M-tron (MPTI) Fiscal Q2 2026 Earnings Call: Backlog Reaches $84 Million

Key Takeaways

• Fiscal Q2 2026 revenue increased 13.8% year over year to $15.1 million, driven by aerospace and defense programs and higher avionics and space shipments versus Q1.
• Adjusted EBITDA rose 41.7% to $3.4 million. Net income increased to $1.9 million, while diluted EPS declined to $0.43 because of higher weighted shares following the April 2026 rights offering.
• Backlog reached $84 million as of June 30, 2026, up 37.2% year over year. Management said book-to-bill has remained well above 1 for three consecutive quarters.
• Gross margin was 41.2%, including approximately $0.5 million of stock-based compensation tied to the accelerated vesting of the 2025 annual bonus.
• Management expects second-half gross margin to be approximately 41.5% to 43.5%, potentially reaching 44%, but considers the middle of the range more realistic.
• Demand was led by counter-drone radar, electronic warfare, missile guidance, tactical communications, commercial avionics and space applications.

Key Financial Data

Business and Operating Performance

Aerospace and defense remained M-tron’s principal revenue driver. Avionics shipments were particularly strong in the quarter, while space shipments also increased from fiscal Q1.

Backlog growth reflected several large aerospace and defense program orders, new counter-drone and electronic warfare solutions, and higher space-industry demand. M-tron supplies oscillators used in phased-array radar for mobile and stationary counter-drone systems deployed in military and border-control applications.

The company also reported strong orders for electronic warfare, missile guidance and tactical communication radios. Management said M-tron is a sole-source provider for a number of precision-guided munition design positions.

Products introduced approximately one year ago generated $12 million of new orders during the past two quarters for 2026 and 2027 production. Those products produced about $200,000 of sales in 2025.

M-tron is investing in equipment, automation and manufacturing capacity to support higher volumes. The company also invested in Skyline Instruments Corporation, which develops synchronization and timing systems for GPS-denied or fragile environments.

Management Guidance

Management expects fiscal second-half gross margin to fall within a range of roughly 41.5% to 43.5%, with 44% possible but unlikely to be exceeded. The company considers the middle of the range the more realistic outcome.

New program ramps are expected to reduce gross margin by approximately one percentage point in 2026. Management expects margins to improve slightly in 2027 as production becomes more efficient and automation increases.

The company expects growth to continue at a slightly accelerated rate through 2026 and 2027. Management anticipates a more significant revenue contribution in 2028 from changes in military-system priorities and the fiscal 2027 defense budget.

M-tron expects the first purchase orders tied to defense primes’ seven-year framework agreements to arrive around fiscal Q1 2027 for 2028 production. Management emphasized that visibility is developing gradually as individual parts and programs are put out for bid.

Risks and Areas to Watch

• Rapid expansion of newer product lines may create production inefficiencies and near-term gross-margin pressure.
• Backlog for the next two quarters exceeds currently anticipated production, increasing the importance of capacity expansion and execution.
• Tariffs reduced fiscal Q2 2026 gross margin by 1.1% and remain a cost headwind across most products.
• The quarter included $1.0 million of non-cash stock compensation expense, including approximately $0.5 million reflected in gross margin. Management does not expect comparable charges to recur at the same magnitude.
• Longer-term defense order timing remains uncertain because programs are being bid part by part and program by program.

Analyst Q&A Highlights

Management said backlog extends through 2028 and already includes more than half of anticipated 2027 production. The company also has more backlog for the next two quarters than it currently expects to produce during that period.

Following the rights offering, M-tron has seen increased acquisition deal flow and is hiring for its corporate development team. Management still hopes to complete a transaction during 2026, while continuing to allocate capital toward manufacturing capacity and scalability.

Regarding Skyline Instruments, management sees potential for M-tron to become an oscillator supplier over time. The investment is also intended to help the company evaluate how its products can address synchronization requirements in GPS-denied or fragile environments.

Full Earnings Call Transcript

Complete Earnings Call Transcript

Management Remarks

Operator

Hello, everyone. Thank you for joining us, and welcome to the M-tron Earnings Call for Second Quarter 2026. [Operator Instructions] We'll now hand the conference over to Linda Biles, EVP of Finance. Please go ahead.

Linda Biles

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 Section 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 statement. The company undertakes no obligations to publicly update or revise any forward-looking statement, whether it's 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.

Cameron Pforr

Thank you, Linda, and good morning, everyone. Thank you for attending our second quarter FY 2026 earnings call. We're 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 sub-assemblies used to control the frequency and timing of signals and electronic circuits. We're 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're 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 have 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 $0.5 million 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 3 months ended June 30, 2026, compared with $1.6 million or $0.53 per diluted share for the 3 months ended June 30, 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. These prior year periods do not include such a charge for the 2024 annual bonus. And again, we do not expect this type of 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 3 months ended June 30, 2026, compared with $2.4 million for the 3 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 30, 2026, compared with the $61.2 million of backlog as of June 30, 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 this -- the past 2 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 7-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. Now, 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, and 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 year that we were -- it was the first full quarter of impact to the tariffs, and it remained 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 '26 and '27, 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 '27 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 '27 and '28 production orders and beyond.

M-tron plays a critical role in defense of our nation by providing U.S. source 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 2 quarters, for example, we've received $12 million in new orders for '26 and '27 production for products that we just introduced to the market a year ago and sold approximately $200,000 of in 2025.

We've 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 is making significant advancements critical for the synchronization of RF sensor data and 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, 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 community updates on our press releases on the website.

Anyway, operator, thank you for your assistance today. Can you open the lines and allow the first questions?

Operator

[Operator Instructions] Your first question comes from the line of John Bair with Ascend Wealth Advisors. Please go ahead. Your line is now open.

Question-and-Answer Session

John Bair

Question on your outlook on M&A. I know the rights offering bolstered your cash balance and so forth, so just wondering if you can comment on that, what you see there potentially...

Cameron Pforr

I'd be happy to.

John Bair

We're working on some things and just wondering how that's coming along.

Cameron Pforr

Yes, we are. We have been talking to a number of companies. Since we completed the rights offering, we've had, kind of, an increase in deal flow. So, we now have more banks actively engaged in giving us ideas, which we appreciate. And we've been following up with some of those opportunities. And we still hope to get a deal done this year. We're also starting to hire for our corporate development team. So, trying to make that a more formal process and a better resource in the company. So, we do anticipate accelerating that.

John Bair

And how much increase in bid order and order activity and so forth? So, I'm assuming that your roofline and capability of keeping up with that is adequate at this point, and maybe some of that rights offering money utilized for increased production?

Cameron Pforr

Yes, no, great question, John. So, we're actually -- we've had very strong bookings growth throughout this year and the past 3 quarters have been very strong. And I would say that -- and it looks like it'll continue to be strong. So, right now, we're very focused on increasing our manufacturing capacity and scalability, and we've made a number of investments and accelerated our investments earlier this year just to meet the needs for our customers. So, we're going to continue looking at that as well.

Operator

Your next question comes from the line of Anja Soderstrom with Sidoti. Please go ahead. Your line is now open.

Anja Soderstrom

Congrats on the quarter. How much of the backlog do you expect to convert over the next 12 months, and has the timing of that conversion changed?

Cameron Pforr

Yes, I would say -- so, the backlog's been very strong, Anja, and I appreciate your question on this. We've had three quarters in a row of very good bookings and the book-to-bill ratio has been well above one. Right now, we have considerable backlog, not only for the next two quarters, we have more backlog than we actually currently anticipate producing in those two quarters. And we're trying to figure out how we can handle that. But also the backlog goes out through 2028, and we have, you know, more than half of next year's production already in the backlog. And that's, you know, we're only halfway through the year, really.

Anja Soderstrom

Okay. And you mentioned for the gross margin, you expect that to, sort of, contract in the second half due to ramping on new programs. But you also had an impact from the stock-based compensation for the second quarter. So, how should we think about the contraction there for the second half?

Cameron Pforr

Yes, what we're faced is really rapid expansion for several products that are relatively new to us. We are making investments to try to automate that production and to improve the margins there. We're making good progress. As we continue to bring up several new programs with expectations of very rapid growth, there will be some growing pains there. So it's difficult to tell quarter by quarter what the margins will be, but I think with the tariffs continuing, we probably were going to see gross margins in the back half of the year, somewhere in the maybe 41.5% to 43.5% range, maybe 44%, but certainly not any higher than that. I think realistically, we're probably in the middle of that range.

Anja Soderstrom

And then, as you ramp those programs into 2027 and have the stock-based compensation comparison this year and the tariffs, that should have a positive impact then on the margins for next year, or how should we think about that?

Cameron Pforr

Yes, I do see -- as we get more comfortable with the production of certain products, the margins will go up a little bit just because of being more efficient. And so, I do think that if you look at the larger programs, the margins tend to go up over the first 2 or 3 quarters, 1 to 2 quarters, and then they flatten out. After that, the benefits you can get really are from increased automation on a line. And so, I do think that the margins will be slightly better next year. But I think this year, we've had such strong bookings in the first half of the year with products with a very rapid ramp that will have probably a point impact on our gross margins.

Anja Soderstrom

Okay. And then I'm just curious with the Skyline Instruments investment. What benefits do you expect that to bring for the company in the near term, and how should we think about that kind of strategic investment?

Cameron Pforr

Sure. Yes, several of them. First of all, they are a consumer of oscillators. So, we hope to, over time, be a supplier there, potentially. But also, we have good dialogue with the management team there and really looking at their expertise to help us learn about how our products can play a role in areas where GPS is either fragile or denied. So trying to understand how we adapt our product line to meet that future needs.

Operator

There are no further questions at this time. We have reached the end of the Q&A session. I will now turn the call back to Cameron Pforr, CEO, for the closing remarks. Please go ahead.

Cameron Pforr

Okay, well, I'd like to thank everybody for participating in today's call and your interest in M-tron. Have a great day and please contact us at ir@mtron.com should you have any additional questions. And we look forward to seeing you at some of the events in the next couple of months.

Operator

This concludes today's call. Thank you for attending. You may now disconnect.