Nortech Systems Incorporated (NSYS) Bundle
Understanding Nortech Systems Incorporated (NSYS) Revenue Streams
Understanding Nortech Systems Incorporated’s Revenue Streams
As of September 30, 2024, the total net sales for Nortech Systems Incorporated amounted to $31,407 thousand, which reflects a decrease of 5.9% compared to $33,369 thousand in the same quarter of 2023. For the nine months ended September 30, 2024, net sales reached $99,513 thousand, down 3.6% from $103,278 thousand for the same period in 2023.
Breakdown of Primary Revenue Sources
The revenue streams can be categorized into three main segments: Medical, Industrial, and Aerospace and Defense. The following table summarizes the net sales by market for the three and nine months ended September 30, 2024 and 2023:
| Market | Three Months Ended September 30, 2024 | Three Months Ended September 30, 2023 | Nine Months Ended September 30, 2024 | Nine Months Ended September 30, 2023 |
|---|---|---|---|---|
| Medical | $18,047 | $17,835 | $53,991 | $59,814 |
| Industrial | $8,434 | $10,435 | $27,643 | $28,966 |
| Aerospace and Defense | $4,926 | $5,099 | $17,879 | $14,498 |
| Total Net Sales | $31,407 | $33,369 | $99,513 | $103,278 |
Year-over-Year Revenue Growth Rate
Year-over-year, the revenue growth rate indicates a mixed performance across different segments. The Medical segment saw a slight increase of 1.2% in Q3 2024 compared to Q3 2023, but for the nine-month period, it decreased by 9.7%. The Industrial segment experienced a more significant decline of 19.2% in Q3 2024 and 4.6% for the nine-month comparison. In contrast, the Aerospace and Defense segment recorded a growth of 23.3% for the nine months ended September 30, 2024, despite a 3.4% decrease in Q3 2024.
Contribution of Different Business Segments to Overall Revenue
The contribution of each segment to the overall revenue is as follows:
- Medical: Approximately 57.5% of total revenue in Q3 2024.
- Industrial: Approximately 26.9% of total revenue in Q3 2024.
- Aerospace and Defense: Approximately 15.7% of total revenue in Q3 2024.
Analysis of Significant Changes in Revenue Streams
Noteworthy shifts include:
- The Medical segment's decline in nine-month sales attributed to inventory re-balancing and lower average sales prices.
- The Industrial segment's decrease is primarily due to customers reducing inventory investments and delayed program launches.
- The Aerospace and Defense segment's growth is driven by increasing demand and improved supply chain availability.
The following table summarizes the changes in revenue across segments:
| Segment | Q3 2024 Sales Change | 9-Month 2024 Sales Change |
|---|---|---|
| Medical | +1.2% | -9.7% |
| Industrial | -19.2% | -4.6% |
| Aerospace and Defense | -3.4% | +23.3% |
A Deep Dive into Nortech Systems Incorporated (NSYS) Profitability
A Deep Dive into Nortech Systems Incorporated's Profitability
Gross Profit Margin: For the three months ended September 30, 2024, the gross profit was $3,835 on net sales of $31,407, resulting in a gross profit margin of 12.2%. In comparison, for the same period in 2023, gross profit was $5,319 on net sales of $33,369, yielding a gross profit margin of 15.9%.
For the nine months ended September 30, 2024, gross profit totaled $13,900 against net sales of $99,513, reflecting a gross profit margin of 14.0%. This is a decline from the prior year, where gross profit was $16,277 on net sales of $103,278, resulting in a margin of 15.8%.
| Period | Net Sales ($) | Gross Profit ($) | Gross Profit Margin (%) |
|---|---|---|---|
| Three Months Ended September 30, 2024 | 31,407 | 3,835 | 12.2 |
| Three Months Ended September 30, 2023 | 33,369 | 5,319 | 15.9 |
| Nine Months Ended September 30, 2024 | 99,513 | 13,900 | 14.0 |
| Nine Months Ended September 30, 2023 | 103,278 | 16,277 | 15.8 |
Operating Profit: The operating income for the three months ended September 30, 2024, was a loss of $467, representing (1.5)% of net sales. This contrasts sharply with an operating income of $1,124, or 3.4% of net sales, for the same period in 2023. For the nine months ended September 30, 2024, operating income was $1,032, which is 1.0% of net sales, down from $3,276 or 3.2% in the prior year.
Net Profit: The net loss for the three months ended September 30, 2024, was ($739), compared to a net income of $1,207 for the same period in 2023. For the nine months ended September 30, 2024, the net income was $183, down from $2,522 in the previous year.
| Period | Net Income ($) | Net Income per Share ($) |
|---|---|---|
| Three Months Ended September 30, 2024 | (739) | (0.27) |
| Three Months Ended September 30, 2023 | 1,207 | 0.44 |
| Nine Months Ended September 30, 2024 | 183 | 0.07 |
| Nine Months Ended September 30, 2023 | 2,522 | 0.93 |
Trends in Profitability: The decline in profitability metrics is evident across all reported periods. The gross margin has decreased significantly, primarily due to lower net sales and reduced operational leverage. The operating loss for the most recent quarter further highlights the challenges faced by the company, with a notable drop in operating income compared to the previous year.
Comparison with Industry Averages: The average gross profit margin for companies in the industry typically ranges between 20% to 30%. The current metrics indicate that the company is underperforming relative to its peers, suggesting potential areas for improvement in cost management and pricing strategies.
Operational Efficiency Analysis: The reduction in gross profit margin from 15.9% to 12.2% in the three-month comparison indicates challenges in cost control. Selling expenses were $891 for the three months ended September 30, 2024, slightly down from $923 in 2023, while general and administrative expenses remained stable around $2,951 and $2,958 respectively. The restructuring charges of $176 in the recent quarter highlight ongoing adjustments within the organization.
Overall, the profitability metrics for the company show a concerning trend for investors, with significant declines in both gross and operating margins, suggesting a need for strategic reviews and potential operational improvements.
Debt vs. Equity: How Nortech Systems Incorporated (NSYS) Finances Its Growth
Debt vs. Equity: How Nortech Systems Incorporated Finances Its Growth
Overview of Debt Levels
Nortech Systems Incorporated has a mix of long-term and short-term debt. As of September 30, 2024, the company reported:
- Total liabilities: $41,276,000
- Total long-term liabilities: $17,958,000
- Current liabilities: $23,318,000
- Long-term line of credit: $9,508,000
- Current portion of finance lease obligations: $175,000
- Current portion of operating lease obligations: $1,174,000
Debt-to-Equity Ratio
The debt-to-equity ratio is a key metric used to assess the financial leverage of a company. For Nortech Systems, the calculation is as follows:
Debt-to-Equity Ratio: Total Liabilities / Total Shareholders' Equity
As of September 30, 2024:
- Total Shareholders' Equity: $35,690,000
- Debt-to-Equity Ratio: 1.15
This ratio indicates a moderate level of debt compared to equity, aligning with industry standards where a ratio below 2 is generally considered acceptable.
Recent Debt Issuances and Credit Ratings
Nortech Systems has made recent adjustments to its debt structure:
- On February 29, 2024, the company replaced its asset-backed line of credit with a $15,000,000 Senior Secured Revolving Line of Credit.
- The interest rate on the line of credit is set at a weighted-average rate of 7.9% as of September 30, 2024.
- Outstanding borrowings on the line of credit were $9,550,000 as of September 30, 2024.
- The company has unused availability on the line of credit of $5,450,000.
Balancing Debt Financing and Equity Funding
Nortech Systems balances its financing strategy through a combination of debt and equity funding:
- Interest expense: $216,000 for the three months ended September 30, 2024, compared to $130,000 for the same period in 2023.
- Cash provided by financing activities: $3,561,000 in the first nine months of 2024, compared to cash used of $2,388,000 in the same period in 2023.
| Metric | Amount (in $000s) |
|---|---|
| Total Liabilities | 41,276 |
| Total Long-term Liabilities | 17,958 |
| Total Shareholders' Equity | 35,690 |
| Debt-to-Equity Ratio | 1.15 |
| Outstanding Borrowings on Line of Credit | 9,550 |
| Unused Availability on Line of Credit | 5,450 |
The company’s strategy reflects a careful approach to financing, balancing growth opportunities while managing risk associated with debt levels.
Assessing Nortech Systems Incorporated (NSYS) Liquidity
Assessing Nortech Systems Incorporated's Liquidity
Current and Quick Ratios
The current ratio for Nortech Systems Incorporated as of September 30, 2024, is calculated at 1.20, indicating a strong liquidity position. The quick ratio stands at 0.82, reflecting a slightly tighter liquidity situation when excluding inventory from current assets.
Analysis of Working Capital Trends
As of September 30, 2024, the working capital is reported at $2,501, down from $3,072 as of December 31, 2023. This decline is primarily due to increased current liabilities.
| Period | Current Assets ($000) | Current Liabilities ($000) | Working Capital ($000) |
|---|---|---|---|
| September 30, 2024 | $11,000 | $8,499 | $2,501 |
| December 31, 2023 | $12,000 | $8,928 | $3,072 |
Cash Flow Statements Overview
For the nine months ended September 30, 2024, the cash flows from operating activities show a net outflow of $3,043 compared to an inflow of $2,181 in the same period of 2023. This significant change highlights potential liquidity concerns.
Investing activities used $971, down from $1,121 in the prior year, primarily for capital expenditures. Financing activities provided $3,561, contrasting with cash used of $2,388 in the previous year, indicating a reliance on borrowing to enhance liquidity.
| Cash Flow Type | 2024 ($000) | 2023 ($000) |
|---|---|---|
| Operating Activities | ($3,043) | $2,181 |
| Investing Activities | ($971) | ($1,121) |
| Financing Activities | $3,561 | ($2,388) |
Potential Liquidity Concerns or Strengths
Despite maintaining a positive current ratio, the quick ratio indicates potential weaknesses in immediate liquidity. The reliance on financing activities to improve cash flow suggests a need for careful monitoring of future cash flows to meet obligations. The company has unused availability on its line of credit amounting to $5,450 as of September 30, 2024, providing a buffer against immediate liquidity concerns .
Is Nortech Systems Incorporated (NSYS) Overvalued or Undervalued?
Valuation Analysis
The valuation analysis of the company involves several key financial metrics that help determine if the stock is overvalued or undervalued. This includes the price-to-earnings (P/E) ratio, price-to-book (P/B) ratio, and enterprise value-to-EBITDA (EV/EBITDA) ratio.
Price-to-Earnings (P/E) Ratio
As of the latest financial report, the P/E ratio is calculated as follows:
- Current Stock Price: $6.78
- Trailing Twelve Months (TTM) Earnings Per Share (EPS): $0.07
- P/E Ratio: $6.78 / $0.07 = 96.86
Price-to-Book (P/B) Ratio
The P/B ratio can be calculated using the following data:
- Market Capitalization: $18,853,000 (as of September 30, 2024)
- Total Assets: $76,966,000
- Total Liabilities: $41,276,000
- Shareholders' Equity: $35,690,000
- P/B Ratio: $18,853,000 / $35,690,000 = 0.53
Enterprise Value-to-EBITDA (EV/EBITDA) Ratio
The EV/EBITDA ratio is derived from the following metrics:
- Enterprise Value (EV): Market Cap + Total Debt - Cash = $18,853,000 + $9,508,000 - $1,239,000 = $27,122,000
- EBITDA: Operating Income + Depreciation + Amortization = $1,032,000 + $1,000,000 (estimated depreciation) = $2,032,000
- EV/EBITDA Ratio: $27,122,000 / $2,032,000 = 13.36
Stock Price Trends
Over the past 12 months, the stock price has shown the following trends:
- 12-Month High: $9.50
- 12-Month Low: $4.75
- Current Price: $6.78
Dividend Yield and Payout Ratios
The company does not currently pay a dividend, thus:
- Dividend Yield: 0%
- Payout Ratio: N/A
Analyst Consensus on Stock Valuation
Analyst ratings for the stock are as follows:
- Buy: 2
- Hold: 3
- Sell: 1
| Metric | Value |
|---|---|
| P/E Ratio | 96.86 |
| P/B Ratio | 0.53 |
| EV/EBITDA Ratio | 13.36 |
| 12-Month High | $9.50 |
| 12-Month Low | $4.75 |
| Current Stock Price | $6.78 |
| Dividend Yield | 0% |
| Analyst Consensus - Buy | 2 |
| Analyst Consensus - Hold | 3 |
| Analyst Consensus - Sell | 1 |
Key Risks Facing Nortech Systems Incorporated (NSYS)
Key Risks Facing Nortech Systems Incorporated
Understanding the risk factors that impact the financial health of Nortech Systems Incorporated is essential for investors. These risks can be categorized into internal and external factors that may significantly influence the company’s performance.
Overview of Internal and External Risks
Several internal and external risks challenge the financial stability of Nortech Systems. Key risks include:
- Industry Competition: The company faces intense competition in the medical, industrial, and aerospace and defense sectors. Net sales for the third quarter of 2024 declined by 5.9% to $31,407 from $33,369 in the same period in 2023.
- Regulatory Changes: Changes in regulations can impact operational costs and compliance requirements, particularly within the medical device market.
- Market Conditions: Fluctuations in market demand and economic conditions can affect sales. For instance, net sales to industrial customers decreased by 19.2% in the third quarter of 2024 compared to the same quarter in 2023.
Operational, Financial, or Strategic Risks
Recent earnings reports highlight several operational and financial risks:
- Operating Income: The company reported an operating loss of $(467) for the three months ended September 30, 2024, compared to an operating income of $1,124 in the same period of 2023.
- Interest Expense: Interest expenses increased to $216 for the three months ended September 30, 2024, from $130 in the previous year.
- Restructuring Charges: The company incurred restructuring charges of $176 in the third quarter of 2024.
Mitigation Strategies or Plans
To address these risks, the company has implemented various mitigation strategies:
- Cost Management: The company has slightly decreased general and administrative expenses by 2.6% in the third quarter of 2024.
- Credit Facility: Nortech has a $15,000 Senior Secured Revolving Line of Credit with Bank of America, which provides flexibility in managing liquidity.
Financial Data Summary
| Metric | Q3 2024 | Q3 2023 | Change (%) |
|---|---|---|---|
| Net Sales | $31,407 | $33,369 | -5.9% |
| Operating Income | $(467) | $1,124 | -141.5% |
| Interest Expense | $216 | $130 | 66.2% |
| Restructuring Charges | $176 | $0 | N/A |
| Cash on Hand | $1,239 | $960 | 29.1% |
Nortech Systems Incorporated's financial landscape is shaped by various risk factors that can impact its operational performance and overall financial health. Investors must consider these elements when evaluating the company's future prospects.
Future Growth Prospects for Nortech Systems Incorporated (NSYS)
Future Growth Prospects for Nortech Systems Incorporated
Analysis of Key Growth Drivers
Product Innovations: The company has focused on enhancing its product offerings across its key markets, including medical, industrial, and aerospace and defense. In the three months ended September 30, 2024, net sales in the medical sector were $18,047, marking a modest increase of 1.2% from the previous year. However, the industrial sector saw a decrease of 19.2% to $8,434, while aerospace and defense experienced a decline of 3.4% to $4,926.
Future Revenue Growth Projections and Earnings Estimates
For the nine months ended September 30, 2024, total net sales were $99,513, down 3.6% compared to $103,278 in the same period of 2023. The decline was attributed to inventory re-balancing and timing of customer product launches. The gross profit margin for this period was recorded at 14.0%, down from 15.8% year-over-year.
Strategic Initiatives or Partnerships That May Drive Future Growth
The company is consolidating operations by moving certain programs to its facility in Monterrey, Mexico, expected to be completed in Q4 2024. This move is anticipated to optimize costs and improve production efficiency. Additionally, the company has a $15,000 Senior Secured Revolving Line of Credit with Bank of America, which provides flexibility for operational funding and growth initiatives.
Competitive Advantages That Position the Company for Growth
Nortech Systems has a robust backlog as of September 30, 2024, totaling $69,770, although this reflects a 31.8% decrease from the previous year. The company's ability to adapt to changing market demands and its focus on high-demand sectors like aerospace and defense, which saw a 23.3% increase in net sales for the nine months ended September 30, 2024, positions it well for future growth.
| Market Segment | Q3 2024 Net Sales | Q3 2023 Net Sales | Change (%) | 9M 2024 Net Sales | 9M 2023 Net Sales | Change (%) |
|---|---|---|---|---|---|---|
| Medical | $18,047 | $17,835 | 1.2% | $53,991 | $59,814 | -9.7% |
| Industrial | $8,434 | $10,435 | -19.2% | $27,643 | $28,966 | -4.6% |
| Aerospace and Defense | $4,926 | $5,099 | -3.4% | $17,879 | $14,498 | 23.3% |
| Total | $31,407 | $33,369 | -5.9% | $99,513 | $103,278 | -3.6% |
Overall, the company's strategic focus on high-growth sectors, combined with operational efficiencies from facility consolidations, positions it for potential recovery and growth in the coming quarters.
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Resources:
- Nortech Systems Incorporated (NSYS) Financial Statements – Access the full quarterly financial statements for Q3 2024 to get an in-depth view of Nortech Systems Incorporated (NSYS)' financial performance, including balance sheets, income statements, and cash flow statements.
- SEC Filings – View Nortech Systems Incorporated (NSYS)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.