Nortech Systems (NSYS) 16 May 242024 Q1 Earnings call transcript

Good afternoon, ladies and gentlemen, and welcome to the Nortech Systems Incorporated First Quarter 2024 Earnings Conference Call. With me on the line today are Jay Miller, President and Chief Executive Officer; and Andrew LaFrence, Chief Financial Officer and Senior Vice President of Finance. [Operator Instructions]

At this time, it is my pleasure to turn the call over to Andrew LaFrence.

Thank you, Matthew. welcome today's to call. like also everyone conference to I'd review call operations, Jay the a of outlook. will begin business with our and recent developments before review XXXX to will first for turning results Jay comments. I over it closing Then his back Nortech's financial quarter the up for your open will questions. we call Then

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

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

Jay that, it turn with over his back And comments. opening Jay? to I'll for

margins can improving and and everyone. Andy, results, our managing extended good quarter Thank you, of we by today. We're expenses. join glad afternoon, In you us XXXX, first operating the reporting notably solid

without how we share are employees values, Directors appreciation. It me our our on clear the day. team to outstanding with delivered the Once results values appreciation met team continued quarter that again, behalf first very our whole and our have living employees contributions. Nortech deserves innovation of starts not management, hundreds their to commitment, first financial the Nortech sincere teamwork, our Board and members excellence, XXXX Nortech's integrity Everything every live and these would is and our During efforts quarter, have of our of I of employees of shareholders. and ends results with

for Touching as quarter We briefly with posted needed chain improvements We and million adjust continued strategic the first results conditions customers of $XX.X with market realities. margin. to reflect partners financial on as along pricing our gross our to now. supply work carefully net sales in

EBITDA solid for XX-month EBITDA. In XXXX, period at Our also of were first million we levels quarter. million March generated the $X.X ended $X.X the have XX,

is evolution strategies. strategies to parts vendors this We management recently on seeing an on the focus global in new chain lead believe is initiative. work activities ordering are shorten leader to pick wherein management we ready to of Overall, in supply expected We seeking inventories a this hand. on customer which and they to chains a near-shoring to have given of requiring with work normalization to different shift hired their supply ordering and are stock us supply chain times,

of some We order to are their recent year deferring several the also other orders. and, are quarters balancing in visibility compared contract as customers patterns placement quarters next inventories many in prior the reduced bookings with as noting the manufacturers, therefore, similar to

expenditures. the operating Earlier of Part to our and strategy today, optimize to plan capital capacity continuing we our plant future our announced for to of operations. the our direct expense our to facilities efficiency Minnesota line increase consolidate utilization improve and our structure bottom

by facility are Earth, Specifically, of closing we the Blue end our XXXX. Minnesota production

manufacturing and system-level assembly cable Nortech's be assembly Minnesota, to and will shipping location. wire We Bemidji,

other Blue Earth job of facilities. at All offers extended Minnesota being the are employees our

the employees to all hopeful keep family. in the of very We Blue are Nortech Earth

work and by reduction by will future been and these been arrangements. have detail our Further, influenced we activities. hybrid we speak heavily current the footage almost which headquarters reflects are needs, and of -- XX%. impact Maple remote facility reducing facility on optimization in heavily This space our have which Minnesota Andy the square Grove, of more the engineering company's

manufacturing U.S., strategy gives based X-tier control property cost, can operating intellectual in customers on Nortech the We of production Mexico, factors global requirements, their flexibility China, like move quality around Our own management. and in competitiveness. improving

evaluate Our customer may most customer's teams needs change lifetime. which and the to engineers of also each our product's location, suitable the determine over course

global terms to In country reduced and near-shoring shipping of market, work of cost times. better calls, in built past I serve a production is in mentioned our China, approach country, as much in for our customers there the including

over Andy in-depth for more results. at I Next, it will turn Andy? to look our financial

this of would next encourage In our details minutes, financial review issued you this earlier few provide latest of and this the improvement call. with you, XXXX, Exchange certain release financial our in they more contain quarter Commission business Securities our to on operations U.S. Thank performance we as filings and the and first then morning week our about the will I'll Jay. results I but far cover press

outside that by could affected These include our and performance fluctuations, negatively. quarterly shipments noted issues. these chain seasonal historically customer have of can we Any impact quarter a theme, particular timing or continued individual positively a factors. fluctuations, including supply materially might As be either

normalize it more business offer a to of on these gauge potential our success. appropriate believe review focusing is than long-term on quarterly performance. approach our rather This basis will better anomalies we a Consequently, XX-month strategy's help and

the some XX, the my today, while with I most So XXXX. on ended XX, XX-month compared March March comments and will provide first focus for the results, same ending comparisons period quarter XXXX, of I'll period

net as increased XXXX. first As was decrease net backlogs. first sales quarter totaled in the sustained in QX of for medical $XX.X the net income, of of levels improvement and decreases defense from sales we of industrial. offset million by we aerospace sales million. $XX.X quarter a in Nortech's the margin represents quarter with the driven XXXX. XXXX, growth quarter, for see first year-over-year This Net did X.X% And well by category, XXXX realized and gross compared March year-over-year XX, EBITDA of XX-day as as performance

or the same with component compared X.X% $X.X XXXX, medical quarter the quarter, with the medical down in coming decrease the majority For of market as was the products. by million from

category the increase For the $X.X or year quarter, a from sales net And Nortech's the totaled million, defense quarter. the industrial quarter. from XX.X% million $X.X sales XX.X% from year and down net prior prior aerospace were category from

$X.X prior XX.X% gross First totaled sales of net margin million compared net sales profit quarter. or quarter of or million same XX.X% XXXX with $X.X in gross the of year

$X.X a expenses from quarter $X.X XXXX million, first the decrease First operating of expenses operating totaled quarter million. X.X%

the the of XXXX, diluted per realized As our quarter of XXXX. a $XXX,XXX with performance $XXX,XXX diluted compared in income result $X.XX share of quarter we first per net or or $X.XX of in same share

his discussed our Board our Directors our North of approved today footprint. actions to Jay comments, facilities in facilitate As American X optimization of

of the by Blue First, we closure of announced close our Blue XXXX. much Earth to decision facility The deliberation. our the and was not Earth facility end forethought without

will our to employees of facility Earth this our our that Blue all Nortech. through We employees continue we're While at of facility, employment will another continue Nortech with Earth of all commitment Blue closing offering in Minnesota. hope

shut costs quarters We to Blue Earth Blue X Earth consisting the These retention. restructuring estimate charge of equipment, $XXX,XXX facility the to $X.X remaining and estimated million expenses will with include charges the the closing employee of noncash down of payments last impairment move result in XXXX. a million of in $X

restrict in expect XXXX. costs We to the of cash pay substantially

to retained by XX%, to we amendment signed for our reduce repositioning lease needs while have our better several to our square footage approximately the years. Minnesota Second, space next an serve

We starting activities. X these expect to savings million consolidation least annual realize $X.X of at XXXX in related to

the cash statement. flow to Moving

million XXXX, for net in March million ended XX, for activities cash quarter same First, the the period $X.X totaled by with operating compared XXXX. $X.X provided as

noted indicator U.S. business. interest, EBITDA. depreciation, with in we the our reconciliation our to we financial manage our accordance a generally accepted distributed As performance In principles press earnings amortization release, used performance release tax, accounting EBITDA provided determined this or as key in have press the a and morning, of before

quarter gross ended largely the as March This is XXXX, period $X.XXX in million EBITDA expense For improved compared XXXX. million the to increase increased due management. X.X% $X.XXX operating to and same margins for to XX,

the sheet. to Turning balance

credit totaled receipts million, balances expenditures cash of excuse the [ XXXX we XXXX, and as with of up ] XX, me, first in of ended of $X.X borrowing cash borrowings. cash -- capacity million under fluctuation well timing The We credit. XXXX. extended and from As line cash of XX, as our million equivalents March reflects $X.X of quarter December as $X of line

XXXX. strong were of XX, were line as $XX with Accounts of March million, as receivable as down sales customer $XX.X with is quarter March and as Inventories in $XX.X fourth from XX, payments. December of compared timing XX, XXXX, the million of as XXXX, our XXXX. million XX, of $XX.X This expected million December

the $XX.X of to shipments. but asset, contract yet with earned which end Our This compared March customers million reflects slightly $XX.X customer as decrease as XX, of not to timing the revenue billed at 'XX. decreased of represents XXXX, million

As of as generated a accepted application. accordance customer's principles accounting as net to such, unique revenue are And we U.S. produce reminder, a we majority products. from recognize with products the generally manufactured sales our in those specifically

release our in As XX EBITDA. months data non-GAAP we have press issued financial earlier also disclosed we presented results in trailing today, including

XX-month were the for ended period March XX-month ended trailing as XXXX. same $XXX.X compared XX, XXXX, sales net March million with For XX, $XXX.X the period million

ended $X.X period $X.X addition, ended XXXX, with compared for In XX-month March the the March XX-month XXXX. period XX, was XX, as EBITDA million for million

priorities financial XXXX remain As we our in top unchanged. for stated March,

we to our are strengthen on continuing First, sheet. balance extremely focused

well our cash with are operation we growth deliver can Next, objectives. as demand Coupled we of innovation, Nortech opportunities will our improvements R&D to flow. in management believe as sustainable with on that and and free take deliver the infrastructure seeing disciplined expense operations driving lean to market further execution, advantage we EBITDA align

for Jay? it I comments. back that, to Jay With turn closing over will his

Thanks, Andy.

Before your corporate customers together Nortech's on advance questions, want areas touch we to related to and I open call serve that X stewardship. help the our

plans. product innovation expertise, engineering Our and sustainability

For engineering mitigation engineering focused on customers. serviceability, risk enhancing services dedicated a is and and manufacturability expertise, team efficiency that have cost our for chain supply we

January. activities digital cost technology adopt engineering we announced data Mexico the and our and customers' and Beamix capabilities like benefits how for expanded in improved stream compared designed of fit research this I with also U.S., reliability further our copper. our resources quickly global to mentioned offers we dampens the optic Earlier needs. traditional is and China. And transmission a call, to EBX structure across EBX our or speed Nortech's development changing in X-tier when the fiber that can

of that the transmit in data power At solutions Nortech's the digital products simplest and various applications. provide connectivity level, vast majority

data Internet to connected As collect, modules. turn, may parse, as IoT IoT, enable in These a and sensors, data as management for more the and actuators and and components know, using being you of such that is components intelligence variety customers. devices receive improved microcontrollers, and today, artificial evaluated intelligence their analyzed and integrates of combined for data. performance electronic or customers human and as our More transmit well Things, for connectivity human

pipelines. comes growth. effectively needs helps strong And distribute faster, cables Nortech opportunities our data networks. more like securely more for data across sophisticated smart in. see Technology EBX More this these where better cost data collect that's We and and

For impressive example, expected XXXX industrial to to IoT Insights. from applications XXXX, experience Business growth annual double-digit are Fortune to according

fiber of improved and fiber usage of technology carbon to unparalleled our environmental our more cables benefits goals manufacture. with and offers material during reliability. share offering compared by operation, with significant pivot aligns Our sustainability including the with also When the product traditional speed we less production many customers we footprint improves It complex both our decreasing copper, optic and while performance customers. efficiency energy optics for

core aerospace adapting are Harsh electromagnetic fiber environments. interference and reduced environments, power are unique optic proud and technology XX and in sales serving roughly Nortech diversification. net smallest due but important in has defense these aerospace greater course, advantages, very immunity It's back markets defense requirements, these to the and durability our harsh to applications. customers weight common of X key our years. needs, to very customers stating a of by example, history For size, of

black traditional Nortech type are shipboard fiber aerospace source and for employees. we future customers. launches cables systems majority and great still common defense for also are contributions a of with our as Our with of pride But such national to evolving optics along our rounded are The defense molded our and the looking to legacy Navy. missile and the defense the

ITC momentum, manufacturers all expect electronics sales stabilization markets technological orders. In are and to developments our them with about in demand our long-term excited of across outlook of chain closing, improving support stronger month, and Last among customer supply aided by and reported shipments we January. cited global

Our progress confirms over outlook. quarters recent that

open and for go ahead we Now your open will questions. the the Matthew, lines. call

Sallen Aaron question Instructions] Marion first is from [Operator Your from Road coming Capital Management.

goes, facility, As the Blue guys that as you Earth far closure own correct?

do. We

to put for up Are that sale? going you

will move to operations on Once Bemidji, will. Blue up the Earth and that we we market. out of we Yes, put

the sold say that that and can And Bemidji a facilities how you years compares few to Mankato how facility ago? that you

Yes.

hopefully happens an the Bemidji, plant a is defense. we've as to for find made to a will. way, it's that the good is facility. are certified for a business many to possible Bemidji, shift seen and seen it efficient, shift less older bit So in newer, in as example, And as really global move aerospace market, more with just facility by be It of sense Bemidji. operations and efficient we've -- you if Mexico. And out people Bemidji a larger up to a of

a coming end guess, going from like I far What then And your, given estate any looks you net real earnings I the sort out sense. forward? as for of look Okay. by the just like should when of now, from Yes, It are the the priorities -- of company I positive in cash makes year. sale. cash and using cash guess, it be months anticipated XX as the

environment might benefits but in pay we especially bit both in things, invest a we're taking -- interest -- our plants. innovations. existing we credit, it's we reason have And have as higher, will. little in sustainable to innovating employees, the the a continue investments of the good a it of our nice also and rates terms that you to of line number going of EBX. investing imagine, credit employee do to about we we're some will to to plant friendly, with along lot as with care also moving in the of our well, to our we're Well, we're there's continuing significant talked part Bemidji It's fund to make expect if that more plants, We you as made more down

We pushing expect fiber -- customers in future. for envelope technologies on terms our of to the keep pushing the optic in

any the destocking far medical are like where I in was of at have insight of stand you into or some do know levels as kind inventory of cycle? your Q, then sense and have the But And divisions. working there any that we customers? Okay. as mention capital where do at you in like industrial

got across the think setting say in one. [Audio of would contract that of manufactures characterize we've their inventories. they're device Gap] I the I in seen transition are of Aaron, some in many kind some also at as would end where And it's the we particular, you've customers customers medical way it, life board. that level area, a where have I they're

have done traditionally. that

of imagine, too. might confidential pretty lot As you a stuff this is

we don't that level So information. typically of share

Yes.

the the that far when has lot one, And two. necessarily last quarter? Okay. relative like don't margin Fair back why between know like the versus kind as was enough. And been? at coming business anything you variation the then QX obviously, high you for this But why manage this. just normal I to the where a there quarter, of quarter looking Is a last I'm level of it of as it's can just so then more to down point and

margin Yes. ship as we quarters product of higher products just bit a just is We other of little lower mix where just where to shipping opposed do will be a of great be that products. we where are quarters a margin. oftentimes, have a to may range happen They it's factor range

mix. some of that -- just that So is

forward. these have think periods XX-month to margins a that you we first continue improve mean, to the because a going the quite seen, of better general part than about business trend clearly, because a reason It was to as I was sense talk of our I the where margin expect quarter is that opposed trending gives quarter-to-quarter fourth you quarter. on gross basis, stronger bit we

look to have, as have the if tend more at revenue fourth typically, also our -- and We we tend -- be quarters tend margins a you history, we higher the our little well. stronger gross to we to

kind two you benefits Mexican counts. that And did record note we see hit adjustment in other add is revenue retirement I that, that would with the Q is $XXX,XXX cost levels, Aaron, of the the operating impactful. related changes that for you for in an would fixed to leverage gross margin. to thing some

So that impact compared some margin as had on with as the quarter's well. QX

the remarks. host Instructions] go conference in back for will There questions queue. I [Operator our now are hand closing no Please ahead. further to the

look with August XXXX thank talking Thank our you, much, quarter we report goodbye. results. and us you We very in to everyone joining Matthew, and second you thanks for to when forward Again, today.

This event. everyone. today's you, concludes Thank

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