M-tron Industries - Earnings Call - Q4 2024

Executive Summary

• Q4 2024 delivered robust results: revenue $12.805M (+18.9% YoY), gross margin 47.2% (+360 bps YoY), and diluted EPS $0.73 (vs $0.03 YoY) driven by defense program shipments and improved manufacturing efficiencies.
• Full-year FY 2024 set records: revenue $49.012M, gross margin 46.2%, diluted EPS $2.65, and adjusted EBITDA $11.141M; backlog ended at $47.2M with cash $12.6M.
• Versus estimates: Q4 revenue was approximately in-line/slightly below consensus ($12.805M vs $12.9M*), while EPS matched consensus ($0.73 vs $0.73*)—prior quarters beat both revenue and EPS.
• Management tone: constructive on defense and emerging markets (drones/UAV, space), and reiterated gross margin durability in the high-40s; formal 2025 guidance withheld, but long-term revenue growth targeted at ~9–10% organically.
• Corporate action: Board declared a dividend of warrants to purchase common stock (record date March 10, 2025), replacing an earlier rights offering; tradability on NYSE anticipated.

What Went Well and What Went Wrong

What Went Well

• Defense-led growth and product mix uplift: “Revenues…primarily due to strong defense program product and solution shipments,” supporting gross margin expansion to 47.2% in Q4.
• Margin durability: Management expects gross margin to remain “high 40s…45% to 48%, 49%,” citing sustainable process improvements and program-rich mix.
• Balance sheet strength: Year-end cash and equivalents of $12.6M; significant cash generation with adjusted EBITDA of $11.1M for FY 2024.

What Went Wrong

• Backlog timing variability: Backlog dipped YoY in Q3 due to timing of large program orders; Q4 closed at $47.2M with January large order arriving after year-end—highlighting timing sensitivity.
• Formal 2025 guidance withheld: Management opted for prudence amid macro/tariff noise; reiterated long-term ~9–10% organic growth target without formal 2025 ranges.
• Sequential softness: Revenue and adjusted EBITDA trended down sequentially from Q3 to Q4 (mix/timing), even as YoY gains were strong.

Transcript

Speaker 3

Thank you for standing by. My name is John, and I will be your conference operator today. At this time, I would like to welcome everyone to the M-tron Industries fourth quarter earnings call. All lines have been placed on mute to prevent any background noise. After this speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. I would now like to turn the call over to Linda Biles, EVP of Finance. You may begin your conference.

Speaker 1

Good morning, everyone. Thank you for joining our 2024 M-tron PTI Q4 and fiscal year 2024 earnings call. Please note that this call will be recorded, and we will make the recording available on our website, www.mtronpti.com, shortly after the call. Yesterday afternoon, we released our earnings release for the fourth quarter of 2024 and annual fiscal year 2024. Before getting underway, we are required to advise you that the following discussion should be taken in conjunction with our most recent financial statements and notes as contained within our 2024 10-K, which was filed yesterday on March 27, 2025, with the SEC. The 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 contain known and unknown risks and uncertainties, which are detailed in our filings with the SEC.

Although the company believes that the 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 result expressed or implied by the company's forward-looking statements. The company undertakes no obligations to publicly update or revise any forward-looking statement, 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 will now turn the call over to our Interim CEO, Cameron Pforr.

Speaker 2

Good morning, everyone, and thank you, Linda. Thank you to our shareholders and interested parties for attending our fourth quarter and annual fiscal year 2024 earnings call and your interest in the company. We're pleased to discuss our strong finish to the year and our outlook going forward. As a reminder to those who are new to the company or haven't tuned in recently, M-tron Industries designs and manufactures highly engineered RF solutions, including electronic components and subassemblies used to control the frequency and timing of signals in electronic circuits. We're a global company with three manufacturing sites in the United States and India. The company's primary markets include aerospace and defense, commercial avionics, industrials, and space. We're pleased to report that the company continued to perform well with continued strength in MPTI sales and good financial performance for Q4 fiscal year 2024.

Our revenues continue to be driven by defense-related orders. With improved operating performance, we have been able to continue to make strategic investments in research and development and have also initiated a number of efforts to increase the market profile of the company. We also continue to make investments in our production facilities and have begun a program to explore greater automation on the floor to improve yields. Despite the daily news cycle and potential federal budget actions, we have seen no disruption to our business and expect to continue the company's revenue expansion throughout the year. The continuing resolution passed and signed on March 15, 2025, extended government funding through the end of the fiscal year and largely preserved defense spending as it was, increasing the defense budget by $6 billion.

Not a great deal of change, slightly costing or decreasing some defense programs and increasing spending in others. Overall, we believe that we are well positioned to continue to perform well with the anticipated changes in military procurement focus. Yesterday, we reported the following Q4 FY2024 results. The total revenues for the fourth quarter were $12.8 million, an 18.9% increase over the same period in the prior year. The revenue increased in the period primarily due to strong defense program product and solution shipments. Gross margins for the fourth quarter of 2024 were 47.2%, a 360 basis point improvement over the 43.6% gross margins of Q4 2023. Gross margin improvement was driven by higher revenues, the result of prior investments in our manufacturing processes resulting in greater efficiencies, and an improved product mix to higher margin products.

Net income per diluted share was $0.73 per share in the quarter, almost a 20X increase over the prior year's $0.03 per share, which was deflated, frankly, by a non-cash stock compensation expense related to a distribution of options to our employees to align their interests with that of shareholders. Adjusted EBITDA in the period was $3.1 million, an increase of 29.2% over the prior year's fourth quarter EBITDA of $2.4 million. The increase was driven by gross margin improvements and continued containment of operating expenses other than the investment I discussed earlier in R&D, which resulted in a higher income before taxes and a higher depreciation that was offset by higher interest income as the company has accumulated more cash on the balance sheet. Backlog at the end of the quarter was $47.2 million as compared to $47.8 million for the year prior.

The slight decrease in the backlog from the prior year's period reflects the continued strategy and focus on securing large long-duration program-centric business, which materially impacts backlog based on the timing and size of these orders. In January 2025, for example, we publicly announced one large order over $10 million that was expected, actually, in fiscal year 2024. For the fiscal year 2024, we reported the following results. Total revenues for the period were $49.0 million, a 19.1% increase over fiscal year 2023. The revenue increased primarily due to strong defense program products and solution shipments. Gross margins for 2024 for the entire year were 46.2%, a 550 basis point improvement over the 40.7% gross margin we produced in 2023. This margin improvement was driven by higher revenues, the result of the prior investments in manufacturing processes that we discussed, and an improved product mix into higher margin products.

Net income per diluted share was $2.65 per share for the year, a 107% increase over the prior year's $1.28 per share. The increase was driven by increased revenue offset by higher manufacturing costs driven by the revenue increases, higher engineering expense related to the investment in R&D, and higher sales commission related to the increase of revenue, and an increase, an overall increase, at least, in administrative and corporate expenses to support the growth in the revenue. Adjusted EBITDA for the period was $11.1 million for the year, an increase of 44% over the prior year's $7.7 million adjusted EBITDA number. The increase was driven by this improved gross profit, continued containment of operating expenses other than the investment in R&D. We continue to execute on our strategy of continually moving into more program business, which now makes up the vast majority of our aerospace and defense revenue.

Defense and aerospace has been an amazing market over the past several years and remains one with plenty of room for us to grow. We seek to maintain close relationships with our customers and be the first-line resource for them as they plan upgrades to current systems or design new systems to meet government program needs and changing requirements. The same can be said for our avionics industrial businesses. We are also pushing into new high-growth markets and are accumulating design wins in space and satellite industry and seek to do more business in the drone and UAV markets, radar, and electronic warfare, all areas that are expanding within the defense budget. These growing markets depend on the type of technologies that M-tron has been a leader for in years.

We have won a number of design wins in all these market areas with both well-established as well as up-and-coming vendors and expect our revenues to grow in these markets over time. While our management team is focused on executing on our organic growth strategy, we are placing greater emphasis on complementing these efforts with inorganic growth from both partnerships and acquisitions. We continue to look for complementary acquisition opportunities in the RF components and subsystem space, as well as other subsystem or solution companies focused on the same end markets. For companies that are too early in their development cycle to be an acquisition partner, we'll look at forming strategic partnerships as a means of expanding our product portfolio and assisting both companies in their growth.

I'd like to thank our loyal employees for supporting the company in its mission of serving the nation and its capability to defend freedom. M-tron plays a critical role in the defense of our nation by providing U.S.-sourced and highly engineered components for many U.S. and allied military programs. Strengthening the U.S. defense industrial base is more important than ever before, and we thank our employees for their dedication to their jobs, their fellow employees, and our mission. I also want to thank our dedicated customers for their continued business and partnership. Before I open the floor to questions, I wanted to introduce Bill Drafts and Linda Biles, who are joining me on today's call. Bill's our present COO, having joined the company five years ago from FLIR and previously serving in a senior management role at Sawtec and ICX.

Linda Biles, our EVP of Finance and our Chief Accounting Officer, has served the company for over 17 years. I also want to thank Anja Soderstrom from Sidoti, who's our research analyst covering this space. She just published a research report on the company two days ago, which updated her numbers for the company, so I wanted to point you to that. I want to make a last comment that there's plenty of information on the company, including numerous presentations we made over the past month, all available on our IR website at www.m-tronpti.com. With that, Operator, can you open the lines and allow some questions?

Speaker 3

Absolutely. Thank you. We will now begin the question and answer session. Again, as a reminder to everyone, if you have dialed in and would like to ask a question, please press star, followed by the number one on your telephone keypad. If you would like to withdraw your question, simply press star one again. If you are called upon to ask a question and are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. The first question comes from the line of Anja Soderstrom with Sidoti & Co. Please go ahead.

Speaker 5

Hi, and thank you for taking my question and congrats on the nice progress here. Thank you for the shout-out on behalf of me and the firm of Sidoti. If we just start talking about the tariffs, maybe, if you're affected from them and if so, how, and if you're able to pass on the expense of that.

Speaker 2

Yep. Good question, Anja, and it's one that's on our minds. There's a lot of, I guess, noise in the news cycle, and I think we're going to have to see how it turns out. We are continually kind of evaluating our supply chain, not only for tariffs, but there's also a growing concern within the federal government about where components are sourced for a number of the systems from all their vendors. We do receive some components or raw materials from Japan and Korea and Asia, and we're watching that carefully and making sure that we are prepared to react. There hasn't been any impact on our business to date, and we do plan ahead and make sure we have components on board for near-term revenue.

Speaker 5

Okay. Thank you. Also, in terms of the avionics market, it was a little bit challenged for you following the pandemic. How is that trending now, and what are you seeing there?

Speaker 2

Actually, that's, I think, going to be an area of strength going forward. We were concerned at the end of the year about the Boeing strike, and we're happy that was resolved as quickly as it was. We serve really the suppliers, the main suppliers to both Airbus and Boeing, and we have components on every airframe that they produce. We're also involved with some of the business jet companies. We're convinced that that market's going to have an upturn by the end of the year, and we're starting to see more activity as those production lines come back online and they kind of work through whatever inventories they might have had.

Speaker 5

Okay. Thank you. Let's touch on the backlog. It was a little bit softer than you had mentioned, but you mentioned that $10 million contract coming in in January, and it was anticipated in the previous year. Since then, you actually received two contracts of the magnitude of $10 million. What does the pipeline look like for you in terms of other large contracts to the same sort of size?

Speaker 2

Yep. Yep. Good question. We were hoping that one $10 million order would come in by the end of 2024. It did not, but it came in a few weeks later. We, frankly, do not have a lot of control over some of the procurement processes that are taking place. As our orders get larger, they come under more compliance scrutiny, which has not impacted any orders, and we have done very, very well in the compliance cycle, but it does often delay things a couple of weeks. We have a number of orders coming in throughout Q1 and also expected in Q2, which are sizable. I think our pipeline looks good for the year. We will be publishing or making press releases on some of the larger ones as they come in over the next quarter or so.

Speaker 5

Okay. Thank you. You also issued that warrant dividend recently. Can you just talk about the motivation for that?

Speaker 2

Sure. Yep. We have had tremendous performance in the company stocks since our spin-out in 2022. We have a policy of really not making cash dividends, but we did want to reward our shareholders and those people who are investing in the company and believe in our story. We wanted to issue a dividend to them. We obviously apologize for the switch from a rights offering to a dividend warrant, but we think the dividend warrant is a better instrument for providing value to our shareholders. It has not been issued yet, but the record date has been set. It will provide a means of shareholders either participating in the growth of the company by exercising the warrant at some point and investing and receiving additional shares in the company, or we anticipate it will be tradable.

We've applied to trade it on the New York Stock Exchange. If that happens, that'll allow them also to, if they don't want to exercise, they can trade that warrant and receive some remuneration for the sale of the warrant.

Speaker 5

Okay. Thank you. You've had a pretty strong growth over the last couple of years in terms of revenue. What can we expect for 2025, and will you provide any sort of guidance for 2025?

Speaker 2

Yep. No, I appreciate that question, Anja. It's obviously early in the year. I think that your research report that you published a few days ago is really a very good look at the company and its potential. I think those are very reasonable estimates. Going into the year, we will provide some guidance later on as we get further down the track. I think at this point in time, it's probably prudent to withhold that. We think long-term, we're a company that can grow very, very consistently at 10% revenue. In the past several years, we've kind of gone into each quarter or each fiscal year thinking that, and we've been able to exceed it. I think it's just too early this year to tell if we'll be in the same position this year or not. We do expect continued strong performance in the company.

Yeah, I think your estimates are very reasonable.

Speaker 5

That sort of double-digit growth, that's on an organic basis, right? And then you're looking at M&A opportunities on top of that too.

Speaker 2

Yeah. I think so. That's a double-digit growth. I also do think that there's the potential for additional orders. Right now, we feel more comfortable with kind of pulling people towards 9-10% growth for the year.

Speaker 5

Yeah. Okay. Thank you. That was all for me.

Speaker 2

Thank you.

Speaker 3

Once again, if you would like to ask a question, that is to press star one. The next question comes from the line of Chief Pruitt with Rui Asset Management. Please go ahead.

Speaker 4

Morning, guys. Good quarter. I wanted to touch on the gross margin strength. As you noted, very strong in the quarter and strong for the year. How much of that—and you listed out three things, I guess: revenue, manufacturing efficiencies, and mix—how much of that 47.2 or of the increase do you think is kind of sustainable as we roll into 2025? How much is mix-dependent or other variables around the gross margin?

Speaker 2

Yep. I don't think we've done an analysis necessarily of it, but I think we've made a number of improvements over the past several years on just fixing bottlenecks and improving processes on the manufacturing floor. I think that part is very, very sustainable. We have had, as we've recompeted for contracts, price improvements or increases that have been maintained with our customers, and they've done a lot of analysis on our cost structure just to justify it. We feel comfortable with that. Thirdly, we've made a shift in markets to more program business, where there's a lot of engineering that goes into every product. We're selling less products, frankly, that are maybe considered commodity. These are very specialized products, and that points towards a higher margin.

I don't know, Bill, if you have any more commentary on that, but we have pointed people to thinking that we should remain in the high 40s, so 45%-48%, 49% in that range, and it'll change by quarter.

Speaker 0

Yeah. You covered the high points, Cameron. I can't stress enough how much our process engineering team engages with the operators to make sure that they have all the fixturing, all the ergonomics, all the automation they need to be efficient. We're just constantly measuring how many units per hour. Every time we do an improvement, we celebrate that. Just really focus on efficiencies.

Speaker 4

If I could follow up, first quarter 2022 and first quarter 2023 both saw kind of a dip in gross margin. Is that some seasonality of your business? We should expect the same thing. I guess what I'm looking at, the third quarter and the fourth quarter had very strong gross margins. You noted the Sidoti report is reasonable, and they're looking kind of for a dip in those margins even into the second half of 2025. That just doesn't seem like, given the cadence of the business and the wins and the cost reductions and the things you're talking about, what am I missing? Why would that happen? Why would that be reasonable?

Speaker 2

Yeah. Actually, if you look at the prior couple of years, usually Q1 is slightly—it's either flat from Q4 or in the earlier periods, like 2021, 2022, is slightly down. I actually don't think we'll necessarily see that activity. I think we don't have a lot of seasonality in our business. It's really more a matter of product mix and timing.

Speaker 4

What about the second half of the year? Next year, that reasonable comment, would there be anything one-off that would depress margins, or are you just kind of being conservative?

Speaker 2

No. I mean, I am looking at a report, and I see the margins staying relatively flat, slightly increasing throughout the year. I think that's kind of a reasonable trend. I think that the Sidoti report talks about 46.5% going to 47% for the year. I think that's in a range of definitely reasonable.

Speaker 4

Okay. Thank you. On the drone and electronic warfare, you said you had some wins already. Can you detail that? Is it sizable, and will we see a revenue impact on that over the next 12 months?

Speaker 2

Yep. We've had a number—we've actually been involved in the drone business since 2014. We tend to play in areas in the larger drones, not in FPV drones, for example. If you look at Global Hawk and some of the larger platforms, those are the kinds of areas we've played historically in. We're also working with a number of the newer vendors who are participating, like Replicator 2 and other programs in the Defense Department. We expect a fair amount of growth out of those areas. I think it is an area that's going to increase. Same with space. In space and satellites, we participate there in ground stations as well as spacecraft and higher orbit satellites. We're not in the LEO market, for example. That's usually because of costs and the more stringent requirements.

Speaker 4

Okay. Last one, if I could, just capital allocation. I mean, the net cash is nice to see, but at this point, almost $4 a share, plus or minus. How quickly do you think that can be deployed into acquisitions or potential repurchase? Is that year-end number a good number to use, or is there any kind of payable variability that you would say, "Hey, just be careful the way the balance sheet ended at the end of the year, a real number is more likely this"?

Speaker 2

Yep. I think it's very dependent on whether we do an acquisition or not or a repurchase. I think we'll probably be able to get to a slightly higher cash number by the end of the year. We'll see about that, unless we do make an acquisition. If we do make an acquisition, we would like to use a sizable amount of cash and might also finance it through a little bit of debt just to help reduce any issuance of shares.

Speaker 4

Are you repurchasing shares now, or is there any outlook for that?

Speaker 2

We are not doing that right now, but it is something we've discussed.

Speaker 4

Okay. Thank you, guys.

Speaker 2

Yep. Appreciate you.

Speaker 3

If no further questions, that concludes the Q&A session, and I would like to turn the call back over to Cameron for closing remarks.

Speaker 2

Thank you, John. I'd like to thank everybody for participating in today's call, your interest in the company. Have a great day. Please feel free to contact us if you have further questions at [email protected]. We do have a lot of materials on the website that should hopefully answer many questions you have, but happy to interact. Thank you again for your time.

Speaker 3

This concludes today's conference call. Thank you for your participation. You may now disconnect.