Revenue Up Nearly 8% from Prior Year and Up
11% Year-to-Date
Nortech Systems Incorporated (Nasdaq: NSYS) (the "Company"), a
leading provider of engineering and manufacturing solutions for
complex electromedical and electromechanical products serving the
medical, industrial and defense markets, reported 2023 second
quarter results for the period ended June 30, 2023.
2023 Second Quarter
Highlights:
- Revenue of $35.0 million, up 7.7% from the prior-year period.
First half revenue $69.9 million up 10.6% from prior-year
period.
- Generally Accepted Accounting Principles (GAAP) net income of
$0.6 million, or $0.22 per diluted share, compared to net income of
$0.7 million, or $0.25 per diluted share, in the same period in
2022.
- Gross margin of 15.6%, up 20 basis points from gross margin of
15.4% in the second quarter of 2022.
- Earnings before interest, taxes, depreciation and amortization
(EBITDA) of $1.6 million, up from EBITDA of $1.5 million in the
prior-year period.
- Second quarter bookings of $37 million, the highest level in
last 4 quarters.
- Quarter-end backlog of $101 million as of June 30, 2023, up $2
million from the prior quarter end.
Management Commentary
“Nortech Systems demonstrated continued strong performance in
the second quarter, underpinned by strong revenue, solid EBITDA
levels, near-record bookings and a healthy backlog,” says Jay D.
Miller, President & CEO of Nortech Systems.
“Our sustained momentum in operational performance and
profitability is shown in the quarterly improvements we delivered
across key metrics, both year-over-year and on a trailing
twelve-month basis. These consistent results are a testament to the
commitment of our Nortech team members to deliver mission-critical
quality and performance to our medical, industrial and defense
customers,” Miller stated. “We also appreciate our many supplier
partners for their vital contributions to our success.”
2023 Second Quarter and Year-to-Date
Results
In Thousands except EBITDA
Q2 23
Q2 22
%
YTD
2023
YTD
2022
%
Revenue
$35,021
$32,518
7.7
%
$69,909
$63,229
10.6
%
Gross Profit
$5,474
$5,004
9.4
%
$10,958
$9,048
21.1
%
Operating Expenses
$4,375
$3,979
10.0
%
$8,806
$7,854
12.1
%
Net Income
$634
$719
(5.7
)%
$1,315
$857
58.6
%
EBITDA ($ millions)
$1.6
$1.5
6.7
%
$3.2
$2.1
52.4
%
In Q2 2023, revenue totaled $35.0 million. This represents a
7.7% increase from revenue of $32.5 million in the second quarter
of 2022. Net income totaled $0.6 million, or $0.22 per diluted
share, in Q2 2023, down from net income of $0.7 million, or $0.25
per diluted share, in Q2 2022.
In the second quarter of 2023, gross profit totaled $5.5
million, or 15.6% of revenue, compared to gross profit of $5.0
million, or 15.4% of revenue, in the prior-year quarter.
Second quarter 2023 operating expenses totaled $4.4 million, in
line with the prior quarter and a 10.0% increase from second
quarter 2022 operating expenses of $4.0 million. The increase in
year-over-year operating expense was by primarily driven by
investments in IT and HR systems as well as inflationary pressures
on expenses overall.
Second quarter 2023 EBITDA totaled $1.6 million, a 6.7% increase
over EBITDA of $1.5 million in the second quarter of 2022 and
consistent with the prior quarter. The year-over-year increase in
EBITDA resulted primarily from the previously highlighted revenue
increase in the same period.
Business Outlook
“In the second half of 2023 we will remain agile and focused on
our core operations, cash flow and balance sheet in order to
deliver profitable growth and shareholder value,” declared Miller.
“We are pleased to see that supply chain disruptions and
inflationary pressures have subsided somewhat. These positive
trends are reflected in our strong bookings and backlog levels.
However, we share a cautious optimism with our customers, and we
have positioned Nortech to be nimble and responsive to any
macroeconomic changes.
“To help better prepare Nortech for the future, we are
judiciously investing in our own proprietary technologies that can
enhance our customers’ solutions and provide us with more
competitive advantages in the marketplace,” Miller explained. “We
are also early into the exploration of benefits from implementing
Internet of Things - or IoT - applications to augment our service
offering, enhance operational efficiencies and further scale our
financial platform.” He added that the company’s proactive
Environmental, Social and Governance, or ESG, efforts reflect a
deep dedication to corporate responsibility. “Our policies and
internal resources will keep Nortech ahead of any upcoming
third-party ESG reporting requirements,” he concluded.
Conference Call
The Company will hold a live conference call and webcast at 4:00
p.m. central time on Wednesday, August 9, 2023, to discuss the
Company's 2023 second quarter results. The call will be hosted by
Jay Miller, Chief Executive Officer and President and Alan
Nordstrom, Acting Chief Financial Officer. To access the live audio
conference call, U.S. participants may call 877-545-0523 and
international participants may call 973-528-0016. Participant
Access Code: 953856. Participants may also access the call via
webcast at: https://www.webcaster4.com/Webcast/Page/2814/48782.
About Nortech Systems
Incorporated
Nortech Systems is a leading provider of design and
manufacturing solutions for complex electromedical devices,
electromechanical systems, assemblies, and components. Nortech
Systems primarily serves the medical, aerospace & defense, and
industrial markets. Its design services span concept development to
commercial design, and include medical device, software,
electrical, mechanical, and biomedical engineering. Its
manufacturing and supply chain capabilities are vertically
integrated around wire/cable/interconnect assemblies, printed
circuit board assemblies, as well as system-level assembly,
integration, and final test. Headquartered in Maple Grove, Minn.,
Nortech currently has seven manufacturing locations and design
centers across the U.S., Latin America, and Asia. Nortech Systems
is traded on the NASDAQ Stock Market under the symbol NSYS.
Nortech's website is www.nortechsys.com.
Forward-Looking
Statements
This press release contains forward-looking statements made
pursuant to the safe harbor provision of the Private Securities
Litigation Reform Act of 1995 including without limitation
statements regarding future financial results including profit and
growth, improving supply chain management, the impact of
proprietary products and innovations on our customers' and our
results, sales booking and backlog trends, increasing shareholder
value, inflationary pressures, macroeconomic challenges, our
ability to retain customers, macroeconomic conditions, competitive
advantages, impact of prospective Internet of Things offerings on
our business and progress on ESG topics. While this release is
based on management's best judgment and current expectations,
actual results may differ materially from those expressed or
implied and involve a number of risks and uncertainties. Important
factors that could cause actual results to differ materially from
the forward-looking statements include, without limitation: (1) the
impact of global health epidemics on our customers, employees,
manufacturing facilities, suppliers, the capital markets and our
financial condition (2) supply chain disruptions leading to parts
shortages for critical components; (3) volatility in market
conditions which may affect market supply of and demand for the
Company's products; (4) increased competition; (5) changes in the
reliability and efficiency of operating facilities or those of
third parties; (6) risks related to the availability of labor; (7)
commodity cost increases coupled with our inability to raise prices
charged to our customers; (8) the unanticipated loss of key members
of senior management and the transition of new members of our
management teams to their new roles; (9) general economic,
financial and business conditions that could affect the Company's
financial condition and results of operations; (10) the Company's
ability to steadily improve manufacturing output throughout the
remainder of 2023. Some of the above-mentioned factors are
described in further detail in the section entitled "Risk Factors"
in our annual and quarterly reports, as applicable. You should
assume the information appearing in this document is accurate only
as of the date hereof, or as otherwise specified, as our business,
financial condition, results of operations and prospects may have
changed since such date. Except as required by applicable law,
including the securities laws of the United States and the rules
and regulations of the United States Securities and Exchange
Commission, we undertake no obligation to publicly update or revise
any forward-looking statement, whether as a result of new
information, future events or otherwise, to reflect actual results
or changes in factors or assumptions affecting such forward-looking
statements.
Reconciliation of Non-GAAP Financial
Measure
EBITDA is a non-GAAP financial measure used by management that
we believe provides useful information to investors because it
reflects ongoing performance excluding certain non-recurring items
during comparable periods and facilitates comparisons between peer
companies since interest, taxes, depreciation, and amortization can
differ greatly between different organizations as a result of
differing capital structures and tax strategies. EBITDA is defined
as net income (loss) plus interest expense, plus income tax expense
plus depreciation expense and amortization expense. EBITDA should
be considered in addition to, not as a substitute for, or superior
to, financial measures calculated in accordance with GAAP. It is
not a measurement of our financial performance under GAAP and
should not be considered an alternative to revenue or net income,
as applicable, or any other performance measures derived in
accordance with GAAP and may not be comparable to other similarly
titled measures of other businesses. EBITDA has limitations as an
analytical metric and you should not consider it in isolation or as
a substitute for analysis of our operating results as reported
under GAAP.
THREE MONTHS ENDED
SIX MONTHS ENDED
June 30,
June 30,
INCOME STATEMENT
2023
2022
2023
2022
Net Sales $
35,021
$
32,518
$
69,909
$
63,229
Cost of Goods Sold
29,547
27,514
58,951
54,181
Gross Profit
5,474
5,004
10,958
9,048
15.6
%
15.4
%
15.7
%
14.3
%
Operating Expenses Selling Expenses
953
960
1,843
1,793
General and Administrative Expenses
3,105
2,668
6,370
5,398
Research and Development Expenses
317
351
593
679
Gain on Sale of Assets
-
-
(15
)
Total Operating Expenses
4,375
3,979
8,806
7,854
Income from Operations
1,099
1,025
2,152
1,194
Other Expense Interest Expense
(125
)
(117
)
(235
)
(215
)
Income Before Income Taxes
974
908
1,917
979
Income Tax Expense
340
189
602
122
Net Income $
634
$
719
$
1,315
$
857
Net Income Per Common Share - Basic $
0.23
$
0.27
$
0.49
$
0.32
Weighted Average Number of Common Shares Outstanding - Basic
2,718,066
2,683,131
2,705,121
2,681,931
Net Income Per Common Share - Diluted $
0.22
$
0.25
$
0.46
$
0.30
Weighted Average Number of Common Shares Outstanding - Diluted
2,870,848
2,886,755
2,887,313
2,879,216
BALANCE SHEET June 30,2023 December
31,2022 Cash $
781
$
1,027
Restricted Cash
1,134
1,454
Accounts Receivable
17,404
15,975
Employee Retention Credit Receivable
-
2,650
Inventories, Net
21,078
22,438
Contract Assets
11,587
9,982
Prepaid Expenses and Other Current Assets
2,370
1,334
Property and Equipment, Net
6,485
6,408
Operating Lease Assets
7,253
7,850
Other Intangible Assets, Net
342
422
Total Assets $
68,434
$
69,540
Accounts Payable $
15,343
$
14,792
Lease Obligations, Finance & Operating, Net
8,885
9,659
Accrued Payroll and Commissions
3,004
4,803
Customer deposits
3,321
3,515
All Other Liabilities
1,371
1,838
Line of Credit
7,019
6,853
Shareholders’ Equity
29,490
28,080
Total Liabilities and Shareholders’ Equity $
68,434
$
69,540
CASH FLOW STATEMENT
June 30,
2023
June 30,
2022
Cash Flows from Operating Activities
Net Income $
1,315
$
857
Depreciation and Amortization
1,027
967
Compensation on Stock-Based Awards
192
140
Change in Inventory Reserves
(53
)
(103
)
Other, Net
(147
)
(46
)
Changes in Current Operating Items Accounts Receivable
(1,580
)
(1,986
)
Inventories
1,350
(3,540
)
Contract Assets
(1,620
)
(371
)
Prepaid Expenses and Other Assets
(1,042
)
89
Income Taxes
(364
)
(168
)
Accounts Payable
586
1,346
Accrued Payroll and Commissions
(1,788
)
(84
)
Customer Deposits
(195
)
-
All Other Operating Items
2,601
959
Net Cash Provided By (Used In) Operating Activities $
281
$
(1,940
)
Cash Flows from Investing Activities Proceeds from Sale of
Property and Equipment
-
15
Purchase of Property and Equipment
(956
)
(1,223
)
Net Cash Used In Investing Activities $
(956
)
$
(1,208
)
Cash Flows from Financing Activities Proceeds from Line of
Credit
65,886
58,440
Payments to Line of Credit
(65,726
)
(56,046
)
Principal Payments on Financing Leases
(189
)
(329
)
Stock Option Exercises
174
33
Net Cash Provided By Financing Activities $
144
$
2,098
Effect of Exchange Rate Changes on Cash
(35
)
-
Net Change in Cash $
(566
)
$
(1,050
)
Cash - Beginning of Period
2,481
2,225
Cash - Ending of Period $
1,915
$
1,175
THREE MONTHS ENDED
June 30,
RECONCILIATION TO EBITDA
2023
2022
Net Income $
634
$
719
Interest expense
125
117
Income tax expense
340
189
Depreciation & amortization expense
522
481
EBITDA $
1,621
$
1,506
There are no material adjustments to EBITDA in 2022 or 2023.
Adjustments to EBITDA in 2021 include:
- In the third quarter of 2021, we recognized $5,209 related to
the CARES Act Employee Retention Credit (ERC) as a reduction of
costs of goods sold of $4,670, selling expense of $125, and general
and administrative expense of $414. Nortech received ERC cash
payment in two installments, the first in December 2022 and the
second in May 2023.
- CARES Act Paycheck Protection Program (PPP) loan forgiveness
gain of $6,170 recorded in the fourth quarter of 2021.
- Restructuring expense in 2021 of $327 related to the
consolidation of our printed circuit board production capabilities
into our center of excellence in Mankato, Minnesota and closure of
our Merrifield, Minnesota plant.
- Gain on sale of assets in 2021 of $141 related to the closure
of our Merrifield, Minnesota plant.
- Loss on abandonment of intangible assets in 2021 of $560
related to abandonment of the Devicix tradename.
Last Twelve Months (LTM) Ended in Quarter Q1
2021 Q2 2021 Q3 2021 Q4 2021 Q1
2022 Q2 2022 Q3 2022 Q4 2022 Q1
2023 Q2 2023 Net Sales
$
98.7
$
102.5
$
105.5
$
115.2
$
123.8
$
126.1
$
132.0
$
134.1
$
138.3
$
140.8
Gross profit $ - Adjusted
8.0
8.8
10.3
11.2
13.7
15.1
18.1
20.5
21.9
$
22.4
Gross margin % - Adjusted
8.1
%
8.6
%
9.7
%
9.7
%
11.0
%
12.0
%
13.7
%
15.3
%
15.8
%
15.9
%
EBITDA - Adjusted
$
(2.3
)
$
(2.0
)
$
(0.7
)
$
(0.2
)
$
1.9
$
2.5
$
4.2
$
5.8
$
6.7
$
6.8
View source
version on businesswire.com: https://www.businesswire.com/news/home/20230809650432/en/
Alan Nordstrom, Acting CFO anordstrom@nortechsys.com
952-444-3733
Nortech Systems (NASDAQ:NSYS)
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