Thank you, Linda. Appreciate it. Good morning, everybody. Thank you for attending the today's presentation. Many of you probably saw our announcement this morning about a rights offering we're initiating. We'll talk a little bit at the end of this presentation about some of the uses of that and kinda why we did that. Look forward to your questions there. We're actually really excited to present today. Anja has been a huge supporter of the company in terms of working with us, so has been Sidoti over the past several years, kind of helping to raise the visibility of what we're doing and appreciate the analytic work she does understanding our model. M-tron is a company that's been around for 60 years, but it's really going through a renaissance or a regeneration.
We started out in the 1960s. Really, I mean, you think about the RF industry, it's eventually formed by refugees from other big companies. You know, people, engineers usually, that left a larger defense contractor or another large company with a better way of doing something, you know, building a better mousetrap. M-tron has ev olved over the years from being a specialist in oscillators to now being one of the more prolific developers and engineering companies and manufacturing companies of filters and oscillators, and really having expertise in the RF sector, kind of the front end of the radio. We've made some strategic shifts over the years that have really paid off recently. In the 2004 timeframe, two companies were merged.
It was M-tron and PTI, Piezo Technology down in Florida, the former company. That also marked a shift in our market focus. That's when we became more focused on building an aerospace and defense business that now is about 70% of our revenues, has really been fueled a lot of the growth in the company over the past several years. We are listed on the NYSE. We accomplished that through doing a spin-out from a holding company that we're a part of, and we've had a great share appreciation since then. We were spun out in October of 2022 at around $13 a share, and now, you know, we're trading in the $60s. If you think about us, you know, we're essentially a American defense firm that focuses on niche markets.
We built out a really great specialization in RF technologies. We're very vertically integrated, and we positioned ourselves for a long-term value creation. We're really a platform to provide products to the defense industry and the avionics space. We have over 40 programs of record now that we are operating and executing against. Just, you know, I've touched on a little bit of this, but we're very vertically integrated, more so than most firms. That's really helped us produce reliably as well as kind of increase our margins over time. We have a blue-chip customer base. All top 10 of the defense Tier One, Tier Two Primes are customers. We also have the leading customers in the avionics space, and we're very active in space and some industrial markets.
We've had strong market performance. You know, looking out since the spin-off, the shares are up quite a bit, and we've had really a great expansion of our margins and also our cash flow. That's really due to the team involved. I joined close to about a year and almost two years ago as CFO and moved up to CEO later last year. Linda has been with us over the past, I think 19 years. Really runs the accounting function at the firm and does a lot of the work with our manufacturing floor and our other management team, just so they understand the business. Then Bill Drafts joined about six years ago and really manages our operations.
He's been really instrumental in improving our processes and employing the team that's really operating today. That's done quite a good job. We also have a really strong board, so Board Members that have a lot of experience in the markets we serve, as well as the financial markets. Bel Lazar and John S. Mega and Rob LaPenta Jr. have been very deeply involved in the A&D market, as has Marc Gabelli. We have several of the people that bring, you know, expertise in, like David Goldman's General Counsel for GAMCO Asset Management, helps quite a bit with securities law for us. Hendi, who's an equity research analyst, really brings a market perspective that's invaluable.
M-tron at a glance, I think most of you on the call kind of know the company already, but we're a filter and an oscillator company, so that's kind of unique in the space. We do many types of each of those types of products. We build lc and cavity and planar and crystal filters like lumped element filters. On the oscillator side, we're really expanding quite a bit. We do a lot of compensated oscillators, and these are, you know, extremely exact timing devices, essentially. Right now we've had tremendous growth in some of these areas. We introduced a new oscillator about a year and a half ago in terms of scaling the production. You know, the product has been under development for several years. That's really starting to take off.
That does compensation for vibration. Then we're also building more and more subsystems. On the right, we talk about resonators and other solutions. This is becoming a stronger part of our business. It's helping drive up our ASPs. Then just at the bottom, you'll get a good split of the market, in terms of the markets we serve. You know, 67%-69%, roughly for A&D, depending upon the quarter. Then the second-largest market is avionics, which is at about 20% and growing very strongly with the current backlog in airframes. These are some of the broader markets that we address. This past year, the commercial aerospace industry has really come back.
We've had strong growth in that area, and it's actually gonna be driving a lot of the growth we're gonna see in 2026. For that market, we provide almost 17 different systems for I think it's every Airbus and Boeing commercial airframe they make. We'll sell either directly to them or through some of their major system houses. We're active in space and SATCOM. I think there's a little bit of a lull in that market right now, kind of due to some of the wait and see on the Golden Dome architecture being developed, and there's some data links and things like that that we're working on there. I think that's a market that will probably come back in a year or two.
What's really been strong for us in the past several years is precision guided munitions. There was, you know, 100% growth for that sub-sector for several years in a row. Not quite as strong this year, but it's still a strong market for the company, and it's one that's getting a tremendous amount of attention from the Department of War. You're seeing a lot of announcements in the space about expansion of production capacity there. We are just starting to see the RFPs from those contracts that were announced, and we're addressing those, and we expect that will help drive further growth in that market, probably starting in 2027- 2028.
For this year, radar and electronic warfare are two areas that we've really been focused on from a product perspective, and we've had a lot of wins on the design side, and now we're just seeing the fruits of that labor. This year was very strong for the radar market. For next year and the year after that, we expect almost 100% growth for products for radar and EW each year. You know, broad applicability of our products. All these end markets have strong growth drivers. I'd say there's a little bit of a blip in the space and SATCOM side of things, but all these other areas are coming on strong. I'm gonna skip this slide, but it just gives you a little bit of background about the company.
I already mentioned when we were founded, so that'll give you a little history there. In terms of investment highlights, you know, we're a strong revenue grower in the market. The market grows at around 7%-8% a year. We're doing, you know, 10%-11%. Had a couple years of 20%. We hope to get back to that number, but that's not something we can necessarily do organically. Very attractive end markets with long-term customer contracts or relationships. So that's one of the reasons we moved to more of an A&D focus. We are a unique manufacturing capability in the U.S. I mean, there's a lot of emphasis on protecting the supply chain, building out the industrial base. We're part of that movement. We do all of our, really all production in Florida and South Dakota.
We do some assembly in India in a plant there that's ITAR registered. We've got, at this point, pretty compelling financials, a good strong cash flow, and we have the team in place and the capacity to really support continued growth, and we're starting to execute on that. In terms of some of the growth drivers, you know, we talked a lot about armament and weapon system replenishment. I think we're really just getting at the beginning of that cycle. The current conflict in Iran is really gonna drive that even further, so I think there'll be another turn of the crank there.
Just over the past, you know, two months, you've seen both Raytheon and Lockheed, you know, two of the larger, you know, primes for those areas, sign new agreements with the Department of Defense for seven-year deals that are, you know, doubling or quadrupling production for some types of systems. I think we're gonna see that as well, not just in the precision guided munitions area, but radar is also at the inflection point. EW as well, and counter drone activity, as well as drones in general is, you know, gonna see tremendous growth. That's kinda one of the drivers of the potential huge procurement uptick in defense.
There's a lot of modernization taking place, a lot of nimble players coming on board, a lot of innovation in defense tech that we really just have never seen at this pace. Secondly, the airframe market has really bounced back. We signed a three-year deal for that market last year in April. That was quite large, and those POs are being executed against that contract, and that resulted in pretty strong growth in this area this past year. It's an area that had been flat due to COVID, but we do see, you know, very good drivers of that for the next several years to come. I think the backlog for Airbus and Boeing goes well into the 2030s.
Space I think will be an area that will grow rapidly, probably next year, this year, just due to some of the drivers behind the reallocation of capital and the kinda rethinking of our strategy there. We've had a lot more R&D improvements that just help us capture more programs and develop more innovative products. Those are all strong growth drivers for the company. The TAMs I think I've talked about quite a bit, so I'm gonna skip this slide. I think in general, our markets are growing pretty strongly. The portfolio split, we're, you know, dominated by our filter business.
The oscillator side of it has been very explosive of late as well, and we are trying to drive more innovative RF solutions where we're building modules, incorporating not only our own products but, you know, products that we purchase and resell from partners. We've had several partnerships for this year. We've actually formed three new partnerships with other companies that have very complementary products that we're now trying to integrate and sell through our channel. Here's our global footprint. I'm not gonna touch on it really just but it's important you understand that we're a U.S.-based supplier. We have cleared facilities in Orlando and Yankton. And our New Delhi facility is also ITAR registered, so can make ITAR-compliant products.
We have a sales office in Hong Kong that helps us with communication and order processing and sales with our contract manufacturing partners in Asia. This is really a strength of the company, is just this phenomenal customer base that's been built out over the years. Now over 70 customers with 10 years of experience with the company. This is really critical in the markets that we serve. People are really looking for reliable partners, so it's, it is a partnership. We have long-term relationships with these companies. We do a lot of design work in concert with their engineers and their architects. We're trying to solve a problem and take it off their plate. That's one of the reasons why we're moving to do more modular work.
If you look at the list of just who we work with, they're kind of the, you know, who's who in each of these individual markets. Each of these customers represents a great opportunity for continued expansion. We're just serving, you know, several programs in each, but there are a lot more defense and kinda aerospace programs that within each of these primes that we can serve. I'm gonna skip the drone opportunity today just in business, but we're very active in this market. I think we're, you know, this year we're gonna see that more growth in radar and EW. This does give you just a feel for how the complexity of these systems has changed over time.
When at one point we were doing really the communication with a drone or an aircraft, we're now on many different systems. They carry radar for counter drones. They have guidance systems in their missiles. They have EW systems to prevent another radar from locking on them. As the systems have become more complex, that just creates more design slots for us, and that's kind of helped drive our growth. The growth strategy is really to leverage our customer relationships, get into more programs, and make sure that we're on these long-term programs. We do a lot of work upfront, kind of vetting opportunities and making sure that they have very consequential revenue streams before we devote a lot of engineering resources.
We continue to focus on building out our engineering capabilities and doing innovative products. About 25%, 24% of our revenue comes from products that have been developed over the past, you know, several years, you know, three to four years. We are very active in M&A and looking at opportunities there, as well as some investment opportunities. I know we've been talking about this a little bit. I was out in California last week looking at three companies. One that's we're trying to do a pull in into M-tron and two others that look like very good opportunities to partner with another company on. It's a very active market right now. We're trying to be disciplined, but I do think we're gonna be able to put some capital to work here.
You know, I'll skip the metrics for now. They're pretty strong, but we're also gonna be doing our earnings release shortly here, and so I think I'll address that next week when we have our earnings call. Obviously happy to handle questions when we come to that part of the presentation. New product development, I did speak to a little bit earlier. You know, you always have to develop new products just to make sure that your pipeline and your product portfolio is fresh. It's really driven a lot of the growth in the company. When you do introduce new products, they often come in at a lower margin as you work on improving the manufacturing efficiency. That has impacted our gross margin a little bit this year, especially at the beginning of the year.
it's really the lifeblood of the company going forward, and we try to maintain, you know, that high percentage of revenue coming from new products. We've been very successful to date. In 2024, about 30% of our revenue came from newer products. Then I'm gonna skip the financial summary as well 'cause I think most of you are quite familiar with where we are. We are performing, you know, with a gross margin in the kind of the 43%-45% range right now. It's strengthened throughout the year. We'll have our earnings results shortly. I think that, you know, tariffs, they take different forms, but I think they're here to stay for some time. This past year, they impacted us by about 1% of gross margin.
The other issue this year on gross margin was a little bit of new product introduction. They are strong, and we are working on improving them and, you know, if you look at our industry peers, we're doing quite well. We are at the point where our Adjusted EBITDA is becoming quite meaningful, and we're putting a lot of cash on the balance sheet. We've had really a tremendous year on the backlog side, increasing our backlog. We'll talk about this in the question section, I think, but we're looking really at complementary products and complementary markets and ways to strengthen the company, increase our TAM, bring on new programs, and also new engineering talent.
I did wanna talk about the rights offering, and 'cause we just put out a press release this morning that announced the rights offering. The record date is, I believe, March 27, so towards the end of the month. This will be a relatively short process. I think it's 16 calendar days for exercising the rights. It's five rights to acquire one common share. They haven't been priced yet, but it's gonna be at a discount to the trailing VWAP, the five-day VWAP for the company. It's gonna expire on or about April 15th. What I think is really important, though, is to understand, like, why we're doing this. We came out of the year last year with a stronger balance sheet.
We're finally at the point where we can operate effectively to do some M&A as well as really we're well-positioned for the future to expand the company organically. It'll also show strength to our customers that we're a supplier that's here to stay and is well-financed to meet their needs. There's a lot of unique things happening in the defense market right now, and we wanna be capable of acting very quickly and with flexibility to kind of meet some of those challenges, and that means creative acquisition, so we're continuing to look there very actively. We are also trying to look at, because the defense market is in a state of flux and there's a lot of pressure for some of the larger primes to spin out pieces of their business, we wanna be part of that mix.
Last year we did engage on one spin out from one of our customers. I think due to our size and our balance sheet, we weren't really taken that seriously in the process. I think we'll have the ability to be a more active player there. I think if you look at the company's stock, we're a very clean company in terms of balance sheet, very strong operations, so we're really quite a good platform if somebody's looking to carve out a really meaningful part of their business. We are gonna be able to look at more transactions to scale, kind of getting away from doing acquisitions that come in at $2million-$3 million to hopefully $5 million-$10 million or $20 million.
We do wanna be able to make strategic investments as well, and so this gives us a little bit more cash on the balance sheet to do that. Lastly, and also very, very importantly, is the ability to expand our capacity and our capabilities to meet the demand trends that we're seeing. I think we're really at the beginning of some very radical changes in the defense market and the demand curve in the defense, and so this will position us well for the future. With that, I think that's really what I wanted to speak to today. The long-term model is included in the presentation, which will be uploaded to the Sidoti site for you. It'll also be on our IR website, so ir@mtron.com.
With that, I can kind of open it to questions, Anja.
Okay, thank you so much, Cameron. That was a good overview. I'm just curious while we wait for the Q&A to populate, and also everyone in the audience, if you would like to participate, you can submit your question at the bottom of the screen in the Q&A function.
Yeah.
You mentioned the ramp-up capacity because of this anticipated demand increase. What capacity do you have to ramp, and do you need to expand
Yeah
your footprint, or?
Yep. I don't, you know, from a footprint perspective, I think we're fine for the near future. You know, not for three years out necessarily, but for the next year or two, we have plenty of space. You know, what we do need to do to ramp is we you know, and Bill's done a really nice job with the team of evaluating what our production capacity is, what the bottlenecks are in the system, and also just what are the risks just given the age of machinery and things like that. Over the past several years, we've done a lot of replenishment of our equipment. We are now making some big purchases this year to handle capacity issues.
I think that there'll probably be more of that just given the requests we're getting now from some of our larger primes, 'cause they wanna make sure that we can easily handle, you know, increasing production for some of these products quite a bit. What it mostly is bringing on board and training highly skilled technicians. There's a lot of that. Now, we are making some strides in using other types of technologies to help us improve, so we've had some automation projects over the past year or so we've been initiating. This week we actually have a team that specializes in machine learning for manufacturing, and then we're trying to instrument some of our production lines. I think there'll be investments along those lines that really help us scale the business.
Okay, thank you. We have some questions coming in here. Are you working with new defense companies such as Anduril Industries?
Yes, we are working with many of the New Primes. You know, there are several that are really doing some really innovative things, and they're really exciting companies to work with. They have a very different modus operandi than some of the larger primes in terms of the speed and the iterations they take. We are working with both very established primes as well as some of these new and up-and-coming vendors.
Oh
Mostly in the radar and drone and counter-drone areas.
Okay, another question here is, are you sole source in many of these programs?
Yep. I wanna make sure I get this right, so Linda, correct me, but I think about one half of our military programs we're a sole source provider, and about half we're a dual source. You know?
Okay.
Does that sound right, Linda? Yep.
We have a right along question here. How do you think about the shift towards silicon-based timing solutions in your core end markets? Where do you see those solutions being good enough to take share, and where do you believe Quartz and your approach remain structurally advantaged over time?
Yeah. We really haven't received any pressure in that area. I think a lot has to do with right now they want products that are extremely accurate that you know don't have any phase shift and that are can handle a really broad range of temperatures and environments. In the military markets, you know, we haven't seen a shift there. Right. Yeah.
Okay, another question here. Could you share any color on your current M&A activity?
Yeah. We've been very active. We do work with an outside bank that really knows our markets very well. We've had a lot of interaction with companies. You know, we have a pipeline of companies we're engaged with. I was out West last week, as I mentioned. We're working with one company that we're fairly far down the path with, but also looking at two other companies that were very interesting. We also looked at you know, a company that was quite larger than us that's growing quickly that needed capital and might have been a good partner for us.
I do think that we'll get something done in the near term, but we are trying to become much more active in looking more expansively at, you know, kind of how we deploy capital.
As you look at M&A, are you looking? I mean, you're raising capital now to support the further M&A, but
Yeah
are you also potentially looking at larger deals where you would need to raise more capital and?
Not necessarily raise more capital, but for example, we would love to be able to participate in a large spin out if it was an attractive business that's complementary to what we're doing. We wanna be able to look at deals that are with companies of our own size or even larger, you know. I mean, I could see easily a large prime looking to spin out, you know, a couple of $200 million business that could do it with us in a tax-free way, right? Spin out to the shareholders and merge with us. We're a great public entity. It's got a lot of experience managing the public aspects of managing the company.
They, you know, we would issue shares to them in such a transaction, but we wouldn't really need to raise capital, you know, especially if we could complete the rights offering successfully. There's enough capital there, you know, to fuel a bigger business. It's very useful to be able to do more than one M&A transaction. Like, we'll have enough capital on the balance sheet to move forward, you know, to do two or three.
Okay. Sort of answer this question, why do you need $60+ million in cash to do an acquisition in the $20 million range?
Yeah, we don't.
Clarify.
Yeah, we don't necessarily for that, but you know, to do two or three deals, we yeah, we'd need more cash than we have.
How do you see inflationary pressures and higher input costs affecting your margins?
No, it's really good question. I think the biggest impact for us this past year has not necessarily been inflation yet, we'll see what happens there, but it has been the tariffs. That was just a you know to be honest a huge time sink. A large part of our team was kind of trying to manage that because it ripples through like all aspects of your operation. But I do think it has led to some of our suppliers increasing their prices and you know unfortunately we need to pass those costs along usually. So there's sometimes a little bit of a lag just due to the pricing in each PO. You know it eventually results in higher prices to some of our customers.
Okay. Thank you. I have one more question here. On the back of your automation projects and opportunities for organic growth,
Yeah
do you expect R&D spend to increase as a percentage of revenue compared to prior levels?
Yeah. We are actively hiring engineers, so we have several open recs for both process or manufacturing engineers as well as design engineers. You know, we need both to expand. We've had some great hires on the design engineering side over the past year, but we do, you know, we wanna make three or four more hires there. On the production or process side, we are continuing our effort to upgrade to a new ERP system. We're pulling onboard more technologies like bar coding and time and material tracking, and then also using other technologies and automations to kind of help expand our capacity. We're not looking to, you know, we wanna retain all the workers we have.
We actually need to hire more touch labor, but we wanna make sure that we can plan better and also monitor our production so that we can recognize where things are backing up or where the process is not working optimally earlier. That'll help us save a lot of materials, also help us improve our delivery times and just operate at a higher margin level. I do think it'll go up a little bit in terms of expense or investment.
Okay. We have one last question that I'm gonna squeeze in. For the pipeline of tuck-in acquisitions opportunities.
Yeah
How do their margin profiles look compared to MPTI, and also how does the growth profiles look?
Yep. Of the ones we've looked at, the ones we've been most interested in had you know either were the same or kind of higher margins than ours. It kind of depends on what markets they serve in general and also how unique their product sets are. We're looking to really buy companies that are gonna be EBITDA positive, and then we can either pull up to our margin structure relatively quickly, or they're gonna be you know accretive right away and have higher margins that kind of help you know move our margin up.
Okay.
That's.
Sounds good. Anything else you wanted to add or?
No. I mean, I just appreciate people's interest in the firm and their support of what we're doing. I think we're at an exciting inflection point in the defense technologies industry. There's been a lot of discussion obviously about what's happening in AI and the software side of it, but that's also driving a lot of the growth in the core components that we provide, you know, for a lot of those systems. Appreciate your support.
Okay. Thank you. I know you have a pretty full one-on-one schedule. There's been a lot of interest.
Right
But if there's anyone in the audience who would like to connect with the management team, you can reach out to us at Sidoti or to the company directly, and I'm sure they will make themselves available outside of the conference if we can squeeze you in here. With that, I want to wish you all a good rest of the day. Thank you so much, Cameron and Linda.
Thank you very much. Appreciate it, bye. Bye-bye.
Bye.