Q3 2023 M-tron Industries Inc Earnings Call

Okay.

Good day, ladies and gentlemen, and welcome to the Amazon P. T. I third quarter earnings call. All lines have been placed on mute to prevent any background noise.

After the Speakers' remarks, there'll be a question and answer session if you'd like to ask a question. During this time simply press star followed by the number one on your telephone keypad.

I'd like to withdraw your question Press Star one again.

Thank you Anna.

On today's call, we will have Mike Barentine O C, yet CEO and James <unk> CFO.

I would now like to turn the call over to James. Please go ahead.

Thank you.

Good morning, everyone and thanks for joining our Q3 of 2023 earnings call. Please note that this call will be recorded and we anticipate making the recording available on our website at www dot enter on Pgi Dot com shortly after the call.

We issued our 10-Q last week Thursday reporting the results for our third fiscal quarter of 2023.

Before getting underway, we're 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 thereto contained within our 2022 10-K, which has been filed with the SEC.

This discussion may contain forward looking statements within the meaning of section 27 day of the Securities Act of 1933 and section 21 E 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.

The company believes that its forward looking statements are based upon reasonable assumptions regarding its business and future market conditions. There can be no assurances that the company's actual results will not differ materially from any results expressed or implied by the companys 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 Mike <unk> our CEO.

Thank you James.

Good morning, and thank you to our shareholders for your interest in <unk> and attending our Q3 2023 earnings call. The completion of the third quarter also marks the completion of our first year as a public company.

As a brief reminder, amtrust pgi has been providing RF solutions to the marketplace since $19 65.

We're a global company with three manufacturing locations in the U S in India with consistent investment in research and development, we have a robust product pipeline, averaging over 260, new product introductions a year.

Our customer base is growing with over 300 active customers today, we continue to focus on our core markets of defense and aerospace avionics and space each of which continues to demonstrate significant carriers.

Design wins in these markets tend to be very sticky and program life cycles are long.

Let me now summarize.

For you where <unk> stands for the third quarter 2020.

Compared to prior year revenue for the three months ended September 30 increased 29, 4% to $10 9 million in.

Revenue for the nine months increased 31, 2% to $30 $4 million the revenue increase for the quarter and year to date periods over the prior year numbers reflect strong defense product shipments.

Gross margins were 42, 8% for the three months compared to 32 four for the prior year and 39, 7% for the nine months compared to $35 six for the prior year.

Benefiting from the favorable product mix, along with increased product volumes.

Backlog was $50 3 million at September 30.

Just $46 2 million at the beginning of the year and $44 1 million at the end of the third quarter of 2022 backlog increased during 2023, primarily due to an increase in defense product orders.

The company reported operating income of $4 4 million for the nine months ended September 30, compared to operating income of $2 million from the prior year period.

Increase reflects both higher revenue and higher margins impacted by favorable product mix as described earlier.

For the nine months ended September 30th engineering, selling and administrative costs increased $1 5 million over the prior year, primarily as a result of $1 $2 million of administrative cost increases, including public company costs of 735000, which represents the incremental direct costs of being public company with.

No comparable amounts being recorded within the prior year when results were presented on Standalone basis.

Our investment in research and development increased to $112 25 to $1 6 million for the nine months ended Sept.

Timber 30 as compared to the prior year net.

Net income was $3 4 million for the nine months ended September 32023.

Diluted net income per share for the nine months ended September 30 was $1 25 compared to <unk> 60 for the prior year period, our adjusted EBITDA was $5 3 million for the nine months ended September 30 <unk>.

<unk> is $2 9 million for the prior year period.

Note that adjusted EBITDA was calculated on a standalone basis for the nine months ended September 32022, and does not include any adjustments for the potential impact from additional costs of being a publicly traded company.

Finally, as we conclude I would like to thank all of the 300 plus members of our team who have diligently worked to execute our plans contributing greatly to these results.

With a strong backlog and a robust pipeline. We believe we are well positioned for the continued organic growth. We are working hard to drive efficiencies throughout the organization by leveraging our India operation, making key investments in talent and equipment to improve yields and reduce cycle times.

We're also working hard to extend our legacy of acquisitions with a focus on company or carve outs that provide synergistic.

Increased technical capabilities and access to new and growing markets.

I will now open the floor to questions operator, please open the call to any questions.

Thank you.

At this time I would like to remind everyone that in order to ask a question. Please press Star then the number one on your telephone keypad.

We'll pause for just a moment to compile the Q&A roster.

Your first question comes from the line of.

Anja soderstrom.

With Sidoti and co.

Please go ahead.

Hi, Thank you for taking my questions.

I just wanted to get a sense, you're talking about strong defense product shipments, helping the third quarter results, but what are you seeing in the other end markets you serve that'd be annex industry for example.

So the other end markets.

We're seeing we're seeing.

Strength in those markets as well.

To give you some background, so our aerospace aerospace and defense market.

Over the last four years has been growing at I think around eight 3% avionics in that same timeframe has been 7% and our space business is growing at 17%.

The biggest change in the defense because that's the largest based market today.

Okay. Thank you.

And in terms of that the gross margin.

Matt just said that you had a favorable product mix and increased product volumes.

Yeah.

Are you sort of bucket that and and.

How should we think about gross margin going forward.

Sure sure so about 50% of that is volume related product mix.

In terms of going forward we.

We are implementing significant improvements and efficiencies, which should impact margins moving forward as well.

Although product mix will continue to play a factor I think it can be a little bit less than it has been in earlier quarters. This year.

Okay, but that might be that made up for increased product volume store.

Correct as you recall in the <unk>.

Second quarter, we did have a.

End of life products that had some high revenue shipments at a lower margin that impacts in the second quarter. So that's behind us so within the mix that we're offering today theres less variability than what we've seen in the past.

And when would you expect to see some additional improvements through efficiencies.

Okay. Thank you and.

Your cash position.

True.

Quite a lot.

Are you at all looking actively at M&A and what are you seeing and if so what are you seeing in that area.

Yes, we are actively looking in that space.

Just don't have anything to discuss at this point.

Okay. Thank you that was all for me.

Thank you Roger.

Thank you. Your next question comes from the line of Kelly's Kumar with ITI investment. Please go ahead.

Hi, Scott.

I have a question first question is regarding customer concentration.

Say that.

Concentration has been crazy why anyone would expect indicate isn't concentration like over there yes.

Uh huh.

Alright, thank you.

<unk> 34 per cent agenda.

This nine months from the last discussion so how do you perceive to be the concentration what single customer.

How stable is the Sanchez at upland EBITA at top two or top three customer circular talked about so.

Sure so.

We definitely have seen some increase in customer concentration, but that's largely been driven by Merck.

Emerges within our customer base as an example, when raytheon merge with Rockwood.

United Technologies.

We had positioned with both of those companies that combine them and within any one of those customers. They are very large and we are generally doing business with with multiple locations within those customer basis. So while it may be with the same end customer.

There is quite.

Quite a bit of diversity within that customer.

Got it got it what would be an aspirational concentration that you would say.

We can target for that.

I'll take us like Phoenix.

I think over time as we as we grow our customer base and take some of our smaller customers up the food chain. If you will.

Love to have nobody greater than 15.

15% to 20%.

Okay. Okay. Thanks.

Yeah. The second question is if.

Favorite to classify your products are still being catered to often mascara to assist new base.

So what would be the share that you would say are between let's say if there is any all spend a lot of good for their products and about just like doors going into your base what percentage of electric vehicles.

Okay.

The vast majority of what we're doing is going into new new builds as opposed to an aftermarket business.

There is aftermarket business. It would mean, maybe upgrades on a plane, but it would be a new system going into that play a new radar system for example.

So it's sort of a maintenance demand itself, let's say replenishing.

Grain demand you would say.

That is not a huge portion of our business. We do have a fair amount of product in what I would describe them as consumables.

We have missile programs for example that are used once and done.

But in terms of.

This program, it's not a big piece of our business.

They know how much percentage would the consumables that go with Korlym.

Probably less than 10%, but I can see if I can get a better number on that.

Okay, Okay and the last question is.

With regard to.

Defense orders. So does it have anything to do at all with the macro scenario, that's playing a part of with respect to Russia, Ukraine, Israel Hamas.

I mean is this sustainable or is it if at all discussing at all to play and the increase in defense or are you, saying that it is sustainable.

Market share to walk over to Carlos.

So in addition to growing with the overall market, which is clearly growing based on what's going on in the global environment right. Now we believe we are gaining market share within that space.

So when I look out over the horizon, certainly with within what's visible I believe it's sustainable.

As even if things begin to come down a bit I think there'll be a fair amount of continued purchasing as.

Not only the U S, but other friendly nations rebuild their supplies.

Okay, Okay, Okay fine.

So sorry, yeah, that's taking my questions. Thank you for that.

Thank you Peter.

Next question comes from the line of Anja Soderstrom with Sidoti and co.

Go ahead.

Hi, sorry, I just have a follow up on that last question on that on the geopolitical environment and most recently the how much is somewhat of a war.

Have you noticed that in your backlog already or is it too soon and that could create some kind of tailwind maybe in the coming quarters.

So certainly we have noticed from the Ukraine side, but not from the Israel Hamas side.

Okay.

Okay. Thank you that was not.

Thank you.

Yeah.

Thank you ladies and gentlemen, there are no further questions at this time I will now turn the call back over to Michael <unk> for closing remarks. Please go ahead.

Well, thank you and once again I would like to thank everybody for joining and for your interest in Amazon Pgi and please have a great day and a great holiday season.

Yeah.

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

Okay.

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