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NS

NORTECH SYSTEMS INC (NSYS)·Q1 2025 Earnings Summary

Executive Summary

  • Q1 2025 was a reset quarter: net sales fell 21.4% year over year to $26.9M and diluted EPS was ($0.48), driven by aerospace & defense program transfer delays and lower facility utilization; adjusted EBITDA swung to a ($1.0)M loss from +$1.6M YoY .
  • Backlog stabilized at $26.7M, roughly flat vs year-end, and management expects the majority of defense customer approvals to be cleared in Q2 2025, setting up sequential improvement into 2H 2025 .
  • Gross margin compressed to 11.1% from 15.9% YoY on lower sales and productivity; restructuring charges of $266K in Q1 tied to Blue Earth consolidation and headcount reductions were excluded from adjusted EBITDA .
  • Strategic narrative continues to pivot toward fiber optics (EBX/AOX), near-shoring, and cost structure optimization—management reiterated confidence in 2H recovery and long-term EBITDA generation .
  • Street consensus appears limited for NSYS; S&P Global showed no usable EPS or revenue consensus for Q1 2025, so estimate comparison is not available (values retrieved from S&P Global).

What Went Well and What Went Wrong

What Went Well

  • Customer backlog stabilized vs year-end with a robust quote pipeline; majority of aerospace/defense approvals expected by Q2 2025, supporting sequential revenue recovery in 2H 2025 .
  • Strategic repositioning continues: footprint consolidation and cost actions implemented; realignment of customer-facing managers to sales function supports go-to-market effectiveness .
  • Clear technology differentiation: EBX smart cables and AOX hybrid fiber optic platforms targeting speed, reliability, EMI immunity, and sustainability in harsh environments; “We see strong opportunities for growth” .

What Went Wrong

  • Revenue fell 21.4% YoY to $26.9M; gross margin dropped to 11.1% due to lower volume, reduced facility utilization, and productivity headwinds, driving adjusted EBITDA to ($1.0)M .
  • Defense transfer delays from Blue Earth to Bemidji persisted into Q1, with headwinds still expected to impact Q2, albeit decreasing; headcount reduction incurred $266K restructuring .
  • Operating cash flow was ($2.9)M vs +$2.8M in Q1 2024, reflecting timing of shipments and payments; inventories targeted for further reduction in 2025 by “several million dollars” .

Financial Results

Quarterly Trend (oldest → newest)

MetricQ3 2024Q4 2024Q1 2025
Revenue ($USD Millions)$31.4 $28.6 $26.9
Net (Loss) Income ($USD Millions)($0.739) ($1.478) ($1.316)
Diluted EPS ($USD)($0.27) ($0.54) ($0.48)
Gross Profit ($USD Millions)$3.835 $2.822 $3.078
Gross Margin (%)12.2% 9.9% 11.1%
Operating Income ($USD Millions)($0.467) ($1.227) ($1.613)
EBITDA ($USD Millions)($0.033) ($0.889) ($1.266)
Adjusted EBITDA ($USD Millions)$0.143 ($0.585) ($1.000)
90-Day Backlog ($USD Millions)$29.6 $26.5 $26.7

Year-over-Year Comparison (Q1)

MetricQ1 2024Q1 2025YoY Change
Revenue ($USD Millions)$34.2 $26.9 (21.4%)
Gross Profit ($USD Millions)$5.448 $3.078 (43.5%)
Operating Expenses ($USD Millions)$4.293 $4.691 +9.3%
Net (Loss) Income ($USD Millions)$0.765 ($1.316) (272.0%)
EBITDA ($USD Millions)$1.637 ($1.266) (177.3%)
Adjusted EBITDA ($USD Millions)$1.637 ($1.000) (161.1%)
Gross Margin (%)15.9% 11.1% (480 bps)

Segment breakdown: Not disclosed in Q1 2025 8-K/press materials .

KPIs

  • Operating Cash Flow ($USD Millions): ($2.930) vs $2.828 in Q1 2024 .
  • Contract Assets ($USD Millions): $13.4 vs $13.8 at Dec 31, 2024 .
  • Inventories ($USD Millions): $20.9 vs $21.6 at Dec 31, 2024 .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
A&D approval transfersQ2 2025Majority of approvals expected cleared in Q2 2025 Majority of approvals expected cleared in Q2 2025 Maintained
A&D revenue trajectory2H 2025Return to normal in second half of 2025 Return to normal in second half of 2025; decreasing headwinds in Q2 Maintained (with Q2 cadence detail)
Inventory reductionFY 2025Plan to reduce inventories by “several million dollars” in 2025 Plan to reduce inventories by “several million dollars” in 2025 Maintained
Cost savings (Maple Grove lease)FY 2025+≥$1.6M annual savings from 30% space reduction Ongoing cost actions; headcount aligned to sales; $266K restructuring in Q1 Maintained trajectory (incremental restructuring executed)
Formal revenue/EPS/margin guidanceQ1/Q2 2025Not providedNot providedMaintained (none)

No dividend guidance was mentioned -.

Earnings Call Themes & Trends

TopicPrevious Mentions (Q3 2024 and Q4 2024)Current Period (Q1 2025)Trend
Supply chain near-shoringConsolidating footprint; moving Blue Earth to Bemidji; near-shoring focus across US/Mexico/China Continues; backlog stabilizing; majority A&D approvals expected by Q2 Improving visibility into Q2/2H
Tariffs/macroMexico tariff uncertainty; maquiladora limits direct exposure; China “built in-country, for-country” Reiterated positions; monitoring impacts; pricing and sourcing adjustments as needed Stable mitigation stance
Fiber optics (EBX/AOX)Emphasis on EBX and AOX; sustainability benefits vs copper - Deepened narrative; AI-enabled diagnostics and predictive maintenance; aerospace/defense adoption -Strengthening strategic focus
Cost structure optimizationLease reduction ≥$1.6M annual savings; restructuring tied to Blue Earth closure Further headcount alignment; $266K Q1 restructuring; selling expense realignment Continuing execution
A&D program transfer delaysHeadwinds affecting Q4, expected normalization in 2H 2025 Persist in Q1, decreasing in Q2; Bemidji progress highlighted Improving through Q2

Management Commentary

  • “We have successfully transitioned and stabilized our business... These strategic moves are designed to better scale the business, improve efficiency, and reduce our ongoing cost structure.” — Jay D. Miller, CEO .
  • “We continue to anticipate clearing the majority of this approval backlog during the second quarter of 2025.” — Jay D. Miller on defense customer approvals .
  • “We continue to be very bullish on the future of Nortech... carefully making prudent investments to accelerate long-term growth.” — Jay D. Miller .
  • “Adjusted EBITDA was negative $1 million... impacted by delays in aerospace and defense approvals and manufacturing utilization inefficiencies.” — Andrew LaFrence, CFO .
  • “Technology like our EBX smart cables... and AOX hybrid power plus data fiber optic technology... We see strong opportunities for growth.” — Jay D. Miller .

Q&A Highlights

  • No analyst Q&A; the operator reported no questions, and the call concluded after prepared remarks .
  • No additional guidance clarifications beyond prepared remarks .

Estimates Context

  • S&P Global consensus coverage appears limited for NSYS in Q1 2025; EPS consensus and number of estimates were unavailable, and revenue consensus was not provided (values retrieved from S&P Global).
  • Without usable Street benchmarks, we cannot assess beat/miss vs consensus for revenue or EPS; investors should anchor on management’s Q2 approval clearance and 2H normalization narrative .

Key Takeaways for Investors

  • Sequential setup: With A&D approvals expected to clear in Q2 and backlog stable, Q2 should improve, with normalization targeted in 2H—watch shipment cadence and Bemidji execution as near-term catalysts .
  • Margin recovery depends on throughput: GM% fell to 11.1% on low utilization; leverage should return as volumes recover and productivity improves—monitor utilization and mix (especially A&D) .
  • Cost discipline continues: Lease savings (≥$1.6M annually) and Q1 restructuring ($266K) underpin EBITDA recovery; track OpEx mix after realignment and inventory reduction progress (“several million dollars” in 2025) .
  • Strategic differentiation in fiber optics: EBX/AOX and digital diagnostics align with customer trends (speed, EMI immunity, sustainability); look for design wins and adoption in A&D and medical imaging as medium-term value drivers .
  • Tariff mitigation intact: Maquiladora model and China in-country production reduce exposure; pricing/sourcing flexibility supports resilience—macro changes remain a watchpoint .
  • Liquidity/working capital focus: Operating cash flow swung negative; management targets inventory reductions and improved collections—monitor contract assets and cash conversion in Q2/Q3 .
  • Absence of Street estimates increases volatility: Limited coverage means results will be judged against management milestones; clearing Q2 approvals is the key stock reaction catalyst near term .