Nortech Systems (NSYS) 17 Mar 232022 Q4 Earnings call transcript

Greetings and welcome to Nortech’s Fourth Quarter 2022 Earnings Call. [Operator Instructions] I will now turn the conference over to your host, Mr. Chris Jones. Please go ahead.

Good morning and thanks operator and Happy St. everybody. to Day Patrick’s welcome our to call everyone want conference to today. I

I review will up and your industry, then turn QX it begin for and Jay open to closing financial of full operational review year and questions. with And back customers First, will then for comments. for a our And the results we Nortech’s call proposition our performance. Jay over will his value then

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

statements find Harbor can You Nortech’s filings. complete in SEC our Safe

I And his for with will comments. that, turn it Jay over opening to

Patrick’s St. and everyone. Chris Day you, happy Thank

is shortly. But proposition? back do question. to want simple to excited time what and Nortech’s we I our do XXXX today, at are complex, industrial is value high-mix a on discuss so take and What answer a the We step here bit assemblies we components a Monterrey, results electromechanical to a low-volume, take and of Though little We will in medical, global Suzhou, and complex, engineer Minnesota, simple. Mexico answer so relatively Nortech for plants China. do with basis, to and customers systems, and this defense we and question is manufacture

or in right, high In off the of those larger our in sophisticated huge a factories to And production month. not very Nortech We the lines. capital setup own their produce week and these It’s in or and is testing, down do fundamentally volume, might we Notably, business. two experienced setup a workforce equipment high-enzyme lines companies shifts. we which identical for leverage we solutions. running take dominated high-skilled, to by run Benchmark maybe a that very churn some constantly low whose production lines rely will multiple contrast like admirable technical companies different space, while on compete everyday primarily and mix products firms, complex different thousands Plexus,

is that million take A million order business, contract while larger Nortech. significant to $X manufacturers it’s us. And $X for perfect won’t for

that, X%. customer revenue. fit global largest about our is can after largest roughly of customer low our effectively of mix, But We high accounts XX% business size model. serve that our mission-critical volume, customers Our for next any

they do do larger While all EMS do or candidly, we firms do. do. not that not Wall large will small cannot things things analysts group and firms we together, those And may that will Street

in business hard this learn philosophy difference customers the Occasionally, fundamental way. in

contract poor complex neglected. then process back pulls that customer manufacturing that We was was Consequently, supply for model. Frustrated, their EMS both awarded large was large company’s quality first communication a customer EMS complicated, its fit a are in-house. with high-volume, large to a relatively a and and the and firm. that currently chain firm negotiating business medical small It customer the had manufacturing low-mix suffered. for The relatively

fits a to cash their lot they complexity inventory Nortech of reflects that talking what manufacturing this is simple frequently. taken managing have perfectly. managing somewhat implications the But This and customer of process situation and then happens now quickly suppliers recognizing new all of story the on, us the and

we we of very and team also customers our Nortech us proud is daily what taking customers, employees for them to results feel It’s with secret we and Nortech very and shareholders. of our time. locally, take these care important a the that If other honestly of means communities, critical very our XXXX, good We will all our nationally care and good our well. stakeholders, that do it great great citizens It of It is openly by families, partners our take supplier great we this very as of care and do strong be also in we corporate to each The XXX% care starts know partners of is and there our supplier great to taking we and them care families. also of it. we on globally. strive take with employees communicating time if paying that

our Now explain Chris? to we turn financials it depth, Chris. in will over to more

Alright. Thanks, Jay.

million. up coming higher the XXXX, $XX.X from X.X% the prior the represents with and previous XXXX from begin in from it’s totaled of slightly actions. increases in million QX And line. So increase volume top quarter, quarter pricing of revenue and This $XX.X a revenue I both fourth will year-over-year

million the growth For million, of all XXXX. was serve. sales XX% performance we in of that revenue revenue year markets by $XXX net in driven across nearly XXXX, the the full increase full from Nortech’s a totaled $XXX revenue year

to defense aerospace was In industrial was prior last, from up also the market up XX.X% by the up by coming increase with of $X from million were medical about majority $XX XXXX, $X million component levels year. medical or year from from or the market and markets or million. And The XXXX, our the revenue products. X% XX% prior compared

our of mentioned and markets the year-over-year overall I due a all volume was revenue So across improvement earlier, adjustments. pricing as production combination primarily to higher

basis, gross stable sequential gross but totaled in position. a The or that the profit we or fourth $X.X was million a believe down year the of we more QX prior compared run, XX.X% margin from a $X.X million margin are X% over gross to profit on quarter. quarter long

full or prior million XXXX profit X.X% credit resulting For gross our million improvement gross from cost so retention profit Notable GAAP XX.X% year-over-year gross basis excludes pricing the in profit point inflationary improvement the XXXX, year up primarily adjusted adjusted included XXX $X.X of of actions and is XX% profit gross the non-recurring in and year-over-year profit margin The gross was $XX.X or employee $XX.X to margin to that item. that gross overcome million relates pressures. in gross year.

quarter totaled $XXX,XXX operating increase Fourth new to expenses on selling future was flat quarters. bookings related expenses year-over-year and a basis. million, XX% is fourth expenses it $X.X sequential increase quarter drive business primarily from in driven a The $XXX,XXX of and was marketing the to which million expenses increase operating for quarter XXXX by $X.X engineering operating in a

$XXX,XXX majority capabilities. the the HR a And Xtreme increase the finally, new investments research IT, cost such Next, in cable in in in and to necessary and platform. technologies $XXX,XXX year-over-year investment Optical development reflects analytical Active of year-over-year costs G&A was increase as due continued

XXXX. XXXX, full XX%, fiscal tax to For XXXX was effective $XXX,XXX rate XX% income from The year expense was in in tax $X.X up compared XXXX. in million

was by rate. So, tax a non-taxable that’s And Jobs to the In in XXXX. XXXX, capitalize driven in change amortize by a forgiveness. was Act PPP and rate driven tax and in Cuts the XXXX, the rate requirement experimental loan and valuation our research the Tax large allowance from expenditures tax

EBITDA is increase EBITDA the quarter quarter $XXX,XXX Fourth an of over million, loss $X.X totaled in which significant fourth of XXXX. a

XXXX. previously $XXX,XXX on primarily For in year and capabilities. million EBITDA from gross $X the by year, EBITDA improvement in which revenue $X.X an loss discussed million, full quarter fourth profit totaled Both resulted offset of investments and increases full is a the operating increases

statement. the Moving to and cash on balance sheet flow

$X.X The employee we is we that compared cash the IRS payment. processing no million time, activities used to application in and in visibility by provided in have but that $X.X flow million payments Also second still from included XXXX, the was the Nortech’s by operating First, XXXX. operations $X.X to for ERC to XXXX, of receive we IRS million first cash receive at notable any credit. cash hope when operating of two payment retention

the We also deferred million a will tax social payment. $X.X $X.X ERC payments offset final that have of security million

capital XXXX suppliers believe to the efficiency. with $XX.X prior on-time Nortech’s times. quarter. of quarter, ensure million of borrowing availability Bank supply of XXXX, that slightly that closely the borrowings and million we improvement $X.X unused had in fourth we is lead optimized We million America supply $X.X delivery is with working line chain for on million. and improved working $XX and ended of customers our and We our million credit a of our… from about chain Throughout entire very capital end-to-end $X the declined inventory working as gradual saw supply component by bottlenecks levels net team During chain with

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sincerely apologize Chris. Thanks, Again, we this. for

the figure what in exactly. our up our we touch planning root cause to I topics: out our strategic call process, technologies ESG and before want investments was questions, new to on trying journey. open the for But We’re three

Strategic process is once-a-year Nortech at planning a rather exercise. ongoing just than an

beyond quarter the thinking Board year. Our fiscal next are and even ahead or management always team

as future our future example, strategic years we to effort to other this few organization a system ERP requires current team tool information. and vital strategic connects a years this quickly adjust ahead. ago planning to by reliable aided the enable For demand while And for ERP X past today fluctuations were comprehensive, our us Effective XXXX, entire do covers enterprise-wide a plan vital effectively run Nortech our insights. will year XXXX that new the so and implemented and it’s business. in providing the whole in for We leadership the

to planning that today. strategic history process company. healthier CEO, encouraging years, my also of Our to a span growth recognizes look the X back tenure as see as Nortech’s much President and a we’re business It’s

We and sheet more stable, cash balance are our including flows. much financially

team internal and in Our Mexico in here all plants stronger and and is of China. at Minnesota Cities Twin the significantly around headquarters our

We have customer better relationships, more partnerships today. true

and also we dramatically. have locations also of is better a working partnerships our retain we where sufficient partner families. to our today, other’s employees, each helps improved stable. supplier employees. and And of We work. better place community corporate This better levels are and us Nortech In take And citizens. each including staffing care Our the attract become are operate, a to better

therefore technologies To with can more cleaner stepping Xtreme many innovations are circuit lowering sustainable. for launching areas. help for U.S. our costs. developments, lighter, help Last automation year, even will flexible while our engineering that exciting the Faraday printed further top make our products Xtreme ways, critical vision distinguish also our our us products and cybersecure, two of a These will we Optical making receiving and we cable to patent in expertise the in announced exciting that customers technologies Flex future-oriented They leveraging more products more customers’ high-frequency competitive, better signals. platform machine for marketplace, new Active higher-performance, on stay potential. will continue and and overall Both environmentally all stones in are innovations their factory

intimately in not prepare work our sustainability ESG, we not the may environmental, center we it’s a priorities. helping the to within and follower. of value, R&D horizon. will management efforts creating critically goals. technologies suppliers Board our them team in to customers leader, develop not context matter of but the and tied Tied also only other a be also front are front on help directly these are future include Note While be time. These of and to ESG committed everyone’s challenges critically may our for – a to achieve governance this, ESG social radar issues And and priorities. Nortech’s shareholder our important important must now, for proactive customers, – Nortech ESG be

world stages operates in along another initial ESG report the and way developing business partners plans. soon, and begin ongoing in key committed are to vacuum, this performance this of our we establishing to us. with a No and We around our in progress families, journey, But effort will demonstrates a supplier Nortech Nortech’s employees, and areas. track and greater publicly relatively is baselines shareholders, customers,

for questions. the questions. call that, up please And the for poll line open with we up and open Ali, things will –

private go from have a a investor. [Operator Instructions] Paul Please is Luther, who ahead. We question

congratulations Good kind what be at a of what think I tax and morning the guess into off rate with am high And strong tax normalized might that and the and XXXX looking the rate, margins XXXX. curious Year? kind you to New of you on guess anticipate first at gross also folks run I QX I

I is This on gross normalized both rate margin. tax the Yes. And those and will take of profit Chris.

because XXXX, research I experimentation rate, rate. due forgiveness. tax the rules that we that around made of rate our on high IRS effective disproportionately implementation tax I a So, occurrence of had unique XXXX And had was tax low And that think and capitalization. in effective to then loan PPP think a the Nortech in

So, in two – occur. XXXX, unusual will one neither those of occurrences we

look certainly expect of margin research on That’s gross of into cash would our last statutory margin, kind work especially gross like of about as with gross normal that development. credit to I And So, tax through margin I expect was around XXXX. stable a any XXXX, and on I normalized continue tax was which a we XXXX year at planning working are our advisors income And rate obviously think taxes. significantly things On closely opportunities, we our XXXX. course, full up year to kind ongoing XX%, tax from in pattern the would XXXX.

side measured degree and the a on headwinds have we think I margins tailwinds margins of on the side.

think I is it’s on improving level adding prepared that’s But ultimately, I products. doing So, going we heard to quarter-on-quarter. it’s I on. obviously, assemblies, and be think more to to as ultimately, in be beyond broader are And XXXX I And direction something think complex to you value strategic it’s think focus the think that Nortech’s if more-higher the XXXX, it’s And more Jay’s going – products. customers, continue planning higher-margin we to our company remarks stepwise about going of towards methodical. the margin,

Jay. is this Paul,

year. appreciate all, feel question. We of very We for First thanks about your it. the good do

to as and – back we through go As And there, dealing these tend and Chris noted, our our job things. These part to and very suppliers we close customers our are out pendulums headwinds forth. those all to know are our we of are is our build. to with gross even and staying what expect we working can. the customers Over profitability best with gross clearly But our expect time, our margins continue long-term, to profit out things work top line aggressively grow to and over faster. we to and time, reasonably those try and grow even our our we as

specific areas. are question. numbers, thanks going we not but in the all give improvement We again, for And to those expect

the color there know to a and labor, Thank headwinds pinch you headwinds. little importantly is extra Jay. tailwinds, business, on at inflationary customer driver, But there comment just the kindly? more pressures. market got is And I kind the can add that the can to you, pressures, Chris – need you – conditions of and or of or it to new material competitive is a level is on you the or that be competitive win flavor of put

as to this, now and than better it to the of supply a months look headwinds significant ease, quite is the it were would XX we as say months, back really, starts if was not bit chain one I is Yes. global we before. XX

really we seen an and, have they their customers because performing As also landing we There interesting that whether the ease, they cases, the of comfortable are out are is which softer Fed because pretty landing. or inventory, more have in rates some market. inventory dynamic are about as concerned as better, has not makes a aggressive see concerns, hard are pretty taking our been in to course, orders interest going about with about we the – pushed a up for

that kind in that way, business pendulum we rates out, And see goes as we have we to we that course. back, As push seen business. of we will by that, of normal back, anticipate of the this, terms expect run will back it and get come

little tend will, of or a the customers, space. for in part, market in most they defense Our in space medical because the more you a fluctuations because lot the they to regular be are economic are or of independent, the if

things expect we landing hoping harder here bit And a we anticipating well, and, landing, a you planning say, out if So, all look, this for little will. to a year. we and we are are for softer will normalize

Got question. it. And final you. one Thank

is give end like? little the margin top two before year-end? to QX. line Here tracking maybe sense guys relative at you the of and Would rate weeks how us we sit And run a QX QX of

are most each of Yes. last are busy. pretty in partly because We of this like on the middle it. we – month we comment obviously, is right point, businesses, quarter specifically won’t the QX at And

we solid over year the a years. plan we that on like this will X we year QX. necessarily comment next But won’t expect forward strategic and overall, our have really we So, going do

Got it. Thank gentlemen. you,

Appreciate Paul. you, it. Thank

this will to I no so may in queue be it to at questions appear any closing hand There further remarks they time, management for Instructions] [Operator have. back

you and to you to Ali, quarter results. – We everyone in thank happy forward St. you and much Day. Patrick’s thanks next May today. talking Good. for very joining XXXX first look quarter our Thank first our us for at

and go And through again. Harbor this I will Chris, is our Safe statement

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

You can filings. Safe Harbor find Nortech’s in SEC statements our complete

you And and May. again with will end talk will that, we Thank call. I in the

Thank call. you, ladies today’s conference conclude and gentlemen. This does

wonderful lines disconnect and You time We your may your participation. thank this you at have for day. a