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
increase of 2.6%. As Jay noted, we experienced reduced net sales from our medical customers as they are aggressively reducing their inventory investments. We have also noted several medical product introductions being pushed out to later in 2024 or into 2025. We continue to see strong revenue growth in our aerospace and defense category, as well as moderate gains in our industrial customers. Further, as Jay noted in his remarks, we have realized a reduction in customer backlog in the second quarter of 2024 as customers have changed their purchasing patterns and are requesting shorter lead times with new orders. Second quarter of 2024 gross profit totaled 4.6 million or 13.6% of net sales compared with gross profit of 5.5 million or 15.6% of net sales in the same prior year quarter. For the first six months of 2024, we realized gross profit of $10.1 million or 14.8% of net sales as compared with $11 million or 15.7% of net sales in the first six months of 2023. Reduction in gross margin percentage in the 2024 periods is largely due to lower net sales and resulting reduced facility utilization and to a lesser extent, incremental training costs related to the movement of Blue Earth production to Bemidji by the end of 2024. Operating expenses for the second quarter and the first six months of 2024 are marginally lower than the prior year periods as a result of lower incentive compensation accruals and expense management with offsets increased payroll costs. Further, the 2024 periods reflect $91,000 of restriction costs related to retention bonuses and other costs associated with the upcoming Blue Earth closure. The closure of our Blue Earth facility in the second half of 2024 is on schedule and going well. We now estimate the Blue Earth closing will result in a restructuring cash charge of between $750,000 and $850,000 in 2024. We currently do not anticipate any significant non-cash impairment charges related to this closure. we expect to pay substantially all of the restructuring costs in 2024. As we previously disclosed, we expect to realize annual savings starting in 2025 of at least $1.6 million annually related to the optimization of our Minnesota facilities. Moving to the cash flow statement, for the first six months ended June 30th, 2024, net cash used in operating activities totaled $1.5 million is compared with cash provided of $281,000 in the same period in 2023. While the timing of customer and vendor payments impacting operating cash flow for the period, we have purposely increased inventory levels in anticipation of the Blue Earth facility transition to Bemidji. As noted in our press release distributed this morning, we use earnings before interest, tax, depreciation, and amortization, or EBITDA, as a key performance indicator to manage our business. In the press release, we have provided a reconciliation of our financial performance determined in accordance with U.S. generally accepted con principles and EBITDA. For the quarter ended June 30, 2024, as adjusted for restructuring charges, EBITDA was $919,000 as compared with $1.6 million for the same period in 2023. Year-to-date 2024 adjusted EBITDA is $2.6 million as compared with $3.2 million in the first six months of 2023. The decreased adjusted EBITDA is a result of lower net sales and related gross profit. Turning to the balance sheet, As of June 30, 2024, cash and cash equivalents totaled $1.5 million, down from $1.7 million as of December 31, 2023. The fluctuation in cash balances reflects timing of cash receipts, expenditures, and line of credit borrowings. We ended the second quarter of 2024 with $6.6 million of borrowing capacity under our line of credit. Accounts receivable as of June 30, 2024, were 17.6 million down from 19.3 million as of December 31st, 2023. This is in line with our strong fourth quarter sales and the expected timing of customer payments. Inventories were 22.8 million as of June 30th, 2024, as compared with 21.7 million as of December 31st, 2023. The increase in inventory reflects the buildup of inventory balances in anticipation of completing our movement of Blue Earth production to our Bemidji facility. Our contract asset, which represents revenue earned but not yet billed to customers, increased slightly to $15 million as of June 30, 2024, as compared with $14.5 million at the end of 2023. The increase reflects the timing of customer shipments. As we disclosed in our press release issued earlier today, we have presented non-cap results, including trailing 12-month financial data in EBITDA. For the trailing 12-month period ended June 30, 2024, net sales were $137.5 million, as compared with $148.8 million in the same 12-month period ended June 30, 2023. In addition, adjusted EBITDA for the 12-month period ended June 30, 2024 with $7.3 million as compared with $6.8 million for the 12-month period ended June 30, 2023. As we stated in May, our top priorities in 2024 remain unchanged. First, we are extremely focused on continuing to strengthen our balance sheet. Next, we will take further advantage of opportunities to align our operations and infrastructure with market demand. that we are seeing to deliver sustainable long-term EBITDA growth, as well as driving improvements in free cash flow. Coupled with discipline, lean operations, execution, expense management, and R&D innovation, we believe Nortec can deliver on our objectives. With that, I will turn it back to Jay for his closing comments. Jay?
Jay
Thanks, Andy. Before we open the call to your questions, I want to touch on three related areas that together serve our customers and help advance North Texas.
Andy
Apologies, we appear to have lost our speaker's audio. One moment, please.
Ali
Ali, can you hear me?
Harsh
Yes, indeed, sir. Your line is back.
Ali
Okay.
Operator
All right. Why don't we start, Jay, with... Thanks, Andy.
Jay
All right.
Operator
There we go.
Jay
Okay, I apologize if this is redundant. Thanks, Andy. We'll open the call to your questions. Before we open the call to your questions, I want to touch on three related areas that together serve our customers and help advance Nortec's corporate stewardship. Our engineering expertise, product innovation, and sustainability plans. For engineering expertise, we have a dedicated engineering services team that is focused on enhancing manufacturability and serviceability, supply chain risk mitigation, and cost efficiency for our customers. Earlier on this call, I mentioned the benefits of our three-tier cost structure across the U.S., Mexico, and China, and how we can quickly adopt our global resources to fit our customers' changing needs. Nortex engineering capabilities also further our research and development activities with advancements like the Expanded Beam Extreme Fiber Optic Technology, or EBX, that we announced in January. EBX is designed for digital data transmission and offers improved speed, reliability, and security when compared to traditional copper. We are also excited about our active optical extreme technology that works in sophisticated magnetic environments, a testament to our team's dedication to innovation, hard work, and excellence in the field of digital connectivity solutions. AOX represents a significant advancement in our product offerings and underscores our commitment to providing state-of-the-art solutions that meet the evolving needs of our clients to deliver products that offer lighter weight, lower cost, and ruggedized solutions sustainably. At the simplest level, the vast majority of Nortec's products provide digital connectivity solutions that transmit data and power in various applications. As you may know, the Internet of Things, or IoT, integrates a variety of electronic components like microcontrollers, sensors, actuators, and connectivity modules. These components, in turn, enable IoT-connected devices to collect, parse, transmit, and receive data. More and more today, that data is being evaluated and analyzed using human intelligence and combined artificial and human intelligence for improved performance and data management for our customers, as well as for their customers. More data needs better data pipelines, and that's where Nortec comes in. Technology like our EBX smart cables helps collect and distribute this data faster, more cost effectively, and more securely across these sophisticated networks. We see strong opportunities for growth. For example, industrial IoT applications are expected to experience impressive double-digit growth annual growth from 2023 to 2030, according to Fortune Business Insights. Our pivot to more fiber optic technology improves product performance for our customers by offering unparalleled speed and reliability. It also aligns with sustainability goals we share with many of those customers. When compared with traditional copper, fiber optics offer significant environmental benefits during both production and operation, including improved energy efficiency, and less material usage, while decreasing the carbon footprint of the complex cables we manufacture. For example, aerospace and defense customers are adopting fiber optic technology due to these key advantages, reduced size, weight, and power requirements, immunity to electromagnetic interference, and greater ruggedization in harsh environments. Harsh environments, of course, are very common in aerospace and defense applications. Nortec has a proud history of serving these customers' unique needs dating back roughly 30 years. It's the smallest of our three core markets by net sales, but very important for our diversification and future growth. Our contributions to our national defense are also a great source of pride for Nortec employees. The majority of our aerospace and defense cables are still the traditional black, rounded, and molded type common in legacy defense systems, such as shipboard missile launchers for the Navy. but we are looking to the future with ruggedized fiber optics and evolving along with our customers. In closing, we are excited about technological developments across all our markets and expect them to support our continued sales momentum in 2024, aided by stabilization in supply chain and customer orders. Last month, IPC cited improving outlook among global electronics manufacturers with stronger demand and shipments reported in January. Our progress over recent quarters confirms that outlook. We will now open up the call for your questions. Polly, please open the lines.
Harsh
Thank you. At this time, we will be conducting our question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. And for participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Once again, if you have any questions, please press star 1 at this time. Okay, we currently have no questions in queue at this time, so I'll hand it back to Mr. Miller.
Jay
Thank you, Ali, and thanks to everyone for joining us today. We look forward to talking with you in November when we report our third quarter 2024 results.
Ali
Again, thank you and goodbye.
Andy
Thank you. This concludes today's call and you may disconnect your lines at this time.
Harsh
And we thank you for your participation.
Disclaimer