Nortech Systems Incorporated (Nasdaq: NSYS), a leading provider
of engineering and manufacturing solutions for complex
electromedical and electromechanical products serving the medical,
defense and industrial markets, reported results for the first
quarter ended March 31, 2022.
2022 First Quarter
Highlights
- Revenue up 39%, or $8.6 million, compared to the first quarter
of 2021.
- Trailing twelve-month revenue as of March 31, 2022 of $124
million, up more than 25% from trailing twelve-month revenue as of
March 31, 2021.
- Gross margin of 13.2%, up 6.1 percentage points compared to the
first quarter of 2021.
- Total backlog of $97.6 million, up over 55% compared to backlog
as of March 31, 2021.
Management Commentary
“We were pleased to begin 2022 with continuing positive momentum
from last year and we are optimistic about the remainder of this
year,” said Jay D. Miller, Chief Executive Officer and President.
“In partnership with our customers and suppliers, everyone at
Nortech worked diligently to help mitigate ongoing supply chain
challenges, inflationary pressures, and lingering pandemic
impacts.
“Our team made significant progress in several key performance
areas during the quarter, including revenue growth, pricing
adjustments, operating cash flow, and new product development,”
noted Mr. Miller. Launched last month, Nortech’s Active Optical
Xtreme (AOX) cable technologies target challenging data-dependent
applications – including factory automation, machine vision and
robotics – and complement the Company’s Intercon 1 product line.
Mr. Miller added, “Developing select proprietary technologies
complements our global manufacturing operations and engineering
services.”
2022 First Quarter Results (in
thousands)
Q1 2022
Q1 2021
YoY change
Revenue
$ 30,711
$22,072
+39%
Gross Profit $
$4,044
$1,561
+159%
Gross Margin %
13.2%
7.1%
+6.1 percentage points
Adjusted EBITDA
$640
($1,479)
+$2,119
In the first quarter of 2022, revenue totaled $30.7 million.
This represents a 39.1% increase from revenue of $22.1 million in
the first quarter of 2021. Net income totaled $138,000, or $0.05
per basic and diluted share, in the first quarter of 2022, up from
a net loss of ($1.6) million, or ($0.58) per basic and diluted
share, in the first quarter of 2021.
In the first quarter of 2022, gross profit was $4.0 million, or
13.2%, compared to gross profit of $1.6 million, or 7.1%, in the
first quarter of 2021. Gross profit improvement was primarily due
to a combination of higher plant volume and improved operating
efficiencies coupled with pricing increases implemented to overcome
inflationary cost pressures.
First quarter 2022 operating expenses totaled $3.9 million, a
3.7% increase from first quarter 2021 operating expenses of $3.7
million. The increase in operating expenses was primarily driven by
$0.3 million in R&D costs in first quarter of 2022 compared to
no R&D expense in the first quarter of 2021. First quarter 2022
R&D expense reflects continued investment in new technologies,
such as the recently announced AOX cable platform.
First quarter 2022 EBITDA, or earnings before interest, taxes,
depreciation and amortization, totaled $0.6 million, compared to an
EBITDA loss of ($1.5) million in the first quarter of 2021.
Business Outlook
Mr. Miller stated that “Nortech’s results in the first quarter
of 2022 are a result of great teamwork with our customers,
suppliers and the Nortech team working very closely together to
meet our combined goals. In 2022, Nortech will continue this
successful collaboration as part of our unique fulfillment solution
strategy to overcome component shortages, increase plant
throughput, and deliver high quality, mission-critical parts as
quickly as possible.”
Mr. Miller concluded that “We are also focused on generating
growth from our newly announced AOX technology. Innovation is a key
component of our growth strategy and we are confident that new
product technologies will help lay the groundwork for future
revenue opportunities that complement our core business.”
Conference Call
Nortech will hold a live conference call and webcast at 4:00
p.m. central time on Wednesday, May 11, 2022, to discuss the
company's first quarter financial results. The call will be hosted
by Jay D. Miller, Chief Executive Officer and Chris Jones, 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: 773256.
Participants may also access the call via webcast at:
https://www.webcaster4.com/Webcast/Page/2814/45283
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 or trends in
financial results, our ability to adjust pricing to combat
inflation, our ability to work with customers and suppliers to
overcome supply chain challenges, improving supply chain
management, growth due to of new products, technologies and
innovations, backlog trends, customer demand, the ability of our
supply chain to supply materials on a timely basis, and steady
improvement in production output. 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) engineering challenges
with new products, technologies and innovations; (2) our ability to
secure intellectual property rights with respect to new products,
technologies, and innovations; (3) the impact of the COVID-19
pandemic on our customers, employees, manufacturing facilities,
suppliers, the capital markets, and our financial condition; (4)
supply chain disruptions leading to parts shortages for critical
components; (5) volatility in market conditions which may affect
market supply of and demand for the company's products; (6)
increased competition; (7) changes in the reliability and
efficiency of operating facilities or those of third parties; (8)
risks related to the availability of labor; (9) commodity cost
increases coupled with our inability to raise prices charged to our
customers; (10) general economic, financial, and business
conditions that could affect the company's financial condition and
results of operations; (11) the Company's ability to steadily
improve manufacturing output throughout the remainder of 2022. 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. EBITDA is defined as net
income (loss) plus interest expense, net, 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 as alternatives 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 tool and you should not consider it in isolation or as a
substitute for analysis of our operating results as reported under
GAAP. EBITDA does not reflect the impact of certain cash charges
resulting from matters we consider not to be indicative of ongoing
operations and other companies in our industry may calculate EBITDA
differently than we do, limiting its usefulness as a comparative
measure.
THREE MONTHS ENDED
March 31,
INCOME STATEMENT
Unaudited
Unaudited
2022
2021
Net Sales $
30,711
$
22,072
Cost of Goods Sold
26,667
20,511
Gross Profit
4,044
1,561
13.2
%
7.1
%
Operating Expenses Selling Expenses
833
721
General and Administrative Expenses
2,729
2,796
Research and Development Expenses
328
-
Restructuring Expenses
-
219
Gain on Sale of Assets
(15
)
-
Total Operating Expenses
3,875
3,736
Income (Loss) from Operations
169
(2,175
)
Other Expense Interest Expense
(98
)
(86
)
Income (Loss) Before Income Taxes
71
(2,261
)
Income Tax Benefit
(67
)
(707
)
Net Income (Loss) $
138
$
(1,554
)
Net Income (Loss) Per Common Share - Basic $
0.05
$
(0.58
)
Weighted Average Number of Common Shares Outstanding - Basic
2,680,731
2,659,132
Net Income (Loss) Per Common Share - Diluted $
0.05
$
(0.58
)
Weighted Average Number of Common Shares Outstanding - Diluted
2,871,901
2,659,132
BALANCE SHEET
March 31, 2022
December 31, 2021
Unaudited
Audited
Cash $
841
$
643
Restricted Cash
776
1,582
Accounts Receivable
14,695
14,548
Employee Retention Credit Receivable
5,209
5,209
Inventories, Net
21,187
19,434
Contract Assets
8,114
8,698
Prepaid Expenses and Other Current Assets
1,996
1,660
Property and Equipment, Net
5,922
5,833
Operating Lease Assets
8,706
8,983
Other Intangible Assets, Net
465
501
Total Assets $
67,911
$
67,091
Accounts Payable $
14,012
$
12,710
Lease Obligations, Finance & Operating, Net
10,823
11,255
Accrued Payroll and Commissions
4,890
4,045
All Other Liabilities
4,325
4,009
Line of Credit
7,526
8,959
Shareholders’ Equity
26,335
26,111
Total Liabilities and Shareholders’ Equity $
67,911
$
67,091
CASH FLOW STATEMENT
March 31, 2022
March 31, 2021
Cash Flows from Operating Activities
Unaudited
Unaudited
Net Income (Loss) $
138
$
(1,554
)
Depreciation and Amortization
486
477
Compensation on Stock-Based Awards
48
34
Change in Accounts Receivable Allowance
38
379
Change in Inventory Reserves
97
(394
)
(Gain) Loss on Disposal of Assets
(15
)
59
Changes in Current Operating Items Accounts Receivable
(188
)
2,732
Inventories
(1,852
)
(2,777
)
Contract Assets
585
(778
)
Prepaid Expenses and Other Assets
(263
)
(299
)
Accounts Payable
1,302
1,553
Accrued Payroll and Commissions
845
721
All Other Operating Items
269
(1,050
)
Net Cash Provided By (Used In) Operating Activities $
1,491
$
(897
)
Cash Flows from Investing Activities Proceeds from
Sale of Property and Equipment
15
-
Purchase of Intangible Asset
-
(64
)
Purchase of Property and Equipment
(529
)
(208
)
Net Cash Used In Investing Activities $
(514
)
$
(272
)
Cash Flows from Financing Activities Net Change in
Line of Credit
(1,434
)
(1,128
)
Principal Payments on Long-Term Debt
-
(124
)
Principal Payments on Financing Leases
(184
)
(162
)
Stock Option Exercises
33
-
Net Cash Used In Financing Activities $
(1,585
)
$
(1,415
)
Net Change in Cash $
(608
)
$
(2,583
)
Cash - Beginning of Period
2,225
3,565
Cash - Ending of Period $
1,617
$
982
THREE MONTHS ENDED
March 31,
RECONCILIATION TO ADJUSTED EBITDA
Unaudited
Unaudited
2022
2021
Net Income (Loss) $
138
$
(1,554
)
Interest expense
98
86
Tax benefit
(67
)
(707
)
Depreciation & amortization expense
486
477
Restructuring
-
219
Gain on asset sale
(15
)
-
Adjusted EBITDA $
640
$
(1,479
)
View source
version on businesswire.com: https://www.businesswire.com/news/home/20220510006355/en/
Chris Jones, CFO cjones@nortechsys.com 952-345-2244
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