Okay, so welcome to Sidoti September Small Cap Conference, and thank you for joining us today. I'm Anja Soderstrom, a senior equity analyst here at Sidoti, and next up, we have LGL Group. We have Tim Foufas, the Co-CEO, with us. We also have Cameron Fore. He's the Vice President of Strategy, and I believe Marc Gabelli, the Co-CEO and Chairman, is gonna join us as well. We will start with a presentation followed by Q&A. If you would like to submit a question, you can just use the Q&A function at the bottom of your screen. With that, I'm happy to hand it over to you, Tim.
Great. Good morning, and welcome, everyone. First, I'd like to thank Anja, good to see you again, and thank the Sidoti team for organizing this conference. As you know, it's a wonderful platform to get in front of small to micro-cap investors. I'm Tim Foufas, Co-CEO, along with Marc Gabelli, who's also our chairman. I'm also pleased to announce, in addition to our team, Cameron Fore, who will be speaking later in the presentation. Cameron brings a wealth of experience and contacts to LGL, and I look forward to working with him. My journey with LGL started over fifteen years ago as a board member, and then last year, about this time, I decided to move into management, as I was excited with the opportunity to create value. Let's see.
To start, I'd like to advise you to read our safe harbor statement, including the risk factor sections within our Form 10-K that was filed with the SEC on April 1st, 2024. You could also find further information from the company's website at www.lglgroup.com. Let's review LGL. It's a company that has a hundred-year heritage, having been established in 1917 and publicly listed since 1946. Since the mid-'80s, affiliates of the Gabelli Group acquired a controlling stake of the company, which at the time was named Lynch Corporation, and transformed the business with investments across various industries and sectors. Over this period, LGL has acquired 32 businesses, sold 11, and spun off 3. Most recently, in 2022, we spun Mtron Industries, which now trades separately on the New York Stock Exchange American, under ticker MPTI.
We pride ourselves on being a listed company on the New York Stock Exchange under the best governing standards with our value creation heritage, focused on building businesses and sharing that value creation with our shareholders. Today, LGL has 5.37 million shares outstanding, currently trading at around $6, so giving us a market cap of approximately $32 million. Additionally, we have publicly traded warrants. The ticker symbol is LGL.WS, and they have a November 2025 expiration, with a strike price of $4.75, so in the money. Assuming full exercise, the warrants will add approximately 1 million shares and $5 million of cash to our balance sheet. Our book value at the end of Q2 was $40.9 million, or $7.61 per share.
Our stock has been trading this year in the range of $5-$6, so effectively, we're trading at a 15%-20% discount to book. Our current principal operating business, Precise Time and Frequency, LLC, or PTF, was acquired in 2016, and they develop high-performance frequency and time reference instruments. With the $41.1 million in cash, or $7.65 per share, our business today has a strong balance sheet, putting us in an excellent position to further develop long-term value through acquisitions and investments. Mtron, as I mentioned, was spun off in October of 2022, creating a standalone aerospace and defense electronics component pure-play. The business was delivered to shareholders at approximately $13 per share, and today, trades around $36, giving that company about a $100 million market cap.
The business was initially acquired in the mid-1970s, then in 2004, LGL made the important acquisition to position the company towards the aerospace and defense markets, prior to which the company was primarily focused on the telecommunications market, which had been increasingly commoditized. With that reorientation of markets towards the military applications, here you can see from this slide, how Mtron provides the vital highly engineered components to the modern battlefield. We welcome you to take a look at their business. Mike Fiorentino is their CEO and continues to be a board member of LGL. He also just presented at Sidoti half an hour ago. Back to PTF, our principal operating business. The company was founded in 2002. It's based in Wakefield, Massachusetts, out of a 3,000 sq ft facility.
We acquired the business in 2016, and again, they develop systems for high-performance frequency time reference standards. Those markets and applications can be broken down in two main sectors: frequency and timing solutions, which would include instruments for, let's say, satcoms, telecommunications for shipboard users, and broadcasting markets. Time references, which include transportation centers, such as airports and rail, NASA countdown systems, for example, ship time code distributions for, let's say, the Navy, and time stamping for financial markets. While PTF operates specifically in a niche sub-market, we believe the larger TAM is estimated to be around $700 million. We think we can incrementally take market share by expanding our product offerings and by refocusing our sales and marketing efforts.
While PTF is a small gem with revenues about $1.8 million on a trailing four-quarter basis, the market is highly fragmented and ripe for consolidation. As we end the second quarter, we have approximately $41 million of cash, cash equivalents, no debt, with a book value of $40.9 million. This provides a strong balance sheet, the dry powder to pursue strategic opportunities. Within our electronic segment, which contains PTF, we're pleased to see revenues up 9.4% for the six month ending June thirtieth, and gross margins improved to 54.7% from 52.6%.
Backlog at the end of the quarter was $737,000, up from $143,000 at the end of last year, and this improvement is reflective of our sales and marketing initiatives put into place towards the end of last year. Both the merchant segment and our corporate activities are reflective of our investments in U.S. Treasuries, which at the end of June totaled $41 million, and just like to point out that post the Mtron spin, it's key to note that our businesses remain profitable as we redeploy our assets, which are primarily invested in U.S. treasuries. With that said, I would like to just briefly introduce Cameron Fore, who recently joined us earlier in this month.
Yeah. Thank you, Tim. Hi, good morning, everybody. My name is Cameron Fore. Happy... I'm happy to join today's program. I also recently joined the LGL Group as VP of Strategy, and I'm really excited to work with Tim and the team on executing LGL's strategy of acquisition of platform companies, and then the growth of those companies through- for their investment, both organic and inorganic opportunities. One only needs to look at LGL's history to see successful execution of the strategy, and we look to accelerate that going forward. My background is thirty years of experience, basically in technology, company management, and advisory roles. I spent the last fifteen years managing companies from, you know, start-ups with less than a million of revenue, up to a hundred million in sales.
This has resulted in the sales of companies to Cisco and Red Hat, among others, and significant returns to investors. I also bring considerable corporate finance and M&A experience. As an investment banker and as an operator, I've raised over $12 billion in equity and debt and have completed over 30 acquisitions. So hopefully, I'm gonna be working with Tim very closely and the rest of the team to put those skills to use here as we execute on the strategy. Thank you, Tim.
Great. Thank you, Cameron. Maybe I'll go to summary. In closing, we're a NYSE American-listed micro-cap with a terrific balance sheet. Like to reiterate, $41 million in cash. We're able to move quickly with opportunities. We have a long history of delivering value through multiple industries, using financial engineering throughout its history to help develop that value. Management owns a considerable stake in the company and is also aligned to grow shareholder value. PTF, which is our principal operating platform, while small, has near-term opportunities to grow, both organically and through M&A. Lastly, we always like to add in, we're open for your ideas, the investors. Please contact myself or any of my colleagues.
We operate in the public markets for a reason, and very much welcome ideas on how to grow value together. With that said, open for questions.
Thank you, Tim, and Cameron. I think we had Marc joining as well for the Q&A now. To the audience, if you would like to participate, you can submit your question in the Q&A function at the bottom of your screen, and we'll start here with: "What are you looking at in terms of acquisition opportunities? Are anything adjacent to PTF or something else?
There are a handful of adjacent opportunities within PTF. Most of those opportunities are small, so we are looking in that area to grow, but they're very, very small businesses. In terms of non-PTF businesses, you know, we kinda have an affinity towards aerospace and defense markets, clearly, industrials, manufacturing businesses, consumer products and services. And in terms of kind of opportunities that we like to look at, you know, entrepreneurial, family-owned businesses that are going through a generational transition, management buyouts, distressed and special situations, and of course, growth capital, where some of these smaller businesses have been under-resourced because the owner was content with the status quo.
And going under a different ownership structure, as well as have available capital, you can grow that company by reinvesting organically, and then through tuck-on opportunities. And then, of course, there's the corporate divestitures and private equity orphans or non-strategic divisions of corporate divestitures.
In terms of size, sizing of M&A opportunities, do you have any limits, and what kind of financing situations are you looking at?
Ideally, our target size is anywhere from $2 million-$15 million of EBITDA. Now mind you, that we are value-oriented investors by nature. So clearly we're looking for businesses that are cash-generative, or certainly maybe a slight turnaround we would certainly look for. Now, mind you, what we presented before, that part of the process is that we would create an SPV, so a special purpose vehicle, where we could leverage our capital. We would like we have in the past, and then bring in some partners that have domain expertise in a particular field and would help us grow the business.
Okay, thank you, and then a question here from the audience, "Why no share buybacks?
We think we have a bigger opportunity with growing the business via M&A, but clearly open to all ideas. We look at that all the time.
We have a couple of questions here related to PTF, and can you talk about the tangible growth opportunities you see for PTF, and how much revenue does its current manufacturing footprint support?
There's clearly opportunities and capacity within the 3,000 sq ft facility. Our biggest challenge is just tackling the sales and marketing. We hired a new salesperson last year, and we're already seeing the benefits of that. So it's literally just doing all the small, little things that are necessary to grow the business. We've had some recent, you know, notable wins. I won't talk about the, you know, who the customers are, but just to give you an example of kind of where this sector is, you know, one win was for receivers enabling deployment of fiber and wireless broadband throughout rural Australia.
We have some replacement programs for equipment that, you know, do identification of pirating and illegal use of frequency spectrum. Various phased array radar systems that we're upgrading, things along those lines.
Okay, thank you. And another question on PTF: "What is the competitive landscape, and what differentiates you in the market?
We're able to move quickly. We're a highly engineered team, and in terms of... Most of the competitors are quite small. There's a handful that are, let's say, in the $40 million-$50 million range, but they're very slow-moving. So I think our value proposition is, we're competitive on price, and we're able to quickly engineer a product, our product, to meet the customer needs.
Okay, thank you. And back to your M&A opportunities, what are the main challenges you encounter in finding new opportunities?
We're not finding challenges to finding opportunities, it's finding the right opportunities. I think that, you know, clearly there are a lot of people out there looking for acquisitions, particularly in the private equity space, so clearly we would compete. I will tell you, a lot of small, mid to, small to mid-sized companies don't want to sell to a private equity firm. It changes the culture, and so I think we have, you know, certain opportunities to appeal to a founder, owner that wants to maintain, the culture and integrity of that business.
Do you see more potential targets now than, let's say, a year ago?
You know, I started a year ago. Our team has been at it for many years. We've been. I would say I've been seeing a higher volume of opportunities. We have nothing to report right now, but I think the quality has certainly improved in the past year.
Okay, and another question here from the audience: "Would you take on leverage in addition to deploying cash in a deal?
Absolutely. We, you know, we're conservative by nature, but every deal would speak on its own. We would certainly to add leverage. Depending on, again, the opportunity. So, you know, if you're buying a company at 6x EBITDA, you can probably, in today's market, conservatively leverage at least 2x- 3x , depending on the nature of the cash flows.
Okay, and do you retain any ownership in Mtron?
Do I?
I guess LGL Group.
Does LGL Group retain what?
Do you retain any ownership in M-tron?
No, M-tron was spun off to our shareholders back in October, so there is no retained ownership.
And, and-
It was a straight exchange.
Okay. And could you repurchase warrants in the open market, and is that something you looked at?
I'm sorry, what?
Could you repurchase warrants in the open market, and is that something you looked at?
The warrants are currently traded. I guess would be akin to a buyback, which, you know, we would certainly look at. We haven't in particular as it relates to the warrants. They are European-style warrants. They expire November, I believe, of next year, and we believe it's a nice way to add to our cash balance.
Okay, and some more questions here from the audience. Will you need operating management to remain in place in any deal?
Absolutely. We would certainly look to augment if necessary. We don't have an operating company per se, other than PTF, that can, you know, jump into an opportunity. Clearly, with our extended partners, we have the ability to find the right management team if necessary, though.
Okay, thank you. And again, to the audience, if you would like to submit a question, you can just hit the Q&A function at the bottom of your screen. And, another question here, are you looking to consolidate PTF's market through M&A, or are there new adjacent markets you think you can expand into? I think you touched on this.
I think they're both right? So the challenge with some of the smaller opportunities, they're quite too small, and you know, you have that issue where the owner is the manager, and you know, you do want to maintain and have a certain amount of scale for whatever you're buying, unless you're just buying a product line, in which case, then we would fold that into our current operations.
And if we now see the interest rates coming down, how do you think that will affect your strategy?
It will not affect our strategy. We're sitting on, you know, $41 million of cash. We will see what the Fed does today, and I think everyone can do the math in terms of the impact to our P&L, but we do have a lot of flexibility within our P&L, and we're very mindful of our expenses, while we patiently look to redeploy.
Okay, and can you just talk about insider ownership?
Sure. So I think within the insiders and directors, we have roughly 18%. That would be just the management as well as our directors.
Okay, and since Cameron came on, I mean, his fairly recent addition, have you sort of changed your method or strategy in terms of approaching M&As, or...?
No, we haven't changed. We just have another resource to help in the process. I value Cameron's experience, and we have, you know, different markets that we'll look at, so we'll kind of more expanded in broader approach.
Okay, and are you more U.S.-centric in terms of where you're looking, or are you looking globally?
Primarily U.S. We have looked at a couple opportunities in Europe in particular, but I think our bread and butter will be in the U.S.
Okay.
They certainly could have, you know, European sales or international sales, but primarily located in the U.S.
Okay. And again, to the audience, if you have any questions you would like to submit, you can do so in the Q&A function at the bottom of your screen. And I know a question that's popular to ask on to your management team especially, is what's your view on the U.S. economy?
That's a very good question. We're not economists. I will say that I am optimistic that we're gonna have a soft landing. Even if it's not a soft landing, I think either way we will certainly benefit because I think more opportunities will pop up and ready for acquisitions.
Okay, and I don't see any more questions, so I think we can wrap it up here. Thank you, Tim, and the team at LGL Group for joining us today. I think it's a very compelling story, especially trading below book value, and the track history of the management team in creating value. I encourage people, if you have any follow-up and/or would like to talk more intimately with the management team, they have quite a solid one-on-one schedule, but we could probably squeeze you in, if not within the conference, outside of the conference. You can reach out to the company directly, you see the contact information there, or to us at Sidoti, and we'll put you in touch with them.
With that, I'll hand it over to you, Tim, for some closing remarks.
Perfect. Thank you, Anja. So just again, thank you everyone for paying attention to the presentation. We're open for your ideas. Here I have my contact information. Please reach out to us if you have any ideas, and look forward to speaking to you in the future. Thank you.
Okay, thank you.