M-tron Industries Q2 2025 Earnings Call Transcript

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Provided by Quartr
August 13, 2025

Key Takeaways

  • Positive Sentiment: Imtron reported Q2 revenues of $13.28 M, up 12.5% year-over-year, and backlog grew 35% to $61.2 M, driven by defense, avionics, and space orders.
  • Negative Sentiment: Gross margin declined to 43.6% from 47% and net income fell to $1.6 M ($0.53/share) due to product mix shifts and tariff effects.
  • Negative Sentiment: Federal tariffs on imported goods reduced revenue by roughly 1–1.5% this quarter, and the long-term financial impact remains uncertain.
  • Positive Sentiment: The company achieved three consecutive quarters of strong book-to-bill ratios and anticipates a potential >$10 M defense program reorder in Q4.
  • Neutral Sentiment: Imtron is increasing automation CapEx and R&D investments, considering small share buybacks, and targeting M&A deals in the $5–15 M revenue range at ~8–12× EBITDA.
AI Generated. May Contain Errors.
Earnings Conference Call
M-tron Industries Q2 2025
00:00 / 00:00

There are 6 speakers on the call.

Operator

Thank you for standing by. My name is John, and I will be your conference operator today. At this time, I would like to welcome everyone to the Emtron Second Quarter twenty twenty five Earnings Conference Call. All lines have been placed in mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

Operator

Thank you. I would now like to turn the call over to Linda Biles, EVP of Finance. Please go ahead.

Speaker 1

Good morning, everyone. Thank you for joining our twenty twenty five Amtron Q2 earnings call. Please note this call will be recorded and we will make the recording available on our website, www.emtron.com, shortly after the call. Yesterday afternoon, we released our earnings for the 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 twenty twenty four ten ks, which was filed on 03/27/2025 with the SEC.

Speaker 1

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 as a result of new information, future events or otherwise. Readers are cautioned that any forward looking statements are not guarantees of future performance.

Speaker 1

With that, I will now turn the call over to our Interim CEO, Cameron Forr.

Speaker 2

Thank you, Linda, and good morning, everyone, and thank you for attending our second quarter FY twenty twenty five earnings call and your interest in the company. We are pleased to discuss our strong first half results for the fiscal year 'twenty five and our outlook going forward. As a reminder, Imtron 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. The company's primary markets include aerospace and defense, commercial avionics, industrials and space.

Speaker 2

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 twenty twenty five results.

Speaker 2

Total revenues for the quarter were $13,280,000 a 12.5% increase over the prior year period's $11,200,000 of revenue. The revenue increased in the period primarily due to strong defense program product and solution shipments. Gross margins for the first for the 2025 were 43.6%, a decrease from the 47% gross margin we experienced in 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 $1,600,000 or $0.53 per diluted share for the three months ending 06/30/2025, as compared to $1,700,000 or $0.63 per share per diluted share for the three months ended 06/30/2024.

Speaker 2

The decrease was primarily due to lower gross margins, discussed above, as well as higher engineering, selling and administrative expenses from an increased investment in research and development, higher sales commissions due to our increase in revenue and an increase in administrative and corporate expenses consistent with the overall growth in the business. Adjusted EBITDA was $2,400,000 for the three months ended 06/30/2025, compared to 3,500,000.0 for the three months ended 06/30/2024. The decrease was primarily due to reduced gross margins as well as an increase in engineering, selling and administrative expenses consistent with our growth. Backlog increased 35% or $15,900,000 to $61,200,000 as of the June, compared to where it was at $45,300,000 in the June 2024 and $47,200,000 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.

Speaker 2

Q2 fiscal year 'twenty five 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 U. S.-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 receive materials of partially fished goods from do not have new trade agreements in place with the U. S.

Speaker 2

Government. Encouragingly, though, to date, we have seen no impact from tariffs on demands for our products. Also of note, on 04/25/2025, the company distributed dividend and warrants to stockholders of record for 03/10/2025. 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.

Speaker 2

The strike price is $47.5 per share, And there is an early conversion provision as well as an oversubscription feature. Further information on the warrants is available, in effect, found on our Intron Investor Relations website at ir.intron.com. We continue to execute on 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 of 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.

Speaker 2

Imtron plays a critical role in the defense of our nation by providing U. S.-sourced 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.

Speaker 2

We also thank our dedicated customers for their continued business and the trust they place in Indron and our people. So before I open the floor to questions, I want to mention that we will be presenting at the two conferences in September year. We'll be presenting at the H. C. Wainwright Conference in early September and the Sidoti Small Cap Conference later in the same month.

Speaker 2

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?

Operator

Absolutely. Thank you. Our first question comes from the line of Anja Soderstrom with Sidoti. Please go ahead.

Speaker 3

Hi, thank you for taking my questions. So first, I'm curious about the gross margin. How much of an impact did the tariffs have on the gross margin for the quarter?

Speaker 2

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 k.

Speaker 3

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 ramp new programs?

Speaker 2

Right. Yep. Good questions. So there were three components that lowered our gross margin in the first half of this year. And, they're the same that we experienced in the first quarter.

Speaker 2

So a lot of it's product mix. And to a certain degree, that's we have a backlog at $61,000,000 There's a period performance for each PO we have. And so in the first February of the year, we had, I think, a higher percentage than normal of lower margin products. We produced many products, some of are higher margin than others. We did experience some lower margins on some initial production runs of newer products.

Speaker 2

We are starting to see some improvement there over the quarter, so we should see some improvement hopefully in Q3 and Q4 in that front. And then we hired 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.

Speaker 3

Okay. So we can expect the gross margin to improve sequentially throughout the year?

Speaker 2

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

Speaker 3

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 for other sort of large contract wins or just wins in general?

Speaker 2

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, in terms 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 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.

Speaker 2

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 largest one is expected in q four, and that would be a re preorder of some large ones we've had in the past. So that's in the $10,000,000 area.

Speaker 3

Okay. Thank you. And then just in terms of capital allocation priorities, how

Speaker 4

do you

Speaker 3

think about that, especially given the pullback in your shares here? Are you at all considering buybacks?

Speaker 2

Yeah. It's, 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 and A. So I think we will look at a small buyback as well as M and A as being two logical ways to spend some of our capital if needed.

Operator

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

Speaker 5

Yeah. Good morning. Thanks for taking my question.

Speaker 2

Wonder if you can talk a

Speaker 5

little bit about what you've learned regarding, you know, the the news that a lot of us read around depleted stockpiles for US missile systems and, you know, how that how you see that backdrop influencing the your opportunities and the timeline of them.

Speaker 2

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.

Speaker 2

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 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.

Speaker 5

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 any context you can put around that?

Speaker 2

Yeah. I think, 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 THAAD system, for example, where they had, used about a quarter of all the stockpiles they had manufactured to date in a matter of days, depending against the Iranian attacks on Israel. That's just an indicator. There have been some other published articles about trying to triple the annual production rates of some missile systems. And I think we'll probably see more of that going forward.

Speaker 2

But it does take several years for the larger primes to increase their production capacity in these areas.

Speaker 5

Thank you.

Speaker 2

Thank you.

Operator

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

Speaker 4

Good morning, and thanks for taking my call. A couple of little accounting questions. On the SG and 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 go Yep.

Speaker 2

Yep. So, this particular quarter was maybe a little bit higher than normal just because, because of some of the bonus allocations and just as we're trying to track, you know, how we're going to plan our bonus, structure in place for our employees. But I I do believe that, you know, the level of expense is is probably a reasonable assumption. We can make an adjustment for the bonus allocation. I mean, we we have made an increase, for example, year over year about, you know, a 100 k per quarter on engineering.

Speaker 2

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, to start marketing the company in some of the trade magazines.

Speaker 2

We're doing more on the Internet. We've, you know, kinda 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 and we do think we'll see benefit from both of those efforts, like the engineering side and also the sales and marketing, you know, in future bookings.

Speaker 4

Great. So so then on the operating operating margin, you're around 14% with the gross margin coming down a little bit, SG and A going up a little bit. Do you see that as being a a baseline and it should go up from that? Or what do you see over the next year for operating margin or percent of sales?

Speaker 2

Yeah. I think I think the operating margin will improve as we continue to scale. Just the big variable is, though, is, is on the tariff front. And then, we do see fluctuations quarter to quarter. It can be up to a couple percentage points just based on product mix.

Speaker 2

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 two to 3% per quarter. And that's based largely on mix or percent of new products.

Speaker 4

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

Speaker 2

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

Speaker 4

Great. So then if you look into q three, 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 in the q three and the rest of the year in terms of

Speaker 2

the goals for 2024? 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 expense as a percentage of sales will probably go down a little bit, but it won't really impact our margins based more on the product mix.

Speaker 2

So I I think it'll go up a tiny bit, but I I can't really give you a firm estimate yet on how much. Okay.

Speaker 4

Okay. Then a then a a bigger question. On the acquisitions, you mentioned as a use of capital. How do you see the environment out there? What what do you see as an appetite for an acquisition in terms of of of, you know, size of company that you'd acquire and valuation?

Speaker 4

How you would put it with your buying projects or products and valuation metrics? And then just generally on your your preference and use of cash, debt, or equity in order to do that or if you roll any of those out.

Speaker 2

Sure. So we're looking at companies that would be complementary to what we do. We're not really looking at, you know, industry consolidation per se. Really, it's for products that sell into our markets that our customers are interested in acquiring. Because we have a really strong manufacturer rep sales force that can push those products to market and and, for the most part, improve the, the revenues of the companies that we're looking at because of just our depth there.

Speaker 2

So and those companies are typically in the kind of 5 to 15,000,000 of revenue. There are some companies that are larger, but they're kind of few and far between, in the dip for RF companies. So that's the that's the range we're looking at. We're also trying to find companies that are positive EBITDA, at least at least a million of EBITDA, not more, hopefully more. And so most of these guys, they trade in the range of kind of eight to 12x EBITDA.

Speaker 4

And then your use of cash, debt, or equity? Are you open to all three? Or

Speaker 2

I think, you know, right now, we have about $15,000,000 of cash on the balance sheet. We'll probably end the year closer to 20,000,000 It could be a little bit more, depending on how many options are exercised. And there is about $3,000,000 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 convert or something like that.

Speaker 4

Okay. Great. That's very helpful. So last question, and, Cameron, you know, I've asked this before, in our call. The interim CEO the interim part of the CEO title bothers me.

Speaker 4

Is there any news or announcement or progress or time frame to remove the interim from the CEO title?

Speaker 2

Yeah. Yeah. Thank you. Well, we are trying to finalize paperwork there. So, yeah, I did receive a letter of interest from the board with the, you know, proposed constructure, which we're just finalizing now.

Speaker 4

Alright. Well, early congratulations. Hopefully, to jinx with anything.

Speaker 2

Thanks

Speaker 4

for taking my call. Congrats.

Speaker 2

No problem. Thank you.

Operator

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

Speaker 2

Okay. Well, I'd like to thank everybody 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 irimtron dot com, and we'll get back to you as quickly as we can. Thank you again for your interest.

Speaker 2

Bye bye.

Operator

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

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