Q4 2022 M-tron Industries Inc. Earnings Call

Speaker 1: I.

Speaker 2: Thank you for standing by. At this time, I would like to welcome everyone to the Emtron PTI Investor Presentation with the 2022 results conference call. James Tyve, CFO , you may begin your conference.

Speaker 3: Good morning, everyone. Welcome to our MTRON-PTI Investor presentation, which will review our business in 2022 results.

Speaker 3: you to read our State Parter Statement and further that any investor or potential investors should ensure they've read the risks outlined under risk factors in the information statement contained within our 10 within our form 10.

Speaker 3: which was filed on March 30th.

Speaker 4: 2023. Welcome to our Q4 2022 Investor call. I would like to start off by thanking you for your interest in us.

Speaker 5: Today, we will present to you an introduction and overview of Emtron PTI along with products and markets we serve. We will also cover our financial position along with a summary of our future. We trust you will benefit from our presentation and look forward to your questions immediately following the formal presentation.

Speaker 5: As a brief overview, Emtron PTI has been providing RF solutions to the marketplace since 1965, with products covering spectrum control such as LC, cavity and crystal filters, frequency control such as clock oscillators, temperature compensated oscillators, and

Speaker 5: and ovenized oscillators, as well as integrated module assemblies, where we wrap additional functionality around our core products.

Speaker 5: With sales of nearly 32 million for 2022, we focus on the key markets of defense and aerospace, avionics, space and industrial. As you can see, we have long relationships in each of these markets with blue chip customers such as Raytheon Technologies, Viasat, Honeywell and L3Harris.

Speaker 5: We have strong backlog and have demonstrated consistent growth of greater than 8% over the last five years. Finally, with constant investment in new processes and products, we generate nearly 30% of our revenue from new products.

Speaker 5: Our backlog is growing.

Speaker 5: As of the end of Q4 2022, it is over 46 million, up nearly 75% since the beginning of 2022.

Speaker 5: As mentioned earlier, we focus on key markets where design winds tend to be very sticky and program life cycles are long.

Speaker 5: With consistent investment in R&D, we have a robust product pipeline averaging 270 new product introductions per year. As a result of our strong product pipeline, our customer base is growing with over 300 active customers today.

Speaker 5: MTRON-PTI has over 125,000 square feet of design and manufacturing space over three locations in Orlando, Florida, Yankton, South Dakota, and Noida, India. All three locations are ITAR registered with both US locations having ISO 9001.

Speaker 5: design and manufacturing certifications in India having ISO 9001 manufacturing certification.

Speaker 5: In addition to our sales offices in Austin, Texas and Hong Kong, we have 28 sales representatives organizations throughout North America and the world.

Speaker 5: We employ 326 people across these locations with 243 in manufacturing and 47 in engineering and quality.

Speaker 5: With an average tenure of nearly 12 years, we will have 500 years of radio frequency design and manufacturing engineering experience. This experience drives innovation, with MTRON-PTI being founded, with MTRON and PTI being both being founded in 1965, each has a history of firsts.

Speaker 5: and product innovation and quality. From PTI supplying the first monolithic filter used in space in 1973, to Emtron becoming the first crystal and oscillator supplier to be ISO 9001 certified in 1993.

Speaker 5: This tradition has continued after the merging of the two companies in 2004 with the addition of new product lines such as cavity filters in 2009, integrated microwave assemblies in 2020, and the launch of our planar filter product line in 2022.

Speaker 5: And most recently, the launch of our 5G interference filters solving cell tower interference with aircraft.

Speaker 5: With that, I will turn it over to Bill Drafz, our President, who will provide a bit more detail on our markets.

Speaker 4: Bill?

Speaker 6: Thank you Mike.

Speaker 7: I'm trying PTI serve several markets with strong secular tailwinds. For the fence market, demand from autonomous vehicles on land, air, and sea is driving precise navigation and higher bandwidth data communication needs.

Speaker 7: As missiles reach hypersonic speeds, early detection becomes more critical and driving very low noise oscillators and precise filters in advanced radar applications.

Speaker 7: Higher bandwidth communications for situational awareness from the satellites to the soldier and everything in between is also growing. Lastly, electronic warfare continues to grow to disable or spoof all threats in this crowded electromagnetic spectrum.

Speaker 7: The A.B.I.X. market is making up for lost ground with the global fleet of commercial aircraft predicted to grow by 80% through 2041, as more freight and passengers move across the globe and more fuel-efficient airplanes.

Speaker 7: As launch in satellite cost drop, internet everywhere is growing and feeling the recent surge and is predicted to account for up to 70% of the trillion dollar space economy by 2050.

Speaker 7: And lastly, commercial communication demand is going 50% per year as cloud applications, high speed video, and remote storage needs grow.

Speaker 7: We serve many applications in diverse end markets.

Speaker 7: Defense and aerospace leads with 56% of sales, with design wins on numerous long tail programs with top prime contractors.

Avionics is recovering nicely from the lows of the pandemic, and we have secured several recent design wins driving additional growth.

M-Tron PTI serves the instrumentation and computing markets, providing very high performance filters and oscillators for the most demanding applications.

Last but far from least, we are very excited about the space and SATCOM markets, and our recent focus has grown our space revenue robustly over the last few years.

Looking at a case study, we averaged 16 design slots on nearly every Boeing and Airbus commercial airplane. We provide rugged, proven, reliable oscillators, clocks, and filters in numerous applications, including flight control, engine control, safety, communications, and navigation. As Mike mentioned earlier, we recently won several design slots addressing the 5G interference with the onboard radio altimeter.

our ability to quickly design and produce solid and urgent need. We also serve the smaller regional and business jet markets with numerous manufacturers using our proven components for similar applications.

Airborne threats are driving increasing demand for early detection and mitigation with radar technology leading the way.

Hypersonic missiles and drones both require highly advanced radars as these targets present speed, size, and radar cross-section challenges. These requirements drive the need for the highest performance filters and oscillators in numerous applications throughout the radar, including the transmitter and receiver.

signal processing, and high-frequency antenna paths. Both commercial and military aircraft also utilize our components in their onboard radars.

As mentioned, we are very excited about our opportunities in space and SATCOM.

The number of satellite launches has grown dramatically over the past few years and continues to grow, and we are participating in this growth with our filters and resonators in all critical areas of the transmitter and receivers. What is even more exciting is that for every communications satellite launched, there can be thousands of terminals.

That drives the man for our oscillator filter products and we are pursuing these opportunities aggressively And trying to PTI offers our customers a fully integrated turnkey solution

Beginning in the design phase, we work to be an extension of our customer's engineering team, not just the supplier. We work to understand all the requirements, rapidly developing solutions, and concurrently working with manufacturing so that the solution is producible.

Our product capabilities are very diverse, designing and manufacturing several product families of oscillators, filters and resonators.

We also have the capability to integrate all these products and more into a complete solution moving up the value chain.

Our world-class operations include in-house laser welding and marking, pick-in-place, a full CNC machine shop, photo-authority, thick film hybrid laser trimming, chip-in-wire, resistive weld and seam sealing. We are highly vertically integrated and subject matter experts in each capability. We are very highly vertically integrated and subject matter experts in each capability.

allowing us to press the limits of each process while improving quality and reducing lead times to our customers.

Our markets demand numerous product tests to ensure reliability, and we are proud to meet nearly every test requirement in-house.

We have invested and continue to invest in this area as it improves our designs and shortens both the design life cycle and product lead times.

Recently, we added a high-power thermal vacuum test chamber to our long-list of capabilities expanding our space-level testing. All of our processes meet or exceed AS9100D and ISO 9000-1 2015 requirements, and we were certified annually.

With that, I will turn it back to James.

Thank you, Bill. We are starting off our first year as an independent public company on a very strong financial footing, with $926,000 of cash at the end of the year and $9.5 million of working capital.

Current assets of $14.3 million and backlog of $46.2 million at December 31, 2022.

onto financial trends.

$27.7 million for the quarter ended December 31 of 2022 was an increase of 26.4% compared to $6.9 million for the comparable prior year period.

For the fiscal year, revenues were 31.8 million, a 19.3% increase from 26.7 million for the prior year.

Basic and diluted in that income of $0.7 per share compared to $0.1 per quarter and income per share of $0.67 per year versus income of $0.59 per year. You will notice that gross margins for the third quarter were impacted by inflationary headwinds due to both labor and the

of the prior year, 35%.

Our backlog has shown growth for eight consecutive quarters and sits at 46.2 million at the end of the fourth quarter of 2022. This growth is largely due to customers who accelerated their order cycle due to supply chain constraints.

as a result of COVID and both market and customer share gains from expanded profit product offerings.

We average 260 new product launches a year, and as previously stated, nearly 30% of revenue is from new products.

As you have heard, Emtron PTI has a long history of innovation with a strong product pipeline, growing print position at blue chip customers in diversified end markets with strong fundamentals.

We also have a history of mergers and acquisitions with PTI, championed and most recently tri-lithic in 2014.

Our global footprint, including a low-cost manufacturing ITAR-registered facility in India, gives us a competitive advantage.

We believe we are positioned for continued organic growth with a record backlog in continuous product line expansion.

We are working hard to drive efficiency through the organization by leveraging our India operation, making key investments in talent and equipment to improve yields and automate selective processes.

Your acquisition oriented with a focus on companies or carbots that provide synergistic products, increased technical capabilities, and or access to new and growing markets. With that, I would now like to turn it over.

for questions.

I see we do have several questions from Anja Sotarsam.

How firm is your backlog and what end markets have driven the growth?

Our backlog is very firm. The primary markets that are driving this growth are avionics, defense, as well as space and SATCOM.

Bill, if you'd like to add any color, please feel free. No, you hit the key markets. As mentioned in the presentation, we are on some very long tail programs, which means these jets, these missiles, these products run 35, 40 years.

And so we have a lot of visibility and our customers give us orders expanding past 12 months. So that composes a good chunk of that backlog.

Thank you Bill. Thank you Bill.

Inflationary pressures, can you still pass those on? We are certainly seeing inflationary pressures easing a bit. We have been able to pass those on, although I would say that ability is easing.

Inflationary pressures, can you still pass those on? We are certainly seeing inflationary pressures easing a bit. We have been able to pass those on, although I would say that we're probably, you know, that ability is easing with the inflationary pressures easing.

Has the labor market eased up for you? And Bill, jump in here if you'd like, but definitely we've seen the labor market ease up both in terms of our ability to hire as well as we've seen our turnover rates drop, although filling key positions still can be a challenging time.

Has the labor market eased up for you? Oh, I'm sorry, I just read that question. How is the M&A market?

It's a challenging market. It's identifying something that's the right fit is challenging, but we are certainly focused on doing that and hopefully we'll have news to report in the coming quarters.

What gross margin expansion opportunities do we see?

We see several, certainly as we bring new products to market, we focus on bringing products to market with a higher gross margin than some of our legacy products.

So that's certainly one area as well as we do continue to invest in our operations and our plants with automation equipment and that should see gross margin improvements as well. Build field-free ads any color as well.

Yeah, you hit the nail on the head, Mike. We always have opportunities to improve yields. We have been investing into capital equipment, which has a higher operational availability time, so that means we get more product out per unit time.

And so all these things should be helping the product growth margin. And as James alluded to, you know, product mix enters into it and certainly we're seeing move towards higher margin products as we look forward for the analysis this year. So we're hopeful we'll see some expansion there as well. Thank you.

Thank you, Bill. And lastly, James, you might want to comment on this one. Separation costs have been pressuring the bottom line. When we start to see these fall off.

Yeah, they certainly have had a little bit of an impact. It looks to me like they will tail off after this 1st quarter. And we shouldn't have any more lingering effects after the Q1 of 2023. Thank you.

I don't see any additional questions.

So with that, I again would like to thank you for your interest in Emtron PTI. We look forward to speaking with you again in the coming quarters. Have a great rest of your day. This concludes today's conference call. Thank you for your participation. You may now disconnect.

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