Year-to-Date Revenue Up Nearly 5% from Prior
Year;
Gross Margin Increased from Prior
Quarter;
Continued Strong Backlog Levels
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 third
quarter results for the period ended September 30, 2023.
2023 Third Quarter
Highlights:
- Revenue of $33.4 million, down 5.4% from the same period in
2022.
- GAAP net income of $1.2 million, or $0.42 per diluted share,
compared to net income of $1.5 million, or $0.53 per diluted share,
in the same period in 2022.
- Gross margin of 15.9%, up 30 basis points from gross margin of
15.6% in the second quarter.
- Earnings before interest, taxes, depreciation and amortization
(EBITDA) of $1.6 million, compared to EBITDA of $1.6 million in the
second quarter.
- Quarter-end backlog of $102 million at September 30, 2023, up
slightly from the prior quarter end.
Management Commentary
“Our team’s focused execution enabled us to increase third
quarter gross margin sequentially and maintain EBITDA levels,” said
Jay D. Miller, President and CEO of Nortech Systems. “As we have
previously discussed, we had anticipated demand levels to fluctuate
as customers work through inventory. We saw this influence third
quarter revenue as primarily two large customers pushed out their
orders to manage their inventory levels, however we expect this
issue to get resolved in the near term as new business bookings
remain strong. Year-over-year comparisons were also impacted by
significant pricing actions in the third quarter of 2022, ahead of
material cost increases, that contributed to record-high revenue in
that period.
“In the third quarter, our bookings and backlog levels remained
robust,” added Miller. “We are encouraged by promising
opportunities across our medical, industrial and defense
markets.”
2023 Third Quarter
Results
In $000, except EBITDA
Q3 23
Q3 22
% Favorable
YTD
2023
YTD
2022
% Favorable
Revenue
$33,369
$35,276
(5.4) %
$103,278
$98,505
4.8%
Gross Profit
$5,319
$6,328
(16.0) %
$16,277
$15,376
5.9%
Operating Expenses
$4,195
$4,383
4.3%
$13,000
$12,237
(6.2) %
Net Income
$1,207
$1,534
(21.3)%
$2,522
$2,391
5.5%
EBITDA ($ millions)
$1.6
$2.4
(32.3)%
$4.8
$4.6
5.5%
In the first nine months of 2023, revenue totaled $103.3
million. This represents a 4.8% increase from revenue of $98.5
million for the first nine months of 2022. Net income totaled $2.5
million, or $0.87 per diluted share, for the first nine months of
2023, up from net income of $2.4 million, or $0.83 per diluted
share, in the prior year.
For the first nine months of 2023, gross profit totaled $16.3
million, or 15.8%, compared to gross profit of $15.4 million, or
15.6%, in the prior-year period.
Through the end of the third quarter operating expenses totaled
$13.0 million, a 6.2% increase from the same prior year period
operating expenses of $12.2 million. The increase in year-over-year
operating expense was primarily driven by investments in IT and HR
systems and inflationary pressures on expenses.
For the first nine months of 2023 EBITDA totaled $4.8 million, a
5.5% increase from EBITDA of $4.6 million in the prior year period.
The year-over-year increase in EBITDA resulted primarily from the
previously highlighted revenue growth over the same period.
Business Outlook
“Despite the impact of delayed customer shipments on third
quarter revenue, we expect to finish the year strong,” explained
Miller. “We are guardedly optimistic as we look ahead to 2024.” He
concluded, “Our operations are solid, led by the dedicated,
hard-working team members across all our locations. Their efforts,
combined with our diverse customer base and solid financial
platform, give us continued confidence in Nortech’s long-term
prospects.”
As another source of optimism, Miller cited last month’s news
that Nortech’s facility in Suzhou, China, earned Class II Medical
Device certification from China’s National Medical Products
Administration. This certification increases potential medical
sales opportunities in Asia. The medical market is already
Nortech’s largest and fastest-growing, accounting for over half of
2022 revenue.
Conference Call
The Company will hold a live conference call and webcast at 4:00
p.m. central time on Wednesday, November 8, 2023, to discuss the
Company's 2023 third quarter results. The call will be hosted by
Jay D. 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 888-506-0062 and
international participants may call 973-528-0011. Participant
Access Code: 557432. Participants may also access the call via
webcast at: https://www.webcaster4.com/Webcast/Page/2814/49292.
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
NINE MONTHS ENDED
September 30,
September 30,
INCOME STATEMENT
2023
2022
2023
2022
Net Sales $
33,369
$
35,276
$
103,278
$
98,505
Cost of Goods Sold
28,050
28,948
87,001
83,129
Gross Profit
5,319
6,328
16,277
15,376
15.9%
17.9%
15.8%
15.6%
Operating Expenses Selling Expenses
923
959
2,766
2,752
General and Administrative Expenses
2,958
2,949
9,328
8,346
Research and Development Expenses
314
475
907
1,154
Gain on Sale of Assets
-
-
(15)
Total Operating Expenses
4,195
4,383
13,001
12,237
Income from Operations
1,124
1,945
3,276
3,139
Other Expense Interest Expense
(130)
(122)
(365)
(337)
Income Before Income Taxes
994
1,823
2,911
2,802
Income Tax (Benefit) Expense
(213)
289
389
411
Net Income $
1,207
$
1,534
$
2,522
$
2,391
Net Income Per Common Share - Basic $
0.44
$
0.57
$
0.93
$
0.89
Weighted Average Number of Common Shares Outstanding - Basic
2,737,895
2,686,884
2,716,166
2,683,594
Net Income Per Common Share - Diluted $
0.42
$
0.53
$
0.87
$
0.83
Weighted Average Number of Common Shares Outstanding - Diluted
2,888,679
2,899,526
2,887,889
2,886,073
BALANCE SHEET September 30,2023 December
31,2022 Cash $
699
$
1,027
Restricted Cash
422
1,454
Accounts Receivable
15,956
15,975
Employee Retention Credit Receivable
-
2,650
Inventories, Net
21,467
22,438
Contract Assets
11,746
9,982
Prepaid Expenses and Other Current Assets
2,304
1,334
Property and Equipment, Net
6,135
6,408
Operating Lease Assets
6,955
7,850
Other Intangible Assets, Net
303
422
Total Assets $
65,987
$
69,540
Accounts Payable $
13,099
$
14,792
Lease Obligations, Finance & Operating, Net
8,493
9,659
Accrued Payroll and Commissions
3,976
4,803
Customer deposits
3,861
3,515
All Other Liabilities
1,238
1,838
Line of Credit
4,611
6,853
Shareholders’ Equity
30,708
28,080
Total Liabilities and Shareholders’ Equity $
65,987
$
69,540
CASH FLOW STATEMENT September 30,2023
September 30,2022 Cash Flows from Operating
Activities Net Income $
2,522
$
2,391
Depreciation and Amortization
1,539
1,440
Compensation on Stock-Based Awards
299
234
Deferred Taxes
288
-
Change in Inventory Reserves
(8)
(54)
Other, Net
(169)
(87)
Changes in Current Operating Items Accounts Receivable
(162)
(1,115)
Inventories
899
(4,402)
Contract Assets
(1,780)
(1,188)
Prepaid Expenses and Other Assets
(588)
(213)
Income Taxes
(1,084)
(167)
Accounts Payable
(1,636)
1,659
Accrued Payroll and Commissions
(810)
1,071
Customer Deposits
345
-
All Other Operating Items
2,526
1,431
Net Cash Provided By Operating Activities $
2,181
$
1,000
Cash Flows from Investing Activities Proceeds from
Sale of Property and Equipment
-
15
Purchase of Property and Equipment
(1,121)
(1,730)
Net Cash Used In Investing Activities $
(1,121)
$
(1,715)
Cash Flows from Financing Activities Proceeds from
Line of Credit
95,783
88,673
Payments to Line of Credit
(98,035)
(87,816)
Principal Payments on Financing Leases
(291)
(326)
Stock Option Exercises
155
51
Net Cash (Used In) Provided By Financing Activities $
(2,388)
$
582
Effect of Exchange Rate Changes on Cash
(32)
-
Net Change in Cash $
(1,360)
$
(133)
Cash - Beginning of Period
2,481
2,225
Cash - Ending of Period $
1,121
$
2,091
THREE MONTHS ENDED
NINE MONTHS ENDED
September 30,
September 30,
RECONCILIATION TO EBITDA
2023
2022
2023
2022
Net Income $
1,207
$
1,534
2,522
$
2,391
Interest expense
130
122
365
337
Income tax (benefit) expense
(213)
289
389
411
Depreciation & amortization expense
512
473
1,539
1,440
EBITDA $
1,636
$
2,417
4,815
$
4,563
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
Q2 2021
Q3 2021
Q4 2021
Q1 2022
Q2 2022
Q3 2022
Q4 2022
Q1 2023
Q2 2023
Q3 2023
Net Sales
$
102.5
$
105.5
$
115.2
$
123.8
$
126.1
$
132.0
$
134.1
$
138.3
$
140.8
$
138.9
Gross profit $ - Adjusted
8.8
10.3
11.2
13.7
15.1
18.1
20.5
21.9
$
22.4
$
21.4
Gross margin % - Adjusted
8.6
%
9.7
%
9.7
%
11.0
%
12.0
%
13.7
%
15.3
%
15.8
%
15.9
%
15.4
%
EBITDA - Adjusted
$
(2.0
)
$
(0.7
)
$
(0.2
)
$
1.9
$
2.5
$
4.2
$
5.8
$
6.7
$
6.8
$
6.0
View source
version on businesswire.com: https://www.businesswire.com/news/home/20231108515815/en/
Alan Nordstrom, Acting CFO anordstrom@nortechsys.com
952-444-3733
Nortech Systems (NASDAQ:NSYS)
Gráfico Histórico do Ativo
De Abr 2024 até Mai 2024
Nortech Systems (NASDAQ:NSYS)
Gráfico Histórico do Ativo
De Mai 2023 até Mai 2024