M-tron Industries, Inc. (MPTI) Q3 2024 Earnings Report, Transcript and Summary

Thank you for standing by. My name is Ginnie, and I will be your conference operator today. At this time, I would like to welcome everyone to the M-tron Industries, Inc. Q3 2024 Earnings Call. [Operator Instructions] I would now like to turn the conference over to Linda Biles, EVP of Finance. You may begin.

Good morning, everyone. Thank you for joining our 2024 MtronPTI Q3 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. We released our 10-Q yesterday afternoon, reporting our third quarter -- our third fiscal quarter of 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 contained within our 2023 10-K, which was filed with the SEC on March 25, 2024. This discussion may contain forward-looking statements within 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 filings with the SEC. Although the company believes that 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 obligations to publicly update or revise any forward-looking statements, 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 CEO, Michael Ferrantino.

Thank you, Linda. Good morning, and thank you to our shareholders for attending our third quarter earnings call and for your continued interest in the company. We are pleased to discuss our strong third quarter results and 2024 outlook. As a reminder, MtronPTI designs and manufacturers highly engineered RF solutions, including electronic components and subsystems used to control the frequency and timing of signals in electronic circuits. We are a global company with 3 manufacturing sites in the United States and India. The company's primary markets include defense and aerospace, commercial avionics, industrial and space. We are pleased to report that the company continued to perform well with continued strength in sales and strong financial performance for the Q3 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 to help drive future growth and still produce superior earnings per share. We expect revenues and earnings to remain strong and believe that the company will exceed expectations for fiscal year 2024. Yesterday, we reported the following Q3 fiscal year 2024 results. Total revenues for the third quarter were $13.2 million, a 21.4% increase over the same period last year. The revenue increased in period primarily due to strong defense program product and solution shipments. Gross margins for the third quarter of 2024 were 47.8%, a 500 basis point improvement over the 42.8% gross margins of Q3 2023. The gross margin improvement was driven by higher revenues, improved efficiencies from continued investment in our manufacturing processes and an improved product mix to higher-margin products. Net income per diluted share was $0.81 per share or 42.1% increase over the prior year's Q3 of $0.57 per share. Adjusted EBITDA was $3.3 million for the 3 months ending September 30, 2024, or an increase of 41.4% over the $2.3 million of adjusted EBITDA for Q3 fiscal year 2023. The increase was driven by improved gross margins and continued containment of operating expenses other than a strategic investment in research and development, which resulted in higher income before taxes, higher depreciation and higher stock-based compensation this quarter, partially offset by higher interest income as the company has accumulated more cash. Backlog at the end of the quarter was $39.7 million as compared to $50.3 million as of September 30, 2023. The decrease in the backlog from prior year's period reflects one of the potential impacts of our strategy and focus on securing large, long-duration, program-centric business. Backlog quarter-to-quarter can be materially impacted and reflects the variability sometimes experienced due to timing of large program-based orders. While we expect a large order before the end of the year for a current program that has received government funding, timing is difficult to pinpoint and could slip into the following year. With continued momentum in defense-related sales and the acceleration in production and shipments during the first half of 2024, we had raised the outlook of 2024 to a revenue range of $46 million to $48 million, up from the previous range of $43 million to $45 million. We now believe the company will exceed the revised revenue guidance and still achieve EBITDA margin in the 19% to 21% range. We continue to execute on our strategy to continually move into more program business. Defense and aerospace have been an amazing market for us over the past several years. We seek to maintain close relationships with our customers and be a first-line resource for them as they plan upgrades to current systems or design new systems to meet government program needs. The same can be said for our avionics and industrial businesses. We also are pushing into new high-growth markets and are accumulating design wins in the space and satellite industry and seek to do more business in drones, radar and electronic warfare areas. These growing markets depend on the types of technology that MtronPTI has been a leader in for years. While our management team's focus is executing on our organic growth strategy, 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 markets. I would like to thank our dedicated customers for their continued business and partnership of our loyal employees for supporting the company and its mission of serving the nation and its capability to defend freedom. MtronPTI plays a critical role in the defense of our nation by providing U.S.-sourced, 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, fellow employees and our mission. Before I open the floor to questions, I wanted to introduce Cameron Pforr, who joined us as Chief Financial Officer earlier in October of this year. Cameron has been involved in the technology and defense sectors as an adviser, consultant and operator and has served 3 companies as Chief Financial Officer before joining MtronPTI. We welcome him to the team. Cameron?

Good morning, Michael. Thank you for the introduction. And thank you, everybody, for attending today's call. Nice to meet you. I'm very excited to join MtronPTI at this point in its development. It's really been incredible to see the development of the company since its public offering a couple of years ago. It's going quite a way. The demand for the products are very dramatic. It's leading to the company's ability to invest in additional designs in new growth areas and also in its equipment and providing better operating efficiency. So it's an exciting time to be able to join the company and help provide data-driven financial guidance to help us guide the strategic direction of the company and also shareholder value creation. So thank you, Michael, for letting me join the call, and look forward to interacting with you all on the phone.

Thank you, Cameron. Operator, can you please open up the lines to allow the first question?

[Operator Instructions] And your first question comes from the line of Anja Soderstrom with Sidoti & Company.

This is Andrew DeAngelis on for Anja here this morning. Just wanted to get a little bit more color on the EBITDA guidance for the full year. It looks like with the increase in the revenue guidance, the EBITDA guidance appears somewhat conservative. Do you expect a seasonal uptick in expenses to kind of justify the continued range? Or how are you thinking about the EBITDA guidance at this point?

Yes. No, I don't think we want to get ahead of our skis. We do see we're going to finish the year very, very well, kind of at the high end of the guidance. We'll probably exceed it somewhat. But I think the EBITDA range we provided of 19% to 20%, 21% is accurate for this year.

Great. And just relative to the tax rate, 3Q a little bit higher than normal. How should we think about go-forward tax rate for modeling purposes?

Yes. I think what we saw in Q3 is probably accurate just kind of given the cash flows we have at this point in time.

Okay. How are you thinking about the operating environment under the new administration, opportunities, risks associated with that?

I don't know, Michael, if you have a comment?

Sure. Sure. Thank you for the question, Andrew. I think at this point, obviously, we need to let it play out. But in general, we feel pretty confident that there's going to be continued robust spending in the defense sectors, both by the U.S. and by our allied nations. And we don't expect too much of a significant impact either way.

[Operator Instructions] And your next question again comes from the line of Anja Soderstrom with Sidoti.

Okay. Just circling back on, I guess, 2 more things. As you think about the backlog, it does sound like you have a large order where you're kind of uncertain around timing. But can you maybe just talk about backlog level that you expect into the next year and maybe just therein just broader ordering trends as you kind of see it?

Yes. As I think we've said in the past, we have expected to exit the year with backlog right around that $50 million mark. And some of it is a little bit depending on timing of a couple of large program-related orders, which have been funded and are expected. But timing is a little bit outside of our control. But that's the number we expect to end the year with.

That's great. And maybe just a little bit more definition around the current M&A environment. It sounds like you guys continue to be disciplined around possible deal activity. But just any more clarity around how the environment is out there.

Yes, this is Cameron. So I think it's a fully valued environment. So obviously, our stock is up considerably. We have a great currency to use for that. But we're being very careful to look for things that are complementary to our business, so either in the RF component space or in the broader components and subsystem space. But we want to make sure that we're focused on the same markets. So we have some synergies there that we can bring to any acquisition that we do. And we're also trying to make sure that we're focused on accretive acquisition, so trying to find good opportunities there. But we do think it's a rich environment, and there are a lot of opportunities for consolidation. We've seen that in the past several years. And we think at this point in time, we could also be a driver of that.

That's great. Gentlemen, great quarter. And I'd be remiss, Cameron, if I didn't congratulate you on the new role. Appreciate your time here this morning.

Thank you.

There are no further questions at this time. I will now turn the conference back over to Michael Ferrantino for closing remarks.

All right. Well, I would again like to thank everybody for participating today and for your continued interest in MtronPTI. Have a great day, and please contact us at ir.mtronpti.com should you have any additional questions. Thank you.