Nortech Systems (NSYS) 8 Nov 232023 Q3 Earnings call transcript

Greetings. Welcome to Nortech's Third Quarter 2023 Earnings Call. [Operator Instructions] Please note, this conference is being recorded.

I will now turn the conference over to your host, Alan Nordstrom, acting CFO at Nortech. Alan, you may begin.

right. All Paul. you, Thank welcome today's to call. everyone like conference to I'd review call operations, Jay today's a of outlook. will begin business with our and recent developments

those handing Form that we'll our we open have Nortech's financial the steps call steps Jay review with quarter questions. up XX-Q working his it Please will through your before final note for Then now and to still completed. back file independent comments. We closing when auditors, for the over we're third been results XXXX the

actual we continue, call other future and expectations. before expected be expressed please including But company from made amended differ note may cause plans known earnings, in or during results are to and or forward-looking forward-looking that XX-Q on risks These risks statements most those this plans, revenue, may and those other estimates, call. that statements opportunities involve and Q&A our be supplemented. unknown this detailed materially that Form implied session These regarding uncertainties and recent may

information made conference assume Nortech time today's call by upon known date information the update of as this this statements to the obligation call, call. and of during no are we based The in and

filings. complete statements safe can You Nortech's find in our harbor SEC

it your to for And with that, I'll turn comments. opening over you, Jay,

and Thank join us you, afternoon, good everyone. Alan, today. We're could glad you

by more people XXX than our thanking employees their to advantage. As Nortech's truly are These usual, most dedicated for start efforts. like important I'd worldwide competitive

rely day products engineering components, level finished higher hard and Our electrical team customers assemblies, our members to deliver every mission-critical the work services complete on.

our in are Monterrey in to facilities. great Board team our of meeting a our about members miles Monterrey, and you see headquarters. south we Alan to here, Directors from especially action. and our Board at I'd held to team been facility week, recognize X This for like Minneapolis it's X,XXX opportunity quarterly of Mexico, our Nortech's international speaking I Today,

facility manufacturing here specifications foot built square enhanced outfitted in XX,XXX to XXXX, additional Nortech newly Mexico XXXX. workflow. and operated opened Our and in for has resources our engineering since

team about left the international headquarters. facility members in away an encompasses are China, Eastern Thursday They X,XXX other started and Our opened in Shanghai in first Suzhou Nortech's way, where China miles the square of with in it's Coast morning. This XX,XXX from partnership. feet. operating XXXX and are already XXXX of Nortech just By

month the Products II certification We're received very proud proud Asian in serving we recently Device -- to last Administration Suzhou for Medical market. were Medical National China's Class facility very announce our from

team a achieve level which Our example grow very the worked quality to and effectiveness. Suzhou members hard this shining This and efforts. our to thanks world, highest safety employees' continues reputation Nortech's is for around superior how certification, ensures customer service of prestigious to of the

achievement China Nortech published Healthy both increases some more medtech and customers with European annual significant in largest a as under with China countries. developed GDP report medical this potential, percentage government's a care this on of growing Asia McKinsey for market. and our existing market the to is our in the According China's could This Pacific year, earlier region, XXXX, by is double spending to plan. XXXX decade than the X% of that track Health match expected spending China as

fastest medical growing. Nortech, and For is largest add I the should our market

customers. for Meanwhile, XX% in continue nearly $XX past of million XXXX. our medical up and XXXX, X million of This was our total revenue revenue the to our Over or XX% total see steady defense we last growth accounting to $XX years, in long-term from XX% year. with revenue rose industrial

third our to next Turning quarter results.

U.S. our EBITDA levels quarter. maintain helped Mexico third in across execution gross margin focused and team's the and China, the sequentially increase Nortech Our

on based anticipate requested that we were calls, sometimes customers revenue delayed to We to fluctuate adjustments ongoing and few like -- shipments saw the a customers, factors they to this we with As these previously quarter in while be during we timing discussed as influence on the inventory, demand third pandemic. inventory customer issues. dialogue other will issue COVID be working them these resolved the term. through they expect up in near From our built levels

increases. the significant year we as of also all-time pricing challenging material quarter, third prior benefits actions In margin set year-over-year ahead the comparisons implementing the records because were saw period of quarterly cost

situation that with margins running gross has the However, bit mid-teens. consistently in a since normalized

recent levels our healthy. backlog this quarter, third For remained

Fortune the industrial fact We prior momentum continue that than One many indicator customers, from trailing trailing more to revenue and X% of find promising opportunities including diverse this XX-month period. medical, XX-month our array companies. defense of positive the XXX with the increased is

these optimistic XXXX. finish guardedly raise U.S. expect we GDP factors, surveyed Consequently, end The beyond of outlook their Street seems and outlook. be probability next prospects our economy XXXX, surveyed gradually to Journal to remain Economists all XXXX about Given improving. by Wall the long-term lowered of XXXX recession we strong. within year -- the business the recently and forecasted

Nortech's customer platform This team hard-working members. and comes solid of from base, future confidence combination is financial We believe that the bright. our diverse

Alan? I'll look Now for it turn in-depth a X-month over Alan at our quarter to financials. third and more

Form our encourage our XXXX provide this cover our Thank call. you about of the third also and performance I'll you, information review when next than far as quarter, In business Jay. will but performance I operations we certain details on financial it financial more XX-Q contains latest to filed the few in minutes,

out by supply appropriate a review offer during more and These pointed we timing believe gauge these rather calendar shipment potential will long-term basis anomalies Any Consequently, approach business help on our momentum. a This our strategy's better our and it to disrupt we include we past, XX-month year. fiscal As customer is fluctuations, issues. a our could of a strict of than success. temporarily be affected cycle reporting these normalize factors. chain believe that given can not the in individual outside quarters

performance. third switching So our financial to quarter

have work levels as third demand noted fluctuate customers influenced the to Jay inventory. earlier, levels. anticipated through saw We As this revenue quarter we

Also, near significant year-over-year Yet, levels results high get and increases. were term. However, income last the this sustained actions net material solid in of that gross boosted ahead revenue resolved largely pricing record by the we year-over-year in expect see we quarter EBITDA. expansion third margin year's cost levels, issue decline the and period to from of levels backlog sequential

brief review which Nortech's performance. cash areas, certain comments, sheet. income In include: of balance the statement; the factors financial drove flow our quarter items, a second, of and of our balance third my will includes key a They first, review selected impacting I which statement; review lastly,

you this or questions will our the of financial call. items specific these if address portion have of be quarterly to about usual, during Q&A afternoon's As happy them any I results,

In million. represents XXXX, up yet X.X% a is on QX year-to-date X% of This still revenue $XX.X totaled XXXX, from $XX.X of a quarter third decline nearly million basis. the revenue in

as period. This particularly compares performance results is strong to respective noteworthy prior it year in the

to we've revenue fact, historical trailing the the been In over despite stronger XX-month substantial growth comparison. able period achieve

period. Nortech's remained year-to-date and in XXXX defense growth our revenue and over performance consistent while was driven categories industrial the category, our relatively by aerospace medical

as medical For compared the with of up market was the XX.X% of months coming first or the XXXX, million the medical of XXXX, X majority component increase to from months X the first products. $X.X

year, million, market the from year. the slightly from from year-to-date in category million the the the prior million, was $XX.X totaled while industrial unchanged revenue prior and $XX For aerospace defense $XX.X down period,

in or Included period of XX.X% in to compared year-to-date performance period. $XX.X million profit million financial totaled the the $XX.X gross profit for year the gross XXXX, of XX.X% or prior

X.X% a of Third million quarter from quarter $X.X expenses third operating totaled XXXX $X.X operating -- 'XX a decrease million, the million. $X.X expense

The third the product and believe $XXX,XXX decline we by this in expenses. year-over-year is Despite sufficient primarily driven development in to expenses, new of $XXX,XXX was reduction support decrease that level expense year-over-year in investment research operating R&D quarter technologies. a

the $X.XX for in months of performance first or $X.XX quarter, million diluted third $X.X first per per share XXXX compared of share the result the X of to a X through $X.X or XXXX. net income million totaled diluted months As

and Moving balance flow statement. to sheet the cash

period. net provided XXXX, operating first generated months the than similar level activities XXXX by the through totaled cash double in a million, $X.X First, X more of

slowdown of from prior $XX.X remained million levels the as During at previously of the inventory outlined December XX, demand, from third customer quarter, yet down a million up inventory was in inventories, quarter $XX.X of result XXXX.

over $XX.X This at from XX, were down from evolve million the prior Receivables couple the we the seen years. past quarter in that of pattern is $XX $XX XXXX. and unchanged in with XX, seasonal million, September XXXX, at have December line million

The first half the levels. been higher by receivable typically year has marked of

collections going accelerate believe it of free second cash we declined. receivable months Resultingly, flow half and summer levels generate forward. modest will levels cash the While during

the our prior the through on headwinds quarter of We experienced we $X.X Nortech million in important XXXX few XX, previously the credit of America. in last of of $XX line with is million years the September our third and see At capacity Bank and credit with This receivables down flexibility the quarter. equivalents mentioned borrowing from of million $X.X to cash collections. $X.X in seasonal at XXXX, manage and agreement ended million, totaled giving end fluctuations we the the

arrangements, our remainder financing XXXX our cash well expenditures that will sufficient any capital the satisfy be cash on debt capital operations needs hand of believe anticipated We for from flows as existing as and working and repayments. to

remain XXXX that note, me unchanged. let final priorities for financial our On a reiterate top

are focused the continuing seasonality. sheet some economic on extremely mitigate or environment impacts see changes and we First, may in balance our we strengthen to

opportunities the sustainable and deliver Next, that we will take further advantage demand operations cash flow market align infrastructure seeing our growth. to we are to free with of

Nortech momentum sustained in that in Our can R&D believe thus confidence operations coupled we XXXX disciplined XXXX; innovation, execution, and deliver growth management results expense on with leading far from we objective. has our saw

comments. back With for turn it closing his over I'll Jay to that,

Thanks, again, Alan.

I'd Before questions, peer to Nortech's ESG on, call touch like we and the there X comparisons. to topics open up are inflation, your

managing unfortunately, couple First, its and through We've raw nothing carefully on of over past wages inflation new. both impact been materials. is years, the

increases of should members across the families. strongly Nortech add By For taking care their all this good about that are received staffing levels our members well-being team of We way, pay our team wages, and April. feel I past the across-the-board financial locations.

inflation we made quarter XXXX. of and these In comparisons technologies line a certain fact addressed third for market both and somewhat will during was to we expense that timing the recognition, the consider we quarterly early, increases the services calculating the adjustments, fluctuate. price price As for increases price pricing issues relative company, inflation trends not of with because our in margin including

X press However, in over if trailing the levels gross it our a release, margin the we chart past shows you in included XX-month look years. tremendous at expansion

expect improvements. pricing actions margins strategic we Going of combination operational a increase will and through gross forward, continue to

vision, long-term Second, are follow a baseline we our governance activities, to measured our ESG through Nortech's of direct continue early Guided efforts, environmental, for approach. specifically indirect supplier social measurements emissions, and our in the both methodical and by partners. stages

updates early already We well to own of Nortech website with to which proactive in engaged ESG ESG positions XXXX. Being ESG expect customers, efforts. Nortech post are many with the our actively

Nortech. this are larger according for to call, mentioned preparing medical future is the market ESG of health I science Deloitte a actively engaged over XX% sector most in the importance survey year, last growing such care Early published requirements in including life market, customers on the for the involved. late This disclosure

sometimes the are relatively the computers. low and and volume manufacturing operate ]. peers, comparisons past traded a in large think low our of how Most we've and wide we our for array complex, firms finally, And of systems mix, low-volume, high personal and publicly industry smartwatches [ assemblies, reverse, Benchmark make model. high-mix Jabil Foxconn business commodities described We calls Nortech like with highly and cellphones, on technical under electronic

and different very circuit complex than as manufacture the include are defense devices as for things complete like systems markets. ones products boards with These the well that cable medical we very printed industrial

in operate related and environment a trends. face and companies macroeconomic industry EMS similar all However, challenges

new Nortech by to outpaced According contrast, EMS substantially grew trade new organization, -- X.X%. data in published the from industry. IPC, the research market venture XXXX research By global by the

and revenue goal profitability. group, outperform in peer our Our both of remains to terms

my today, market for and I and manufacturing. Many been loyalty. gratitude in and team's support enthusiasm dedicated their sincere vision, global hope I to want and connectivity shareholders digital for aspiring finally, to And be express Nortech engineering our for the all our with share leader direction data management, Nortech's shareholders our to have decades. the

of with Directors I can management team financial that Along Nortech committed for to our Board members Nortech speak vision, value delivering on saying this positive for remains firmly and delivering team, in shareholders. also

the for concludes our now please That the questions. open open Paul, And call presentation. line. we'll up your

I lines. would questions [Operator Instructions] like were from for now closing And to Jay call remarks. no the to there back the hand Miller

goodbye. We we our Paul, look fourth you for joining March everyone, results. when and quarter today. Thank and us next to forward XXXX Thank to you thanks, talking you, present again,

Thank you. conclude today's conference. does This

this may time. for You participation. disconnect your lines you at Thank your