Nortech Systems Incorporated Aktie

Good afternoon, ladies and gentlemen, and welcome to the Nortech Systems Incorporated Second Quarter 2026 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. [Operator Instructions]

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

Thank you, Jenny, and welcome, everyone. Jay will begin today's call with a review of our operations, recent developments and business outlook. I will then review Nortech's second quarter financial results before turning the call back to Jay for closing comments. After that, we will open up the line for questions.

Before we continue, please note statements made during this call may be forward-looking statements regarding expected net sales, operating results, future plans, opportunities and other company expectations. These estimates, plans and other forward-looking statements involve unknown and known risks and uncertainties that may cause actual results to differ materially from those expressed or implied in this call. These risks, including those 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 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 will turn it over to Jay for his opening comments. Jay?

Thank you, Andy, and good afternoon, everyone. We appreciate you joining us. The second quarter reflected continued execution across the business with net sales increasing 9.3% year-over-year to $33.5 million, gross margin improving to 17% and operating income of $623,000. Our results benefited from higher revenue levels, improved manufacturing cost absorption from increased production activity and continued progress following the restructuring initiatives in late 2024 and early 2025. These improvements were partially offset by higher incentive compensation expense in 2026.

Backlog remains one of the clearest and best forward-looking indicators that our strategy is gaining traction. As of June 30, 2026, our 90-day shipment backlog was $33.4 million, up 6.3% from the beginning of the quarter and up 25.8% from June 30, 2025. Our total order backlog as of June 30, 2026, was $93.8 million, up 3.4% from the beginning of the quarter and up 19.8% compared with the same period last year. Year-over-year growth in total backlog was primarily driven by an increase in aerospace and defense and medical imaging orders. This progress reflects stronger customer engagement, successful program transfers and the value of our manufacturing footprint across the U.S., Mexico and China.

We continue to see strong quoting activity as customers evaluate nearshore manufacturing strategies for North America and Asia. We believe our North American footprint positions us well with our Monterrey, Mexico, Maquiladora operations and Minnesota facilities operating within the framework of the U.S., Mexico, Canada agreement. While the tariff environment remains somewhat uncertain, we are actively monitoring developments and the picture is getting clearer. We are pursuing reimbursement and recovery of previously paid IEPA-related tariffs. And while we are confident we are making important progress, the timing and amount of any recoveries remain uncertain and no amounts have been recognized as of June 30, 2026. We remain proactive in monitoring trade policy, geopolitical uncertainty and supply chain risk.

In June 2026, we've strengthened our supply chain leadership with the addition of a new Vice President of Supply Chain. This leadership addition comes at an important time as selected component constraints, longer lead times, allocation pressures and price volatility continue to affect many OEMs and EMS providers. We are working closely with customers and suppliers to plan ahead, secure critical materials and protect production continuity.

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

Thank you, Jay. I will provide a brief overview of Nortech's financial performance for the second quarter ended June 30, 2026. Additional details are available in our Form 8-K earnings release and Form 10-Q filed with the Securities and Exchange Commission this afternoon. As we have discussed previously, quarterly results can be influenced by the timing of customer shipments, production schedules and working capital movements. While those factors persist, our execution and longer-term strategies are gaining traction as we move through 2026, consistent with Jay's comments earlier in the call.

Net sales for the second quarter of 2026 were $33.5 million, an increase of $2.9 million or 9.3% compared with $30.7 million in the second quarter of 2025. Growth was led by the medical device market, where sales increased 36% year-over-year, primarily due to higher customer demand from existing customers and continued ramp-up of new programs. Medical imaging sales increased 12.2%, driven by higher customer demand supported in part by increased revenues from a stocking program with a key customer that provides product availability to enable shorter lead times. Industrial sales decreased 4.7%, reflecting customer inventory adjustments and temporary production disruptions associated with the transfer of manufacturing activities to Monterrey, Mexico, partially offset by growth in China.

Aerospace and Defense sales decreased 12.8% in the quarter, primarily due to reduced demand from one customer who is reducing post-COVID inventory levels. However, year-to-date aerospace and defense sales increased 8.7% compared with the prior year period, benefiting from higher production volumes associated with completed transfers to our Bemidji location. Gross profit totaled $5.7 million compared with $4.8 million in the prior year period and gross margin improved to 17% up 120 basis points compared with 15.8% last year. The improvement was primarily attributable to higher revenue levels and improved manufacturing cost absorption resulting from increased production activity, partially offset by unfavorable sales mix.

Total operating expenses were $5.1 million in the second quarter of 2026 compared with $4.1 million in the prior year period. The increase in operating expenses was primarily attributable to higher incentive compensation accruals in 2026. For the 3 and 6 months ended June 30, 2026, incentive compensation expenses were $402,000 and $647,000, respectively, compared with a reversal of expense of $131,000 during the second quarter of 2025 resulting in no management incentive compensation recorded in the first half of 2025. In summary, incentive compensation expense in the second quarter and year-to-date periods in 2026 were $533,000 and $647,000 higher than in the respective 2025 periods.

As a result, we reported second quarter operating income of $623,000 compared with operating income of $742,000 in the prior year period. For the 6 months -- for the first 6 months of 2026, operating income was $670,000 compared with an operating loss of $871,000 in the same prior year period, reflecting higher gross profit associated with increased revenue and improved operating leverage, offset by higher management incentive compensation, together with the absence of a $266,000 restructuring charge recorded in the first quarter of 2025. Net interest expense was $197,000 compared with $257,000 last year during the quarter, driven by lower average borrowings and reduced interest costs following the transition to our new financing arrangements. We reported second quarter net income of $316,000 or $0.11 per diluted share compared with net income of $313,000 or $0.12 per diluted share in the second quarter of 2025.

For the first 6 months of 2026, net income was $282,000 or $0.09 per share compared with a net loss of $1 million or $0.36 per share in the same prior period. Cash used in operating activities was $2.4 million in the first 6 months of 2026 compared with $2.8 million in the prior year period. Cash used by accounts receivable and contract assets was $4.5 million, largely due to the timing of customer shipments and related cash collections and an increase in our contract assets to support future customer shipments. Cash used by inventory was $3.5 million, reflecting purchases of materials needed to support the growing backlog. These uses of cash were partially offset by $2.1 million of cash provided by changes in accounts payable, primarily related to the timing of cash payments.

At quarter end, cash and restricted cash totaled $1.7 million. Under our Associated Bank facility, the revolving credit facility balance was $7.6 million, and we had $3.6 million of unused availability as of June 30, 2026. For the remainder of the year, with the support of our recently hired Vice President of Supply Chain, we are very focused on reducing investments in inventory and generating cash from reductions in working capital, while year-over-year revenue growth, improved gross margins, positive year-to-date operating income and a more flexible capital structure, we believe that Nortech is well positioned to continue building momentum throughout the year.

With that, I will turn it back to Jay for his closing remarks. Jay?

Thanks, Andy. Before we open the call to your questions, I want to highlight once again 3 related areas that together serve our customers and help advance Nortech's corporate stewardship, Nortech's engineering expertise, product innovation focus and sustainability plans. As for engineering expertise, we have a dedicated engineering services team focused on optimizing manufacturability, serviceability, supply chain risk mitigation and cost efficiency for our customers.

Our 3-tier cost structure across the U.S., Mexico and China allows us to quickly adapt our global engineering resources to fit our customers' changing needs. A core element of our long-term strategy is innovation. Nortech's engineering capabilities and research and development activities are focused on helping customers solve complex connectivity challenges with technologies that are ruggedized, lighter, faster, more sustainable and more affordable. We see important customer priorities shaping demand. First, these customers need ruggedized solutions that perform reliably in harsh environments, particularly in aerospace and defense applications. Nortech's fiber optic technologies have been tested to withstand twisting, bending and torquing while maintaining data integrity and high-speed data transfer.

While we continue to support legacy defense programs, we are also seeing growing interest in next-generation applications that utilize ruggedized fiber optics, MT38999 connectors and wearable technology. Second, customers need better ways to capture, transmit and use system performance data. Nortech's Digital Diagnostics Xtreme and SkyIoT technology platforms integrate digital diagnostics with fiber optic cables to generate real-time cable and system performance data, helping customers improve visibility and transition from preventative to predictive maintenance strategies.

Third, customers are seeking lighter, more sustainable technologies that reduce complexity while improving system performance. This is where we see significant opportunity for Nortech's Power Over Fiber technology. By transmitting both power and data through fiber -- through optical fiber, Power Over Fiber can reduce overall cable weight, eliminate the need for certain local power sources and provide immunity to electromagnetic interference in demanding applications. These advantages are particularly valuable in medical devices, imaging systems, aerospace, defense and satellite applications where reliability, weight reduction and EMI immunity are critical.

As copper costs continue to rise and system architectures become more demanding, we believe Power Over Fiber is well positioned to support the next generation of connected technologies. More and more often today, that data is being evaluated and analyzed using human intelligence as well as combined artificial and human intelligence for improved performance and data management for our customers and for their customers. For Nortech, we see AI capabilities as a clear opportunity to streamline and improve our processes, make our employees more productive and serve our customers better.

To put a finer point on it, we are allocating resources and dedicating time to continue to build the AI skills of our employees in all functions to make better products, of course, but also to make us all more productive. With our intellectual property on fiber optic and digital technologies, Nortech is well positioned for projected future demand for fiber products. When compared with traditional copper, fiber optics offer dramatic environmental benefits during both production and operations, including improved energy efficiency and less material usage while significantly decreasing the carbon footprint of the complex cables we manufacture.

We're also taking a forward-looking stance on materials, shifting focus from copper to fiber optics to mitigate cost pressures and align with our long-term strategy to produce ruggedized, lighter, faster, more sustainable and more affordable technology. In closing, we are excited about technological developments across all of our markets and expect them to support our continued sales momentum in 2026 and beyond, aided by stabilization in the supply chain and customer orders.

As we wrap up our prepared remarks, let me summarize the key takeaways from today's call. First, we are realizing operational and financial benefits from the restructuring activities completed in 2024 and early 2025. Second, we remain optimistic about our positioning in near-shoring landscape and continue to see strong customer interest in our North American and Asian manufacturing footprint. Third, Nortech's backlog remains strong with both 90-day shipment backlog and total order backlog up significantly year-over-year.

Finally, we continue to invest in people, technology, innovation, supply chain capabilities and regulatory expertise to better serve our customers and position Nortech for future growth. We believe the direction of the business is positive and has never been better. Our backlog is stronger, commercial activity remains healthy, operating execution is improving, and our team is focused on converting these opportunities into sustainable growth and long-term value for our customers, employees and shareholders.

Now we'll open the call for your questions. Jenny, please open the lines.

[Operator Instructions] Our first question is coming from [ Sergi Mascaro from Even Discovery BFT. ]

So I think I've heard that most of the OpEx growth was one-off during the quarter. Is that correct?

I'm sorry. We didn't quite hear that. It's -- so most of the OpEx growth for the quarter, it was really revolving around incentive compensation. So there was 2 pieces there related to -- we had incentive compensation, and then we also had increased stock-based compensation. So the combination of those 2 really drove the majority of the increase in terms of operating expenses during the quarter year-over-year.

All right. And then I'm wondering if you are seeing any opportunity related to the data center build-outs. It sounds like your products should be very useful within the data center. Is that correct?

We're pursuing a number of opportunities. I wouldn't say we've closed a lot of business there, but we're pursuing a number of opportunities in that space, where they are looking for custom complex cable capabilities, especially fiber optics in pretty demanding environments. It fits us extremely well. And we feel like we're quite well positioned there. So we're looking at a number of things. I wouldn't say we've gained a lot of traction there yet, but we're certainly taking a hard look, and we've had a number of conversations.

All right. That's helpful. Next question is if you can provide some color on the level of capacity utilization at the company?

Yes. We generally certainly do not provide forward-looking or current capacity. What we have said in the past is that we do have the ability with our footprint to significantly expand without any additional CapEx -- significant CapEx or facilities at this point in time. So if you look at our facilities, we've got 4 in Minnesota, 1 in Monterrey and in Suzhou, China.

All those have the ability to continue to grow for several years without needing additional space. And we can also continue to focus on adding shifts to many of those facilities to increase our capacity. So right now, we have plenty of capacity. I would say we have plenty of capacity to continue to grow.

All right. That's also very helpful. And last question is if you believe that the gross margin has levers for expansion as the company grows?

Yes. If you look at the gross margin, if you look at the gross margin for the first 6 months of the year, that's actually a record for the company. And we do believe -- I mean, one of the comments we made not only in our comments, but in the 10-Q was that there was some unfavorable mix. And so if you look at some of our mix attributes out there. We think there are opportunities to continue to expand. And we do think that there's a lot of leverage at the plants.

So we continue to look for opportunities with our current clientele and new clients that are coming in to expand that margin profile through more leverage of our current fixed cost structure. So yes, we do believe that we have the ability to continue to expand margin.

All right. And maybe one more related to data center because I'm wondering if your go-to-market strategy, if you are looking for any partners or you're going alone? Can you maybe explain a bit more about that?

Yes. Our business development, I will say this, our business development team, which is very, very good and getting better and better every day and doing a great job in the market of winning more and more business. Right now, they're doing an amazing job. And look, in this space, they're looking for a number of different angles to try to get into that space, whether it's directly with the people building the data centers or whether it's partnering. But that's as much detail as we can go into at this point. And thank you for the questions.

[Operator Instructions] We appear to have no further questions in the queue. So I will now hand the call back over to Jay Miller for any closing comments.

Thank you again, Jenny, and thanks to everyone for joining us today. We're encouraged by the progress we are making and confident in the opportunities ahead. We look forward to speaking with you when we report our third quarter 2026 results. Again, thank you, and goodbye.

Thank you very much. This does conclude today's conference call. You may disconnect your phone lines at this time, and have a wonderful day. We thank you for your participation.

Good afternoon, ladies and gentlemen, and welcome to the Nortech Systems Incorporated First Quarter 2026 Earnings 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. [Operator Instructions] And the call will be opened for questions and comments following the management presentation. At this time, it is my pleasure to turn the call over to Andy LaFrence.

Thank you, Mike. 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 First quarter 2026 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 other company expectations. These estimates, plans and other forward-looking statements involve unknown and known risks and uncertainties that may cause actual results to differ materially from those expressed or implied on this call -- and may be amended -- and those risks, including those detailed in our most recent SEC filings may be amended or supplemented.

The statements made during this 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 statement in our SEC filings.

And with that, I will turn the call over to Jay for his opening comments. Jay?

Thank you, Andy, and good afternoon, everyone. We're glad you could join us today. The first quarter is our fourth consecutive quarter of positive operating and EBITDA results, reflecting the positive execution of our strategic restructuring initiatives in late 2024 and early 2025. This contributed to a $1.7 million improvement in income from operations in the first quarter of 2026 as compared with the same quarter in 2025.

We continue to see positive trends in several operating 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 planned sustained performance improvements as we experienced a continued positive mix shift from new product introduction first builds to recurring production.

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 410 basis points in the first quarter of 2026 as compared with the first quarter of 2025.

Our customer backlog continues to be a bright spot as confirmed purchase orders grow. We increased our backlog as of May 31, 2026 to $90.8 million, an increase of 17.4% from year-end 2025 and a 37.9% increase from the end of 2024. The increase is occurring against 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 small quantities based on long-term binding forecasts which have produced the delivery time in many -- of many items from over 100 days to 20 days or less. I would further note that we are seeing signs of strength in our aerospace and defense customers given the current geopolitical climate. These factors contribute to the long -- to the strong positive trend in the backlog and has created an opportunity to expand our direct labor at several facilities to handle the increasing workload.

Andy and I, along with the rest of the Nortech leadership team, I'm proud of the hard work and execution by our employees. I would also like to highlight an very important accomplishment in March. 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 3-year arrangement to support our business growth. We continue to see strong quoting activity as many of our customers evaluating nearshore manufacturing strategies for both North America and Asia.

We believe we are currently very well positioned with our North American footprint as our Monterrey, Maquiladora operations and Minnesota facilities work under the framework of the U.S.-Mexico-Canada agreement or USMCA for short. While the tariff environment remains uncertain, including tariffs with Mexico, it is important to note that Nortech is not the importer of record in the United States goods produced in Mexico as we operate under 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 with our customers to pass these costs through. More recently, we are closely monitoring the recent Supreme Court decision regarding the validity of IEEPA tariffs and the process for reimbursement of these tariffs.

All in all, we are working hard and have all hands on deck to proactively monitoring 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. Andy?

Thank you, Jay. I'll provide a brief overview of Nortech's financial performance for the first quarter ended March 31, 2026. Additional details are available in our Form 8-K earnings release and our Form 10-Q filed yesterday with the Securities and Exchange Commission. As we've discussed previously, quarterly results can be influenced by the timing of customer shipments, production schedules and working capital movements.

While those factors persist, our execution and longer-term strategy are gaining traction as we move through 2026, consistent with Jay's comments earlier in the call. Net sales for the first quarter of 2026 were $30.3 million, an increase of $3.4 million or 12.7% compared with $26.9 million in the first quarter of 2025. Growth was led by Aerospace and Defense, where sales increased 41.2% year-over-year, following customer approvals and production transfers from Blue Earth to Bemidji.

Medical imaging sales increased 15%, driven by higher volumes from existing customers, while medical device sales increased 10.4% as production normalized following our 2025 facility optimization. Industrial sales were relatively flat year-over-year. Gross profit totaled $4.7 million compared with $3.1 million in the prior year period, and gross margin improved to 15.5% up 410 basis points compared with 11.4% last year.

Margin improvement reflected higher plant utilization manufacturing efficiency gains from our restructuring actions completed in 2025 and operating leverage on higher sales volume. Total operating expenses of $4.7 million were relatively flat year-over-year. The prior year included $266,000 of restructuring charges. As a result, we reported operating income of $47,000 compared with an operating loss of $1.6 million in the prior year period, representing a $1.7 million year-over-year improvement.

Net interest expense was $256,000 compared with $214,000 last year primarily driven by the write-off of $82,000 of unamortized debt issuance costs relating to the refinancing completed during the quarter. Reported a net loss of $34,000 or $0.01 per share compared with a net loss of $1.3 million or $0.48 per share in the first quarter of 2025. Cash used in operating activities was $1.6 million, an improvement compared with a usage of $2.9 million in the prior year period. At quarter end, cash and restricted cash totaled $2.2 million.

Our revolving line of credit balance was $7.2 million and we had approximately $3.5 million of availability, borrowing capacity under our new associated bank facility. Adjusted EBITDA for the first quarter of 2026 was $350,000 compared with an adjusted EBITDA loss of $1 million in the first quarter of 2025, reflecting the positive results of our strategic plant level customer program shifts and related restructurings in late 2024 and early 2025.

As Jay highlighted earlier, our increased backlog provides strong visibility into future revenue and supports a positive development for 2026, with improving margins and stronger operating profile, a more flexible capital structure, we believe Nortech is well positioned to continue building momentum throughout the year.

With that, I will turn it back over to Jay for his closing remarks. Jay?

Thanks, Andy. Before we open the call to your questions, I want to highlight it once again, three related areas that together serve our customers and help advance Nortech's corporate stewardship, Nortech's engineering expertise, product innovation focus, and sustainability plans.

As for engineering expertise, we have a dedicated engineering services team focused on optimizing manufacturability, serviceability, supply chain risk mitigation and cost efficiency for our customers. Our 3-tier cost structure across the U.S., Mexico and China allows us to quickly adopt our global engineering resources to fit our customers' changing needs.

Our core goal of our long-term strategic plan focuses on unique innovation. Nortech's engineering capabilities and innovation skills advance our research and development activities to solve the most complex challenges our customers face with technologies that are ruggedized, lighter, faster, more sustainable and more affordable.

Nortech's technology is engineered to provide connectivity solutions to address three areas of concern for our customers. First, there is a need for ruggedization. Nortech's fiber optic technology stands up in harsh environments, such as the types of conditions commonly found in aerospace and defense applications.

This is an old fiber optic technology. Today's fiber optic technology is much more resilient. To ensure high performance in today's applications Nortech's engineering team has rigorously tested and demonstrated the fiber optic cable can withstand twisting, bending and torque while achieving exceptional data integrity and data transfer speeds under rugged conditions.

Most of the cables we produce today are for aerospace and defense application. Cables are traditional. Cable is common in legacy defense systems, such as shipboard missile launchers for the Navy. In conversations with our aerospace and defense customers, we are increasingly -- we see increasing interest in more modern warfare components such as ruggedized fiber optics, MT38999 connectors, which would be applied in wearable technology and tethered drones among others.

Second, our customers need a means to enable connected devices and sensors to collect PARS transmit and receive data to the cloud in order to apply the data effectively in decision-making. Nortech's Digital Diagnostics Xtreme and SkyIoT technology platforms integrate digital diagnostics with fiber optic cables to generate real-time cable and system performance data.

These digital diagnostic systems advance our customers' ability to monitor their systems and devices and to evolve from preventative maintenance to predictive maintenance to minimize downtime and costs.

Third, our customers require technology that is physically lighter, faster and more sustainable. As copper prices continue to increase, fiber optic cable presents a clear alternative that is much more cost effective and substantially cleaner to produce.

Nortech is well positioned to capitalize on this increasing interest with our advanced fiber optic capabilities. Our technologies align perfectly with the industry's move in favor of more efficient and reliable fiber optic solutions to provide EMI immune high data speed transmission and power delivery, all in one hybrid cable.

Nortech's power over fiber technology reduces overall cable weight while providing EMI immunity and shielding by transmitting power over optical fiber cable. Nortech eliminates the need for a separate local power source in the cables that are used in medical devices and imaging were electromagnetic interference or EMI, must be minimized. Additionally, in satellites, aircraft or military systems, fiber can deliver powered, isolated or shielded components where EMI is also concerned.

More and more often today, that data is being evaluated and analyzed using human intelligence as well as combined artificial and human intelligence for improved performance and data management for our customers and for their customers.

For Nortech, we see AI capabilities as a clear opportunity to streamline and improve our processes, make our employees more productive and serve our customers better. To put a finer point on it, we are making a point of allocating resources and dedicating time to continue to build the AI skills of our employees in all functions to make better products, of course, but also to make us all more productive.

With our intellectual property and fiber optic and digital technologies, Nortech is well aligned with projected future demand for fiber products. When compared with traditional copper, fiber optics offer dramatic environmental benefits during both production and operations, including improved energy efficiency and less material usage while significantly decreasing the carbon footprint of the complex cables we manufacture.

We're also taking a forward-looking stance on materials, shifting focus from copper to fiber to mitigate cost pressures and align with our long-term strategy to produce ruggedized, lighter, faster, more sustainable and more affordable technology.

In closing, we are excited about technological developments across all of our markets and expect them to support our continued sales momentum in 2026 and beyond, aided by stabilization in supply chain and customer orders.

As we wrap up our prepared remarks, let me summarize key takeaways from today's call. First, we are operationally and financially realizing positive results from our restructuring activities in 2024 and early 2025.

Second, we remain optimistic about our positioning and nearshoring landscape. Third, we are seeing benefits of our strategy with an increase in backlog over the past several quarters. And finally, we are making investments in innovative and unique technologies, the skills of our people, including AI skills and the regulatory capabilities to leverage future growth.

We will now open the call for your questions. Operator, please open the lines.

The floor is now open for questions. [Operator Instructions] We do not currently have any questions in the queue. [Operator Instructions] Thank you for joining our call today. You may disconnect your lines at this time, and have a good afternoon.

Good morning, ladies and gentlemen, and welcome to the Nortech Systems, Inc. Fourth Quarter 2025 Earnings Conference Call. With me on the line today are Mr. Jay Miller, President and Chief Executive Officer; and Andrew LaFrence, Chief Financial Officer and Senior Vice President of Finance. [Operator Instructions] At this time, it is my pleasure to turn the call over to your host, Mr. Andy LaFrence. Sir, the floor is yours.

Thank you, Ali. I would also like to welcome everyone to today's conference call. Jay will begin the call with a few -- a review of our operations, recent developments and business outlook. Then I will review Nortech's fourth quarter 2025 financial results before turning it back to Jay for his closing comments. Then we will open up the call for your questions.

Before we continue, please note 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 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 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 planned sustained performance improvement as we experienced a continued positive mix shift from new production -- 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. And 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 in our Aerospace and Defense -- with our Aerospace and Defense customers.

Andy and I, along with the rest of the Nortech 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 3-year arrangement to support our business growth.

We continue to see strong quoting activity as many of our customers are evaluating nearshore manufacturing strategies for both North America and Asia. We believe we are currently well-positioned with our North American footprint as our Monterrey 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 Nortech is not the importer of record into the United States for goods we produce in Mexico as we operate under 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 IEEPA tariffs and the process for reimbursement of these tariffs. We believe the reimbursement of these tariffs will be a net plus to Nortech as some customers have not fully completed their payment to Nortech of the IEEPA 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. Andy?

Thank you, Jay. In the next few minutes, I will provide certain details of our financial performance in the fourth quarter of 2025. I would encourage you to review our Form 10 -- excuse me, 8-K containing our press release and non-GAAP measures as well as our annual report on Form 10-K that were both filed last night with the U.S. Securities and Exchange Commission. As a continued theme, we have historically noted, our individual quarterly performance can be affected by outside factors. These might include timing fluctuations, including seasonal fluctuations, customer shipments and supply chain issues. Any of these can materially impact a particular quarter, either positively or negatively.

Consequently, we believe it's important to review our business on a 12-month basis rather than focusing on quarterly performance. This approach will help normalize these potential anomalies and offer a better gauge of our strategy's long-term success. Net sales for 2025 totaled $118.4 million. This represents a 7.6% decrease from net sales of $128.1 million in 2024. Net sales for the fourth quarter of 2025 totaled $3.3 million, a 5.9% increase from the net sales of $28.6 million in the fourth quarter of 2024.

As Jay noted, we have made significant headway with the transfer of customer programs in 2025. And this, when combined with new product introductions contributed to a 6.7% or $2.5 million increase in Medical Imaging net sales in 2025 as compared to 2024. Medical Imaging net sales increased by $1.4 million in the fourth quarter of 2025 as compared with the same prior year quarter. Medical Device net sales increased $2.7 million or 7.8% in 2025 as compared with 2024. The decrease was primarily due to inventory rebalancing with existing customers and timing of customer product launches as well as lower productivity as we manage our facility consolidation primarily in the first quarter of 2025. Medical Device net sales decreased by $184,000 in the fourth quarter of 2025 as compared with the same prior year quarter.

Aerospace and Defense net sales in 2025 decreased $5 million as a result of increased production in the middle of 2024 and the anticipation of moving Aerospace and Defense manufacturing from our former Blue Earth facility to our Bemidji facility and to a lesser extent, the continued delay of certain defense customer product approvals at the end of 2025. Aerospace and Defense net sales increased by $1.1 million in the fourth quarter of 2025 compared with the same quarter in 2024, reflecting the impact of the Blue Earth facility closing in 2024.

Industrial demand softened as customers' orders and we incurred certain component shortages, resulting in a $4.6 million or 12.9% decline in full year net sales. Industrial net sales decreased by $607,000 or 7.7% in the fourth quarter of 2025 compared with the same quarter in 2024.

As Jay noted, our customer backlog at the end of the fourth quarter of 2025 increased to $77.3 million as compared with $65.9 million as of December 31, 2024. For 2025, gross margin percentage increased to 15.2% as compared with 13.1% in 2024. Fourth quarter 2025 gross profit totaled $5.1 million or 16.7% of net sales compared with gross profit of $2.8 million or 9.9% of net sales in the same prior year quarter. The increase in gross profit as a percentage of net sales in the current year period was a result of increased facility utilization, increased manufacturing productivity, the impact of our restructuring activities in 2024 and 2025 and a change in the reporting structure of our customer managers from operations to a sales function, which more than offset lower net sales.

Operating expenses for 2025, excluding restructuring charges, increased by $419,000 as compared with 2024. Operating expenses, excluding the restructuring charges in the fourth quarter increased $420,000 as compared with the prior year period as a result of higher selling expenses from the realignment of the customer-facing managers to our sales function.

Income tax expense for 2025 was $263,000 as compared with $356,000 in 2024. Income tax benefit for the fourth quarter of 2025 was $216,000 as compared to $55,000 of expense in the fourth quarter of 2024. Our fourth quarter of 2025 income tax benefit was impacted by our updated analysis of the One Big Beautiful Bill Act that was signed by the President in the third quarter of 2025.

Turning to the balance sheet. As of December 31, 2025, cash totaled $1.7 million, up from $916,000 as of December 31, 2024. The fluctuation of cash balances reflects the timing of cash receipts and expenditures, distribution of earnings from our Chinese operations and credit line borrowings, which aggregated $7 million as of the end of the quarter. Accounts receivable as of December 31, 2025, were $17.5 million (sic) [ $16.9 million ], up from $14.9 million as of December 31, 2024. This increase is largely due to the timing of shipments.

Inventories were $20.7 million as of December 31, 2025, as compared to $21.6 million as of December 31, 2024, reflecting a planned decrease in our inventory balances during 2025. Our contract asset, which represents revenue earned but not yet billed to customers increased to $15.2 million as of December 31, 2025, as compared with $13.8 million as of December 31, 2024. This increase reflects the timing of customer shipments and our focus on increased production to reduce raw material balances, optimize plant operations and provide ready-to-ship inventory to certain customers to reduce lead times.

Our line of credit balance decreased by $1.6 million as of December 31, 2025, as compared with the year-end 2024. This decrease was largely due to the timing of accounts payable payments.

Moving to the cash flow payment for the year ended December 31, 2025. Net cash provided by operating activities totaled $2.7 million as compared with a $2.3 million usage in the same period in 2024. The timing of revenue shipments as well as customer and vendor payments impacted operating cash flow for each yearly period. We use EBITDA as well as adjusted EBITDA, which does not reflect restructuring charges as key performance indicators to manage our business. While EBITDA and adjusted EBITDA are non-GAAP measures, we believe these provide meaningful information regarding our underlying core business financial performance.

In the press release, we provided a reconciliation of our financial performance as determined in accordance with U.S. generally accepted accounting principles and EBITDA as well as adjusted EBITDA. For the fourth quarter of 2025, adjusted EBITDA was $1.2 million as compared with $889,000 (sic) [ $585,000 ] loss in the same period in 2024. This significant improvement in adjusted EBITDA from the prior year quarter reflects the positive impacts of our restructuring activities as well as improved efficiencies and productivity in our manufacturing facilities as noted in Jay's prior comments.

In our press release issued last night, we also presented non-GAAP results from a trailing 12-month financial data and EBITDA basis. For the year ended December 31, 2025, net sales were $118.4 million as compared with $128.1 million for the year ended December 31, 2024. In addition, adjusted EBITDA for the year ended December 31, 2025, was $2.5 million as compared with $2.1 million for the year ended December 31, 2024.

As we noted, over the past year, we have experienced revenue and resulting earnings headwinds from changes in customer ordering patterns, medical device customers post-COVID rebalancing of inventory levels and delays in Aerospace and Defense programs for moving our Blue Earth facility to Bemidji. We firmly believe that we have overcome these headwinds as demonstrated by our financial results over the last 3 quarters, increased backlog, and we are very optimistic about 2026.

Our top financial priorities remain unchanged. First, we are extremely focused on continuing to strengthen our balance sheet, including our plan to further reduce our inventory investments in 2026. As Jay noted, we completed a significant goal last week with the closing of a term and asset-backed line of credit with Associated Bank. Next, we are focused on driving efficiencies in our manufacturing processes and operating leverage to deliver sustainable long-term EBITDA growth as well as driving improvements in free cash flow.

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 highlight once again 3 related areas that together serve our customers and help advance Nortech's corporate stewardship, Nortech's engineering expertise, product innovation focus and sustainability plans. As for engineering expertise, we have a dedicated engineering services team focused on optimizing manufacturability, serviceability, supply chain risk mitigation and cost efficiency for our customers. Our 3-tier cost structure across the U.S., Mexico and China allows us to quickly adopt our global engineering resources to fit our customers' changing needs.

A core goal for our long-term strategic plan focuses on unique innovation. Nortech's engineering capabilities and innovation skills advance our research and development activities to solve the most complex challenges our customers face with technologies that are ruggedized, lighter, faster, more sustainable and more affordable. Nortech's technology is engineered to provide connectivity solutions to address 3 concerns for our customers. First, there is a need for ruggedization. Nortech's fiber optic technology stands up in harsh environments, such as the type of conditions commonly found in aerospace and defense applications.

Nortech has a proud history of serving these customers' unique needs dating back roughly 30 years. It's the smallest of our 4 core markets by net sales, but is our fastest-growing segment and very important for our -- for both diversification and future growth. Most of the cable harnesses we produce today for aerospace and defense applications are traditional cables common in legacy defense systems such as seaboard missile launchers for the Navy.

In conversations with our aerospace and defense customers, we see increasing interest in more modern warfare components such as ruggedized fiber optics, MT 38999 -- and 38999 connectors, which would be applied in wearable technology and tethered drones and others. Second, our customers need a means to enable connected devices and sensors to collect, parse, transmit and receive data to the cloud in order to apply the data effectively in decision-making.

Nortech's Digital Diagnostic Xtreme and [ Skylark ] technology platforms integrate digital technologies with fiber optic cables to generate real-time cable and system performance data. These digital diagnostic systems advance our customers' ability to monitor their systems and devices and to evolve from preventative maintenance to predictive maintenance to minimize downtime and costs.

Third, our customers require technology that is physically lighter and more sustainable. Nortech is well positioned to capitalize on this increasing interest with our advanced fiber optic capabilities. Our technologies align perfectly with the industry's move in favor of more efficient and reliable fiber optic solutions to provide EMI-immune, high-speed data transmission and power delivery, all in one hybrid cable. Nortech's power over fiber technology reduces overall cable weight and while providing EMI immunity and shielding. By transmitting power over optical fiber cable, Nortech eliminates the need for a separate local power source on cables that are used in medical devices and imaging where electromagnetic interference must be minimized.

Additionally, in satellites, aircraft or military systems, fiber can deliver power to isolated or shielded components where EMI is also a concern. More and more often today, that data is being evaluated and analyzed using human intelligence as well as combined artificial and human intelligence for improved performance and data management for our customers and for their customers.

For Nortech, we see AI capabilities as a clear opportunity to streamline and improve our processes, make our employees more productive and serve our customers better. With our intellectual property in fiber optic and digital technologies, Nortech is well aligned with projected future demand for fiber products. When compared with traditional copper, fiber optics offer dramatic environmental benefits during both production and operations, including improved energy efficiency and less material usage, while significantly decreasing the carbon footprint of complex cables we manufacture.

We're also taking a forward-looking stance on materials, shifting focus from copper to fiber to mitigate cost pressures and align with our long-term strategy to produce ruggedized, lighter, faster, more sustainable and more affordable technology.

In closing, we are excited about technological developments across all of our markets and expect them to support our continued sales momentum in 2025 and beyond. Aided by a stabilization in the supply chain and customer orders. As we wrap up our prepared remarks, let me summarize key takeaways from today's call. First, we are operationally and financially realizing positive results from our restructuring activities in 2024 and early 2025. Second, we remain optimistic that our positioning in the nearshoring landscape.

Third, we are seeing benefits of our strategy with an increase in backlog over the past several quarters. And finally, we have made investments in new technologies and regulatory capabilities to leverage future growth.

Now we'll open up the call to your questions. Ali, please open the lines.

[Operator Instructions]. Okay, sirs. As we have no questions in the queue at this time, I'd like to hand the call back over to Mr. Miller for any closing remarks you may have.

Thank you, Ali, and thanks to everyone for joining us today. We look forward to speaking with you in May when we report our first quarter 2026 results. Again, thank you and good bye.

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

Good afternoon, ladies and gentlemen, and welcome to the Nortech Systems, Inc. Third Quarter 2025 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. [Operator Instructions] At this time, it is my pleasure to turn the call over to Andy LaFrence.

Thank you, Paul. 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 third quarter 2025 financial results before turning it back over 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 other company expectations. These estimates, plans and other forward-looking statements involve unknown and known risks and uncertainties that may cause actual results to differ materially from those expressed or implied 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 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 now with that, I will turn it over to Jay for his opening comments. Jay?

Thank you, Andy, and good afternoon, everyone. We're glad you could join us today. I'm very proud of our team's execution and our positive third quarter results, which reflect continued evidence of our restructuring efforts and cost discipline are paying off. During the quarter, we realized increased manufacturing efficiencies across customer programs transferred to new plants, which are driving planned sustained performance improvement as we experienced a continued positive mix shift from new product introduction to first builds of recurring production. While we have incremental work to do in this area, we have made significant progress over the past several quarters to realize the benefits of our streamlining and long-term cost structuring initiatives. The entire Nortech leadership team is proud of the hard work and execution of our employees. We continue to closely monitor the on again, off again imposition of tariffs. We continue to see strong quoting activity as many of our customers are evaluating nearshore manufacturing strategies for both North America and China. We believe we are currently very well positioned in our North American footprint as our Monterrey Maquiladora operations and Minnesota facilities work under the framework of the USMCA.

While the tariffs with Mexico remain uncertain, it's important to note Nortech is not the importer of record into the United States for goods produced in Mexico as we operate under a Mquiladora 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. 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. We have recently completed 2 regulatory milestones to further support our long-term strategy. First, our Monterrey, Mexico facility has achieved AS 9100D certification. The AS9100 standard builds upon the ISO 9001 framework, adding stringent requirements specific to the aerospace industry. Earning this certification underscores Nortech's capability to deliver complex, high-reliability products for demanding applications, enhancing its service offerings to both current and prospective clients in the aerospace and industrial markets. Achieving AS9100D certification in our Monterrey facility is a significant milestone for Nortech and the direct reflection of our team's dedication to quality and operational excellence. Second, we have successfully completed our CMMC 2.0 certification to support our U.S. Department of Defense customers in advance of the newly effective government contracting cybersecurity requirements. Operationally, we are continuing to work to execute our strategy to partner closely with customers to drive shorter lead times, tailored on-time delivery strategies, high-quality standards, along with deeper customer partnerships that are fundamental to our long-term growth. We now have several customers with programs that resolve in shipments within days of order dates, resulting in world-class service and on-time delivery metrics. Further, our ability to manage build cycles for these programs create consistent manufacturing processes, which are also delivering leading quality metrics. Finally, I'd like to note that while our lead times have become shorter for many customers, we continue to see strength in our customer backlog. As we noted in our 10-K filing this morning, our customer backlog was $77.3 million as of September 30, 2025. 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'll provide certain details of our financial performance in the third quarter of 2025. I encourage you to review our Form 10 -- excuse me, Form 8-K containing our press release and non-GAAP measures as well as our quarterly report on Form 10-Q filed earlier this morning with the U.S. Securities and Exchange Commission.

As a continued theme we have historically noted, our individual quarterly performance can be affected by outside factors. These might include timing fluctuations, including seasonal fluctuations, customer shipments and supply chain issues, any of which could materially impact a particular quarter, either positively or negatively. Consequently, we believe it's important to review our business on a 12-month basis rather than focusing on quarterly performance. This approach will help to 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 third quarter results, I will spend some time reviewing trailing 12-month results for the business. Net sales for the third quarter of 2025 totaled $3.5 million. This represents a 2.9% decrease from net sales of $31.4 million in the third quarter of 2024. Net sales in the third quarter of 2025 were negatively impacted by a $1.4 million decrease in aerospace and defense net sales as a result of increased production in the last half of 2024 in the anticipation of moving aerospace and defense manufacturing from our Blue Earth facility to our Bemidji facility and to a lesser extent, the continued delay of certain defense customer product approvals.

As Jay noted, we made significant headway with the transfer of customer programs in the first 9 months of 2025, and this contributed to an 8.7% or $832,000 increase in Medical Imaging net sales in the current quarter as compared with the same quarter in 2024. As Jay also noted, we have a strong customer backlog at the end of the third quarter, which arrived at $77.3 million. This is consistent with our customer backlog at June 30, 2025. Third quarter of 2025 gross profit totaled $5 million or 16.5% of net sales compared with gross profit of $3.8 million or 12.2% of net sales in the same prior year quarter. The increase in gross profit as a percentage of net sales in the current year period was a result of increased facility utilization, increased manufacturing productivity and a change in the reporting structure of our customer managers from operations to a sales function, which more than offset lower sales. Operating expenses, excluding restructuring charges for the third quarter were down $46,000 as compared with the prior year period as a result of higher selling expenses from the alignment of our customer-facing managers to a sales function.

This increase was more than offset by lower payroll costs due to lower headcount and expense management. We incurred $176,000 of restructuring costs in the prior year period. As we focus on earnings before interest, tax, depreciation and amortization or EBITDA as a key performance metric for management and our investors, we generally have not spent time discussing our income tax expense in our quarterly calls. Given the size of the income tax expense for the current quarter, we are providing some color. Income tax expense in the third quarter of 2025 was $818,000 as compared to $56,000 in the third quarter of 2024. As a result of our pretax income of $672,000 for the current quarter, that was more than offset with income tax expense resulting in a net loss of $146,000. In the third quarter of 2025, the One Big Beautiful Bill Act was signed by the President. This bill restored the company's ability to immediately deduct domestic research and development expenses. The company has prepared its tax provision for the 3 and 9 months ending September 30, 2025, assuming it will take advantage of this provision of the new tax bill.

As a result, the company currently estimates that it will incur a U.S. tax loss for the company in 2025, which will temporarily limit the ability of the company to deduct interest expense and would impact our ability to claim foreign tax deductions and credits under the GILTI provisions of the U.S. tax code. The impact to the GILTI calculation results in a permanent unfavorable impact to the overall tax rate for the quarter and year-to-date periods. The company plans to continue to review the impact of the new tax bill and the various elections, including the company's deduction of research and development expenses in the fourth quarter of '25 to optimize tax cash payments along with overall tax expense for 2025. Turning to the balance sheet. As of September 30, 2025, cash flow of $1.3 million, up from $916,000 as of December 31, 2024. The fluctuation in cash balances reflects the timing of cash receipts and expenditures, distributions of earnings from our Chinese operations and credit line borrowings, which aggregated $12 million as of the end of the quarter. Accounts receivable as of September 30, 2025, were $18.8 million, up from $14.9 million as of September -- excuse me, December 31, 2024. And this increase was largely due to the timing of shipments.

Inventories were $18.4 million as of September 30, 2025, as compared with $21.6 million as of the end of December 31, 2024, reflecting a planned decrease in our inventory balances during 2025. Our contract asset, which represents revenue earned but not yet billed to customers increased to $15.3 million as of September 30, 2025, as compared with $13.8 million as of December 31, 2024. This increase reflects the timing of customer shipments and our focus on increased production to reduce raw material balances, optimize plant operations and provide ready-to-ship inventory to certain customers to reduce lead times. Moving to the cash flow statement for the 9 months ended September 30, 2025. Net cash used in operating activities totaled $2.9 million as compared with $3 million used in the same period in 2024. The timing of revenue shipments as well as customer and vendor payments impacted operating cash flows for the period. As noted above, we use EBITDA as well as adjusted EBITDA, which does not reflect restructuring charges as key performance indicators to manage our business. While EBITDA and adjusted EBITDA are non-GAAP measures, we believe these provide meaningful information regarding our underlying core business financial performance.

In the press release, we have provided a reconciliation of our financial performance determined in accordance with U.S. generally accepted accounting principles and EBITDA as well as adjusted EBITDA. For the quarter ended September 30, 2025, adjusted EBITDA was $1.3 million as compared with $143,000 in the same period in 2024. This significant improvement in adjusted EBITDA from the prior year quarter reflects the positive impacts of our restructuring activities as well as improved efficiencies and productivity in our manufacturing facilities, as noted in Jay's prior comments. In our press release issued today, we presented non-GAAP results, including trailing 12-month financial data and EBITDA. For the 12-month period ended September 30, 2025, net sales were $116.7 million as compared with $135.6 million for the 12-month period ended September 30, 2024. In addition, adjusted EBITDA for the 12-month period ended September 30, 2025, was $0.7 million as compared with $5.9 million for the 12-month period ended September 30, 2024. As we have noted over the past year, we have experienced revenue and resulting earnings headwinds from the change in customer ordering patterns in the medical device customers post-COVID rebalancing of inventory levels and delays in aerospace and defense for programs moved from Blue Earth to Bemidji.

We firmly believe that we have overcome these headwinds as demonstrated by our financial results over the past 2 quarters and are very optimistic about the remainder of 2025 and 2026. Our top financial priorities remain unchanged. First, we are extremely focused on continuing to strengthen our balance sheet, including our plan to further reduce our inventory investments in 2025 as well as close a new asset-backed line of credit in early 2026. Next, we are focusing on driving efficiencies in our manufacturing processes, especially for those programs we have transferred over the past year to new facilities to deliver sustainable long-term EBITDA growth as well as driving improvements in free cash flow. We believe our performance over the past 2 quarters reflects the outcome of our hard work. With that, I'll turn it back over to Jay for his closing comments. Jay?

Thanks, Andy. Before we open the call up to your questions, I want to highlight once again 3 related areas that together serve our customers and help advance Nortech's corporate stewardship, Nortech's engineering expertise, product innovation focus and sustainability plans. As for engineering expertise, we have a dedicated engineering services team focused on optimizing manufacturability, serviceability, supply chain risk mitigation and cost efficiency for our customers.

Our 3-tier cost structure across the U.S., Mexico and China allows us to quickly adopt our global engineering resources to fit our customers' changing needs. A core goal of our long-term strategic plan focuses on unique innovation. This is somewhat unusual for most contract manufacturers. Nortech's engineering capabilities and innovation skills advance our research and development activities, especially in fiber optic technology, including power over fiber. By transmitting power over optical fiber cable, Nortech eliminates the need for a separate local power source on cables that are used in medical devices and imaging where electromagnetic interference or EMI, must be minimized. Additionally, in satellites, aircraft or military systems, fiber can deliver power to isolated or shielded components where EMI is also a concern. At the simplest level, the vast majority of Nortech's products provide custom, complex custom digital connectivity solutions that transmit data and power in various applications.

These components in turn, enable connected devices and sensors to collect, parse, transmit and receive data. More and more often today, that data is being evaluated and analyzed using human intelligence as well as combined artificial and human intelligence for improved performance and data management for our customers and for their customers. For Nortech, we see AI capabilities as a clear opportunity to streamline and improve our processes, make our employees more productive and serve our customers better. Our pivot to more fiber optic technology improves product performance for our customers by offering unparalleled speed and reliability. It also aligns with global sustainability goals we share with many of those customers. When compared with traditional copper, fiber optics offer dramatic environmental benefits, both during production and operations, including improved energy efficiency and less material usage, while significantly decreasing the carbon footprint of the complex cables we manufacture.

Nortech's aerospace and defense customers are exploring 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 for aerospace and defense applications. Nortech has a proud history of serving these customers' unique needs, dating back roughly 30 years. It's the smallest of our 4 core markets by net sales, but is our fastest-growing segment, and it's very important for both diversification and future growth. Our contributions to our national defense are a source of great pride for the Nortech team. Every year, we make a point of recognizing Nortech's veterans and all the veterans in our families and communities as we did this past Tuesday and Veterans Day. Most of the cables we produce today for aerospace and defense applications are traditional cables common in legacy defense systems such as shipboard missile launches for the Navy. In conversations with our aerospace and defense customers, we see increasing interest in more modern warfare components such as ruggedized fiber optics, MT38999 connectors, which would be applied in wearable technology and tethered drones among other uses. Nortech is well positioned to capitalize on this increasing interest with our advanced fiber optic capabilities.

Our technologies align perfectly with the industry's move toward more efficient and reliable fiber optic solutions to provide EMI-immune high-speed data transmission and power delivery and all in one hybrid cable. By integrating digital diagnostics with fiber optic cables, we are able to generate real-time cable and system performance data. These digital diagnostic cables advance our customers' ability to monitor their systems and devices to evolve from preventive maintenance to predictive maintenance to minimize downtime and costs. With our intellectual property in fiber optic and digital technologies, Nortech is well aligned with projected future demand for fiber products. We're also taking a forward-looking stance on materials, shifting focus from copper to fiber to mitigate cost pressures and align with our long-term strategy to produce lighter, faster and more sustainable and more affordable technology. In closing, we are excited about technological developments across all of our markets and expect them to support our continued sales momentum in 2025 and beyond, aided by stabilization in the supply chain and customer orders.

As we wrap up our prepared remarks, let me summarize 3 takeaways from today's call. First, we are operationally and financially realizing positive results from our restructuring activities in 2024 and early 2025. Second, we remain cautiously optimistic of our positioning in the near-shoring landscape. And finally, we are making investments in our regulatory capabilities to leverage future growth. We'll now open up the line -- open up the call for your questions. Paul, go ahead and open up the lines.

[Operator Instructions] There were no questions from the lines. And I will now turn the call back to Jay Miller for closing remarks.

Thank you, Paul, and thanks to everyone for joining us today. We look forward to talking to you in March when we report our fourth quarter 2025 results. Again, thank you, and goodbye.

Thank you. This does conclude today's conference. You may disconnect your lines at this time. Thank you for your participation.