Nortech Systems Reports Second Quarter Results
Rhea-AI Summary
Nortech Systems (NASDAQ: NSYS) reported its Q2 2024 financial results, showing a 3.2% decrease in net sales to $33.9 million compared to Q2 2023. The company's net income fell by 75.2% to $157,000, or $0.06 per diluted share. Adjusted EBITDA was $919,000, down 43.3% from the previous year. Despite these declines, Nortech maintains a 90-day backlog of $30.1 million as of June 30, 2024.
CEO Jay D. Miller highlighted efforts to optimize post-Covid supply chain strategies and near-shoring activities. The company is implementing facility optimization in Minnesota, which is expected to reduce costs by at least $1.6 million in 2025 and beyond, positioning Nortech for improved growth despite short-term financial impacts.
Positive
- 90-day backlog of $30.1 million as of June 30, 2024
- Anticipated cost reduction of at least $1.6 million in 2025 due to Minnesota facilities optimization
- Effective management of operating expenses with a 2.3% decrease in Q2 2024
Negative
- Net sales decreased by 3.2% to $33.9 million in Q2 2024 compared to Q2 2023
- Net income fell by 75.2% to $157,000 in Q2 2024
- Gross profit declined by 15.7% in Q2 2024 compared to Q2 2023
- Adjusted EBITDA decreased by 43.3% to $919,000 in Q2 2024
News Market Reaction 1 Alert
On the day this news was published, NSYS declined 4.87%, reflecting a moderate negative market reaction.
Data tracked by StockTitan Argus on the day of publication.
MINNEAPOLIS, Aug. 08, 2024 (GLOBE NEWSWIRE) -- Nortech Systems Incorporated (Nasdaq: NSYS) (“Nortech” or the “Company”), a leading provider of engineering and manufacturing solutions for complex electromedical and electromechanical products serving the medical, industrial and defense markets, reported second quarter ended June 30, 2024 financial results.
2024 Q2 Highlights:
| ● | Net sales of | |
| ● | Net income of | |
| ● | Adjusted earnings before interest, taxes, depreciation, and amortization (“EBITDA”) of | |
| ● | 90-day backlog of | |
Management Commentary
“We are working closely with our customers to optimize post Covid supply chain strategies which includes continued near-shoring activities and the development of customer specific collaborations to further reduce lead times,” said Jay D. Miller, President and CEO of Nortech. “We believe that these actions will further strengthen our customer relationships which are key to our achieving our long-term strategic objectives.”
“We continue to effectively manage operating expenses while focusing on long-term growth,” Miller noted. “During the quarter we have rapidly implemented the announced optimization of our Minnesota facilities by the end of 2024. While having a short-term negative impact on our financials, we anticipate these actions will significantly improve our efficiency and reduce our cost structure by at least
Summary Financial Information
The following table provides summary financial information comparing the second quarter 2024 (“Q2 2024”) financial results to the same quarter in 2023 (“Q2 2023”) as well as the six-month ended June 30, 2024 (“YTD 24”) information to the same period in 2023 (“YTD 2023”).
| ($ in thousands) | Q2 24 | Q2 23 | % Change | YTD 24 | YTD 23 | % Change | ||||||||||||||||||
| Net sales | $ | 33,891 | $ | 35,021 | (3.2 | )% | $ | 68,106 | $ | 69,909 | (2.6 | )% | ||||||||||||
| Gross profit | $ | 4,617 | $ | 5,474 | (15.7 | )% | $ | 10,065 | $ | 10,958 | (8.1 | )% | ||||||||||||
| Operating expenses | $ | 4,273 | $ | 4,375 | (2.3 | )% | $ | 8,566 | $ | 8,806 | (2.7 | )% | ||||||||||||
| Net income | $ | 157 | $ | 634 | (75.2 | )% | $ | 922 | $ | 1,315 | (29.9 | )% | ||||||||||||
| EBITDA | $ | 828 | $ | 1,622 | (49.0 | )% | $ | 2,465 | $ | 3,180 | (22.5 | )% | ||||||||||||
| Adjusted EBITDA | $ | 919 | $ | 1,622 | (43.3 | )% | $ | 2,556 | $ | 3,180 | (19.6 | )% | ||||||||||||
Conference Call
The Company will hold a live conference call and webcast at 7:30 a.m. central time on Thursday, August 8, 2024, to discuss the Company’s 2024 second quarter results. The call will be hosted by Jay D. Miller, Chief Executive Officer and President and Andrew D. C. LaFrence, Chief Financial Officer. To access the live audio conference call, US participants may call 888-506-0062 and international participants may call 973-528-0011. Participant Access Code: 394178. Participants may also access the call via webcast at: https://www.webcaster4.com/Webcast/Page/2814/50979.
###
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 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, nearshoring, customer specific collaboration, improved efficiency, expense management, and effects of consolidation of our facilities including growth of net sales and profits. 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) commodity cost increases coupled with challenges in raising prices and/or customer pressure to reduce prices; (2) supply chain disruptions leading to shortages of critical components; (3) volatility in market conditions which may affect 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) the unanticipated loss of any key member of senior management; (8) geopolitical, economic, financial and business conditions; (9) the Company’s ability to steadily improve manufacturing output and product quality throughout the remainder of 2024 or (10) the impact of global health epidemics on our customers, employees, manufacturing facilities, suppliers, the capital markets and our financial condition. 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 Generally Accepted Accounting Principles (“GAAP”) Measures to 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 STATEMENTS | 2024 | 2023 | 2024 | 2023 | ||||||||||||
| (in thousands USD, except share and per share amounts) | ||||||||||||||||
| Net sales | $ | 33,891 | $ | 35,021 | $ | 68,106 | $ | 69,909 | ||||||||
| Cost of goods sold | 29,274 | 29,547 | 58,041 | 58,951 | ||||||||||||
| Gross profit | 4,617 | 5,474 | 10,065 | 10,958 | ||||||||||||
| Operating expenses: | ||||||||||||||||
| Selling | 909 | 953 | 1,714 | 1,843 | ||||||||||||
| General and administrative | 2,982 | 3,105 | 6,152 | 6,370 | ||||||||||||
| Research and development | 291 | 317 | 609 | 593 | ||||||||||||
| Restructuring charges | 91 | - | 91 | - | ||||||||||||
| Total operating expenses | 4,273 | 4,375 | 8,566 | 8,806 | ||||||||||||
| Income from operations | 344 | 1,099 | 1,499 | 2,152 | ||||||||||||
| Other expense | ||||||||||||||||
| Interest expense | (165 | ) | (125 | ) | (332 | ) | (235 | ) | ||||||||
| Income before income taxes | 179 | 974 | 1,167 | 1,917 | ||||||||||||
| Income tax expense | 22 | 340 | 245 | 602 | ||||||||||||
| Net income | $ | 157 | $ | 634 | $ | 922 | $ | 1,315 | ||||||||
| Net income per common share: | ||||||||||||||||
| Basic (in dollars per share) | $ | 0.06 | $ | 0.23 | $ | 0.34 | $ | 0.49 | ||||||||
| Weighted average number of common shares outstanding - basic (in shares) | 2,760,052 | 2,718,066 | 2,751,330 | 2,705,121 | ||||||||||||
| Diluted (in dollars, per share) | $ | 0.05 | $ | 0.22 | $ | 0.32 | $ | 0.46 | ||||||||
| Weighted average number of common shares outstanding - diluted (in shares) | 2,935,671 | 2,870,848 | 2,922,113 | 2,887,313 | ||||||||||||
| Other comprehensive income (loss) | ||||||||||||||||
| Foreign currency translation | (175 | ) | (281 | ) | (358 | ) | (241 | ) | ||||||||
| Comprehensive income (loss), net of tax | $ | (18 | ) | $ | 353 | $ | 564 | $ | 1,074 | |||||||
| CONDENSED BALANCE SHEET ($ in thousands) | JUNE 30, 2024 | DECEMBER 31, 2023 | ||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash | $ | 1,542 | $ | 960 | ||||
| Restricted cash | - | 715 | ||||||
| Accounts receivable, less allowances of | 17,577 | 19,279 | ||||||
| Inventories, net | 22,793 | 21,660 | ||||||
| Contract assets | 14,957 | 14,481 | ||||||
| Prepaid assets and other assets | 2,292 | 1,698 | ||||||
| Total current assets | 59,161 | 58,793 | ||||||
| Property and equipment, net | 6,001 | 6,513 | ||||||
| Operating lease assets, net | 8,274 | 6,917 | ||||||
| Deferred tax assets | 2,640 | 2,641 | ||||||
| Other intangible assets, net | 183 | 263 | ||||||
| Total assets | $ | 76,259 | $ | 75,127 | ||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Current portion of finance lease obligations | $ | 214 | $ | 356 | ||||
| Current portion of operating lease obligations | 1,169 | 1,033 | ||||||
| Accounts payable | 12,728 | 15,924 | ||||||
| Accrued payroll and commissions | 2,612 | 4,138 | ||||||
| Customer deposits | 5,453 | 4,068 | ||||||
| Other accrued liabilities | 1,120 | 1,063 | ||||||
| Total current liabilities | 23,296 | 26,582 | ||||||
| Long-term liabilities: | ||||||||
| Long-term line of credit | 8,314 | 5,815 | ||||||
| Long-term finance lease obligations, net of current portion | 146 | 209 | ||||||
| Long-term operating lease obligations, net of current portion | 7,949 | 6,763 | ||||||
| Other long-term liabilities | 409 | 414 | ||||||
| Total long-term liabilities | 16,818 | 13,201 | ||||||
| Total liabilities | 40,114 | 39,783 | ||||||
| Shareholders’ equity: | ||||||||
| Preferred stock, | 250 | 250 | ||||||
| Common stock - | 28 | 27 | ||||||
| Additional paid-in capital | 17,165 | 16,929 | ||||||
| Accumulated other comprehensive loss | (890 | ) | (532 | ) | ||||
| Retained earnings | 19,592 | 18,670 | ||||||
| Total shareholders’ equity | 36,145 | 35,344 | ||||||
| Total liabilities and shareholders’ equity | $ | 76,259 | $ | 75,127 | ||||
| SIX MONTHS ENDED | ||||||||
| CASH FLOW STATEMENTS | JUNE 30, | |||||||
| ($ in thousands) | 2024 | 2023 | ||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net income | $ | 922 | $ | 1,315 | ||||
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: | ||||||||
| Depreciation and amortization | 966 | 1,027 | ||||||
| Compensation on stock-based awards | 206 | 192 | ||||||
| Change in inventory reserves | 113 | (53 | ) | |||||
| Change in accounts receivable allowances | (88 | ) | (31 | ) | ||||
| Other, net | (59 | ) | (116 | ) | ||||
| Changes in current operating assets and liabilities: | ||||||||
| Accounts receivable | 1,690 | (1,580 | ) | |||||
| Employee retention credit receivable | - | 2,650 | ||||||
| Inventories | (1,288 | ) | 1,350 | |||||
| Contract assets | (476 | ) | (1,620 | ) | ||||
| Prepaid expenses and other current assets | (531 | ) | (1,042 | ) | ||||
| Accounts payable | (2,546 | ) | 586 | |||||
| Accrued payroll and commissions | (1,516 | ) | (1,788 | ) | ||||
| Customer deposits | 1,385 | (195 | ) | |||||
| Other accrued liabilities | (236 | ) | (414 | ) | ||||
| Net cash (used in) provided by operating activities | (1,458 | ) | 281 | |||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Proceeds from sale of property and equipment | 9 | - | ||||||
| Purchases of property and equipment | (1,020 | ) | (956 | ) | ||||
| Net cash used in investing activities | (1,011 | ) | (956 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Proceeds from line of credit | 68,323 | 65,886 | ||||||
| Payments to line of credit | (65,809 | ) | (65,726 | ) | ||||
| Principal payments on financing leases | (202 | ) | (189 | ) | ||||
| Stock option exercises | 31 | 173 | ||||||
| Net cash provided by financing activities | 2,343 | 144 | ||||||
| Effect of exchange rate changes on cash | (7 | ) | (35 | ) | ||||
| Net change in cash and cash equivalents | (133 | ) | (566 | ) | ||||
| Cash and cash equivalents - beginning of period | 1,675 | 2,481 | ||||||
| Cash and cash equivalents - end of period | $ | 1,542 | $ | 1,915 | ||||
| Reconciliation of cash and restricted cash reported within the condensed consolidated balance sheets: | ||||||||
| Cash | $ | 1,542 | $ | 781 | ||||
| Restricted cash | - | 1,134 | ||||||
| Total cash and restricted cash reported in the condensed consolidated statements of cash flows | $ | 1,542 | $ | 1,915 | ||||
| THREE MONTHS ENDED June 30, | SIX MONTHS ENDED June 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| RECONCILIATION OF NET INCOME TO EBITDA | ||||||||||||||||
| ($ in thousands) | ||||||||||||||||
| Net Income | $ | 157 | $ | 634 | $ | 922 | $ | 1,315 | ||||||||
| Interest | 165 | 125 | 332 | 235 | ||||||||||||
| Taxes | 22 | 340 | 245 | 602 | ||||||||||||
| Depreciation | 444 | 483 | 886 | 948 | ||||||||||||
| Amortization | 40 | 40 | 80 | 80 | ||||||||||||
| EBITDA | 828 | 1,622 | 2,465 | 3,180 | ||||||||||||
| Restructuring Charges | 91 | - | 91 | - | ||||||||||||
| ADJUSTED EBITDA | $ | 919 | $ | 1,622 | $ | 2,556 | $ | 3,180 | ||||||||
Adjustment to EBITDA in 2024 includes ($ in thousands):
| ● | In the second quarter of 2024, we announced the closure of our Blue Earth, Minnesota facility by the end of 2024. In connection with this action, we accrued | |
There were no adjustments to EBITDA in 2022 and 2023.
Adjustments to EBITDA in 2021 include ($ in thousands):
| ● | In the third quarter of 2021, we recognized | |
| ● | CARES Act Paycheck Protection Program (PPP) loan forgiveness gain of | |
| ● | Restructuring expense in 2021 of | |
| ● | Gain on sale of assets in 2021 of | |
| ● | Loss on abandonment of intangible assets in 2021 of |
| ($ in millions) | Last Twelve Months (LTM) Ended in Quarter | |||||||||||||||||||||||||||||||||||||||||||||||
| Q3 2021 | Q4 2021 | Q1 2022 | Q2 2022 | Q3 2022 | Q4 2022 | Q1 2023 | Q2 2023 | Q3 2023 | Q4 2023 | Q1 2024 | Q2 2024 | |||||||||||||||||||||||||||||||||||||
| Net Sales | $ | 105.5 | $ | 115.2 | $ | 123.8 | $ | 126.1 | $ | 132.0 | $ | 134.1 | $ | 138.3 | $ | 140.8 | $ | 138.9 | $ | 139.3 | $ | 138.7 | $ | 137.5 | ||||||||||||||||||||||||
| Gross Profit $ - Adjusted | 10.3 | 11.2 | 13.7 | 15.1 | 18.1 | 20.5 | 21.9 | 22.4 | 21.4 | 23.1 | 23.1 | 22.2 | ||||||||||||||||||||||||||||||||||||
| Gross Margin % - Adjusted | 9.7 | % | 9.7 | % | 11.0 | % | 12.0 | % | 13.7 | % | 15.3 | % | 15.8 | % | 15.9 | % | 15.4 | % | 16.6 | % | 16.6 | % | 16.1 | % | ||||||||||||||||||||||||
| EBITDA - Adjusted | $ | (0.7 | ) | $ | (0.2 | ) | $ | 1.9 | $ | 2.5 | $ | 4.2 | $ | 5.8 | $ | 6.7 | $ | 6.8 | $ | 6.0 | $ | 8.0 | $ | 8.1 | $ | 7.3 | ||||||||||||||||||||||
Contact
Andrew D. C. LaFrence
Chief Financial Officer and Senior Vice President of Finance
alafrence@nortechsys.com
952-345-2243
FAQ
What were Nortech Systems' (NSYS) Q2 2024 financial results?
How did Nortech Systems' (NSYS) Q2 2024 performance compare to Q2 2023?
What is Nortech Systems' (NSYS) strategy to improve future performance?
What was Nortech Systems' (NSYS) backlog as of June 30, 2024?
