Nortech Systems Incorporated

Good morning, ladies and gentlemen, and welcome to the Nortec Systems Incorporated 4th Quarter 2025 Earnings Conference Call. With me on the line today are Mr. Jay Miller, President and Chief Executive Officer, and Angela Prince, 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 your host, Mr. Andy LaFrance. Sir, the floor is yours.

Thank you, Ollie. 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 2025 plan 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 statements made during this call may be forward-looking regarding expected net sales, operating results, future plans, opportunities, and 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'll now turn it over to Jay for his opening comments. Jay?

Thank you, Andy, and good morning, everyone. We're glad you could join us today. The fourth quarter is our third consecutive quarter of positive operating and EBITDA results, reflecting the positive execution of our strategy strategic restructuring initiatives in late 2024 and early 2025. This contributed a $2.1 million improvement in income from operations in the fourth quarter of 2025 as compared with the same quarter in 2024. We continue to see positive trends in several operational performance indicators, including gross margins, cost management, quality, and customer backlog. During the quarter, we continued the trend of increased manufacturing efficiencies across customer programs transferred to more geographically desirable plants, which are driving plant-sustained performance improvement as we experience a continued positive mix shift from new product introduction first builds to recurring production. We are realizing significant improvements in key quality metrics, including defective parts per million, also known as DPPM, and escapes. We believe our quality metrics are world-class, especially within the low-volume, high-mix market space where we believe we are head and shoulders better than our competitors. Gross margins increased 20 basis points in the fourth quarter of 2025 as compared to the third quarter. A bright spot also includes our customer backlog. We increased backlog as of year-end 2025 to $77.3 million, a 17.4% increase from the end of 2024. We have continued this positive backlog trend during the first quarter of 2026. This increase is occurring in the backdrop of several customers ordering with shorter lead times. We have implemented just-in-time finished product delivery strategies with several large customers who have requested much shorter lead times. These programs allow customers to order in smaller quantities based on long-term binding forecasts, which have reduced the delivery time of many items from over 100 days to 20 days or less. I would further note that we are seeing signs of strength with our aerospace and defense customers. Andy and I, along with the rest of the Nortec leadership team, are proud of the hard work and execution of our employees. I'd also like to highlight a very important accomplishment this past week, We entered into new agreements with Associated Bank for a $2.2 million term note and a $15 million asset-backed line of credit. We believe that this new asset-backed debt structure and banking arrangement is more flexible and more closely matches our business model. This new relationship will lower our borrowing costs and provides a three-year arrangement to support our business growth. We continue to see strong quoting activity as many of our customers are evaluating near-shore manufacturing strategies for both North America and Asia. We believe we are currently well-positioned with our North American footprint as our Monterey-Maquiladora operations and Minnesota facilities work under the framework of the U.S.-Mexico-Canada Agreement, or USMCA. While the tariff environment remains uncertain, including tariffs with Mexico, It's important to note Nortec is not the importer of record into the United States for goods we produce in Mexico, as we operate under a Maquiladora structure for our customers. This materially reduces our direct exposure to these tariffs. In situations where we incur tariffs on imported components, we are working closely with our customers to pass these costs through. More recently, we are closely monitoring the Supreme Court decision regarding the validity of AEPA tariffs and the process for reimbursement of these tariffs. We believe the reimbursement of these tariffs will be a net plus to Nortec as some customers have not fully completed their payment to Nortec of the AEPA tariffs that we have incurred. 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. Next, I'll turn it over to Andy for a more in-depth look at our financial results.