Paula Graff - Vice President & Chief Financial Officer Richard Wasielewski - President & Chief Executive Officer.

Sheldon Grosky - Grosky Associates.

Greetings and welcome to the Nortech’s Systems First Quarter 2015 Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to turn the conference over to your host, Ms.

Paula Graff, VP and Chief Financial Officer. You may now begin..

Thank you. Good morning and welcome to Nortech Systems' first quarter fiscal 2015 conference call. I’m Paula Graff, Vice President and CFO, and with me is Rich Wasielewski, Nortech’s President and CEO.

Following my introduction, Rich will offer comments on our first quarter results with some highlights on yesterday's Annual Shareholder Meeting presentation and an update on the markets we serve. Then we’ll open up the call for questions.

Before we begin, please be advised that statements made during this call may be forward-looking and are subject to risk factors and uncertainties. Please see the complete Safe Harbor Statement in our press release and SEC filings. I now will turn the call over to Rich Wasielewski. .

Thank you, Paula, and hello everyone. I begin this morning with addressing our first quarter results. Our revenue was 26.5 million up 1.5% from Q1 of 2014. Industrial sales lead the way up 17% year-over-year.

Medical sales were off 6% in part because of a large customer was selling through inventory in the first quarter, which impacted their order pattern. The strong U.S. dollar and the weak economies in Europe and Asia has been affecting the first and second quarters.

Aerospace and defense sales were down 27% year-over-year as this market adjusted to the new defense budget levels. However, we are seeing encouraging signs of traction and made a new program win increasing backlog and pipeline activity. Our 90 day backlog at March 31st was 18.3 million, up 6% during the quarter.

Strongest increases were in aerospace and defense, up 18% from the start of the year and 31% over the prior year. Our industrial backlog also showed growth up 8% sequentially and 37% year-over-year, where our medical was down slightly from the start of the year.

Our medical backlog was down 3% during the quarter, as I mentioned a large medical customer is working off the inventory. Also, other medical equipment customers are feeling the impact of the affordable healthcare act with hospitals re-evaluating and delaying capital purchases.

Profitability, we posted an operating loss for the first quarter of 202,000 or $0.07 per share. This compares on an operating income of 236,000 or $0.03 per share for the first quarter of 2014. The loss is attributed to two main factors.

Our gross margin for the quarter was only up 10.8 %, down from 11.8% in the first quarter of 2014 and well below planned expectations. This received well with the temporary shift in product mix, less medical, more industrial.

Our ramp up costs for new products and the Mexico PCB business, underutilization of our operations which we expected to see through the second quarter.

The other factor was selling expenses; the percent of sales is higher as we continued our business development activities to stimulate fails and meet our long-term growth initiative, which include more cross-selling and support of our expansion in PCBs in Mexico and China activities.

Our leading early indicators in our field intelligence allow us to mitigate the impact by introducing some cost reductions and delayed spending to match our current demand in the middle of February to late February, while keeping intact our investments and our growth initiatives.

Taking a look at our operating cash flow we used $200,000 of net cash in the quarter, due mainly to the increases in inventory resulting from the lower than expected customer demand. Now I'd like to share a few highlights on yesterday's Annual Shareholders Meeting.

The first thing we did was kick off our 25th anniversary celebration with our history of building our company, on the acquisitions and our dedicated employee. And we outlined our future One Nortech, sharing resources, best practices and valuable expertise, and putting the pieces together to be a bigger global player in the future.

Then we quickly recapped 2014 and discussed some overall industrial trends. Recent data from the analyst firm of New Venture Research confirms that our 2014 sales performance was basically on par with other North American EMS companies. Looking ahead to 2015 to 2018, new venture is expecting annual revenue growth rate of over 4.5%.

This is down, however, to last year's projection of 7% and shows the impact of rapid growth in 2014. At the Annual Meeting we briefly cited some well-published external factors that together pulled down our quarter performance. A GDP weakness in U.S. and internationally falling oil prices, a strong U.S.

dollar, a harsh winter throughout the East Coast and North Atlantic and then the West Coast port dispute. In addition to Nortech, many public companies have been experiencing these external conditions as they've been reporting their current quarterly reports. But more importantly, it's how you respond.

Yesterday, we outlined our proactive responses to these conditions which strengthened our position for the short and long term.

Selling One Nortech, we are emphasizing our broad capabilities and expertise, with our sales people successfully selling our complete services and integration, more often combining our wires, cables and printed circuit boards into a higher level assembly.

Leveraging our shared services; engineering, manufacturing and supply chain, will be easier with our new location when we move here in Maple Grove, Minnesota, will help both our corporate offices and new engineering lab tech center.

We are leasing a space about three and a half times larger than our current space at a comparable cost; cost savings for many of our activities now having to be rented out. Looking outside of U.S. we are investing and strengthening our global footprint.

As I mentioned in Mexico we've expanded our capabilities to include printed circuit cards, which enables more customers take advantage of our cost competitive location, and move up the food chain with more complex projects in high level assembly capabilities. In China we are exploring business development and material sourcing opportunity.

We now have a program manager located in China and a dedicated engineering project that are in place helping transition projects to Asia and China. We will keep you updated on our progress on the future conference call. Market update information; next I will share some updates in our three key markets, trends and new businesses.

Some of this information was mentioned at yesterday's annual meeting. Industrial, it was more ups and down for our largest market during the first quarter. Some highlights in the semiconductor equipment business, it was up and continues to show signs of strong 2015.

Process management controls, Q1 was off in the prior year driven by the oil and gas industry slowdown, which is expected to linger through the second and third quarter. Oil firms are not upgrading equipment like they did previously.

Water controls continue to be strong, processing measurement and water control is becoming more important commodity, using some of the technologies found in the oil gas field.

Looking at our transportation customers in both the rail industry and over the highway, are up and looking as strong in 2015 due to changes driven by government regulations both the EPA and emission and DoT trip logging. For our longstanding locomotive customers we are moving into the higher level assembly with their new modeling adoption.

Because their product is more sophisticated we have a higher dollar value per engine than we had previously. Environmental controls were flat in Q1, although that's expected to grow slightly as we go further into the second half of the year.

Power systems was flat, but new price introductions are also scheduled for Q3 and we could finish the year strong in this area. Overall, our industrial pipeline looks strong. We have a strong Q1 booking as you can tell by the backlog and this should board well on board.

Moving over to medical and life sciences; the overall industry outlook is moderate with most medical companies experiencing the effect of the solid economy through the second quarter. But our recent wins and new production starts in the second half will help improve the 2015 outlook for Nortech.

A big deal for Nortech last month at the GE Healthcare Supplier Day, we received the 2015 Supplier Excellence Award for mechanical products, from our largest medical customer GE Health. We won this prestigious award for the first time, again in stiff competition with 1,500 global companies.

In fact Nortech was nominated for three awards of GE Health and the most of any supplier. Our employees should be proud of that accomplishment. We are currently helping GE Healthcare with new generation MRI machine featuring state-of-the-art technology and extreme imaging resolution.

GE is one of our customers pleased to see our growing global footprint in Asia. We are also continuing to focus on our quality initiative and performance to better serve our larger medical device customers and attract new business. Turning to defense in aerospace. Our backlogs in shipments have both been increasing.

We have landed two notable customers recently. In aerospace we're now working with Zodiac Aerospace, a subcontractor to Boeing and the 787 Dreamliner, we're making a box build system for airline galleries where the flight attendant prepares their food and beverage.

In defense we're now working with a new Northrop Grumman division developing a mobile radar system. Also, [indiscernible] Boeing are showing healthy signs of defense market rebound. Certain defense programs are getting funding. We've seen a lot of missile maybe work lately, but not much for soldier communication or related work.

We won some business recently on the TOW missiles with foreign military sales. Overall, bookings have been strong in the past three months and we continue to build the business within the new defense budget environment.

Quoting activity is high in the aerospace and defense with lots of the customers put together growth proposals to take advantage of what the government is offering. In summarizing our start to 2015, it looks a lot like 2014 in which we finished strong, but there's again challenges in the first half from external conditions.

But we see our internal indicators and trends improving heading into the second half. We are confident at this point due to a number of factors. Our qualified pipeline activities, new recent program wins, our backlog increasing across all our markets and our strong position with all our major customers.

We have the right strategies in place to leverage and sell our resources effectively as One Nortech and to expand our global footprint in Mexico and China. These are our investments for the future; our future growth and profitability. Now, we look forward to answering any questions you might have this morning. Operator, would you please open the lines.

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[Operator Instructions] Our first question comes from Sheldon Grosky for Grosky Associates. Please proceed with your question..

If I remember correctly you also had a weak fourth quarter. You said you had a strong finish to the year, but I think you remember that the fourth quarter was a down quarter.

Am I correct in that?.

Well, we did 29 million [indiscernible] in revenue and I believe $0.08 a share.

So you're expecting better second half and hopefully the 18 is a negative numbers. This is like good therapy for the stock.

So with the greater volume, would you expect to be back in the profit column?.

Sheldon, could you please repeat that.

With the greater sale volume you're expecting in the second half of the year, would you expect the company to be profitable?.

Yes, the investments that we're making should start being beneficial in the second half. .

Okay. Thank you. .

And the mix product with it as well. .

[Operator Instructions] There are no further questions at this time. I'd like to turn the call back over to management for closing remarks. .

If there are no further questions, we’ll conclude the call. Thanks for your interest in Nortech and we look forward to speaking with you in the future. Have a great day..

This concludes today's teleconference. We thank you for your participation. You may disconnect your lines at this time..