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

Hello, everybody, and thanks for being here on our 26 M-tron Q2 earnings call. I want to let you know this call is being recorded, and it will be posted to our site, www.emtron.com, not long after we finish. During the afternoon yesterday, we put out our results for the second fiscal quarter of 26. Before we begin, we must tell you that this conversation ought to be read alongside our latest financial statements and the accompanying notes in our 30 k, which was submitted to the SEC on March 26, 2026. What we say today might include forward-looking statements as defined under 27A of the Act of 1.93 thousand and Section 21E of the Securities and Exchange Act of 1.93 thousand. Such forward-looking statements carry both known and unknown risks and uncertainties, and these are described in detail in our SEC filings. Even though the company feels its forward-looking statements rest on reasonable assumptions about its business and what future market conditions will be, nobody can guarantee that actual results won't end up materially different from anything expressed or implied in those forward-looking statements. The company has no duty to publicly update or revise any forward-looking statement, whether because of new information, later events, or anything else. We remind listeners that forward-looking statements are not promises of future performance. Having said that, I'll hand things over now to Cameron Pforr, our CEO.

Thanks, Linda, and hello everybody on this call. I appreciate you joining us for our FY 26 second quarter earnings call; we're happy to talk through the solid results from the first half of fiscal year 26 as well as what lies ahead. Just to restate, M-tron creates and builds highly engineered RF solutions, which take in electronic components and subassemblies, and these are used for controlling signal frequency and timing within electronic circuits. We operate globally, with 3 manufacturing sites, located in The United States, and in India. And aerospace and defense, commercial avionics, space, and industrials make up our main markets. We're pleased to report that the business continued to deliver solid results, with sustained momentum across our second-quarter fiscal 2026 revenue, profit, and bookings, along with a growing backlog. Orders tied to defense continue to drive our top line, and during this period avionics shipments posted particularly strong gains. Our backlog continues to rise, reflecting substantial year-over-year increases in aerospace and defense as well as space bookings, and we've now recorded three consecutive quarters with notably high book-to-bill ratios. Because our operations have performed consistently, we've been able to sustain strategic R&D investments, further elevate the company's standing in the market, and lay the groundwork for future expansion. During yesterday's afternoon, the results we shared were for Q2 FY 26. Revenue overall in the second quarter came to $15.1 million, which is 13.8% higher than the $13.3 million recorded during the equivalent period a year earlier. Growth in revenue for the period was driven mainly by ongoing robust shipments under aerospace and defense programs, along with quarter-over-quarter gains between Q1 and Q2 in avionics as well as space shipments. For Q2 of 26, gross margins stood at 41.2%, versus 43.6% in Q2 of 2025. That figure includes roughly $500 thousand in noncash stock-based compensation tied directly to our 2025 annual bonus — a charge we do not anticipate recurring at similar levels going forward. If you take that into account when evaluating profitability, our margins stayed quite consistent from one quarter to the next. For the three months that closed on June 30, 2026, net income came to $1.9 million, equal to $0.43 per diluted share. That compares with $1.6 million, or $0.53 per diluted share, for the three months that ended on June 30, 2025. Included in the net income number is $1 million in non-cash stock compensation expense tied directly to accelerated vesting of stock-based 2025 annual bonus. No comparable charge for the 2024 annual bonus appears in the prior year period. Once again, we don't anticipate an expense of this kind or this size showing up again in future periods. Although net income went up, earnings per share declined because the weighted shares outstanding grew, which stemmed from the rights offering we finished in April 2026. For the three months that ended June 30, 2026, adjusted EBITDA reached $3.4 million, versus $2.4 million for the same three-month period ending June 30, 2025. Higher revenues drove most of that 41.7% improvement, though it was partially offset by an increase in engineering, selling and administrative expense, which grew at a slower pace than revenue. Backlog as of June 30, 2020 stood at $84 million, a 37.2% rise, compared with $61.2 million as of June 30, 2025. The increase in our backlog reflects demand that's both steady and wide-ranging across what we sell. It includes a number of fairly large orders tied to aerospace and defense programs, plus several similarly large bookings for new counter drone and electronic warfare offerings that came in during the past two quarters. Orders from the space sector also climbed. We remain on track with our plan to gradually move more of our mix into program work. Today, that category makes up the overwhelming share of what we earn in aerospace and defense. In addition, this spring brought a high level of order activity in counter drone, an area where we provide oscillators drawn from phased array radar. Those components go into counter drone systems that are either mobile or fixed in place. These systems get used for military purposes and for border control too. We've also received sizable orders tied to electronic warfare, systems that guide missiles, and repeat purchases of tactical communication radios. On top of that, we're partnering with the defense primes on long-term supply arrangements that span a lot of these missile programs, and those primes just put pen to paper on framework deals running 7 years. We're submitting bids for the longer horizon on the programs underway right now, and beyond that, we're going after some systems where we weren't the incumbent supplier. Our belief is that our share of content across the various systems will climb because of this whole process. The reason is that these programs get awarded piece by piece and program by program. The picture is gradually becoming clearer. We now anticipate that the initial POs stemming from the higher volumes associated with those agreements will show up, in all likelihood, during Q1 of 27, and those would support 2028 output. Meanwhile, we're beginning to receive better insight into how much volume will be needed. At the same time, a number of the precision guided munition production orders we currently hold are expanding at a robust pace. Across quite a few of these program design slots, we serve as the only supplier, which puts us in position to capture substantial gains from defense spending in this segment. The assistance we deliver keeps expanding. Another topic some of you have raised concerns the continuing impact of tariffs. The second quarter of fiscal year 2025 marked our initial complete three-month stretch of tariff consequences. Most of our product lineup continues to feel the effects of those tariffs. Despite that, the impact has eased somewhat in the current year following the supreme court's decision. Our gross margins absorbed a 1.1% blow during the latest quarter, compared with 1.25% during the same period in Q2 25. Overall, we anticipate that need for aerospace and defense offerings will keep climbing for the coming several years, with 2026 shaping up to be an exceptionally robust year for avionics and space bookings and deliveries. We think the pace of expansion will continue to pick up to some degree throughout 2026 and 2027, and once we get to 2028, the strategic reordering and shifting of priorities among particular military programs ought to begin driving a more substantial impact on our revenue — you can already see evidence of that in the FY 2027 defense budget and in reconciliation requests. As we ramp more quickly, gross margins will likely soften somewhat in the near term while programs scale and move into full-rate production. Still, earnings should continue rising on the whole, because top-line growth is expected to exceed the increase in operating expenses. We'll continue keeping the market informed as our customers share more about the production volumes they anticipate for these 2027 and 28 production orders and beyond. M-tron is essential to protecting our country, since we provide components that are made in America and highly engineered for military programs of the US and its allies. We continue putting substantial money into our ability to increase output—lots of new machinery and automation is now up and running—and into creating inventive new offerings. Take the last 2 quarters: we secured $12 million of fresh orders for 26 and 27 production of items that we'd launched just a year earlier and had sold only about $200 thousand of; in 2025. Beyond that, we've reinforced the balance sheet. The message to our customers is clear: we're here for the long haul, we can keep funding our growth, and we want to serve as a strategic partner while they expand their operations to keep up with demand at a level we've never seen. On top of that, this capital will let us bring more engineering talent into our product portfolio organization, both by acquiring companies and by making investments. One example from the quarter: we put money into Skyline Instruments Corporation, an innovative business working on dual use synchronization and timing systems. Skyline is making major strides in capabilities that matter a great deal for keeping RF sensor data and operations in sync when GPS is unavailable or unreliable. That's part of what we're doing to keep pushing innovation forward and to get a better read on where future market opportunities might open up in areas that matter a great deal to our national defense. And before we take your questions, I'd like to note a couple of upcoming appearances: we'll be presenting at the Moody Capital Conference, which takes place in early September in New York City, and we'll also be taking part in the Sidoti Small Cap Virtual Conference later in September. Details on both events will be available on our investor website. I'd also encourage you to follow us on LinkedIn, since we share updates there along with our press releases on the website. With that, operator, thanks for your help today. Could you open the lines and let the first question come through?

Thanks. Morning, Cameron. I'd like to ask about how you're viewing M&A. The rights offering clearly strengthened your cash position and all that, so I'm curious whether you could weigh in on it. What possibilities do you see there? I'd be glad to hear it; you're pursuing a few things, and I'm just curious how those are progressing.

Yes, we are. Conversations have been happening with quite a few companies. After we wrapped up the rights offering, deal flow has picked up somewhat. As a result, more banks are now actively bringing us ideas, and we value that. Some of those opportunities have been getting follow-up from us. And our hope remains that a deal gets closed during this year. On top of that, we're beginning to recruit for the corporate development team, so the aim is to turn that into a more formal and improved process within the company. So yes, we expect that to speed up.

And what's the amount of growth in bid orders and overall order activity, and so on? So my assumption is that at this stage, your throughput and your ability to keep pace with that is sufficient. And perhaps a portion of that rights offering funding was used toward boosting production?

No. Excellent question, John; actually, throughout this year, our bookings growth has been very strong. The last 3 quarters were very strong. And it appears that strength will persist. So at present, we're highly focused on boosting our manufacturing capacity and scalability; and we've made several investments to kind of speed up our investments earlier this year, purely to satisfy our customers' needs. So we're going to keep examining that too.

Excellent. I really appreciate you answering my questions.

You're welcome.

Hello. I appreciate you fielding my questions, and congratulations on the quarter. What portion of the backlog should we anticipate being converted during the coming 12 months? Also, has the schedule for that conversion shifted at all?

Yes. I'd put it this way — the backlog, Anja, has been extremely robust, and I'm grateful you asked about it; we've now posted 3 consecutive quarters of really solid bookings, with the book to bill ratio sitting well above 1. At present, we hold substantial backlog for the upcoming 2 quarters and beyond. Our current backlog exceeds what we presently expect to produce across those 2 quarters. We're working to determine how best to manage that; beyond that, the backlog extends all the way through 2028; and more than 50% of next year's production is already sitting in backlog. And bear in mind, we're really only at the midpoint of the year.