This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
Operator
Good afternoon, ladies and gentlemen, and welcome to the North Tech's first quarter 2022 earnings call. At this time, all participants have been placed on a listen-only mode, and we will 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, and we also have Jay Miller, CEO, on the call as well. Gentlemen, the floor is yours.
Chris Jones
Very good. Thank you. And I'd also like to welcome everybody to Nortec Systems' first quarter 2022 conference call. Jay will begin today's call with a brief review of our first quarter operational performance, and then I'll review Nortec's Q1 financial results before turning it back over to Jay for his closing comments and business outlook for 2021. And then after our comments, we'll open up the call for your questions. Before we continue, please note that statements made during this call and the Q&A session may be forward-looking regarding expected revenue, earnings, future plans, opportunities, and other company expectations. These estimates, plans, and other forward-looking statements involve unknown and known risks and uncertainties that may cause actual results to differ materially from those expressed or implied on this call. These risks, including those that are detailed in our most recent Form 10-Q, may be amended or supplemented. The statements made during this conference call are based upon information known by NORTEC as of the date and time of this call. and we assume no obligation to update the information in today's call. You can find NORTEC's risk factors and communications with respect to forward-looking statements in our SEC filings. With that, I'll turn it over to Jay for his opening comments. Thank you, Chris, and good afternoon, everyone. Overall, we are very pleased with our first quarter results, which built on our positive momentum from 2021, and we are optimistic about our outlook for the rest of the year. During this call, I'll cover five key themes that will provide a framework for how to think about Nortec. The board of directors, our customers and suppliers, our core operations capabilities, R&D innovation, and our people. The first theme is our board of directors. Today, we held Nortec's annual shareholder meeting, and as part of that process, our shareholders voted to retain an excellent group of directors and added one new member with a unique and important skill set. If you haven't done so, please take a moment to read our director's bios on our website. They are an impressive group, and I'm honored to partner with them guiding Nortec's future growth. They have a wealth of diverse experiences, and most importantly, they are great people who care deeply about helping each other and the management team realize Nortec's unlimited potential. The second theme is our customers and suppliers. Nortec's results in the first quarter are a result of great teamwork with our customers and suppliers. In the current supply chain environment, most of our customers value quality and on-time fulfillment in equal measure. At Nortec, our culture has always prized a commitment to quality. Our medical, military, and industrial customers are in the business of saving and improving lives, and their supply chain must meet the highest quality standards. Our customers also want quality products delivered as fast as possible. We are collaborating upstream with our suppliers and downstream with our customers to provide seamless end-to-end solution that fits each customer's unique needs. Our people are in constant two-way communication with suppliers and customers to overcome component shortages, increase plant throughput, and provide as much visibility as possible. The third theme is operations execution. We never lose sight of the fundamentals. Our business is complex. For example, we build over 1,000 different parts and assemblies in three separate plants for our largest medical device customer. Our global footprint and capabilities with complex, low-volume, high-mix electromedical and electromechanical solutions is a key reason our largest customer relies on us as a top supplier for wire and cable interconnect solutions. As that customer seeks to mitigate supply chain risk, we are proactively partnering with them to shift production to the right plants, whether in the U.S., China, or Mexico. We also take every opportunity to use lean manufacturing principles throughout our locations to drive efficiencies, streamline operations, remove bottlenecks, eliminate waste, and improve customer fulfillment. The fourth theme is innovation. Before I describe our most recent R&D investments, I think it would be helpful to take a step back and provide a brief overview of Nortec's evolution for those of you listening who may not be familiar with our story. I hope this will provide a helpful context for everyone, especially relative to our recent pivot toward R&D innovation. Nortec's system started in 1990 with one Minnesota location and basically one customer. Through both organic growth and acquisitions, we added locations and capabilities here in the Upper Midwest and eventually Mexico and China. While originally Nortec only built parts to customer specifications, we have evolved to add more design manufacturing expertise. More and more often, we serve as a collaborative partner in our customers' product engineering and development, offering lifecycle management and even complete fulfillment solutions. These newer capabilities help move Nortec up the food chain and provide more value-add services for our customers. Our evolution to changing market needs is a key reason we have so many long-term customers, many who have been with us for decades. More than ever, our customers are looking for strategic partners like Nortec that can accompany them and sometimes lead them on their individual innovation paths. This is why we are devoting more resources and attention to developing proprietary technology platforms. As announced in April, we launched our first new platform, which is called Active Optical Extreme, or AOX. These cable technologies target challenging data-dependent applications, including factory automation, machine vision, and robotics, and they complement the company's existing Intercon 1 product lines. AOX cables are capable of delivering power via copper and data via fiber optics, all on the same cable. This is just the beginning of our new pipeline of innovative solutions. Developing selective proprietary products like AOX dovetails nicely with our evolving, enhanced engineering expertise and global manufacturing footprint. The future Nortec will be more multidimensional, more proactive, and better equipped with leading technologies. We are increasing our early engagement with customers, jointly developing new ways to make their products more cost-effectively, which may include shifting production locations and leveraging our new technologies. The fifth theme is people. This earnings call makes a financial comparison to the same quarter last year in January, February, and March of 2021. From a people perspective, those months last year were some of the most challenging months of the pandemic. Vaccines were not readily available and we were still prohibiting non-essential people from visiting plants. Meetings were often via Zoom and everyone was masked. Direct labor shortages were ramping up and our turnover was unacceptably high. A year later, much has changed for the better. The pandemic is largely behind us, plant visits have become routine, masks are off, and our workforce is growing. Our people have overcome one obstacle after another to keep our mission critical parts flowing. I deeply appreciate their dedication and commitment, and I've been honored to serve with them during the struggle against COVID. I'm thrilled that we can turn our attention to developing new skills, providing more training, enhancing their careers, improving their health care and financial well-being, and in short, enabling every employee to reach their potential and improve their lives and the lives of their families. With that, I'll turn it over to Chris to review our financial results. Chris? Thanks, Jay. So in the next few minutes, I'll provide details of our financial performance in the first quarter, but I would also encourage you to review our Form 10Q, which we filed yesterday. It contains far more information about our business operations and financial performance than we'll cover on this call. So as Jay noted, we made progress on several key performance areas. First, revenue totaled $30.7 million, and this represents a 39.1% increase from revenue of $22.1 million in the first quarter of 2021. Our year-over-year revenue improvement was primarily due to higher volumes in each of our core markets. Q1 2021 was the lowest volume and revenue quarter of the pandemic for Nortec Systems. And though we're pleased with year-over-year revenue growth in revenue, we do believe that looking at revenue on a trailing 12-month basis provides greater insight into the quarterly momentum that we are building. Our last 12-month revenue now totals $124 million. That's a 25% increase from revenue of $99 million for the 12-month period ended March 31st of 2021. Revenue in each of our last four quarters has been $30 million or more, and we see more predictability in future quarters in line with that $30-plus million quarterly trend. Next, inflationary pressures are impacting everyone. Producer prices in the U.S. rose 11 percent in March on a 12-month basis, according to the Labor Department. and that was the fourth consecutive month with double-digit increase and the highest level in 12 years. So we are obviously impacted by the rising prices, and we are carefully monitoring our material costs, and we have been implementing timely pricing actions to offset both material cost inflation and labor cost inflation. So moving down to P&L, gross profit totaled $4 million, or 13.2%, compared to gross profit of $1.6 million or 7.1% in the prior year quarter. Year-over-year gross profit improvement relates primarily to increased plant utilization resulting from sales volume increases coupled with pricing actions. First quarter operating expenses totaled $3.9 million, a 3.7% increase from Q1 of 2021. Operating expenses were driven primarily by $300,000 in research and development costs compared to no expense in the prior year quarter. First quarter R&D expense reflects continued investment in new technologies. Net of R&D expenses and some other non-recurring items, adjusted operating expenses were relatively flat year on year. As a result, net income in Q1 totaled $138,000 or 5 cents per basic and diluted share. up from a net loss of 1.6 million or 58 cents per basic and diluted share in Q1 of 2021. Moving on to the balance sheet and cash flow statement. First, net cash provided by operating activities in the quarter ended March 31st, 2022 was $1.5 million. Positive operating cash flow was driven by EBITDA of $600,000 coupled with lower net working capital of $800,000. We watch cash daily, and over time, our aspiration is to build Nortec into an enterprise that reliably generates free cash flow every quarter and every year. Turning to liquidity, we ended the first quarter of 2022 with $8 million worth of borrowing capacity on our line of credit with Bank of America. Recall that in December 2021, we extended our $16 million credit facility until 2026. The interest rate on our line of credit is subject to variations in the Bloomberg short-term bank yield rate or BISB index rate. Our interest rate in Q1 was 3.6%. And our Q1 interest expense was $98,000. We had borrowings on that line of credit of $7.6 million as of March 31st, 2022. I also want to update the call on our $5.2 million ERC receivable. We have confirmed with the IRS that they are processing our filing, and they do expect to release those funds within Q2, we will use those funds to pay down ABL debt when they're received. We believe that cash provided by operations, one-time ERC funds, funds available under our credit agreement with B of A, cash on hand will be adequate to meet our liquidity needs, including working capital, CapEx, and debt payment obligations. Our financial strength is essential to our ability to grow the company and add more value for our customers, and we are on the right track. So with that, I will turn it back over to Jay for his closing comments. Thank you, Chris. I'll close with these thoughts before taking questions. Our organization has learned a tremendous amount in the last two years. In many ways, we've already been transformed, but our aspirations are so much greater. We have a world-class board of directors who care deeply about guiding Nortec's growth. Our customer-supplier relationships are becoming more transparent and collaborative. We're adding new operational capabilities that solve today's problems, and we are proactively anticipating new problems by investing in tomorrow's copper-to-fiber technologies. And our people are rising to the challenge. We are motivated to take Nortec systems to the next level. The outlook for our company has never been better. With that, I'll conclude our prepared remarks this afternoon. And we will open it up for questions. John? Thank you.
Operator
Thank you. Ladies and gentlemen, the floor is open for questions. If you have any questions or comments, please indicate so now by pressing star 1 on your touch-tone phone. Pressing star 2 will remove you from the queue should your question be answered. And lastly, while posing your question, please pick up your handset if listening on speakerphone to provide optimum sound quality. Please hold while we poll for questions. Once again, that's star 1 if you have a question or a comment. Please press star 1 if you have a question or a comment. Okay, we currently have no questions in queue.
Chris Jones
Very good, John. We're happy that we proactively answered everyone's questions. Thanks again to everyone for joining us today. We look forward to updating you again in August with our second quarter results.
Operator
Thank you. Thank you, ladies and gentlemen. This does conclude today's conference call. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.
Disclaimer