M-tron Industries - Q2 2024

Transcript

Operator (participant)

If you would like to redraw your question again, press the star one. I would now like to turn the conference over to Linda Biles, Executive Vice President of Finance. You may begin.

Linda Biles (VP of Finance)

Good morning, everyone, and thank you for joining our 2024 Q2 Earnings Call. Please note that this call will be recorded, and we anticipate making the recording available on our website at www.mtronpti.com shortly after the call. We have issued our 10-Q yesterday morning, reporting our second fiscal quarter of 2024. Before getting underway, we are required to advise you, and all participants should note that the following discussion should be taken in conjunction with the most recent financial statements and notes thereto contained within our 2023 10-K, which has been filed with the SEC on March 25, 2024. This discussion may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities and Exchange Act of 1934.

These forward-looking statements involve known and unknown risks and uncertainties, which are detailed in our filings with the SEC. Although the company believes that its forward-looking statements are based upon reasonable assumptions regarding its business and future market conditions, there are no assurances that the company's actual results will not differ materially from any results expressed or implied by the company's forward-looking statements. The company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. Readers are cautioned that any forward-looking statements are not guarantees of future performance. With that, I'll now turn the call over to Mike Ferrantino, our CEO.

Mike Ferrantino (CEO)

Thank you, Linda. Good morning, and thank you to our shareholders for your interest in us in attending our Q2 Earnings Call. We are pleased to discuss the strong year-to-date results along with our improved 2024 outlook. As a brief reminder, MtronPTI designs and manufactures highly engineered RF solutions, including components and subassemblies in both spectrum and frequency control. We are a global company with three manufacturing locations in the U.S. and India. Since our debut as a standalone public company in October of 2022, we have been successfully executing our strategy of focusing on the core markets of aerospace and defense, commercial avionics, and space, leading to consistent positive growth in revenues and earnings. Let me now summarize for you where MtronPTI stands after the conclusion of Q2 2024.

Total revenues for the quarter were $11.8 million, an increase of 16.4% from the $10.14 million of Q2 2023, and an increase of 67.2% from the $7.06 million of Q2 2022. This increase continues to be driven by strong defense program shipments. This also marks the 8th consecutive quarter of sequential growth. Gross margins were 46.6% for the quarter, compared to 41.6% of the prior year and 37.5% for the year ending, well, for the period ending Q2 2022. This increase was primarily due to the previously mentioned higher revenues, combined with improved production efficiencies associated with our ongoing investments in people and equipment.

Net income was $1.75 million, or $0.63 per diluted share, a 36.6% increase from the $1.27 million of Q2 2023, and a 258% increase from the $486,000 of Q2 2022. This increase was primarily due to the continued strong defense program shipments, partially offset by higher engineering, selling and administrative expenses from increased investment in research and development, higher sales commissions related to the increase in revenue, and an increase in administrative and corporate expenses consistent with the overall growth of the business.

Adjusted EBITDA increased 30.7% to $2.52 million, compared to $1.93 million from Q2 2023, and an increase of 200% as compared to the $841,000 from Q2 2022. Backlog was $45.3 million as of June 30, 2024, compared to $47.8 million at the end of 2023 and $51.5 million at the end of Q2 2023. This decrease in backlog is not unexpected and reflects the increase in revenues, along with the variability of our order intake due to the size and timing of large program-related orders.

With continued momentum in the defense-related sales and accelerated in production shipments during the first half of 2024, we are pleased to raise the outlook for fiscal year 2024, increasing revenues to a range of $46 million-$48 million from our previous range of $43 million-$45 million. We are also holding our expected end-of-year backlog at $49 million-$50 million, despite the increase in revenue. We have good visibility for the remaining two quarters and expect EBITDA margins to continue in the 19%-21% range. We are well positioned to continue to execute our strategy for a organic growth.

Of particular focus for us are the areas of space and satellite, with our growing footprint across multiple satellite platforms, radar applications with products such as our e-VIBE series OCXOs, which are designed to maintain exceptional stability and phase noise under the dynamic conditions of mobile platforms and electronic warfare, where the demand for higher frequencies has led to the introduction of our Planar filter product line. We are also expanding our acquisition bandwidth to include companies that are inside and outside our current space. We will look outside of our subsector for undervalued companies, much like ours, where we can drive both top and bottom line growth, with the ultimate mission of increasing shareholder value.

As we conclude, I would like to thank our dedicated customers for their continued orders and support of our products, along with our team of worldwide employees and representatives who continue to execute diligently on our plans for growth, each of whom are ultimately responsible for providing our shareholders with excellent financial results. I'll now open the floor to questions. Operator, please open the call to any questions.

Operator (participant)

Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star one again. If you are called upon to ask your question and are listening via speakerphone on your device, please pick up your handset to ensure that your phone is not on mute when asking your question. Again, press star one to join the queue. Your first question comes from the line of Anja Soderstrom with Sidoti. Your line is open.

Anja Soderstrom (Senior Equity Research Analyst)

Hi, and thank you for taking my questions, and congrats on the great quarter. Seems like the margins are, gross margins are holding up at these levels. Is there room for further improvement there, or?

Mike Ferrantino (CEO)

Yes. Thank you, Anja, for that question. So, you know, gross margins, as we've talked about, are dependent highly on our product mix from quarter to quarter. But, you know, there is room for continued improvement. As we introduce new products, we are targeting, you know, it margins in the 50% range. So as those gain traction in the marketplace, we do have room for growth.

Anja Soderstrom (Senior Equity Research Analyst)

Okay, thank you. And you mentioned in the, in terms of M&A activity, you're gonna look outside of your core business. How is the M&A environment now? Has it changed at all, or?

Mike Ferrantino (CEO)

I think it's still been a little bit challenging for us to find good value companies, but we are out there looking. I think when we talk about expanding a little bit, you know, we're still really focused in the RF chain and companies that would bring synergistic product lines and offerings to us, particularly as we contemplate our solutions side of the business. So there are opportunities for us as we look forward.

Anja Soderstrom (Senior Equity Research Analyst)

Okay, thank you. Just in terms of the demand, what are you seeing any of your sort of end markets being stronger than others, or?

Mike Ferrantino (CEO)

You know, in terms of clearly the aerospace and defense is this very, very strong market. We believe it continues to do so. All of our core markets, we believe, do have solid tailwinds behind them. Commercial avionics seems to be doing very, very well. In the space business, we've got a lot of traction in terms of design wins. Those just need to move into production moving forward.

Anja Soderstrom (Senior Equity Research Analyst)

Okay, thank you. The last one, in terms of component availability, is there anything to call out there?

Mike Ferrantino (CEO)

I'm sorry, you clicked out for one second. Would you repeat the question, please?

Anja Soderstrom (Senior Equity Research Analyst)

Component availability, is that, has that loosened up for you, or is it still a bit challenging or?

Mike Ferrantino (CEO)

Yeah, the supply chain side of things has really settled out. That has not been a key challenge for us, really, for this year.

Anja Soderstrom (Senior Equity Research Analyst)

Okay, great. Thank you. That was all for me.

Mike Ferrantino (CEO)

Thank you, Anja.

Operator (participant)

Your next question comes from the line of Garrett King with Truffle Hound Capital. Your line is open.

Garrett King (Analyst)

Hi, could you just explain to me the, how you kind of view the difference between avionics and aerospace and defense? Because I would kind of think avionics, you know, and aerospace, you know, would typically be a component of aerospace.

Mike Ferrantino (CEO)

Sure, sure. Good question. So when we look at those two things, really what we're doing is we break out commercial avionics from the defense side of things. So aerospace and defense for us would be all of our defense-related business, and then avionics is commercial avionics.

Garrett King (Analyst)

Got it. And then as you look at M&A targets, you know, do you envision incorporating the companies or assets that you buy into your current production sites, where, you know, there might be cost synergies or, you know, or the products that you're looking at just different enough that they'd be produced at different sites?

Mike Ferrantino (CEO)

No, I think certainly, we have capacity in a few of our facilities, that if the product line was conducive to it, that would certainly be on the table. You know, we have a facility in India, which certainly we would look to continue to take advantage of any of the labor-intensive manufacturing and drive efficiencies through that as well.

Garrett King (Analyst)

Got it. Thank you.

Operator (participant)

There are no further questions at this time.

Mike Ferrantino (CEO)

Okay, well, I would love to-

Operator (participant)

We have-

Mike Ferrantino (CEO)

Oh, go ahead.

Operator (participant)

Apologies. We have another added question, again from Garrett King with Truffle Hound Capital.

Garrett King (Analyst)

Yeah, I wanted to jump back in the queue, but I guess there's no one else in the queue. Can you just talk about, are you typically sole source or dual source with your products to, you know, defense and commercial aviation customers?

Mike Ferrantino (CEO)

Yeah, it really is a pretty even mix of both single and dual source across the product lines.

Garrett King (Analyst)

So maybe, you know, if you just in those two segments, if you combine them, maybe half of revenues is sole source, half is dual source?

Mike Ferrantino (CEO)

Yeah, in that range, that, that would be a correct statement.

Garrett King (Analyst)

Got it. All right. Awesome. Thank you very much, and have a great day.

Mike Ferrantino (CEO)

Thank you, Garrett.

Operator (participant)

Now there are no further questions at this time. Mr. Ferrantino, I turn the call back over to you.

Mike Ferrantino (CEO)

All right. Well, I would once again like to thank everybody for their interest in us and joining us today, and please, enjoy the remaining weeks of summer, and we'll talk to you soon.

Operator (participant)

Ladies and gentlemen, this concludes today's conference call. You may now disconnect your line.