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NS

NORTECH SYSTEMS INC (NSYS)·Q2 2025 Earnings Summary

Executive Summary

  • Q2 delivered a clean inflection: revenue of $30.7M, diluted EPS $0.12, and positive EBITDA $1.07M; gross margin expanded to 15.8% on better plant utilization and manufacturing efficiency, despite a 9.5% YoY revenue decline .
  • Backlog strengthened: 90-day backlog was $26.6M and total customer backlog rose approximately $10M sequentially to $78.4M, signaling demand stabilization and improved order momentum in Aerospace & Defense as transfer approvals progressed .
  • No formal quantitative guidance; management is cautiously optimistic, citing nearshoring advantages in Mexico/China, backlog momentum, and advancing fiber-optic IP (EBX, AOX) as growth drivers .
  • Wall Street consensus (S&P Global) was not available for EPS or revenue; investors should anchor on the operational turnaround and margin trajectory rather than a beat/miss framing (S&P Global consensus unavailable).
  • Near-term catalysts: continued margin expansion from higher utilization, clearing remaining A&D approvals, inventory reduction driving cash conversion, and fiber-optic program ramps; sale of Blue Earth facility post-quarter further lowers ongoing opex .

What Went Well and What Went Wrong

  • What Went Well

    • Margin and profitability inflection: gross margin rose to 15.8% (from 13.6% YoY and 11.1% in Q1), EBITDA turned positive to $1.07M; management cited increased plant utilization and improved manufacturing productivity .
    • Backlog and demand momentum: 90-day backlog $26.6M; total backlog up ~$10M q/q to $78.4M, aided by progress on customer approvals for transferred A&D programs .
    • Operational execution and cost actions: restructuring, improved utilization across transferred programs, and sale of the Blue Earth facility reduced ongoing operating costs; CEO: “near‑term evidence that our restructuring efforts and cost discipline are paying off” .

  • What Went Wrong

    • Revenue still down YoY: net sales declined 9.5% YoY to $30.7M on lingering impacts from A&D program transfers and earlier customer inventory normalization in medical and industrial .
    • Working capital and cash flow: operating cash flow was negative for 1H ($-2.77M), with low quarter-end cash ($0.65M) and line-of-credit borrowings aggregating ~$11.6M; management plans further inventory reductions in 2H25 .
    • Ongoing execution lift: while much improved, manufacturing/plant utilization inefficiencies related to production moves and timing of customer shipments continued to weigh on overall revenue levels vs prior year .

Financial Results

Quarterly progression (oldest → newest)

MetricQ4 2024Q1 2025Q2 2025
Revenue ($USD Millions)$28.620 $26.895 $30.675
Gross Profit ($USD Millions)$2.822 $3.078 $4.837
Gross Margin %9.9% 11.1% 15.8%
EBITDA ($USD Millions)($0.889) ($1.266) $1.073
Adjusted EBITDA ($USD Millions)($0.585) ($1.000) $1.073
Diluted EPS ($)($0.54) ($0.48) $0.12
90-day Backlog ($USD Millions)$26.5 $26.7 $26.6

Year-over-year comparables

MetricQ2 2024Q2 2025
Revenue ($USD Millions)$33.891 $30.675
Net Income ($USD Millions)$0.157 $0.313
Diluted EPS ($)$0.05 $0.12
Gross Profit ($USD Millions)$4.617 $4.837
Gross Margin %13.6% 15.8%
EBITDA ($USD Millions)$0.828 $1.073
Adjusted EBITDA ($USD Millions)$0.919 $1.073
  • Segment breakdown: Not disclosed in the Q2 release/8‑K/call; no segment revenue table provided .

KPIs and other items

KPIQ2 2025Commentary
Total Customer Backlog ($M)~$78.4 (end of Q2) Up ~+$10M from 3/31/25; indicator of recovering demand/approvals
LTM Adjusted EBITDA ($M)($0.4) Reflects prior-year demand headwinds and 2024 transition costs
Cash ($M)$0.652 Low cash; financing via revolver (~$11.6M)
YTD Operating Cash Flow ($M)($2.773) Planned inventory reductions expected to aid 2H25 cash

Non‑GAAP adjustments

  • Q2’25: No material adjustments; Adjusted EBITDA equals EBITDA .
  • Q1’25: $266k restructuring related to headcount and Blue Earth closure (excluded from Adj. EBITDA) .
  • Q2’24: $91k Blue Earth-related retention/other excluded from Adj. EBITDA .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Revenue/Margins/OpEx/Other2H 2025 / FY 2025NoneNo formal quantitative guidance; mgmt “cautiously optimistic,” citing nearshoring advantages, backlog momentum, and improving utilization Maintained (no formal guidance)
A&D Program Transfers2H 2025Majority approvals expected by Q2’25 (prior commentary) Significant headway achieved; expect normalization of A&D business in 2025 Improved execution narrative

Earnings Call Themes & Trends

TopicQ4 2024 (Q-2)Q1 2025 (Q-1)Q2 2025 (Current)Trend
Tariffs / NearshoringMaquiladora structure reduces direct Mexico tariff exposure; China exposure mainly piece parts; nearshoring strategy emphasized Same themes; customers evaluating supply chains; positioned across US/Mexico/China Cautiously optimistic; media highlighting Mexico advantage; strong nearshoring positioning Improving opportunity set
Blue Earth → Bemidji transfer approvalsA&D revenue impacted; approvals needed; expected recovery in 2H25 Approval clearing expected by end of Q2 Significant headway on approvals; A&D to normalize in 2025; Blue Earth facility sold in July Executing/clearing
Plant utilization & gross marginLower utilization drove margins down (Q4 GP% 9.9%) Margins 11.1% amid inefficiencies; improvement expected Margins 15.8% on increased utilization and productivity Positive inflection
Inventory & cash flowInventory built for transfer; plan to reduce in 2025 Purposeful inventory reduction; OCF ($2.9M) in Q1 Further raw reduction and finished goods for stocking; YTD OCF ($2.77M) Working down inventories
Fiber-optic IP (EBX, AOX)EBX/AOX highlighted as strategic differentiators Continued emphasis; aligns with sustainability and performance Reiterated; aligns with A&D growth; predictive diagnostics vision Consistent strategic pillar
AI enablementSet up as internal/process improvement and product data opportunity “Clear opportunity” to streamline and serve customers; more to come “You’ll hear more” in future calls; enabling better data pipelines Early-stage, building

Management Commentary

  • CEO (press release): “Despite lower revenues compared with the second quarter of 2024, we delivered improved earnings and a positive EBITDA this quarter—near-term evidence that our restructuring efforts and cost discipline are paying off.”
  • CEO (press release): “Importantly, we’re growing our order backlog at a time when many manufacturers are seeing theirs decline... positions us well for continued growth.”
  • CFO: “Gross profit totaled $4.8M or 15.8% of net sales... result of increased facility utilization and increased manufacturing productivity.”
  • CEO (call): “Our position in the nearshoring landscape—both in Mexico and China—is strong... Mexico holds a strategic advantage in today’s tariff environment.”

Q&A Highlights

  • No analyst questions were received during the Q2 call; management reiterated optimism and looks to update progress with Q3 results in November .

Estimates Context

  • Wall Street consensus from S&P Global for Q2 2025 EPS and revenue was not available for NSYS at the time of this report (no EPS/revenue consensus or estimate counts returned). Investors should not infer a beat/miss vs. Street for this quarter (Values retrieved from S&P Global).
  • Implication: Estimate models, where they exist, will likely raise margins (GM%/EBITDA) and back half revenue cadence given backlog improvement and approval progress, but absolute revenue levels remain sensitive to customer shipment timing and A&D ramps .

Key Takeaways for Investors

  • Margin inflection underway: gross margin at 15.8% with positive EBITDA reflects rising utilization and mfg productivity; watch for continued improvement as transferred programs normalize .
  • Demand/backlog tailwinds: +$10M q/q backlog increase to ~$78.4M and steady 90-day backlog suggest improving execution and A&D recovery into 2H25 .
  • Cash conversion is next: inventory reductions are a stated priority; monitor operating cash flow and revolver usage as working capital normalizes .
  • Strategic positioning: nearshoring in Mexico/China and fiber-optic IP (EBX/AOX) align with A&D and connected-device trends; potential medium-term mix/ASP benefits .
  • Risk checks: customer approval timing, macro/tariff uncertainty, and utilization execution remain key sensitivities; low cash ($0.65M) highlights reliance on revolver while cash generation improves .
  • Trading lens: stock could respond to evidence of sustained GM% >15% and sequential EBITDA gains, backlog conversion to shipments, and updates on A&D ramps or notable fiber-optic program wins .

Appendix: Additional Data Points

  • Q2 2025 summary financials: Net sales $30.675M; Net income $0.313M; Diluted EPS $0.12; EBITDA $1.073M; Adjusted EBITDA $1.073M .
  • YoY comps: Net sales down 9.5% vs Q2’24; gross profit up modestly; gross margin +220 bps YoY to 15.8%; Adjusted EBITDA +$0.15M .
  • Non-GAAP notes: No material Q2 adjustments; Q1 included $266k restructuring; Q2’24 included $91k Blue Earth-related costs .