Q2 2024 Nortech Systems Inc Earnings Call

August 8, 2024

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Operator: Good morning, ladies and gentlemen.

Operator: I'm welcome to the Nortech Systems Incorporated second quarter 2024 earnings conference call.

Good morning, ladies and gentlemen, and welcome to the Nortech Systems Incorporated second quarter 2024 earnings conference call.

Operator: With me on the line today are Jay Miller, President and Chief Executive Officer, and Andrew LaFrence, 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.

Operator: Good morning, ladies and gentlemen. I'm pleased to welcome you to the Nortech Systems Incorporated 2nd quarter 2024 earnings conference call. With me on the line today are Jay Miller, President and Chief Executive Officer, and Andrew LaFrence, 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 Mr. Andy LaFrence. Sir, the floor is yours.

Speaker Change: With me on the line today are Jay Miller, President and Chief Executive Officer, and Andrew LaFrence, Chief Financial Officer and Senior Vice President of Finance.

Speaker Change: All lines have been placed on a listen-only mode and the call will be open for questions and comments following the management presentation.

Operator: At this time, it is my pleasure to turn the call over to Mr. Andy LaFrence. Sir, the floor is yours.

Operator: and Andrew LaFrence, Chief Financial Officer and Senior Vice President of Finance. At this time, it is my pleasure to turn the call over to Mr. Andrew LaFrence. Sir, the floor is yours.

At this time, it is my pleasure to turn the call over to Mr. Andy LaFrence. Sir, the floor is yours.

Andrew LaFrence: Thank you, Ali.

Andrew LaFrence: Thank you, Ali. 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 Nortech's second quarter 2024 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 statements regarding expected net sales, earnings, future plans, opportunities, and other company expectations.

Andrew LaFrence: Thank you, Ali. 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 Nortech's second quarter 2024 financial results before turning it back to Jay for his closing comments. Before we continue, please note that statements made during this call may be forward-looking statements regarding expected net sales, earnings, future plans, opportunities, and other company expectations.

Andrew LaFrence: 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.

Jay Miller: We're also noting positive customer engagement as the normalization of supply chains focuses customers to further accelerate nearshore. This, combined with other shorter lead time and on time delivery strategies and better overall customer service, results in deeper customer partnerships, which are fundamental to our long-term growth strategy. Regarding our cost structure, we continue to be very diligent in managing our operating costs. With an eye for long-term optimization of our facilities, in the second quarter, we announced the consolidation of our Blue Earth facility into our Bemidji factory by the end of the year and a 30% reduction in our Maple Grove lease space.

Andrew LaFrence: Then I will review Nortech's second quarter 2024 financial results before returning it back to Jay for his closing comments. Then we will open up the call for your questions.

Speaker Change: then i will review nortech second quarter two thousand andtwenty-four financial results before turning it back to jay for his closing comments then we will open up the call for your questions

Andrew LaFrence: Before we continue, please note that statements made during this call may be forward-looking statements regarding expected met sales, earnings, future plans, opportunities, and other company expectations. These estimates, plans, and other forward-looking statements involved, unknown and known risks, and uncertainties that may cause actual results from materially from those expressed or implied on this call. These risks, including those in our detailed and our most recent SEC filings, may be amended or supplemented.

Andrew LaFrence: 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. Statements made during this conference call are based upon information known by Nortech 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 Nortech's complete safe harbor statements in our SEC filings. And with that, I'll turn it over to Jay for his opening comments. Jay?

Andrew LaFrence: Before we continue, please note that statements made during this call may be forward-looking statements regarding expected net sales, earnings, future plans, opportunities, and other company expectations.

Andrew LaFrence: The statements made during this conference call are based upon information known by Nortech as of the date and the time of this call, and we assume no obligation to update information in today's call.

Nortek: The statements made during this conference call are based upon information known by Nortek 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 Nortek's complete Safe Harbor statements in our SEC filings.

Andrew LaFrence: You can find Nortech's complete safe harbor statements in our SEC filings.

Jay Miller: And with that, I'll 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. In the second quarter of 2024, we continued to manage operating expenses as we faced near-term customer order headwinds and incremental training and other costs to transfer customer programs between various North American facilities. Regarding revenues, we are noting in the recent months reduced visibility to customer orders as compared with order patterns in the prior year quarters, as medical and industrial customers in particular are balancing their inventories and therefore pushing or deferring the placement of some orders.

Andrew LaFrence: And with that, I'll turn it over to Jay for his opening comments. Jay? Thank you, Andy, and good morning, everyone.

Jay Miller: Thank you, Andy, and good morning, everyone. Glad you could join us. In the second quarter of 2024, we continued to manage operating expenses as we faced near-term customer order headwinds and incremental training and other costs to transfer customer programs between various North American facilities. Regarding revenues, we are noting in recent months reduced visibility to customer orders as compared with order patterns in the prior year quarters, as medical and industrial customers, in particular, are balancing their inventories and, therefore, pushing or delaying the placement of some orders.

Jay Miller: We're glad you could join us today. In the second quarter of 2024, we continued to manage operating expenses as we faced near term customer order headwinds and incremental training and other costs to transfer customer programs between various North American facilities.

Speaker Change: regarding revenues we are noting in the recent months reduced visibility to customer ers as compared with order patterns in the prior year quarters as medical and industrial customers in particular are balancing their inventories and therefore pushing or deferring the placement of some orders

Jay Miller: In the case of certain medical customers, we're also seeing the timing of product launches being delayed. However, we continue to see strong ordering patterns from our aerospace and defense customers. We're also noting positive customer engagement as the normalization of supply chains focuses customers to further accelerate nearshore. This, combined with other shorter lead time and on time delivery strategies and better overall customer service, results in deeper customer partnerships, which are fundamental to our long-term growth strategy.

Jay Miller: In the case of certain medical customers, we're also seeing the timing of product launches being delayed. We continue to see strong ordering patterns from our aerospace and defense customers. We're also noting positive customer engagement as the normalization of supply chains focuses customers to further accelerate near-shoring. This combined with other short, shorter lead time, and on-time delivery strategies and better overall customer service results in deeper customer partnerships, which are fundamental to our long-term growth strategy.

Speaker Change: in the case of certain medical customers we're also seeing the timing of product launches being delayed

Speaker Change: We continue to see strong ordering patterns from our aerospace and defense customers.

Speaker Change: we're also noting positive customer engagement as the normalization of supply chains focuses customers to further accelerate nearing

Speaker Change: This, combined with other shorter lead time and on-time delivery strategies and better overall customer service, results in deeper customer partnerships, which are fundamental to our long-term growth strategy.

Jay Miller: In short, in the first half of 2024, we have made conscious decisions to face into some clear market dynamics and make a number of short-term sacrifices in exchange for improved long-term growth and profitability, including the facility consolidation and investment in business development. I will touch on shortly.

Jay Miller: In short, in the first half of 2024, we have made conscious decisions to face some clear market dynamics and make a number of short-term sacrifices in exchange for improved long-term growth and profit, including facility consolidation and investment in business development, which I will touch on shortly.

Speaker Change: In short, in the first half of 2024, we have made conscious decisions to face into some clear market dynamics and make a number of short-term sacrifices in exchange for improved long-term growth and profitability.

Speaker Change: including the facility consolidation and investment in business development I will touch on shortly.

Jay Miller: Lee. Regarding our cost structure, we continue to be very diligent managing our operating costs. With an eye for long-term optimization of our facilities, in the second quarter, we announced the consolidation of our Blue Earth facility into our Bemidji factory by the end of the year and a 30% reduction in our Maple Grove lease space. These facility optimization activities will result in at least $1.6 million in annual savings in 2025 and beyond. Over the past several years, we have taken a number of steps to invest in core infrastructure and a world-class leadership team to drive our long-term growth strategy.

Jay Miller: Regarding our cost structure, we continue to be very diligent in managing our operating costs. With an eye for long-term optimization of our facilities, in the second quarter, we announced the consolidation of our Blue Earth facility into our Bemidji factory by the end of the year and a 30% reduction in our Maple Grove lease space. These facility optimization activities will result in at least $1.6 million in annual savings in 2025 and beyond.

Speaker Change: regarding our cost structure we continue to be very diligent managing our operating costs

Speaker Change: with an eye for long-term ois optimization of our facilities in the second quarter we announced the consolidation of our blue earth facility into our beimidi factory by the end of the year and a thirty percent reduction in our maple globallyast space

Speaker Change: These facility optimization activities will result in at least 1.6 million dollars in annual savings in 2025 and beyond.

Jay Miller: Over the past several years, we have taken a number of steps to invest in core infrastructure and a world-class leadership team to drive our long-term growth. We are very bullish on the future of Nortech and continue to make investments to accelerate long-term growth. For example, we have now completed staffing and industry-specific business development. This team is performing at a very high level and driving impressive quotes and new business opportunities.

Speaker Change: Over the past several years we have taken a number of steps to invest in core infrastructure and a world-class leadership team to drive our long-term growth strategy.

Jay Miller: We are very bullish on the future of Nortech and continue to make investments to accelerate long-term growth. For example, we have now completed staffing an industry-specific business development team. This team is performing at a very high level and driving impressive quote in new business opportunities. Further, we are taking advantage of the changes in supply chain dynamics to seamlessly restructuring our operations to better serve our customers by delivering high quality products and services on time with shorter lead times. This will also facilitate and drive our long-term growth. This process is a natural evolution of our business, and it tells changes in organizational structure to enhance customer intimacy and not a restructuring of our employee head count.

Speaker Change: We are very bullish on the future of Nortec and continue to make investments to accelerate long-term growth. For example, we have now completed staffing an industry-specific business development team.

Speaker Change: This team is performing at a very high level and driving impressive quote and new business opportunities.

Jay Miller: In addition, we are taking advantage of the changes in supply chain dynamics to seamlessly restructure our operations to better serve our customers by delivering high-quality products and services on time with shorter lead times. I continue to be impressed by how our employees live out Nortech's values of teamwork, excellence, commitment, innovation, and integrity every day. Our three-tier global strategy of manufacturing in the US, Mexico, and China gives Nortech customers flexibility in improving our own competitiveness and Intellectual Property.

Jay Miller: Furthermore, we are taking advantage of the changes in supply chain dynamics to seamlessly restructure our operations to better serve our customers by delivering high-quality products and services on time with shorter lead times. This will also facilitate and drive our long-term growth. This process is a natural evolution of our business and entails changes in organizational structure to enhance customer intimacy and not a restructuring of our employee base. I continue to be impressed by how our employees live out Nortech's values of teamwork, excellence, commitment, innovation, and integrity every day.

Speaker Change: Further, we are taking advantage of the changes in supply chain dynamics to seamlessly restructure our operations to better serve our customers by delivering high quality products and services on time with shorter lead times.

Speaker Change: This will also facilitate and drive our long-term growth.

Speaker Change: this process is a natural evolute evolution of our business and tails changes in organizational structure to enhance customer intimacy and not a restructuring of our emploe headcount

Jay Miller: I continue to be impressed by how our employees live out Nortech's values of teamwork, excellence, commitment, innovation, and integrity every day. Once again, the whole Nortech team deserves our sincere appreciation. Our three-tier global strategy of manufacturing in the US, Mexico, and China gives Nortech customers flexibility in improving our own competitiveness. We can move production around based on factors like cost, operational requirements, including ever-improving on-time delivery of high quality products and shorter lead times, and intellectual property management. Our customer 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 life cycle.

Speaker Change: I continue to be impressed by how our employees live out Nortech's values of teamwork, excellence, commitment, innovation, and integrity every day.

Jay Miller: Once again, the whole Nortech team deserves our sincere appreciation. Our three-tier global strategy of manufacturing in the U.S., Mexico, and China gives Nortech customers flexibility in improving their own competitiveness. We can move production around based on factors like cost, operational requirements, including ever-improving on-time delivery of high-quality products and shorter lead times, and Intellectual Property. Our customer 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 lifecycle.

Speaker Change: once again the whole nor tech team deserves our sincere appreciation

Speaker Change: our three-year global strategy of manufacturing in the u us mexico and china gives nor tech customers' flexibility and improving our own competitiveness

Speaker Change: We can move production around based on factors like cost, operational requirements, including ever-improving on-time delivery of high-quality products and shorter lead times, and intellectual property management.

Jay Miller: Our customer 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 life cycle. Next, I'll turn it over to Andy for a more in-depth look at our financial results. Andy. Thank you.

Speaker Change: Our customer 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 lifecycle.

Jay Miller: In terms of China, as I mentioned on past calls, much of our production work there is built in-country for country, a near-shoring approach to better serve our customers in the global market, including reduce shipping costs and time.

Jay Miller: In terms of China, as I've mentioned on past calls, much of our production work there is built country for country, a nearshoring approach to better serve our customers in the global market, including reduced shipping costs. Next, I'll turn it over to Andy for a more in-depth look at our financial results. Andy, thank you.

Speaker Change: in terms of china as i mentioned on p calls much of our production work there is built in country four country a near showing approach to better serve our customers in the global market including reduced shipping costs and time

Andrew LaFrence: Next, I'll turn it over to Andy for a more in-depth look at our financial results. Andy?

Jay Miller: Next, I'll turn it over to Andy for a more in-depth look at our financial results.

Andrew LaFrence: Thank you, Jay. In the next few minutes, I will provide certain details of our financial performance in the second quarter of 2024. I would encourage you to also... review our form 10 form a K containing our press release and non-gap measures issued early this morning with the US Securities and Exchange Commission. As a continued theme, we have historically noted that our individual quarterly performance can be affected by outside factors. These might include timing fluctuations, including seasonal fluctuations, customer shipments, and supply chain issues.

Andy LaFrence: Thank you, Jay. In the next few minutes, I will provide certain details of our financial performance in the second quarter of 2024. I would encourage you to also

Andrew LaFrence: Please review our Form 10, Form 8K containing our press release and non-GAAP measures issued early this morning with the U.S. Securities and Exchange Commission. As a continued theme, we have historically noted that our individual quarterly performance can be affected by outside factors. These might include timing fluctuations, including seasonable fluctuations, customer shipments, and supply chain issues. Any of these could materially impact a particular quarter, either positively or negatively. Consequently, we believe it is more appropriate to review the business on a 12-month basis rather than focus on quarterly performance.

Andy LaFrence: Review our Form 10, Form 8K containing our press release and non-GAAP measures issued early this morning with the U.S. Securities and Exchange Commission.

Andrew LaFrence: As a continued team, we have starkly noted that individual quarterly performance can be affected by outside factors. These might include timing fluctuations, including seasonable fluctuations, customer shipments, supply chain issues. Any of these can materially impact a particular quarter either positively or negatively.

Andy LaFrence: As a continued theme, we have historically noted that our individual quarterly performance can be affected by outside factors.

Andy LaFrence: These might include timing fluctuations, including seasonable fluctuations, customer shipments.

Andrew LaFrence: Any of these could materially impact a particular quarter, either positively or negatively. Consequently, we believe it is more appropriate to review the business on a 12-month basis rather than focus on quarterly performance. This approach will help normalize these potential anomalies and offer a better gauge of our strategy's long-term success.

Andy LaFrence: supply chain issues any of these could materally impact a particular quarter either positivly or negatively

Andrew LaFrence: Consequently, we believe it's more appropriate to review the business on a 12-month basis rather than focus on quarterly performance. This approach will help normalize these potential anomalies and offer a better gauge of our strategies, long-term success. Today, while I focus most of my comments on our second quarter and year-to-date 2024 results, I will provide some comparisons for the 12-month period. Netsales for the second quarter of 2024 total of 33.9 million. This represents a 3.2% decrease from net sales of 35 million in the second quarter of 2023. For the six months ended June 30, 2024, net sales worth 68.1 million as compared to 69.9 million in the same prior year period, a decrease of 2.6%.

Andy LaFrence: con consequently we believe it's is more propriate to review the business on twelve month basisrather than focus on quarterly performance

Andrew LaFrence: This approach will help normalize these potential anomalies and offer a better gauge of our strategy's long-term success. So today, while I'll focus most of my comments on our second quarter and year-to-date 2024 results, I will provide some comparisons for the 12-month period ended June 30, 2024, compared with the same period ended June 30, 2023. We continue to see strong revenue growth in our aerospace and defense category, as well as moderate gains in our industrial customers.

Andy LaFrence: This approach will help normalize these potential anomalies and offer a better gauge of our strategy's long-term success. So today, while I'll focus most of my comments...

Andrew LaFrence: So today, while I'll focus most of my comments on our second quarter and year-to-date 2024 results, I will provide some comparisons for the 12-month period ended June 30, 2024, compared with the same period ended June 30, 2023. Net sales for the second quarter of 2024 totaled $33.9 million. This represents a 3.2% decrease in net sales of $35 million in the second quarter of 2023. For the six months ended June 30, 2024, net sales were $68.1 million as compared to 69.9 million in the same prior year period, a decrease of 2.6%.

Andrew LaFrence: 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. Inventories were $22.8 million as of June 30, 2024, as compared with $21.7 million as of December 31, 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 customership. As we disclosed in our press release issued earlier today, we have presented a non-cap.

Operator: Our speaker's audio. One moment, please.

Andy LaFrence: on our second quarter and year-to-date 2024 results, I will provide some comparisons for the 12-month period ended June 30, 2024, compared with the same period ended June 30, 2023.

Andy LaFrence: net sales for second quarter of two thousand four total three three point nine million this represents a three point two percent decrease in net sales of thirty five million in the second quarter of two and y three

Andy LaFrence: for the six month ended june thirty two twenty four net sales worth sixty eight point one million as compared to sixty nine point nine million in the same prior year period a decrease of two point six percent

Andrew LaFrence: As Jay and Natalie experienced reduced 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 the reduction in customer backlog in the second quarter of 2024, as customers have changed their purchasing patterns and requesting shorter lead times with new orders. Second quarter of 2024 gross profit total 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.

Andrew LaFrence: As Jane noted, we experienced reduced sales, and 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.

Operator: As Jane noted, we experienced reduced sales, 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.

Andrew LaFrence: 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.

Jane: we continue to see strong revenue growth in our aerospace in defense category as well as monarcha gains in our industrial customers

Andy LaFrence: 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 requesting shorter lead times with new orders.

Operator: second quarter of two thousand and twenty-four gross profit total four point six million or thirteen point six percent of net sales compared with gross profit of five point five million or fifteen point six percent of net sales in the same prior year quarter

Andrew LaFrence: For the first six months of 2024, we realize gross profit of 10.1 million dollars, or 14.8% of net sales, as compared with 11 million dollars, 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 train cost related to the movement, a 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 cruells and expense management, with offsets increased payroll costs.

Andrew LaFrence: For the first six months of 2024, we realize gross profit at $10.1 million or 14.8% of net sales. This is compared with $11 million or 15.7% of net sales in the first six months of 2023. The 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 train costs related to the movement of Blue Earth production to Bemidji by the end of 2024.

Operator: For the first six months of 2024, we realized gross profit at $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.

Speaker Change: reduction in gross margin percentage in the two thousandandtwentyfour periods is largely due to lower net sales and result in reduce facility utilization and to a lesser extent incremental training cost related to the movement a blueworth production to beammidgy by the end two thousand and twenty-four

Andrew LaFrence: 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 offset increased payroll costs. Further, the 2024 periods reflect $91,000 of restructuring 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.

Operator: 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.

Andrew LaFrence: Further 2024 periods reflects $91,000 of restriction costs related to the retention bonuses and another cost associated with the upcoming Blue Earth closure.

Operator: Further, the 2024 periods reflect $91,000 of restructuring costs related to retention bonuses and other costs associated with the upcoming Blue Earth closure.

Andrew LaFrence: 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 substantial all of the restriction 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.

Operator: The closure of our Blue Earth facility in the second half of 2024 is on schedule and going well.

Andrew LaFrence: 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 substantial all of the restriction costs in 2024.

Speaker Change: we now i smeet

Operator: 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.

Operator: 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.

Andrew LaFrence: 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 30, 24, net cash use and operating activities totaled $1.5 million, which is compared with cash provided of 281,000 in the same period in 2023. While the timing of customer and vendor payments impacts operating cash flow for the period, we have purposely increased inventory levels and anticipation of the blue earth's solid transition to the midget.

Andrew LaFrence: Moving to the cash flow statement for the first six months ended June 30th, 2024, net cash use and operating activities told $1.5 million as 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's facility transition to the Midget.

Operator: Moving to the cash flow statement for the first six months ended.

Operator: June 30, 2024, net cash used in operating activities totaled $1.5 million as compared with cash provided of $281,000 in the same period in 2023.

Operator: 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.

Andrew LaFrence: As noted in our press release, distributed this morning, we used earnings before interest, tax, appreciation, and amortization, or EBITDA, as a key performance in the care to manage our business. In the press release, we have provided a reconciliation of our financial performance determined in accordance with the U.S. generally accepted kind principles in EBITDA. For the quarter end in June 30, 2024, and 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.

Andrew LaFrence: 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 the U.S. Generally Accepted Economic Principles and EBITDA for the quarter ended June 30, 2024, and as adjusted for restructuring charges. EBITDA was $919,000 as compared with $1.6 million for the same period in 2023.

Speaker Change: as noted in our press release distributed this morning we use earnings before interest tax appreciation and amortization or ebita as a key performance in the care to manage our business

Operator: In the press release, we have provided a reconciliation of our financial performance determined in accordance with U.S. Generally Accepted Economy Principles and EBITDA.

Operator: For the quarter ended June 30th, 2024, and as adjusted for restructuring charges.

Operator: Ibecho was $919,000 as compared with $1.6 million for the same period in 2023.

Andrew LaFrence: 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 the timing of cash receipts, expenditures, and line-of-credit borrowings.

Andrew LaFrence: 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 equivalent is $12.5 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 31, 2023. This is in line with our strong fourth quarter sales and the expected timing of customer payments.

Andrew LaFrence: We ended the second quarter of 2024 with $6.6 million of borrowing capacity under our line of credit. Accountress Fievable, as of June 30, 2024, we were 17.6 million, down from 19.3 million as of December 31, 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 30, 2024, as compared with $21.7 million as of December 31, 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.

Andrew LaFrence: Inventories were $2.8 million as of June 30, 2024, as compared with $21.7 million as of December 31, 2023. The increase in inventory reflects the build-up of inventory balances and anticipation of completing our movement, a blue-earth production to our Bemidji facility. Our contract asset, which represents revenue earned by net yet built 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.

Operator: Inventories were $22 8 million as of June 32024, as compared with $21 7 million as of December 31, 2023, the increase in inventory reflects the buildup of inventory balances in anticipation of completing our movement of blue Earth production toward the mid <unk> facility.

Operator: Our contract asset, which represents revenue earned but not yet billed customers increased slightly to $15 million as of June 32024, as compared with $14 $5 million at the end of 2023, the increase reflects the timing of customer shipments.

Andrew LaFrence: 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 customership. As we close our press conference 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 was $7.3 million as compared with $6.8 million for the 12-month period ended June 30, 2023.

Andrew LaFrence: As we scroll as an oppressively issued earlier today, we have presented non-CAP results, including trailing 12-month financial data in Ibadam for the trailing 12-month period and the June 30, 2024, next sales were $137.5 million as compared with $148.8 million the same 12-month period ended June 30, 2023. In addition, adjusted Ibadab 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.

Operator: As we disclosed in our press release issued earlier today, we have presented non cap.

Speaker Change: Results, including trailing 12 month financial data and EBITDA for the trailing 12 month period ended June 30th 2024, net sales were $137 5 million as compared with 148.8 million. The same 12 month period ended June 30th suites 20, Threep in dish.

Operator: Adjusted EBITDA for the 12 month period ended June 32024 was $7.3 million as compared with $6 8 million for the 12 month period ended June 30th 2023.

Andrew LaFrence: As we stated in May, our top priorities in 2024 remain unchanged. First, we are extremely focused on continuing the strength and 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 Ibadan growth, as well as driving improvements in free cash flow. Couple with discipline, lean operations, execution, expense management. and R&D innovation, we believe Nortech can deliver on our objectives.

Andrew LaFrence: As we stated in May, our top priorities for 2024 remain unchanged. First, we're 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 to drive improvements in free cash flow. Combining with discipline, lean operations, execution, expense management, and R&D innovation, we believe Nortech can deliver on our objectives.

Speaker Change: As we stated in May our top priorities in 'twenty 'twenty four remain unchanged first we're extremely focused on continuing to strengthen our balance sheet.

Speaker Change: Next we will take further advantage of opportunities to align our operations and infrastructure with market demand that we're seeing to deliver sustainable long term EBITDA growth as well as driving improvements in free cash flow, coupled with disciplined lean operations execution and expense management.

Operator: <unk>.

Speaker Change: And R&D innovation, we believe nortek can deliver on our objectives.

Jay Miller: With that, I will turn it back to Jay for its closing comments. 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 Nortech.

Operator: With that I will turn it back to Jay for his closing comments Jay Thanks, Andy before we open the call to your questions I wanted to touch on three related areas that together serve our customers and help advance north.

Andrew LaFrence: With that, I will turn it back to Jay for his closing comments. 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 Nortech.

Jay Miller: 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 Nortech's

Operator: Good morning, ladies and gentlemen.

Operator: I'm welcome to the Nortech Systems Incorporated Second Quarter 2024 Earnings Conference Call. With me on the line today are Jay Miller, President and Chief Executive Officer, and Andrew LaFrence, 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.

Speaker Change: Apologies, we appear to have lost.

Operator: Apologies, we appear to have lost our speaker's audio. One moment, please. Holly, can you hear me? Yes, indeed, sir. Your line is back. Okay.

Operator: Apologies, we appear to have lost our speaker's audio. One moment, please.

Operator: Our speakers audio one moment please.

Jay Miller: Ali, can you hear me? Yes, indeed, sir, your line is back. Okay, all right.

Speaker Change: Can you hear me.

Speaker Change: Yes, Indeed, Sir your line is back.

Operator: Okay. All right. We will. Why don't we start Jay with that?

Speaker Change: Okay Alright.

Jay Miller: We will, when we start Jay with... Thanks, Andy, all right. There we go.

Speaker Change: We will when we start to Jay with.

Andrew LaFrence: At this time, it is my pleasure to turn the call over to Mr. Andy LaFrence, sir, the floor is yours. Thank you, Ali. I would also like to welcome everyone today's conference call. Jay will begin the call with a review of our operations, recent developments, and business outlook. Then I will review Nortech's second quarter 2024 financial results before returning it back to Jay for his closing comments. Then we will open up the call for your questions.

Andy: Thanks, Andy.

unknown: Okay, I apologize if this is redundant. Thanks, Andy.

Operator: Okay I apologize if this is redundant thanks, Andy will open the call to your questions before we open up the call to your questions I wanted to touch on three related areas that together serve our customers and help advance nor teck's corporate stewardship, our engineering expertise product innovation and sustainability plans.

Jay Miller: Okay, I apologize if this is redundant. Thanks, Andy.

Jay Miller: Okay, apologize if this is redundant. Thanks, Andy. We'll open the call to your questions.

Jay Miller: We'll open the call to your questions. But before we open the call to your questions, I want to touch on three related areas that together serve our customers and help advance Nortech's corporate stewardship. Our engineering expertise, product innovation, and sustainability plan. 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 in this call, I mentioned the benefits of our three-tier cost structure across the US, Mexico, and China and how we can quickly adapt our global resources to fit our customers' changing needs.

Jay Miller: We'll open the call to your questions. But before we open the call to your questions, I want to touch on three related areas that together serve our customers and help advance Nortech's corporate stewardship: our engineering expertise, product innovation, and sustainability plan. We're also excited about our active optical extreme technology that offers a sophisticated solution 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.

Jay Miller: Nortech's 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 technologies. We're also excited about our active optical extreme technology that offers a sophisticated solution that works in sophisticated magnetic environments, a testament to our team's dedication to innovation.

Jay Miller: Before we open the call to your questions, I want to touch on three related areas that together serve our customers and help advance Nortech'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 US, Mexico, and China, and how we can quickly adopt our global resources to fit our customers' changing needs.

Jay Miller: For engineering expertise, we have a dedicated engineering services team that is focused on enhancing manufacture ability and serviceability supply chain risk mitigation and cost efficiency for our customers.

Jay Miller: Earlier on this call I mentioned the benefits of our three each year cost structure across the U S, Mexico, and China, and how we can quickly adopt our global resources to fit our customers' changing needs.

Jay Miller: Nortech's 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 offers a sophisticated, 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.

Jay Miller: Nor techs engineering capabilities also further our research and development activities with advancements like the expanded being beam extreme fiber optic technology or <unk> that we announced in January.

Speaker Change: <unk> is designed for digital data transmission and offers improved speed reliability and security when compared to traditional copper.

Jay Miller: We're also excited about our active optical extreme technology that offers a sophisticated that offers that works and sophisticated magnetic environments are a testament to our team's dedication to innovation.

Operator: You can find Nortech's complete safe harbor statements in our SEC violence.

Jay Miller: 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. At the simplest level, the vast majority of Nortech'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.

Jay Miller: Hard work and excellence in the field of digital connectivity solutions.

Jay Miller: And with that, I'll 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. In the second quarter of 2024, we continued to manage operating expenses as we faced near-term customer order headwinds and incremental training and other costs to transfer customer programs between various North American facilities. Regarding revenues, we are noting in the recent months, reduced visibility to customer orders as compared with order patterns in the prior year quarters as medical and industrial customers in particular are balancing their inventories and therefore pushing or deferring the placement of some orders.

Speaker Change: <unk> 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.

Jay Miller: At the simplest level, the vast majority of Nortech's products provide digital connectivity solutions that transmit data and power in various applications.

Jay Miller: At the simplest level, the vast majority of Nortech'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.

Jay Miller: At the simplest level the vast majority of ignore tech's products provide digital connectivity solutions that transmit data and power in various applications.

Jay Miller: 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 theirs. customers. More data needs better data pipelines, and that's where Nortech 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.

Jay Miller: As you May know the internet of things or Iot integrates a variety of electronic components like microcontrollers sensors actuators and connectivity modules.

Jay Miller: These components in turn enable Iot connected devices to collect parse transmit and receive data.

Jay Miller: In the case of certain medical customers, we're also seeing the timing of product launches being delayed. We continue to see strong ordering patterns from our aerospace and defense customers. We're also noting positive customer engagement as the normalization of supply chains focuses customers to further accelerate near-shoring. This combined with other short, shorter lead time and on-time delivery strategies and better overall customer service results in deeper customer partnerships, which are fundamental to our long-term growth strategy.

Jay Miller: More and more today that data is being evaluated and analyze using human intelligence and combined artificial and human intelligence for improved performance and data management for our customers as well as for their customers.

Jay Miller: 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 theirs. When compared with traditional copper, fiber optics offer significant environmental benefits during both production and operation, including improved energy efficiency and less material use. 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.

Jay Miller: 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 theirs. More data needs better data pipelines, and that's where Nortech 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 annual growth from 2023 to 2030, according to Fortune Business Insights.

Speaker Change: More data needs better data pipelines, and that's where north Tech comes in technology like our <unk> smart cables helps collect and distribute this date, a faster more cost effectively and more securely across these sophisticated networks.

Jay Miller: We see strong opportunities for growth.

Jay Miller: 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.

Jay Miller: 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 a significant environmental benefit 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: reduce size, weight, and power requirements, immunity to electromagnetic and interference, and greater ruggedization in harsh environments.

Jay Miller: 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.

Jay Miller: 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 use, 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, including 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 defense applications.

Jay Miller: Lee. Regarding our cost structure, we continue to be very diligent managing our operating costs. With an eye for long-term optimization of our facilities, in the second quarter, we announced the consolidation of our Blue Earth facility into our Bemidji factory by the end of the year and a 30% reduction in our maple grove lease space. These facility optimization activities will result in at least $1.6 million in annual savings in 2025 and beyond.

Speaker Change: We share with many of those customers when compared with traditional copper fiber optics or offer a significant environmental benefits during both production and operation, including improved energy efficiency and less material usage.

Jay Miller: While decreasing the carbon footprint of the complex cables, we manufacturer.

Jay Miller: For example, aerospace and defense customers, who are adopting fiber optic technology due to these key advantages reduced size weight and power requirements immunity to electromagnetic interference and greater Ruggedized Asian in harsh environments.

Jay Miller: Over the past several years, we have taken a number of steps to invest in core infrastructure and a world-class leadership team to drive our long-term growth strategy. We are very bullish on the future of Nortech and continue to make investments to accelerate long-term growth. For example, we have now completed staffing an industry-specific business development team. This team is performing at a very high level and driving impressive quote in new business opportunities.

Jay Miller: Harsh environments, of course, are very common in aerospace and defense applications.

Speaker Change: Harsh environments of course are very common in aerospace and defense applications Nortek 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.

Jay Miller: Nortech 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 Nortech 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.

Jay Miller: Nordech 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 Nordech employees. The majority of our aerospace and defense cables are still the traditional black-rounded and molded type, common and legacy defense systems such as shipboard missile launchers for the Navy.

Jay Miller: Our contributions to our national defense are also a great source of pride for Nortech employees. 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 a stabilized supply chain and customer orders. Last month, IPC cited an improving outlook among global electronics manufacturers with stronger demand and shipments reported in January. Our progress over recent quarters confirms that outlook.

Jay Miller: Our contributions to our National Defense are also a great source of pride for North Tech employees.

Jay Miller: Further, we are taking advantage of the changes in supply chain dynamics to seamlessly restructuring our operations to better serve our customers by delivering high quality products and services on time with shorter lead times. This will also facilitate and drive our long-term growth. This process is a natural evolution of our business and it tells changes in organizational structure to enhance customer intimacy and not a restructuring of our employee head count. I continue to be impressed by how our employees live out Nortech's values of teamwork, excellence, commitment, innovation, and integrity every day.

Jay Miller: The majority of our aerospace and defense cables are still the traditional black rounded and molded type common and legacy defense systems, such as shipboard missile launches for the Navy.

Jay Miller: But we are looking to the future with recognized fiber optics and evolving along with our customers.

Jay Miller: 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 a stabilized supply chain and customer orders. Last month, IPC cited an 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 to your questions. Holly, please open the line. Thank you. At this time, we've

Jay Miller: But we are looking to the future with ruggedized fiber optics and evolving along with our customers.

Jay Miller: 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, supply chain, and customer orders. Last month, IPC cited improving outlook among global electronics manufacturers, with stronger demand and shipments reported in January. Our prior address over recent quarters confirms that outlook.

Jay Miller: In closing we are excited about.

Speaker Change: <unk> 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.

Jay Miller: Last month, IPC cited improving outlook among global electronics manufacturers with stronger demand in shipments reported in January our progress over recent quarters confirms that outlook.

Jay Miller: Once again, the whole Nortech team deserves our sincere appreciation. Our three-tier global strategy of manufacturing in the US, Mexico, and China gives Nortech customers flexibility in improving our own competitiveness. We can move production around based on factors like cost, operational requirements, including ever-improving on-time delivery of high quality products and shorter lead times and intellectual property management. Our customer 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 life cycle.

Jay Miller: We will now open up to call for your questions. Ali, please open lines. Thank you.

Jay Miller: We will now open up the call for your questions Holly Please open the lines.

Operator: Thank you. At this time, we'll be conducting our question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question key. 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 start. 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.

Jay Miller: Thanks <unk>.

Operator: At this time, we will be conducting our question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. Confirmation tone will indicate your line isn't the question key. And you may press star two if you would like to remove your question from the key. Of the 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 one at this time.

Speaker Change: At this time, we'll be conducting a question and answer session.

Operator: If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question key. And for participants using speaker equipment, it may be necessary to pick up your handset before pressing the start button. Once again, if you have any questions, please press star 1 at this time.

Speaker Change: If you'd like to ask a question. Please press star one on your telephone keypad.

Keith: Confirmation tone will indicate your line is in the question Keith.

Speaker Change: You May press Star two if you would like can be another question from the queue.

Operator: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

Jay Miller: Thank you, Ollie, 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. Again, thank you and goodbye.

Operator: Once again, if you have any questions. Please press star one at this time.

Andrew LaFrence: Next, I'll turn it over to Andy for a more in-depth look at our financial results. Andy? Thank you, Jay. In the next few minutes, I will provide certain details of our financial performance in the second quarter of 2024.

Jay Miller: Okay, we currently have no questions in queue at this time, so I'll hand it back to Mr. Miller. Thank you, Ali. And thanks to everyone for joining us today.

Speaker Change: Okay. We currently have no questions in queue at this time, so I'll hand, it back to Mr. Miller.

Speaker Change: Thank you Allie 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 again, thank you and goodbye.

Andrew LaFrence: 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.

Andrew LaFrence: I would encourage you to also review our form 10, form a K containing our press release and non-gap measures issued early this morning with the US Curious Exchange Commission. As a continued team, we have starkly noted that individual quarterly performance can be affected by outside factors. These might include timing fluctuations, including seasonable fluctuations, customer shipments, supply chain issues, any of these can materially impact a particular quarter either positively or negatively. Consequently, we believe it's more appropriate to review the business on a 12-month basis rather than focus on quarterly performance.

Jay Miller: We look forward to talking with you in November when we report our third quarter 2024 results. Again, thank you and goodbye. Thank you.

Operator: Thank you. This concludes today's call, and you may disconnect your lines at this time, and we thank you for your participation.

Speaker Change: Thank you. This concludes today's call and you may disconnect. Your lines at this time and we thank you for your participation.

Operator: This concludes today's call, and you may disconnect your lines at this time. We thank you for your

Andrew LaFrence: This approach will help normalize these potential anomalies and offer a better gauge of our strategies, long-term success. Today, while I focus most of my comments on our second quarter and year-to-date 2024 results, I will provide some comparisons for the 12-month period Netsales for the second quarter of 2024 total of 33.9 million. This represents a 3.2% decrease from net sales of 35 million in the second quarter of 2023. For the six months ended June 30, 2024, net sales worth 68.1 million as compared to 69.9 million in the same prior year period, I decrease of 2.6%.

Andrew LaFrence: As Jay and Natalie experienced reduced 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 the reduction in customer backlog in the second quarter of 2024 as customers have changed their purchasing patterns and requesting shorter lead times with new orders.

Andrew LaFrence: Second quarter of 2024 gross profit total 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 realize gross profit of 10.1 million dollars or 14.8% of net sales as compared with 11 million dollars 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 train cost related to the movement, a blue earth production to Bemidji by the end of 2024.

Andrew LaFrence: 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 cruells and expense management with offsets increased payroll costs. Further 2024 periods reflects $91,000 of restriction costs related to the retention bonuses and another cost associated with the upcoming blue earth closure. The closure of our blue earth facility in the second half at 2024 is on schedule and going well.

Andrew LaFrence: 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 substantial all of the restriction costs in 2024. As we previously disclosed, we expect to realize annual savings starting in 2025 have 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 use and operating activities told $1.5 million as compared with cash provided of $281,000 in the same period in 2023.

Andrew LaFrence: While the timing of customer and vendor payments impacting operating cash flow for the period, we have purposely increased inventory levels and anticipation of the blue earth's facility transition to the midget. As noted in our press release, Distributed this morning, we used earnings before interest, tax, appreciation, and amortization or EBITDA as a key performance in the care to manage our business. In the press release, we have provided a reconciliation of our financial performance determined in accordance with the U.S, generally accepted kind principles in EBITDA.

Andrew LaFrence: For the quarter end in June 30, 2024, and 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 equivalent is $12.5 million, down from $1.7 million as of December 31, 2023.

Andrew LaFrence: 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 31, 2023. This is in line with our strong fourth quarter sales and the expected timing of customer payments. Inventories were $2.8 million as of June 30, 2024, as compared with $21.7 million as of December 31, 2023.

Andrew LaFrence: The increase in inventory reflects the build-up of inventory balances and anticipation of completing our movement, a blue-earth production to our Bemidji facility. Our contract asset, which represents revenue earned by net yet built 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 scroll as an oppressively issued earlier today, we have presented non-CAP results, including trailing 12-month financial data in Ibadam for the trailing 12-month period and the June 30, 2024, next sales were $137.5 million as compared with $148.8 million the same 12-month period ended June 30, 2023. In addition, adjusted Ibadab 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.

Andrew LaFrence: As we stated in May, our top priorities in 2024 remain unchanged. First, we are extremely focused on continuing the strength and 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 Ibadab growth as well as driving improvements in free cash flow. Couple with discipline, lean operations, execution, expense management, and R&D Innovation, we believe Nortech can deliver on our objectives.

Jay Miller: With that, I will turn it back to Jay for its closing comments. 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 Nortech.

Operator: Apologies, we appear to have lost our speaker's audio, one moment, please. Ali, can you hear me? Yes, indeed, sir, your line is back. Okay, all right. We will, when we start Jay with... Thanks, Andy, all right. There we go. Okay, apologize if this is redundant.

Jay Miller: 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 Nortech'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 US, Mexico, and China, and how we can quickly adopt our global resources to fit our customers' changing needs.

Jay Miller: 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 Nortech'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.

Jay Miller: 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 theirs, customers. More data needs better data pipelines, and that's where Nortech 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.

Jay Miller: 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 a significant environmental benefits during both production and operation, including improved energy efficiency and less material usage.

Jay Miller: 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, reduce size, weight, and power requirements, immunity to electromagnetic and interference, and greater ruggedization in harsh environments. Harsh environments, of course, are very common in aerospace and defense applications. Nordech 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.

Jay Miller: Our contributions to our national defense are also a great source of pride for Nordech employees. The majority of our aerospace and defense cables are still the traditional black-rounded and molded type, common and legacy defense systems such as shipboard missile launchers for the Navy. But we are looking to the future with recognized fiber optics and evolving along with our customers.

Jay Miller: 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 supply chain and customer orders. Last month, IPC cited improving outlook among global electronics manufacturers with stronger demand and shipments reported in January. Our prior address over recent quarters confirms that outlook.

Operator: We will now open up to call for your questions. Ali, please open lines. Thank you.

Operator: At this time, we will be conducting our question and answer session. If you would like to ask a question, please press star one on your telephone keypad. Confirmation tone will indicate your line isn't the question key. And you may press star two if you would like to remove your question from the key. Of the 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 one at this time.

Jay Miller: Okay, we currently have no questions in queue at this time, so I'll hand it back to Mr. Miller. 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.

Operator: Again, thank you and goodbye. Thank you.

Operator: This concludes today's call and you may disconnect your lines at this time and we thank you for your

Q2 2024 Nortech Systems Inc Earnings Call

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