Release Date: August 07, 2026
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Record backlog of $117.5 million, up 39% year-over-year, with further growth to nearly $130 million in July.
- Gross margin improved significantly to 28.9%, a 500 basis point increase year-over-year, driven by favorable product mix and a net tariff refund.
- Communication Systems segment revenue surged 39.3% year-over-year, supported by new product launches and a growing opportunity funnel.
- Operational improvements at Newark and Raynam facilities are yielding measurable benefits, with initiatives expected to generate $600,000 to $800,000 in annual gross margin savings.
- Strong growth in defense-related demand, including conformal wearable battery orders exceeding $2 million in 2026 and a backlog of over $7 million, plus expanding opportunities in underwater drone applications.
Negative Points
- Consolidated revenue declined 1.4% year-over-year to $47.9 million, impacted by lower commercial sales, particularly in oil and gas due to geopolitical factors.
- Battery and Energy Products segment revenue decreased 3.7% year-over-year, with a 4.7% drop in commercial sales and a 1.4% decline in government defense sales due to a large prior-year order.
- Operating expenses increased 10.6% year-over-year, driven by higher new product development costs and one-time expenses for litigation and consulting fees.
- Gross margin improvement was partly due to a one-time net tariff refund of $1.1 million, which accounted for 230 basis points of the increase, indicating underlying margin expansion is less robust.
- The company faces ongoing challenges in the Communication Systems business, which remains volatile with revenue dependent on order timing, and new product launches are still in early commercialization stages.
Q & A Highlights
Q: What has happened to the backlog since the end of the quarter, and how much has been added in July, especially in light of the L3Harris NGC2 award?
A: Mike Manna (President and CEO) stated that July saw significant order pull-through, with the backlog now standing at almost $130 million, up from the record $117.5 million reported at the end of Q2.
Q: With the Falcon Manpack order from L3Harris, do you have insight into which divisions it will roll out to?
A: Mike Manna (President and CEO) noted that the company does not currently have direct insight into which divisions the order will be allocated to, though they may gain that visibility in the future.
Q: Regarding the Hewlett Packard Enterprise servers for NGC2, did they perform well in the Army's extreme heat testing last month?
A: Mike Manna (President and CEO) confirmed that, based on available information, all equipment made it through the testing. Phil Fain (CFO) added that the servers are accompanied by state-of-the-art cooling systems designed to withstand extreme heat conditions, such as those at Fort Irwin, California.
Q: Can you provide more detail on the record backlog and the contribution from new products?
A: Mike Manna (President and CEO) highlighted that the company exited Q2 with a record backlog of $117.5 million, a 39% increase year-over-year. Over $14 million of this backlog is for products released within the last year, including the conformal wearable battery, an updated man-packed radio battery for a NATO partner, and new amplifiers, speakers, and battery packs for medical and safety customers.
Q: What were the key drivers behind the significant gross margin improvement in the second quarter?
A: Phil Fain (CFO) explained that consolidated gross margin increased 500 basis points to 28.9%, driven by favorable sales product mix in both segments and a net refund of IEEPA tariffs. The tariff refund of $1.1 million accounted for 230 basis points of the improvement. Excluding this refund, the underlying gross margin was 26.6%, reflecting operational improvements.
Q: What are the specific initiatives to improve gross margin in the Battery and Energy Products segment, and what savings are expected?
A: Mike Manna (President and CEO) detailed that the company has addressed the significant scrap issue on its largest margin-impacting product line and corrected the second-largest contributor to margin inefficiencies. These two initiatives alone are expected to generate annual savings of approximately $600,000 to $800,000 to the battery and energy gross margin, with benefits from the second initiative expected to begin in mid-Q3.
Q: Can you elaborate on the vertical integration opportunities from the Electrochem acquisition and the demand for underwater drone platforms?
A: Mike Manna (President and CEO) stated that the company is incorporating Electrochem cells into existing battery pack assemblies to increase content provided to customers. They are experiencing growing demand for both large and small water-based drone platforms, with these opportunities expected to contribute meaningful incremental revenue beginning in Q4 and continuing over the next several years.
Q: What is the status of the conformal wearable battery program and its expected shipments?
A: Mike Manna (President and CEO) reported that the company has shipped more than $2 million in orders for the conformal battery during 2026. The current backlog exceeds $7 million and is expected to fully ship before year-end.
Q: What are the key new product launches planned for the Communication Systems segment in 2026?
A: Mike Manna (President and CEO) outlined several launches, including the advanced variant of the 21 amplifier supporting new high-speed waveforms, new vehicle radio mounts integrating the amplifier portfolio, and the Crescent small form factor wearable edge compute solution. The company also showcased its new StrikeHub product line at Special Operations Week and HPE Discover, targeting Special Operations Forces and NextGen Command and Control applications.
Q: Can you provide an update on the development of the rechargeable power pack for the remote surveillance system and the ThinCell technology platform?
A: Mike Manna (President and CEO) noted that product development and certifications for the rechargeable power pack with an OEM partner are scheduled to be completed in Q4, with deliveries beginning in early 2027. For the ThinCell platform, initial production capabilities have been established to support customers in medical wearables and asset tracking, with the sales pipeline gaining momentum as several opportunities advance through qualification.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
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