M-tron Industries, Inc.: Form 10-Q for the period ended Jun 30, 2025

The following discussion and analysis of the Company's financial condition and results of operations should be read in conjunction with the accompanying unaudited Condensed Consolidated Financial Statements, the notes thereto and the other unaudited financial data included in this Quarterly Report on Form 10-Q. The following discussion should also be read in conjunction with the audited Consolidated and Combined Financial Statements and the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in our Annual Report on Form 10-K, as filed with the Securities and Exchange Commission (the "SEC") on March 27, 2025. The terms the "Company," "Mtron," "MPTI," "we," "our" or "us" refer to M-tron Industries, Inc. and unless otherwise defined herein, capitalized terms used herein shall have the same meanings as set forth in our Condensed Consolidated Financial Statements and the notes thereto.

Unless otherwise stated, all dollar amounts are in thousands.

In addition to historical data, this discussion contains forward-looking statements about our business, operations and financial performance based on current expectations that involve risks, uncertainties and assumptions. Actual results may differ materially from those discussed in the forward-looking statements as a result of various factors. See the Cautionary Note Concerning Forward-Looking Statements included in this Quarterly Report on Form 10-Q.

Overview

Mtron is engaged in the designing, manufacturing and marketing of highly-engineered, high reliability frequency and spectrum control products used to control the frequency or timing of signals in electronic circuits in various applications. Mtron’s primary markets are aerospace & defense, avionics, industrials, and space.

The accompanying unaudited Condensed Consolidated Financial Statements include the accounts of the Company and all of its majority-owned subsidiaries.

Trends and Uncertainties

We are not aware of any material trends or uncertainties, other than national economic conditions affecting our industry generally, that may reasonably be expected to have a material impact, favorable or unfavorable, on our revenues or income other than the one listed below and the risk factors disclosed in our Annual Report on Form 10-K, as filed with the SEC on March 27, 2025.

Tariffs

In the first half of 2025, the current U.S. federal administration imposed tariffs on certain products and materials imported into the United States from its trading partners. Additionally, foreign governments have imposed retaliatory tariffs on products and materials exported from the United States. These actions have resulted in market volatility and uncertainty regarding the ultimate effect of the tariffs on global economic conditions, and could further impact the global market for defense, avionics, and other commercial goods. The increase in tariffs have caused an increase in Manufacturing cost of sales, but based on preliminary analysis, we do not anticipate that the tariffs will have a material impact on our operations. The Company is pursuing various avenues to reduce the potential impact, including seeking exemptions and evaluating alternative sources of materials. Based on current conditions, tariffs incurred to date have not had a material impact on our results, but we will continue to monitor developments and assess potential implications as trade policies evolve.

Results of Operations

Three months ended June 30, 2025 compared to three months ended June 30, 2024

The following table presents our Condensed Consolidated Statements of Operations for the periods indicated:

(in thousands)

Total Revenues

Total revenues increased $1,474, or 12.5%, from $11,808 for the three months ended June 30, 2024 to $13,282 for the three months ended June 30, 2025 primarily due to continued strong defense program product and solution shipments.

Total Costs and Expenses

Total costs and expenses increased $1,737, or 17.9%, from $9,701 for the three months ended June 30, 2024 to $11,438 for the three months ended June 30, 2025. The following items contributed to the overall increase:

• a $1,183, or 18.8%, increase in Manufacturing cost of sales from $6,307 for the three months ended June 30, 2024 to $7,490 for the three months ended June 30, 2025 primarily due to the increase in production of several new products, which result in higher initial manufacturing costs, as well as the impact of tariffs; and
• a $554, or 16.3%, increase in Engineering, selling and administrative from $3,394 for the three months ended June 30, 2024 to $3,948 for the three months ended June 30, 2025 from higher research and development investment, higher sales commissions related to an increase in revenues, and an increase in administrative and corporate expenses consistent with the overall growth in the business.

Gross Margin

Gross margin (Revenues less Manufacturing cost of sales as a percentage of Revenues) decreased 298 basis points from 46.6% for the three months ended June 30, 2024 to 43.6% for the three months ended June 30, 2025 reflecting higher revenues partially offset by product mix and the impact of tariffs.

Total Other Income, Net

Total Other income, net increased $112, or 287.2%, from $39 for the three months ended June 30, 2024 to $151 for the three months ended June 30, 2025. The increase was primarily due to a $80, or 181.8%, increase in Interest income (expense), net from $44 for the three months ended June 30, 2024 to $124 for the three months ended June 30, 2025 from higher interest income earned on investments in money market mutual funds.

Income Tax Expense

Income tax expense increased $33, or 8.2%, from $402 for the three months ended June 30, 2024 to $435 for the three months ended June 30, 2025 primarily due to the increase in Income before income taxes driven by the increase in revenues discussed above.

Six months ended June 30, 2025 compared to six months ended June 30, 2024

The following table presents our Condensed Consolidated Statements of Operations for the periods indicated:

(in thousands)

Total Revenues

Total revenues increased $3,021, or 13.1%, from $22,993 for the six months ended June 30, 2024 to $26,014 for the six months ended June 30, 2025 primarily due to continued strong defense program product and solution shipments.

Total Costs and Expenses

Total costs and expenses increased $3,060, or 16.0%, from $19,097 for the six months ended June 30, 2024 to $22,157 for the six months ended June 30, 2025. The following items contributed to the overall increase:

• a $2,103, or 16.5%, increase in Manufacturing cost of sales from $12,713 for the six months ended June 30, 2024 to $14,816 for the six months ended June 30, 2025 primarily due to the increase in production of several new products, which result in higher initial manufacturing costs as well as the impact of tariffs; and
• a $957, or 15.0%, increase in Engineering, selling and administrative from $6,384 for the six months ended June 30, 2024 to $7,341 for the six months ended June 30, 2025 from higher research and development investment, higher sales commissions related to an increase in revenues, and an increase in administrative and corporate expenses consistent with the overall growth in the business.

Gross Margin

Gross margin (Revenues less Manufacturing cost of sales as a percentage of Revenues) decreased 166 basis points from 44.7% for the six months ended June 30, 2024 to 43.0% for the six months ended June 30, 2025 reflecting higher revenue partially offset by product mix and the impact of tariffs.

Total Other Income (Expense), Net

Total Other income (expense), net increased $139, or 123.0%, from $113 for the six months ended June 30, 2024 to $252 for the six months ended June 30, 2025. The following items contributed to the overall increase:

• a $159, or 209.2%, increase in Interest income (expense), net from $76 for the six months ended June 30, 2024 to $235 for the six months ended June 30, 2025 primarily due to interest income earned on investments in money market mutual funds; and
• a $20, or 54.1%, decrease in Other income (expense), net from $37 for the six months ended June 30, 2024 to $17 for the six months ended June 30, 2025 primarily due to unfavorable currency movements.

Income Tax Expense

Income tax expense increased $140, or 18.0%, from $779 for the six months ended June 30, 2024 to $919 for the six months ended June 30, 2025 primarily due to the increase in Income before income taxes driven by the increase in revenues discussed above.

Backlog

As of June 30, 2025, our order backlog was $61,199, an increase of $13,960, or 29.6%, from $47,239 as of December 31, 2024 and a increase of $15,877, or 35.0%, from $45,322 as of June 30, 2024. The increase in backlog from December 31, 2024 reflects the continued strength of our aerospace & defense and avionics customer orders.

Non-GAAP Financial Measures

To supplement our Condensed Consolidated Financial Statements presented on a GAAP basis, the Company presents its financial condition and results of operations in the way it believes will be most meaningful and representative of its business results. Some of the measurements the Company uses are "Non-GAAP financial measures" under SEC rules and regulations. The non-GAAP financial measures the Company presents are listed below and may not be comparable to similarly-named measures reported by other companies. The presentation of this additional information is not meant to be considered in isolation or as a substitute for net earnings or diluted earnings per share prepared in accordance with GAAP.

The Company uses the following operating performance measure because the Company believes it provides both management and investors with a more complete understanding of the underlying operational results and trends and our marketplace performance:

Adjusted Earnings Before Interest, Taxes, Depreciation, and Amortization ("EBITDA") is derived by excluding the items set forth below from Income before income taxes. Excluded items include the following:

• Interest income
• Interest expense
• Depreciation
• Amortization
• Non-cash stock-based compensation
• Other discrete items that might have a significant impact on comparable GAAP measures and could distort the evaluation of our normal operating performance.

Reconciliation of GAAP Income Before Income Taxes to Non-GAAP Adjusted EBITDA

The following table presents a reconciliation of income before income taxes to Adjusted EBITDA, a non-GAAP measure:

(in thousands, except share data)

Three months ended June 30, 2025 compared to three months ended June 30, 2024

Adjusted EBITDA decreased $104 from $2,523 for the three months ended June 30, 2024 to $2,419 for the three months ended June 30, 2025 primarily due to lower gross margins discussed above and higher interest income partially offset by higher depreciation and higher stock-based compensation.

Six months ended June 30, 2025 compared to six months ended June 30, 2024

Adjusted EBITDA increased $136 from $4,785 for the six months ended June 30, 2024 to $4,921 for the six months ended June 30, 2025 primarily due to higher revenues; higher depreciation; and higher stock-based compensation partially offset by higher interest income.

Liquidity and Capital Resources

Overview

Liquidity refers to our ability to access sufficient sources of cash to meet the requirements of our operating, investing and financing activities.

Capital refers to our long-term financial resources available to support business operations and future growth.

Our ability to generate and maintain sufficient liquidity and capital depends on the profitability of the business, timing of cash flows, general economic conditions and access to the capital markets and the other sources of liquidity and capital described herein.

As of June 30, 2025 and December 31, 2024, Cash and cash equivalents were $15,529 and $12,641, respectively.

Cash Flow Activity

The following table presents the cash flow activity for the periods indicated:

(in thousands)

Operating Activities

Cash provided by operating activities was $4,462 for the six months ended June 30, 2025 compared to cash provided by operating activities of $3,456 for the six months ended June 30, 2024, an increase of $1,006, primarily due to the following:

• Stock-based compensation increased $119 from $408 for the six months ended June 30, 2024 to $527 for the six months ended June 30, 2025.
• Net change in operating assets and liabilities increased $811 from ($518) for the six months ended June 30, 2024 to $293 for the six months ended June 30, 2025.

Our working capital metrics and ratios were as follows:

(in thousands)

Management continues to focus on efficiently managing working capital requirements to match operating activity levels and will seek to deploy the Company’s working capital where it will generate the greatest returns.

Investing Activities

Cash used in investing activities was $1,398 for the six months ended June 30, 2025 compared to cash used in investing activities of $995 for the six months ended June 30, 2024, an increase of $403, primarily due to the purchase of equipment to support growth, next generation product development, and operational efficiencies during the six months ended June 30, 2025.

Financing Activities

Cash used in financing activities was $176 for the six months ended June 30, 2025 compared to cash provided by financing activities of $127 for the six months ended June 30, 2024, a decrease of $303, primarily due to costs incurred related to the issuance of warrants in April 2025.

Capital Resources

We believe that existing cash and cash equivalents, marketable securities and cash generated from operations will provide sufficient liquidity to meet our ongoing working capital and capital expenditure requirements for the next 12 months from the date of this filing. At various times throughout the year and as of June 30, 2025 and December 31, 2024, some deposits held at financial institutions were in excess of federally insured limits. The Company has not experienced any losses related to these balances.

Our Board of Directors has adhered to a practice of not paying cash dividends. This policy takes into account our long-term growth objectives, including our anticipated investments for organic growth, potential acquisitions and stockholders' desire for capital appreciation of their holdings.

Revolving Line of Credit

On June 15, 2022, the Company entered into a loan agreement (the "Loan Agreement") for a revolving line of credit with Fifth Third Bank, National Association ("Fifth Third Bank"), for up to $5,000 bearing interest at the Secured Overnight Financing Rate ("SOFR") plus a margin of 2.25%, with a SOFR floor of 0.00%. The Loan Agreement has a maturity date of June 15, 2026 and contains various affirmative and negative covenants that are customary for lines of credit and transactions of this type, including limitations on the incurrence of debt and liabilities, as well as financial reporting requirements. The Loan Agreement also imposes certain financial covenants based on Debt Service Coverage Ratio, Current Ratio, and the Ratio of Total Liabilities to Total Net Worth (as such terms are defined in the Loan Agreement). All loans pursuant to the Loan Agreement are secured by a continuing and unconditional first priority security interest in and to any and all property of the Company.

As of June 30, 2025 and December 31, 2024, there were no outstanding borrowings under the revolving line of credit with Fifth Third Bank.

Critical Accounting Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to adopt accounting policies related to estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period, as well as the related disclosure of contingent assets and liabilities at the date of the financial statements. On an ongoing basis, management evaluates its accounting policies, estimates and judgments, including those related to income taxes and inventories. Management bases its estimates and judgments on historical experience and various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates.

There have been no material changes to the critical accounting estimates disclosed in our Annual Report on Form 10-K, as filed with the SEC on March 27, 2025.

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Securities Exchange Act of 1934, as amended (the "Exchange Act") is recorded, processed, summarized and reported within the time periods specified in the rules and forms, and that such information is accumulated and communicated to us, including our Principal Executive Officer and Principal Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

As required by Rules 13a-15(b) and 15d-15(b) of the Exchange Act, an evaluation as of June 30, 2025 was conducted under the supervision and with the participation of our management, including our Principal Executive Officer and Principal Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on this evaluation, our Principal Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures, as of June 30, 2025, were effective.

Changes in Internal Control Over Financial Reporting

There were no changes in the Company’s internal control over financial reporting during the quarter ended June 30, 2025 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II

OTHER INFORMATION