Nortech Systems Reports Second Quarter 2023 Results
- Revenue increased by 7.7% in Q2 2023 compared to the prior-year period.
- First half revenue showed a 10.6% increase from the prior-year period.
- Gross margin improved to 15.6% from 15.4% in Q2 2022.
- EBITDA increased to $1.6 million from $1.5 million in the prior-year period.
- The company achieved the highest level of bookings in the last 4 quarters.
- Net income decreased by 5.7% in Q2 2023 compared to Q2 2022.
Revenue Up Nearly
2023 Second Quarter Highlights:
-
Revenue of
, up$35.0 million 7.7% from the prior-year period. First half revenue up$69.9 million 10.6% from prior-year period. -
Generally Accepted Accounting Principles (GAAP) net income of
, or$0.6 million per diluted share, compared to net income of$0.22 , or$0.7 million per diluted share, in the same period in 2022.$0.25 -
Gross margin of
15.6% , up 20 basis points from gross margin of15.4% in the second quarter of 2022. -
Earnings before interest, taxes, depreciation and amortization (EBITDA) of
, up from EBITDA of$1.6 million in the prior-year period.$1.5 million -
Second quarter bookings of
, the highest level in last 4 quarters.$37 million -
Quarter-end backlog of
as of June 30, 2023, up$101 million from the prior quarter end.$2 million
Management Commentary
“Nortech Systems demonstrated continued strong performance in the second quarter, underpinned by strong revenue, solid EBITDA levels, near-record bookings and a healthy backlog,” says Jay D. Miller, President & CEO of Nortech Systems.
“Our sustained momentum in operational performance and profitability is shown in the quarterly improvements we delivered across key metrics, both year-over-year and on a trailing twelve-month basis. These consistent results are a testament to the commitment of our Nortech team members to deliver mission-critical quality and performance to our medical, industrial and defense customers,” Miller stated. “We also appreciate our many supplier partners for their vital contributions to our success.”
2023 Second Quarter and Year-to-Date Results
In Thousands except EBITDA |
Q2 23 |
Q2 22 |
% |
YTD 2023 |
YTD 2022 |
% |
||
Revenue |
|
|
7.7 |
% |
|
|
10.6 |
% |
Gross Profit |
|
|
9.4 |
% |
|
|
21.1 |
% |
Operating Expenses |
|
|
10.0 |
% |
|
|
12.1 |
% |
Net Income |
|
|
(5.7 |
)% |
|
|
58.6 |
% |
EBITDA ($ millions) |
|
|
6.7 |
% |
|
|
52.4 |
% |
In Q2 2023, revenue totaled
In the second quarter of 2023, gross profit totaled
Second quarter 2023 operating expenses totaled
Second quarter 2023 EBITDA totaled
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,
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
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
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
related to the CARES Act Employee Retention Credit (ERC) as a reduction of costs of goods sold of$5,209 , selling expense of$4,670 , and general and administrative expense of$125 . Nortech received ERC cash payment in two installments, the first in December 2022 and the second in May 2023.$414 -
CARES Act Paycheck Protection Program (PPP) loan forgiveness gain of
recorded in the fourth quarter of 2021.$6,170 -
Restructuring expense in 2021 of
related to the consolidation of our printed circuit board production capabilities into our center of excellence in$327 Mankato, Minnesota and closure of ourMerrifield, Minnesota plant. -
Gain on sale of assets in 2021 of
related to the closure of our$141 Merrifield, Minnesota plant. -
Loss on abandonment of intangible assets in 2021 of
related to abandonment of the Devicix tradename.$560
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
Source: Nortech Systems Incorporated
FAQ
What was Nortech Systems Incorporated's Q2 2023 revenue?
What was the Q2 2023 net income for Nortech Systems Incorporated?
What was the EBITDA in Q2 2023 for Nortech Systems Incorporated?
What was the quarter-end backlog for Nortech Systems Incorporated as of June 30, 2023?