Hi, everyone. Thanks for being here. Next up is M-tron Industries. We have Cameron Pforr, CEO, and Chris Nossokoff is also here, Vice President of Financial Reporting. Cameron.
Okay. Thank you, Jean, and thank you all for coming after lunch. Really appreciate it. I think we're the only defense company here today at this conference. Hopefully give you a little bit of a window into what's happening in the defense sector. We're also in some other major areas like commercial aviation and things like that, which are doing very well. I'm happy to tell you about the company and answer any questions you have afterwards. First of all, here's our safe harbor statement. Just want to refer you to our 10-K that was published or filed in March 26th of this year with the SEC, just for risk factors. We just did our Q2 earnings announcement about 2 weeks ago, so there's an updated presentation online from that, our earnings call, and numbers there.
We'll talk about a lot of that, obviously, in our slides today. Briefly, M-tron, it's an interesting story. It's a company that's been around a long time, but it's really been transformed quite significantly over the past four or five years. We're a New York Stock Exchange-listed company. The ticker is MPTI. We went public in 2022 through a spin-out transaction from The LGL Group, Inc., which is a holding company that's been trading on the exchange, I think, since the 1920s. They've probably done 35 acquisitions over the years. We performed very well. I think we came out at $11 a share. I haven't looked today but usually I look many times a day. We're kind of hovering around the $80 mark right now per share. We went to as high as $102 about a month ago, per share.
A lot of that's based on what's happening in the defense sector and some of our wins there. We're fairly tightly held. We have 4.3 million shares outstanding. Lastly, very strong balance sheet. We have about $95 million of cash on the balance sheet, and we've raised about $70 million, I think, over the past six or seven months through a warrant offering and then later a rights offering. We also have very broad employee ownership. Pretty much every employee in the company owns stock, and we're very aligned with where we're going as a company. That's a little bit about us. I'd say, why are we interesting? I think we're a very unique play in the U.S. defense market. Relatively small cap name. 70% of our revenues currently are from the defense sector. The next 20% are from commercial aviation.
We really focus on mission-critical applications of RF technologies, and we are a unique kind of American manufacturing capability in that area. There are not that many players that can service those markets from U.S. manufacturing and design standpoint, and we are one of the few there. We also have a very high percentage of our revenues now coming from missile content, so it is about 33% of our revenues, and there is obviously a lot in the news about missile replenishment and things like that, and this is one of the better ways to play that potentially. I think that we are really a platform right now for strong value creation, not only through our core business, our organic business, which has got some really great growth prospects, but also we have a very strong balance sheet and we have potential to do some nice M&A transactions.
That is definitely one of our goals. Just in terms of the investment highlights, strong revenue growth and cash generation. We have been profitable for many years. We have roughly 21%, 22% EBITDA margins, adjusted EBITDA margins. Very good tailwinds in our growth sectors, our long-term end markets. Aerospace and defense is getting stronger over the past several years, but it has been strong for many years. Also, the commercial aviation business is in a good spot with a long-term backlog going out to 2036. I think there are 16,000 airframes on order from Boeing and Airbus, and we are on every single airframe that they produce, so our growth there is pretty linear with the industry. As I mentioned before, we are a very unique capability, which is important for the defense sector.
There is much more interest than there was 10 years ago on U.S. manufacturing capabilities, and so that is something we are investing quite a bit in. We produce in Orlando, Florida, and also in South Dakota, in a town called Yankton. Have been there for many years and have a really great employee base, loyal base, and that enables us to supply a lot of the larger defense programs. I think from a financial perspective, we have had really good performance, and we are well-positioned for growth. We will talk about that a little bit. In terms of what makes us unique in addition to that is that, if you look at the RF sector, the RF sector has been around since the '60s.
It was basically founded by really smart engineers who left larger companies because they had a better way of making a particular product, and that is how our company started as well. M-tron today was two separate companies in the '60s and '70s. Each of them was founde d by an IEEE fellow, so a really smart engineer, and they had each found a way to build a better mousetrap, essentially. Then over time, we came together in the 2004 timeframe, and it has made us really what is pretty unique in the industry. We have a very broad product set compared to others. We have competitors in the filter world. We have competitors in the oscillator world, but we do not have any competitors that do both that we really run into frequently. Also, we have taken a different approach than some have over the years.
The market itself is very delineated. There are a lot of suppliers to people like us, people that do plating, painting, machining, testing, et cetera. We've taken more of a vertical approach to it, so we've been vertically integrating those capabilities. That's helped us deliver in a shorter timeframe to our customers, and also at a more effective price point with a little bit higher margin. We're kind of gaining more control over our own destiny there. We've made a lot of investments in that area. We have a blue-chip customer base. We'll show you a number of the names later on a slide, but I think all 10 to p defense primes globally are big customers of ours. We have over 70 customers, I think, have been customers for over 10 years.
We also have a lot of new companies that are really growing, and growing significantly, that have become strategic over the past couple of years, including many of the new defense primes or neo-primes, I think they're called. Then we've had nice market performance. Here's the management team. I joined two years ago as CFO. My background is, I spent a long time in banking. I was at Deutsche Bank and Alex. Brown before that. I raised a lot of money for companies in the sector, and also was active in M&A. I guess originally, my grounding was at Bain. Then I've run three companies in the government and defense sector. This is my third. Linda Biles, who's our EVP of Finance, is essentially managing all of our accounting teams.
She's been at M-tron for 20 years and has a longer career just in manufacturing, so extremely experienced on that side. Bill Drafts, who's our President and General Manager, is down in Florida. He's really managing that facility and our Ganges plants and capabilities. He comes out of the industry and started out in product management and is an engineer, has a lot of expertise in not only the market focus, but also in just the manufacture processing. Really good group. The board is also very diverse. People come out of either industry. We've had several people from L3, or even one o f the L3 founders is on the board. Then also the investment community, mostly in New York. I'm not going to spend too much time on this slide, but it does give you a feel for it. We've been very innovative since the beginning.
We started in 1965. We were one of the first developers of certain types of filters and oscillators at the time. We've been involved in the space industry since the late 1960s. We came together in 2004, as I mentioned before, and that innovation continues. We've had a very good year selling, for example, internally compensated oscillators this year. That was a product that we developed in the late teens, and I think we're the only ones who are doing it right now. That's really created a great op portunity for us in the short term. If you look at our revenue base, about 30% of the revenue each year comes from products that were developed over the past three or four years. We continue to really emphasize that, and it gives us a lot of legs to continue to grow and stay very current.
Here is our product portfolio. I mentioned before, this is very broad for our sector. A lot of companies in this space will do one particular type of filter or one oscillator, and they grow to $8 million or $10 million of revenue, and they are content with that. We have taken a different approach. We have a broad family of products, and we also purchase products from other companies, which we integrate into modules and subsystems. We are trying to deliver more value to our customers and maintain a greater share of their BOMs. That is something we are going to continue to do as well. That is the RF solutions business on the bottom. That is about 7% of revenue. That is growing quite a bit. Our core strength is in crystal filters and oscillators. We have a lot of expertise in that area.
I think we are considered probably one of the leading houses in each of those categories. Our customers are very, very satisfied with the kind of quality we deliver there. We are really known for building extremely high reliable products. This I had mentioned before, but this just shows you kind of the rate of change that we are doing. 30% of last year's revenue came from products developed since 2021. It will be higher this year, as a matter of fact. We have had a lot of bookings in the past th ree or four months for new products. This will be one of our strongest years, I think, for this metric. The ASPs continue to go up and the content from new products continues to rise. Here are some of our main target markets. Defense is 70% of revenue.
It is going to be growing over the next coming years. I think it will be kind of constant this year, but we do expect it to continue to grow. Commercial aircraft is our se cond biggest market. That is 20%. The balance is made up of SATCOM and space applications, as well as some smaller industrial markets. Really the growth long-term is from aerospace and defense. This year in particular, that has really been strong for radar and electronic warfare. I think the longer trend term there is we will continue to do a lot there, but the precision-guided munitions has been an extremely kind of rich vein for us, and that is going to continue to grow. I expect a lot of growth in that area to come in the out years in the 2020s.
A lot of this has been driven by kind of the new Department of War rewriting the rules on procurement, as well as just the rapid pace of technology change in the Department of Defense and in warfare in general. Kind of a move towards smaller systems, autonomy, drones, standoff weapons, and also lower cost weapons, potentially. Like some of the newer programs, like for low- cost cruise missiles and things like that. All these systems depend on really good sensor data, AI, the integration of information and data from all these sources, and control of electromagnetic spectrum. Jamming and EW and all are really critical. These are all areas that we really have a lot to contribute to. It has been a real boost to our business.
The Department of War is really trying to take some advanced move forward the ball in terms of how the government does procurement. It's a really slow process, as many of you know, in the Defense Department. Takes a long time to build up a good customer base there . We've already done that. We have 45 programs of record that we service. They are trying to shorten that time cycle, so you're seeing that a lot in the drone engagements with Drone Domination, Replicator I and II, and other programs that seek to put more money into the market, into contractors' hands to develop better products quicker. We're definitely seeing the benefit of that.
I think the implications for suppliers like us is that we're seeing quicker cycle times with the neo-primes, then we're seeing potentially much higher volumes and growth rates w ith some of our longer-term programs with the traditional primes. Okay. One of the areas that people have a lot of interest in is what's happening on the missile side in terms of stockpile depletion. The best source, I think, out there, other than a bunch of podcasts really, is probably the CSIS, which is a think tank in Washington, D.C. They have a small team that just tracks this area, so munitions, and they've published a report in April. They had an update in August. They're just talking really about what were the stockpiles like for some of these exquisite munitions, they call them, before the war with Iran, and where are we now?
Even before the war, I think we had roughly 2,300 PAC-3 Patriot interceptors. The Army had two, three months before that come out and said they need to have a stockpile of 14,000, just to kind of show you how short we really are. Well, now we're down to less than 1,000. So not in great shape there. There really is an effort to try to figure out how do they boost that production. In many of these pr ograms, we had reduced the number or the volume that we were producing quite dramatically. I think in the Tomahawk area, I think we developed maybe 70, 75 missiles last year, whereas 10, 15 years ago, we were building 500 a year. So we had really let the stockpile start to dwindle.
This is creating a great pressure to increase production, and that should really result in an increase in our backlog. Both Raytheon and Lockheed had signed frame agreements with the Department of War in February. As it turns out, those were great indicators of what they want to do, but they weren't funded by the budget currently. So there's a reconciliation bill that's been tied up in C ongress. The Pentagon has presented a budget for FY27, which had a really significant increase in expenditures for missiles, taking it from $43 billion a year to about $82 billion a year, so roughly a doubling. But those have not been passed yet. So what we're seeing is that we're being asked by the big primes to bid on these projects, and we were on the majority, a slight majority of those programs, probably 60% of them.
We are seeing that we are in very good position to repeat that business as well as win some new slots. I think some other suppliers haven't been able to scale as well or haven't supplied things as consistently. I think there is good opportunity for us to grow. Anyway, that is what I wanted to say about that. I think there is a lot of interest in this. I think what we are hearing now is probably that the POs for this, the purchase orders, are not going to come out until the actual budget is authorized. The consensus, I guess, in Washington is that the budget is not going to get approved until after the midterm elections. This is probably something that is shifting out of 2026, probably happening early in 2027.
There is always a lag in the defense industry because all the large primes need to add capacity themselves before they consume more materials. We think this is going to impact us and our business in 2028. That is when we will see the big uptick if it happens. Okay. As I said before, it is obviously dependent on budget approval. Some of the areas that we are really seeing strong gr owth this year, and this was a little bit of surprise, was in the radar area. We were a company five years ago weaker in radar than we wanted to be. We do not do a lot with the Navy, and so we were trying to improve that.
We spent a lot of time interacting with primes and other radar and newer radar vendors, trying to get into that market, showing our products, building prototypes, letting them test, spending a lot of time with their engineers, understanding their problems, and this has really started to pay off for us. Earlier this year, we had received about $9.5 million of orders for a new type of radar. T he application was counter drones. It was a smaller radar that is much less expensive, uses a different technology than traditional phased array. We have had a really great win, a really great partnership there, and that is scaling dramatically. I think we did $150K with the company last year, and then this year we will probably do $6 million in revenue with them. That is expected to grow 3X every year for the next couple of years.
That is one that is really interesting. Also, pretty much all the fire control radars are being redesigned to handle different types of targets, so whether it is hypersonics or whether it is drones. We are competing for a number of those systems, and we are making very good progress. I thin k that we are going to have hopefully another win later this fall for one of the big Navy systems, and I think this will be a good area of growth for us for the next several years. The other area is electronic warfare. We had a big win with one of the neo-primes for filters for that market as well, and that is becoming ever more. That is a really important market. This was with a U.S. company. We also work with a lot of the British companies, which are probably the leaders in this field in general.
We work with BAE Systems and Cobham and others that are great at this. I wanted to touch on commercial aerospace just because it is a very different play. Here we are on every Airbus and Boeing airframe that I know of, at least in the commercial aircraft. We have essentially the same footprint in all those planes, so we are on the same electronic subsystems. This just gives you a feel for k ind of the breadth of our applications. We started out doing communications, so there will be filters and oscillators for communication from ground control to the pilots. Now we have also in-flight connectivity, internet on the planes. We do things like navigational radar, but also collision avoidance radar. I think what surprises people, we do a lot of flight controls.
A plane basically has a network, a data network, where it is sending data and requests from the cockpit to engines. We are part of that information flow as well. I think this is one area where we are growing kind of linearly with the market. I think, it is more or less, it is fully saturated with these vendors. I do not know of a lot of other design slots right now, so what we are trying to do in this space is get on more regional jets, so smaller aircraft. Some of the key growth drivers we highlighted, armam ent, weapon system replenishment. Global conflicts do not appear to be going away. Probably the world is considered riskier now than it was 5, 10 years ago. A lot of modernization, and we are front and center there. The airframe backlog is real.
It is a little bit of a lumpier market because there is an inventory component to it that you do not see in some of the other markets. Even though on the long term, we are going to grow the same rate as airframe deliveries, some years they will purchase more as they increase their inventories. In other years, they will burn through it. We are trying to have a bigger footprint in some new markets. S pace is one of them. We have been in for a long time. Golden Dome contracts are just starting to come through. We are more involved in the MEO and GEO satellite orbits, so higher Earth orbit. We do not do much LEO work, which is kind of where a lot of the investor interest is these days. We see this as also a good opportunity for us.
There are some other markets like test and measurement and medical systems where we would like to have a better role on the commercial side. Lastly, I think on the growth driver side, we have a really strong engineering team and manufacturing capability. We are trying to figure out basically ways that we can scale our manufacturing to kind of meet the need. There is much more pressure on that side, I think, than on the booking side right now. Here is our customer base. Just wanted you to kind of see some of the names. They are all kind of leaders in their field. Pretty broad. I think there is really not many people that we are missing here. There are some that have asked not to be on here. Some of the neo-primes.
But it's a very good smattering of the who's who in each of these industries. We are constantly working on getting on either new programs within the space or finding new up-and-coming companies that are going to be changing how the market does things. We've had some good success there. Here's our footprint. Orlando and Yankton are our chief manufacturing areas. We also do a lot in New Delhi. New Delhi is ITAR registered, so we do some assembly there. We don't do a complete assembly of products there. That's kind of part of the requirement. But it's been really helpful for us to keep our costs down. Then, lastly, just as avenues for growth. We are really trying to leverage our customer relationships.
When a new program starts at a prime, they often ask other program managers, "Who's a great vendor for you?" That's been a really good source of revenue for us. We're also doing a lot of marketing. We do a lot of market-driven R&D. Then lastly, M&A is a ve ry important function for us, and we're currently hiring on the corporate development side, trying to get some things over the goal line. I think with that, the financial metrics are up online. We put this presentation up there. Just in terms of Q2 results, I'll give you a little bit of that here. We had a very good quarter. We did about $15.1 million of revenue last quarter. It was roughly a 15% growth over the prior year's first half of the year. Gross profits was in the 43% range.
We had a non-recurring, non-cash expense during the quarter. If you were to adjust that, then that would've taken it to about, what, 44.5%, I think. So it's staying very even, essentially. Adjusted EBITDA margins grew quite a bit over the prior year's half. It got up 22%. Then our backlog has been very strong, and it is increasing. We've taken our backlog up 37% over the past year. I do expect it to continue to build slowly throughout the year. Potentially next year, we could have a very big uptick, kind of depending on what happens on the missile side. These growth targets, I think we're kind of at an inflection point, I think, really, frankly.
When I joined the company, the numbers I was putting out as a long-term revenue growth target was I wanted to get to 10% growth consistently, and it was a little bit of a stretch, to be honest with you. Now we're at the point where I think we can do 12% relatively easily. That'll probably increase a little bit over the years, and we could see a big inflection in 2028, just depen ding upon how this defense budget works out, and time will tell there. Our gross margins bounce around a little bit, just based on product mix. In general, we try to target making a 50% gross margin on products, but we have a range. Every product's different. A lot of that's just based on our ability to produce efficiently.
Now we're trying to target somewhere in the 43%-46% range, and we're impacted by about a percent right now from tariffs. I think we're going to scale, and our business, we won't be scaling our operation expenses with our revenue, so our adjusted EBITDA margins will slowly increase. We're in this range right now, and the way for us to get improved margins still is really doing more automation on the factory floor and then getting more leverage from our operating expense. Anyway, I thought we'd leave a little bit of time for questions if you have it, and happy to cover things in more detail if you-
Can you update us on the rights offering?
Yeah.
What are you planning to do with the cash? Obviously, M&A, but can you-
Sure
talk to us about it?
Yeah. Certainly. That was a successful offering. I think the basic subscription took up about 82%, 83%, so most people participated. There was an over-subscription allotment, I guess, so it was fully subscribed. We did it really to raise capital. We were at a relatively good point in terms of the share price, and we really wanted to put more cash on the balance sheet. When I joined, we h ad $10 million on the balance sheet. We are putting $6 million to $7 million on the balance sheet right now, after CapEx and other, so a year, maybe up to $8 million. So we are increasing it slowly, but this gives us more flexibility in terms of doing M&A, as well as it really strengthens our posture with our customers.
All these guys are looking at making very long-term commitments to government for some major programs, and they're looking at their suppliers and trying to understand who can invest with us. They're not going to invest in our growth. We're well-positioned to do that. The two main drivers are we want to have a strong balance sheet, so we're not going to spend it all. We are looking for M&A opportunities, mostly in the RF component space, but we would also look at subsystem companies as well as system companies that were in our area and we have some expertise on. If you look at some of the targets, we've been looking mostly at companies that produce products that we're already purchasing and integrating, so front end of the radio components.
We'd rather own those companies and capture some more of that margin and have more expertise and have a broader product portfolio. Those are the areas we're primarily looking at. Just to give you some ideas, it's power amplifiers, low noise amplifiers, waveguides, different types of filters that we don't make, like tunable filters, antennas, things like that. These are things that we tend to b undle and build into little modules for our clients. We're trying to basically be a more strategic supplier. This broadening our product stream out does that with our customers, but also with our manufacturer reps, we have greater mind share. Okay. Yeah, please.
Guys, if this is addressed also, I apologize.
Yeah.
Can you talk about, are you exposed to any issues like tariffs, magnets, and components that are
Yeah
not controlled by the U.S.?
Yeah, no, great question. The short answer is yes, but not to as great a degree as many other industries. We do buy metals from overseas. So we buy steel and aluminum. It's mostly coming from Korea, Germany, Canada. That's impacted by tariffs, not necessarily by embargoes. We also buy quartz crystals overseas. Quartz crystals used to be produced in the United States. There's only one manufacturer of them in the U.S. right now, and they're not really financially competitive, unfortunately. We buy primarily from Japan. The three makers of crystals or quartz crystals, the people that grow them, are in China, Russia, and Japan. Obviously, we're cut off from Russia. We'd probably buy crystals from other people that have bought them from China, potentially. But I would say that's probably the one area that we'd have the most limitation on. Yeah.
But not an issue with magnets or things like that. Yeah. Okay. Good. Any other questions? Jean?
Not a question, just a comment.
Yeah.
About 85% super confident.
Good. Yeah, I think there's a lot of upside. We've got some. I think this will be a really interesting year looking forward. We'll see how the defense budget comes out, but I'm very confident that when push comes to shove, there'll be a lot of investment in some of these areas that we focus on. These decisions were made before I joined the company, but they made some good bets. Yeah. Okay. Thank you very much. Appreciate it.