Nortech Systems Reports Fourth Quarter and Full Year 2023 Results
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Insights
The recently reported financial results by Nortech Systems Incorporated indicate a positive trajectory in the company's performance, with a 3.9% increase in net sales and a significant rise in net income by 242.0% compared to the previous year. The growth in net sales, although modest, is a healthy sign for the company's market position, especially considering the complexities of the current economic climate. The substantial increase in net income can be attributed to both operational efficiency and a one-time non-cash tax benefit.
It is noteworthy that the company's gross margin improved by 130 basis points, which suggests that Nortech has been successful in managing its cost of goods sold or has moved towards higher-margin products. The stable year-end 90-day backlog, consistent with the previous year, suggests a steady demand for the company's offerings, which is important for future revenue streams.
Looking at the broader industry, the reference to the IPC survey forecasting industry revenue growth in 2024 provides a favorable context for Nortech's business outlook. The company's focus on generating cash and strengthening the balance sheet, coupled with increased borrowing capacity and investments in new technologies like Expanded Beam Xtreme™ fiber optic technology, indicate strategic moves to capitalize on emerging market opportunities and enhance competitiveness.
From a financial perspective, the 38.2% increase in EBITDA is a strong indicator of Nortech's operational profitability and efficiency. This metric is particularly important for investors as it provides a clearer picture of the company's financial health by excluding non-operating expenses such as taxes and interest. The significant improvement in EBITDA, in conjunction with the gross margin expansion, suggests that the company is not only increasing sales but is also becoming more profitable.
The non-cash tax benefit of $2.6 million is a one-time event that investors should consider when evaluating the company's recurring earning potential. While it has positively impacted the reported net income, it is not reflective of the company's ongoing operational performance. The company's strategic investments in information technology and human resource systems, despite inflationary pressures, indicate a focus on long-term growth and operational scalability.
The restructuring of the credit agreement with Bank of America is also a strategic move that enhances the company's financial flexibility. By increasing borrowing capacity, Nortech is better positioned to invest in growth initiatives or weather potential economic downturns, which is reassuring for stakeholders.
From an environmental sustainability standpoint, the introduction of the Expanded Beam Xtreme™ fiber optic technology represents Nortech's commitment to innovation with an eye on sustainability. Fiber optics technology is increasingly being recognized for its energy efficiency and reduced material usage, which aligns with global trends towards more sustainable production and operation practices.
As companies and investors alike are placing greater emphasis on environmental, social and governance (ESG) criteria, Nortech's investment in technologies that offer sustainability advantages could enhance its appeal to a growing segment of socially responsible investors. This strategic direction not only benefits customers but also positions the company as a forward-thinking player in the market, potentially attracting investment and partnerships that prioritize sustainability.
The durability and efficiency of fiber optics over traditional copper wire can also lead to cost savings and longer product lifecycles, which in turn could have a positive impact on the company's profitability and brand reputation in the long term.
Full Year Net Sales Up Nearly
Gross Margin Increase 130 Basis Points from Prior Year
EBITDA Increases to
2023 Highlights:
-
Net sales of
$139.3 million 3.9% from the prior year. -
Net income of
$6.9 million $2.38 $2.0 million $0.70 $2.6 million -
Gross margin of
16.6% , up 130 basis points from gross margin of15.3% in the prior year. -
Earnings before interest, taxes, depreciation, and amortization (EBITDA) of
$8.0 million $5.8 million -
Year-end 90-day backlog of
$35.1 million
Management Commentary
“As expected, we ended 2023 strong, including record revenue both in the fourth quarter and the year, continued expense management and solid margins,” said Jay D. Miller, President and CEO of Nortech. “We saw encouraging normalization trends in supply chain and customer ordering practices, approaching pre-Covid levels. These factors had inflated our backlog levels in 2022 and early 2023, but we believe the situation has returned to a steady state.
“Our overall financial results are a credit to the nearly 800 dedicated Nortech employees worldwide who embody our corporate values, including teamwork, excellence, commitment, integrity and innovation,” Miller noted. “I am proud of Nortech’s collaborative culture and the important role it plays in successfully retaining our people; they truly are our most valuable asset in delivering mission-critical products and solutions to our customers.
“For example, our highly skilled engineering services team is essential to providing our customers with Nortech’s full-system solution by helping them to improve manufacturability of products and reduce costs,” explained Miller. “Nortech’s ability to quickly and flexibly adapt our global resources to fit our customers’ changing needs is a key competitive advantage.”
2023 Fourth Quarter and Full Year Results
($ in thousands) |
Q4 23 |
Q4 22 |
% |
Full Year 2023 |
Full Year 2022 |
% |
Net sales |
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1.2 % |
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Gross Profit |
|
|
33.8 % |
|
|
|
Operating Expenses |
|
|
|
|
|
( |
Net Income |
|
|
N/A |
|
|
|
EBITDA |
|
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|
|
|
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In 2023, net sales totaled
For the full year 2023, gross profit totaled
In 2023 operating expenses totaled
In 2023 EBITDA totaled
Business Outlook
“We expect our positive momentum to continue into 2024, buoyed by encouraging industry trends and our own solid internal execution,” commented Miller. “Last month the global trade organization IPC released survey results forecasting industry revenue growth in 2024. This outlook, plus continued normalization of customer demand levels, supply chain improvements, and our careful expense management, gives us confidence as we go forward.
“Nortech remains focused on business fundamentals including generating cash and strengthening our balance sheet. In support of that, we recently restructured our credit agreement with Bank of America to increase our borrowing capacity and better complement our business.
“We are prudently investing in promising new technologies that will benefit both our customers and the environment,” explained Miller. Earlier this year, Nortech introduced Expanded Beam Xtreme™ fiber optic technology, designed for digital data transmission and offering boosted speed, reliability and interference protection. Concluded Miller, “Along with enhanced performance capabilities, fiber optics offer our customers many sustainability advantages over traditional copper wire, in both production and operation. Benefits include greater durability, improved energy efficiency and less material usage.”
Conference Call
The Company will hold a live conference call and webcast at 4:00 p.m. central time on Wednesday, March 20, 2024, to discuss the Company's 2023 fourth quarter and full year results. The call will be hosted by Jay Miller, Chief Executive Officer and President and Andrew LaFrence, Chief Financial Officer. To access the live audio conference call,
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
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, improving supply chain management, the impact of new products and innovations on our customers' and our results, sales booking and backlog trends, customer demand, continued high performance of personnel, and industry revenue trends. 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
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 | TWELVE MONTHS ENDED | |||||||||||
| December 31, | December 31, | |||||||||||
| INCOME STATEMENTS | 2023 |
2022 |
2023 |
2022 |
||||||||
| (in thousands USD, except share and per share amounts) | ||||||||||||
| Net Sales | $ | 36,054 |
$ | 35,618 |
$ | 139,332 |
$ | 134,123 |
||||
| Cost of Goods Sold | 29,227 |
30,514 |
116,228 |
113,643 |
||||||||
| Gross Profit | 6,827 |
5,104 |
23,104 |
20,480 |
||||||||
|
|
|
|
|||||||||
| Operating Expenses | ||||||||||||
| Selling Expenses | 832 |
967 |
3,598 |
3,719 |
||||||||
| General and Administrative Expenses | 3,026 |
3,079 |
12,354 |
11,425 |
||||||||
| Research and Development Expenses | 292 |
309 |
1,199 |
1,463 |
||||||||
| Gain on Sale of Assets | - |
- |
- |
(15) |
||||||||
| Total Operating Expenses | 4,150 |
4,355 |
17,151 |
16,592 |
||||||||
| Income from Operations | 2,677 |
749 |
5,953 |
3,888 |
||||||||
| Other Expense | ||||||||||||
| Interest Expense | (122) |
(74) |
(487) |
(411) |
||||||||
| Income Before Income Taxes | 2,555 |
675 |
5,466 |
3,477 |
||||||||
| Income Tax (Benefit) Expense | (1,797) |
1,056 |
(1,408) |
1,467 |
||||||||
| Net Income (Loss) | $ | 4,352 |
$ | (381) |
$ | 6,874 |
$ | 2,010 |
||||
| Net Income (Loss) Per Common Share - Basic | $ | 1.59 |
$ | (0.14) |
$ | 2.53 |
$ | 0.75 |
||||
| Weighted Average Number of Common Shares Outstanding - Basic | 2,739,848 |
2,685,378 |
2,722,135 |
2,685,378 |
||||||||
| Net Income (Loss) Per Common Share - Diluted | $ | 1.51 |
$ | (0.14) |
$ | 2.38 |
$ | 0.70 |
||||
| Weighted Average Number of Common Shares Outstanding - Diluted | 2,879,654 |
2,685,378 |
2,885,879 |
2,891,285 |
||||||||
| CONDENSED BALANCE SHEETS | December 31, 2023 |
December 31, 2022 |
||||
| ($ in thousands ) | ||||||
| Cash | $ | 960 |
$ | 1,027 |
||
| Restricted Cash | 715 |
1,454 |
||||
| Accounts Receivable | 19,279 |
15,975 |
||||
| Employee Retention Credit Receivable | - |
2,650 |
||||
| Inventories, Net | 21,660 |
22,438 |
||||
| Contract Assets | 14,481 |
9,982 |
||||
| Prepaid Expenses and Other Current Assets | 1,698 |
1,334 |
||||
| Property and Equipment, Net | 6,513 |
6,408 |
||||
| Operating Lease Assets | 6,917 |
7,850 |
||||
| Other Intangible Assets, Net | 2,904 |
422 |
||||
| Total Assets | $ | 75,127 |
$ | 69,540 |
||
| Accounts Payable | $ | 15,924 |
$ | 14,792 |
||
| Lease Obligations, Finance & Operating, Net | 8,361 |
9,659 |
||||
| Accrued Payroll and Commissions | 4,138 |
4,803 |
||||
| Customer Deposits | 4,068 |
3,515 |
||||
| All Other Liabilities | 1,476 |
1,838 |
||||
| Line of Credit | 5,815 |
6,853 |
||||
| Shareholders’ Equity | 35,344 |
28,080 |
||||
Total Liabilities and Shareholders’ Equity |
$ | 75,127 |
$ | 69,540 |
| CASH FLOW STATEMENTS |
December 31,
|
December 31, 2022 |
||||||
| Cash Flows from Operating Activities | ||||||||
| ($ in thousands ) | ||||||||
| Net Income | $ | 6,874 |
|
$ | 2,010 |
|
||
| Depreciation and Amortization | 2,050 |
|
1,918 |
|
||||
| Compensation on Stock-Based Awards | 423 |
|
334 |
|
||||
| Deferred Taxes | (2,363 |
) |
- |
|
||||
| Change in Inventory Reserves | 26 |
|
(149 |
) |
||||
| Other, Net | 26 |
|
(81 |
) |
||||
| Changes in Current Operating Items | ||||||||
| Accounts Receivable | (3,432 |
) |
(1,746 |
) |
||||
| Inventories | 716 |
|
(2,985 |
) |
||||
| Contract Assets | (4,514 |
) |
(1,283 |
) |
||||
| Prepaid Expenses and Other Assets | (147 |
) |
317 |
|
||||
| Income Taxes | (832 |
) |
643 |
|
||||
| Accounts Payable | 483 |
|
2,216 |
|
||||
| Accrued Payroll and Commissions | (661 |
) |
783 |
|
||||
| Customer Deposits | 553 |
|
550 |
|
||||
| All Other Operating Items | 2,567 |
|
2,876 |
|
||||
| Net Cash Provided By Operating Activities | $ | 1,769 |
|
$ | 5,402 |
|
||
| Cash Flows from Investing Activities | ||||||||
| Proceeds from Sale of Property and Equipment | - |
|
15 |
|
||||
| Purchase of Property and Equipment | (1,284 |
) |
(2,442 |
) |
||||
| Net Cash Used In Investing Activities | $ | (1,284 |
) |
$ | (2,426 |
) |
||
| Cash Flows from Financing Activities | ||||||||
| Proceeds from Line of Credit | 124,552 |
|
119,349 |
|
||||
| Payments to Line of Credit | (125,602 |
) |
(121,468 |
) |
||||
| Principal Payments on Financing Leases | (390 |
) |
(599 |
) |
||||
| Stock Option Exercises | 159 |
|
51 |
|
||||
| Net Cash Used In Financing Activities | $ | (1,281 |
) |
$ | (2,667 |
) |
||
| Effect of Exchange Rate Changes on Cash | (10 |
) |
(53 |
) |
||||
| Net Change in Cash | $ | (806 |
) |
$ | 256 |
|
||
| Cash - Beginning of Year | 2,481 |
|
2,225 |
|
||||
| Cash - End of Year | $ | 1,675 |
|
$ | 2,481 |
|
||
| THREE MONTHS ENDED | TWELVE MONTHS ENDED | ||||||||||||||
| December 31, | December 31, | ||||||||||||||
| RECONCILIATION OF NET INCOME (LOSS) TO EBITDA | 2023 |
2022 |
2023 |
2022 |
|||||||||||
| ($ in thousands ) | |||||||||||||||
| Net Income (Loss) | $ | 4,352 |
|
$ | (381 |
) |
6,874 |
|
$ | 2,010 |
|||||
| Interest Expense | 122 |
|
74 |
|
487 |
|
411 |
||||||||
| Income Tax (Benefit) Expense | (1,797 |
) |
1,056 |
|
(1,408 |
) |
1,467 |
||||||||
| Depreciation and Amortization Expense | 511 |
|
478 |
|
2,050 |
|
1,918 |
||||||||
| EBITDA | $ | 3,188 |
|
$ | 1,227 |
|
8,003 |
|
$ | 5,791 |
|||||
View source version on businesswire.com: https://www.businesswire.com/news/home/20240320708002/en/
Andrew D. C. LaFrence
Chief Financial Officer and Senior Vice President of Finance
alafrence@nortechsys.com
952-345-2243
Source: Nortech Systems Incorporated
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