Nortech Systems(US:NSYS)2025-05-14 20:01Financial Performance - Net sales for Q1 2025 were $26,895, a decrease of $7,320 or 21.4% compared to Q1 2024's $34,215, primarily due to delays in customer approvals and manufacturing inefficiencies[67] - Medical Device segment net sales decreased by $2,668 or 24.8% in Q1 2025 compared to Q1 2024, attributed to inventory re-balancing and lower productivity[67] - Operating loss for Q1 2025 was ($1,613), representing (6.0)% of net sales, compared to operating income of $1,155 or 3.4% of net sales in Q1 2024[77] - Gross profit margin for Q1 2025 was 11.4%, down from 15.9% in Q1 2024, due to lower net sales and decreased manufacturing productivity[74] - Cash used in operating activities was $2,930 in Q1 2025, compared to cash provided of $2,828 in Q1 2024, largely due to timing of customer shipments[81] Order Backlog and Expectations - Total order backlog as of March 31, 2025, was $68,332, a 3.8% increase from $65,852 at the beginning of the quarter, but a 20.5% decrease from the prior-year comparable quarter[69] - The company expects to resolve current operational issues and improve backlog approvals by the end of Q2 2025[69] - Net sales in Q1 2025 were negatively impacted by delays in customer approvals and manufacturing inefficiencies, with expectations for resolution in the next two quarters[91] Restructuring and Cost Management - Restructuring charges for Q1 2025 amounted to $266, related to severance and facility closure costs[76] - The Company has implemented cost-cutting initiatives and plant optimization activities to address losses and reduce borrowings for the remainder of 2025[91] Financial Obligations and Ratios - Interest expense increased to $214 in Q1 2025 from $167 in Q1 2024, driven by higher borrowings under the line of credit[78] - Effective tax rate for Q1 2025 was 28.0%, up from 22.6% in Q1 2024, primarily due to changes in pretax loss income[79] - The Company must maintain a leverage ratio of no more than 2.5 times and a minimum fixed charge coverage ratio of at least 1.25 times, with compliance deferred until Q4 2025[88] - Adjusted EBITDA requirements are set at a minimum of $1,000 for Q2 2025, $1,300 for Q3 2025, and $1,600 for Q4 2025 and thereafter[88] Capital and Liquidity - As of March 31, 2025, the Company had borrowings of $11,955 and unused availability on the line of credit of $3,045[89] - The Company believes it has sufficient capital and liquidity to operate its business for at least twelve months from the filing date of the Form 10-Q[91] - The Revolver bears interest at a weighted-average rate of 7.2% as of March 31, 2025, and 7.7% as of December 31, 2024[89] - The Company has an interim funding agreement with $563 outstanding for equipment purchases as of March 31, 2025[90] - The Revolver is secured by substantially all of the Company's assets and is set to expire on June 30, 2026, following amendments[88] Compliance and Waivers - The Company received a waiver for non-compliance with financial covenants related to its Mexican operations in Q1 and Q2 2024[87]