Earnings Call Transcript - MPTI Q2 2024

Operator, Operator

Ladies and gentlemen, thank you for standing by. My name is Desiree, and I will be your conference operator today. At this time, I would like to welcome everyone to the M-tron Industries, Inc. Second Quarter 2024 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. I would now like to turn the conference over to Linda Biles, Executive Vice President of Finance. You may begin.

Linda Biles, Executive Vice President 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 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 therein contained within our 2023 10-K, which has been filed with the SEC on March 25, 2024. 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 Michael Ferrantino, our CEO.

Michael Ferrantino, CEO

Thank you, Linda. Good morning, and thanks to our shareholders for their interest and for attending our second quarter earnings call. We are excited to discuss our strong year-to-date performance and our improved outlook for 2024. To briefly recap, M-tron PTI designs and manufactures highly engineered RF solutions, including components and sub-assemblies for both spectrum and frequency control. We operate globally with three manufacturing facilities in the US and India. Since becoming a public company in October 2022, we have been effectively implementing our strategy by focusing on key markets such as aerospace and defense, commercial avionics, and space, which has resulted in consistent revenue and earnings growth. To summarize where M-tron PTI stands at the end of Q2 2024, total revenues for the quarter reached $11.8 million, reflecting a 16.4% increase from $10.14 million in Q2 2023 and a 67.2% increase from $7.06 million in Q2 2022. This growth continues to be fueled by strong defense program shipments and represents the eighth consecutive quarter of sequential growth. Gross margins were 46.6% for the quarter, up from 41.6% the previous year and 37.5% for the period ending Q2 2022, driven by increased revenues and enhanced production efficiencies due to our ongoing investments in personnel and equipment. Net income for the quarter was $1.75 million or $0.63 per diluted share, marking a 36.6% increase from $1.27 million in Q2 2023 and a 258% increase from $486,000 in Q2 2022. The rise in net income is largely attributed to strong defense program shipments, partly offset by higher engineering, selling and administrative expenses, which stem from increased research and development investment, higher sales commissions tied to revenue growth, and an increase in overall administrative expenses aligned with business growth. Adjusted EBITDA rose 30.7% to $2.52 million compared to $1.93 million in Q2 2023, and a 200% increase from $841,000 in Q2 2022. Backlog as of June 30, 2024, was $45.3 million, down from $47.8 million at the end of 2023 and $51.5 million at the end of Q2 2023. This decrease is expected and reflects revenue growth alongside the variability of our order intake due to the timing and scale of large program-related orders. Given the sustained momentum in defense-related sales and increased production shipments in the first half of 2024, we are pleased to raise our fiscal year 2024 revenue outlook to a range of $46 million to $48 million, up from our previous estimate of $43 million to $45 million. We also anticipate an end-of-year backlog of $49 million to $50 million despite the revenue increase. We have strong visibility for the next two quarters and expect EBITDA margins to remain within the 19% to 21% range. We are well-positioned to continue our organic growth strategy, with a particular emphasis on space and satellite markets where we are expanding our footprint across various satellite platforms. Our products, such as the e-Vibe series OCXOs, are engineered to maintain outstanding phase-noise stability under the dynamic conditions of mobile environments. In addition, as demand for higher frequencies in electronic warfare applications grows, we have introduced our Planar Filter Product Line. We are also broadening our acquisition strategy to target undervalued companies inside and outside our sub-sector that can fuel both top and bottom line growth while enhancing shareholder value. As we wrap up, I want to thank our dedicated customers for their ongoing orders and support of our products, as well as our global team of employees and representatives whose hard work drives our growth and delivers excellent results for our shareholders. I will now open the floor to questions. Operator, please proceed with the Q&A session.

Operator, Operator

Your first question comes from the line of Anja Soderstrom with Sidoti. Your line is open.

Anja Soderstrom, Analyst

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

Michael Ferrantino, CEO

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

Anja Soderstrom, Analyst

Okay, thank you. And you mentioned in terms of M&A activities and a look outside of your core business, how is the M&A environment now? Has it changed at all there?

Michael 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, 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, Analyst

Okay, thank you. And just in terms of the demand, are you seeing any of your end markets being stronger than others?

Michael Ferrantino, CEO

The aerospace and defense market is very strong, and we believe it will continue to be so. All of our core markets have solid tailwinds. Commercial avionics is performing exceptionally well. In the space sector, we have gained significant traction with design wins, and we need to transition those into production in the future.

Anja Soderstrom, Analyst

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

Michael Ferrantino, CEO

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

Anja Soderstrom, Analyst

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

Michael Ferrantino, CEO

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

Anja Soderstrom, Analyst

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

Michael Ferrantino, CEO

Thank you, Anja.

Operator, Operator

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

Garrett King, Analyst

Hi, could you explain how you view the difference between avionics and aerospace compared to defense? I would typically think that avionics and aerospace are components of aerospace.

Michael Ferrantino, CEO

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, do you envision incorporating the companies or assets that you buy into your current production sites, where there might be cost synergies or the products that you're looking at just different enough that they'd be produced at different sites?

Michael 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. 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, Operator

There are no further questions at this time. 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 defense and commercial aviation customers?

Michael Ferrantino, CEO

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

Garrett King, Analyst

So if you combine those two segments, perhaps half of the revenues come from sole source and half from dual source.

Michael Ferrantino, CEO

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

Garrett King, Analyst

Got it, all right, awesome. Thank you very much and have a great day.

Michael Ferrantino, CEO

Thank you, Garrett.

Operator, Operator

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

Michael 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, Operator

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