What changed in this filing

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Item 2. Management’s Discussion and Analysis

2026-08-12 compared with 2026-05-13 · 149 added, 106 removed, 112 unchanged (69% of the section changed)

14 unchanged sentences

and designed products that require sophisticated manufacturing support.

Quality, on-time delivery, and reliability are of upmost importance.

Quality, on-time delivery, and reliability are of utmost importance.

Our goal is to expand and diversify our customer base by focusing on sales and marketing efforts that fit our value-added service, early

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of Operations

Net sales for the three months ended March 31, 2026 and 2025 were $30,316 and $26,895, respectively, a comparative period

The Company’s results of operations in 2026

have benefited from higher gross margin from increased net sales as the result of improved backlog.

This increase was offset in 2026 with

increased incentive compensation expense.

For the three and six months ended June 30, 2026, incentive compensation expense (reversal of expense) aggregated

$402 and $647, respectively, as compared with ($131) and $0 in the three and six months ended

June 30, 2025, respectively.

Net sales for the three months ended June 30, 2026 and 2025 were $33,540 and $30,675, respectively, a comparative period increase

of $2,865 or 9.3%.

Net sales for the six months ended June 30, 2026 and 2025 were $63,856 and $57,570, respectively, a comparative period

increase of $6,286 or 10.9%.

Net sales in the three months ended March 31, 2026 were positively impacted in Aerospace and Defense

from the receipt of customer approvals for products transferred from our Blue Earth facility to our Bemidji facility during 2025 as

well as manufacturing and plant utilization efficiencies gained related to our 2025 facility optimization.

The following is a

summary of net sales by our major industry markets:

Three Months Ended March 31,

The following is a summary of net sales by our major industry markets:

Three Months Ended June 30,

Increase (Decrease)

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Total net sales

Net sales to our medical customers increased $841, or 10.4%, in the three months ended March 31, 2026 as compared with the

same period in 2025.

The increase was primarily due to the ramp up of production post our 2025 facility optimization.

Net sales to our Medical Imaging customers increased $1,288, or 15.0%, in the three months ended March 31, 2026 as compared

with the same period in 2025.

The increase was primarily due to higher sales volume to existing customers.

Net sales to our industrial customers remained relatively flat with a decrease of $63, or 0.9%, in the three months ended March 31,

2026 as compared with the same period in 2025.

Net sales to our aerospace and defense customers increased $1,355, or 41.2%, in the three months ended March 31, 2026

as compared with the same period in 2025.

The increase primarily relates to the positive impact from receipt of customer approvals

for products transferred from our Blue Earth facility to our Bemidji facility.

Our 90-day shipment backlog as of March 31, 2026 was $31,475, an increase of 15.3% from $27,288 at the beginning of the quarter,

and a 17.7% increase from March 31, 2025.

Our 90-day backlog consists of firm purchase orders we expect to ship in the next 90 days,

with any remaining amounts to be shipped within 180 days.

total order backlog as of March 31, 2026, was $90,802, representing a 17.4% increase from $77,343 at the beginning of the quarter and

a 32.9% increase compared to the same period in the prior year;

Six Months Ended June 30,

Increase (Decrease)

Medical Device

Medical Imaging

Aerospace and Defense

Total net sales

Net sales to our Medical Device customers increased $2,719, or 36.0%, in the three months ended June 30, 2026 as compared

with the same period in 2025 and increased $3,560, or 22.8%, in the six months ended June 30, 2026 as compared with the same period

The increase was primarily due to higher customer demand from existing customers and continued ramp up of new programs.

Net sales to our Medical Imaging customers increased $1,177, or 12.2%, in the three months ended June 30, 2026 as compared

with the same period in 2025 and increased $2,465, or 13.5%, in the six months ended June 30, 2026 as compared with the same period

The increase was driven by higher customer demand, supported in part by increased revenues from a stocking program with a key customer that improved product availability and enabled shorter lead times.

Net sales to our industrial customers decreased $396, or 4.7%, in the three months ended June 30, 2026 as compared with the same

period in 2025 and decreased $459, or 3.0%, in the six months ended June 30, 2026 as compared with the same period in 2025.

Industrial revenue reflects customer inventory adjustments and temporary production disruptions associated with the

transfer of manufacturing activities to Monterrey, Mexico.

The decline was largely offset by revenue growth in China.

Net sales to our aerospace and defense customers decreased $635, or 12.8%, in the three months ended June 30, 2026 as

compared with the same period in 2025 and increased $720, or 8.7%, in the six months ended June 30, 2026 as compared with the same

period in 2025.

The decrease in the second quarter of 2026 was primarily due to reduced demand from one customer who is rebalancing post-COVID inventory balances, which partially offset the benefits

from the completion of the transfer of production programs to our Bemidji location.

For the six-month period ended June 30, 2026, revenue increased compared to the prior-year

period primarily due to higher production volumes associated with completed transfers to our Bemidji location, offset by impact of the above

noted customer rebalancing activities.

Our 90-day shipment backlog as of June 30, 2026 was $33,445, an increase of 6.3% from $31,475 at the beginning of the quarter, and

a 25.8% increase from June 30, 2025.

Our 90-day backlog consists of firm purchase orders we expect to ship in the next 90 days, with

any remaining amounts to be shipped within 180 days.

total order backlog as of June 30, 2026, was $93,849, representing a 3.4% increase from $90,802 at the beginning of the quarter and a

19.8% increase compared to the same period in the prior year;

this year over year growth was primarily driven by an increase in Aerospace

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shipment and total backlog by our major industry markets are as follows:

March 31, 2026

December 31, 2025

June 30, 2026

March 31, 2026

June 30, 2025

Medical Device

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Total backlog

90-day and total backlog as of March 31, 2026 includes orders already recognized in net sales and included in the contract asset value

90-day and total backlog as of June 30, 2026 includes orders already recognized in net sales and included in the contract asset value

Costs and Expenses.

sales, cost of goods sold, gross profit, and operating costs were as follows:

Three Months Ended March 31,

Three Months Ended June 30,

Increase/(Decrease)

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% of Net sales

Restructuring charges

Operating income

% of Net sales

Operating income (loss)

margin percentage is defined as gross profit as a percentage of net sales.

points change in gross margin percentage.

Months Ended June 30,

Increase/(Decrease)

of goods sold

margin percentage (1)

% of Net sales

General and administrative

Research and development

Restructuring charges

Operating income (loss)

margin percentage is defined as gross profit as a percentage of net sales.

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profit and gross margin percentage.

Gross margin percentage was 15.5% and 11.4% for the three months ended March 31, 2026, and 2025,

Gross margin percentage was 17.0% and 15.8% for the three months ended June 30, 2026, and 2025,

respectively.

The increase in gross margin percentage was the result of improved plant utilization primarily from our restructuring activities

and higher sales on a fixed cost base.

Selling expenses, as measured as a percentage of net sales , were 4.4% for both the three months ended March 31,

2026, and 2025.

Gross margin percentage was 16.3% and 13.7% for the six months ended June 30, 2026, and 2025, respectively.

The improvement

was primarily attributable to higher revenue levels and improved manufacturing cost absorption resulting from increased production activity.

The benefit of higher volumes was partially offset by unfavorable sales mix.

Selling expenses, as measured as a percentage of net sales , were 4.4% and 3.9% for the three months ended June 30,

2026, and 2025, respectively.

Selling expenses, as measured as a percentage of net sales , were 4.4% and 4.1% for the six months

ended June 30, 2026, and 2025, respectively.

The increase as a percentage of sales was primarily attributable to higher incentive compensation accruals in 2026.

and administrative expenses.

General and administrative expenses, as measured as a percentage of net sales, were 9.7% and 8.4% for

the three months ended March 31, 2026 and 2025, respectively.

This decrease as a percentage of net sales was primarily the result of

higher sales on a fixed cost base.

the three months ended June 30, 2026 and 2025, respectively, and 9.8% and 9.6% for the six months ended June 30, 2026 and 2025, respectively.

The increase as a percentage of net sales was primarily the result of higher incentive compensation accruals

Research and development.

and development expenses increased slightly at $346 and $302 in the three months ended June 30, 2026 and 2025, respectively,

and $656 and $628 in the six months ended June 30, 2026 and 2025, respectively.

The increases are the result of higher incentive compensation

accruals in 2026.

Restructuring

Restructuring charges were $0 and $266 in the three months ended March 31, 2026 and 2025, respectively.

During the first

quarter of 2025, we incurred $235 of severance charges for a February 2025 reduction in force to align staffing to our forecasted net

sales and $31 of expenses related to our closed Blue Earth facility.

Restructuring charges were $0 and $266 in the three and six months ended June 30, 2026 and 2025, respectively.

first quarter of 2025, we incurred $235 of severance charges for a February 2025 reduction in force to align staffing to our forecasted

net sales and $31 of expenses related to our closed Blue Earth facility.

income (loss).

Operating income was $47 for the three months ended March 31, 2026 or 0.2% of net sales and operating loss was $(1,613)

or (6.0)% of net sales for the three months ended March 31, 2025.

The improvement was primarily driven by higher gross margin percentage,

which increased operating income by $1,234, and higher net sales, which contributed an additional $390.

Operating income was $623 for the three months ended June 30, 2026 or 1.9% of net sales and operating income was $742

or 2.4% of net sales for the three months ended June 30, 2025.

The decrease was primarily attributable to higher selling and general

and administrative expenses, which more than offset the increase in gross profit resulting from higher sales volume.

Operating income

was $670 or 1.0% of net sales for the six months ended June 30, 2026 and operating loss was $(871) or (1.5)% of net sales for the six

months ended June 30, 2025.

The increase was primarily attributable to higher gross profit associated with increased revenue and improved

operating leverage, together with the absence of restructuring charges recorded in the first quarter of 2025.

expense, net.

Interest expense, net was $256 and $214 for the three months ended March 31, 2026 and 2025, respectively.

increase was driven by the write-off of unamortized debt issuance costs of $88 associated with our prior financing arrangement that

was refinanced in the period.

Refer to “Liquidity and Capital Resources” for further discussion of financing

arrangements.

Our effective tax rate for the three months ended March 31, 2026 and 2025 was 84% and 28%, respectively.

The primary drivers

of the change in the effective tax rate were differences in pretax book income (loss) by jurisdiction and taxes on foreign entities.

Interest expense, net was $197 and $257 for the three months ended June 30, 2026 and 2025, respectively.

Interest expense,

net was $453 and $471 for the six months ended June 30, 2026 and 2025, respectively.

This decrease in the quarterly comparison was driven

by the lower average borrowings and reduced interest costs following the transition to the Company’s new financing arrangements.

Refer to “Liquidity and Capital Resources” for further discussion of financing arrangements.

Our effective tax rate for the three and six months ended June 30, 2026 was 26% and (30)%, respectively.

Our effective

tax rate for the three and six months ended June 30, 2025 was 35% and 25%, respectively.

The primary drivers of the

change in the effective tax rate were differences in pretax book income (loss) by jurisdiction and taxes on foreign

Flow Operating Results

following is a summary of cash flow results:

Three Months Ended March 31,

Six Months Ended June 30,

Cash provided by (used in):

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Net change in cash and restricted cash

Cash used in operating activities was $1,561 in the first three months of 2026, compared with $2,930 in the same prior-year

Cash used in operating activities was $2,449 in the first six months of 2026, compared with $2,773 in the same prior-year

Significant changes in operating assets and liabilities affecting cash flows during these periods included:

used by accounts receivable and contract assets was $1,648 in the three months ended March 31, 2026 as compared with cash used of

used by accounts receivable and contract assets was $4,500 in the six months ended June 30, 2026 as compared with cash used of $4,034

in the same prior-year period.

This use of cash is largely due to timing of customer shipments and cash collections in both

periods and by an increase in contract assets in the current year period to support future customer shipments.

used by inventory was $2,610 in the three months ended March 31, 2026 as compared with cash provided of $487 in the prior-year period.

The increase in the current-year period cash usage was the result of normal timing variances of inventory purchases and timing of

product shipments.

provided by changes in accounts payable was $1,917 in the current-year period as compared with cash used of $1,441 in the same prior-year

period, primarily related to the timing of cash payments.

Cash used in investing activities was $228 in the first three months of 2026, compared with $268 in the same prior-year

This use of cash is largely due to timing of customer shipments and cash collections in both periods

and by an increase in contract assets in the current year period to support future customer shipments.

used by inventory was $3,530 in the six months ended June 30, 2026 as compared with cash provided of $2,714 in the prior-year period.

The current-year increase in inventory primarily reflects purchases of materials needed to support the growing backlog

and anticipated production requirements in the second half of 2026.

In contrast, inventory levels declined in the prior-year period due

to lower customer demand and corresponding reductions in material purchases.

provided by changes in accounts payable was $2,077 in the current-year period as compared with cash provided of $295 in the same

prior-year period, primarily related to the timing of cash payments.

Cash used in investing activities was $323 in the first six months of 2026, compared with $358 in the same prior-year

period, both due from the purchases of property and equipment.

Cash provided by financing activities was $2,336 in the first three months of 2026 and $3,446 in the same prior-year

Cash provided by financing activities was $2,774 in the first six months of 2026 and $2,858 in the same prior-year

The cash provided by financing activities in both periods resulted from the line of credit advances for working capital and operations

as well as the term loan borrowing in the first three months of 2026.

as well as the term loan borrowing in the first six months of 2026.

and Capital Resources

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and Exchange Commission.

On March 20, 2026, the Company

entered into a new Credit and Security Agreement with Associated Bank, National Association, which provides for a revolving credit

facility of up to $15,000, subject to a borrowing base based on eligible accounts receivable and inventory in the United States of

America (“U.S.”), and a $2,200 term loan (the “Associated Facility”).

The Associated Facility includes a

sublimit of $1,500 for letters of credit and is secured by substantially all of our assets in the U.S.

March 20, 2026, the Company entered into a new Credit and Security Agreement with Associated Bank, National Association, which provides

for a revolving credit facility of up to $15,000, subject to a borrowing base based on eligible accounts receivable and inventory in

the United States of America (“U.S.”), and a $2,200 term loan (the “Associated Facility”).

The Associated Facility

includes a sublimit of $1,500 for letters of credit and is secured by substantially all of our assets in the U.S.

The Associated Facility

matures in March 2029.

The Company is required to pay a 25-basis point fee per annum, paid monthly, on the unused portion of the

revolving credit facility.

The Company is required to pay a 25-basis point fee per annum, paid monthly, on the unused portion of the revolving

credit facility.

The term loan requires monthly principal payments of $37 plus interest.

Borrowings under the Associated

Facility bear interest, at the Company’s option, at a defined base rate derived from the Bank’s prime rate, or at

one-month or three-month Term Secured Overnight Financing Rate, referred to as SOFR, plus 2.00% in the case of revolving credit

borrowings, and plus 2.25% in the case of the term loan.

At March 31, 2026, the revolving credit facility and term loan accrued

interest at 8.52% and 8.00%, respectively.

At March 31, 2026, there was $7,196 outstanding under the revolving credit facility and

$3,500 of unused availability.

Borrowings under the Associated Facility may be prepaid at any time without penalty.

The Associated

Facility does not contain prepayment premiums, make-whole provisions, or other features that would require separate accounting as

embedded derivatives.

The Associated Facility contains customary affirmative

and negative covenants that restrict or limit our ability to incur additional indebtedness, create liens, make investments, sell assets,

pay dividends or engage in certain transactions without lender consent.

This agreement also requires us to comply with financial covenants,

including maintaining a Fixed Charge Coverage Ratio of 1.10 to 1.00, which measures the ratio of EBITDA, as defined to exclude certain

other non-cash items, and less unfunded capital expenditures, to fixed charges such as interest as well as debt and capital lease principal

The Company was in compliance with all covenants under the Associated Facility as of March 31, 2026.

The Associated Facility agreement includes broad and customary events of

default such as non-payment of obligations, breaches of representations or covenants, unauthorized liens, insolvency events, material

adverse changes, cross-defaults to other significant indebtedness, and change-of-control triggers.

Additional events include unsatisfied

judgments, loss of lender lien priority, defaults under material business agreements, impairment of key intellectual property, destruction

of collateral, and certain ERISA, hedging, or legal compliance violations.

Upon an event of default, including the lender’s determination

that a material adverse event has occurred, as defined by the Associated Facility agreement, the lender may accelerate all obligations,

terminate the commitments, and exercise its full rights and remedies against the collateral.

Borrowings under the Associated Facility bear

interest, at the Company’s option, at a defined base rate derived from the Bank’s prime rate, or at one-month or three-month

Term Secured Overnight Financing Rate, referred to as SOFR, plus 2.00% in the case of revolving credit borrowings, and plus 2.25% in

the case of the term loan.

The revolving credit facility and term loan bear interest at a weighted-average interest rate of 7.9% and 7.7%, respectively,

for the three months ended June 30, 2026.

At June 30, 2026, there was $7,573 outstanding under the revolving credit facility and $3,552 of unused availability.

Borrowings under

the Associated Facility may be prepaid at any time without penalty.

The Associated Facility does not contain prepayment premiums, make-whole

provisions, or other features that would require separate accounting as embedded derivatives.

Associated Facility contains customary affirmative and negative covenants that restrict or limit our ability to incur additional indebtedness,

create liens, make investments, sell assets, pay dividends or engage in certain transactions without lender consent.

This agreement also

requires us to comply with financial covenants, including maintaining a Fixed Charge Coverage Ratio of 1.10 to 1.00, which measures the

ratio of EBITDA, as defined to exclude certain other non-cash items, and less unfunded capital expenditures, to fixed charges such as

interest as well as debt and finance lease principal payments.

The Company was in compliance with all covenants under the Associated

Facility as of June 30, 2026.

Associated Facility agreement includes broad and customary events of default such as non-payment of obligations, breaches of representations

or covenants, unauthorized liens, insolvency events, material adverse changes, cross-defaults to other significant indebtedness, and

change-of-control triggers.

Additional events include unsatisfied judgments, loss of lender lien priority, defaults under material business

agreements, impairment of key intellectual property, destruction of collateral, and certain ERISA, hedging, or legal compliance violations.

Upon an event of default, including the lender’s determination that a material adverse event has occurred, as defined by the Associated

Facility agreement, the lender may accelerate all obligations, terminate the commitments, and exercise its full rights and remedies against

the collateral.

ability to comply with these covenants depends in part on our ability to generate sufficient EBITDA and operating cash flow.

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of global or local information management systems due to natural disaster or cyber-security incident;

of epidemic, pandemic, or contagious diseases, such as the recent novel coronavirus that affect our operations, our customers’

of epidemic, pandemic, or contagious diseases that affect our operations, our customers’

operations or our suppliers’ operations.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis