M-Tron Industries Inc (MPTI) 2025 Q4 法說會逐字稿

Hello, and thank you for standing by. My name is Bella and I will be your conference operator today. At this time, I would like to welcome everyone to M-Tron earnings call for Q4 2025. (Operator Instructions)

I would now like to turn the conference over to Linda Biles, Executive Vice President of Finance. You may begin.

Good morning, everyone. Thank you for joining our M-Tron Q4 2025 and fiscal year 2025 earnings call. Please note that this call will be recorded and we will make the recording available on our website www.mtron.com shortly after the call.

Tuesday afternoon, we released our earnings for the fourth fiscal quarter of 2025 and annual fiscal year 2025. 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 as contained within our 202510-K which was filed today on March 26 with the SEC.

This discussion may contain forward-looking statements within the meaning of Section 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 fillings with the SEC.

Although the company believes that the 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.

The company undertakes no obligation to publicly update or revise any forward-looking statements, whether as the results 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, Cameron Pforr.

Thank you, Linda. Good morning, everyone. Thank you for joining our fourth quarter and annual FY25 earnings call and your interest in the company.

We are pleased to discuss our strong finished '25 fiscal year and our outlook going forward. M-Tron designs and manufactures highly engineered RF solutions, including electronic components and subassemblies used to control the frequency and timing of signals and electronic circuits. We're a global company with three manufacturing sites in the United States and India. The company's primary markets include aerospace and defense, commercial avionics, space, and industrial markets.

We're pleased to report that the company continued to perform well with continued strains in Iron sales and good financial performance for Q4 FY 2025. Our revenues continue to be driven by defense-related orders and strong improvement in the commercial aircraft or what we call the avionics sector.

Bookings growth was particularly strong, with a 62% increase in backlog over the 2024 year-end figure. With improved operating leverage, we have been able to continue to make strategic investments in research and development and continued our efforts to increase the market profile of the company, and the request for quotes that that visibility is generating. We also continue to make investments in our production facilities and made several equipment upgrades in addition to our production lines as we prepare for increased demand.

The past quarter has been an extremely active one for the defense sector. With the recent military action in Venezuela and Iran, it's easy to get distracted from some of the important fundamental industry news. The FY 2026 defense budget was approved for FY26 through H.R.7148, signed by President Trump in early 2026. But the White House and the Department of War have also voiced a desire to increase military procurement to the $1.5 trillion level from the current annual $968 billion budget from 2026.

In February, both Lockheed Martin and Raytheon announced that they had signed seven-year production agreements with the Department of War to dramatically increase production over time for several important missile systems that each produced. M-Tron is a significant vendor to both of these companies for many precision guided ammunition programs.

Over the past several years, this has been one of the most significant growth areas for M-Tron. In fact, we believe that M-Tron is one of the highest levels of missile content in its revenue among publicly listed US-based companies.

After many months of discussion and planning around how we could significantly increase production levels if required, we are now being asked to bid on components to several of these contracts. Provided that we do win significant design slots, we would anticipate not seeing an additional increase to our production volumes over what we received recently in December and January to late 2027 or '28.

Overall, we believe that we are well positioned to continue to perform well with a significant upside potential given the Department of War's actions in the recent conflicts in Iran, which does not appear to have been factored into the current demand cycle.

We reported the following Q4 2025 results. Total revenues for the fourth quarter are $14.2 million, an 11.2% increase over the same period last year. The revenue increase in the period was primarily due to strong defense program product as well as avionic shipments.

Gross margins for the fourth quarter of 2025 were $46.9 as compared to $47.2 in Q4 2024. The gross margins were impacted by a level of tariffs not experienced in '24 in the product mix. Net income per diluted share was $0.99 for the three months ended December 30, 2025, as compared to $0.73 per share in the prior year's period.

An adjusted EBITDA was $4.5 million for the three months ending December 30, 2025, or an increase of 46.8% over the $3.1 million just to do the job for Q4 of FY 2024. The increase was primarily driven by higher revenues. Lower engineering, sales, and administrative expense as a percent of revenue and was offset by the lower gross margins.

Backlog at the end of the quarter was $76.4 million as compared to $47.2 million as of December 31, 2024. The 62% increase reflects the continued strategy and focus on securing large, long duration program centric business. During 2025, we secured several multi-year purchase orders for defense programs. In addition, the timing of these purchase orders can materially affect backlog.

For the fiscal 2025 year, we reported the following results. Total revenues for the 2025 fiscal year were $54.4 million, an 11.2% increase over the same period last year. The revenue increased in the period primarily due to defense program product and solution shipments, as well as an increase in avionics shipments.

Gross margins are 25%. We're 44.4%. As compared to 46.2% gross margin in 2024. Gross margin was impacted by the higher tariff related costs and a less favorable product mix compared to 2024, primarily around new product introductions. Net income was $8.4 million or 2.62% per diluted dollars per diluted share in 2025 as compared to $7.6 million or $26.5 per share in '24. The increase in the actual net income was driven to the increase in revenue, partially offset by the higher cost of sales.

Adjusted EBITDA was $12.6 million in 2025 as compared to $11.1 million in 2024. The increase was primarily due to higher revenues, continued operating leverage, and a lower incentive compensation, partially offset by lower gross margins. Speaking of the lower compensation expense, in 2024, the company paid a cash bonus to employees and management for overachieving its annual plan.

In 2025, management anticipated the company being able to achieve similar results against the plan, but the results, while reflecting solid operational execution in a challenging environment marked by tariffs and increased new product introductions, did not achieve this result. As a result, the company reversed $860,000 in earlier accrued incentive compensation expense, which had a favorable 6% impact on the fourth quarter results. For comparison purposes, in fiscal year 2024, the cash bonus plan expense totaled $1.4 million, representing approximately 3% of revenue.

For 2025, the Board decided to grant stock compensation in lieu of cash to further align the long-term interests of employees and management and shareholders. The Board of Directors now intends to develop a more balanced incentive plan expected to incorporate several performance metrics designed to encourage, measure, and reward the long-term sustainable growth of the company's revenue and earnings.

We had a lot of activity in Q4 2025 to strengthen the balance sheet. M-Tron operations are at the performance level currently where it's starting to accumulate cash on the balance sheet. In fiscal year 2025, we added $10.7 million of cash through operations.

In addition, in December 2025, we signed a new loan agreement with Fifth Third Bank which provided the company the ability to borrow up to $20 million at a very competitive rate based on company leverage. Currently we have no debt outstanding and haven't drawn upon this line.

Lastly, at the end of the year, we closed a warrant offering that we launched in the spring of 2025. The offering was fully subscribed with 582,233 shares being issued at the end of December and early January. And net proceeds of 27.5 million being raised for the company, increasing our flexibility to pursue acquisitions that align with our long-term strategy. At the end of the period, M-Tron had $20.9 million of cash on the balance sheet, with an additional $27.5 million being transferred early January 2026 to the company from our transfer agent as warrant proceeds.

As we look forward into 2026, we continue to expand our defense program business, which makes up the vast majority of our airspace and defense revenue. Two of the areas where we expect strong growth in '26 and '27 are radar and electronic warfare. These are areas that we emphasized from a sales and engineering perspective several years ago.

There's a broad redesign of many military fire control radars due to the change in warfare incorporating a breadth of weapons ranging from hypersonic missiles to small and slow moving or even loitering drones. There's also a newer class of mid-range radar being developed and widely deployed for counter drone missions.

We are active in this market as well and have seen demand increase over the recent periods. Control of the electromagnetic spectrum is more important than ever as autonomous software-driven systems play a greater role on the battlefield. We also continue to expect strong growth throughout the year from commercial avionics shipments as we serve key suppliers to both Boeing and Airbus. Our position in this market is quite strong, and our products are used in 15 to 17 different applications on every commercial airframe that Airbus and Boeing produce.

With inventories largely depleted at the airframe manufacturers, orders for components and subsystems have picked up as the airframe manufacturers executed on their backlog projected to be strong through 2035. While our management team is focused on executing on our organic growth strategy, we are placing a greater emphasis on combining that with inorganic growth through partnership and acquisitions.

In 2025, we formed three strategic partnerships with complementary product companies. We recently announced a rights offering to provide the team greater flexibility to execute against our execution or acquisition strategy. The record date for these rights will be tomorrow, March 27, 2026. Shareholders of record who exercise their full basic subscription rights are eligible to participate in the oversubscription feature should there be unallocated shares from the offering.

The offering is expected to launch early next week. And the rights are expected to expire on April 15, 2026. Five rights will be required to purchase one share of common stock, and the subscription price per share will be determined next week when we file our prospectus supplement on Monday or Tuesday, March 30 or 31.

It's anticipated that the subscription price will be at a 10% to 12% discount to the trailing five-day volume weighted average price per share. This offering is designed to support a creative acquisitions, the ability to perform carve-outs. Or participate in carve-outs, transactions of scale, the pursuit of strategic investments, and also to expand our internal capabilities to meet demand.

I'd like to thank our loyal employees for supporting the company and its mission of serving the nation and its capability to defend freedom. M-Tron plays a critical role in the centaur nation by providing US sourced highly engineered components for many US and allied military programs.

Strengthening the US defense industrial base is more important than ever, and we thank our employees for their dedication to their jobs, their fellow employees, and our mission. We also want to thank our customers for their continued business and partnership.

I want to mention that we will be holding an Investor Day in New York on May 12, beginning at 12 PM at the New York Stock Exchange, at 11 Wall Street. I hope you can attend that. Please check our Investor Relations calendar on our IR website, ir.mtron.com for announcements about this and other investors events.

But that operator, can you please open the lines and allow the first question?

(Operator Instructions)

Anja Soderstrom, Sidoti.

Hi, and thank you for taking my questions. You've done a lot to strengthen the balance sheet lately, and what's the motivation for this rights offering?

Yeah, good morning, Anja. Thank you for being on the call. The right offering really is it reflects a lot of the changes in the industry that are taking place right now. There is a tremendous amount of demand in the market, for example, for some of these larger seven-year engagements, we're being asked now to assemble quotes, to handle the demand curve, as well as obviously make the financings necessary to increase our own capacity.

But it's really been driven more, we're we're going to do that with some of the proceeds, but it's really more driven by some of the pressure from the industry, from the Department of War on primes to become more nimble. So we do expect divestitures from primes, as well as a number of P/E firms trying to find exits for their portfolio companies in the space. We think this is creating more of an opportunity than we've seen in the past to do potentially larger transactions.

It could be a carve out or it could be a merger of equals, that kind of thing, but it definitely helps to have cash on the balance sheet to be able to execute. And be included in processes and income improves basically bankers and other intermediaries' belief of certainty of close. So we believe that having a stronger balance sheets can allow M-Tron to take advantage of the opportunities. And also strengthen our posture, I guess with primes as they look to us as a key supplier as the demand increases.

Oh, okay, thank you. And then, in terms of the gross margin, nice work there, on a sequential basis, even though the revenue didn't increase that much on a sequential basis, is that all, mostly then driven by the product mix and you're ramping new programs since the tariff, seems to have had a negative effect. So I'm just trying to figure out as we lap this tariff impact, how should we think about gross margin for next year?

Yeah, no, it's a good question. So some of the impact in December of '25, that was -- if you look at that, it was a little bit lower than the prior year and that was the impact of tariffs as well as still some residual product mix issues, and that's just really from newer products. But in December of '24 and also September of '24 quarters, we also had some last time buys at very high margins and those are more periodic, I guess.

If we look forward though, I do believe that we'll have a more favorable product mix going forward, but, we do have an increase in orders for some of these newer products we've been producing, so we're still kind of working through what that impact is, but we do expect a slightly more favorable tariff environment next year. We -- in 2025, tariffs impact their gross margins by about 1%. We do expect them to be a little bit less in '26 and forward, but we're just starting to see some changes in tariffs being implemented now, and it's obviously it's a moving target. We'll see what comes out.

Okay, thank you. And then, one last one in terms of the backlog nice growth there as well, what was most of the growth coming from?

Yeah, so the backlog was driven by defense and aerospace and then avionics. Both of those were strong developer growth areas in the backlog. Earlier in the year we did see an increase in space as well, and we're hoping that as we look into '27, '28, there'll be more opportunities in space, especially resulting from the Golden Dome initiatives.

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

James Adair, Freedom Broker.

Hi, thank you for taking my question. First, it relates to the how meaningful is the drone exposure today in your business, and can it become a more material part of the mix over time?

[Suzanne], thank you for joining. So you were asking about the exposure to the drone warfare. Yes, okay, yeah, drones are definitely an active part of our business. We participate in two ways. So one is we do sell solutions and components to several of the manufacturers of drones.

We've been doing that since 2014. We tend to service some of the primes that are making the larger drones, so they -- maybe they were ISR or kinetically focused, but these are the larger drones like you know you can think about those as like Global Hawk and Reapers and things like that class of drone.

We do not participate in the FPV drones. Those are usually, as they're very treatable, designed with less expensive parts that don't really rely on reliability or wouldn't pay for reliability. So that's a relatively small part of our business, but it is growing in the prior year, we typically do like $1.5 million to $2 million of revenue in that space.

But I think that's going to grow. The other area that's also very much impacted by drone warfare is what's happening in the radar space. So most of the radar systems that we support are being redesigned because of drones, but then we're also getting very significant orders and a lot of growth in this mid-range of radar which is almost entirely focused on counter drone warfare, and that will become a substantial part of our revenue going forward, we believe.

Okay, I think it's helpful for me. But can you quantify the other systems revenue for the 2026?

Could you just repeat that? It was a little bit hard to understand.

Okay, or maybe --

Could you just repeat that? It was a little bit hard to understand.

Okay. First, can you quantify the revenue exposure from the radar systems for the 2026, or maybe some color of them.

You want me to quantify the drone exposure in 2026?

Yes, also radar systems also.

Yeah, I think, it'll probably total around roughly $4 million probably. But you know --

No, that's all for me. Thank you.

Yeah, thank you.

That concludes our Q&A session. I will now turn the call back over to Cameron Pforr for closing remarks.

Okay, well, thank you, everyone. I appreciate the questions. I'd like to thank everybody for participating today and your interest in M-Tron. Have a great day and please contact us at ir@mtron.com should you have any additional questions, we'd be happy to handle this.

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