Earnings call transcript: M Tron Industries Q4 2024 sees strong growth in defense sector

M Tron Industries Inc. (MPTI) reported a solid performance in its Q4 2024 earnings call, showcasing significant revenue growth, driven by robust demand in the aerospace and defense sectors. The company highlighted a 17.9% to 20.7% year-on-year increase in preliminary Q4 revenue and a fiscal year revenue growth of 18.8% to 19.5% compared to 2023. Currently trading at $42.61, M Tron Industries’ stock has shown volatility, with InvestingPro data indicating the stock is currently overvalued despite strong fundamentals and an "GREAT" Financial Health score of 3.44 out of 5.

[Get access to 10+ additional InvestingPro Tips for MPTI and discover key insights about the company’s financial health and growth potential.]

Key Takeaways

• M Tron Industries reported a significant revenue increase in Q4 2024, driven by strong demand in defense markets.
• The company’s stock surged by 9.5%, indicating positive investor sentiment.
• M Tron is targeting a 10% revenue growth for the coming years, with ambitions to expand significantly through strategic acquisitions and partnerships.

Company Performance

M Tron Industries demonstrated robust growth in Q4 2024, primarily fueled by its strategic focus on the aerospace and defense sectors. The company’s revenue increased by up to 20.7% year-on-year, underscoring its strong market position. With 30% of its revenue coming from products developed in recent years, M Tron is capitalizing on its innovative capabilities to drive growth. The defense sector, accounting for 65-70% of its business, continues to be a major revenue driver, benefiting from increased demand for precision-guided munitions and radar technologies.

Financial Highlights

• Revenue: $48.9-$49.2 million for FY 2024, marking an 18.8-19.5% growth from 2023.
• Gross Margins: Improved by 200 basis points to around 46-48.5% in Q4.
• Strong cash generation and improved financial performance.

Outlook & Guidance

M Tron Industries is optimistic about its future, projecting a 10% revenue growth with the potential to exceed this target. The company aims to maintain gross margins in the high 40% range and is exploring strategic acquisitions in the $2-$5 million EBITDA range. With current EBITDA at $9.72 million and analysts setting a target price of $63, M Tron is also considering investments through a Connectivity Partnership investment fund valued at $200-$250 million, aiming to become two to three times its current size in the coming years.

Executive Commentary

Cameron Forrer, Interim CEO, emphasized M Tron’s unique position in the defense supply chain, stating, "We are a unique American story... built out over the years to serve our nation’s defense sector." He also highlighted the company’s growth ambitions, saying, "Our goal as a company is to become two to three times our current size in the next few years."

Risks and Challenges

• Potential impacts from changes in defense budgets could affect future revenue streams.
• Supply chain disruptions may pose challenges to manufacturing and delivery schedules.
• Market competition remains intense, requiring continuous innovation and strategic positioning.

M Tron Industries’ Q4 2024 performance reflects its strong execution in key markets and strategic initiatives aimed at sustained growth. The company’s focus on innovation and strategic acquisitions positions it well for future expansion in the aerospace and defense sectors.

Full transcript - M Tron Industries Inc (MPTI) Q4 2024:

Kathleen, Conference Operator: Thank you for standing by. My name is Kathleen, and I will be your conference operator today. At this time, I would like to welcome everyone to the Amtron Investor Update. All lines have been placed on mute to prevent any background noise. Thank you.

I would now like to turn the call over to Mr. Cameron Pharr, Interim CEO. Please go ahead.

Cameron Forrer, Interim CEO, Amtron: Thank you, Kathleen, and good morning, everyone. Thank you for attending our investor update this morning. We’re pleased to speak to you about our preliminary earnings release for Q4 and also the annual preliminary annual results for 2024. We did post those last night, to the SEC and an eight ks and put out a press release on that. So hopefully, you all have a copy of that.

Just a note, we do expect to file our our 10 ks with our audit results on or about March 26 or ’27, so later next month. But they, but we’re we’re very far down our audit process and don’t expect, you know, substantial changes. So for those of you who don’t know, my name is Cameron Forrer. I joined Imtron this past September. I was recently named interim CEO, having served over the past several months as CFO.

And, just a little bit of background and then we’ll get into more of the company, which I know you’re which you’re more interested in. My background is thirty years of experience in technology company management and advisory roles. I spent the last fifteen years running companies, from startups, you know, with less than a million to, software companies with over 100,000,000. And this is, of those companies, you know, we sold two of them, one to Cisco (NASDAQ:CSCO), one to Red Hat, returns significant returns to investors. I also have a lot of combined corporate finance M and A experience, as an investment banker and also as a, as an advisor at Bain Company.

So, I’ve raised about $12,000,000,000 in equity and, and executed over 30 acquisitions and hope to bring some of that experience here to bear. So today, we’re gonna talk about the give you an update on the health of the business, talk about the direction that we’re taking things forward and answer any questions you have with the business and our in our recent announcements about rights offerings. And this morning, we did put out a press release that we’re going to shift, gears there and move towards a dividend warrant. The goal there is really to distribute value to our shareholders in a fair and equitable way. And we’ve, you know, kind of refined how we’re doing that.

I think this is probably a better tool to do that. So I’m, I’m, I’m pleased to be joined this morning by Linda Biles, who’s our EVP of Finance and also our Chief Accounting Officer. Linda, if you could just introduce yourself and then maybe go through the safe harbor statement, I appreciate that.

Linda Biles, EVP of Finance, Chief Accounting Officer, Amtron: Good morning. I’m Linda Biles. I’d like to go over our safe harbor with you. Information included or incorporated by reference in this presentation may contain forward looking statements. This information may involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different than the future results, performance or achievements expressed or implied by any forward looking statements.

Forward looking statements, which involve assumptions and describe our future plans, strategies and expectations are generally identifiable by use of the words may, should, expect, anticipate, estimate, believe, intend or project or the negative of these words or other variations on these words or comparable terminology. Examples of forward looking statements include, but are not limited to, statements regarding efforts to grow revenue, expectations regarding fulfillment of backlog, future benefits to operating margins and the adequacy of cash resources. Actual events or results may differ materially from those discussed in forward looking statements as a result of various factors, including without limitation the risks outlined under Risk Factors in the information statement contained within our Form 10 K filed with the SEC on 03/25/2024. In light of these risks and uncertainties, there can be no assurance that the forward looking statements contained in this presentation will in fact be accurate. Further, we do not undertake any obligation to publicly update any forward looking statements.

As a result, you should not place undue reliance on these forward looking statements. With that, I’d like to turn it back over to Cameron.

Cameron Forrer, Interim CEO, Amtron: Yes. Thank you, Linda. Okay. I’m gonna start the presentation, with the NPTI overview slide, which you should all have from our website. And I really just wanted to give you a brief update on the company for for those of you on the call that it’s new to.

But we were formed in 1965 and listed on the New York, American Exchange in October of twenty twenty two. And we’ve been focused on the aerospace and defense markets since the acquisition of PTI, in 02/2004. So, there was a fairly significant shift in the business, not in terms of products, but in the markets that it went after. Today, we’re an American made defense contractor specializing in robust engineered frequency and timing control and filter applications. We have, about 2,900,000.0 shares outstanding and we also enjoy broad employee ownership.

At the end of twenty twenty three, we distributed 183,000 options to our valued employees, you know, based on their tenure with the company really to reward their behavior over the years, their contributions. And we’re really pleased that, they’re shareholders in the company and strong believers in what we do. We’re well positioned to continue to access long term value creation opportunities, and we’ll talk about some of that today. If we move to the next slide, some of the key takeaways that we wanted to share with you today. We continue to perform well and announced our preliminary earnings for Q4 and the 2024 annual period last night.

We’re a unique American story, I think, you know, founded in 1965 with tremendous, tremendous, engineering skills and capabilities. It’s been built out over the years to serve our nation’s defense sector and other key markets such as avionics, space and satellites, and the commercial sectors. And in the commercial sectors, we play strongly in the telecom area and also in test and measurement. I think, you know, what’s really unique about us is that we’re vertically integrated with the capability to start with a raw crystal and complete it all the way to produce a finished oscillator or filter. We’re really one of the only companies in the market that supplies both oscillators and filters.

And we do this in terms of how the manufacturing process using CNC machining, surface mount assembly. We have a full suite of tests and screening capabilities to ensure robust designs and we have high quality products. And the production of these components and subsystems, it’s they’re really designed to be very high tolerance markets. As much as the art is a science, we depend upon our highly skilled and motivated workforce based in Orlando, Florida, Yankton, South Dakota, and Novi, India for assembly. And, real, really, appreciate all the work that they do and the diligence they bring to the job.

We have a global customer base including many of the industry leaders in our key markets. And, many of our customers, most in fact, really have been with us more than two, ten years. Since the end of twenty twenty four, and just at the end of the year, we announced two big, dollars 10,000,000 plus contract wins. One, we received, just the last days of 2024. And then the second one, we received at the very beginning of 2024.

And it’s really, it strengthens our pipeline. And we also expect to have several other large contracts like that coming in over the next quarter or two. And, and the momentum continues for the business. So, we supply many of the key defense programs for both The United States and our allies. And this includes a broad set of applications, including precision guided munitions, communications, radar, electronic warfare, drones and UAVs and even space and satellite applications.

All these applications require really high tolerance products. And the integration and communication between systems is ever increasing. It’s really increasing demand for our products. Despite the recent discussions in Washington about potential defense cuts, we’ve seen no slowing of our engagement with customers or our sales processes. They all remain on track.

I would say there’s not even a slowing down of those processes. We expect bookings and revenue in the coming years, Q years to remain strong. And that’ll really be driven by the replenishment of US stockpiles and the, also the increase in expected European defense spending, which I think there’s a lot of it low discussion about. And if you look at the European stocks, a lot of the European defense stocks are up quite a bit. But most of the European countries spent over 60% of their defense procurement budgets, acquiring from US defense suppliers.

In addition, another note I wanted to add that Pentagon has been very explicit about carving out, some key programs out of any discussion of budget, decreases in The US. And a lot of these are in areas that we play a key role in. So they’ve discussed explicitly, carving out key air defense systems, precision emissions and missile programs which were a large part of, autonomous vehicles. So drones and UAVs where we play, and some of the surface ships and other platforms where we’re a key supplier. And they’re also kinda key priority areas for our growth.

In addition to the defense sector, with the resolution of the strike discussions at Boeing (NYSE:BA), we expect to be able to fulfill orders to supply a large backlog of Boeing and airframe, the Airbus airframes out through 02/1941. I believe the, the, the common, word on the street is that there’ll be 80% more airframes or 80% of airframes being replaced in those years. And so we expect to have strong tailwinds there. In terms of margins, I want to talk conversions a little bit. Our margins remain strong with gross margins around the 40% mark for the quarter and over 46% for the year.

So, this is a, you know, really, it’s a 1,000 basis point increase over the past three years. We’re getting a lot more leverage out of the model and dropping more cash to the bottom line. And this is the result of our product mix, also improving just our manufacturing efficiencies and, and reducing, you know, our, inventory usages and being more efficient with our raw product. We ended 2024 with a strong balance sheet and we expect cash to accumulate significantly throughout this fiscal year. There are some remaining options to be exercised by our employee base, and they would account for an additional up to about 3,600,000.0 of cash potentially if they’re exercised this year.

I wanted to talk a little bit about, where we’re taking the business. And, the business itself, the core business remains very strong. But I do think we’re gonna spend a little bit more time in the future exploring the use of partnerships and acquisitions, to to provide inorganic growth to the company. And also, we talked briefly in our press release last week about, also an investment in a group called Connectivity Partnership, which will be making investments in RF communications companies in a number of sectors, many of which, you know, we don’t participate in. And so, this gives us a window into new market opportunities.

And I’ll go through that in a little bit more detail. I expect you’ll see, over the next couple of quarters, you know, announcements detailing our progress along those lines. And we’re, we’re really seeking to expand our product portfolio, gain new customers and increase our traction in growing markets. And most importantly, consistently grow our EBITDA and EPS for our shareholders. So when we look at acquisitions, we’re looking at accretive transactions where MPI can play and provide value to the combined entity, whether that’s through our strong sales network or manufacturing capabilities or engineering talent.

And the goal was to acquire companies, and bring them to our margin profile as quickly as possible. And given the large fixed transaction costs and legal and advisory fees and just, you know, the time it requires from our team for the integration work and diligence, we’re trying to concentrate on potential transactions that can add meaningfully to the EVO dot to our bottom line. And when a company has meaningful technology, it’s a little bit too early for development cycle. And its development cycle will provide that earnings profile we’re looking for. We need to partner with it for development of products, for manufacturing of products and for sales and assisting their sales.

Or we can participate through a potential investment by connectivity partners and then either, exercise a right in the future to acquire or partner with that business to drive revenue from those firms. So that’s, I wanted to turn next to the next slide and really speak to our Q4 results. So, you saw in the press release that our preliminary revenues were up significantly in the quarter over the prior year. It’s a year on year increase of between 17.920.7%. So it remains the third year in a row that we’ve had near 20% growth on the revenue line.

In addition, our quarterly gross margin was also strong. And we expect it to be in the range of about just shy of 46% to 48.5% or 7% for the fourth quarter. And that’s comparing to it’s up 200 basis points from the fourth quarter of twenty twenty three. So 2024 has continued to be a very, very good year for the company in terms of its execution. If you look at the fiscal year results, revenues are expected to be between 48.9 and 49,200,000.0 in ’twenty four compared to 41,168,000.000 in 2023.

This represents an annual growth rate, of between 18.819.5%. And as I said, that’s the, that’ll be the third year of an annual growth rate close to approaching the 20% mark. And I think these results really reflect the strength of our strategy, the dedication of our team, and, and really the trust our customers have placed in us. And we continue to execute on their behalf well. We haven’t finished our tax provisions yet, so otherwise, we would provide, you know, operating income and, net income.

But they’re expected to remain close to the same percentages that we saw in Q3, in the long range goals that we’ve outlined in prior investor presentation. So no radical changes on that front for Q4 before the annual results. Okay. Okay. We’re next going to move to, some of the investment highlights.

And this is really just, I think, a repeat of what you’ve heard in the past if you followed us. But I think it’s tracking well. We are seeing strong revenue growth and expect that to continue. We’re now in the phase of the company where we’re generating a lot of cash and we expect to drive, earnings up throughout the period. We have long term contracts and loyal customers and they’re very attractive in large end markets.

At this point in time, this is something we’ve talked about a little bit, we’ve become a critical part of The US supply chain and mission critical supply chain. And for our aerospace and defense business, which is, close to 70% of our business this past year, so in the mid-60s to 70% depending on the quarter. We are, 85% of that is program driven at this point in time, which means we’re part of long term contracts for programs of record in the defense department. And that’s critical because that helps you weather budget storms, like when things are going through late budget approvals. We’re still able to benefit from that because we’re on program of record and any continuing resolution can fund further purchases of our products.

And those programs record typically last five to twenty five years in the defense sector. Just an example of that is in this past year, the Patriot missile system, which is a stalwart, that’s used around the globe and it’s, you know, it’s in the news quite often, was up for a redesign. And they’ve decided that there really are no competitors and it’s quite effective still. And so that program has been extended again without a redesign. So that’s going to be a program that’s well over the twenty five year mark.

We also feel we have compelling financials, with the organic growth that we’ve shown over the past year and the improvements we made in the business. And now we’re looking more at an inorganic growth strategy to complement that. And then lastly, we have a very strong management team. Linda is a part of that, Bill Draffts, who I think will be on the next call when we do our 10 ks earnings release in March, will also join us. He’s our president and COO.

Both of them have a long tenure at the company and a clear understanding of our business. And we work well together to, to support our employees and also our shareholders. Okay. I’m gonna turn towards the opportunities for growth slide and talk a little bit more about our M and A strategy and our partnership strategy. We’re really focused on improving our market position through acquisitions and for more products and entering new markets or else gaining key customers.

Our organic growth has been contributing to this. And, if you look out in the past year, we’ve had over 30% of our revenues are generated by new products, so products developed within the last several years. And we’re continuing to hire engineers, additional engineers to help us make good progress penetrating markets and penetrating programs. But we’re looking for Innegas methods as well to accelerate that. So in terms of the type of profile of companies we’re looking for, we’re looking to companies that have moderate to strong revenue growth and also have positive cash flow, that they fill key product or technology gaps, that can bring new customers or end markets or help us accelerate into new markets, And they also support our desire to move more into solution sales.

And so we’ve been doing that on our own. We’re selling subsystems now and modules as well, but, but acquisition or partnership is another key way to do that. And we also want to find companies where, hopefully, we can also leverage what MPTI is already built and honed over the years to help accelerate their traction. And, lastly, there is a slide here which shows some of the technologies we’re looking at just so you could feel for it. We’re, open to ID as a company you’re aware of that you think might be a good fit.

Really, the key here is to add additional products and technologies to our portfolio. This gives our sales reps additional products and their line cards and helps, you know, solidify our engagement with customers and helps us, move more into the subsystem space. And so, some of the areas we’re looking at are RF amplifiers, mixers, power dividers and couplers, phase shifters and diplexers and wave guides. And we’re also looking at subsystem providers, and also people who provide sensors or keep components of avionics and other areas like that for growth. And the last thing I’ll leave you there is we’re looking at companies that do have revenues, that are growing their revenues but might need some improvement there.

And that already have an EBITDA, they’re already offering EBITDA, and probably around the $2,000,000 to $5,000,000 EBITDA range. And this is something that we think we can acquire and integrate well. And it’ll also, be a meaningful driver of our our U. N. Numbers and our EPS.

And then lastly, I think it’s important to consider, we are a publicly listed company. So, we have a lot of flexibility in how we can finance acquisitions. So, we can we’re accumulating cash. We have the ability to, to borrow. We already have a line in place with, the third bank and we’re looking to expand that.

We can raise capital from our investors, our current investors or issue shares to target shareholders. And we’ve already used those first methods just to enhance the returns to the current investors in the company. And then lastly, I want to mention another thing is that, you know, we went through a strategic committee process or review this past year. We looked at acquisition targets and identified quite a few. We also tried to identify if there are other companies in the marketplace that are maybe of similar size or even larger than us.

They’re interested in going public and using our listing as a means of providing liquidity and also serving as an acquisition platform. And so, that’s something we’re not against, and this is something that, we would consider, if it’s going to provide meaningful returns to our shareholders. And really, our goal as a company is to become two to three times our current size in the next few years to continue to gain market share, market presence, and to increase the number of types of products our reps have on their line cards and grow our earnings. So that’s the update on the business. I did wanna talk briefly about the offering, the rights offering and now this morning’s announcement about a a warrant dividend, just to clarify that for some of you.

And then we’re gonna turn it to questions from the groups. So, many of you are aware that we announced a rice offering last week. The goal of that was really to distribute value to shareholders. We are at the point now where we’re generating cash for, that help drive our business and fuel growth of the business. We appreciate your interest and investment in the company, and we want to reward you for it.

But given the volatility, of the stock, and also some of the feedback we received and just the engagement that we’ve done with shareholders and stakeholders, we thought we should look for an alternative way to approach that. So we did this morning announce that we were canceling the rights offering And we were gonna use another vehicle similar to that, called a warrant dividend, which is essentially a right, but it’s a longer term right to provide that value distribution to shareholders. That was our goal. So, with a warrant dividend, it’s essentially a right to buy a share. So for every shareholder record, they’ll receive a warrant dividend, a warrant.

The warrant, for five warrants, you’re allowed to purchase one common share of stock. The warrant dividend itself will remain open for three years. Once it’s declared, we have a record date and we open that, we distribute the warrants. And it’ll also have an early trigger. And, we spoke this morning in our press release about the strike price of the warrant being $47.5 And, and that would be something you would act on at the end of the three year period.

Unless during the course of the next three years, our stock trades up to the 50s and it’s- and the v- average VWAP of the company for thirty days is, is $52 a share or greater. The warrants are going to be on, tradable on the New York Stock Exchange and transferrable. And I think that’s really key to understand. And this is really key to the concept of distributing value to the shareholder. So, what it does is it gives you the ability to either take your warrant and sell it to another individual or to keep the warrant and exercise it over time and, you know, participate in the growth of the company and your investment in the company.

We will in the short term, near term, be announcing, just a record date and making further announcements about this. But I did want to just update everybody here on the call. Okay. I think that’s what we wanted to cover on today’s call. We are happy to open it up to questions, from the audience and welcome your feedback.

Kathleen, Conference Operator: Okay. We will now begin the question and answer session. And your first question comes from the line of Anja Soderstrom of Sidoti and Company. Your line is now open.

Anja Soderstrom, Analyst, Sidoti and Company: Hi, and thank you for taking my questions and congrats on the nice progress here. So just in terms of this capital rates you were doing and you’re canceling now and then this warrants again. Is there something imminent for you in terms of M and A or is this support that or is it or what are you seeing in the M and A market?

Cameron Forrer, Interim CEO, Amtron: Yes. Thank you, Anja. Appreciate you joining today. No, it’s not there’s not a deal at Emmett that we’re going to announce in the next week or so, but we are seeing a lot of opportunity. And so the desire was to one is distribute value to our shareholders.

And, and, you know, an added benefit is that it would, to the extent that people exercise the warrant or exercise the right when we were envisioning that, is it would put more capital on the balance sheet. And it would make it just a little bit easier to do acquisitions of size. So that’s, some of the- and- and really execute on that strategy. So it could be JV partnerships, it could be acquisitions. We’re gonna continue to make investments in the business regardless of how much capital we raise.

And I think we will see some opportunities in the acquisition market as well. But having some more capital on the balance sheet, as we continue to accumulate capital as well, will just help make sure that we can do acquisitions with a higher cash content than shares. And so that provides a better return to our investors over time.

Anja Soderstrom, Analyst, Sidoti and Company: Okay. Thank you. And in terms of those large contract wins you’ve been announcing, are those with the same customer or with different customers? You’re also alluding to other, sizable contracts in the pipeline and also if they are with the same customers or different customers?

Cameron Forrer, Interim CEO, Amtron: Yeah. Those were with two different customers with two of our larger customers. We do have a number of other contracts that we expect to sign in the next, few months. And it’s, you know, it’s really, it’s a variety of people in the, avionics and also in the airspace and defense space.

Anja Soderstrom, Analyst, Sidoti and Company: Okay. Thank you. And and then the connectivity partnership, how are you gonna be working with that? And is that could that be, also helping you source deals to absorb into MPROM?

Cameron Forrer, Interim CEO, Amtron: Yeah. That’s a great question. Yeah. So, the connectivity partnership is something that’s been discussed at this affiliate for, several months. I think there’s a large market opportunity for investment in the area.

And they are establishing a team of seasoned investors and operators who know the space as well. And, you know, I anticipate they’re gonna have pretty strong investment returns. Part of the interest on our part is that, you know, we focus on, several markets. We’re really trying to drive our revenue. But we don’t have a broad view of all the markets where RF plays a role, right?

Or where connectivity plays a role in communications in general. So, connectivity partnership is gonna look at a broader set of vertical applications than we do here at Emtron. And so I think it’ll give us a good window into some of those market opportunities and allow us to invest, through the partnership in some companies that we might not have come across. But also gain knowledge of, you know, new market opportunities in areas that we should consider in the future for growth. And I think it’s in terms of how does it benefit our shareholders, we’re looking at it two ways.

One is I think it’ll generate significant investment returns to us over time. And also, I think it’ll give us the opportunity to partner with or acquire companies that, we may not have come across on our own. So, we’re going to have a strategic role in the fund, but we’re not going to be running the fund. And I anticipate, that we’ll have a right of first refusal on potential acquisitions of companies that come across. And also, there may be a lot of companies that frankly are too small for us to buy at this point in time.

And if connectivity partnership can support them, wonderful. And we’ll partner with them to drive revenue for both firms or maybe we’ll look at acquiring them down the road. So I think it’s twofold really. It’ll generate good returns on our capital as well as give us opportunities to acquire or partner with companies that we might not have seen yet.

Anja Soderstrom, Analyst, Sidoti and Company: Okay. Thank you. And you mentioned you expect a strong revenue growth to continue and with a strong backlog in these contracts with, do you expect it to be to same magnitude as a near 20%? Or where are you anticipating the revenue growth to be in the next coming of years?

Cameron Forrer, Interim CEO, Amtron: Yes. We’ve been guiding people to, in terms of what we feel we can guarantee is lower numbers. So in the 10% growth range, we do have a desire to grow higher than that. And if you look at the last three years, I think we went into every single one of those years expecting probably, you know, 7% to 10% growth. And we were pleasantly surprised with, how we came out.

This year is shaping up strongly. So we’re, you know, we’re doing well in Q1. And I think we do have a good chance at exceeding that. I don’t wanna predict 20%. There’s a lot of, you know, there’s a lot of headwinds in the market in terms of, the dialogue that’s going on in Washington and other places.

I don’t think it’s going to impact us, but, but, you know, there are a lot of changes in front. And so I think it’s kind of prudent to stick with those numbers for now.

Anja Soderstrom, Analyst, Sidoti and Company: Okay. And then, just in terms of the gross margin, you also have been talking about 45% before, but you’ve been beating that every quarter now. How should we think about that going forward and the product mix there?

Cameron Forrer, Interim CEO, Amtron: Yes. I think we’re going to stay in the high 40s to be honest. It’ll bounce around a little bit from quarter to quarter. But I think something in the, you know, when we gave up the long term model, we were talking about I think, you know, 45% to 48%. I think that’s reasonable on a quarter by quarter basis.

And I expect our merchants to kind of remain where they are.

Anja Soderstrom, Analyst, Sidoti and Company: Okay, great. That was all for me. Thank you.

Chip Realy, Analyst, Realy Asset Management: Thank you.

Kathleen, Conference Operator: Okay. Your next question comes from the line of Chip Realy of Realy Asset Management. Your line is now open.

Chip Realy, Analyst, Realy Asset Management: Good morning. Thanks for taking my call. First question, again and I’m just not that familiar what’s going on. So could you put into context what the connectivity partnership is? How much of the what sort of funding is the company committed to for right now?

And then how big will that fund be? And just clarify that is the fund where your former CEO is taking a senior advisory role? I have

Cameron Forrer, Interim CEO, Amtron: some follow-up questions. Sure. Thank you, Jeff. So, the fund itself is just being established. They’re in the they’re right now in the market building their team, talking to potential investors, and also identifying, and building out their deal flow.

It so it’s not set in stone yet in terms of, like, the size they’ve got to raise, but I think they anticipate raising about $200 to $250,000,000 so, you know, substantial amount of money. We look at being a part of the GP, so, so we would have some benefit from the carry, on that, on those investments. And we haven’t determined yet, you know, the size of our investment. I I don’t expect it to be a a meaningful amount of the cash on our balance sheet. But I do think given our position in the market and, getting it early with the fund, we’ll we’ll have a meaningful return there.

But we’ll let people know that as it becomes more solidified.

Chip Realy, Analyst, Realy Asset Management: Okay. And you mentioned, I think that you’ll have a right of first refusal. I mean, I see this fund a little bit as a competitor of your own M and A activities potentially.

Cameron Forrer, Interim CEO, Amtron: Yeah. That’s a good point, Chip. So that’s one of the reasons why as we work with them, we are looking to establish a right of first refusal. So, it’s not a point of competition for us. We’re really trying to delineate the types of things that they would look at, the types of things that we would look at.

And for anything that’s really in our wheelhouse, we would have the ability to, to transact ahead of them. But if we choke, but we looked at it, which shows not to, then I wouldn’t see any reason why we would like connectivity partnership potentially get involved.

Chip Realy, Analyst, Realy Asset Management: Okay. And changing gears to the second topic, I appreciate your comments on the continued cadence of activity at the DoD and for military replenishment. I think that makes sense. My question is, there’s a strong organic growth path at the company. So can you talk about the hurdle for acquisitions as far as if you do and you’ve said you’ll look at bigger and you use the word accretive.

Accretive over what time? Like immediately year one and on what metrics? EPS, cash flow, adjusted EBITDA, that would be helpful. And then secondly, discuss your incentives, if you would, since you’re new to the company, now you have a new role, so changing quick. Are your incentives in cash?

Are your incentives in stock? And how are the other members of the C suite incentivized and how you’re going to get paid? Are you doubling the company with kind of equity at stake? And how much kind of skin in the game for a successful accretive growth path for us as equity holders? Okay.

Cameron Forrer, Interim CEO, Amtron: And do you mind just repeating your first question right? I’ve got the second one down.

Chip Realy, Analyst, Realy Asset Management: The first question was the creative nature of deals, on what metrics basically?

Cameron Forrer, Interim CEO, Amtron: Yeah. That’s fine. Yeah. Thank you for that. So, yeah, we’ve been looking at doing accretive deals.

We look at it on an EBITDA basis. And, and we’ve been really limited to looking at things that are, accretive almost immediately. So, we’re not looking to make big bets on, new technologies, moving into production levels of, of manufacturing. For things that are more on the come, we would look probably more towards partnerships or forming of JVs as a way of sharing and the benefit of helping them grow their business or grow our business. So those are, that’s some of the metrics.

In terms of the size, you know, we’re really trying to buy things that have, couple million at least of EBITDA, if not more. We do find though that when we look at the marketplace, I’d say currently our margins are five to 10 higher than many of the companies that we look at. And so we are trying to find situations that aren’t gonna drag down our margins over time. And where we can have an impact on that, and hope- hopefully improve their margins growing closer to our own, you know, and keep our business model the way it is. We think we have a pretty successful model at this point in time.

We’re really trying to export that. In terms of incentives, you had asked about that. Right now, the senior team is incentives through, you know, salaries, and performance bonuses that are cash based, based on the company’s performance against plan. It’s not really based on our stock performance to be honest. And, we are also we do, but we do participate as equity holders.

So, senior management team either has, they’ll, they most of them have restricted stock and, which vest for a three year period. And so they, they benefit from that. And there are periodic, you know, grants of stock or restricted of stock to management team members.

Chip Realy, Analyst, Realy Asset Management: Okay. That’s helpful. And I would just I can let you go, but I think the one thing I’d like to see as a holder since you are kind of targeting good and aggressive and that’s positive growth targets, I think the bonus should be more equity based to align you with holders better. I think that will be received well if you can look at that next go round or next cycle and change that. Probably and if you’re successful, probably it’s better for everybody on the team anyway if you do that over the longer term if you’re successful.

So I would look forward to that change.

Kathleen, Conference Operator: Okay.

Cameron Forrer, Interim CEO, Amtron: Appreciate that, Jim.

Chip Realy, Analyst, Realy Asset Management: Thank you.

Kathleen, Conference Operator: Your next question comes from the line of James Tidy. Your line is now open.

Cameron Forrer, Interim CEO, Amtron: Yes. Good morning.

Kathleen, Conference Operator: James, your line is now open. Yes, sorry. Good morning. Thanks for taking the call. Hi, Linda.

Welcome, Cameron. I have a very granular question related to gross margins.

Cameron Forrer, Interim CEO, Amtron: Okay.

Kathleen, Conference Operator: In your Q3 earnings release, you mentioned that margin improvements were due in part to improved production efficiencies from previous investments. And I know today on this call, you talked about efficiency of raw materials, which relates to crystals. Can you provide some clarity on the statement? It wasn’t something we previously had seen. And are these investments capital or human in nature?

And how does the crystal yield actually fit into this efficiency, improved efficiency in your production?

Cameron Forrer, Interim CEO, Amtron: Yes. We haven’t talked about like what our crystal efficiency levels are, but we are dedicating resources to making improvements there just because it’s such a large portion of our COGS. So, we have both, consultants and engineering talent we’ve brought on board to help us do that. As well as we are making investments in machinery to, to aid that. So I, I don’t know if we can say more than that, but that’s, that is a core area of focus for us.

We’re also trying to be just more efficient in our, purchase of inventories and as well since that’s that can be a large number as well.

Kathleen, Conference Operator: Okay. Thank you. That’s all I had. Yes. Thank you, James.

That concludes our Q and A session. I will turn the conference back to Mr. Cameron For for the closing remarks.

Cameron Forrer, Interim CEO, Amtron: So, thank you very, very much for joining the call today and your interest in the company. I’m hoping that clarified a lot of things that were, that may have arisen in your mind as you’ve been reading some of the press releases recently. We are really committed to providing shareholder value and doing that in a number of different ways. One way to do it is the, the, the warrant dividend now, which is what we’re trying to pursue. We do realize we kind of stubbed our toe on the, on the rights offering and, you know, hoping to make that good for you over time.

And appreciate your support of the company and kind of the, in our mission. So, and also a big thank you to our employees who are on the call and their dedication to what we’re doing here. And thanks for your time.

Kathleen, Conference Operator: Ladies and gentlemen, that concludes today’s call. Thank you all for joining. You may now disconnect.

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