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spk02: Good day and welcome to the Emtron PTI Investor Update. Today's call is being recorded. Following today's presentation, we will have a question and answer session. If you would like to ask a question on the phone lines, you can press star one on your telephone keypad. To remove yourself from the queue, you can press star one again. I would now like to turn today's call over to James Tivey, CFO. Please go ahead, sir.
spk03: Good morning, everyone. Welcome to Emtron PTI's Investor Update and presentation of our Q3 results. I just want to remind investors regarding forward-looking statements which will be included within this presentation. Examples of forward-looking statements include but are not limited to statements regarding efforts to grow revenue, expectations regarding fulfillment of backlog, future benefits to operating margins, and the adequacy of cash resources. The company does not undertake any obligation to publicly update any forward-looking statements. You should not place undue reliance on these forward-looking statements. With that, I wanted to let everyone know that we have a dedicated website for investor relations, which you can access directly from the Emtron PTI website. And a few of the features, key features include the homepage, events and presentations like this one, stock information, corporate governance items, and contact information and more. I want to ask every investor on the call to be sure to please sign up at the bottom of the IR web page for customizable selections from a menu of items of interest to investors. With that, I'd like to introduce Mike Carantino, our CEO.
spk04: Thank you, James, and welcome to our first investor call as an independent public company. I would like to start off by thanking you for your interest in us. As a brief overview, Emtron PTI has been providing RF solutions to the marketplace since 1965, with products covering spectrum control, such as LC, cavity, and crystal filters, frequency control, such as clock oscillators, temperature-compensated oscillators, and ovenized oscillators, as well as integrated module assemblies, where we wrap additional functionality around our core products. With sales of $30 million for the trailing 12 months, we focus on key markets of defense and aerospace avionics, space, and industrial. As you can see, we have long relationships with blue chip customers in each of these markets. We have strong backlog in a demonstrated consistent growth of greater than 7% over the last five years. Finally, with constant investment in new processes and products, we generate nearly 30% of our revenue from new products. Our backlog is growing. As of the end of Q3, it is over 44 million, up nearly 50% since the beginning of 2022 and over 100% over the last year. As mentioned earlier, we focus on key markets where design wins tend to be very sticky and program life cycles are long. With consistent investment into R&D, we have a robust product pipeline averaging 270 new products per year, As a result of our strong product pipeline, our customer base is growing with over 300 active customers today. Emtron PTI has over 125,000 square feet of design and manufacturing space over three locations in Orlando, Florida, Yankton, South Dakota, and Noida, India. All three locations are ITAR registered with both US locations having AS9100 design and manufacturing certifications and India having ISO 9001 manufacturing certification. In addition to our sales offices in Austin, Texas and Hong Kong, we have 28 sales representative organizations throughout North America and the world. We employ 310 people across these locations with 236 in manufacturing and 42 in engineering. and quality. With an average tenure of nearly 12 years, we have over 500 years of RF design and manufacturing engineering experience. This experience drives innovation. With Emtron and PTI both being founded in 1965, each has a history of firsts in product innovation and quality. from PTI supplying the first monolithic filter used in space in 1973 to Emtron becoming the first crystal and oscillator supplier to be ISO 9001 certified in 1993. This tradition has continued after the merging of the two companies in 2004, with the addition of new product lines such as cavity filters in 2009, integrated microwave assemblies in 2020, and the launch of planar filter product line this year. With that, I will turn it over to Bill Drafts, our president, who will provide a bit more detail on our markets and products. Bill?
spk00: Bill Drafts Thank you, Mike. Amtron is strategically focused on long-term growing markets. Focusing on defense, our customers envision a remote unmanned battle where machines battle machines on air, land, and sea where they rely on communications using our devices, radars using our devices, and navigation systems and controls using our devices. Our customers are looking for faster missiles in the defense sector. a better ability to communicate throughout the world, be able to jam those communications, and, of course, for all those, detect and deter and defeat these threats. And so we play both sides of the defense market on both the offense and defense. Focusing on avionics, it is forecast that over 41,000 new airplanes will be built in the next 20 years. Main drivers of that demand are operational efficiency, decarbonizing, e-commerce, and the replacement market. In space, we're in probably year five of the great space race, where Internet everywhere with fast and cost-effective connectivity dominates, as well as satellites for surveillance and environmental monitoring. In 2019, there were only 331 payloads launched, growing to 1,309 in 2021, and through the first half of 2022, over 1,000. And of course, all that drives communications with bandwidth needs growing at 50% per year as more and more video, high definition video, and users come online. All this drives the need for Emtron products in the higher frequency ranges and lower phase noise. And, of course, all this adds up to growing end markets that position Emtron PTI for long-term success. When you look at our tailwinds, let me go to the next slide. When you look at our diverse end markets, defense in the aerospace constitutes 56% of our business, and you can read our customer list of all the primes. Next is our instrumentation, industry, and computing at 20%, where we service test and measurement, industrial needs, and general communications. And then avionics at 17% of revenue, where we service large commercial aviation manufacturers such as Boeing and Airbus and all of their suppliers. And then last and growing the most, space and SATCOM with all the communication needs and military uses of that marketplace. So looking at exact case studies on the avionics market, we average over 17 design slots per airframe. They are used in controls, communication, and navigation. And this slide highlights some of the details of the products that are used and the exact applications. Looking at missiles and precision-guided munitions, we're used in both the front-end laser and electro-optic guided munitions as well as radar-guided munitions. And we service that with our oscillators and our filters. And then with the data links, we service that with the filters and our crystal filters. Focusing on SATCOM, We are on the satellite in space, and we have numerous applications on the bird itself. But what's more exciting to us is that for every satellite, there are thousands of receivers on the ground. And so we're very active on the bird and on the ground applications. Looking at how fully integrated mTron PTI is, It really starts all of the design with our over 500 years of RF design and manufacturing experience on staff, where we act as an extended engineering arm of our customers. We actually pick up the phone where engineers talk to other engineers during the design phase, highlighting and focusing on the best design practices, the most manufacturable designs, all coming in within budget. We're very quick on developing prototypes, and we see the product through prototype all the way through production cycles, which leads us to our product capabilities. We have a full line of oscillators, filters, crystal resonators, and solutions, which are part, or excuse me, include multifunction modules, power amplifiers, and integrated microwave assemblies. All those products are built in our world-class manufacturing operations, where we focus on being FOD-free, which is foreign object debris. And we use a number of different sealing processes, laser weld, resistive weld, cold weld, to make sure that nothing gets in there. And then we also have a full wafer semiconductor processing facility with photolithography, physical vapor deposition, etching, milling, And of course, we have a thick film hybrid, laser trim, and other sealers. And all this is guided by our quality, where we are ISO 9100D and ISO 9001 2015 certified. And to make sure that the quality is in the product during the design and manufacture, we have extensive in-house testing where we focus on all of the items listed here so that we do not have to go outside. And we're actually experts in all these areas, which adds to the viability of the design and the manufacturability of it. With that, I will leave it to Mike to conclude. Thank you, Bill.
spk04: We are starting off as an independent public company with a strong financial footing. With $1 million in cash, $9 million in working capital, and an unused $5 million line of credit, we have the resources needed to execute our backlog and continue to invest in processes and product innovation. With revenues of $8.4 million in the third quarter, up 17% year-over-year, and trailing 12-month revenues of $30 million, up from $26.7 million over the prior year, we are seeing the recovery of the avionics market and continued strength in defense and product shipments. Gross margins for the third quarter were impacted by inflationary headwinds due to both labor and material cost increases, as well as product mix changes resulting in a decline of 3 percentage points. of 32.4% as compared to the third quarter of 2021. Gross margins for the nine-month period improved slightly to 35.6% as compared to the prior year of 35.3%. Our backlog has shown growth for eight consecutive quarters and is at $44 million at the end of the third quarter. This growth is largely due to customer accelerating their order cycle due to supply chain constraints and both market and customer share gains from expanded product offerings. As stated earlier, we average 270 new product launches a year with nearly 30% of our revenue from these new products. As you've heard, Emtron PTI has a long history of innovation with a strong product pipeline, growing print position at blue chip customers, and diversified end markets with strong fundamentals. We also have a history of mergers and acquisitions with PTI, Champion, and most recently, TriLithic. Our global footprint, including a low-cost manufacturing facility in India, gives us a competitive advantage. We believe we are positioned for continued organic growth with record backlog and continuous product line expansion. 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 automate selective processes. We are acquisition oriented with a focus on companies or carve outs that provide synergistic products, increased technical capabilities and or access to new and growing markets. I would now like to open it up for questions.
spk02: Thank you. If you would like to ask a question on the phone lines today, you can press star 1 on your telephone keypad. To remove yourself from the queue, you can press star 1 again. We do have a question from Anya Soderstrom with Sidoti. Please go ahead.
spk01: Hi, Mike. Hi, James and Bill, and thank you for taking my question. Congratulations on the great quarter and successful spinoff. Very good growth in the backlog, and Mike, you touched on it a little bit, but what do you think are the main drivers behind that strong growth, and how sustainable do you think that is? It seems like some of it is due to supply chain challenges, inventory buildup. Could you just talk about sort of what we can expect from that going forward?
spk04: Sure. Thank you, Angie. Great question. I think much of the backlog growth we had certainly in the first half of the year was was contributed to um accelerated order cycle due to supply chain constraints but i think we're seeing that tail off a bit and this we are seeing increased print position in gaining market share and we are seeing the benefits of that and i think um we're in pretty good shape to see these numbers continue okay and when you say gaining market share is that from sort of um
spk01: growing production among your customers, or are you displacing other suppliers?
spk04: It's a combination of both.
spk01: And how do you win over your competition?
spk04: There's a handful of things we're doing. We're certainly focused on quality in delivery, but we have seen some customers abandoned certain markets where we play in and we're seeing the benefits of that and we're also through our new product development introducing new product lines and gaining through through that piece okay thank you and then in terms of the avionics market it's been a bit challenging for you over the past couple of quarters and what are you seeing there now uh we're seeing the avionics market uh it we think it's recovered pretty close back to the pre-2019 levels
spk01: Okay, that's good. And then in terms of the gross margin, you were talking about increased turnover among the employees in India, I believe it was. What are you doing to combat that? And how should we think about the gross margin performance in the coming quarters?
spk04: Sure. The turnover, it wasn't necessarily just in India. We saw that really across the board, and I think we certainly were not unique. Most companies talked about the great resignation. We're seeing that certainly begin to level off as the economy is maybe beginning to flatten out. And so we definitely took a hit in gross margins as a result of that. Some of that is wage increases. But another part of that is lost productivity as we train new employees. So as these employees come up to speed, we expect to see the benefit of that, where we'll gain that productivity back, which should have a positive impact on margins.
spk01: Okay, thank you. And then just the last one, and now the spin-off is completed. You're focusing on organic growth, but also M&A opportunities, and what do you see in the M&A market?
spk04: Well, it's competitive. We're definitely seeing valuations are still quite high, but we're looking for products that really bring value to this organization, and we'll continue to do that. I have nothing to report imminently, but we are out there in the marketplace looking.
spk01: Okay, thank you. That was all from me.
spk04: Thank you, Angela.
spk02: As a reminder, everyone, that is star 1 to ask a question or make a comment. And we'll pause for a moment. It appears there are no further phone questions at this time. I would like to turn the call back over to Mike Ferrentino for any additional or closing remarks.
spk04: Thank you. I would just like to thank everybody again for your interest in mTron PTI. We look forward to speaking with you again in the coming quarters. Have a great rest of your day.
spk02: Thank you. And that does conclude today's presentation. Thank you for your participation, and you may now disconnect.
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