Nortech Systems Reports Q4, FY 2023 Results; Full Year Net Sales Up Nearly 4% from Prior Year;

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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 fourth quarter and full year results for the period ended December 31, 2023.

2023 Highlights:

• Net sales of $139.3 million, up 3.9% from the prior year.
• Net income of $6.9 million, or $2.38 per diluted share, compared with net income of $2.0 million, or $0.70 per diluted share, in 2022. Fourth quarter 2023 net income includes a non-cash tax benefit of $2.6 million for the reversal of a previously established tax valuation allowance.
• Gross margin of 16.6%, up 130 basis points from gross margin of 15.3% in the prior year.
• Earnings before interest, taxes, depreciation, and amortization (EBITDA) of $8.0 million, compared with EBITDA of $5.8 million in the prior year.
• Year-end 90-day backlog of $35.1 million as of December 31, 2023, consistent with the prior year-end level.

Management Commentary

“As expected, we ended 2023 strong, including record revenue both in the fourth quarter and the year, continued expense management and solid margins,” said Jay D. Miller, President and CEO of Nortech. “We saw encouraging normalization trends in supply chain and customer ordering practices, approaching pre-Covid levels. These factors had inflated our backlog levels in 2022 and early 2023, but we believe the situation has returned to a steady state.

“Our overall financial results are a credit to the nearly 800 dedicated Nortech employees worldwide who embody our corporate values, including teamwork, excellence, commitment, integrity and innovation,” Miller noted. “I am proud of Nortech’s collaborative culture and the important role it plays in successfully retaining our people; they truly are our most valuable asset in delivering mission-critical products and solutions to our customers.

“For example, our highly skilled engineering services team is essential to providing our customers with Nortech’s full-system solution by helping them to improve manufacturability of products and reduce costs,” explained Miller. “Nortech’s ability to quickly and flexibly adapt our global resources to fit our customers’ changing needs is a key competitive advantage.”

2023 Fourth Quarter and Full Year Results

In 2023, net sales totaled $139.3 million. This represents a 3.9% increase from net sales of $134.1 million in 2022. GAAP net income totaled $6.9 million, or $2.38 per diluted share, in 2023, up from GAAP net income of $2.0 million, or $0.70 per diluted share, in the prior year. Fourth quarter 2023 GAAP net income included a non-cash tax benefit of $2.6 million related to the release of a previously established tax valuation allowance in alignment with the Company’s historical and projections of future taxable income.

For the full year 2023, gross profit totaled $23.1 million, or 16.6%, compared with gross profit of $20.5 million, or 15.3%, in the prior year.

In 2023 operating expenses totaled $17.2 million, a 3.4% increase from the prior year operating expenses of $16.6 million. The increase in year-over-year operating expense was primarily driven by investments in information technology and human resource systems earlier in the year, payroll and inflationary pressures.

In 2023 EBITDA totaled $8.0 million, a 38.2% increase from EBITDA of $5.8 million in the prior year. The year-over-year increase in EBITDA resulted primarily from the previously highlighted net sales increase over the same period.

Business Outlook

“We expect our positive momentum to continue into 2024, buoyed by encouraging industry trends and our own solid internal execution,” commented Miller. “Last month the global trade organization IPC released survey results forecasting industry revenue growth in 2024. This outlook, plus continued normalization of customer demand levels, supply chain improvements, and our careful expense management, gives us confidence as we go forward.

“Nortech remains focused on business fundamentals including generating cash and strengthening our balance sheet. In support of that, we recently restructured our credit agreement with Bank of America to increase our borrowing capacity and better complement our business.

“We are prudently investing in promising new technologies that will benefit both our customers and the environment,” explained Miller. Earlier this year, Nortech introduced Expanded Beam Xtreme™ fiber optic technology, designed for digital data transmission and offering boosted speed, reliability and interference protection. Concluded Miller, “Along with enhanced performance capabilities, fiber optics offer our customers many sustainability advantages over traditional copper wire, in both production and operation. Benefits include greater durability, improved energy efficiency and less material usage.”