Nortech Systems(NSYS) - 2024 Q1 - Quarterly Results

Nortech Systems First Quarter 2024 Results Nortech Systems reported solid first-quarter 2024 results, marked by improved profitability and strategic facility consolidations to optimize costs Overview and Management Commentary Nortech Systems reported solid first-quarter 2024 results with a slight decrease in net sales but an increase in net income and EBITDA, driven by improved margins and expense management, alongside strategic facility consolidations in Minnesota to optimize costs Q1 2024 Financial Highlights vs. Q1 2023 | Metric | Q1 2024 | Q1 2023 | Change | | :--- | :--- | :--- | :--- | | Net Sales | $34.2 million | $34.9 million | -1.9% | | Net Income | $765 thousand | $681 thousand | +12.3% | | Diluted EPS | $0.26 | $0.23 | +13.0% | | Gross Margin | 15.9% | 15.7% | +20 bps | | EBITDA | $1.637 million | $1.559 million | +5.0% | | 90-day Backlog | $35.2 million | - | Consistent with year-end | - Management attributes the improved net income and EBITDA to better margins and effective expense management[4] - The company is undertaking significant facility consolidation to optimize its expense structure and plant capacity utilization: - Production from the Blue Earth, MN facility will be moved to the Bemidji, MN facility by the end of 2024, after which the Blue Earth plant will close - All employees from the Blue Earth facility will be offered jobs at other Minnesota locations - The Maple Grove, MN headquarters and engineering facility will be reduced in size by nearly 30% to align with hybrid remote work arrangements[4] Financial Performance In Q1 2024, Nortech's net sales decreased by 1.9% year-over-year to $34.2 million, yet profitability improved with gross margin expanding to 15.9% and operating expenses falling, leading to increased net income and EBITDA Condensed Financial Statements The condensed financial statements for Q1 2024 reflect stable financial health with increased net income despite slightly lower sales, marginal asset growth, reduced liabilities, and significantly improved cash from operating activities Condensed Income Statement Highlights (in thousands) | Account | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net sales | $34,215 | $34,888 | | Gross profit | $5,448 | $5,484 | | Income from operations | $1,155 | $1,053 | | Net income | $765 | $681 | Condensed Balance Sheet Highlights (in thousands) | Account | March 31, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Total current assets | $59,116 | $58,793 | | Total assets | $75,452 | $75,127 | | Total current liabilities | $25,721 | $26,582 | | Total liabilities | $39,446 | $39,783 | | Total shareholders' equity | $36,006 | $35,344 | Condensed Cash Flow Statement Highlights (in thousands) | Account | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $2,828 | $1,718 | | Net cash used in investing activities | ($735) | ($496) | | Net cash provided by (used in) financing activities | $274 | ($1,073) | | Net change in cash and cash equivalents | $2,353 | $152 | Non-GAAP Financial Measures The company utilizes EBITDA, a non-GAAP measure, to provide investors with insight into ongoing performance, reporting an increase to $1.637 million in Q1 2024, with clear reconciliation from GAAP Net Income and notes on historical adjustments - EBITDA is used by management as it is believed to provide useful information to investors by reflecting ongoing performance and facilitating peer comparisons, excluding items like interest, taxes, depreciation, and amortization[11] Reconciliation of Net Income to EBITDA (in thousands) | Line Item | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net Income | $765 | $681 | | Interest | $167 | $110 | | Taxes | $223 | $262 | | Depreciation | $442 | $465 | | Amortization | $40 | $40 | | EBITDA | $1,637 | $1,558 | - Material adjustments to EBITDA in prior periods (2021) included benefits from the CARES Act Employee Retention Credit (ERC) and Paycheck Protection Program (PPP) loan forgiveness, as well as restructuring expenses[18] Corporate Information and Forward-Looking Statements Nortech Systems provides design and manufacturing solutions for complex electromedical and electromechanical products, serving medical, aerospace/defense, and industrial markets, and has scheduled a conference call to discuss results, while also including a standard safe harbor statement regarding forward-looking statements - Nortech Systems specializes in design and manufacturing for complex electromedical devices and electromechanical systems, primarily serving the medical, aerospace & defense, and industrial sectors[9] - A conference call to discuss Q1 2024 results was scheduled for 3:00 p.m. central time on May 16, 2024[8] - The press release contains forward-looking statements concerning future financial results and operational changes, warning that actual results could differ materially due to risks such as commodity costs, supply chain disruptions, and market volatility[10]