Gross Profit of $5 million Up Nearly 40%
Compared to Second Quarter 2021
Nortech Systems Incorporated (Nasdaq: NSYS) (the "Company"), a
leading provider of engineering and manufacturing solutions for
complex electromedical and electromechanical products serving the
medical, industrial and defense markets, reported 2022 second
quarter results for the period ended June 30, 2022.
2022 Second Quarter
Highlights
- Revenue of $32.5 million, up nearly 8% compared to the second
quarter of 2021.
- Gross margin of 15.4%, up 3.5 percentage points compared to the
second quarter of 2021.
- Earnings before interest, taxes, depreciation, and amortization
(EBITDA) of $1.5 million, up over 70% from the second quarter of
2021.
- Quarter-end shipping backlog of $106.2 million up nearly 50%
compared to the backlog as of June 30, 2021, with strong growth
across all markets.
- Launched Active Optical Xtreme (AOX™) cable solutions in April
2022.
- Industry veteran David Graff was elected to the Board of
Directors in May 2022.
Management Commentary
“Our strong second quarter improvements are significant,
particularly in light of healthy 2021 comparisons,” said Jay D.
Miller, Chief Executive Officer and President. “These solid results
are a credit to all our Nortech team members. We are focused on
supporting our strategic medical, industrial, and defense customers
with mission-critical solutions in a very complex business
environment.
“We are encouraged by continued demand growth across these
markets, evidenced by our record backlog,” added Miller. “Currently
the dominant concern of many customers is supply-chain reliability,
so our end-to-end fulfillment solutions and collaborative supplier
relationships combine to offer a particularly strong value
proposition. We are fortunate to have many long-term, loyal
customers and responsive suppliers. Many of these relationships
have endured for decades through various economic cycles.”
2022 Second Quarter and Year-to-Date
Results (in thousands)
Q2 22
Q2 21
%
YTD 2022
YTD 2021
%
Revenue
$32,518
$30,182
7.7%
$63,229
$52,254
21.0%
Gross Profit
$5,004
$3,584
39.6%
$9,048
$5,146
75.8%
Net Income (Loss)
$720
$178
303.7%
$857
($1,375)
N/A
EBITDA
$1,506
$878
71.5%
$2,146
($599)
N/A
In the second quarter of 2022, revenue totaled $32.5 million.
This represents a 7.7% increase from revenue of $30.2 million in
the second quarter of 2021. For the first half of 2022, revenue
totaled $63.2 million, a 21.0% increase from the first half of
2021. Net income totaled $0.7 million, or $0.25 per diluted share,
in the second quarter of 2022, up from net income of $0.2 million,
or $0.06 per diluted share, in the second quarter of 2021. Through
the first six months of 2022, net income totaled $0.9 million, or
$0.30 per diluted share, up from a net loss of ($1.4) million, or
($0.52) per diluted share, through the same period in 2021.
In the second quarter of 2022, gross profit totaled $5.0
million, or 15.4%, compared to gross profit of $3.6 million, or
11.9%, in the prior-year quarter. Through the first six months of
2022, gross profit of $9 million, or 14.3%, was up from gross
profit of $5.1 million, or 9.8%, in the first half of 2021. Gross
profit improvement was primarily due to pricing increases
implemented to overcome inflationary cost pressures coupled with
higher plant volume and improved operating efficiencies.
Second quarter 2022 operating expenses totaled $4.0 million,
unchanged from the previous quarter and a 25.1% increase from
second quarter 2021 operating expenses of $3.2 million. The $0.8
million increase in year-over-year operating expense was driven
primarily by investments in research & development, sales &
marketing, and upgrading essential IT, HR, and analytical
capabilities. For the first six months of 2022, operating expenses
totaled $7.9 million, up 13.6% from operating expenses of $6.9
million in the first half of 2021.
Second quarter 2022 EBITDA totaled $1.5 million, up over 70%
from EBITDA of $0.9 million in the second quarter of 2021. For the
first six months of 2022, EBITDA totaled $2.1 million, a
significant improvement from an EBITDA loss of ($0.6) million
through the first six months of 2021. Increased EBITDA resulted
from previously discussed revenue and margin improvements during
the periods.
Business Outlook
“Looking ahead, we are optimistic about the second half of the
year,” explained Miller. “Our healthy backlog indicates demand well
past December and shows no signs of diminishing. Sales growth and
selective pricing actions should drive modest margin expansion for
the remainder of 2022. We also expect improved, positive cash flow
in the third and fourth quarters. Finally, we anticipate
contributions from new cable technologies as we move into 2023.
“Our employees, management team, and board of directors have
built a solid foundation for growth in 2022 and beyond. Everyone is
committed to executing on our fundamentals: continuous improvement
and operational excellence in all facets of our global business,
striving to provide world-class quality, on-time delivery, and
competitive pricing.
“We continue to strengthen our core business through various
initiatives, including leveraging our team members’
customer-specific expertise to provide innovative fulfillment
solutions for sophisticated low-volume/high-mix contract
manufacturing services. Our program management, engineering
support, and innovation capabilities are also valuable to both
established customers and start-ups,” concluded Miller.
Conference Call
The Company will hold a live conference call and webcast at 4:00
p.m. central time on Wednesday, August 10, 2022, to discuss the
company's second quarter financial results. The call will be hosted
by Jay 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: 189138.
Participants may also access the call via webcast at:
https://www.webcaster4.com/Webcast/Page/2814/46177
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 sales growth, margin expansion, improved
positive cash flow, 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, revenue and
growth contributions due to of new products, technologies and
innovations, backlog trends, customer demand, 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 SIX MONTHS ENDED June 30,
June 30, INCOME STATEMENT Unaudited
Unaudited Unaudited Unaudited
2022
2021
2022
2021
Net Sales $
32,518
$
30,182
$
63,229
$
52,254
Cost of Goods Sold
27,514
26,598
54,181
47,107
Gross Profit
5,004
3,584
9,048
5,146
15.4
%
11.9
%
14.3
%
9.8
%
Operating Expenses Selling Expenses
960
570
1,793
1,292
General and Administrative Expenses
2,667
2,420
5,397
5,214
Research and Development Expenses
351
207
679
207
Restructuring Expenses
-
77
-
296
Gain on Sale of Assets
-
(94
)
(15
)
(94
)
Total Operating Expenses
3,978
3,180
7,854
6,915
Income (Loss) from Operations
1,026
404
1,194
(1,769
)
Other Expense Interest Expense
(117
)
(116
)
(215
)
(202
)
Income (Loss) Before Income Taxes
909
288
979
(1,971
)
Income Tax Benefit
189
110
122
(595
)
Net Income (Loss) $
720
$
178
$
857
$
(1,375
)
Net Income (Loss) Per Common Share - Basic $
0.27
$
0.07
$
0.32
$
(0.52
)
Weighted Average Number of Common Shares Outstanding - Basic
2,683,131
2,658,926
2,681,931
2,659,028
Net Income (Loss) Per Common Share - Diluted $
0.25
$
0.06
$
0.30
$
(0.52
)
Weighted Average Number of Common Shares Outstanding - Diluted
2,886,755
2,767,991
2,879,216
2,659,028
BALANCE SHEET June 30,2022 December
31,2021 Unaudited Audited Cash $
944
$
643
Restricted Cash
231
1,582
Accounts Receivable
16,468
14,548
Employee Retention Credit Receivable
5,209
5,209
Inventories, Net
22,970
19,434
Contract Assets
9,070
8,698
Prepaid Expenses and Other Current Assets
1,563
1,660
Property and Equipment, Net
6,144
5,833
Operating Lease Assets
8,420
8,983
Other Intangible Assets, Net
471
501
Total Assets $
71,490
$
67,091
Accounts Payable $
14,108
$
12,710
Lease Obligations, Finance & Operating, Net
10,383
11,255
Accrued Payroll and Commissions
3,961
4,045
All Other Liabilities
4,776
4,009
Line of Credit
11,360
8,959
Shareholders’ Equity
26,902
26,111
Total Liabilities and Shareholders’ Equity $
71,490
$
67,091
CASH FLOW STATEMENT June 30,2022 June
30,2021 Cash Flows from Operating Activities
Unaudited Unaudited Net Income (Loss) $
857
$
(1,375
)
Depreciation and Amortization
967
967
Compensation on Stock-Based Awards
141
160
Change in Accounts Receivable Allowance
(31
)
116
Change in Inventory Reserves
(103
)
(655
)
(Gain) Loss on Disposal of Assets
(15
)
(94
)
Changes in Current Operating Items Accounts Receivable
(1,986
)
(1,153
)
Inventories
(3,540
)
(3,719
)
Contract Assets
(372
)
(1,019
)
Prepaid Expenses and Other Assets
89
(286
)
Accounts Payable
1,346
1,576
Accrued Payroll and Commissions
(84
)
686
All Other Operating Items
790
(636
)
Net Cash Used In Operating Activities $
(1,940
)
$
(5,433
)
Cash Flows from Investing Activities Proceeds from
Sale of Property and Equipment
15
94
Purchase of Intangible Asset
(41
)
(77
)
Purchase of Property and Equipment
(1,182
)
(659
)
Net Cash Used In Investing Activities $
(1,208
)
$
(642
)
Cash Flows from Financing Activities Net Change in
Line of Credit
2,394
4,338
Principal Payments on Long-Term Debt
-
(249
)
Principal Payments on Financing Leases
(336
)
(326
)
Stock Option Exercises
33
-
Debt Issuance Costs
7
-
Net Cash Provided By Financing Activities $
2,098
$
3,764
Net Change in Cash $
(1,050
)
$
(2,311
)
Cash - Beginning of Period
2,225
3,565
Cash - Ending of Period $
1,175
$
1,248
SIX MONTHS ENDED June 30, RECONCILIATION TO
ADJUSTED EBITDA Unaudited Unaudited
2022
2021
Net Income (Loss) $
857
$
(1,375
)
Interest expense
215
202
Tax expense (benefit)
122
(595
)
Depreciation & amortization expense
967
967
Restructuring expense
-
296
Gain on asset sale
(15
)
(94
)
Adjusted EBITDA $
2,146
$
(599
)
View source
version on businesswire.com: https://www.businesswire.com/news/home/20220810005299/en/
Chris Jones, CFO cjones@nortechsys.com 952-345-2244
Nortech Systems (NASDAQ:NSYS)
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