Nortech Systems (NSYS) 11 Nov 222022 Q3 Earnings call transcript

Good afternoon, ladies and gentlemen, and welcome to Nortech's Third Quarter 2022 Earnings Call. At this time, all participants have been placed on a listen-only mode and we'll open the floor for your questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Chris Jones, CFO. Sir, the floor is yours.

Thanks, John. welcome Nortech's to conference quarter like call. also everybody third to XXXX I'd

begin a then for will call our Jay his the it today's So will end Jay to with up financial before operational for the and back at over QX comments third performance, brief open then your Nortech's I and questions. review closing results, turning we'll quarter of review call

call. forward-looking expectations. Q&A regarding note please conference those supplemented. update statements during on amended from session that are be and detailed on known that free may may uncertainties the XX-Q recent expressed this obligation and of this today's flow, forward-looking These or information and be plans risks revenue, Before information we most plans, date we by continue, implied as materially including that and those assume call, during call. or other cause cash expected to are this made call involve EBITDA, Form no These earnings, made opportunities call risks, of our results unknown in actual and differ the Nortech and and statements future other may estimates, time known in based company The statements to this

Safe You opening his for SEC filings. can comments. will in statements over complete find Jay to And turn Nortech's our Harbor with it that, I

us time Chris, We Thanks, the you with today. everyone. and good afternoon, taking appreciate

crisis. care visit exhibit that across I'm also should quality roughly the as people to our Mexico seven on impressed patient In Minnesota, subject and chain our dedicated the locations On appreciation, members basis. I us with of with very our global they I as certainly we've a the to high-level my always customers, current I China. hard thanking I manage been share of our facilities, customers thank Whenever through commitment, well. with daily and XXX been by appreciation. and want my Nortech team They've Nortech travels, supply I start know met our in working

want who've as of to all get partners, supplier We I close on hard of time quality really working which, hard Speaking us their to appreciate very our to parts to ship possible. us with thank as been work.

our results. to quarter now Turning third

trend top the We continued and the we and on improvements of both year-over-year sequential the lines. seen four that bottom have quarters, past over

and our On third for posted side, We revenue growth and from three diverse pleased sales strong nine-month base the we're quarter markets: demand remains the that core Medical, of our in double-digit each both overall Industrial and customer periods solid. Defense.

and selective Our inflationary markets. We're seeing third that actions also rates offset pressure continued in from year-to-date labor to our we and quarter material on results are trends taking chosen costs. benefited positive pricing

like location. their move capabilities truly up to including nurses We Medical driven of this production segment skillset is the with business, a chain equipment, partnership. cost and and in of also highly in the skilled development unique cost Asia. by end-to-end collaborative imaging largest mid-single-digits. Nortech solutions, plant techs. our innovation example, at every reported equipment improvement to collaborate Europe quarterly strategic research including facet on in advanced For lowest jobs healthcare solid improvements, closely the customer initiatives cited optimization, customers They a shortages, supply customer Much offers and and our growing fulfillment in especially revenue their productivity recently current of spending large labor aimed part and trends

our any or by this customers have of be we component services deserve are significant to improvements, hard In partnership The our valued industry order as experienced differently if and lead not own we as operate work a and than in our from Industry to time We extension pushouts shorter component mindset continued trusted sync our reason core third a cancellations any the improvements I Association transaction-based why more markets the announced supply shortages operations able and we thus Nortech from shared Components times. resource. chain of key business. commodity increase latest customers were in highly fewer such, customers' the shipments merely lead is far. a to an Electronic month. quarter, act due believe to As as last with outlook

momentum optimistic about For carrying of we XXXX, XXXX. the remainder with into over also finishing cautiously are strong

Our backlog remains healthy.

our done taking control, we on can the As constantly care to focusing with explain overall by our in our carefully with listening to To it with recent quarters, I'll depth, new technologies Nortech of has cash. core back excellence, quickly innovating great disciplined financials our over our executing economy Chris. to we turn remaining things expect outpace customers, more now in employees, and the

Jay. Thanks, right. All

of provide performance to you our more we we in which our financial cover XX-Q, on latest of also about So than as and contains operations would details I it third filed call. our I'll this review far financial information quarter, performance will the yesterday business all more Form encourage but

So macroeconomic as headwinds, are disruptions. as Jay customers chain pointed fewer reporting out, are encouraged our and we're we supply carefully monitoring

we from $XXX decline slight So of And of end more prior was while million backlog million, orders more we so ship positive our than backlog quarter. sequential in XXXX. build could the slight decline through we production component our moving XX% because a sign a year process, up did product this $XXX as to quarter increased and at from second view resulted in levels our that availability see

our This from revenue revenue $XX.X quarter of from the in up third totaled QX increase from million In of coming was XXXX, the higher actions. and it more prior than represents X% to pricing Turning details. $XX.X million. volume our with increases and P&L XX.X% a quarter XXXX, both

was XXXX growth that sales we Nortech's XX% all The XX% totaled performance Industrial and up $X.X levels million. $X.X million $X nine Defense For to by revenue from net quarter. in of XX.X% finally, prior from quarter revenue totaling of market the the nearly was prior the $X.X first in driven gross Aerospace XXXX, million first were by In a the the Medical markets third year or QX, by gross and prior $XX.X totaled by serve. revenue the or market million or profit million, XX%, months the million of from across profit up markets for the compared $X.X year; months million nine $XX.X up also XX% was our increase compared year; XX.X% year to XXXX. in prior or

retention to one-time $X.X credit, year exclude gross in or However, XX.X%. last cost $X.X the credit If goods ERC we credit QX ERC. million or gross QX employee a profit included adjusted of that of million profit related totaled

resulting So from increases XXX point year-over-year, primarily volume our to to price XX.X%. resulting basis XX.X% up with gross That improvement relates sales increased increases. plant coupled margin was from utilization

quarter expenses $X.X operating the increase XX% XXXX, third of operating totaled of XXXX a expenses $X.X million. from million, quarter Third adjusted

had adjustments also We those had in of items. SG&A We year. three non-recurring last

So our from and settlement the SG&A Devicix portion non-cash our the a $XXX,XXX sale. first a trade gain name the $XXX,XXX of credit, final of Merrifield ERC facility abandonment, $XX,XXX expense is for one from the

continued marketing $XXX,XXX in So areas: investments in driven cable increase engineering $X.X in Xtreme research technologies for the as announced recent and in essential third, innovation, resources; development investment initiatives and patent to expenses a year capabilities; three technology. a costs $XXX,XXX new operating back-office earlier new such and platform to and announcement Faraday increase the technology increase in million was for IT selling sales in second, first, and other $XXX,XXX this the resulting a expenses support related AOX year-over-year SG&A in Flex

each EBITDA EBITDA grown in Adjusted have XXXX. in million we $XXX,XXX compared quarter of P&L, adjusted the EBITDA to in was on $X.X QX Finally, XXXX. of QX

for same improvement is to is volume, timeframe last only EBITDA and million pricing to improved $XXX,XXX actions. adjusted plant year-to-date, due the year-over-year year. $X.X the For efficiency higher compared now The

flow year-to-date was $X.X year of statement. sheet Moving as a cash source compared last $X operating on cash an Operating the to this use for flow balance of million. cash at the X/XX/XXXX time and of million to cash

to $XX the with shipments stocks million higher as third working million, quarter due kept relatively build XXXX XX/XX/XX as quarter, the ended third collateral receivable And quarter flat our $XX.X levels also the safety of amended $X.X agreement borrowing in of we retention increased third our our inventory to inventory in We During million to well less credit. extend through at the decreases borrowing credit line as employee of on on inclusion credit XXXX, capacity in quarter-on-quarter. base. the pressure capital of

our confirmation credit that and we funds making their We we contact to will are cautiously relatively balance. with they are ERC line ERC will million application, optimistic receive on and the of on the reduce IRS been $X.X progress soon, those of have we based use in our

combination outstanding will on will we continue ERC flow In over progress, that with anticipate addition, free we improve make quarters, position. balance line in generating that and cash that to payment coming we reduce credit our the liquidity to of steady one-time our use

with for turn Jay over I to comments. will So his closing it back that,

Thanks, Chris.

briefly open optimization activities. strategic we planning chain Before on questions, to ongoing call comment I'd like and your supply the our process to

characteristics: First, customer the sustainable These R&D major are annual value early and relationships position quite on more us supply our of strategic as development countries. and relationships, marketplace chain activity and for our new taking open, by higher leadership; core proactive capabilities; the detailed our and our help planning future. and process engineering great focuses strengths, defined This our dialogue leverage highest of in and is as with includes honest and value-added supplier involves dynamic competitive Nortech's care which communication customer environmentally teams; investments for across differentiate us people key four in stakeholders. intellectual delivers of delivering property well maximizing between candid in which teams. This between our partners product well quality, that all our engagement frequent, three our business all facets strategic

the hiring are success measurable and operations capacity great ends that them planned improving inefficiencies, customer effective engineering throughput, time We bottlenecks it's plant fairly, for capabilities, and and quality on-time U.S., future great are and offering paying prevent numerous address chain plant and continuing in to product make and of delivery to China lead down waste including the areas our production optimal customer providing team. critical to chain communication training, with discussions them chain progress process reducing supply with Supply Mexico products, benefits proactive whether and them relocating starts long-term, retaining supply conducting and in people, issues. to to up the or improving

-- these I them efforts seeing tireless steady areas. always are in We their we're improvement. again always for and seeing must thank

look calls call the open With up our progress quarterly conclude we always, forward to and I'll questions. and you for in future that, shareholder we'll remarks, communications. our As updating on prepared John?

Thank you. the now open gentlemen, is floor questions. [Operator and Instructions]. for Ladies

Okay.

Investor. Private your line Uber, The is first Paul, Paul question is live. coming from

you. Hey, thank

First and growth of foremost, and my this congrats on quarter and year? QX with do would progress. that, see continued And guess, sequential you I ask great margin another wonderful be, revenue into

Yes.

formal expect pretty over -- -- over good solid XXXX. or we we XXXX. into without guidance, momentum QX, a conditions, as any We monitoring about guidance optimistic we Chris expect fourth giving are of quantitative -- to We're carry good that and that course, macroeconomic mentioned, but to carry feeling quarter and We're XXXX. the carefully expect about we're

that's wonderful. Hey,

So my go would shareholder to with more value. that, question

plus. in $X.XX where they're you PE trading in a would valuation. discount a a in you even Plexus like or stock I that the the if mean hypothetically, at take you're seems if you And you a that, modest you're value you plus and think larger that albeit $X line QX guys, such EPS XX a is, higher. be cap apply to very small annualize Now quasi-equivalent and

at doing performance or the wonderful end initiatives shareholder on take guys to try it's because feel your are I you So just have there really awareness your is job for attend I unrecognized? events, place analyst create to at coverage, mean them the in

property we it's our we myself good on more we question Paul, very results, announcements first make or all, Yes, and is will a as good come generate up Board intellectual -- Chris not new there. some communicate of lost as with of or that We Directors.

generally, We see, releases you'll -- see more a how around I'd more will business say, set of is the and frequent doing. you'll press steady

I they're got argue I obviously, because again, more many In of to we realize Directors. They've that's announce necessarily the terms recognize of got And many, important Plexus, recognize is how they've price actions We're any company markets. that that. on Board there. or of shares for out either in many, much of shareholder -- stakeholders, the like it Candidly, things, around you, larger. those not not we or ready comparison with that. important course, the but a efficient a lost might our to value the it's do company share of And more Chris much, financial

That's see to story wonderful about you labor? situated to are guys are because known run it. sense staffed good where last kind lot and with a mean, love of the that? you current you more got temp rate? and question. and tell a labor for you How would One want Are -- running you business of a to be or or of tight overtime I

is comments parts, quality able a chain crisis. reasonably better mentioned every to of that to we're we the still really -- supply chain on built And in to -- not actually -- as like chain is steady as fast us people the than customers are just We and so we're relatively day the well like to. our little for that parts there we'll labor plants thing shipped getting burning of can't need is bottleneck means as do fact, course. we the where over time of a global get we're We're we said, the But supply parts hire; we'd time I crisis. That not out. to, in labor that hire steadily. doing fast in we'd global more job in as we're work typically supply And the which we side. a managing much but -- over to -- quality bit

bottleneck really point We're most for we’re staffed. right -- we're is relatively happy say, the -- parts. now, the I'd it's bottleneck the people, now, the part, where with right So there, not

Yes. is that. to And I this Chris. add will

in level heard you but As our did our prepared -- backlog comments, our out.

And so it is improving.

as part too, been, better his and going had has I parts, in still worse it's direction. direct trends that in right it's supply see chain I of did, comments it think and that while prepared than Jay the we labor, component is

are still on daily course. a to almost things bit. But We loosen bit It's a seeing better start are get up we of a challenge, basis. things little see little a

Understood.

past as of gap? kind you're closing the material closing you're due perhaps available So work and becomes

Yes. at Yes, that's look way to it. a good

thank keep good Great. you the work. Well, and up

you, Paul. Thank

[Operator Instructions].

Private Dennis [ph], Investor. question a line from have We your coming Wilson live. Dennis, is

about for disruptions You how kind and wondering the chain supply customers -- about of Does basically reshoring? talking hear you. your are a was I You're about many now. lot of are many out China and COVID of parts with how much having customers getting they're from getting problems lockdowns you and are your customers, of to there. that revenue extra How going you reshoring? them

quantitative a It's a sell sure moving question. And for manufacturing you them, or where plants give you tell it's answer. maybe crisis, have full whether are the just will to a it's that right reshoring we going production -- to product, and more with they're those little good lot whole a a our lot this about discussions. in closer of have that discussions a I strategic very through customers making we chain I can't supply we the

were a as and course. issues, weren't global crisis, as now, our customers are supply deal they with this there but Before we of chain -- big these COVID before they

the build about in So which we've as some brought for help because we their years, their risks, efficiently. really five to them us candidly and they the supply to these and resources have it more issues right helps are more place with more or shifting chain up and things mitigate ship more right gets four, now known attention place

on. quite of activity So that a there is bit going

places efficiently necessarily take sure building to But oftentimes Now things of quite they as customers, a the bit possible. make overnight. those right our engineering helping work work. not things we're They as that take sure -- fix we're are making you time spending and

are to in back to Instructions]. I'd questions Jay further Miller floor the queue. no [Operator There closing turn like for remarks.

look Thank back and Chris. over forward Goodbye you you, everyone, our things quarter to much, We next talking thank to you joining turn March in for John, now. for very with I'll to us today. fourth results.

Yes. attorney, to And Harbor our Safe statement. with of I'm at our request going close the

materially EBITDA, made and that reiterate Q&A funds liquidity, And known we and expectation I plans, the and the this our during from flow, revenue, statements These those estimates, cash to So on receiving These obligation plans other to are company are no actual and call. free today's during earnings, and this based of as expressed regarding on or want call. implied those supplemented. uncertainties and detailed call to XX-Q forward-looking time unknown may statements conference in results other most amended or opportunities, this risks, in expectations, forward-looking including be expected the ERC update that knows of our including be differ this statements it risks Form involve the cause of call, may information that future assume information date may call as Nortech session made timely. recent

find You'll for you the full statements filings Harbor SEC Safe thank Nortech's call. our in and we

Thank conclude you. gentlemen, and today's does Ladies conference this call.

disconnect may a phone your participation. you wonderful day. your for time, have lines and Thank this at You