M-tron Industries, Inc. 2026 Q2 Earnings Call

Please go ahead. Good morning, everyone.

Thank you for joining our 2026 M-tron Q2 earnings call. Please note that this call will be recorded, and we will make the recording available on our website, www.mtron.com, shortly after the call. Yesterday afternoon, we released our earnings for the second fiscal quarter of 2026. 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 2025 10-K, which was filed on March 26, 2026, with the SEC. This discussion may contain forward-looking statements within the meaning of 27A of the Securities Act of 1933 and Section 21E of the Securities and Exchange Act of 1934. These forward-looking statements contain known and unknown risks and uncertainties, which are detailed in our filings with the SEC.

Although the company believes that the forward-looking statements are based on 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 obligations to publicly update or revise any forward-looking statement, whether as the result of new information, future events, or otherwise. Readers are cautioned that any forward-looking statements are not guarantees of future performance. With that, I will now turn the call over to our CEO, Cameron Pforr.

Thank you, Linda, and good morning, everyone. Thank you for attending our second quarter FY 2026 earnings call. We are pleased to discuss our strong first half results for the fiscal year 2026 and our outlook going forward. As a reminder, M-tron designs and manufactures highly engineered RF solutions, including electronic components and subassemblies used to control the frequency and timing of signals in electronic circuits. We are a global company with three manufacturing sites in the United States and in India, and our primary markets include aerospace and defense, commercial avionics, space, and industrials. We are pleased to report that the company continued to perform well with continued strength in our 2026 Q2 sales, earnings, and booking results, and a growing backlog. Our revenues continue to be driven by our defense-related orders. In this quarter, we saw particular strong growth in avionics shipments.

Our backlog continues to increase with strong growth over the past year in aerospace and defense and space orders, and we've now had three quarters in a row with very strong book-to-bill ratios. With consistent operating performance, we've been able to continue to make strategic investments in research and development and continue to increase the market profile of the company and prime the pump for future growth. Yesterday afternoon, we reported the following Q2 FY 2026 results. Total revenues for the second quarter were $15.1 million, a 13.8% increase over the $13.3 million of revenue in the same period last year. The revenue increased in the period primarily due to continued strong aerospace and defense program shipments and an increase in the quarter over the Q1 in both avionics and space shipments.

Gross margins for the second quarter of 2026 were 41.2% compared to 43.6% for the second quarter in 2025. This number reflects approximately half a million dollars of non-cash stock-based compensation directly related to our 2025 annual bonus, a charge not expected to recur at comparable levels in future quarters. When you factor this into how you look at the margins, our margins were very steady quarter to quarter. Net income was $1.9 million or $0.43 per diluted share for the three months ended June 30th, 2026, compared with $1.6 million or $0.53 per diluted share for the three months ended June 30th, 2025. The net income figure includes a $1.0 million non-cash stock compensation expense directly related to the accelerated vesting of stock-based 2025 annual bonus. This prior year period did not include such a charge for the 2024 annual bonus.

We do not expect this type and magnitude of expense to recur in the future periods. Even with net income increasing, we saw a decrease in earnings per share due to the increase in weighted shares outstanding related to our rights offering that was completed in April of 2026. Adjusted EBITDA was $3.4 million for the three months ended June 30th, 2026, compared with $2.4 million for the three months ended June 30, 2025. This 41.7% increase was primarily due to higher revenues, partially offset by an increase in engineering, selling, and administrative expense, which grew at a slower rate than revenue. Backlog increased 37.2% to $84 million as of June 30th, 2026, compared with the $61.2 million of backlog as of June 30th, 2025.

The increase in backlog reflects continued broad demand for our products, including several large aerospace and defense program orders, several large orders for new solutions for counter-drone and electronic warfare received during the past two quarters, and an increase in space industry orders as well. We continue to execute well on our strategy of continually moving into more program business, which now makes up the vast majority of our aerospace and defense revenues. We have also had heavy order volume this spring in the counter-drone area, where we're supplying oscillators for phased array radar being used for both mobile and stationary counter-drone solutions. These systems are being deployed for both military and border control applications. We've also had strong orders for electronic warfare, missile guidance systems, and repeat orders for tactical communication radios.

We're also engaged with the defense primes on long-term supply agreements for many of these missile systems for which they recently signed seven-year framework agreements. We are putting in longer-term bids for the current programs and are also now competing for some systems for which we were not the original supplier. We believe that our percent of content for the various systems will increase due to this process. These programs are being put out to bid part by part and program by program, so the visibility is kind of slowly coming into focus. We now expect to see our first purchase orders from these increased volumes due to these agreements in probably the first quarter of 2027, and that would be for 2028 production. We're beginning to get increased visibility now on the volumes required.

Meanwhile, we have strong growth in many of our current precision-guided munition production orders. On many of these program design slots, we're a sole source provider, and we stand to reap many benefits of defense spending in this area that we support continues to grow. Some of you have asked also about the continued impact of tariffs. Q2 fiscal year 2025 was the first full quarter of impact of the tariffs. We remain impacted by tariffs across the majority of our products. However, it's been reduced slightly this year after the Supreme Court ruling. We saw a 1.1% impact on gross margins this past quarter compared to 1.25% a year ago in Q2 2025. Overall, we see demand for aerospace and defense products only increasing over the next several years, and 2026 being a very strong year for avionics and space orders and shipments.

We believe that we will continue to grow at a slightly accelerated rate through 2026 and 2027, and we'll begin to see more significant impact to our 2028 revenues from the strategic reshuffling and prioritizing of certain military systems we're now seeing in the FY 2027 defense budget and also reconciliation requests. As we more rapidly scale, we expect gross margins to initially decrease slightly as programs ramp and move to a full rate of production. But overall, earnings continue to increase as revenue should increase at a higher rate than operating expenses. We will continue to update the market as we learn more from our customers about the production volumes expectations on these 2027 and 2028 production orders and beyond. M-tron plays a critical role in defense of our nation by providing U.S.-sourced and highly engineered components for the U.S. and allied military programs.

We continue to make significant investments in our ability to scale production with much new equipment and automation coming online and the development of innovative new solutions. This past two quarters, for example, we've received $12 million in new orders for 2026 and 2027 production for products that we just introduced to market a year ago and sold approximately $200,000 of in 2025. We have also strengthened our balance sheet to signal to our customers that we have market staying power. We have the ability to invest in our growth and a desire to be a strategic partner as they scale their businesses to meet unprecedented demand. We will also use this funding to add to our product portfolio and engineering talent pool through both acquisition and investments. During the quarter, for example, the company made an investment in an innovative dual-use synchronization and timing systems company, Skyline Instruments Corporation.

Skyline's making significant advancements critical to the synchronization of RF sensor data in operations in GPS-denied or fragile environments. This is part of the company's effort to continue to innovate and to learn about future market opportunities in areas critical to our national defense. Before I open the floor to questions, I wanted to mention that we will be presenting at the Moody Capital Conference in early September in New York City and also participating at the Sidoti Small-Cap Virtual Conference later in September. Information for both of these events will be posted on our investor website. I also encourage you to follow us on LinkedIn as well as communicate the updates on our press releases on the website. Operator, thank you for your assistance today. Can you open the lines and allow the first question?