Q1 2025 M-Tron Industries Inc Earnings Call

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15-05-2025

Linda Biles; EVP of Finance; M-Tron Industries Inc
Cameron Pforr; Interim CEO; M-Tron Industries Inc
Anja Soderstrom; Analyst; Sidoti & Company
Operator
Thank you for standing by. My name is Eric, and I will be your conference operator today. At this time, I would like to welcome everyone to the M-tron earnings call for Q1 2025. (Operator Instructions)I would now like to turn the call over to Linda Biles, M-tron's EVP of Finance. Please go ahead.
Linda Biles
Good morning, everyone. Thank you for joining our 2025 M-tron Q1 earnings call. Please note that this call will be recorded, and we will make the recording available on our website, www.mtron.com shortly after the call. Yesterday afternoon, we released our earnings for the first fiscal quarter of 2025.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 is contained within our 2024 10-K, which was filed on March 27, 2025, with the SEC.This discussion may contain forward-looking statements with the meaning of 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 SEC filings.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 results expressed or implied by the company's forward-looking statements.The company undertakes no obligation to publicly update or revise any forward-looking statement, whether as the 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.
Cameron Pforr
Yeah. Good morning, everyone, and thank you, Linda. First of all, I want to thank all of our shareholders and interested parties for attending our first quarter FY25 earnings call and your interest in the company. We're pleased to discuss our strong start to the fiscal 2025 fiscal year and our outlook going forward. As a reminder, M-tron designs and manufactures highly engineered RF solutions, including electronic components and subassemblies used to control the frequency and timing of signals and electronic circuits.We're a global company, the three manufacturing sites in the United States and India. The company's primary markets include defense and aerospace, commercial avionics, industrials, and space. We are pleased to report that the company continued to perform well with continued strength in M-tron sales and good financial performance for Q1 fiscal year 2025. Our revenues continue to be driven by defense-related orders and we also saw some growth in the commercial avionics market, something we believe bodes well for the future recovery of that market.We are pleased to see Boeing resolve its labor dispute early in the year and expect orders from the major airframe manufacturers to pick up throughout the year. With consistent operating performance, we have been able to continue to make strategic investments in research and development and continue to increase the market profile of the company.Part of that effort was the recent rebranding of the company as M-tron updates to our logo, our website and sales materials as well as the initiation of advertising in some of the leading publications for our sector and also enhanced lead generation activity. We also continue to make investments in our production facilities, and we've seen good initial results in a program that I mentioned, I think, on the last call to deploy greater automation on the factory floor to improve yields.It looks like we have gotten through some of the choppiness in the defense market caused by some of the conflicting messaging from the administration on the defense budget. We have, at M-tron have seen no disruption to our business. and expect to continue the company's revenue growth throughout the year.The continuing resolution passed and signed in mid-March 2025, extended government funding through the end of the federal fiscal year and largely preserved the defense spending as it was actually increasing the defense budget by, I guess, a relatively small amount, $6 billion.The administration is now proposing increasing the defense budget for this fiscal year by $150 billion through a reconciliation process and also substantially increasing procurement spending in the federal FY 2026 budget. Many of the areas targeted for investment such as next-gen aircraft, shipbuilding, loitering and precision guided munitions, border security and the Golden Dome anti-aircraft, anti-missile defense, all require a significant amount of RF subsystems and components, highlighting the continued growing need for M-tron products.The importance of filters and oscillators has only increased as the electromagnets spectrum has become a more contested part of the battle space. And communications explaining systems and commanders and combatant remain subject to electronic countermeasures, such as jamming and interference. We believe that we are well positioned to continue to perform well with the anticipated changes in military procurement focus.Now Linda, would you mind giving our audience the highlights of our fiscal year Q1 performance?
Linda Biles
Yeah. Total revenues for first quarter were $12.7 million, a 13.8% increase over the $11.2 million of revenue in the same period last year. The revenue increase in the period primarily due to strong defense program product and solution shipments. Gross margins for the first quarter of 2025 were 42.5%, a 20 basis point decrease over the 42.7% gross margins in Q1 at '24.The decrease is primarily due to additional manufacturing costs with the initial production runs of several new products. In addition, we saw the initial impact this quarter of duly initiated federal tariffs on imports of foreign sourced materials and partially finished goods.Net income was $1.6 million or $0.56 per diluted share in the first quarter of 2025 compared with $1.5 million or $0.53 per diluted share in the first quarter of 2024.The increase in revenues discussed above was partially offset by higher manufacturing cost of sales consistent with the growth in revenues and the introduction of new products as well as higher engineering, selling and administrative expenses related to continued research and development investments higher sales commissions from an increase in revenues and an increase in administrative expenses consistent with the overall growth of the business.Adjusted EBITDA was $2.5 million in the first quarter of 2025 compared with $2.3 million in the first quarter of 2024. The increase was primarily due to higher revenues resulting in higher income. Backlog was $55.5 million as of March 31, 2025, compared to $47.2 million as of December 31, 2024, and $46.1 million as of March 31, 2024.The increase in backlog reflects several large defense and avionics orders received during the quarter and the continued broad demand for our products. In early February '25, for example, we publicly announced one large order supporting shipboard systems for over $10 million that was expected to have been received in fiscal year 2024. I'd now like to turn the call back over to Cameron.
Cameron Pforr
Yeah. Thank you, Linda. So in March 2025, M-tron saw the initial impact of the recently announced federal tariffs on the import of goods and materials from outside the United States. And while M-tron is a United States-based manufacturer with a great degree of vertical integration, something we pride ourselves on. We do import some materials from Japan, China, South Korea and a very small amount from Europe.And we also performed some finishing work at our facility in Noida, India. It's difficult to predict the long-term impact of this trade policy on our financial performance as it changes regularly. We are working with many of our defense customers on acting parts of the federal acquisition regulations which potentially exempt materials received for defense production from entry tariffs.In addition, we continue, as always, to analyze our supply chain in order to make sure that we have redundancy of suppliers where possible and can source from reliable suppliers at the best price as possible. To date, we have seen no impact from tariffs on demand for our products. Also, I wanted to highlight the recent distribution of warrants. On April 25, 2025, the company distributed a dividend of warrants, the stockholders of record as of March 10, 2020.The warrants are listed on the New York Stock -- NYSE American Exchange under the ticker, MPTIWS. The warrants may be listed on certain financial websites under the ticker MPTIWT or a similar nomenclature. Pursuant to the warrant agreement, the warrants contain the following terms, which I'll summarize, and we're happy to answer questions about this later.But five warrants are exercisable to purchase one share of common stock, the exercise price is $47.50 per share. The warrants are exercisable at the earlier of 30 days prior to the maturity date of April 25, 2028. Or on the date when the average volume weighted average price of the VWAP or M-tron's common stock is greater than or equal to $52 per share for the prior 30 consecutive trading days. we call this the accelerated trigger or early trigger.The warrants expire at the earlier of April 25, 2028, that they run to full maturity or 30 calendar days following M-tron public announcement of the date of the accelerated trigger being triggered. And warrant holders exercising their full allotment of warrants comply to subscribe for any and all shares of common stock issuable pursuant to any outstanding but unexercised warrant.This is called the oversubscription feature, and it's included on your warrant agreement. Further information on the warrants is available in a fact, found on our Intron investor website, which is ir.mtron.com. Just to highlight some of the strategic activity, we do continue to execute on our strategy of moving into more program business, which now makes up the vast majority of our aerospace and defense revenues.We are involved, for example, in over 40 programs of record, it's a very significant amount. Defense and aerospace has been an amazing market in the past several years, and it does remain one with plenty of room for us to grow. We seek to maintain close relationships with our customers and be their first line resource for them as they plan upgrades to current systems or compete for the design of new systems to meet government program needs.And the same can be said in our other sectors like avionics and industrials. We have also ramped up our pursuit of complementary acquisitions and strategic partnership opportunities in both the RF component and subsystem space, as well as some tangential subsystem and solution companies that focus on the same markets.We are focused on finding deals that will be accretive for shareholders and help both companies strengthen their financial performance and customer base. Strengthening the US defense industrial base is one of the goals of the administration's trade policy and current budget focus. They've actually dedicated budget dollars to the strengthening of the defense industrial base in the anticipated increase in this year's defense budget.Having a US-based advanced manufacturing capabilities support our joint forces is more important than ever before and we thank our employees for their dedication to their jobs and the mission. We also thank our dedicated customers to their continued business and the trust they place an M-tron and our people.M-tron plays its critical role in defense of our nation, providing US sourced, highly engineered components for many US and allied military programs. Before I open the floor to questions, I wanted to mention that we will be holding our annual meeting on June 10, 2025, at 10:00 AM in the morning at the Harvard Club in New York City. The meeting will be open to all shareholders of the company's common stock.In addition, we will hold an investor presentation and question-and-answer session before the annual meeting and information for both of these events will be posted on our investor website. For those interested in attending in person, you'll need to get a QR code from our IR site to pass through the Harvard Club security.Operator, can you please open the lines and allow the first question?
Operator
(Operator Instructions)Anja Soderstrom, Sidoti.
Anja Soderstrom
So in terms of your gross margins, that was a bit muted due to the ramping of new programs. How do -- how is that going to sort of develop? And with those new large contract wins, are we going to see that being a ramp for a longer period of time? Or will it pick up pretty quickly?
Cameron Pforr
Yeah. Good question, Anja. And thank you for joining. So the gross margins were impacted by really three factors. One was just product mix. We had less products being shipped for two of our long-term missile programs, which have very -- relatively high margins. And that is expected to return very shortly. That part of the mix was going to increase in Q2 throughout the rest of the year due to some of the orders we received in Q1.The thing I mentioned earlier was that we did ship some new products. And whenever you're working on new products, the first couple of runs are a little bit less efficient than when all the have been worked out in the process. And you're running at a higher yield. So we ship some new space products, which require rigorous testing and they've been successful, but the first couple of runs of those take more labor than you would hope to use later.And also, we shipped a new type of oscillator in the quarter that's used in EW and RADAR, which I think is great for the long-term prospects of the company. And I think that those yields will improve over time. So I do expect the yields to improve and the margins to improve throughout the year. We also did see some impact to the tariffs.We had a little bit less than $100,000 of tariff charges in March, and it's kind of difficult to predict how much we should anticipate receiving there for the rest of the year. And we hope that a lot of the progress that's been made over the past couple of weeks, reducing the tariffs will have a positive impact there. So I do anticipate this to go up in the rest half of the year.Okay. For those new programs that you shipped in the space and the oscillators, are they higher than the average?Yes, they will be a very strong margin product that they're just early developed.
Anja Soderstrom
Okay. And then in terms of the tariffs, you're not able to pass that on at all or?
Cameron Pforr
Yeah. We do have the capability on our contracts to pass that on. The reality is that in the market, there are a lot of mistakes being made in terms of how the tariffs are applied and then also the whole thought of passing on tariffs to vendors is relatively new, and I do anticipate a fair amount of pushback, although I think ultimately, many customers will pay for their agreements.So we're really hoping that we can work through the tariff situation in the short term. But we do have in our contracts, the ability to pass on taxes and tariffs and so I think over time, this will work out, but there will be some disruption in the industry in terms of cost for the short term.
Anja Soderstrom
And then also, these large contracts you've been winning and congrats on those. Are they also higher-margin programs then?
Cameron Pforr
They are. And they were actually some of the programs that I mentioned. We didn't ship a lot over Q1, which did impact our margins. Return to that...
Anja Soderstrom
And then what does the pipeline look like for other large deals like that?
Cameron Pforr
We actually have a pretty strong pipeline for the year. So we don't really talk about bookings per se and give numbers on that, but we've had two very strong quarters of bookings and we do have a lot of large programs that we think we'll be announcing over the next quarter or two.So both missile programs as well as some in the avionics space. And then in the back half of the year, we're working on some really significant drone bookings and programs, which I think will be exciting for the company.
Operator
At this time, there are no further questions. I would now like to turn the call back over to Cameron Pforr for closing remarks. Please go ahead.
Cameron Pforr
Okay. Well, thank you, operator. I appreciate you helping us manage the call. and I'm going to like to thank everybody for participating today. And if there are no further questions, please have a great day.If you want to follow up after the call after you kind of read the transcripts or you've had a chance to kind of go through the earnings release in more detail, feel free to contact us at [e-mail] and we will respond in kind. So thank you again.
Operator
Ladies and gentlemen, this concludes today's call. Thank you all for joining, and you may now disconnect.