NORTECH SYSTEMS INC Q4 FY2024 earnings call

• Customer order headwinds impacted near-term orders and revenue, with third and fourth quarter net sales affected by customers delaying purchases, reducing inventories, and shortening fulfillment timelines.
• Fourth quarter aerospace and defense results were negatively impacted by Blue Earth facility closure and delays in customer approvals for program transfers to Bemidji, expecting the headwind to continue impacting revenues in first-half 2025 but decrease later.
• Tariffs may impact contract manufacturers, with Nortech's maquiladora structure reducing direct exposure to Mexico tariffs, but customers may evaluate supply chain models.
• Actively managing cost structure: completed 30% reduction in Maple Grove lease space (saving ~$1.6M annually), and further reduced headcount in Q1 2025.
• Working with customers on supply chain nearshoring strategies, focusing on shorter lead times and on-time delivery.
• Invested in leadership teams, fully staffing industry-specific business development team in 2024, and realigned quoting process and new product introduction engineering teams for better customer service.
• Highlighted engineering expertise, product innovation (EBX, AOX fiber optic technologies), and sustainability efforts with fiber optics offering environmental benefits.

For the fourth quarter of 2024, net sales totaled $28.6 million, a decrease of 20.6% from the $36.1 million in the fourth quarter of 2023. For the year-ended December 31, 2024, net sales were $128.1 million, down 8% from $139.3 million in the prior year. Fourth quarter 2024 gross profit was $2.8 million, or 9.9% of net sales, compared to $6.8 million, or 18.9% of net sales, in the prior year quarter. Year-ended 2024 gross profit was $16.7 million, or 13.1% of net sales, versus $23.1 million, or 16.6% of net sales, in 2023.

• Top financial priorities for 2025 include strengthening balance sheet, reducing inventory investments by several million dollars.
• Align operations and infrastructure with market demand to drive sustainable long-term EBITDA growth and improve free cash flow, coupled with lean operations, expense management, and R&D innovation.

• Tariffs may significantly impact contract manufacturers with facilities in China and Mexico, including Nortech; Mexico tariffs are uncertain, but Nortech's maquiladora structure reduces direct exposure yet may cause customers to evaluate supply chain models.
• Delays in customer approvals for transferring aerospace and defense programs from Blue Earth to Bemidji negatively impacted fourth quarter 2024 results.