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Nortech Systems Reports Second Quarter Results

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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.

Nortech Systems (NASDAQ: NSYS) ha riportato i risultati finanziari per il secondo trimestre del 2024, registrando una decrease del 3,2% nelle vendite nette a 33,9 milioni di dollari rispetto al secondo trimestre del 2023. Il reddito netto dell'azienda è sceso del 75,2% a 157.000 dollari, ovvero 0,06 dollari per azione diluita. L'EBITDA rettificato è stato di 919.000 dollari, in calo del 43,3% rispetto all'anno precedente. Nonostante queste diminuzioni, Nortech mantiene un portafoglio ordini di 30,1 milioni di dollari al 30 giugno 2024.

Il CEO Jay D. Miller ha sottolineato gli sforzi per ottimizzare le strategie di supply chain post-Covid e le attività di near-shoring. L'azienda sta implementando ottimizzazioni impiantistiche in Minnesota, che si prevede ridurranno i costi di almeno 1,6 milioni di dollari nel 2025 e oltre, posizionando Nortech per una crescita migliorata nonostante gli impatti finanziari a breve termine.

Nortech Systems (NASDAQ: NSYS) informó sobre sus resultados financieros del segundo trimestre de 2024, mostrando una disminución del 3.2% en las ventas netas a 33.9 millones de dólares en comparación con el segundo trimestre de 2023. La rentabilidad neta de la empresa cayó un 75.2% a 157,000 dólares, o 0.06 dólares por acción diluida. El EBITDA ajustado fue de 919,000 dólares, un 43.3% menos que el año anterior. A pesar de estas caídas, Nortech mantiene un backlog de 30.1 millones de dólares al 30 de junio de 2024.

El CEO Jay D. Miller destacó los esfuerzos para optimizar las estrategias de la cadena de suministro post-Covid y las actividades de near-shoring. La empresa está implementando optimizaciones en sus instalaciones en Minnesota, que se espera reduzcan los costos en al menos 1.6 millones de dólares en 2025 y más allá, posicionando a Nortech para un crecimiento mejorado a pesar de los impactos financieros a corto plazo.

Nortech Systems (NASDAQ: NSYS)는 2024년 2분기 재무 결과를 발표하며 순매출이 3.2% 감소하여 3,390만 달러에 이르렀다고 보고했습니다. 회사의 순이익은 75.2% 하락하여 157,000달러, 즉 희석 주당 0.06달러에 달했습니다. 조정된 EBITDA는 919,000달러로, 전년 대비 43.3% 감소했습니다. 이러한 감소에도 불구하고 Nortech은 2024년 6월 30일 기준으로 3,010만 달러의 주문잔고를 유지하고 있습니다.

CEO 제이 D. 밀러는 포스트 코로나 공급망 전략 최적화 및 근거리 생산 활동을 강조했습니다. 회사는 미네소타에서 시설 최적화를 시행하고 있으며, 이는 2025년부터 최소 160만 달러의 비용을 절감할 것으로 예상되며, 단기 재정적 영향에도 불구하고 Nortech의 더 나은 성장을 위한 위치를 마련하고 있습니다.

Nortech Systems (NASDAQ: NSYS) a annoncé ses résultats financiers du deuxième trimestre 2024, affichant une diminution de 3,2% des ventes nettes à 33,9 millions de dollars par rapport au deuxième trimestre 2023. Le revenu net de l'entreprise a chuté de 75,2% à 157 000 dollars, soit 0,06 dollar par action diluée. L'EBITDA ajusté était de 919 000 dollars, en baisse de 43,3% par rapport à l'année précédente. Malgré ces baisses, Nortech maintient un carnet de commandes de 30,1 millions de dollars au 30 juin 2024.

Le PDG Jay D. Miller a souligné les efforts pour optimiser les stratégies de chaîne d'approvisionnement post-Covid et les activités de near-shoring. L'entreprise met en œuvre une optimisation de ses installations dans le Minnesota, qui devrait réduire les coûts d'au moins 1,6 million de dollars en 2025 et au-delà, positionnant Nortech pour une meilleure croissance malgré les impacts financiers à court terme.

Nortech Systems (NASDAQ: NSYS) hat seine finanziellen Ergebnisse für das zweite Quartal 2024 veröffentlicht und zeigt einen Rückgang der Nettoumsätze um 3,2% auf 33,9 Millionen Dollar im Vergleich zum zweiten Quartal 2023. Der Nettoertrag des Unternehmens fiel um 75,2% auf 157.000 Dollar, das entspricht 0,06 Dollar pro verwässerter Aktie. Das bereinigte EBITDA betrug 919.000 Dollar, was einen Rückgang von 43,3% im Vergleich zum Vorjahr darstellt. Trotz dieser Rückgänge hält Nortech einen Auftragsbestand von 30,1 Millionen Dollar zum 30. Juni 2024 aufrecht.

CEO Jay D. Miller hob die Bemühungen hervor, die Post-Covid-Lieferkettenstrategien und Near-Shoring-Aktivitäten zu optimieren. Das Unternehmen implementiert im Minnesota eine Optimierung der Einrichtungen, die voraussichtlich die Kosten um mindestens 1,6 Millionen Dollar im Jahr 2025 und darüber hinaus senken wird, wodurch Nortech für ein verbessertes Wachstum positioniert wird, trotz der kurzfristigen finanziellen Auswirkungen.

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

Insights

Nortech Systems' Q2 2024 results reveal a mixed financial picture. Net sales decreased by 3.2% year-over-year to $33.9 million, while net income plummeted by 75.2% to $157,000. The significant drop in profitability is concerning, despite management's efforts to optimize operations.

The company's gross profit margin contracted from 15.6% in Q2 2023 to 13.6% in Q2 2024, indicating potential challenges in cost management or pricing pressure. However, the 2.3% reduction in operating expenses shows some success in cost control efforts.

The 90-day backlog of $30.1 million provides some near-term visibility, but it's important to monitor how effectively Nortech can convert this into revenue and improve profitability. The planned $1.6 million cost reduction in 2025 could significantly boost margins if successfully implemented.

Nortech's focus on optimizing post-Covid supply chain strategies is a prudent move in the current market environment. The emphasis on near-shoring activities and customer-specific collaborations to reduce lead times aligns with global trends towards more resilient and agile supply chains.

However, the short-term negative impact on financials due to facility optimization in Minnesota highlights the challenges of supply chain restructuring. The anticipated $1.6 million cost reduction in 2025 is significant, potentially improving Nortech's competitiveness in the long run.

The 3.2% decrease in net sales might indicate ongoing supply chain disruptions or shifts in customer demand. Nortech must carefully balance its supply chain optimization efforts with maintaining current revenue streams to ensure long-term success.

Nortech's performance should be viewed in the context of its key markets: medical, aerospace & defense and industrial. The slight decline in sales might reflect broader market trends or shifts in customer priorities post-pandemic.

The company's strategy to strengthen customer relationships through supply chain collaborations is important in these specialized markets. However, the effectiveness of this approach remains to be seen, given the current financial performance.

Nortech's vertically integrated capabilities across design and manufacturing could be a significant differentiator, especially in complex electromedical devices. The company should leverage this strength to capture more market share and improve its financial position. Investors should closely monitor Nortech's ability to translate its strategic initiatives into tangible financial improvements in the coming quarters.

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 $33.9 million
 Net income of $157 thousand, or $0.06 per diluted share
 Adjusted earnings before interest, taxes, depreciation, and amortization (“EBITDA”) of $919 thousand
 90-day backlog of $30.1 million as of June 30, 2024
   

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 $1.6 million in 2025 and beyond and position Nortech for improved top and bottom-line growth.”

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 $270 and $358, respectively  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, $1 par value; 1,000,000 shares authorized; 250,000 shares issued and outstanding  250   250 
Common stock - $0.01 par value; 9,000,000 shares authorized; 2,747,678 and 2,740,178 shares issued and outstanding, respectively  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 $91 of retention bonus and other expenses in both the three and six-months ended June 30, 2024, which expense amount is not included in Adjusted EBITDA.
   

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 $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.


($ 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?

Nortech Systems reported net sales of $33.9 million, net income of $157,000 ($0.06 per diluted share), and adjusted EBITDA of $919,000 for Q2 2024.

How did Nortech Systems' (NSYS) Q2 2024 performance compare to Q2 2023?

Compared to Q2 2023, Nortech Systems saw a 3.2% decrease in net sales, a 75.2% decrease in net income, and a 43.3% decrease in adjusted EBITDA in Q2 2024.

What is Nortech Systems' (NSYS) strategy to improve future performance?

Nortech is optimizing its Minnesota facilities, which is expected to reduce costs by at least $1.6 million in 2025 and beyond, and focusing on near-shoring activities and customer-specific collaborations to strengthen relationships and reduce lead times.

What was Nortech Systems' (NSYS) backlog as of June 30, 2024?

Nortech Systems reported a 90-day backlog of $30.1 million as of June 30, 2024.

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