Q3 2025 Earnings Call Contradictions: Tariff Impacts, Avionics Production, and Revenue Growth Discrepancies

Date of Call: November 13, 2025

Financials Results

• Revenue: $14.2 million, up 7.2% year-over-year (Q3 2025 vs $13.2M in Q3 2024)
• EPS: $0.63 per diluted share, down from $0.81 in Q3 2024 (net income $1.8M vs $2.3M prior)
• Gross Margin: 44.3%, compared with 47.8% in Q3 2024 (decline due to product mix and higher tariff-related costs)

Guidance:

• Expect to double revenue next year in EW and radar systems driven by recent wins and higher production rates.
• Plans submitted to dramatically increase production for precision guided munitions and a new UAV program.
• Tariffs are assumed to remain (~3 years); company is pursuing sourcing changes, FAR exemptions for U.S. defense orders, and incorporating tariff charges into pricing for new orders.
• Strong backlog ($58.8M, +48% YOY) underpins near-term outlook.

Business Commentary:

* Revenue Growth and Product Shipment Increase: - M-tron Industries reported total revenues of $14.2 million for Q3 2025, up 7.2% from the previous year's Q3. - The growth was primarily due to strong growth in avionics, space, and industrial product shipments.

• Gross Margin Decline:
• Gross margins for Q3 were 44.3%, down from the elevated 47.8% in Q3 2024.

• The decrease was mainly attributed to product mix and higher tariff-related costs.

• Backlog Increase:
• M-tron's backlog ended at $58.8 million as of September 30, 2025, showing a 48% increase from the previous year.

• The increase is due to robust demand across aerospace and defense programs, new program launches, and a recent surge in avionics and space orders.

• Innovation and New Product Demands:

• M-tron's revenues continue to grow from newly designed products, with a focus on internally compensated oscillators.

• These innovations are driven by market needs and the company's engineering focus, contributing to revenue growth.

• Tariff Challenges and Mitigation Strategies:

• Tariffs are impacting M-tron's gross margins by 1% to 1.5%.
• The company is working with customers to enact FAR exemptions, adjusting pricing, and optimizing material sourcing to mitigate these effects.

Sentiment Analysis:

Overall Tone: Positive

• Q3 revenue $14.2M (+7.2% YOY) and backlog $58.8M (+48% YOY); management cited "big wins in EW and radar" and said they "expect to double our revenue next year" despite gross margin pressure (44.3% vs 47.8%) and a ~1–1.5% tariff headwind.

Q&A:

• Question from Anja Soderstrom (Sidoti & Company, LLC): You noted the increased spend on research and development. Is there a specific area you are increasing it within? And can you talk a little bit about what you're doing there?
  Response: Hiring design engineers to bolster filter/oscillator product development and enable early engineering engagement for co‑developed customer solutions.

• Question from Anja Soderstrom (Sidoti & Company, LLC): You mentioned industrials have started to pick up for you. What are your main programs there within Industrial?
  Response: Key industrial programs are test & measurement (recent driver), downhole oil & gas drilling, and telecom.

• Question from Anja Soderstrom (Sidoti & Company, LLC): You also mentioned the recent surge in Avionics. How are you seeing that trending in the fourth quarter?
  Response: Commercial aviation demand is re‑engaging with orders (including Boeing) and higher production rates; orders are being pulled against a large earlier contract, supporting Q4 strength.

• Question from Anja Soderstrom (Sidoti & Company, LLC): We've been talking about tariffs before. What can you do there to sort of combat that?
  Response: Tariffs likely persist (~3 years) and cost ~1–1.5% of revenue; mitigations include changing sourcing/shipping, pursuing FAR tariff relief for U.S. defense shipments, passing charges to customers, and embedding tariffs into new‑order pricing.

• Question from Anja Soderstrom (Sidoti & Company, LLC): When would those tariff mitigations become effective; how much longer is this headwind?
  Response: FAR exemptions are being applied to new orders now (not to existing inventory); tariff‑related pricing adjustments are being factored into contracts immediately.

• Question from Otto Haeg (Farnam Street): On the Indiana Microelectronics partnership, how do the tunable products integrate with MPTI, what products are we talking about, and what can you tell us about that partnership?
  Response: Partnership to scale Indiana Microelectronics' software‑tunable filters: M‑tron will support sales/marketing and manufacturability to enable quick production scale with minimal CapEx; early sales wins already recorded.

• Question from Otto Haeg (Farnam Street): Could these tunable products turn into large program orders over time or remain smaller runs?
  Response: Early in the relationship, but management expects potential to scale into fairly large contracts given existing customer interest and M‑tron's manufacturing/sales capabilities.

• Question from Otto Haeg (Farnam Street): Any update on Connectivity partners — have you made investments or what's happening with their fundraising?
  Response: No M‑tron investment to date; Connectivity is meeting targets and building a pipeline/fundraising plan, with no current impact on M‑tron.

Contradiction Point 1

Tariff Impact on Gross Margin

It involves differing explanations of the impact of tariffs on gross margins, which is critical for financial forecasting and investor expectations.

How do you plan to combat tariffs? - Anja Soderstrom (Sidoti & Company, LLC)

2025Q3: Tariffs are expected to remain in place for the next 3 years. We're examining materials shipping, working with customers for tariff relief under FAR, and incorporating tariff charges into new order pricing. - Cameron Pforr(CFO)

How much did tariffs impact the quarter's gross margin? - Anja Soderstrom (Sidoti & Company, LLC)

2025Q2: The tariffs had an impact of about 1.25% of revenue or roughly 1% on the gross margin for the quarter. - Cameron Pforr(CFO)

Contradiction Point 2

Avionics Demand and Production

It involves differing statements about the reengagement of backlogs and production rates in the avionics industry, which could impact revenue projections.

How are Avionics sales trending in Q4? - Anja Soderstrom (Sidoti & Company, LLC)

2025Q3: We're seeing reengagement of backlogs and moving towards higher production rates by companies like Airbus and Boeing. We received orders from Boeing and a large contract for commercial aircraft, with orders against this contract starting to come in. - Cameron Pforr(CFO)

What does the pipeline expect in terms of large contracts or general wins? - Anja Soderstrom (Sidoti & Company, LLC)

2025Q2: The back half of the year also includes a focus on avionics and space industry orders. - Cameron Pforr(CFO)

Contradiction Point 3

Large Contracts and Margin Impact

It involves the impact of large contracts on margins, which is crucial for financial forecasting and investor expectations.

How is the Avionics surge progressing in Q4? - Anja Soderstrom (Sidoti & Company, LLC)

2025Q3: The main areas include test and measurement, oil and gas, and telecom. Test and measurement has recently been a key driver for growth. - Cameron Pforr(CFO & Interim CEO)

Are the large contracts higher-margin programs? - Anja Soderstrom (Sidoti)

2025Q1: Yes, the large contracts are higher margin programs. Some didn't ship a significant amount in Q1, impacting margins. - Cameron Pforr(Interim CEO)

Contradiction Point 4

Revenue Growth Expectations

It involves changes in financial forecasts, specifically regarding revenue growth expectations, which are critical indicators for investors.

How is Avionics trending in the fourth quarter? - Anja Soderstrom (Sidoti & Company, LLC)

2025Q3: We're seeing reengagement of backlogs and moving towards higher production rates by companies like Airbus and Boeing. We received orders from Boeing and a large contract for commercial aircraft, with orders against this contract starting to come in. - Cameron Pforr(CFO & Interim CEO)

What is the expected revenue growth rate over the next few years? - Anja Soderstrom (Sidoti & Company)

2024Q4: We expect growth in the 10% range, though we have exceeded this in the past. Current market conditions and dialogues in Washington could introduce headwinds, but strong bookings and expected defense spending suggest potential for higher growth. - Cameron Pforr(Interim CEO)