Nortech Systems Incorporated

Good afternoon, ladies and gentlemen, and welcome to the Nortec Systems Incorporated fourth quarter 2024 earnings conference call. With me on the line today are Jay Miller, President and Chief Executive Officer, and Andrew LaFrance, Chief Financial Officer and Senior Vice President of Finance. 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 Andy LaFrance.

Thank you, John. I would also like to welcome everyone to today's conference call. Jay will begin the call with a review of our operations, recent developments, and business outlook. Then I will review Nortec's fourth quarter 2024 financial results before turning it back over to Jay for his closing comments. Then we will be open for your questions. Before we continue, please note that statements made during this call may be forward-looking statements regarding expected net sales, offering results, 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 SEC filings, 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 complete safe harbor statements in our SEC filings. And with that, I will turn it over to Jay for his opening comments. Jay?

Thank you, Andy, and good afternoon, everyone. We're glad you could join us today. In our last earnings call, we noted customer order headwinds, which we expected to impact our near-term orders and revenue. Our third and fourth quarter net sales were impacted by a continuing pattern of customers delaying product purchases, reducing their on-hand inventories, and shorting order to fulfillment timelines. These impacts have been a theme at many contract manufacturers over the past couple of quarters. Additionally, fourth quarter results in our aerospace and defense market were negatively impacted by the closure of our Blue Earth facility and the transfer of our customer programs to Bemidji, as we experienced unexpected delays in customer approvals. While we fully expect our aerospace and defense business to get back to normal in the second half of 2025, we do expect this headwind to continue to impact revenues to a decreasing level in the first half of 2025. Meanwhile, the imposition of tariffs may significantly impact contract manufacturers with facilities in China and Mexico, including Nortec. While the tariffs with Mexico are currently uncertain, it is important to note that Nortec is not the importer of record into the United States for goods produced in Mexico, as we operate under a maquiladora structure for our customers. This reduces our direct exposure to these tariffs, However, this may cause our customers to evaluate their supply chain model. Throughout this period of uncertainty, we remain vigilant and hand-to-hand with our customers. We are closely monitoring any potential changes that could affect our operations and the operations of our customers. As for China, as we have mentioned on past calls, much of our production work there is built in-country for country. and near-shoring approach to better serve customers in the global market with reduced shipping costs and time. Fortunately, we have the foresight to start implementing this strategy faster than most of our competitors. As a result, our China tariff exposure is primarily related to parts imported from China rather than larger finished goods imported from China. As tariffs on Chinese imports may increase, we are closely monitoring these impacts on our business and adjusting customer pricing as well as our sourcing strategy as needed to mitigate any adverse effects. All in all, we are working hard and have all hands on deck to proactively monitor this shifting landscape, trade policies, and uncertainties in the current geopolitical environment, which may significantly impact our global business operations. Regarding our cost structure, we also continue to be very diligent in managing operating costs, With an eye on long-term optimization of our facilities, in addition to the Blue Earth closure, we recently completed a 30% reduction in our Maple Grove lease space. Those facility optimization activities are behind us now and will result in at least $1.6 million in annual savings in 2025 and beyond. We have also taken actions during the first quarter of 2025 to further reduce our headcount based on our current operating metrics. The backdrop of the past nine months has provided us with opportunities to work closely with customers to provide solutions for the new norm of supply chain nearshoring. These very important strategic customer discussions revolve around shorter lead times and on-time delivery strategies, along with deeper customer partnerships, which are fundamental to our long-term growth strategy. Over the past several years, we have taken a number of steps to invest in core infrastructure and world-class leadership team to drive our long-term growth strategy. We continued this leadership investment in 2024 as we completed fully staffing our industry-specific business development team early in the year. This team is performing at a very high level and driving impressive business quotes and opportunities. Further, to align our organization with the expected accelerated new business growth we recently completed a seamless realignment of our quoting process and our new product introduction engineering teams. This realignment will allow the company to serve our customers better by delivering high quality products and services on time with shorter lead times. Excuse me. This process is a natural evolution of our business and entails changes in organizational structure to enhance customer intimacy. A key takeaway from today's call, and I want to make this very clear, is that we are very bullish on the future of Nortec and continue to make investments to accelerate long-term growth. While we clearly recognize that it was a difficult and disappointing quarter, we firmly believe that our decision to consolidate our North American footprint, as well as moving customer programs to other manufacturing locations to better fit customers' needs, will improve our long-term EBITDA generation. These numerous strategic activities have been hard and have stretched our employees. But we all know that these changes are important, and we're happy that the whole team came together and had the wherewithal to get them done expeditiously. I continue to be impressed by how our customers live out Nortec's values of teamwork, excellence, commitment, innovation, and integrity every day. Once again, the whole Nortec team deserves our sincere appreciation. Our three-tier global strategy of manufacturing in the U.S., Mexico, and China gives Nortex customers flexibility to improve their own competitiveness by moving quickly in response to new global market dynamics. We can move production among facilities based on factors like cost, intellectual property management, and operational requirements, including ever-improving on-time delivery of high-quality products with shorter lead times. Our customer and business development teams and engineers evaluate each customer's needs to determine the most suitable location, which may also change over the course of a product lifecycle. Next, I'll turn it over to Andy for a more in-depth look at our financial results.