We believe this acquisition has created highly attractive opportunities to drive revenue growth through heightened cross-selling activities and extends our reach into underserved adjacent markets that demand uncompromised safety, service, reliability and quality. Furthermore, with Electrochem we are increasing our value to our customers and significantly strengthening our competitive position in our end markets.
Currently, we do not experience significant seasonal sales trends in either of our operating segments, although sales to the U.S. Department of Defense and other international defense organizations can be sporadic based on the needs of those particular customers and allocated funding levels.
Consolidated revenues increased by $26,703 or 16.2% to $191,159 for the year ended December 31, 2025, compared to $164,456 for the year ended December 31, 2024. Revenues for 2024 include $6,062 for Electrochem which was acquired on October 31, 2024. Consolidated revenues for 2025 and 2024 excluding Electrochem were $158,560 and $158,394, respectively. During 2025, we experienced organic revenue growth, excluding Electrochem, of 5.4% for our Battery & Energy Products business and a revenue decline of 35.6% for our Communications Systems business. Our consolidated 2025 performance reflected a $23,213 or 22.7% increase in sales to our commercial customers and a $3,490 or 5.6% increase in sales to government and defense customers. Excluding Electrochem, our commercial sales declined $3,324 from $96,020 in 2024 to $92,696 in 2025 resulting from declines of $4,755 or 12.5% in our oil & gas business due primarily to the wavering oil indices reflective of economic and geo-political conditions and $3,040 or 8.6% in medical sales primarily reflecting the timing of sales to large global medical device OEM’s. These declines were partially offset by industrial and other commercial sales which increased $4,471 or 19.9%. The increase in government and defense sales reflects growth in Battery & Energy Products sales of $10,748 or 25.6% from $41,999 in 2024 to $52,747 in 2025 representing higher demand from prime defense contractors, partially offset by a decline in Communications Systems sales of $7,258 or 35.6% from $20,375 in 2024 to $13,117 in 2025, primarily attributable to delays in the timing of purchase orders including the impact of the U.S. Government shutdown. Demand for our products remains strong with our 2025 year-end backlog of $110,223 representing 57.7% of 2025 revenues, a 22.1% increase over the backlog exiting the third quarter of 2025 of $90,273 and a 7.9% increase over the backlog exiting 2024 of $102,156.
Gross margin decreased to 24.1% for the year ended December 31, 2025, from 25.7% for the year ended December 31, 2024. The 160-basis point decline was due primarily to sales product mix reflecting lower oil & gas cell pack, medical and Communications Systems sales, scrap on the transition of new products to higher production levels, quality issues on some incoming components impacting manufacturing operations, and lower factory throughput at some of our operations.
Operating expenses increased by $19,574 or 60.5% to $51,923 during the year ended December 31, 2025, compared to $32,349 during the year ended December 31, 2024. The increase is primarily attributable to the Company’s October 2025 decision to undergo a comprehensive rebranding initiative that consolidates all sub-brands under a singular, unified master brand – Ultralife. This move reflects our commitment to clarity, consistency and amplified brand equity across all markets. By streamlining our global identity, we aim to strengthen customer recognition, enhance operational efficiency and better align to our customers’ needs with a singular, powerful brand narrative. To this end, the Accutronics, Southwest Electronic Energy, Excell Battery, McDowell Research and AMTI brands will no longer be promoted. The Electrochem brand will remain, but as a product brand on select primary cells. This transformation positions Ultralife for ongoing growth and stronger market impact as we continue to lead in mission critical battery and RF power solutions. This rebranding initiative had a non-cash impact of $12,181 to reduce the value of our tradename and trademark intangible assets recorded during our 2025 fourth quarter. The increase also reflects the inclusion of Electrochem’s operating expenses for the full year compared to only two months in 2024 resulting in an increase of $3,713 and one-time costs relating to the acquisition and transition of Electrochem to Ultralife’s systems, the closure of two of our Canada-based operations, legal costs relating to our cyber insurance claim and certain consulting costs resulting in an increase of $1,580. Excluding the impairment charge from 2025 and the one-time costs from both periods, operating expenses were $36,951 or 19.3% of sales for 2025 compared to $31,077 or 18.9% for 2024, with the increase reflecting the full year impact of Electrochem and investments in new product development and sales and marketing to expedite organic growth. Both periods reflected continued tight control over discretionary spending.
27
Other expenses totaled $2,496 for the year ended December 31, 2025, compared to $1,664 for the year ended December 31, 2024. Interest and financing expense increased $2,013, or 103.8%, from $1,940 for 2024 to $3,953 for the comparable period in 2025 resulting from the financing of the Electrochem acquisition on October 31, 2024. Miscellaneous income amounted to $1,457 for 2025 compared to $276 for 2024, primarily attributable to our expected $1,410 tax refund resulting from the 45X Advanced Manufacturing Production Tax Credit, established by the Inflation Reduction Act and running through 2032, for certain qualifying battery cells and packs we manufacture. Miscellaneous income in 2024 resulted from a payment of $235 from our insurance carrier pertaining to a ransomware cyberattack experienced by the Company in the first quarter of 2023. Both periods also reflect foreign exchange gains and losses due to fluctuations in foreign currency exchange rates.
Income tax (benefit) provision was ($2,447) for the year ended December 31, 2025, compared to $1,892 for the year ended December 31, 2024. Our effective tax rate increased to 29.1% for the 2025 period as compared to 22.8% for the 2024 period, primarily attributable to the geographic mix in earnings and the nontaxable refundable 45X Advanced Manufacturing Production Credit.
The income tax benefit for 2025 is comprised of a $94 current provision for taxes expected to be paid on income primarily for U.S. states and foreign jurisdictions and a ($2,541) deferred tax benefit primarily comprised of a ($2,743) deferred tax (benefit) related to the impairment of certain intangible assets in connection with the launch of our global rebranding initiative. For the comparable 2024 period, the income tax provision was comprised of a $660 current tax provision and a $1,232 deferred tax provision.
Net (loss) income attributable to Ultralife Corporation was ($5,898), or ($0.35) per share – basic and diluted on a GAAP basis for the year ended December 31, 2025, compared to $6,312, or $0.38 per share – basic and diluted for the year ended December 31, 2024.
Adjusted EBITDA, defined as net income attributable to Ultralife Corporation before net interest expense, provision (benefit) for income taxes, depreciation and amortization, plus/minus income/expense that we do not consider reflective of our continuing operations, amounted to $17,284 for the year ended December 31, 2025, compared to $16,480 for the prior year. See the section “Adjusted EBITDA” beginning on page 32 for a reconciliation of adjusted EBITDA to net income attributable to Ultralife.
The Company’s liquidity remains solid, with cash on hand of $9,345, working capital of $68,468 and a current ratio (current assets divided by current liabilities) of 2.8 as of December 31, 2025, as compared to cash on hand of $6,854, working capital of $67,869 and a current ratio of 3.3 as of December 31, 2024.
During the fourth quarter of 2025, we took a number of decisive actions to remove structural and manufacturing inefficiencies from our global operations as we advance several new products into qualification and production and capitalize on an expanding pipeline of opportunities consisting primarily of large, multi-year programs. These actions include the realignment of our four thionyl chloride/oil & gas operations into one business within our Battery & Energy Products segment focused on industrial, specialty and telemetry solutions in order to optimize synergies, deepen customer engagement and expand value propositions; the design of a master brand strategy uniting all acquired sub-brands under the Ultralife brand and aligning sales of the total Ultralife portfolio; and the completion of steps to strengthen the operational leadership at our two largest manufacturing facilities. While we were intensely focused on addressing operational improvements, strong order flow increased backlog to $110 million at the end of 2025, representing a 22% increase over the third quarter. As a result, we have greater confidence in our ability to deliver sustainable profitable growth and incremental cash flow in 2026 enabling us to reduce debt, support strategic capital expenditures, continue our investment in new product development and maximize the value of our global brand.
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Results of Operations — Consolidated
Year ended December 31, 2025, compared with the year ended December 31, 2024:
Year Ended December 31,
Increase/
2025
2024
(Decrease)
Revenues:
Battery & Energy Products
$
178,042
$
144,081
$
33,961
Communications Systems
13,117
20,375
(7,258
)
Total
191,159
164,456
26,703
Cost of products sold:
Battery & Energy Products
135,402
107,764
27,638
Communications Systems
9,736
14,378
(4,642
)
Total
145,138
122,142
22,996
Gross profit:
Battery & Energy Products
42,640
36,317
6,323
Communications Systems
3,381
5,997
(2,616
)
Total
46,021
42,314
3,707
Operating expenses
51,923
32,349
19,574
Operating (loss) income
(5,902
)
9,965
(15,867
)
Other expenses, net
2,496
1,664
832
(Loss) income before income taxes
(8,398
)
8,301
(16,699
)
Income tax (benefit) provision
(2,447
)
1,892
(4,339
)
Net (loss) income
(5,951
)
6,409
(12,360
)
Net (loss) income attributable to non-controlling interest
(53
)
97
(150
)
Net (loss) income attributable to Ultralife Corporation
$
(5,898
)
$
6,312
$
(12,210
)
Net (loss) income attributable to Ultralife common shares – basic
$
(0.35
)
$
0.38
$
(0.73
)
Net (loss) income attributable to Ultralife common shares – diluted
$
(0.35
)
$
0.38
$
(0.73
)
Weighted average shares outstanding – basic
16,642,218
16,554,935
87,283
Weighted average shares outstanding – diluted
16,642,218
16,767,132
(124,914
)
Revenues. Total revenues for the year ended December 31, 2025, amounted to $191,159, an increase of $26,703, or 16.2% from the $164,456 reported for the year ended December 31, 2024. Overall, commercial sales of $125,295 increased $23,213 or 22.7% and government/defense sales of $65,864 increased $3,490 or 5.6%. Excluding Electrochem sales from both periods, sales increased $167 or 0.1% with Battery & Energy Products sales increasing $7,424 or 5.4% and Communications Systems sales declining $7,258 or 35.6%.
Battery & Energy Products revenues of $178,042 increased $33,961, or 23.6%, for the year ended December 31, 2025, over $144,081 for the prior year. Electrochem comprised $26,537 of this increase and core organic growth of $7,424 or 5.4% comprising the remainder. Commercial revenues of this business increased $23,213 or 22.7% from 2024 and now comprise 70.4% of total segment sales versus 70.9% last year. Excluding Electrochem, the $3,324 decrease in commercial sales resulted from a $4,755 or 12.5% reduction in oil & gas sales due primarily to wavering oil indices reflective of economic and geo-political conditions and a $3,040 or 8.6% decline in medical sales due to timing of purchases from large global medical devices OEM’s, partially offset by a $4,471 or 19.9% increase in industrial and all other commercial sales. Government/Defense revenues increased $10,748 or 25.6% from 2024 and now comprise 29.6% of total segment sales versus 29.1% for 2024. The higher government/defense revenues reflects strong demand from the U.S. and allied countries which increased 20.9% and 92.9%, respectively, over 2024.
Variance drivers included commercial end market timing (oil & gas and medical), changes in government/defense shipments, lower oil & gas pack/medical sales volumes, and incoming materials quality impacts at certain sites.
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Communications Systems revenues of $13,117 decreased $7,258 or 35.6% for the year ended December 31, 2025, as compared to $20,375 for the prior year. The decrease is primarily attributable to delays in the timing of purchase orders including the impact of the U.S. Government shutdown.
Our order backlog at December 31, 2025, was $110,223, an increase of $8,067 or 7.9% from the backlog at December 31, 2024, which was $102,156. For our Battery & Energy Products business, the backlog increased $7,400 or 7.8% to $101,984, the highest level in the Company’s history for this segment, from $94,584. For our Communications Systems business, the backlog increased $667 or 8.8% to $8,239 from $7,572. The 2025 year-end backlog are primarily related to orders expected to ship in 2026.
Cost of Products Sold and Gross Profit. Cost of products sold for the year ended December 31, 2025, increased $22,996 or 18.8% from the year ended December 31, 2024. Consolidated cost of products sold as a percentage of total revenue increased from 74.3% for the year ended December 31, 2024, to 75.9% for the year ended December 31, 2025. Correspondingly, consolidated gross margin was 24.1% for the year ended December 31, 2025, compared with 25.7% for the year ended December 31, 2024. The 160-basis point decline was due primarily to sales product mix reflecting lower oil & gas cell pack, medical and Communications Systems sales, scrap on the transition of new products to higher production levels, quality issues on some incoming components impacting manufacturing operations, and lower factory throughput at some of our operations.
For our Battery & Energy Products segment, the cost of products sold increased $27,638 or 25.6%, from the year ended December 31, 2024. Battery & Energy Products’ gross profit for 2025 was $42,640 or 23.9% of revenues, an increase of $6,323 or 17.4% from gross profit of $36,317 or 25.2% of revenues for 2024. Battery & Energy Products’ gross margin decreased for the year ended December 31, 2024 by 130 basis points from the prior year primarily due to product mix reflecting sales declines in higher margin oil & gas pack and medical battery sales, manufacturing inefficiencies caused by quality issues associated with some incoming raw materials, and scrap on the transition of some products to higher production levels.
For our Communications Systems segment, the cost of products sold decreased by $4,642 or 32.3% from the year ended December 31, 2024. Communications Systems’ gross profit for the year ended December 31, 2025, was $3,381 or 25.8% of revenues, a decrease of $2,616 or 43.6% from gross profit of $5,997 or 29.4% of revenues for the year ended December 31, 2024. The 360 basis point reduction from the prior year primarily results from lower factory throughput and sales mix.
Operating Expenses. Total operating expenses for the year ended December 31, 2025, increased $19,574 or 60.5% from the year ended December 31, 2024. The increase is primarily attributable to the Company’s October 2025 decision to undergo a comprehensive rebranding initiative that consolidates all sub-brands under a singular, unified master brand – Ultralife, which resulted in a non-cash write-off of $12,181 to eliminate the value of tradenames and trademark intangible assets that will no longer be emphasized going forward as a result of the rebranding. The increase also reflects the inclusion of Electrochem’s operating expenses for the full year compared to only two months in 2024 resulting in an increase of $3,713 and one-time costs relating to the acquisition and transition of Electrochem to Ultralife’s systems, the closure of two of our Canada-based operations, legal costs relating to our cyber insurance claim and certain consulting costs resulting in an increase of $1,580. Excluding the impairment charge from 2025 and the one-time costs from both periods, operating expenses were $36,951 or 19.3% of sales for 2025 compared to $31,077 or 18.9% for 2024, with the increase reflecting the full year impact of Electrochem and investments in new product development and sales and marketing to expedite organic growth. Both periods reflected continued tight control over discretionary spending.
Overall, operating expenses as a percentage of revenues was 27.2% for the year ended December 31, 2025, compared to 19.7% for the comparable 2024 period. In addition to the 2025 $12,181 intangible asset impairment charge related to our rebranding initiative, amortization expense associated with intangible assets related to our acquisitions increased to $1,518 for the year ended December 31, 2025 ($1,395 in selling, general and administrative expenses and $123 in research and development costs) from $1,032 for the year ended December 31, 2024 ($929 in selling, general and administrative expenses and $103 in research and development costs) as a result of the amortization periods of intangible assets associated with our acquisition of Electrochem on October 31, 2024. Research and development costs were $10,398 in 2025, an increase of $2,130 or 25.8%, from $8,268 reported in 2024. This increase is attributable to our acquisition of Electrochem which contributed $1,122 of the increase and additional investments in new product development. Selling, general, and administrative expenses increased $5,263 or 21.9% to $29,344 for the year-ended December 31, 2025, from $24,081 for the year ended December 31, 2024. The increase resulted from the full year inclusion of Electrochem which contributed $2,486, the increase in certain one-time, non-recurring expenses of $1,580 which include costs to close our Calgary facility, costs related to our acquisition of Electrochem and the related transition to Ultralife systems and litigation expenses for our cyber insurance claim, and the strengthening of our sales and marketing leadership team to expedite organic growth and further leverage our global brand and resources. We continued tight control over discretionary spending across the Company.
30
Other Expense. Other expenses totaled $2,496 for the year ended December 31, 2025, compared to $1,664 for the year ended December 31, 2024. Interest and financing expense increased $2,013, or 103.8%, from $1,940 for 2024 to $3,953 for the comparable period in 2025 resulting from the financing of the Electrochem acquisition on October 31, 2024. Miscellaneous income amounted to $1,457 for 2025 compared to $276 for 2024, primarily attributable to our expected $1,410 tax refund resulting from the 45X Advanced Manufacturing Production Tax Credit, established by the Inflation Reduction Act and running through 2032, for certain qualifying battery cells and packs we manufacture. Miscellaneous income in 2024 resulted from a payment of $235 from our insurance carrier pertaining to a ransomware cyberattack experienced by the Company in the first quarter of 2023. Both periods also reflect foreign exchange gains and losses due to fluctuations in foreign currency exchange rates.
Income tax (benefit) provision was ($2,447) for the year ended December 31, 2025, compared to $1,892 for the year ended December 31, 2024. Our effective tax rate increased to 29.1% for the 2025 period as compared to 22.8% for the 2024 period, primarily attributable to the geographic mix in earnings and the nontaxable refundable 45X Advanced Manufacturing Production Credit. The income tax benefit for 2025 is comprised of a $94 current provision for taxes expected to be paid on income primarily for U.S. states and foreign jurisdictions and a ($2,541) deferred tax (benefit) primarily comprised of a ($2,743) deferred tax (benefit) related to the impairment of certain intangible assets in connection with the launch of our global rebranding initiative. For the comparable 2024 period, the income tax provision was comprised of a $660 current tax provision and a $1,232 deferred tax provision.
Net (loss) income attributable to Ultralife Corporation was ($5,898), or ($0.35) per share – basic and diluted on a GAAP basis for the year ended December 31, 2025, compared to $6,312, or $0.38 per share – basic and diluted for the year ended December 31, 2024.
Weighted average common shares outstanding used to compute diluted earnings per share decreased from 16,767,132 for the 2024 period to 16,642,218 for the 2025 period, primarily due to the loss for the 2025 period which resulted in there being no dilutive effect of our outstanding equity awards for the 2025 period.
Non-GAAP Financial Measures
We use certain non‑GAAP measures, including Adjusted EBITDA, to evaluate operating performance and to facilitate period‑to‑period comparisons. GAAP results are presented first and with equal or greater prominence than non‑GAAP measures. We provide clear quantitative reconciliations to the most directly comparable GAAP measures and explain why we believe the measures are useful and how management uses them. We avoid adjustments that could be viewed as excluding normal, recurring cash operating expenses. See the accompanying reconciliations below for additional detail.
31
Adjusted EBITDA
In evaluating our business, we consider and use adjusted EBITDA, a non-GAAP financial measure, as a supplemental measure of our operating performance. We define adjusted EBITDA as net (loss) income attributable to Ultralife before net interest expense, provision (benefit) for income taxes, depreciation and amortization, and stock-based compensation expense, plus/minus expense/income that we do not consider reflective of our ongoing continuing operations. We also use adjusted EBITDA as a supplemental measure to review and assess our operating performance and to enhance comparability between periods. We also believe the use of adjusted EBITDA facilitates investors’ understanding of operating performance from period to period by backing out potential differences caused by variations in such items as capital structures (affecting relative interest expense and stock-based compensation expense), the amortization of intangible assets acquired through our business acquisitions (affecting relative amortization expense and (benefit) provision for income taxes), the age and book value of facilities and equipment (affecting relative depreciation expense) and one-time charges/benefits relating to income taxes. We also present adjusted EBITDA from operations because we believe it is frequently used by securities analysts, investors and other interested parties as a measure of financial performance. We reconcile adjusted EBITDA to net (loss) income attributable to Ultralife, the most comparable financial measure under GAAP.
We use adjusted EBITDA in our decision-making processes relating to the operation of our business together with GAAP financial measures such as operating (loss) income. We believe that adjusted EBITDA permits a comparative assessment of our operating performance, relative to our performance based on our GAAP results, while isolating the effects of depreciation and amortization, which may vary from period to period without any correlation to underlying operating performance, and of stock-based compensation, which is a non-cash expense that varies widely among companies. We believe that by presenting adjusted EBITDA, we assist investors in gaining a better understanding of our business on a going forward basis. We provide information relating to our adjusted EBITDA so that securities analysts, investors and other interested parties have the same data that we employ in assessing our overall operations. We believe that trends in our adjusted EBITDA are a valuable indicator of our operating performance on a consolidated basis and of our ability to produce operating cash flows to fund working capital needs, to service debt obligations and to fund capital expenditures.
The term adjusted EBITDA is not defined under GAAP, and is not a measure of operating income, operating performance or liquidity presented in accordance with GAAP. Our adjusted EBITDA has limitations as an analytical tool, and when assessing our operating performance, adjusted EBITDA should not be considered in isolation or as a substitute for net income attributable to Ultralife or other consolidated statement of operations data prepared in accordance with GAAP. Some of these limitations include, but are not limited to, the following:
a.
Adjusted EBITDA does not reflect (1) our cash expenditures or future requirements for capital expenditures or contractual commitments; (2) changes in, or cash requirements for, our working capital needs; (3) the interest expense, or the cash requirements necessary to service interest or principal payments, on our debt; (4) income taxes or the cash requirements for any tax payments; and (5) all of the costs associated with operating our business;
b.
Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized often will have to be replaced in the future, and adjusted EBITDA from continuing operations does not reflect any cash requirements for such replacements;
c.
While stock-based compensation is a component of cost of products sold and operating expenses, the impact on our consolidated financial statements compared to other companies can vary significantly due to such factors as assumed life of the stock-based awards and assumed volatility of our common stock; and
d.
Other companies may calculate adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure.
32
We compensate for these limitations by relying primarily on our GAAP results and using adjusted EBITDA only on a supplemental basis. Neither current nor potential investors in our securities should rely on adjusted EBITDA as a substitute for any GAAP measures and we encourage investors to review the following reconciliation of adjusted EBITDA to net income (loss) attributable to Ultralife Corporation.
Year ended December 31,
2025
2024
Net (loss) income attributable to Ultralife Corporation
$
(5,898
)
$
6,312
Adjustments:
Interest expense, net
3,953
1,940
Income tax (benefit) provision
(2,447
)
1,892
Depreciation expense
3,981
3,125
Amortization of intangible assets
1,518
1,032
Intangible asset impairment
12,181
-
Stock-based compensation expense
935
698
Severance and other costs for plant closures
641
-
Acquisition and other non-recurring costs
2,300
1,361
Non-cash purchase accounting adjustments
120
120
Adjusted EBITDA
$
17,284
$
16,480
33
Liquidity and Capital Resources
Overview
We monitor liquidity through cash balances, cash generated from operations, and availability under our revolving credit facility; we were in compliance with our debt covenants as of year‑end.
Cash Flows and General Business Matters
As of December 31, 2025, cash totaled $9,345, an increase of $2,491 from $6,854 as of December 31, 2024, primarily attributable to EBITDA generated in 2025 and the timing of remittances from customers and payments to vendors.
During the year ended December 31, 2025, cash generated from operations was $10,990, as compared to $16,636 for the year ended December 31, 2024. For the 2025 period, cash provided by our operations was comprised of net loss of $5,951 plus non-cash items totaling $16,339 for depreciation, amortization, stock-based compensation, and deferred taxes, and other non-cash operating expenses, plus $602 attributable to a reduction in working capital, driven primarily by the timing of collections and payments.
Cash used in investing activities for the year ended December 31, 2025, was $3,872 for capital expenditures, primarily reflecting investments in equipment for new products transitioning to higher-volume manufacturing.
Cash used in financing activities for the year ended December 31, 2025, was $4,676, primarily attributable to a $4,750 reduction in our outstanding debt and $24 of debt issuance costs paid, partially offset by $98 in cash generated from employee stock option exercise proceeds during the period.
We continue to have significant federal net operating loss carryforwards and federal general business tax credit carryforwards available to utilize as an offset to taxable income. As of December 31, 2025, none of our federal net operating loss carryforwards and tax credit carryforwards have expired. See Note 7 to the consolidated financial statements included in Item 8 of this Form 10-K for additional information.
Going forward, we expect positive operating cash flow and the availability under our credit facilities will be sufficient to meet our obligations for both financing and investing.
Commitments
As of December 31, 2025, the Company had $50,250 outstanding principal on the Term Loan, of which $4,125 is due to be paid in 2026, and no amounts outstanding on the Revolving Credit Facility. The Company is in full compliance with its debt covenants under the Credit Facilities.
As of December 31, 2025, we had made commitments to purchase approximately $321 of production machinery and equipment.
We typically offer standard warranties against product defects that range from ninety (90) days to three (3) years from the date of purchase. We also offer separately priced extended warranty contracts on certain Communications Systems products. Warranty costs expected to be incurred are estimated based on the Company’s experience and recorded as costs of products sold. There is no assurance that future warranty claims will be consistent with our estimates, and in the event we experience a significant increase in warranty claims, there is no assurance that our reserves will be sufficient. Excessive warranty claims could have a material adverse effect on our business, financial condition and results of operations.
Material Cash Requirements
Over the next 24 months, we expect estimated material cash requirements for debt service (interest and scheduled principal) of approximately $16,000 based on the requirements of our Credit and Security Agreement with interest rates at present levels and capital expenditures of approximately $8,000 - $9,000 based on completion of current projects, planned projects and historical trends. We believe available liquidity, expected operating cash flows, and revolving credit availability will be sufficient to meet these requirements as well as our purchase commitments, efficiency initiatives and other costs which will be aligned with our organic growth.
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Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
Critical Accounting Policies and Estimates
The above discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, included in Item 8 of this Form 10-K, which have been prepared in accordance with GAAP. The preparation of our consolidated financial statements requires the application of accounting policies and the use of estimates. The accounting policies most important to the preparation of the consolidated financial statements and estimates that require management’s most difficult, subjective or complex judgments are described below.
Revenue Recognition:
Revenues are generated from the sale of products. Performance obligations are met and revenue is recognized upon transfer of control to the customer, which is generally upon shipment. When contract terms require transfer of control upon delivery at a customer’s location, revenue is recognized on the date of delivery. For products shipped under vendor managed inventory arrangements, revenue is recognized and billed when the product is consumed by the customer, at which point control has transferred and there are no further obligations by the Company. Revenue is measured as the amount of consideration we expect to receive in exchange for shipped product. Sales, value-added and other taxes billed and collected from customers are excluded from revenue. Customers, including distributors, do not have a general right of return.
Separately priced extended warranty contracts are offered on certain products. Extended warranties are treated as separate performance obligations and recognized to revenue evenly over the term of the respective contract. Revenue not yet recognized on extended warranty contracts is recorded as deferred revenue on the consolidated balance sheets.
For customer contracts with an original expected duration of less than one year, we apply the practical expedient with respect to disclosure of the deferral and future expected timing of revenue recognition for transaction price allocated to remaining performance obligations.
Valuation of Inventory:
Inventories are stated at the lower of cost or net realizable value, with cost determined using the first-in, first-out (“FIFO”) method. Our inventory includes raw materials, work in process and finished goods. We recognize provisions for excess, obsolete or slow-moving inventory. Inherent in our estimates of net realizable value in determining inventory valuation are assumptions related to expectations of future demand for our products, product lifecycles, product support, technical obsolescence, regulatory requirements, and economic and market conditions. Estimates related to the valuation of inventory are susceptible to changes as the underlying assumptions are continuously evaluated. If our assumptions are adversely different from those estimated by management, inventory adjustments to reduce inventory values would result in an increase in inventory write-offs and a decrease in gross margins.
Goodwill and Other Indefinite Lived Intangible Assets:
Under the acquisition method of accounting, the total consideration transferred to consummate the acquisition is allocated to the identified tangible and intangible assets acquired and liabilities assumed based on their respective estimated fair values as of the acquisition date with the residual amount recorded to goodwill. We do not amortize goodwill and other intangible assets with indefinite lives, but instead evaluate these assets for impairment at least annually and whenever events or circumstances indicate that impairment may exist.
The annual impairment test for goodwill consists of a comparison of the estimated fair value for each reporting unit to which goodwill is assigned to the carrying value of the respective reporting unit. The annual impairment test for the other intangible assets with an indefinite life consists of a comparison of the estimated fair value of each asset to the carrying value of the respective asset. If the estimated fair value of a reporting unit or other indefinite-lived intangible asset exceeds its respective carrying value, the goodwill or indefinite-lived intangible asset is considered to not be impaired. If carrying value of a reporting unit or indefinite-lived intangible asset exceeds its estimated fair value, the excess carrying value of the respective goodwill or indefinite-lived intangible asset is recognized as an impairment loss.
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We conducted our annual impairment test for goodwill and other indefinite-lived intangible assets as of October 1, 2025. We identified two (2) goodwill reporting units and five (5) indefinite-lived intangible assets for trademarks and trade names. We performed a quantitative impairment assessment of each goodwill reporting unit and indefinite-lived intangible asset. The estimated fair value of each reporting unit was determined using a discounted cash flow model. The estimated fair value of each indefinite-lived intangible asset was determined using other income-based valuation models. Significant estimates and assumptions were used to estimate fair value, including our internal operating and cash flow forecasts, excess working capital requirements, and inputs to the weighted-average cost of capital used to discount future cash flows. The significant estimates and assumptions used in these valuations are subject to judgment based on sources utilized and the assessment of risks related to our internal forecasts. Based on the results of our impairment test, and consideration of qualitative factors, no impairments were identified with respect to goodwill. It was concluded that our trademarks and trade names were fully impaired as a result of the Company’s rebranding initiative that consolidates all sub-brands under a singular, unified master brand – Ultralife. There is a possibility that our goodwill and other intangible assets could be impaired in the future should there be a significant change in the significant estimates and assumptions used in our impairment assessment.
Impairment of Long-Lived Assets:
We assess our long-lived assets for impairment whenever events or circumstances indicate their carrying amounts may not be recoverable. This is accomplished by comparing the expected undiscounted future cash flows of the assets with the respective carrying amount as of the date of assessment. Should aggregate undiscounted future cash flows be less than the carrying value, a write-down would be required, measured as the difference between the carrying value and the fair value of the asset. Fair value is estimated either through the assistance of an independent valuation or as the present value of expected discounted future cash flows. The discount rate used by us in our evaluation is an industry-based weighted average cost of capital. If the expected undiscounted future cash flows exceed the respective carrying amount as of the date of assessment, no impairment charge is recognized.
Income Taxes:
We account for income taxes using the asset and liability method. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse. Pursuant to ASC 740, a valuation allowance is recognized when the realizability of deferred tax assets is not more likely than not, based all available evidence, both positive and negative, weighted based on objective verifiability.
As of December 31, 2025, we concluded that it is more likely than not that our U.S. deferred tax assets will be fully realized based on management’s assessment. In evaluating the realizability of our U.S. deferred tax assets, management considered all available evidence, both positive and negative, weighted based on objective verifiability. Our assessment also considered our ability to fully utilize before expiration our domestic net operating loss carryforwards, which begin to expire in 2031, and our federal general business tax credit carryforwards, which begin to expire in 2028. As of December 31, 2025, our federal net operating loss carryforwards, state net operating loss carryforwards, and federal general business tax credit carryforwards were $8,800, $5,100 and $3,400, respectively.
As of December 31, 2025, for certain past operations in the U.K., we continue to report a valuation allowance for net operating loss carryforwards of approximately $10,100, nearly all of which can be carried forward indefinitely. Management has concluded that utilization of the U.K. net operating losses may be limited due to the change in the past U.K. operation, and that they cannot currently be used to reduce taxable income of our other U.K. subsidiary, Accutronics Ltd. There are no other deferred tax assets related to the past U.K. operations.
As of December 31, 2025, we have not recognized a valuation allowance against our other foreign deferred tax assets, including net operating loss carryforwards of $1,300 which expire in 2029 through 2035, as we believe that it is more likely than not that they will be fully realized. We will continue to evaluate the realizability of our deferred tax assets in future periods.
Stock-Based Compensation:
We recognize compensation cost relating to share-based payment transactions in our financial statements. The cost is measured at the grant date, based on the estimated fair value of the award, and is recognized as an expense over the employee’s requisite service period (generally the vesting period of the equity award). We calculate implied volatility for stock options based on an average of historical volatility over the expected life of the awards. The computation of expected term is determined based on historical experience of similar awards, giving consideration to the contractual terms of the awards and the vesting period. The interest rate for periods within the contractual life of the award is based on the U.S. Treasury yield in effect at the time of grant. Our awards are generally valued using the Black-Scholes method. If required, our market-based awards are valued using a Monte Carlo simulation.
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Business Combinations:
We account for businesses acquired using the acquisition method of accounting. Under this method, all acquisition-related costs are expensed as incurred, and the total consideration transferred to consummate the acquisition is allocated to the identified tangible and intangible assets acquired and liabilities assumed based on their respective estimated fair values as of the acquisition date with the residual amount recorded to goodwill. As part of this process, we identify and attribute values and estimated lives to property and equipment and intangible assets acquired. These determinations involve significant estimates and assumptions, including those with respect to future cash flows, discount rates and asset lives, and therefore require considerable judgment. These determinations affect the amount of depreciation and amortization expense recognized in future periods. The results of operations of acquired businesses are included in the consolidated statements of income and comprehensive income beginning on the respective acquisition date.
Warranties:
We typically offer standard warranties against product defects that range from ninety (90) days to three (3) years from the date of purchase. We also offer separately priced extended warranty contracts on certain products. Warranty costs expected to be incurred are estimated based on the Company’s experience and recorded as costs of products sold. Standard warranty costs are recognized upon product sale. Extended warranty costs are recognized over the term of the contract. Provision for warranty costs is recorded in accrued expenses and other current liabilities and other noncurrent liabilities on our consolidated balance sheet based on the duration of the warranty.
Environmental Issues:
Environmental expenditures, if any, that relate to current operations are generally expensed. Remediation costs that relate to an existing condition caused by past operations are accrued when it is probable that these costs will be incurred and can be reasonably estimated.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a smaller reporting company, we are not required to provide this information.
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