Nortech Systems Announces Second Quarter 2021 Results

MINNEAPOLIS –
Nortech Systems Incorporated (Nasdaq: NSYS) (the “Company”), 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 $30.2 million for the quarter ended June 30, 2021, an increase of 36.7% compared to $22.1 for the first quarter of 2021 and an increase of 14.0% compared to $26.5 million for the second quarter of 2020. The revenue improvement was primarily due to higher production volume resulting from actions to scale the direct labor workforce and strengthen the supply chain for parts. Gross margin for the second quarter of 2021 was 11.9% compared to 7.1% in the first quarter of 2021, an improvement of 4.8 percentage points. Higher margin was primarily due to greater production output from the Company’s global manufacturing operations. Net income for second quarter 2021 was $0.2 million and $0.06 per diluted share compared to a net loss of ($1.5) million and ($0.58) per diluted share for the first quarter of 2021. Adjusted EBITDA was $1.0 million for the second quarter 2021 compared to adjusted EBITDA loss of ($1.5) for the first quarter 2021. Adjusted EBITDA excludes one-time restructuring expenses related to relocating manufacturing operations from its plant in Merrifield, Minnesota to its printed circuit board (PCB) center of excellence in Mankato, Minnesota. The Company incurred $77 thousand in restructuring expenses in the second quarter of 2021 and $296 thousand for the year-to-date fiscal 2021.

“Nortech rebounded significantly in the second quarter of 2021. We have been taking aggressive action to overcome COVID-related obstacles. We’re continuing to address supply chain bottlenecks to find creative ways to build and ship mission critical parts to our medical, military, and industrial customers. We have a large $72 million customer backlog and we’re 100% focused on operations execution to increase production output throughout the remainder of 2021 and into 2022.” stated Jay D. Miller, Chief Executive Officer and President.

In May 2021 Nortech announced that it planned to apply for the Employee Retention Credit (“ERC”) to support ongoing investment in Nortech’s frontline workforce to drive increased manufacturing output to meet our customers’ rising demand. If this action is successful, the Company estimates the ERC will total approximately $5 million in fiscal 2021. As of July 2021, the Company has filed for half of the ERC and expects to file for the second half in Q3 2021. The Company has not received funds as of the date of this press release.

As previously disclosed, in April 2020 Nortech participated in the Paycheck Protection Program (“PPP”) under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). In July 2021 Nortech submitted its application for PPP loan forgiveness to the Small Business Administration (“SBA”).

“The PPP and ERC programs were key factors in helping us retain our workforce during the COVID-19 downturn. As demand recovered in early 2021, we were better prepared to return the Company to profitability in Q2 2021.” 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 including without limitation statements regarding the Company returning to profitable growth, monthly sales booking and backlog trends, customer demand, the ability of our supply chain to supply materials on a timely basis, our ability to hire and retain sufficient direct labor to produce our products, the steady improvement in production output, receiving Employee Retention Credit funds and forgiveness of our PPP loan. While this release is based on management’s best judgment and current expectations, actual results may differ materially from those expressed or implied and involve a number of risks and uncertainties. Important factors that could cause actual results to differ materially from the forward-looking statements include, without limitation: (1) the impact of the COVID-19 pandemic on our customers, employees, manufacturing facilities, suppliers, the capital markets and our financial condition (2) supply chain disruptions leading to parts shortages for critical components; (3) volatility in market conditions which may affect market supply of and demand for the company’s products; (4) increased competition; (5) changes in the reliability and efficiency of operating facilities or those of third parties; (6) risks related to the availability of labor; (7) commodity cost increases coupled with our inability to raise prices charged to our customers; (8) the unanticipated loss of key members of senior management and the transition of new members of our management teams to their new roles; (9) general economic, financial and business conditions that could affect the company’s financial condition and results of operations; (10) the Company’s ability to steadily improve manufacturing output throughout the remainder of 2021 and into 2022 (11) the Company obtaining ERC funds of approximately $5 million in 2021; and (12) the Company receiving SBA approval for forgiveness of its PPP loan. Some of the above-mentioned factors are described in further detail in the section entitled “Risk Factors” in our annual and quarterly reports, as applicable. You should assume the information appearing in this document is accurate only as of the date hereof, or as otherwise specified, as our business, financial condition, results of operations and prospects may have changed since such date. Except as required by applicable law, including the securities laws of the United States and the rules and regulations of the United States Securities and Exchange Commission, we undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise, to reflect actual results or changes in factors or assumptions affecting such forward-looking statements.

Non-GAAP Measurements Management believes that certain non-GAAP financial measures may be useful in providing additional meaningful comparisons between current results and results in prior periods. Adjusted EBITDA is a metric used by management to evaluate performance. Adjusted EBITDA is also used by the financial community to facilitate comparisons between peer companies since interest, taxes, depreciation, and amortization can differ greatly between organizations as a result of differing capital structures and tax strategies. Adjusted EBITDA excludes certain items that are unusual in nature or not comparable from period to period. The Company provides this information to investors to assist in comparisons of past, present, and future operating results and to assist in highlighting the results of on-going operations. While the Company’s management believes that non-GAAP measurements are useful supplemental information, such adjusted results are not intended to replace the Company’s GAAP financial results and should be read in conjunction with those GAAP results. Other supplemental information has been provided to demonstrate reconciliation of non-GAAP measurements discussed above to most relevant GAAP financial measurements.

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Chris Jones, CFO

[email protected]

952-345-2244