Nortech Systems Incorporated

Good afternoon, ladies and gentlemen, and welcome to the Nortec Systems second quarter 2023 earnings conference call. With me on the line today are Jay Miller, President and Chief Executive Officer, and Alan Nordstrom, Acting Chief Financial Officer. All lines have been placed on a listen-only mode, and the call will be open for questions and comments following the management presentation. At this time, it is my pleasure to turn the call over to Alan Nordstrom.

Thank you, Holly. I'd like to welcome everyone to today's conference call. Jay will begin this call with a review of our business, current trends, and several strategic initiatives. Then I will review Nortec's Q2 2023 financial results before turning it back over to Jay for his closing comments. Then we'll open up the call for your questions. But before we continue, please note that statements made during this call and Q&A session may be forward-looking statements with the meaning within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include expected revenue, gross profit, gross margin, EBITDA, free cash flow, net income, financial performance, future plans, developing technologies, 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-K and most recent Form 10-Q filed with the SEC, may be amended or supplemented. These 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 complete safe harbor statements in our SEC filings. With that, I'll turn it over to Jay for his opening comments.

Thank you, Alan, and good afternoon, everyone. We appreciate you joining us. I know we have some employees listening in as well, and I'd like to start off my remarks by thanking all of our global Nortec team members. I'm very proud to lead such a dedicated team here in Minnesota, as well as in Mexico and China, committed to serving our customers during difficult times like the global pandemic and subsequent supply chain disruptions. While both of these specific situations have improved significantly, we know that Nortec must always be prepared to face tomorrow's challenges. I have confidence in our team members' willingness and ability to consistently deliver outstanding performance that helps differentiate Nortec from our competition. Also, on behalf of the entire Nortec team, I want to express appreciation for Nortec's many supplier partners who work closely with us as we serve our mission-critical medical, industrial, and defense customers. We truly could not do our jobs without these strong relationships with our supplier partners. Right at the beginning, please note these key takeaways from this call. Our bookings remain very strong. and our backlog is continuing to climb. Revenue continues to grow and our profitability is growing even faster. In fact, over the previous 10 quarters, last 12-month revenue has grown by over 40%. Meanwhile, our last 12-month gross profit, adjusted for one-time events, has nearly tripled and our adjusted gross margin percentage has roughly doubled. Most importantly, our last 12-month adjusted EBITDA has improved by over $9 million from a negative $2.3 million to a positive $6.8 million. Humbly, we have to admit that's a pretty amazing trend. Turning now more specifically to our second quarter performance, we continue to achieve solid results in revenue, EBITDA, bookings, and backlog, even over strong prior year comparisons. Bookings came in at the highest level in the past four quarters at $37 million. Our total backlog topped $100 million, which continues to surpass our expectations as the post-pandemic and supply chain crisis market is stabilizing. With strong bookings, we are resetting our expectations back to steady backlog growth sooner than we had anticipated. This, of course, is great news. In recent quarters, when supply chain challenges were more acute, certain customers ordered parts ahead, which meant that we shipped more in those quarters than we would have otherwise. Now those customers are working down their inventories, which means we shipped a little less in the second quarter generally than we would have otherwise. History indicates that these factors tend to balance out, and we are guardedly optimistic that the pendulum is starting to swing back. Looking ahead at the rest of 2023, our positive results at the halfway mark support the upbeat outlook that our large customers in particular are communicating. They're expecting a pretty solid year with an outlook I would characterize as cautiously optimistic. One major customer recently cited increasing global demand as the key driver of their revenue increase. Beyond 2023, there is still some shared uncertainty about next year, including wondering what a possible recession might look like and how long it could last. However, recent macroeconomic news is encouraging, such as sustained labor market strength and easing inflation. This news has influenced higher GDP predictions for the remainder of 2023 by some economists, and the economy seems on track for a relatively soft landing. In this dynamic global economy and industry, Nortec's relatively small size compared to much larger EMS firms can be an advantage. We are more nimble and better able to adjust more quickly to changing conditions and market forces. I'll conclude my opening comments with two examples of Nortec's agility and prudent approach. First, strategic innovation. To stay ahead of market trends and better serve our customers, we are carefully investing in new technologies that can differentiate Nortec and provide a competitive advantage. Two examples include the Active Optical Extreme and Flex Faraday Extreme platforms. To help foster innovation like this, Nortec established the Science and Technology Committee of our board several years ago. The existence of this board committee makes Nortec somewhat unique. Indeed, just 56 Fortune 500 companies have such committees, according to a Wall Street Journal article in May of 2023. It was gratifying to be included in this article, with Nortec recognized for our focus on innovation and its impact on winning new business. The article noted that Nortec's stock price had more than doubled in the past three years, far exceeding the 44% gain of the S&P 500. Second, Nortec is committed to a to being a better steward of our planet. As I mentioned in our last call, we are proactively steering our focus on environmental, social, and governance, or ESG, objectives. In our initial baselining steps, our U.S. plants are initiating measurements of NORTEC Scope 1 and Scope 2 emissions, which encompass both direct emissions and indirect emissions from energy we purchase. While focusing on our planet's long-term future through ESG efforts and the long-term value of Nortec, we simultaneously remain committed to optimizing quarterly financial returns for our shareholders. We firmly believe that these objectives can coexist and also mutually enhance each other. We also expect that aligning with ESG goals will become increasingly crucial for business in our chosen markets. Before I hand the call back off to Alan for our financial review, I should mention that our search for NORTEC's next chief financial officer is underway. We believe we are in a good position right now with our financial reporting structure and procedures in place. Alan is filling the interim CFO role very capably, and the finance and accounting team is operating at a very high level. We are taking the necessary time to make the right hire, realizing the next CFO will play a vital role in supporting our growth plans. Now, for more in-depth financial discussion, I'll turn the call back over to Alan.