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

MINNEAPOLIS–(BUSINESS WIRE)–Nortech Systems Incorporated (Nasdaq: NSYS), a leading provider of engineering and manufacturing solutions for complex electromedical and electromechanical products serving the medical, aerospace and defense, and industrial markets, announced revenue net of $26.5 million for the second quarter ended June 30, 2020, compared to $27.3 million for the second quarter of 2019.

Operating profit for the second quarter of 2020 was $49,000 compared to 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. That compares to 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 of 2020 was $46.6 million.

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

Nortech expects net proceeds from the sale, excluding anticipated expenses and taxes, of approximately $5 million. Nortech intends to use the funds to repay debt, provide additional cash 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 facilities in Bemidji and Mankato, Minnesota for an initial term of 15 years, with several renewal options.

To further improve operational efficiency and reduce overhead, the company announced the closure of its production facility in Merrifield, Minnesota, the relocation of wire and cable assembly, assembly to system level and printed circuit board (PCB) manufacturing to other Nortech locations in Minnesota.

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

“Given the challenging economic environment, we are pleased with the significant improvement in operating profitability in the second quarter, our sale-leaseback agreements with Essjay and the company’s plans to boost PCB manufacturing productivity. Our balance sheet continues to strengthen and the sale-leaseback and plant consolidation will provide significant cash to make new investments in the business.Our goal through these critical moves is to improve Nortech’s ability to operate. during the current COVID-19 pandemic and achieve long-term success,” said Jay D. Miller, CEO and President.

Nortech, in partnership with our medical, industrial and defense customers, uses intelligence, innovation, speed and global expertise to deliver 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 top-notch place to work 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 medical electrical devices, electromechanical systems, assemblies and components. Nortech Systems primarily serves the medical, aerospace and defense, and industrial markets. Its design services range from concept development to commercial design, and include medical devices, 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 assembly, integration and final test at the of the system. Based in Maple Grove, Minnesota, Nortech currently has seven manufacturing sites and design centers in the United States, Latin America and Asia. Nortech Systems is listed on the NASDAQ Stock Market under the symbol NSYS. The Nortech website is www.nortechsys.com.

Forward-looking statements This press release contains forward-looking statements made pursuant to the disclaimer of the Private Securities Litigation Reform Act of 1995. Although 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-leaseback transaction in the third quarter of the Company’s fiscal year 2020 and that the Company will gain operational efficiencies from plant consolidations. Important factors that could cause actual results to differ materially from forward-looking statements include, but are not limited to: volatility in market conditions which may affect market supply 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 labor availability; volatility in commodity and energy prices; general economic, financial and business conditions that may affect the Company’s financial condition and results of operations; as well as the risk factors listed from time to time in the company’s filings with the SEC.

Condensed Consolidated Statements of Earnings

(in thousands, except for sharing data)

THREE MONTHS ENDED

SIX MONTHS ENDED

June 30th,

June 30th,

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

%

Functionnary costs

Selling fees

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

Operating income (loss)

49

(1,209

)

440

(1,313

)

Interest charges

(176

)

(279

)

(400

)

(524

)

Profit (loss) before income taxes

(127

)

(1,488

)

40

(1,837

)

Income tax expense (benefits)

(4

)

64

26

78

Net profit (net loss)

$

(123

)

$

(1,552

)

$

14

$

(1,915

)

Earnings (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 30th,

The 31st of December,

2020

2019

Unaudited

Checked

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

Real estate and other long-term assets

13,817

14,408

Goodwill and other long-lived 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

Equity

20,023

19,976

Total Liabilities and Equity

$

61,078

$

61,410

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