Nortech Systems(NSYS) - 2022 Q1 - Quarterly Report

PART I - FINANCIAL INFORMATION Financial Statements The company's Q1 2022 financials show a strong turnaround with a 38.9% sales increase and a return to profitability Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) Net sales grew 38.9% to $30.7 million, driving a return to net income of $138 thousand from a prior-year loss Consolidated Statements of Operations (Unaudited, In Thousands) | Metric | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | Change (%) | | :--- | :--- | :--- | :--- | | Net Sales | $30,711 | $22,072 | 39.1% | | Gross Profit | $4,044 | $1,561 | 159.1% | | Income (Loss) From Operations | $169 | $(2,175) | N/A | | Net Income (Loss) | $138 | $(1,554) | N/A | | Diluted EPS | $0.05 | $(0.58) | N/A | Condensed Consolidated Balance Sheets Total assets grew slightly to $67.9 million, driven by an increase in inventories and shareholders' equity Consolidated Balance Sheet Highlights (In Thousands) | Account | March 31, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Total Current Assets | $52,818 | $51,774 | | Inventories, Net | $21,187 | $19,434 | | Total Assets | $67,911 | $67,091 | | Total Current Liabilities | $24,713 | $22,306 | | Total Liabilities | $41,576 | $40,980 | | Total Shareholders' Equity | $26,335 | $26,111 | Condensed Consolidated Statements of Cash Flows Operating activities generated $1.5 million in cash, a significant reversal from the prior year's use of cash Consolidated Cash Flow Summary (Unaudited, In Thousands) | Cash Flow Activity | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :--- | :--- | :--- | | Net Cash Provided By (Used In) Operating Activities | $1,491 | $(896) | | Net Cash Used In Investing Activities | $(514) | $(272) | | Net Cash Used In Financing Activities | $(1,585) | $(1,415) | | Net Change in Cash and Cash Equivalents | $(608) | $(2,582) | Condensed Notes to Consolidated Financial Statements Notes detail revenue recognition, significant customer concentration, a $5.2 million ERC receivable, and available credit - Revenue from contract manufacturing agreements recognized over time accounted for approximately 73% of total revenue for the three months ended March 31, 2022[45] - One customer accounted for 23% of net sales for Q1 2022; two customers represented approximately 35% of total accounts receivable at March 31, 2022[41] - The company has a $5.2 million receivable for the Employee Retention Credit (ERC) as of March 31, 2022[64] - The company has a $16 million line of credit with Bank of America, with $7.6 million outstanding and $8.0 million of unused availability as of March 31, 2022[51][52][55] - In Q1 2022, the company granted 74,000 stock options and 21,000 restricted stock units (RSUs)[22][25] Management's Discussion and Analysis of Financial Condition and Results of Operations Sales growth of 38.9% was driven by higher volume and pricing, with improved margins and a strong backlog Results of Operations Q1 2022 net sales rose 38.9% to $30.7 million, with gross margin expanding to 13.2% and a return to operating income Net Sales by Market (in millions) | Market | Q1 2022 | Q1 2021 | % Change | | :--- | :--- | :--- | :--- | | Medical | $15.2 | $12.3 | 23.6% | | Industrial | $8.7 | $6.2 | 40.3% | | Aerospace and Defense | $6.8 | $3.6 | 88.9% | | Total Net Sales | $30.7 | $22.1 | 38.9% | - Gross profit as a percent of net sales improved to 13.2% in Q1 2022 from 7.1% in Q1 2021, driven by higher production volume and price increases[76] - The 90-day shipment backlog was $35.4 million as of March 31, 2022, a 13.8% increase from March 31, 2021; the total shipment backlog was $97.6 million[74][75] - The company reported income from operations of $169 thousand in Q1 2022, compared to a loss from operations of $2.3 million in Q1 2021[82] Liquidity and Capital Resources Management confirms sufficient liquidity for the next twelve months, supported by cash flows and an $8.0 million available credit line - Management believes existing financing arrangements, cash flows from operations, and expected ERC funds will be sufficient to satisfy working capital needs for the next twelve months[86] - As of March 31, 2022, the company had $8.0 million of unused availability under its line of credit[92] - In Q1 2022, the credit agreement was amended to include the Employee Retention Credit Receivable as security, improving unused availability[92] Quantitative and Qualitative Disclosures About Market Risk This section is not applicable for the reporting period - Not applicable[100] Controls and Procedures Management concluded that disclosure controls and procedures were effective with no material changes to internal controls - Based on their evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of March 31, 2022[101] - There were no changes in internal control over financial reporting during the quarter that materially affected, or are reasonably likely to materially affect, internal controls[102] PART II - OTHER INFORMATION Legal Proceedings The company is subject to various legal proceedings and claims that arise in the ordinary course of business - The company is subject to various legal proceedings and claims that arise in the ordinary course of business[104] Risk Factors No material changes to previously disclosed risks, which include supply chain, competition, and raw material costs - There have been no material changes in the risk factors from those disclosed in the Annual Report on Form 10-K for the year ended December 31, 2021[105] - Key risks include: supply chain disruption, lack of sufficient human resources, increased competition, raw material cost instability, and outbreaks of contagious diseases[99] Unregistered Sales of Equity Securities and Use of Proceeds The company's share repurchase program has expired with no remaining authorized amount for repurchases - The company's share repurchase program has expired as of March 31, 2022[106] Exhibits This section lists all exhibits filed with the Form 10-Q, including certifications and Inline XBRL data - Exhibits filed include CEO and CFO certifications pursuant to Rule 13a-14(a) and Section 906 of the Sarbanes-Oxley Act, as well as Inline XBRL financial data[111]