M-tron Industries, Inc.

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 one on your telephone keypad. And to withdraw your questions, simply press star one again. Thank you. I would now like to turn the call over to Linda Biles, EVP of Finance. Please go ahead.

Good morning, everyone. Thank you for joining our 2025 Amtron Q2 earnings call. Please note this call will be recorded and we will make the recording available on our website, www.mtron.com shortly after the call. Yesterday afternoon, we released our earnings for the second fiscal quarter of 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 2024 10K, which was filed on March 27th, 2025 with the SEC. This discussion may contain forward-looking statements within the meaning of 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 SEC filings. 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 statement, whether it's the result 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 interim CEO, Cameron Foer.

Thank you, Linda. And good morning, everyone. And thank you for attending our second quarter FY 2025 earnings call and your interest in the company. We are pleased to discuss our strong first half results for the fiscal year 25 and our outlook going forward. As a reminder, Emtron designs and manufactures highly engineered RF solutions. including electronic components and subsystems used to control the frequency and timing of signals and electronic circuits. We're a global company with three manufacturing sites, two of those in the United States and one in India. Company's primary markets include aerospace and defense, commercial avionics, industrials, and space. So we're pleased to report that the company continues to perform well with continued strength in Imtron Q2's sales, and also growth in our backlog. Our revenues continue to be driven by defense-related orders, and we saw growth in the backlog over the quarter, driven by avionics and space orders. We also have had now three-quarters in a row of very strong book-to-bill ratio. With consistent operating performance, we've been able to continue to make strategic investments in research and development and continue to increase the profile of the company and prime the pump for future growth. Yesterday, we reported the following Q2 fiscal year 2025 results. Total revenues for the quarter were $13.28 million, a 12.5% increase over the prior year period, $11.2 million of revenue. The revenue increased in the period primarily due to strong defense program product and solution shipments. Gross margins for the second quarter of 2025 were 43.6%, a decrease from the 47% gross margin we experienced in Q2 of 2024. The decrease is primarily due to product mix and the first full quarter of federal tariffs on imports of foreign sourced and partially finished goods. Net income was 1.6 million or 53 cents per diluted share for the three months ending June 30th, 2025. As compared to 1.7 million, or 63 cents per share, or diluted share, for the three months ended June 30, 2024. The decrease was primarily due to lower gross margins discussed above, as well as higher engineering, selling, and administrative expenses, and then increased investment in research and development, higher sales commissions due to our increase in revenue, and then increased administrative and corporate expenses consistent with the overall growth in the business. Adjusted EBITDA was $2.4 million for the three months ended June 30, 2025, compared to $2.5 for the three months ended June 30, 2024. The decrease was primarily due to reduced gross margins, as well as an increase in engineering, selling, and administrative expenses consistent with their growth. Backlog increased 35% or $15.9 million to $61.2 million as of the end of June 30, 2025. compared to where it was at $45.3 million at the end of June 2024 and $47.2 million at the end of the fiscal year 2024. The increase in backlog reflects continued broad demand for our products, including several large defense and avionics orders received during the quarter and an increase in space industry orders. Q2 fiscal year 25 was the first full quarter Imtron was impacted by the recently announced federal tariffs on the import of goods and materials from outside the United States. While Imtron is a US-based manufacturer, we do import some materials from Japan, China, Korea, and Europe and perform some finishing work in our India facility. It's difficult to predict the long-term impact of this trade policy on our financial performance as it changes regularly in some of the countries with which we received materials and partially finished goods from do not have new trade agreements in place with the U.S. government. Encouragingly, though, to date, we have seen no impact from tariffs on demands for our products. Also of note, on April 25th, 2025, the company distributed a dividend of warrants to stockholders of record for March 10th, 2025. The warrants are listed on the NYSE American Exchange under the ticker NPTIWS and are tradable Just as a reminder, five warrants are exercisable to purchase one common share. The strike price is $47.50 per share, and there is an early conversion provision as well as an oversubscription feature. Further information on the warrants is available in a FAQ found on our Intron Investor Relations website at ir.intron.com. We continue to execute our strategy of continuing moving into more program business. which now makes up the vast majority of our aerospace and defense revenues. We are involved in over 40 programs to record, and on many of these programs we are a sole source provider, and we stand to reap many benefits if defense spending in the areas we support continue to grow. IMTRAN plays a critical role in the defense of our nation by providing U.S. source and highly engineered components for many U.S. and allied military programs. Having U.S.-based advanced manufacturing capabilities support our joint forces is more important than ever, and we thank our employees for their dedication to their jobs and our mission. We also thank our dedicated customers for their continued business and the trust they place in Intron and our people. So before I open the floor to questions, I wanted to mention that we will be presenting at two conferences in September of this year. We're presenting at the HC Wainwright Conference in early September and the Sidoti Small Cap Conference later in the same month. Information for both of these events will be posted on our investor website. Operator, can you please open the lines and allow the first question?

Absolutely. Thank you. Once again, ladies and gentlemen, in order to ask a question, please press star, followed by the number one on your telephone keypad. And to withdraw your question, please press star one again. Our first question comes from the line of Anya Soderstrom with CDOTI. Please go ahead.

Hi. Thank you for taking my question. First, I'm curious about the gross margin. How much of an impact did the tariffs have on the gross margin for the quarter?

Yep. Hi, Anya. So one thing we've put in place this quarter is we're now capitalizing some of our tariff costs and then making sure we expense the portion that was related to sales in that period. So if you look carefully at the month, about 1.25% of revenue was expensed in the period. or 1% very roughly, so it was about $120,000.

Okay, thank you. And then in terms of the gross margin, they have come down a bit from historical highs last year. How should we think about that expanding again as you run new programs?

Right, yeah, good questions. So there were three components that lowered our gross margin the first half of this year. And they're the same that we experienced in the first quarter. So a lot of it's product mix. And to a certain degree, we have a backlog. It's $61 million. There's a period performance for each PO we have. And so in the first two quarters of the year, we had, I think, a higher percentage than normal of lower margin products. We produced many products, a number of higher margins than others. We did experience some lower margins on some initial production runs of newer products. We are starting to see some improvement there over the quarter, so we should see some improvement hopefully in Q3 and Q4 on that front. And then we're now kind of estimating an impact from tariffs, probably around 1% to 1.5%, although that's difficult to predict just given things are moving around still with some of our, like India, for example, where we do receive some unfinished goods.

Okay, so we can expect the growth margin to improve sequentially throughout the year?

A little bit, but I would caution people. It's the biggest variable we have in our business right now, so I think we'll be a little bit below 45%. Hopefully, we'll probably be in the 43%, 44% range, and hoping to improve on that.

Okay, thank you. And then... In terms of the backlog, there was a nice growth there. I know you had some large contract wins. What does the pipeline look for other sort of large contract wins or just wins in general?

Yeah. So, yeah, we had a great start of the year in terms of bookings. And a lot of the wins in this past quarter, an increase kind of on the backlog were in the space and the avionics area. So we mentioned that there was a large avionics contract signed at the beginning of April, and we received some POs against that, which increased our backlog. In the back half of the year, we do have a lot of other defense POs that are expected, and those are in a number of different areas, from munitions to communications, as well as in the drone area. And some of them are quite large, so the largest one is expected in Q4, and that would be a re-pre-order of some large ones we've had in the past. That's in the $10 million area.

Okay, thank you. And then just in terms of capital allocation priorities, how do you think about that, especially given the pullback in your shares here? Are you at all considering buybacks?

Yeah. It's something we're definitely considering, but a higher priority in terms of how we are allocating our capital is we have increased our CapEx slightly this year. So it's up around 4% at this point in time. And that's really to implement some automation programs primarily that are helping us to kind of drive consistency in our manufacturing process and also help us scale as we grow our revenues. And then the other thing we are continuing to look at is M&A. So I think we will look at, you know, a small buyback as well as M&A as being two logical ways to spend some of our capital if needed.

Okay, thank you. That was all from me for now. Thank you.

Your next question comes from the line of Gregory McKinley with Asymmetric. Please go ahead.

Yeah, good morning. Thanks for taking my question. I wonder if you can talk a little bit about what you've learned regarding the news that a lot of us read around depleted stockpiles for U.S. missile systems and how you see that backdrop influencing your opportunities and the timeline of them.

Yeah, that's a great question. That golden dome comes up quite a bit. I think the more interesting thing in the short term for us is the depletion of missile stockpiles, not only for the U.S., but for other countries. I think Raytheon and also Lockheed have had some recent announcements about substantial increases in their manufacturing of certain systems. And I do think we'll see benefit from that. Part of the reason is that we're kind of a sole source or a a value source for some of the parts for some of these systems. And so we have had conversations about increasing our capability, although we haven't received orders yet.

Got it. And just in terms of, is there a way you can help us understand how significant of a rebuild effort the military is considering with its inventories or Um, any context you can put around that?

Yeah, I think, um, you know, I can only cite what's been published, but I think you saw maybe the article in the wall street journal about the sad system, for example, where they had, uh, you know, used about a quarter of all the stockpiles they had manufactured to date, uh, in a matter of days, you know, defending against the Iranian attacks on Israel. Um, that's just an indicator. There've been some other published articles about trying to triple the, uh, the annual production rates of some missile systems, and I think we'll probably see more of that going forward. But it does take several years for the larger primes to increase their production capacity in these areas.

Thank you. Thank you.

Your next question comes from the line of Howard Root. Please go ahead.

Good morning, and thanks for taking my call. A couple of little accounting questions. On the SG&A, a pretty sizable jump as you're growing at 30% of revenue, do you see that as being kind of your target going forward, or should that come down as a percent of revenue as you grow?

Yep. So this particular quarter was maybe a little bit higher than normal just because of some of the bonus allocations. And just as we're trying to track, you know, how we're doing to plan and our bonus structure in place for our employees. But I do believe that, you know, the level of expense is probably a reasonable assumption. You can make an adjustment for the bonus allocation. I mean, we have made an increase, for example, year over year, about 100K per quarter on engineering. We are trying to hire more engineers. That's kind of a constant investment area for us. commissions went up a little bit just related to the increase in sales, which was significant. And the other area that increased in this period was really just on the sales and marketing front. We have done a fair amount to start marketing the company in some of the trade magazines. We're doing more on the internet. We've kind of revised our website. So those, while it might decrease a little bit,

going forward you know that was a that was another investment area and we do think we'll see benefit from both those efforts like the engineering side and also the sales and marketing you know in future bookings great so so then on the operating operating margin you're around 14 with the gross margin coming down a little bit sgna going up a little bit do you see that as being a baseline and it should go up from that or what do you see over the next year for operating margin or percentage yeah i think

I think the operating margin will improve as we continue to scale. Just the big variable is on the tariff front. And then we do see fluctuations quarter to quarter. It could be up to a couple percentage points just based on product mix. And that'll go back and forth. And if you look at us over the past several years, you'll see the gross margin bounce around 2% to 3% per quarter. And that's based largely on mix or percent of new product. Yeah.

So do you see Q2 as being more of a lower part of that bounce around or mid or upper?

I'm hoping it's, you know, kind of the lower end of the range, but it's, you know, it's definitely within a reasonable range. I think, you know, 42 to 45 is kind of like the reasonable range probably for this year.

Great. So then looking to Q3, you've got a pretty tough comparable from 2024. Do you see that as a seasonally stronger period for you or what do you see in the Q3 and the rest of the year? Yeah, we do.

I would say it's not a seasonality thing. It's really based on product mix. We do expect our revenues to increase quarter over quarter as we go through the second half of the year. So operating expenses, percentage of sales will probably go down a little bit, but it won't really impact our margins based more on the product mix. So I think it'll go up a tiny bit, but I'd Can't really give you a firm estimate yet on how much.

Okay. Then a bigger question. On the acquisitions you mentioned as a use of capital, how do you see the environment out there? What do you see as an appetite for an acquisition in terms of size of company that you'd acquire and valuation, how you would put it, whether you're buying projects or products and valuation metrics? And then just generally on your preference and use of cash, debt, or equity in order to do that, or if you rule any of those out.

Sure. So we're looking at companies that would be complementary to what we do. We're not really looking at industry consolidation per se. So it's really, it's for products that sell into our markets that our customers are interested in acquiring. And because we have a really strong manufacturer of Salesforce that can push those products to market and for the most part, improve the revenues of the companies that we're looking at because of just our depth there. So... And those companies are typically in the kind of 5 to 15 million of revenue. There are some companies that are larger, but they're kind of few and far between in the DIB for RF companies. So that's the range we're looking at. We're also trying to find companies that are positive EBITDA, at least a million of EBITDA, if not more, hopefully more. And so most of these guys, they trade in the range of kind of 8 to 12 times EBITDA.

And then your use of cash, debt, or equity, are you open to all three or –

I think, you know, right now we have about 15 million cash on the balance sheet. We'll probably end the year closer to 20. Could be a little bit more depending on how many options are exercised. And there is about $3 million of option or funding that could come from the exercise of all of our open options. So that would provide certainly some capital for it. But we do have the ability to borrow from our commercial bank. And if we needed more capital, then we might issue a little bit of equity, but probably more likely to look like an overnight converter.

OK, great. That's very helpful. So last question. And Cameron, you know, I've asked this before in our calls, the interim CEO, the interim part of the CEO title bothers me. Is there any news or announcement or progress or timeframe to remove the interim from the CEO title?

Yeah. Yeah. Thank you. Well, we are trying to finalize the paperwork there. So I did receive a letter or an interest from the board with the proposed cost structure, which we're just finalizing now.

All right. Well, early congratulations. Hopefully, you're not jinxed with anything. Thanks for taking my call. Congrats.

No problem. Thank you. And it seems that we have no further questions for today. I would like to turn the call back over to Cameron for closing remarks.

Okay. Well, I'd like to thank you for participating in today's call and your interest in Imtron. Have a great day. And please, if you have more questions, contact us at ir.imtron.com, and we'll get back to you as quickly as we can. So, thank you again for your interest. Bye-bye.

Ladies and gentlemen, that concludes today's conference call. We would like to thank everyone for their participation. You may now disconnect your lines.