Nortech Systems Incorporated

Good afternoon, ladies and gentlemen, and welcome to the Nortec Systems Incorporated first quarter 2025 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, Tom. I would also like to welcome everyone to today's call. Jay will begin the call with a review of our operations, recent developments, and business outlook. Then I will review Nortec's first quarter 2025 financial results before turning it back to Jay for his closing comments. Then we will open up the call for your questions. Before we continue, please note that statements made during this call may be forward-looking regarding expected net sales, operating 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 in 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 call are based upon information known by NORTEC as of the date and the 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'll turn it over to Jay for his opening comments.

Thank you, Andy, and good afternoon, everyone. We're glad you could join us today. In our last several earnings calls, we noted customer order headwinds at Nortec and across our industry, which we expected to impact our near-term orders and revenue. While net sales over the past several quarters were impacted by continuing pattern of customers delaying product purchases, reducing their on-hand inventories, and shortening order to fulfillment timelines, We are very encouraged with the stabilization of our customer backlog as of March 31st, 2025, as compared with the end of 2024 and a robust pipeline of customer quote opportunities. Additionally, first quarter 2025 and fourth quarter 2024 revenues in our aerospace and defense market were negatively impacted by the closure of our Blue Earth facility and the transfer of customer programs to Bemidji, Minnesota, as we experienced unexpected delays due to slow 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 second quarter of 2025. The team at Bemidji has been working very hard and we're very encouraged by the progress the Bemidji team has made in this area. Meanwhile, the on-again, off-again imposition of Tariffs may significantly impact contract manufacturers with facilities in China and Mexico, including Nortec. While the tariffs with Mexico are currently somewhat uncertain, it's 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. Throughout this period of uncertainty, we remain vigilant and hand-in-hand with our customers, we're closely monitoring any potential changes that could affect our operations and the operations of our customers. As we expected, many of our customers are evaluating their supply chain strategies. We believe that we are currently very well positioned with our North American footprint as our Monterey, Maquilador operations and Minnesota facilities work under the framework of the USMCA. As for China, as I've mentioned on past calls, much of our production work there is built in-country for country, a nearshoring strategy, a nearshoring 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 piece parts imported from China rather than larger finished goods imported from China. As tariffs on Chinese imports may increase costs, we are closely monitoring these impacts in our business and adjusting customer pricing, as well as our sourcing strategies as needed to mitigate any adverse effects. As with our North American footprint, we are seeing opportunities in China with companies that are seeking to consolidate their manufacturing within China to serve the China and Asian markets. Globally, we are also seeing opportunities to help our customers with Nortec engineering services to support nearshoring activities as the uncertainty of tariffs has challenged the allocation of engineering resources of our customers. All in all, we are working hard and have all hands on deck to proactively monitor the shifting landscape, trade policies, and uncertainties in the current geopolitical environment. Regarding our cost structure, We also continue to be very diligent in managing operating costs. Over the past three quarters, we have undertaken significant actions to reduce our cost structure with the Blue Earth facility closure, reduction of our headquarters lease space, along with other actions during the first quarter of 2025 to further manage our headcount based on our current operating metrics. The backdrop of the past year has provided us with the opportunity to work closely with our customers to provide solutions for the new norm of supply chain nearshoring. These very important strategic customer discussions involve around shorter lead times coupled with critical on-time delivery strategies, along with deeper customer partnerships that are fundamental to our long-term growth strategy. As a result of the tariffs, we are also encouraged by the new flow of quoting opportunities to potentially onshore production in both North America under the USMCA as well as China. This is also an opportunity for us to work with our customers to minimize their logistics surrounding their manufacturing strategies and sourcing production in one geographic location. A key takeaway from today's call, and I want to make this very clear, is that we continue to be very bullish on the future of NorTech and continue to closely watch our expenses while carefully making prudent investments to accelerate long-term growth. For example, To support our defense customers, we are working to complete newly mandated security investments by the end of the year. 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. We are starting to see the benefits of these activities as we completed the first quarter. 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 our employees, by how our employees live out Nortec's values of teamwork, excellence, commitment, innovation, and integrity, every day. Once again, the whole Nordtech team deserves our sincere appreciation. Our three-tier global strategy of manufacturing in the U.S., Mexico, and China gives Nordtech customers flexibility to improve their own competitiveness by moving quickly in response to 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's lifestyle. Next, I'll turn it over to Andy for a more in-depth look at our financial results. Andy? Thank you, Jay.