Ultralife's Turning Point: Record Backlog and the NGC2 Catalyst
Defense and communications momentum drive a strategic inflection, with margins and backlog at historic highs.
ULBI · Earnings Call · 2026-08-07
The Long Wait for a Catalyst
Ultralife's Q2 2026 earnings call had a different energy than the prior several quarters. After years of qualifications, validations, and field testing that yielded little revenue, the company finally appeared to turn a corner. Revenue slipped 1.4% to $47.9M, but that headline masked a far healthier mix: Government Defense sales rose 5% and the Communications Systems business surged 39.3% on order timing. More importantly, the company exited the quarter with a record backlog of $117.5M, up 39% year-over-year.That pull-through is directly tied to L3Harris winning the Army's Next-Gen Command & Control (NGC2) award for its Falcon Manpack. While management cautiously noted, “We do not directly have the insight as to which divisions it's going to at this point” — Michael Manna, President and CEO · 2026-08-07, the implication is clear: Ultralife is a key supplier for that platform, and the backlog is already reflecting it.In July, we've had a lot of order pull-through to our backlog. I mean, we're almost at $130 million as we sit today.
Margin Expansion: A Compound of Tariff and Discipline
The financial engineering behind the quarter was equally notable. Gross margin expanded 500 basis points to 28.9%, the highest in years. “The net tariff refund in the second quarter of 2026 was $1.1 million and accounted for 230 basis points of the year-over-year increase in gross margin.” — Philip A. Fain, Chief Financial Officer · 2026-08-07 This isn't just a company-specific event; tariff refund is echoing across the market this season as manufacturers claw back IEEPA charges. But the improvement is also structural. Management has been attacking the root causes of margin leakage: a scrap issue on the largest margin-impacting product line was fixed, and a second corrective action is being implemented through the supply chain. These two initiatives alone should generate $600–$800k in annual savings. “Our new plant leaders in Newark and Raynham are continuing to gain experience and drive operational improvements.” — Michael Manna, President and CEO · 2026-08-07 That discipline was hard-won. In the call a year ago, the CFO had detailed the cost of tariffs: “Absolutely. $539,482 less $126,000 received back from customers. So bottom line hit was $400,000...” — Philip A. Fain, Chief Financial Officer · 2025-08-08 The contrast with today's tailwind could not be starker. Earlier this year, the CEO had tempered expectations: “We are coming to the end of some of those. So we do see some light at the end of the tunnel there.” — Mike Manna, President and CEO · 2025-05-09 That light has now arrived.Drone Batteries and the Electrochem Upside
The most forward-looking area is the integration of Electrochem cells into broader power solutions. Electrochem cells are now powering underwater drone platforms, an area where Ultralife claims a leadership position. drone application is a new theme for the company, and management expects meaningful incremental revenue from the fourth quarter onward. The rebound in gross margin is the clearest evidence that the operational fixes are working. The vertical integration from the Electrochem acquisition is also expanding addressable markets. As the CEO noted, they are "experiencing growing demand in support of both large and small water-based drone platforms utilizing Electrochem cells." The company's revenue hovered around $50M in the trailing twelve months, but with defense orders now flowing, that base could grow.What to Watch
The stock remains 47% below its 2024 peak, but the setup has shifted. The backlog is a record, the margin trajectory is improving, and the L3Harris program could be a multi-year revenue driver. The prior CEO's frustration—"I get sick of hearing my voice sometimes saying it"—now feels like a vestige of a painful era. The company is moving from "the waiting for Quala complete position" to actual orders.That was last year. Now they're at $130M in backlog. The inflection looks real, and given the small-cap scale, even a $20M incremental program could move the needle significantly.I will say we're starting to see some initial POs. We're seeing some qualification activity beyond just we're doing testing. It's more site visits and things like that...