We are in the initial stages of this journey, establishing baselines and developing plans. But relatively soon, we will begin to publicly report and track Nortech’s ongoing ESG performance and progress in key areas. No business operates in a vacuum, and this effort demonstrates another way Nortech is committed to our employees, our families, customers, supplier partners and shareholders, along with a greater world around us. And with that, we will open things up €“ the call up for questions. Ali, please open the line and poll for questions.
Operator: We have a question from Paul Luther, who is a private investor. Please go ahead.
Paul Luther: Good morning folks and I guess congratulations first off on a strong 2022. And I guess with that and kind of looking at the Q4 high tax rate, I am curious what you anticipate the 2023 tax rate to run at and also kind of what you think normalized gross margins might be into the New Year?
Chris Jones: Yes. This is Chris. And I will take both of those on the tax rate and normalized gross profit margin. So, on the tax rate, I think that Nortech had a unique occurrence in 2021 that made our effective tax rate low because of the PPP loan forgiveness. And then in 2022, we had a disproportionately high effective tax rate. And I think that was due to implementation of IRS rules around research and experimentation capitalization. So, in 2023, we €“ neither one of those two unusual occurrences will occur. So, I would expect a normal statutory income tax rate through 2023. And of course, we are working closely with our tax advisors to work on any kind of cash tax credit opportunities, especially around things like research and development.
That’s our 2023 certainly ongoing planning on taxes. On gross margin, our normalized full year gross margin last year was about 15%, which was obviously up significantly from 2021. And I think as we look at the kind of a stable gross margin pattern in 2022, I would expect that to continue into 2023. I think we have a measured degree of headwinds on the margins side and tailwinds on the margins side. So, I think that’s something that obviously, in 2023, we are going to continue to focus on. And I think ultimately, as we think beyond 2023 and Nortech’s broader planning on improving margin, it’s adding more value to our customers, it’s doing more-higher level assemblies, more complex products. And I think if you heard Jay’s prepared remarks about the €“ ultimately, the strategic direction of the company is towards higher-margin products.
But it’s going to be methodical. And I think it’s going to be stepwise quarter-on-quarter.
Jay Miller: Paul, this is Jay. First of all, thanks for your question. We appreciate it. We do feel very good about the year. As Chris noted, we all know what the headwinds are out there, and we are dealing with those and staying very close to our suppliers and our customers as we are working through these things. These pendulums tend to go back and forth. And our €“ part of our job is to work with our customers and try to even those things out as best we can. But long-term, over time, clearly we expect to grow our top line reasonably aggressively and grow our profitability even faster. Over time, we expect our gross profit and our gross margins to continue to build. We are not going to give specific numbers, but we expect improvement in all those areas. And again, thanks for the question.
Paul Luther: Thank you, Chris and Jay. And just kind of €“ can you add a pinch of color you got €“ to the comment of headwinds and tailwinds, more importantly on the headwinds. I know there is labor, inflationary pressures, there is material pressures. But is that the driver, or is it competitive market conditions at the customer level or the need to be extra competitive to win new business, or can you put a little flavor on that kindly?
