Depreciation expense for property, plant and equipment was $762$740 and $816$762 for the three-month periods ended March 31, 20232024 and March 31, 2022,2023, respectively.

Goodwill

The following table summarizes the goodwill activity by segment for the three-month period ended March 31, 2023.2024.

Other Intangible Assets, Net

The composition of other intangible assets was:

The change in the cost of total intangible assets from December 31, 20222023 to March 31, 20232024 is the effect of foreign currency translations.

Amortization expense for intangible assets was $209$228 and $328$209 for the three-month periods ended March 31, 20232024 and March 31, 2022,2023, respectively. Amortization included in selling, general and administrative expenses was $185$203 and $302$185 for the three-month periods ended March 31, 20232024 and March 31, 2022,2023, respectively. Amortization included in research and development expenses was $24$25 and $26$24 for the three-month periods ended March 31, 20232024 and March 31, 2022,2023, respectively.

We recorded non-cash stock compensation expense in each period as follows:

We have stock options outstanding from various stock-based employee compensation plans for which we record compensation cost relating to share-based payment transactions in our financial statements. As of March 31, 2023,2024, there was $553$699 of total unrecognized compensation cost related to outstanding stock options, which is expected to be recognized over a weighted average period of 1.21.3 years.

The following table summarizes stock option activity for the three-month period ended March 31, 2023:2024:

Cash received from stock option exercises under our stock-based compensation plans for the three-month periods ended March 31, 20232024 and March 31, 20222023 was $0$685 and $113,$0, respectively.

Outstanding restricted sharesRestricted stock awards vest in equal annual installments over three three(3) (3) years. Unrecognized compensation cost related to outstandingunvested restricted shares at March 31, 2024 and March 31, 2023, respectively, was $31 and $2.

Our effective tax rate for the three-month periods ended March 31, 20232024 and March 31, 20222023 was 28.4%19.5% and 60.9%28.4%, respectively. The period-over-period change was primarily attributable to the geographic mix of our operating results and the larger impact of discrete adjustments in the prior year.results.

As of December 31, 2022,2023, we have domestic net operating loss (“NOL”) carryforwards of $40,952,$27,200, which expire 20252031 through 2035, and domestic tax credits of $2,600,$2,900, which expire 2028 through 2042,2043, available to reduce future taxable income. As of March 31, 2023,2024, management has concluded it is more likely than not that these domestic NOL and credit carryforwards will be fully utilized.

As of March 31, 2023,2024, for certain past operations in the U.K., we continue to report a valuation allowance for NOL carryforwards of approximately $10,000,$9,800, nearly all of which can be carried forward indefinitely. Utilization of the net operating losses may be limited due to the change in the past U.K. operation and cannot currently be used to reduce taxable income at our other U.K. subsidiary, Accutronics Ltd. There are no other deferred tax assets related to the past U.K. operations.

As of March 31, 2023,2024, we have not recognized a valuation allowance against our other foreign deferred tax assets, as realization is considered to be more likely than not.

As of March 31, 2023,2024, the Company maintains its assertion that all foreign earnings will be indefinitely reinvested in those operations, other than earnings generated in the U.K.

There were no unrecognized tax benefits related to uncertain tax positions at March 31, 20232024 and December 31, 2022.2023.

As a result of our operations, we file income tax returns in various jurisdictions including U.S. federal, U.S. state and foreign jurisdictions. We are routinely subject to examination by taxing authorities in these various jurisdictions. Our U.S. tax matters for 2019-20222020 thru 2022 remain subject to IRS examination. Our U.S. tax matters for 2001-2002, 2005-2007, 2009, and 2011-2015 also remain subject to IRS examination due to the remaining availability of net operating loss carryforwards generated in those years. Our U.S. tax matters for 2005-2007 and 2011-20222013 thru 2022 remain subject to examination by various state and local tax jurisdictions. Our tax matters for the years 2013 through thru 2022 remain subject to examination by the respective foreign tax jurisdiction authorities.

The Company has operating leases predominantly for operating facilities. As of March 31, 2023,2024, the remaining lease terms on our operating leases range from approximately less than one (1)(1) year to nine (9)eight (8) years. Lease terms include renewal options reasonably certain of exercise. There is no transfer of title or option to purchase the leased assets upon expiration. There are no residual value guarantees or material restrictive covenants.

The components of lease expense for the current and prior-year comparative periods were as follows:

Supplemental cash flow information related to leases was as follows:

Supplemental consolidated balance sheet information related to leases was as follows:

Future minimum lease payments as of March 31, 20232024 are as follows:

Purchase Commitments

As of March 31, 2023,2024, we have made commitments to purchase approximately $873$330 of production machinery and equipment.

Product Warranties

We estimate future warranty costs to be incurred for product failure rates, material usage and service costs in the development of our warranty obligations. Estimated future costs are based on actual past experience and are generally estimated as a percentage of sales over the warranty period. Changes in our product warranty liability during the first three months of 20232024 and 20222023 were as follows:

Contingencies and Legal Matters

We are subject to legal proceedings and claims that arise from time to time in the normal course of business. We believe that the final disposition of any such matters will not have a material adverse effect on the Company’s financial position, results of operations or cash flows. However, recognizing that legal matters are subject to inherent uncertainties, there exists the possibility that ultimate resolution of these matters could have a material adverse impact on the Company’s financial position, results of operations or cash flows. We are not aware of any such situations at this time.

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 Communications Systems products for a duration of up to eight (8) years. 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 sheet. For the quarter ended March 31, 2024, revenue recognized on extended warranties was $72.

As of March 31, 2023,2024, there was deferred revenue on extended warranty contracts of $985,$1,335, comprised of $164$287 expected to be recognized as revenue within one (1) year and classified as accrued expenses and other current liabilities on our consolidated balance sheet, and $821$1,048 expected to be recognized as revenue over the remaining duration of the respective contracts and classified as other noncurrent liabilities on our consolidated balance sheet.

As of December 31, 2022,2023, there was deferred revenue on extended warranty contracts of $682,$1,407, comprised of $119$287 expected to be recognized as revenue within one (1) year and classified as accrued expenses and other current liabilities on our consolidated balance sheet, and $563$1,120 expected to be recognized as revenue evenly over the remaining duration of the respective contracts and classified as other noncurrent liabilities on our consolidated balance sheet.

As of March 31, 20232024 and December 31, 2022,2023, the Company had no other unsatisfied performance obligations for contracts with an original expected duration of greater than one year. Pursuant to Topic 606, we have applied 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.

We report our results in two operating segments: Battery & Energy Products and Communications Systems. The Battery & Energy Products segment includes Lithium 9-volt, cylindrical and various 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 gross profit level is the best indicator of segment performance.

Three-month period ended March 31, 2024:

Three-month period ended March 31, 2023:

Three-month period ended March 31, 2022:

The following tables disaggregate our business segment revenues by major source and geography.

Commercial and Government/Defense Revenue Information:

Three-month period ended March 31, 2023:2024:

Three-month period ended March 31, 2022:

U.S. and Non-U.S. Revenue Information¹:

Three-month period ended March 31, 2023:

U.S. and Non-U.S. Revenue Information¹:

Three-month period ended March 31, 2022:2024:

Three-month period ended March 31, 2023:

¹Sales classified to U.S. include shipments to U.S.-based prime contractors which in some cases may serve non-U.S. projects.

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements. This report contains certain forward-looking statements and information that are based on the beliefs of management as well as assumptions made by and information currently available to management. The statements contained in this report relating to matters that are not historical facts are forward-looking statements that involve risks and uncertainties, including, but not limited to, changes in economic conditions including inflation and supply chain disruptions affecting our business, revenues and earnings adversely; our reliance on certain key customers; reductions or delays in U.S. and foreign military spending; our efforts to develop new products or new commercial applications for our products; potential disruptions in our supply of raw materials and components; breaches in information systems security and other disruptions in our information technology systems; our ability to recruit and retain top management and key personnel; our resources being overwhelmed by our growth; the continued impact of COVID-19, or other pandemics that may arise, causing delays in the manufacture and delivery of our mission critical products to end customers;  our reliance on certain key customers; our efforts to develop new commercial applications for our products; reduced U.S. and foreign military spending including the uncertainty associated with government budget approvals; the unique risks associated with our China operations; breaches in information systems security and other disruptions in our information technology systems; potential disruptions in our supply of raw materials and components; fluctuations in the price of oil and the resulting impact on the demand for downhole drilling; our ability to retain top management and key personnel; our resources being overwhelmed by our growth; possible future declines in demand for the products that use our batteries or communications systems; safety risks, including the risk of fire; variability in our quarterly and annual results and the price of our common stock; safety risks, including the risk of fire; rising interest rates increasing the cost of our variable borrowings; purchases by our customers of product quantities not meeting the volume expectations in our supply agreements;  potential costs attributable to the warranties we supply with our products and services; our inability to comply with changes to the regulations for the shipment of our products; our ability to utilize our net operating loss carryforwards; our entrance into new end-markets which could lead to additional financial exposure; negative publicity concerning Lithium-ion batteries; our ability to utilize our net operating loss carryforwards; our exposure to foreign currency fluctuations; possible impairments of our goodwill and other intangible assets; our exposure to foreign currency fluctuations; the risk that we are unable to protect our proprietary and intellectual property; rules and procedures regarding contracting with the U.S. and foreign governments; exposure to possible violations of the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act or other anti-corruption laws; known and unknown environmental matters; possible audits of our contracts by the U.S. and foreign governments and their respective defense agencies; our ability to comply with government regulations regarding the use of “conflict minerals”; technological innovations in the non-rechargeable and rechargeable battery industries; and other risks and uncertainties, certain of which are beyond our control.  Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may differ materially from those forward-looking statements described herein. When used in this report, the words “anticipate,” “believe,” “estimate,” “expect,” “seek,” “project,” “intend,” “plan,” “may,” “will,” “should,” “foresee,” “could,” “likely,” or words of similar import are intended to identify forward-looking statements. For further discussion of certain of the matters described above and other risks and uncertainties, see Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022.2023.

Although we base these forward-looking statements on assumptions that we believe are reasonable when made, we caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity and the development ofdevelopments in the industries in which we operate may differ materially from those made in or suggested by the forward-looking statements contained herein. In addition, even if our results of operations, financial condition and liquidity and the development of the industries in which we operate are consistent with the forward-looking statements contained in this quarterly report,document, those results or developments may not be indicative of results or developments in subsequent periods. Given these risks and uncertainties, you are cautioned not to place undue reliance on these forward-looking statements. Any forward-looking statements that we make herein speak only as of the date of those statements, and we undertake no obligation to update those statements or to publicly announce the results of any revisions to any of those statements to reflect future events or developments. Comparisons of results for current and any prior periods are not intended to express any future trends or indications of future performance, unless expressed as such, and should only be viewed as historical data.

Undue reliance should not be placed on our forward-looking statements. Except as required by law, we disclaim any obligation to update any risk factors or to publicly announce the results of any revisions to any of the forward lookingforward-looking statements to reflect new information or risks, future events or other developments.

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with the consolidated financial statements and notes thereto in Part I, Item 1 of this Form 10-Q, and the consolidated financial statements and notes thereto and risk factors in our Annual Report on Form 10-K for the year ended December 31, 2022.2023.

The financial information in this MD&A is presented in thousands of dollars, except for share and per share amounts, 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 and manufacture power and communications systems including:including rechargeable and non-rechargeable batteries, charging systems, communications and electronics systems and accessories, and custom engineered systems related to those product lines. We continually evaluate ways to grow, including the design, development and sale of new products, expansion of our sales force to penetrate new markets and territories, as well as seeking opportunities to expand through acquisitions.

We sell our products worldwide through a variety of trade channels, including original equipment manufacturers (“OEMs”), industrial and defense supply distributors, and directly to U.S. and foreign defense departments. We enjoy strong name recognition in our markets under our Ultralife®, Ultralife HiRate®, Ultralife Thin Cell®, Ultralife Batteries Inc.®, Lithium Power®, McDowell Research®, AMTI^TM, ABLE^TM, ACCUTRONICS™ACCUTRONICS^TM, ACCUPRO™ACCUPRO^TM, ENTELLION™ENTELLION^TM, SWE Southwest Electronic Energy Group™Group^TM, SWE DRILL-DATA™, SWE SEASAFE™SEASAFE^TM, Excell Battery Group^TM and Criterion Gauge brands.^TM brands, among others. We have sales, operations and product development facilities in North America, Europe and Asia.

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 gross profit level is the best indicator of segment performance. As such, we report segment performance at the gross profit level and operating expenses as Corporate chargescharges. (See Note 10 in the notes to consolidated financial statements.statements in Item 1 of Part 1 of this Form 10-Q.)

Our website address is www.ultralifecorporation.com. We make available free of charge via a hyperlink on our website (see Investor Relations link on the website) our annual reports on Form 10-K, proxy statements, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports and statements as soon as reasonably practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission (“SEC”). We will provide copies of these reports upon written request to the attention of Philip A. Fain, CFO, Treasurer and Secretary, Ultralife Corporation, 2000 Technology Parkway, Newark, New York, 14513. Our filings with the SEC are also available through the SEC website at www.sec.gov or at the SEC Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549 or by calling 1-800-SEC-0330.

COVID-19

The COVID-19 pandemic and other illnesses has caused and may continue to create significant economic and social disruption and uncertainty around the world, may impact the health of our employees, and that of our suppliers and customers causing delays in the manufacture and delivery of our mission critical products to end customers, and may disrupt business with our collaborative business partners and service providers, which may continue to adversely impact our operating results.As we enter the third year of the pandemic, our workforce, customers and vendors still face the risk of the emergence of new strains, availability of effective treatment, and potential regulatory and macroeconomic effects stemming from such impacts. Except for certain situations in China, lockdowns, shelter-in-place restrictions, and vaccine mandates, prevalent during the initial stages of the pandemic, have now been lifted for most companies. While we have maintained normal business operations at all our facilities with the exception of the well-publicized shutdowns in China which impacted our Shenzhen facility in the first quarter of 2022, the related supply chain disruptions including increased lead times on key components experienced within our business and by our customers and vendors, continue to impact our work schedules and timing of shipments. The lingering impact of these conditions on our business and financial results, potentially exacerbated by the emergence of new strains, is uncertain and will depend on many evolving factors which we continue to monitor but cannot predict. These factors include the resistance to treatments and current vaccinations, the duration and scope of any new pandemic variants, the resulting actions taken by governments, businesses and individuals, and the flow-through impact on operations and supply chains.

Overview

Consolidated revenues of $41,927 for the three-month period ended March 31, 2024, increased by $10,011 or 31.4%, over $31,916 for the three-month period ended March 31, 2023, increased by $1,543 or 5.1%, over $30,373 for the three-month period ended March 31, 2022, reflecting both an increase in government/defense sales of 24.7% partially offset by a 1.7% decline in83.4% and commercial sales.sales of 8.6%. During the first quarter of 2023, the Company experienced a cybersecurity ransomware attack which impacted our ability to process orders, ship products, provide services to our customers and effectively manage our sales and operating planning process over a several-week period for our Newark, NY location and an even longer period for our Virginia Beach, VA location. While production and shipping have been resumed in both locations, considerableConsiderable time during the first quarter of 2023 was devoted to data restoration, systems recovery, systems security augmentation, and regulatory reporting of the attack.  Management continues to work on itsOur resulting cybersecurity insurance claim covering the cost of engaging external cybersecurity experts and the losses incurred due to the interruption of our business interruption impact. The Company’s deductible for its cyber-insurance policy of $100 is includedremains in first quarter results.  No ransom was paid.review by our insurance carrier.

Gross profit was $7,436,$11,470, or 23.3%27.4% of revenue, for the three-month period ended March 31, 2023,2024, compared to $6,958,$7,436, or 22.9%23.3% of revenue, for the same quarter a year ago.  The 40-basis410-basis point improvement primarily resulted from higher factory volume for both our Battery & Energy Products and Communications Systems businessbusinesses, more efficiencies resulting from a concerted effort to level-load production more evenly across the 2024 quarter and improved price realization,realization. Gross profit for the 2023 period was tempered by the inefficiencies associated with the cybersecurity attack, lingering supply chain disruptions and higher material costs across both business segments.

Operating expenses increasedremained essentially flat, decreasing to $7,407 for the three-month period ended March 31, 2024, compared to $7,410 for the three-month period ended March 31, 2023, compared to $7,2532023.  Operating expenses for the three-month2024 period ended March 31, 2022. The increase of $157 or 2.2% was primarily attributable to the recording of the $100 deductible on our cyber insurance policy for expenses incurred during the quarter and continued investment in new product development. Operating expenses were 23.2%17.7% of revenue compared to 23.9%23.2% of revenue for the year-earlier period.

Operating income for the three-month period ended March 31, 20232024 was $26,$4,063, or 0.01%9.7% of revenues, compared to operating loss of $295,$26, or (1.0%)0.1% of revenues, for the year-earlier period. The increase in operating income primarily resulted from the 181.8%31.4% revenue increase, for our Communications Systems segment.the 410-basis point improvement in gross margin and the 550-basis point improvement in operating expense to revenues leverage.

Net lossincome (loss) attributable to Ultralife Corporation was $2,891, or $0.18 per share – basic and diluted, for the three-month period ended March 31, 2024, compared to ($346), or ($0.02) per share – basic and diluted, for the three-month period ended March 31, 2023, compared to ($168) or ($0.01) per share – basic and diluted, for the three-month period ended March 31, 2022.2023. 

Adjusted EBITDA, defined as net income (loss) attributable to Ultralife Corporation before net interest expense, provision (benefit) for income taxes, depreciation and amortization, and stock-based compensation expense, plus/minus expenses/income that we do not consider reflective of our ongoing operations, amounted to $5,243, or 12.5% of revenues, for the first quarter of 2024, compared to $1,155, or 3.6% of revenues, for the first quarter of 2023, compared to $1,103, or 3.6% of revenues, for the first quarter of 2022.2023. See the section “Adjusted EBITDA” beginning on Pagepage 19 for a reconciliation of adjusted EBITDA to net income (loss) attributable to Ultralife.Ultralife Corporation.

With the current healthy backlog and new product commercialization, we are prepared to capture additional organic growth opportunities, while we continue to drive gross margin improvements and invest in further new product development.  We are focused on fulfilling ordersincreasingly optimistic that were held back in the first quarter duewe are positioned to the cybersecurity attack and meeting increased demand from our medical and government/defense customers while satisfying ongoing demand from other commercial end markets, particularly oil and gas. Our goal for 2023 remains to deliver high-quality,sustain profitable growth, through execution of operational improvements, and to generate incremental cash flow to pay down our acquisition debt.debt, and invest in strategic capital expenditures and accretive acquisitions. 

Results of Operations

Three-Month Periods Ended March 31, 20232024 and March 31, 20222023

Revenues. Consolidated revenues for the three-month period ended March 31, 20232024 were $31,916,$41,927, an increase of $1,543,$10,011, or 5.1%31.4%, over $30,373$31,916 for the three-month period ended March 31, 2022.2023. Overall, government/defense sales increased 24.7% partially offset by 1.7% decline in83.4% and commercial sales.sales increased 8.6%. During the first quarter of 2023, the Company experienced a cybersecurity ransomware attack which impacted our ability to process orders, ship products, provide services to our customers and effectively manage our sales and operating planning process over a several week period for our Newark, NY location and an even longer period for our Virginia Beach, VA location. A large portion of our time during thethat quarter was devoted to data restoration, systems security augmentation, and regulatory reporting of the attack, all of which were successfully accomplished with no ransom paid.

Battery & Energy Products revenues decreased $680,increased $6,519, or 2.3%22.9%, from $29,150 for the three-month period ended March 31, 2022 to $28,470 for the three-month period ended March 31, 2023. The decrease was primarily attributable2023 to the impact of the cybersecurity attack, which was reflected in a decline in medical sales and government sales of 18.5% and 4.7%, respectively, compared to the year earlier period. These declines were partially offset by a 21.3% increase in oil & gas market sales.  

Communications Systems sales increased $2,223, or 181.8%, from $1,223$34,989 for the three-month period ended March 31, 20222024. The revenue growth was primarily attributable to an increase in government/defense sales of 73.6% reflecting strong demand from our U.S.-based global prime, and an increase in commercial sales of 8.6% reflecting medical and industrial market sales growth of 54.7% and 2.3%, respectively, partially offset by a 13.9% decline in oil & gas market sales.  The year-over -year comparison was also impacted by the 2023 cybersecurity attack.  

Communications Systems sales increased $3,492, or 101.3%, from $3,446 for the three-month period ended March 31, 2023. The cybersecurity event negatively impacted 2023 first quarter sales of Communication Systems by approximately $2,000.

Communications Systems sales increased $2,223, or 181.8%, from $1,223to $6,938 for the three-month period ended March 31, 2022 to $3,446 for the three-month period ended March 31, 2023.2024. The increase was primarily relatedattributable to shipments underof EL8000 server cases to a vehicle-amplifier adaptor order withlarge multinational information technology company, integrated systems of amplifiers and radio vehicle mounts to a globalmajor international defense contractor received in July 2022, partially offsetunder an ongoing allied country government/defense modernization program, and power systems to a U.S.-based global prime.  The year-over-year comparison was also impacted by the impact of the2023 cybersecurity attack.

Our total backlog at March 31, 2023 was $108.1 million, with $96.1 million due to ship over the remaining nine months of 2023 representing a 30.2% increase over the comparable $73.8 million for the same period last year.  Total backlog decreased $2.9 million or 2.6% compared to the backlog of $111.0 million at December 31, 2022, which was the highest in the Company’s history.      

Cost of Products Sold / Gross Profit.  Cost of products sold totaled $24,480$30,457 for the quarter ended March 31, 2023,2024, an increase of $1,065,$5,977, or 4.5%24.4%, from the $23,415$24,480 reported for the same three-month period a year ago. Consolidated cost of products sold as a percentage of total revenue decreased from 77.1% for the three-month period ended March 31, 2022 to 76.7% for the three-month period ended March 31, 2023. Correspondingly, consolidated gross margin increased from 22.9%2023 to 72.6% for the three-month period ended March 31, 2022, to2024. Correspondingly, consolidated gross margin increased from 23.3% for the three-month period ended March 31, 2023, to 27.4% for the three-month period ended March 31, 2024, primarily reflecting higher factory volume for both our Battery & Energy Products and Communications Systems business,businesses, favorable sales product mix, more efficiencies resulting from a concerted effort to level-load production more evenly across the 2024 quarter and improved price realization. Gross profit for the 2023 period was tempered by the inefficiencies associated with the cybersecurity event,attack, lingering supply chain disruptions and higher material costs in advance of price realization from customers across both business segments and the transition of new products to higher volume production for our Battery & Energy Products segment.segments.

For our Battery & Energy Products segment, gross profit for the first quarter of 20232024 was $6,512, a decrease$8,986, an increase of $209$2,474 or 3.1%38.0% from gross profit of $6,721$6,512 for the first quarter of 2022.2023. Battery & Energy Products’ gross margin of 22.9% decreased25.7% increased by 20-basis280-basis points from the 23.1%22.9% gross margin for the year-earlier period, primarily reflectingdue to higher cost absorption and more efficiencies resulting from a concerted effort to level-load production more evenly across the 2024 quarter, as well as improved price realization. The 2023 period was impacted by inefficiencies resulting from the cybersecurity attack as well as lingering supply chain disruptions, higher material and logistics costs, and continued investments in the transition of new products to high volume production, partially offset by improved price realization.costs.

For our Communications Systems segment, gross profit for the first quarter of 20232024 was $924$2,484 or 26.8%35.8% of revenues, compared to gross profit of $237$924 or 19.4%26.8% of revenues for the first quarter of 2022.2023. The 740-basis900-basis point increase in gross margin was primarily due to higher factory volume partially offset by inefficiencies resulting fromand favorable sales product mix in the first quarter of 2024, and the impact of the cybersecurity attack.attack on the year-earlier period.

Operating Expenses. Operating expenses for the three-month period ended March 31, 20232024 were $7,410, an increase$7,407, a decrease of $157 or 2.2%$3 from the $7,253$7,410 for the three-month period ended March 31, 2022.2023. The increasedecrease is primarily attributable to the timing of new product development costs as well as the impact of recording of the $100 deductible on our cyber insurance policy for expenses incurred during the quarter and continued investment in new product development.2023 first quarter. Both periods reflected continued tight control over discretionary spending.

Overall, operating expenses were 17.7% of revenue for the quarter ended March 31, 2024 compared to 23.2% of revenue for the quarter ended March 31, 2023 compared to 23.9% of revenue for the quarter ended March 31, 2022.2023.  Amortization expense associated with intangible assets related to our acquisitions was $228 for the first quarter of 2024 ($203 in selling, general and administrative expenses and $25 in research and development costs), compared with $209 for the first quarter of 2023 ($185 in selling, general, and administrative expenses and $24 in research and development costs), compared with $328 for the first quarter of 2022 ($302 in selling, general, and administrative expenses and $26 in research and development costs). Research and development costs were $1,756 for the three-month period ended March 31, 2024, a decrease of $276 or 13.6%, from $2,032 for the three-month period ended March 31, 2023, an increase of $175 or 9.4%, from $1,857 for the three-months ended March 31, 2022.2023. The increasedecrease is largely attributable to an increase inthe timing of new product development in both of our Communications Systems business tobusinesses as we aggressively pursue both government/defense major programs and commercial opportunities. Selling, general, and administrative expenses were essentially flat year over year, decreasing$5,651 for the three-month period ended March 31, 2024, an increase of $273 or 5.1% from $5,378 for the first quarter of 2023 from $5,396 for2023. The period over period increase was primarily attributable to higher executive variable compensation costs accrued in the first quarter of 2022. The 2023 first quarter amount includes recognition of2024, partially offset by the $100 deductible associated withcost incurred on our cyber insurance policy.policy during the 2023 first quarter. 

Other Expense. Other expense totaled $456 for the three-month period ended March 31, 2024 compared to $494 for the three-month period ended March 31, 2023 compared to $117 for the three-month period ended March 31, 2022.2023. Interest and financing expense increased $290,$96, or 216.4%22.6%, from $134$424 for the first quarter of 20222023 to $424$520 for the comparable period in 2023.2024. The increase is primarily due to additional draws on our revolver resulting from the financing of our acquisition of Excell in December 20212023 cybersecurity attack and rising interest rates. Miscellaneous income (expense)(income) expense amounted to ($70)64) for the first quarter of 20232024 compared to $17$70 for the first quarter of 2022,2023, primarily attributable to foreign exchange gains and loss due to fluctuations in foreign currency exchange rates.

Income Taxes. For the three-month period ended March 31, 2023,2024, Ultralife recognized an income tax provision of $703, comprised of a current provision of $53 expected to be paid on income primarily in foreign jurisdictions and a deferred tax provision of $650 which primarily represents non-cash charges for U.S. taxes that we expect will be fully offset by net operating loss carryforwards and other tax credits for the foreseeable future. This compares to a benefit of $133 comprised of a current provision of $257 and deferred benefit of $390 compared to a benefit of $251 comprised of a current provision of $151 and deferred benefit of $402 for the three-month period ended March 31, 2022.2023.  Our effective tax rate was 19.5% for the first quarter of 2024 as compared to 28.4% for the first quarter of 2023, as compared to 60.9% for the first quarter of 2022, primarily attributable to the geographic mix of our operating results and the larger impact of discrete adjustments in the prior year.results.  See Note 6 to the consolidated financial statements in Item 1 of Part I of this Form 10-Q for additional information regarding our income taxes.

LossNet Income (Loss) Attributable to Ultralife.Ultralife Corporation. Net lossincome (loss) attributable to Ultralife Corporation was $2,891, or $0.18 per share – basic and diluted, for the three-month period ended March 31, 2024, compared to ($346), or ($0.02) per share – basic and diluted, for the three-month period ended March 31, 2023,2023.  Adjusted EPS was $0.21 per share on a diluted basis for the first quarter of 2024, compared to an adjusted ($168), or ($0.01)0.05) per share – basic and diluted, for the three-month period ended March 31, 2022.2023 period.  Adjusted EPS for 2024 excludes the provision for deferred income taxes of $650 which represents non-cash charges primarily for U.S. income taxes that we expect will be fully offset by net operating loss carryforwards and other tax credits for the foreseeable future. Adjusted EPS for 2023 excludes the benefit for deferred income taxes of $390 which represents a non-cash benefit primarily for U.S. net operating losses and temporary tax differences which are expected to offset future U.S. taxable income. See section “Adjusted Earnings Per Share” on page 21 for a reconciliation of adjusted EPS to EPS. Weighted average shares outstanding used to compute basic and diluted earnings per share increased from 16,103,599 for the first quarter of 2022 to 16,135,358 for the first quarter of 2023.2023 to 16,518,389 for the first quarter of 2024.  The increase is attributable to the exercise of stock options and the vesting of restricted stock since the first quarter of 2022.2023.  There was no dilutive effect of outstanding stock awards for the first quartersquarter of 2022 and 2023 due to the net loss recognized for these periods.this period.

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 income (loss) attributable to Ultralife Corporation before 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 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 provision (benefit) 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 income (loss) attributable to Ultralife Corporation, 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 income (loss). We believe that adjusted EBITDA permits a comparative assessment of our operating performance, relative to our performance based on our GAAP results, while eliminating 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 (loss), 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 (loss) attributable to Ultralife Corporation or other consolidated statement of operations data prepared in accordance with GAAP. Some of these limitations include, but are not limited to, the following:

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 loss attributable to Ultralife.Ultralife Corporation.

Adjusted EBITDA is calculated as follows for the periods presented: