Thank you for standing by. My name is Kathleen, and I will be your conference operator today. At this time, I would like to welcome everyone to the M-tron Investor Update. [Operator Instructions] I would now like to turn the call over to Mr. Cameron Pforr, Interim CEO. Please go ahead.

Thank you, Kathleen, and good morning, everyone. Thank you for attending our investor update this morning. We're pleased to speak to you about our preliminary earnings release for Q4, and also the preliminary annual results for 2024. We did post those last night to the SEC and an 8-K and put out a press release on that. So hopefully, you all have a copy of that. Just a note, we do expect to file our 10-K with our audited results on or about March 26 or 27, so later next month, but they -- we are very far down our audit process and don't expect substantial changes. So for those of you who don't know me, my name is Cameron Pforr. I joined M-tron this past September. I was recently named Interim CEO, having served over the past several months as CFO. And just a little bit of background and then we'll get into more of the company, which I know is what you're more interested in. My background is 30 years of experience in technology company management advisory roles. I spent the last 15 years running companies from startups with less than $1 million to software companies with over $100 million. And this is -- of those companies, we sold two of them, one to Cisco, one to Red Hat, returned significant returns to investors. I also have a lot of combined corporate finance M&A experience as an investment banker and also as an adviser of any company. So I have raised about $12 billion in equity and executed on over 30 acquisitions and hope to bring some of that experience here at bear. So today, we're going to talk about the -- give you an update on the health of the business, talk about the direction that we're taking things forward and answering questions you have about the business and our recent announcements about the rights offering. And this morning, we did put out a press release that we're going to shift gears there and move towards a dividend warrant. The goal there is really to distribute value to our shareholders in a fair and equitable way. And we've kind of refined how we're doing that. I think this is probably a better tool to do that. So I'm pleased to be joined this morning by Linda Biles, who's our EVP of Finance and also our Chief Accounting Officer. Linda, if you can just introduce yourself and maybe go through the safe harbor statement? I appreciate that.

Good morning. I'm Linda Biles. I'd like to go over our safe harbor with you. Information included or incorporated by reference in this presentation may contain forward-looking statements. This information may involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different in the future results, performance or achievements expressed or implied by any forward-looking statements. Forward-looking statements, which involve assumptions and describe our future plans, strategies and expectations are generally identifiable by use of the words may, should, expect, anticipate, estimate, believe, intend or project or the negative of these words or other variations on these words or comparable terminology. Examples of forward-looking statements include, but are not limited to, statements regarding efforts to our revenue, expectations regarding fulfillment of backlog, future benefits to operating margins and the adequacy of cash resources. Actual events or results may differ materially from those discussed in forward-looking statements as a result of various factors, including without limitation, the risks outlined under Risk Factors in the information statement contained within our Form 10-K filed with the SEC on March 25, 2024. In light of these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this presentation will in fact be accurate. Further, we do not undertake any obligation to publicly update any forward-looking statements. As a result, you should not place undue reliance on these forward-looking statements. With that, I'd like to turn it back over to Cameron.

Yes. Thank you, Linda. And okay, I'm going to start presentation with the MPTI overview slide, which you should all have from our website. And I really just wanted to give you a brief update on the company for those of you on the call that is new to it. But we were formed in 1965 and listed on the New York American Exchange in October of 2022. And we've been focused on the aerospace and defense market since the acquisition of PTI in 2004. So there was a fairly significant shift in the business not in terms of products, but in the markets that we went after. Today, we're an American-made defense contractor specializing a robust, engineered, frequency and timing control and filter applications. We have about 2.9 million shares outstanding, and we also enjoy broad employee ownership. At the end of 2023, we distributed 183,000 options to our valued employees based on their tenure with the company, really to reward their behavior over the years, their contributions. And we're really pleased that they're shareholders in the company and strong believers in what we do. We're well positioned to continue to access long-term value creation opportunities, and we'll talk about some of that today. If we move to the next slide and some of the key takeaways that we want to share with you today. We continue to perform well and announced our preliminary earnings for Q4 in the 2024 annual period last night. We're a unique American story, I think, founded in 1965 with tremendous, tremendous engineering skills and capabilities. It's been built out over the years to serve our nation's defense sector and other key markets such as avionics, space and satellites and the commercial sectors. And in the commercial sectors, we play strongly in the telecom…

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

Hi and thank you for taking my questions and congrats on the nice progress here. So just in terms of this capital raise we're doing and you're canceling warrants, is this -- is there something imminent for you in terms of M&A? Or is this support that? Or is it -- what are you seeing in the M&A market?

Yes. Thank you, Anja, and I appreciate you joining us today. No, it's not -- there's not a deal that's imminent that we're going to announce in the next week or so, but we are seeing a lot of opportunity. And so the desire was to -- one is to distribute value to our shareholders. And an added benefit is that it would -- to the extent that people exercise the warrant or exercise the right when we were envisioning that, is it would put more capital on the balance sheet. We make it just a little bit easier to do acquisitions of size. So that's some of the -- and really execute on that strategy. So it could be JV partnerships, it could be acquisitions. We're going to continue to make investments in the business regardless of how much capital we raise. And I think we will see some opportunities in the acquisition market as well. But having some more capital on the balance sheet as we continue to accumulate capital as well, will just help make sure that we can do acquisitions with a higher cash content than shares. And so that provides a better return to our investors over time.

Okay. Thank you. And in terms of those large contract wins you've been announcing, are those with the same customers or with different customers? You're also alluding to other sizeable contracts in the pipeline and also if they are with the same customers or different customers?

Yes, these were with two different customers with two of our larger customers. We do have a number of other contracts that we expect to sign in the next few months, and it's really -- it's a variety of people in the avionics and also in the aerospace and defense space.

Okay. And then the connectivity partnership, how are you going to be working with that? And is that -- could that be also helping you source deals to absorbing them from eventually?

Yes. So the connectivity partnership is something that's been discussed at this affiliate for several months. I think there's a large market opportunity for investment in the area. And they are establishing a team of seasoned investors and operators who know the space as well. And I anticipate that they are going to have pretty strong investment returns. Part of the interest on our part is that we focus on several markets where we're really trying to drive our revenue, but we don't have a broad view of all the markets where RF plays a role, right, or where connectivity plays a role in communications in general. So connectivity partnership is going to look at a broader set of vertical applications than we do here at M-tron. And so I think it will give us a good window into some of those market opportunities and allow us to invest through the partnerships in some companies that we might not have come across, but also gain knowledge of new market opportunities in areas that we should consider in the future for growth. And I think in terms of how does it benefit our shareholders, we're looking at it two ways. One is, I think it will generate significant investment returns to us over time. And also, I think it will give us the opportunity to partner with or acquire companies that we may not have come across on our own. So we're going to have a strategic role in the fund, but we're not going to be running the fund. And I anticipate that we'll have a right of first refusal on potential acquisitions of companies that come across. And also, there may be a lot of companies that, frankly, are too small for us to buy at this point in time. And if connectivity partnership can support them, it's wonderful. And we'll partner with them to drive revenue for both firms, or maybe we'll look at acquiring them down the road. So I think it's twofold really. It will be -- it will generate good returns on our capital as well as give us opportunities to acquire or partner with companies that we might not have seen yet.

Okay. And you mentioned you expect a strong revenue growth to come in and with a strong backlog and these contracts with, do you expect it to be the same magnitude as the near 20%? Or where are you anticipating the revenue growth to be in the next coming years?

Yes, we've been guiding people to -- in terms of what we feel we can guarantee is lower numbers. So in the 10% growth range. We do have a desire to grow higher than that. And if you look at the last three years, I think we went to every single one of those years, expecting probably 7% to 10% growth. And we were pleasantly surprised with how we came out. This year is shaping up strongly. So we're doing well in Q1. And I think we do have a good chance of exceeding that. I don't want to predict 20%. There's a lot of headwinds in the market in terms of the dialogue that's going on in Washington and other places. I don't think it's going to impact us, but there are a lot of changes in front. So I think it's kind of prudent to stick with those numbers for now.

Okay. And then just in terms of the gross margin, you've also been talking about 45% before, but you've been beating that every quarter now. How should we think about that going forward and the product mix there?

Yes, I think we're going to stay in the high 40s, to be honest. It will bounce around a little bit from quarter-to-quarter. But I think something in -- when we gave up the long-term model, we were talking about, I think 45% to 48%. I think that's reasonable on a quarter-by-quarter basis. And I expect our margins to kind of remain where they are.

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

Thank you.

Okay. Your next question comes from the line of [indiscernible] Asset Management. Your line is now open.

Good morning. Thanks for taking my call. The first question, again, and I'm just not that familiar what's going on. So could you put into context what the connectivity partnership is? How much of the -- what sort of funding is the company committed to for right now? And then how big will that fund be? And just to clarify, that is the fund where your former CEO is taking a senior advisory role? And I've some follow-up questions.

Sure. Thank you, [indiscernible]. So the fund itself is just being established. They're right now in the market building that team, talking to potential investors and also identifying and building out their deal flow. So it's not set in stone yet in terms of like the size they have to raise, but I think they anticipate raising about $200 million to $250 million, so a substantial amount of money. We look at being a part of the GP. So we would have some benefit from the carry on that -- on those investments. And we haven't determined yet the size of our investments. I don't expect it to be a meaningful amount of cash on our balance sheet. But I do think given our position in the market and I think getting it early with the fund, we will have a mean forward turn now. But we'll let people know that as it becomes more solidified.

Okay. And you mentioned I think that you'll have a right of first refusal. I mean, I see this fund a little bit as a competitor of your own M&A activities potentially.

Yes. That's a good point, [indiscernible]. So that's one of the reasons why as we work with them, we are looking to establish the right of first refusal. So it's not a point of competition for us. We're really trying to delineate the types of things that they would look at and the types of things that we would look at. And for anything that's really in our wheelhouse, we would have the ability to transact ahead of them. But we looked at it and we chose not to, then I wouldn't see any reason why we wouldn't like connectivity partnership potentially get involved.

Okay. And changing gears to the second topic. I appreciate your comments on the continued cadence of activity with the DoD and for military replenishment. I think that makes sense. My question is, there's a strong organic growth path at the company. So can you talk about the hurdle for acquisitions as far as if you do -- and you've said you looked at bigger and you used the word accretive, accretive over what time, like immediately, year one and on what metrics, EPS, cash flow, adjusted EBITDA, that would be helpful? And then secondly, discuss your incentives, if you would, since you're new to the company, now you have a new role, so changing quick. Are your incentives in cash, are your incentives in stock? And how are the other members of the C-suite incentified and how you're going to get paid? Are you doubling the company with kind of equity at stake and how much kind of skin in the game for a successful accretive growth path for us as equity holders?

Okay. And do you mind just repeating your first question, right? I've got the second one down.

The first question was the accretive nature of deals on what metrics basically?

Yes. That's fine. Yes. Thank you for that. So yes, we've been looking at doing accretive deals. We look at it on an EBITDA-to-EBITDA basis. And we've been really limited to looking at things that are accretive almost immediately. So we're not looking to make big bets on new technologies, moving into production levels of manufacturing. And for things that are more on the come, we would look to probably be more towards partnerships, in forming of JVs. That's the way I was sharing in the benefit of helping them grow their business or grow our business. So those are -- that's some of the metrics. In terms of the size, we're really trying to buy things that have a couple of million of at least of EBITDA if not more. We do find though that when we look at the marketplace, I think currently, our margins are 5% to 10% higher than many of the companies we look at. And so we are trying to find situations that aren't going to drag down our margins over time. And where we can have an impact on that and hopefully improve their margins bring closer to ours earnings. Keep our business model the way it is. We think we have a pretty successful model at this point in time. We're really trying to exploit that. In terms of incentives, you had asked about that. Right now, the senior team is incented through salaries and performance bonuses that are cash based, based on the company's performance against plan. It's not really based on our stock performance, to be honest. And we are also -- we do participate as equity holders. So the senior management team either has -- most of them have restricted stock and which vest for a three-year period, and so they benefit from that. And there are periodic grants of stock or restricted stock to management team members.

Okay. That's helpful.

And I would -- I can let you go, but I think the one thing I'd like to see as a holder since you are kind of targeting good and aggressive and that's positive growth targets. I think the bonus should be more equity-based to align you with holders better. I think that will be received well if you can look at that next go-around or next cycle and change that. Probably -- and if you're successful, probably it's better for everybody on the team anyway if you do that over the longer term if you're successful. So I would look forward to that change.

Okay. Appreciate that [indiscernible]. Thank you.

Your next question comes from the line of James Tivy. Your line is now open.

Sorry. Good morning. Thanks for taking the call. Hi Linda. Welcome Cameron. I have a very granular question related to gross margins.

Okay.

In your Q3 earnings release, you mentioned that margin improvements were due in part to improved production efficiencies from previous investments. And I know today, on this call, you talked about efficiency of raw materials, which relates to crystals. Can you provide some clarity on the statement? It wasn't something we previously had seen. And are these investments, capital or human in nature? And how does the crystal yield would actually fit into this efficiency -- improved efficiency in your production?

Yes. We haven't talked about like what our crystal efficiency levels are, but we are dedicating the resources to making improvements there, just because it's such a large portion of our COGS. So we have both consultants and engineering talent we brought onboard to help us do that as well as we are making investments in machinery to aid that. So I don't know if we can say more than that, but that's -- that is a core area of focus for us. We're also trying to be just more efficient in our purchase of inventories as well since that can be a large number as well.

Okay, thank you. That's all I had.

Thank you, James.

That concludes our Q&A session. I will turn the conference back to Mr. Cameron Pforr for the closing remarks.

So thank you very, very much for joining the call today and your interest in the company. I'm hoping that clarified a lot of things that may have risen in your mind as you've been reading from the press releases recently. We are really committed to providing shareholder value and doing that in a number of different ways. One way to do it is the warrant dividend now, which is what we're trying to pursue. We do realize we kind of stubbed our toe on the rights offering, hoping to make that good for you over time. And appreciate your support of the company and kind of the -- in our mission. So -- and also a big thank you to our employees who are on the call and their dedication to what we're doing here. And thanks for your time.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.