M-tron Industries, Inc. (MPTI) Earnings Call Transcript & Summary

Okay. Good morning, and welcome to our investor -- our first Investor Day presentation. I would like to thank everybody for your interest in us. I would also like to thank the NYSE for hosting us today. With us today, we have myself, Mike Ferrantino, CEO; our President, Bill Drafts; Senior Vice President of Sales, Paul Dechen; and Linda Biles, Executive Vice President of Finance. We also had several of our directors in attendance, and I would like to thank them for attending. I would like to read our safe harbor statement and no further any investor or potential investors should ensure they read the risk coming under our risk factors contained within our Form 10-K filed with the SEC on March 25, 2024. We have had many questions from investors over the last couple of quarters about our products. So we will start off today with a brief [Indiscernible] quarter presented by Paul Dechen, followed by a more traditional investor presentation and finally, Q and answer session.

Well, thank you, Mike. Well, good morning. I'm very excited today to share with you MtronPTI products, markets and applications. We go through this first slide on the [indiscernible] slide that we really go with the words that are on the slides. So MtronPTI is a high technology firm that manufactures highly reliable oscillators, filters, resonators and solutions. Now just to note a few words, there are 3 opportunities to share with you how we differentiate our competition in [indiscernible]. First of all, we designed and manufacture. And by being an organization at times, we put ourselves in a position to pursue more sophisticated systems that are out there. And we are participating since [Indiscernible]. Secondly, we manufacture both oscillators and filters which makes us different because most of our competitors either manufacture oscillators or they manufacture filters, so this gives us opportunity to cash the broader net to give our customers a one-stop shop solution. And then the third [Indiscernible] here is the differentiation that we also manufacture resonators, and our resonators are a key element to our oscillator portfolio. It helps us differentiate our oscillator part. Okay. So the question, of course, is what are oscillators? What our products essentially do to [indiscernible]. They have clock generation and those particular products are going to be more in control systems and computers. And you'll notice by the waveform that's shown in this figure, that's a [1 or a 0]. So you see the squaring. So many times consider to [indiscernible] presentation. And the other [indiscernible] oscillator is frequency generation. This is where we set the frequency of the system as a model [indiscernible] this was mainly the frequency is going to be -- it's just running all. Now for me that you are utilizing digital technology or RF top notch technology within your home with your television. So for example, if you're utilizing satellite television then you're using the RF signal. If you are getting your television through cable or through streaming, now you're utilizing a digital [indiscernible]. So again, we are participating both those types of technology [indiscernible] presentation. So why are our oscillators important? So let me start off with actually the bottom of this slide. And the first thing you're going to notice is that we also broad range oscillator products. And our customers are going to make their selection on which type of oscillator that they can use, primarily based on their [Indiscernible] size, power consumption and the [indiscernible]. And from there, our website has been structured for our customers since oscillators are in certain families and then other customers who may go through a car oscillator finder, [Indiscernible] finder and they'll be able to select what's critical to them and then it will [indiscernible] the families that are important to them. And once they made a selection, [Indiscernible] application engineering team to make sure it's the right product their application. Now what I'm going to do here is take these different applications, and really talk to you a little bit about one of our larger market segments, the avionics market. You'll see here we have communications, we have radar, electronic warfare and control systems. For the avionics market space, we [Indiscernible] communications, control systems and radar in a way it participates in the aircraft is [indiscernible] in communications, the pilot is going to be communicating with the tower, right? So there's going to be a reference frequency, [indiscernible] system utilizing that fleet. Same thing with the navigation systems. There are systems on the aircraft that are controlling the height of the aircraft as well as the direction when the aircraft is going. The aircraft is continually adjusting its navigation from point A to B. The third element, our radars. We have radars that are monitoring collision avoidance. We don't have 2 aircraft in the same spot at the same time as well as where the radar are looking for things like [indiscernible]. And then we have control systems. We have control systems for [Indiscernible], which we're doing things like pressure management. I mean we also have products that are external to the [Indiscernible], which are in very, very high dynamic applications and things with branding systems as well as the engine control. In the area like [Indiscernible] as we move more to aerospace applications in this particular style speak to what we do in the area of jamming. [Indiscernible] very high-performance OCXOs that allow us to customer's product to jam, and that prevents the threat to be able to identify the products. You hear a lot of times about aircraft being [Indiscernible]. One of the tools they use is jamming techniques, okay? We also look at the radar market space towards the aerospace market. Again, if you're a [Indiscernible] JSF is flying, let's say, 1,200 miles per hour and your radar comes up with a blip, you want to make sure that the systems you're working with is showing the real threat. You can't afford to have multiple false echos. So our customers are specified stringent phase noise and vibration compensated products so that the system gives them less false echo. So the pilot gets the real threat. So what is it filled? So this is really the same thing we have when you have filters in your own home or in your car, right? I mean, we have filters [Indiscernible] home, maybe an air filter. It's letting what we want to come through and then what we [Indiscernible] trapped, it doesn't get into the system. Same thing with the water filter, like they have a filter here that takes away the things you don't want and lets through the things you do. So filter, they're very much the same application, but in the world of RF, the bad stuff is what we call co-side interference. And so if you're operating in a system that's let's say, 100 megahertz, you don't want to have other signals getting within your system that will maybe disrupt the performance of that [indiscernible]. So these [Indiscernible] MtronPTI is important. We'll go to the bottom of the chart. You'll see here we have a broad range of different filter technologies. Now here are the customers going to identify things like how much selectivity or rejection, how much they're going to [indiscernible] don't want in my radio [Indiscernible] , and it's going to have things like insertion loss, size, frequency, power handling, are all critical elements. Now the thing that's different between filters and oscillators where our oscillators are structured in an [indiscernible]. Customer can select the filters 99% of the time are going to be something at the customer. Customer starts out with a blank sheet of paper, identify all their needs and then they send it on us. And our technical team works within to identify the best solution and that may [indiscernible] any one of our filter technologies. Now the good case today here was about 2.5 years ago. As we move again to our avionics market space. There was the 5G interference. 5G was operating at roughly 3.8 gigahertz are altimeters, on the airplane, controlling how -- or at least they [Indiscernible] how far off the ground system is. You want to make sure you have the right distance right? So that was operating for [Indiscernible]. So it was very critical for that system to not have any of that 3.8 gigahertz leading into the 4.2 gigahertz. So one of the main OEMs in that market space reached out to us. And again, this isn't a situation where something has been brought to market in a very rapid period of time. So we were able to work with them, develop a cavity filter with right selectivity, so the altimeter can again provide a safe flight for our customers. Then we move into electronic warfare. I don't know if you have a radar detector in your car, but that radar detector is out there trying to do intelligence [indiscernible], right? So it's very much with an EW system on an aerospace application going it's out, it's either jamming or it's really trying to use [Indiscernible] making look like the target is somewhere else or it may be identifying what are threats in my area. And so in your case, you're at a radar detector, you want to know where [indiscernible] may be down the highway. We had very, very sophisticated systems that we work with our customers on for EW platforms. And then we go to radar. Again, we're in a whole slew of different radar applications starting with ground radar which is over the horizon [Indiscernible] systems like the Patriot missile system. We are on shipboard applications, we're on many aerospace applications, and we are on guided weapons. And so to sort of help tie it all together for this, I'm going to ask you to sort of imagine yourself to being the pilot at JSF is flying in 1,200 miles per hour. And as to say that, that EW system is being manufactured by BAE, which is using, let's say, MtronPTI OCXO with filters, identifies a threat out on the horizon that threat is going to get moved over. You're going to start looking at your [Indiscernible] radar, still in [indiscernible], which has very low base noise crystal oscillators from MtronPTI. The intent here with our products to make sure that the right [indiscernible] is being identified. And so now you're going to get confirmed, you do have this spread. The next thing you're going to do is jump on the radio to get down to the carrier. [Indiscernible] we've been engaged, we're at the risk of being engaged with the call [indiscernible] network. In this case, the system, it's another [indiscernible] system has 2 MtronPTI crystal filters that are part of that communication pattern. The carrier [indiscernible], you have a legitimate threat, you need yourself engaged. And so at this point, you're back to your radar. In this particular radar is what you call a missile fire control system. The missile fire control system gets [Indiscernible]. And now you're going to push that red button on at that set and [indiscernible] your wing to towards the threat is out there. Now that's while it's moving in 1,200 miles an hour as well. And [Indiscernible] roughly 3,000 miles per hour. [Indiscernible] 25 MtronPTI filters, 2 clock oscillators and TCXO. About 10 seconds later, that threat is going to be destroyed. That for the pilot is considered mission success. For MtronPTI, it's what we do. Okay. Our customers have great trust in us because they are who want us developing these very sophisticated systems. And these systems are [Indiscernible] their supply chain and we [indiscernible]. So what our solutions? So I'm sitting here with 3 of my peers. They are already doing restructuring and remodels, okay? And I'm afraid to do that. But they're [Indiscernible] to do that. Now they have a choice, they can either higher [Indiscernible], electrician, the sink person or the floor person or cabinet person or they can outsource that to a contractor. And as a person bringing on solution or organization bringing on solution, taking that role of the contract. Now again, in bullet 2 and bullet 3 of this particular slide, you're going to get a good feel for the kind of products and the kind of technology we're integrating into these assembles. If you look at that picture on the right-hand side, that was our first IMA to be proposed in 2020. And that particular product has 2 MtronPTI filters, they have [indiscernible]. It has a microwave switch [indiscernible], also has some microwave interconnects between [indiscernible] products, merging the hire products, integrating [indiscernible] products and develop a successful one-stop solution for our customer. Next slide. Okay, so why use MtronPTI to provide solutions? This has really driven about 5 years ago. We started to have our customer base reach out to us and coming to the plant. And they were talking about that [indiscernible], right? So the baby boomer retire age. And so they were very concerned because they knew that they are going to fill all these. Now we didn't really have the capability to support that. But then about 6 months later, about 4.5 years ago, Mr. [indiscernible] showed up. And he came from the industry where he is doing solutions. We haven't had an engineering organization [indiscernible]. And so from there [Indiscernible] strategy, you see a lot of work in this chart, but these are all the things on the infrastructure you have to have in place. This is what the proposals to be successful to win this business. And so I'd like to share with you that since 2020, where we had our first and or our only [indiscernible] in 2021 secured 4 opportunities. In 2022, jumped up to 11, 2023 went to 12, and already in 2024 we had 8 different inquiries. So again, we're seeing some nice momentum as the credibility we get by having successful efforts with customers we can then present in the next proposal. It's a function of your marketing that's getting out into the field. And it's a function of your sales organization, a broad sales organization, getting comfortable with the sale and the confidence in your organization to execute. What [indiscernible] of course, is that more we're putting more value [indiscernible] is a charge to higher ASP, gives you higher margins. And it's less likely that our customers who will reach out and try to second source you or [indiscernible] as a source. So this is what we put ourselves in the [indiscernible] sticky business. [Indiscernible] sticky business. So I hope that this is giving us some insight to what we do in the markets that we support.

Yes, so originally founded in 1965 and listed on the NYSE [indiscernible] 2022. We've been focused on the aerospace and defense markets since the acquisition of PTI in 2004. Today, we are American-made defense contractors specializing robust engineered frequency, control and filter applications. We have about 2.9 million shares outstanding with Broad employee ownership. At the end of last year, we distributed 183,000 options to our valued employees based on their tenure with the company. We are well positioned to continue to access long-term value-creation opportunities. As I mentioned, we were listed on the NYSE on October of last year. We successfully spun out of the LGL Group, creating a standalone Aerospace and Defense frequency inspection control pure play. We have significant opportunities on the [indiscernible] Paul just discussed. As weapons get smarter, and electronic warfare becomes a bigger part of defense budgets for both the U.S. and our allies. [Indiscernible] at $13 per share, we have focused on delivering quarter-over-quarter improvements yielding on current price of approximately [Indiscernible]. As you can see, we have outperformed our peers in the broader market since [indiscernible]. MtronPTI has been providing RF Solutions to market [Indiscernible] since 1965, prior [indiscernible] control, such as LC, Cavity and Crystal filters, frequency control, such as car oscillators, [Indiscernible], as well as integrated modules assemblies where we wrap additional functionality around the core products, as Paul just discussed. With sales of $41 million for 2023, we focused on the key markets, defense and aerospace, avionics, space and industrial. This focus on providing solutions for [indiscernible] components have led to significant increase in high dollar volume products. We have demonstrated strong and consistent growth, greater than 8% per year over the last 5 years. Finally, with constant investment in new process and products, we introduced 260 new products per year and generate nearly 30% of our revenue from these new products. We are very pretty integrated with capability that starts with a raw crystal and complete all the way to a finished oscillator or filter. This includes CNC machine, [Indiscernible] full suite of test and screening capabilities. We have a global blue-chip customer base, including many of the industry leaders in our key markets. Many of these customers have greater than a 10-year history with us. All of these items have combined to yield strong market performance we see today. For nearly 60 years, MtronPTI has been a leader in innovation. With MtronPTI both being founded in 1965, each has a history of [Indiscernible] in product innovation in [indiscernible]. PTI the first model of [Indiscernible] space in 1973, Mtron becoming the [first Crystal in oscillator] supplier to the ISO 9001 certified in 1990. This tradition has continued after the merging of the 2 companies in 2004 with the addition of new product lines such as integrated microwave assemblies in 2020, 2022 launched our Planar Filter Product Line and this year launched on our first space-borne IMA. MtronPTI has over 125,000 square feet of design and manufacturing space over 3 locations: Orlando, Florida, Yankton, South Dakota and [New Delhi, India]. All 3 locations are ITAR registered. All U.S. locations have an ISO 9000 [D Design and Manufacturing] certification, in India has ISO 9001 manufacturing certifications. In addition to our sales offices, in Austin, Texas and Hong Kong, we have 28 sales representative organizations for our North America [Indiscernible]. We employed 310 people across these locations, 236 manufactured [indiscernible] with an average tenure of nearly 12 years. We have over 500 years of radio frequency design in the [Indiscernible] engineering experience [Indiscernible]. As you walk through the balance of the presentation, you will see we focus on large and growing end markets. We have a unique go-to-market strategy with vertically integrated product offerings, large blue chip customer base many online programs and sticky design wins. We also believe we offer a compelling financial performance with both organic and inorganic growth strategies. I'll now turn the presentation over to Bill Drafts, who will walk you through our markets, Bill?

Thank you, Mike. Our end-use total addressable markets are large and growing. In aggregate, our TAM is growing at approximately 7% CAGR. But more importantly, our service addressable market is growing faster as we add new product families and claim [Indiscernible] solutions, as Mike and Paul described. Defense budgets are increasing as technology enables greatly includes situational awareness with voice, data and video sharing. Increased passenger mile and freight are driving the avionics market. Our satellite market is our fastest-growing market for satellite demand in GPS, communications, surveillance and observation applications. And industrials are getting a boost from factory automation and automated test equipment demands. Our markets have strong secular tailwinds. Defense, our largest revenue market is growing via many technological advancements, including autonomous vehicles, electronic warfare or EW, and hypersonic missiles. The global fleet of commercial aircraft is predicted to grow by 80% through 2041 as more freight and passengers move across the globe in more fuel efficient aircraft. Satellites and [Indiscernible] are driving space growth and automation and sensors everywhere are driving industrial growth. MtronPTI's precise and reliable products to support all these market needs for communication, navigation, sensing and control. As Paul described, filters and oscillators drive our component product offering. The filter is generating approximately 62% of our revenue and oscillator's at 20%. We designed to manufacture many different topologies with each family of products, each tailored to a very specific customer need. Resonators and solutions round out our offering. We are one of the few companies in the world that offer a portfolio of this expansion, making us a one-stop shop for all our customers' RF component and solution needs. We averaged 16 design slides on nearly every Boeing and Airbus commercial airplane. We provide rugged, proven, reliable oscillators, clocks and filters in numerous applications from flight control to navigation. We also serve the smaller regional and business jet markets with manufacturers using our proven components for similar applications. Our satellite business has grown significantly as our space capabilities increased over the past few years. EW is a recent [Indiscernible] we've made great gains with recent design wins. Radar demand has increased in the past few years as the need to detects smaller, slower moving objects has grown. Lastly, precision-guided ammunitions have become faster and hypersonic and very smart with onboard radar and [Indiscernible], driving the need for our products. When our customers come to MtronPTI, they not only get expansive components and solution provider, but an extension of their engineering team. This helps derisk their designs, improved performance, enhance reliability. We have a broad array of in-house testing that ensures a proven, robust design with many quality checks throughout manufacturing process. We continuously add state-of-the-art capabilities for manufacturing processes, reducing costs, lead times and improving liability. With over 80 representatives inside sales and sales engineers, we make sure we execute as promised in keeping a constant contact with our customers. We are expanding our customer base every day, securing both future industrial leaders and existing large blue-chip customers. We are also growing our market share of each customer, adding design wins to existing platforms. As Mike mentioned, a testament to our innovation, consoling and customer-centric organization is that we have more than 70 customers that we have been doing continuous business with for 10-plus years. [indiscernible] strategy is a focus on continuous innovation. We are trained problem solvers. We are a learning organization with our relentless curiosity on how to innovate and improve our operations. We have hired the best in the business and are creating trained programs to share their knowledge. With that, we realized nearly 30% of our 2023 revenue from products launched in the previous 4 years. We target this innovation on larger-sized opportunities with long-term potential. The innovation comes from both design engineering and process engineering, allowing us to design and manufacture a low-class [indiscernible] using the latest process technologies. With that, I'll turn it over to Mike.

Thank you, Bill. Since we merged from [COVID] in 2021, we have demonstrated strong revenue growth and gross margin improvements, completing 2023 with revenue of $41.2 million, 29% improvement over the prior year and margins up 43%. You may have seen that last night, we released Q1 2024 results with revenues of $11.2 million, 19% growth over Q1 in prior year and gross margin improvement of 43%. Adjusted EBITDA has shown improvement -- similar improvements finishing 2023 at 19% of revenues and Q1 2024, having an adjusted EBITDA reaching 20%. Backlog finished 2023 at $47.8 million, a 4% improvement over the prior year, while Q1 backlog was $46.1 million, a slight improvement over the prior year. The slight decline in quarter-over-quarter backlog was largely due to increased Q1 revenue from timing of large blanket orders. We would like to use today's meeting to provide insight into our overall 2024 outlook. We expect to continue to see revenue growth with total revenues coming in between $43 million and $45 million. Gross margins should have continued improvement finishing the year in the 42% to 44% range. Adjusted EBITDA should show a slight improvement to 19% to 21%. Finally, although it may vary quarter-to-quarter, we expect again to have a book-to-bill ratio of greater than once a year, finishing the year with total backlog between $49 million and $50 million. With all that said, these are general guidelines -- general guidance based on the dynamics we see at this point and are not intended to be used for weapon purchase, but rather intended to help investors understand the underlying fundamentals, trends we see. We do not offer specific guidance, investors must make their own decisions. As you've heard today, MtronPTI has [Indiscernible] strong product pipeline, strong fundamentals and growing wins at blue chip customers in adverse end-markets. We have a history of mergers and acquisitions with PTI, Champion and most recently trilithic. Our global footprint, including low-cost manufacturing ITAR facility in India, it was a competitive advantage. We believe we are positioned to continue organic growth and strong backlog and continuous product line expansion. We continue to work hard to drive efficiencies throughout the organization by delivering our India operation, making key investments in talent and equipment to improve deals and automated selected processes. We have acquisition oriented with a focus on companies or carve-outs by providing synergistic products, increased technical capabilities and/or access to new and growing markets. I would now like to open the floor to any questions. I think questions will be entered into the chat.

I had a couple of questions. I noticed that gross margin effect grow significantly over the years. I mean you're guiding shows meaningful continued improvements. Can you talk about some of the ways in which been driving those? And -- some of the different [Indiscernible] similarities in which you might try going forward?

Sure. I think if you look at our fourth quarter of last year as comparison to the first quarter of this year, it was dramatic. That was heavily due to product mix. If you recall, the first quarter of last year, it was a product line that we had obsoleted that had a last time buy was a relatively low-margin product that we will [indiscernible] from our product. That being said, moving forward, we see continued opportunity for continued improvement. And we're doing it through automating our processes, taking advantage of our India facility. Now as we develop new products, we're focusing on developing products [indiscernible] such high margin.

Very helpful. And I noticed on the customer section, in the space section. I'm not sure if SpaceX happens to be a [Indiscernible] customer, but I'm just curious how you're thinking about them and Starlink? Are they a potential customer, development partners or a competitor?

Well, SpaceX is an interesting company that we really can't say a whole lot about because of the [Indiscernible] signed. So we'll put that out there. And so they are certainly a target customer for us.

Yes. I know they do some of the field bandwidth solutions to yourself [indiscernible]. And last question for me, maybe just zooming out, I know you've spoken about some of the fragmented natures of the competitive market. Can you talk about how you're thinking about roll-up and consolidation opportunities to these things?

Sure. I think we're looking at it from really adding engineering capability, that's key for us, and expanding into markets that we don't have a strong position today, particularly in markets where we see the ability to have very sticky rooms, a couple of people value what we do. So engineering-oriented markets. So companies that offer products and solutions in that space would definitely be the [indiscernible].

So questions on the chat. First from Josh, is your estimate of future backlog predicated on continued unrest in Middle East or the [indiscernible] figures irrespective of this challenge?

Paul, do you have any comments on that?

Well, certainly, the global situation, you have a lot of unrest in different parts of the world is driving a lot of defense spending and we're very well positioned within the defense market, whether it's in the communications, electronic warfare, we're guiding revenue market space. So it's certainly presenting some very near-term opportunity for us. And when we look at the 2025 budget, it certainly should present us more opportunities there as well.

The question. Your top line and backlog has continued to grow while the broader passive electronic bonus market has slowed down from destocking trends. Those stocking have been supply chain changes and defense liabilities. What are you doing differently that has enabled recent market [indiscernible]?

I think the big difference there is that what we do is largely custom products. So these are not products that typically get stocked into distribution and sit on the shelves. So we didn't fall into any of that our products generally consumed as we [indiscernible].

Had a question on the revenue guidance. It's just revenue to be flattish sequentially. Is it a bit concern?

It's really what we see today based on our backlog and what we see in the market. So I think it's a number we feel comfortable with.

And then question, utilization on -- what is the utilization that you currently have? And will you need to expand?

So we have a fair amount of capacity available to us within all of our locations. We only operate on one shift. Obviously, we have the ability to go to multiple shifts as needed. So we don't see any significant expansion in capacity.

Final question on [Indiscernible] new defense companies making current technologies. Do you have an opportunity to become a supplier to these companies?

Absolutely. Yes, we do and they are about -- and so again, there are customers with pretty significant outlook, right? And because they're not really fully established in the market space yet, it's hard to really put too many eggs in their basket in terms of their basket in terms of -- so we're doing the engineering work, but we're not putting all of that into forecast as usually we're not proven relationship, and we're going to really see all that booking and eventually revenue. But yes, there are certainly some very interesting companies, both on the space side as well as on the EW and radar side. They are very interesting to us, and we're happy to be engaged with operating process.

I have a question up here on the screen. You mentioned expanding into new end markets and building out engineering capabilities, what would be on your wish list, thinking about end markets? Are there any new end markets that we wish we were in that we're not in today? And then as we think about products, are those mostly within filters and oscillators or are there new product segments that we'd like to be in?

So markets that we would be looking at might be the medical market as an example. In terms of products, certainly, growing our capabilities within both the oscillator and filter space [Indiscernible] but then to also be in adjacent spaces. When we look at our solutions product offering, we are incorporating other capabilities into that sometimes [indiscernible]. So we'd be looking to bring some of that in-house as well.

That's helpful. But by the way, phenomenal presentation, definitely appreciated, especially the upfront description of all the different products. I was -- have tinkered with these and seventh grade on the PCB board, but it's been a while.

One another question in the chat. How much of your revenues [Indiscernible] components versus solutions. Do you have a target? And what kind of impact that have on margin?

Sure. Well, solutions right now are the newest product segment, so they make up a relatively small portion of our revenue. However, it is an area where we see significant growth potential. Margins in solutions should be an improvement. We target higher margins with those as we bring those production. Well, I'd like to thank everybody for attending. Really appreciate your interest in us, and we hope to see an upcoming event. We will be presenting at the IDEAS conference here in New York City in June, as well as Sidoti Microcap Conference to be a virtual conference in [August]. Thank you all for your attendance.