Nortech Systems Incorporated Q1 FY2026 earnings call

• Overall Strategic Restructuring Results

  • This is Nortec's fourth consecutive quarter of positive operating and EBITDA results, reflecting successful execution of 2024-2025 strategic restructuring initiatives
  • Operating income improved by $1.7 million year-over-year, moving from a $1.6 million operating loss in Q1 2025 to $47,000 operating income in Q1 2026
  • Gross margin increased 410 basis points year-over-year, driven by higher plant utilization, manufacturing efficiency gains from restructuring, and operating leverage on higher sales volume
  • Adjusted EBITDA was $350,000 in Q1 2026, compared to an adjusted EBITDA loss of $1 million in Q1 2025

• Operational Improvements

  • Increased manufacturing efficiencies at geographically repositioned plants, driving sustained performance improvements from a mix shift to recurring production
  • Quality metrics are rated as world-class for the low-volume, high-mix market segment
  • Confirmed customer backlog reached $90.8 million as of May 31, 2026, up 17.4% from year-end 2025 and 37.9% from the end of 2024
  • Implemented just-in-time delivery strategies for large customers, reducing average lead times from over 100 days to 20 days or less
  • Expanded direct labor capacity at several facilities to handle growing workload from rising orders

• Financing Update

  • Entered into new banking agreements with Associated Bank in March 2026, including a $2.2 million term note and a $15 million asset-backed line of credit
  • The new facility is more flexible, aligned with Nortec's business model, lowers borrowing costs, and provides three years of support for planned growth

• Strategic Positioning & Innovation

  • Nortec is well-positioned to capture growing near-shore manufacturing demand with its North American footprint (Minnesota facilities and Maquiladora operations under USMCA)
  • Core strategic priorities are engineering expertise, product innovation, and sustainability
  • Engineering services focus on improving manufacturability, supply chain resilience, and cost efficiency for customers, with a flexible three-tier cost structure across the U.S., Mexico, and China
  • Key innovative product focus areas include ruggedized fiber optics for harsh aerospace and defense environments, integrated digital diagnostic platforms for predictive maintenance, and lighter, EMI-resistant power over fiber technology for medical, aerospace, and defense applications
  • The company is investing in building employee AI skills across all functions to improve productivity, processes, and product development
  • Fiber optic technology offers material sustainability advantages over traditional copper, including lower energy use, reduced material consumption, and smaller carbon footprints, aligning with industry decarbonization trends

Overall net sales for Q1 2026 were $30.3 million, a 12.7% increase from $26.9 million in Q1 2025. By segment: 1. Aerospace and Defense: Sales increased 41.2% year-over-year, driven by customer approvals and production transfers from Blue Earth to Bemidji. This segment led overall company growth. 2. Medical Imaging: Sales increased 15% year-over-year, driven by higher volumes from existing customers. 3. Medical Device: Sales increased 10.4% year-over-year, as production normalized following 2025 facility optimization. 4. Industrial: Sales were relatively flat year-over-year compared to Q1 2025. Gross profit for the company totaled $4.7 million (15.5% gross margin) in Q1 2026, up from $3.1 million (11.4% gross margin) in Q1 2025.

Management reaffirms a positive outlook for full-year 2026, supported by strong, growing backlog that provides clear visibility into future revenue. They expect continued sales momentum throughout 2026 and beyond, aided by supply chain stabilization and growing customer demand aligned with the company's strategic positioning and innovative product portfolio. The company expects continued operational momentum from the benefits of its 2024-2025 restructuring initiatives.

• Forward-looking statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from expectations, with details included in the company's recent SEC filings
• The global tariff and trade policy environment remains uncertain, including potential tariff changes affecting trade with Mexico
• While Nortec has material direct tariff exposure reduction as it is not the importer of record for Mexican-produced goods under its Maquiladora structure, it still faces indirect tariff risk on imported components; the company is working to pass any incurred tariff costs through to customers
• Geopolitical uncertainty, while driving increased demand from aerospace and defense customers, remains a source of potential operational and market disruption

No substantive public questions were submitted by call participants during the open question period. After a short hold for queued questions with no requests received, the call was concluded.