Nortech Systems Reports Q3 2023 Results

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Nortech Systems Incorporated, a leading provider of engineering and manufacturing solutions for complex electromedical and electromechanical products serving the medical, industrial and defense markets, reported 2023 third quarter results for the period ended September 30, 2023.

2023 Third Quarter Highlights:

• Revenue of $33.4 million, down 5.4% from the same period in 2022.
• GAAP net income of $1.2 million, or $0.42 per diluted share, compared to net income of $1.5 million, or $0.53 per diluted share, in the same period in 2022.
• Gross margin of 15.9%, up 30 basis points from gross margin of 15.6% in the second quarter.
• Earnings before interest, taxes, depreciation and amortization (EBITDA) of $1.6 million, compared to EBITDA of $1.6 million in the second quarter.
• Quarter-end backlog of $102 million at September 30, 2023, up slightly from the prior quarter end.

Management Commentary

"Our team's focused execution enabled us to increase third quarter gross margin sequentially and maintain EBITDA levels," said Jay D. Miller, President and CEO of Nortech Systems. "As we have previously discussed, we had anticipated demand levels to fluctuate as customers work through inventory. We saw this influence third quarter revenue as primarily two large customers pushed out their orders to manage their inventory levels, however we expect this issue to get resolved in the near term as new business bookings remain strong. Year-over-year comparisons were also impacted by significant pricing actions in the third quarter of 2022, ahead of material cost increases, that contributed to record-high revenue in that period.

"In the third quarter, our bookings and backlog levels remained robust," added Miller. "We are encouraged by promising opportunities across our medical, industrial and defense markets."

In the first nine months of 2023, revenue totaled $103.3 million. This represents a 4.8% increase from revenue of $98.5 million for the first nine months of 2022. Net income totaled $2.5 million, or $0.87 per diluted share, for the first nine months of 2023, up from net income of $2.4 million, or $0.83 per diluted share, in the prior year.

For the first nine months of 2023, gross profit totaled $16.3 million, or 15.8%, compared to gross profit of $15.4 million, or 15.6%, in the prior-year period.

Through the end of the third quarter operating expenses totaled $13.0 million, a 6.2% increase from the same prior year period operating expenses of $12.2 million. The increase in year-over-year operating expense was primarily driven by investments in IT and HR systems and inflationary pressures on expenses.

For the first nine months of 2023 EBITDA totaled $4.8 million, a 5.5% increase from EBITDA of $4.6 million in the prior year period. The year-over-year increase in EBITDA resulted primarily from the previously highlighted revenue growth over the same period.

Business Outlook

"Despite the impact of delayed customer shipments on third quarter revenue, we expect to finish the year strong," explained Miller. "We are guardedly optimistic as we look ahead to 2024." He concluded, "Our operations are solid, led by the dedicated, hard-working team members across all our locations. Their efforts, combined with our diverse customer base and solid financial platform, give us continued confidence in Nortech's long-term prospects."

As another source of optimism, Miller cited last month's news that Nortech's facility in Suzhou, China, earned Class II Medical Device certification from China's National Medical Products Administration. This certification increases potential medical sales opportunities in Asia. The medical market is already Nortech's largest and fastest-growing, accounting for over half of 2022 revenue.