M-tron Industries(MPTI) - 2023 Q4 - Annual Report

PART I Business MtronPTI designs and markets high-reliability frequency and spectrum control products for aerospace, defense, and avionics, with significant customer concentration and growing backlog - MtronPTI specializes in highly engineered frequency and spectrum control products for demanding markets like aerospace, defense, space, and avionics[14] - The company became an independent, publicly traded entity on October 7, 2022, after separating from The LGL Group, Inc[18] Revenues by End-Market (as a % of consolidated revenues) | End-Market | 2023 | 2022 | | :--- | :--- | :--- | | Aerospace and Defense | 55.5% | 48.4% | | Avionics | 24.9% | 22.6% | | Industrial | 14.3% | 21.7% | | Space | 5.3% | 7.3% | | Total | 100.0% | 100.0% | - The company has significant customer concentration: in 2023, the largest customer accounted for 31.4% of total revenues, and the second-largest for 19.0%[28] Key Operational Data | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Research and Development Expense | $2,216,000 | $2,006,000 | | Order Backlog (Year-End) | $47,831,000 | $46,180,000 | Risk Factors The company faces macroeconomic, operational, and financial risks, including customer concentration, supply chain issues, regulatory compliance, and challenges as a newly independent public entity - The business is exposed to macroeconomic risks such as inflation, rising interest rates, and geopolitical tensions which could impact operations and financial performance[49][50] - A significant portion of revenue and accounts receivable is concentrated among a few customers, making the company vulnerable to the loss or reduced demand from any of them[56] - As a supplier to U.S. Government defense contractors, the company must comply with significant and costly procurement regulations like ITAR and the upcoming CMMC, with non-compliance posing a risk to business[68] - Cybersecurity threats to IT systems pose a significant risk, potentially causing operational disruptions, data corruption, and financial loss[80][81] - Risks related to the recent separation from LGL Group include a limited history of operating independently, potential conflicts of interest for certain directors and officers, and significant costs associated with being a public company[91][94][97] Unresolved Staff Comments The company reports no unresolved staff comments - None[101] Cybersecurity The company's cybersecurity program, based on the NIST framework and overseen by the Audit Committee, reported no material threats in 2023 - The company uses the National Institute of Standards (NIST) framework for its cybersecurity program, with oversight provided by the Board's Audit Committee[102][103] - Cybersecurity efforts include partnerships with a strategic customer for network monitoring, a commercial threat feed, DNS security services, and an email threat detection service[105] - In 2023, the company did not identify any cybersecurity threats that had a material effect on its business strategy, results of operations, or financial condition[105] Properties MtronPTI owns primary facilities in Florida and South Dakota, and leases additional office and manufacturing space in India and Hong Kong - The company owns its primary operating facilities in Orlando, Florida (71,000 sq. ft.) and Yankton, South Dakota (32,000 sq. ft.)[107] - Leased properties include office and manufacturing space in Noida, India (13,000 sq. ft.) and a sales office in Hong Kong (700 sq. ft.)[107] Legal Proceedings The company is not involved in any legal proceedings expected to have a material adverse effect on its business or financial condition - Information regarding legal proceedings is incorporated by reference from Note I – Contingencies in the financial statements[108] - The company is not involved in any legal proceedings, other than routine litigation, expected to have a material adverse effect[252] Mine Safety Disclosures This item is not applicable to the company - Not applicable[109] PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on NYSE American, with no immediate plans for cash dividends due to growth focus and credit facility covenants - The company's common stock is traded on the NYSE American under the symbol "MPTI"[112] - The company does not expect to pay cash dividends for the foreseeable future, focusing instead on long-term growth and capital appreciation[113] Management's Discussion and Analysis of Financial Condition and Results of Operations MtronPTI achieved significant revenue and net income growth in 2023, driven by aerospace and defense, improving margins and strengthening liquidity Results of Operations In 2023, revenues grew 29.3% to $41.2 million, with gross margin improving to 40.7% and net income nearly doubling to $3.5 million Financial Performance Summary (2023 vs. 2022) | Metric | 2023 | 2022 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $41,168,000 | $31,845,000 | $9,323,000 | 29.3% | | Gross Margin | 40.7% | 35.6% | +5.1 p.p. | N/A | | Operating Income | $4,299,000 | $2,875,000 | $1,424,000 | 49.5% | | Net Income | $3,489,000 | $1,798,000 | $1,691,000 | 94.0% | | Basic EPS | $1.29 | $0.67 | $0.62 | 92.5% | | Order Backlog (Year-End) | $47,831,000 | $46,180,000 | $1,651,000 | 3.6% | - Engineering, selling, and administrative expenses rose by $4.000 million in 2023, largely due to a one-time stock option grant of $2.000 million to employees and increased legal and SEC costs of $800,000 associated with being a public company[124][126] Adjusted EBITDA (Non-GAAP) | Period | 2023 | 2022 | | :--- | :--- | :--- | | Adjusted EBITDA | $7,692,000 | $4,008,000 | Liquidity and Capital Resources The company's liquidity significantly improved in 2023, with cash increasing to $3.9 million and working capital to $13.8 million, supported by strong operating cash flow Key Liquidity Metrics (as of Dec 31) | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Cash and Cash Equivalents | $3,913,000 | $926,000 | | Working Capital | $13,803,000 | $9,458,000 | | Current Ratio | 4.15 to 1.00 | 2.95 to 1.00 | - Cash provided by operating activities was $4.400 million in 2023, a significant increase from $2.000 million in 2022, mainly due to improved financial results[139] - The company has a $5.000 million revolving line of credit maturing in June 2025, with no outstanding balance as of December 31, 2023[144] Critical Accounting Estimates Critical accounting estimates include income taxes, requiring judgment on deferred tax asset realizability, and inventory valuation, based on historical demand and usage - The most critical accounting estimates involve income taxes and inventory valuation[146] - Income tax estimates involve judgments on tax credits, benefits, deductions, and the realizability of deferred tax assets, which may require a valuation allowance[147][148] - Inventory reserves for obsolescence and excess stock are determined by analyzing historical demand and usage, and actual experience may differ from these estimates[152] Quantitative and Qualitative Disclosures About Market Risk This item is not applicable as the company is a smaller reporting company - Not applicable as the Company is a smaller reporting company[153] Financial Statements and Supplementary Data This section presents the company's audited consolidated and combined financial statements for 2023 and 2022, including key statements and accompanying notes Consolidated and Combined Statements of Operations In 2023, the company reported revenues of $41.2 million and net income of $3.5 million, significantly up from 2022 Consolidated and Combined Statements of Operations (Years Ended December 31) | (In Thousands, Except Per Share) | 2023 | 2022 | | :--- | :--- | :--- | | REVENUES | $41,168 | $31,845 | | Manufacturing cost of sales | 24,402 | 20,499 | | Engineering, selling and administrative | 12,467 | 8,471 | | OPERATING INCOME | 4,299 | 2,875 | | Total other income (expense), net | 101 | (280) | | INCOME BEFORE INCOME TAXES | 4,400 | 2,595 | | Income tax provision | 911 | 797 | | NET INCOME | $3,489 | $1,798 | | Net Income per Basic Share | $1.29 | $0.67 | | Net income per Dilutive Share | $1.28 | $0.67 | Consolidated Balance Sheets As of December 31, 2023, total assets increased to $24.3 million, liabilities decreased, and stockholders' equity grew to $19.9 million Consolidated Balance Sheets (As of December 31) | (In Thousands) | 2023 | 2022 | | :--- | :--- | :--- | | Total Current Assets | $18,187 | $14,314 | | Net property, plant and equipment | 4,131 | 3,647 | | Total Assets | $24,305 | $19,273 | | Total Current Liabilities | $4,384 | $4,856 | | Total Liabilities | $4,410 | $4,932 | | Total Equity | $19,895 | $14,341 | | Total Liabilities and Stockholders' Equity | $24,305 | $19,273 | Consolidated and Combined Statements of Cash Flows In 2023, operating activities provided $4.4 million in cash, leading to a year-end cash balance of $3.9 million Consolidated and Combined Statements of Cash Flows (Years Ended December 31) | (In Thousands) | 2023 | 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $4,405 | $2,042 | | Net cash used in investing activities | $(1,281) | $(936) | | Net cash used in financing activities | $(137) | $(2,815) | | Increase (decrease) in cash and cash equivalents | $2,987 | $(1,709) | | Cash and cash equivalents at beginning of year | 926 | 2,635 | | Cash and cash equivalents at end of year | $3,913 | $926 | Notes to Consolidated and Combined Financial Statements Notes detail accounting policies, post-separation presentation, related party transactions, income taxes, and stock-based compensation, highlighting customer concentration and an undrawn credit facility - Financial statements for periods through the separation on October 7, 2022, are prepared on a "carve-out" basis from LGL Group's records and may not be indicative of future performance as a standalone company[177][178] - The company has significant customer concentration, with its top customer accounting for 31.4% of 2023 revenues and its second-largest for 19.0%[214] - The company has a $5.000 million revolving line of credit agreement with Fifth Third Bank, maturing in June 2025, with no outstanding borrowings as of December 31, 2023[236] - Total stock-based compensation expense was $2.400 million in 2023, a significant increase from $500,000 in 2022, largely due to a one-time grant to employees[244] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes or disagreements with its accountants regarding accounting or financial disclosure matters - None[257] Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2023, with no material changes - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of December 31, 2023[259] - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2023, based on the COSO framework[261] - No material changes were made to the company's internal control over financial reporting during the quarter ended December 31, 2023[264] Other Information No directors or officers adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements in Q4 2023 - No directors or officers adopted or terminated a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement during the three months ended December 31, 2023[265] Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to the company - Not applicable[266] PART III Directors, Executive Officers and Corporate Governance Information for this item is incorporated by reference from the 2024 definitive proxy statement - Information is incorporated by reference from the definitive proxy statement for the 2024 annual meeting of stockholders[269] Executive Compensation Information for this item is incorporated by reference from the 2024 definitive proxy statement - Information is incorporated by reference from the definitive proxy statement for the 2024 annual meeting of stockholders[270] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters As of December 31, 2023, the company had 193,010 outstanding options and 380,074 securities available for future issuance under equity plans Equity Compensation Plan Information (as of December 31, 2023) | Plan Category | Number of securities to be issued upon exercise | Weighted-average exercise price | Number of securities remaining available for future issuance | | :--- | :--- | :--- | :--- | | Equity compensation plans approved by security holders | 193,010 | $34.90 | 380,074 | | Equity compensation plans not approved by security holders | — | — | — | | Total | 193,010 | $34.90 | 380,074 | Certain Relationships and Related Transactions, and Director Independence Information for this item is incorporated by reference from the 2024 definitive proxy statement - Information is incorporated by reference from the definitive proxy statement for the 2024 annual meeting of stockholders[272] Principal Accountant Fees and Services Information for this item is incorporated by reference from the 2024 definitive proxy statement - Information is incorporated by reference from the definitive proxy statement for the 2024 annual meeting of stockholders[273] PART IV Exhibits and Financial Statement Schedules This section lists financial statements filed under Item 8 and provides a detailed list of exhibits, with no financial statement schedules filed - This section lists the consolidated and combined financial statements filed under Item 8[274] - A detailed list of exhibits, including governance documents, material contracts, and certifications, is provided[275][276] - No financial statement schedules were filed with this report[279] Form 10-K Summary The company did not provide a Form 10-K summary - None[280]