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Nortech Systems Announces Second-Quarter 2020 Results, Sale-Leaseback and Plant Consolidation

Nortech Systems Incorporated (Nasdaq: NSYS), a leading provider of engineering and manufacturing solutions for complex electromedical and electromechanical products serving the medical, aerospace & defense and industrial markets, reported net sales of $26.5 million for the second quarter ended June 30, 2020, compared with $27.3 million for the second quarter of 2019.

Operating income for the second quarter of 2020 was $49,000, which compares with an operating loss of $1.2 million for the second quarter of 2019. Net loss for the second quarter of 2020 was $123,000, or $0.05 per diluted common share. This compares with a net loss for the second quarter of 2019 of $1.6 million, or $0.58 per diluted common share. Nortech’s backlog at the end of the second quarter 2020 was $46.6 million.

The Company also announced today that it has entered into sale and leaseback agreements with Essjay Investment Company, LLC ("Essjay") relating to the Company’s manufacturing facilities in Bemidji and Mankato, Minnesota. Nortech and Essjay are expected to close the agreements during the Company’s fiscal third quarter, subject to final documentation and other customary conditions.

Nortech expects net proceeds from the sale, excluding expenses and expected taxes, of approximately $5 million. Nortech intends to use the funds to pay down debt, provide additional liquidity for initiatives, capital investments and working capital, and strengthen the Company’s financial position. At closing, Nortech will enter into a lease agreement for the Bemidji and Mankato, Minnesota facilities for an initial 15-year term, with multiple renewal options.

To further improve operational efficiencies and lower overhead costs, the Company announced that it is closing its Merrifield, Minnesota, production facility, shifting wire and cable assembly, system-level assembly and printed circuit board (PCB) manufacturing to Nortech’s other Minnesota locations.

The Merrifield production facility consolidation is expected to be complete on or before December 31, 2020, and will impact approximately 60 employees, who will be offered positions at other Nortech facilities in Minnesota. Additionally, by the end of 2020, the company will shift its PCB manufacturing from its Monterrey, Mexico, location to its Mankato, Minnesota production facility, Nortech’s PCB center of excellence.

"Given the challenging economic environment, we are pleased with the significant improvement in operating profitability for the second quarter, our sale and leaseback agreements with Essjay and the Company’s plans to drive PCB manufacturing productivity. Our balance sheet continues to strengthen, and the sale leaseback and plant consolidation will provide significant liquidity to make further investments in the business. Our goal through these essential moves is to enhance Nortech’s ability to operate through the current COVID-19 pandemic and succeed long term." stated Jay D. Miller, Chief Executive Officer and President.

Nortech, in partnership with our medical, industrial and defense customers, uses intelligence, innovation, speed and global expertise to provide manufacturing and engineering solutions. This enables our customers to be leaders in digital connectivity and data management to achieve their business goals. Nortech strives to be a premier workplace that fosters valued relationships internally and in our communities.

About Nortech Systems Incorporated Nortech Systems is a leading provider of design and manufacturing solutions for complex electromedical devices, electromechanical systems, assemblies, and components. Nortech Systems primarily serves the medical, aerospace & defense, and industrial markets. Its design services span concept development to commercial design, and include medical device, software, electrical, mechanical, and biomedical engineering. Its manufacturing and supply chain capabilities are vertically integrated around wire/cable/interconnect assemblies, printed circuit board assemblies, as well as system-level assembly, integration, and final test. Headquartered in Maple Grove, Minn., Nortech currently has seven manufacturing locations and design centers across the U.S., Latin America, and Asia. Nortech Systems is traded on the NASDAQ Stock Market under the symbol NSYS. Nortech’s website is www.nortechsys.com.

Forward-Looking Statements This press release contains forward-looking statements made pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of 1995. While this release is based on management’s best judgment and current expectations, actual results may differ and involve a number of risks and uncertainties. Specifically, the company states above that it will complete the sale and leaseback transaction during the company’s fiscal third quarter of 2020 and that the company will gain operational efficiencies through plant consolidations. Important factors that could cause actual results to differ materially from the forward-looking statements include, without limitation: volatility in market conditions which may affect market supply of and demand for the company’s products; increased competition; changes in the reliability and efficiency of operating facilities or those of third parties; risks related to availability of labor; commodity and energy cost instability; general economic, financial and business conditions that could affect the company’s financial condition and results of operations; as well as risk factors listed from time to time in the company’s filings with the SEC.

Condensed Consolidated Statements of Operations

(in thousands, except for share data)

 

THREE MONTHS ENDED

 

SIX MONTHS ENDED

June 30,

 

June 30,

Unaudited

 

Unaudited

 

Unaudited

 

Unaudited

2020

 

2019

 

2020

 

2019

Net Sales

$

26,461

 

 

$

27,292

 

 

$

53,901

 

 

$

55,457

 

 

 

 

 

 

 

 

Cost of Goods Sold

 

24,020

 

 

 

24,967

 

 

 

48,455

 

 

 

50,171

 

 

 

 

 

 

 

 

Gross Profit

 

2,441

 

 

 

2,325

 

 

 

5,446

 

 

 

5,286

 

 

9.2

%

 

 

8.5

%

 

 

10.1

%

 

 

9.5

%

 

 

 

 

 

 

 

Operating Expenses

 

 

 

 

 

 

 

Selling Expenses

 

730

 

 

 

797

 

 

 

1,351

 

 

 

1,558

 

General and Administrative Expenses

 

1,662

 

 

 

2,737

 

 

 

3,655

 

 

 

5,041

 

Total Operating Expenses

 

2,392

 

 

 

3,534

 

 

 

5,006

 

 

 

6,599

 

 

 

 

 

 

 

 

Income (Loss) from Operations

 

49

 

 

 

(1,209

)

 

 

440

 

 

 

(1,313

)

 

 

 

 

 

 

 

Interest Expense

 

(176

)

 

 

(279

)

 

 

(400

)

 

 

(524

)

 

 

 

 

 

 

 

Income (Loss) Before Income Taxes

 

(127

)

 

 

(1,488

)

 

 

40

 

 

 

(1,837

)

 

 

 

 

 

 

 

Income Tax (Benefit) Expense

 

(4

)

 

 

64

 

 

 

26

 

 

 

78

 

 

 

 

 

 

 

 

Net Income (Loss)

$

(123

)

 

$

(1,552

)

 

$

14

 

 

$

(1,915

)

 

 

 

 

 

 

 

Income (Loss) Per Common Share - Diluted

$

(0.05

)

 

$

(0.58

)

 

$

0.01

 

 

$

(0.72

)

 

 

 

 

 

 

 

Weighted Average Number of Common Shares Outstanding - Diluted

 

2,657,530

 

 

 

2,676,449

 

 

 

2,666,532

 

 

 

2,672,758

 

Condensed Consolidated Balance Sheets

(in thousands)

 

June 30,

 

December 31,

2020

 

2019

Unaudited

 

Audited

Cash

$

345

 

$

351

Restricted Cash

 

409

 

 

309

Accounts Receivable

 

19,219

 

 

18,558

Inventories

 

15,492

 

 

14,279

Contract Assets

 

6,399

 

 

7,659

Prepaid Expenses and Other Current Assets

 

1,785

 

 

2,128

Property and Other Long-term Assets

 

13,817

 

 

14,408

Goodwill and Other Long-term Assets, Net

 

3,612

 

 

3,718

Total Assets

$

61,078

 

$

61,410

 

 

 

Accounts Payable

$

13,523

 

$

14,014

Current Portion of Lease Obligation

 

1,434

 

 

1,415

Other Current Liabilities

 

6,926

 

 

6,803

Long Term Line of Credit

 

4,392

 

 

10,088

Long-term Debt and Other Liabilities

 

9,162

 

 

3,297

Long Term Lease Obligation

 

5,618

 

 

5,817

Shareholders’ Equity

 

20,023

 

 

19,976

Total Liabilities and Shareholders’ Equity

$

61,078

 

$

61,410

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20200811005827/en/

Contacts

Connie Beck, CFO
cbeck@nortechsys.com
952-345-2244