Q3 2024 M-tron Industries Inc Earnings Call

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Jeanne: Thank you for standing by. My name is Jeanne and I will be your conference operator today. At this time, I would like to welcome everyone to the Emtron Industries Inc. Q3 2024 earnings call.

Jeanne: All lines have been placed on mute to prevent any background noise.

Jeanne: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number 1 on your telephone keypad. If you would like to withdraw your question, press star 1 again.

Speaker Change: Thank you. I would now like to turn the conference over to Linda Biles, EVP of Finance. You may begin.

Linda Biles: Good morning, everyone. Thank you for joining our 2024 Emtron PTI Q3 earnings call. Please note that this call will be recorded and we will make the recording available on our website, www.emtronpti.com, shortly after the call.

We released our 10-Q yesterday afternoon, reporting our third quarter.

Our third fiscal quarter of 2024.

Linda Biles: 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

Linda Biles: of 27A of the Securities Act of 1933 and Section 21E of the Securities and Exchange Act.

Linda Biles: of 1934. These forward-looking statements contain known and unknown risks and uncertainties which are detailed in our filings with the SEC.

Linda Biles: 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 result expressed or implied by the company's forward-looking statements.

Linda Biles: The company undertakes no obligations to publicly update or revise any forward-looking statement, 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.

Speaker Change: With that, I will now turn the call over to our CEO, Michael Ferrantino.

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.

Michael Ferrantino: We are pleased to discuss our strong third quarter results and 2024 outlook.

Michael Ferrantino: As a reminder, M-Journal PTI designs and manufactures highly engineered RF solutions, including electronic components and subsystems used to control the frequency and timing of signals in electronic circuits.

Michael Ferrantino: We are a global company with three manufacturing sites in the United States and India. The company's primary markets include defense and aerospace, commercial avionics, industrial, and space.

Michael Ferrantino: 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.

Michael Ferrantino: 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.

Michael Ferrantino: 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 Physical Year 2024 results.

Michael Ferrantino: 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.

Michael Ferrantino: Gross margins for the third quarter of 2024 were 47.8 percent, a 500 basis point improvement over the 42.8 percent gross margins of Q3 2023.

Michael Ferrantino: 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.

Michael Ferrantino: Net income per diluted share was $0.81 per share, or a 42.1% increase over the prior year's Q3 of $0.57 per share.

Michael Ferrantino: Adjusted EBITDA was $3.3 million for the three months ending September 30, 2024, or an increase of 41.4% over the $2.3 million of adjusted EBITDA for Q3, fiscal year 2023.

Michael Ferrantino: The increase was driven by improved gross margins and continuing containment of operating expenses other than a strategic investment in research and development.

Michael Ferrantino: 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.

Michael Ferrantino: Backlog at the end of the quarter was $39.7 million as compared to $50.3 million as of September 30th, 2023.

Michael Ferrantino: 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.

Michael Ferrantino: Backlog quarter to quarter can be material impacted and reflects the variability sometimes experienced due to timing of large program-based orders.

Michael Ferrantino: I would 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.

Michael Ferrantino: 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 to $45 million.

Michael Ferrantino: We now believe the company will exceed the revised revenue guidance and still achieve EBITDA margin in the 19% to 21% range.

Michael Ferrantino: We continue to execute on our strategy to continually move into more program business.

Michael Ferrantino: 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 avionics and industrial businesses.

Michael Ferrantino: We also are pushing into new high growth markets and are accumulating design needs in the space and satellite industry.

Michael Ferrantino: and seek to do more business in drones, radar, and electronic warfare areas.

Michael Ferrantino: These growing markets depend on the types of technologies that Emtron PTI has been a leader in for years.

Michael Ferrantino: While our management team's focus is executing on 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.

Michael Ferrantino: I would like to thank our dedicated customers for the continued business and partnership of our loyal employees.

Michael Ferrantino: for supporting the company and its mission of serving the nation and its capability to defend freedom. Emtron PTI 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.

Michael Ferrantino: Strengthening the U.S. defense and justice base is more important than ever before, and we thank our employees for their dedication to their jobs, fellow employees, and our mission.

Michael Ferrantino: Before I open the floor to questions, I wanted to introduce Cameron Foer.

Michael Ferrantino: 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 advisor, consultant, and operator, and has served three companies as Chief Financial Officer before joining Amtron PTI. We welcome him to the team.

Cameron

Speaker Change: 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 Imtron PTI.

Speaker Change: at this point in its development, it's really been incredible to see the development of the company.

Speaker Change: Since its public offering a couple of years ago, it's gone quite a ways. The demand for the products are very dramatic. It's leading to the company's ability to invest in additional designs and new growth areas.

Speaker Change: 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 I look forward to interacting with you all on the phone.

Thank you.

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

Speaker Change: Thank you. The floor is now open for questions. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue.

Speaker Change: If you would like to withdraw your question, press star 1 again.

Speaker Change: As a reminder, if you are called upon to ask your question and are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question.

Speaker Change: And your first question comes from the line of Anya Soderstrom with Sidoti and Company. Please go ahead.

Speaker Change: Good morning, gentlemen. This is Andrew DeAngelis on for Anya here this morning

Speaker Change: just wanted to get a little bit more color on the EBITDA guidance for the full year, looks like with the increase.

Speaker Change: 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?

Speaker Change: 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. 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 percent is accurate for this year.

Thank you. Bye.

Speaker Change: Great, thank you. 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?

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

Thank you. Thank you.

Thank you.

Okay.

Speaker Change: How are you thinking about the operating environment under the new administration, opportunities, risks associated with that?

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

Michael Ferrantino: Sure, sure. Thank you for the question, Andrew. You know, I think at this point, obviously, we need to let it play out. But in general, you know,

Michael Ferrantino: 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.

Speaker Change: Understood. Let me open up the floor to others. I'll jump back in queue. Thanks.

Thank you.

Speaker Change: Again, if you would like to ask a question, simply press star followed by the number one on your telephone keypad.

Anja Soderstrom, James Tivy,

Speaker Change: And your next question, again, comes from the line of Anya Soderstrom with Sidoti.

Please go ahead.

Speaker Change: I'm going to 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?

Speaker Change: Yeah, 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, you know, 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.

Speaker Change: 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.

Yeah.

Speaker Change: Yeah, 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.

Speaker Change: 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 market so we have some synergies there that we can bring to any acquisition that we do.

Speaker Change: And we're also trying to make sure that we're focused on a creative acquisition, so trying to find good opportunities there.

Speaker Change: But we do think it's a rich environment, and there are a lot of opportunities for consolidation. We've seen that for the past several years, and we think at this point in time we could also be a driver of that.

Speaker Change: 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.

Thank you.

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

Michael Ferrantino: All right, well, I would again like to thank everybody for participating today and for your continued interest in Emtron PTI. Have a great day, and please contact us at IR at EmtronPTI.com should you have any additional questions. Thank you.

Michael Ferrantino: This concludes today's call. Thank you all for joining. You may now disconnect.