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NS

NORTECH SYSTEMS INC (NSYS)·Q3 2025 Earnings Summary

Executive Summary

  • Q3 2025 revenue was $30.5M, down 2.9% year over year; gross margin expanded to 16.5% on improved utilization and productivity, while adjusted EBITDA rose sharply to $1.3M; GAAP net loss was $(0.05) per share driven by an unusual tax expense despite positive pre‑tax income .
  • Medical Imaging grew $0.8M YoY, while Aerospace & Defense declined $1.4M YoY due to prior transfer timing and customer approvals; management emphasized backlog strength with total customer backlog of $77.3M and 90‑day backlog of $31.3M .
  • Operational milestones: Monterrey facility achieved AS9100:D certification and the company completed CMMC 2.0, bolstering aerospace/defense and DoD credibility; management reiterated nearshoring positioning and tariff pass‑through capabilities under its maquiladora structure .
  • No formal quantitative guidance was issued; focus areas include inventory reduction, a new asset‑backed line of credit targeted for early 2026, and sustained EBITDA improvement via manufacturing efficiencies .
  • Street consensus estimates for Q3 2025 EPS and revenue were not available via S&P Global; comparisons to estimates cannot be made at this time (Values retrieved from S&P Global)*.

What Went Well and What Went Wrong

What Went Well

  • Gross margin expanded to 16.5% (vs. ~12% YoY), driven by increased facility utilization, productivity, and reporting realignment of customer‑facing managers; adjusted EBITDA improved to $1.3M from $0.1M YoY .
  • Backlog conditions strengthened: total customer backlog was $77.3M, consistent with Q2 levels, indicating a stabilizing demand environment and shorter lead times for select programs; 90‑day backlog was $31.3M vs. $29.6M YoY .
  • Strategic/regulatory progress: AS9100:D certification (Monterrey) and CMMC 2.0 completion enhance competitiveness in aerospace/defense and government work; “a significant milestone…a direct reflection of our team’s dedication to quality and operational excellence” (Jay Miller) .

What Went Wrong

  • Net sales declined 2.9% YoY to $30.5M, with Aerospace & Defense down $1.4M YoY due to prior transfer timing and delayed defense approvals; GAAP net loss of $(146)k despite pre‑tax income of $672k because of a high tax expense in the quarter .
  • Working capital intensity remained elevated: accounts receivable rose to $18.8M and contract assets to $15.3M, even as inventories decreased to $18.4M, contributing to YTD operating cash outflow of $(2.9)M .
  • Tariff/geopolitical uncertainty persists; although direct exposure is mitigated by the maquiladora structure, imported component tariffs can pressure costs and require pass‑throughs to customers .

Financial Results

Quarterly Trend (2025 YTD)

MetricQ1 2025Q2 2025Q3 2025
Revenue ($USD Millions)$26.9 $30.7 $30.5
Gross Profit ($USD Millions)$3.1 $4.8 $5.0
Gross Margin (%)11.1% 15.8% 16.5%
Operating Income ($USD Millions)$(1.6) $0.7 $0.9
Net Income ($USD Millions)$(1.3) $0.3 $(0.1)
Diluted EPS ($USD)$(0.48) $0.12 $(0.05)
EBITDA ($USD Millions)$(1.3) $1.1 $1.3
Adjusted EBITDA ($USD Millions)$(1.0) $1.1 $1.3

Year-over-Year and Estimate Comparison (Q3)

MetricQ3 2024Q3 2025Consensus Q3 2025
Revenue ($USD Millions)$31.4 $30.5 N/A*
Gross Profit ($USD Millions)$3.8 $5.0 N/A*
Gross Margin (%)12.2% 16.5% N/A*
Net Income ($USD Millions)$(0.7) $(0.1) N/A*
Diluted EPS ($USD)$(0.27) $(0.05) N/A*
EBITDA ($USD Millions)$(0.03) $1.25 N/A*
Adjusted EBITDA ($USD Millions)$0.14 $1.25 N/A*

Values retrieved from S&P Global*.

Segment Dynamics (YoY delta in Q3 2025)

SegmentYoY Change ($USD Millions)Notes
Aerospace & Defense$(1.4) Prior transfer timing and delayed approvals
Medical Imaging+$0.8 Benefits from program transfers and efficiencies

KPIs

KPIQ3 2025Reference
90‑Day Backlog ($USD Millions)$31.3
Total Customer Backlog ($USD Millions)$77.3
YTD Operating Cash Flow ($USD Millions)$(2.9)
Cash ($USD Millions)$1.3
Accounts Receivable ($USD Millions)$18.8
Inventories ($USD Millions)$18.4
Contract Assets ($USD Millions)$15.3

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
RevenueFY/Q4 2025None providedNone providedMaintained (no formal guidance)
MarginsFY/Q4 2025None providedNone providedMaintained (no formal guidance)
OpExFY/Q4 2025None providedContinued cost disciplineQualitative emphasis
FinancingEarly 2026None providedTarget new asset‑backed line of creditNew strategic objective
Tax RateFY 2025N/AHigher effective rate impact from R&D expensing/GILTI mechanics; optimization ongoingUpdate/context (no numeric guide)

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 & Q2)Current Period (Q3)Trend
Nearshoring & TariffsMaquiladora structure reduces direct tariff exposure; pass‑through of component tariffs; opportunities in USMCA and China in‑country manufacturing Reiterated limited direct exposure; continued proactive monitoring and customer pass‑throughs Stable, cautiously positive
Manufacturing EfficiencyTransfers causing short‑term inefficiencies; improving utilization and productivity Efficiency gains drove margin expansion and EBITDA improvement Improving
Regulatory CertificationsDoD security investments planned AS9100:D achieved (Monterrey); CMMC 2.0 completed Positive step‑change
Fiber Optic R&D (EBX/AOX)Highlighted EBX/AOX and sustainability benefits Continued emphasis; AI to enhance internal productivity and processes Building momentum
Backlog & DemandBacklog stabilized; approvals pending in A&D Backlog $77.3M; shorter lead times and near real‑time shipments for select programs Stable to improving
Aerospace & DefenseDelays from Blue Earth to Bemidji transfers YoY decline in Q3, but approvals regained; positioning for fiber‑based rugged solutions Recovering mix shift

Management Commentary

  • “Nortech’s third quarter results reflect continued evidence our restructuring efforts combined with cost discipline are paying off… increased manufacturing efficiencies… positive shift from first builds to recurring production” — Jay D. Miller .
  • “Our Monterrey, Mexico facility achieving AS9100:D certification… enhances our service offerings… well positioned to leverage our operational performance in the current nearshoring landscape” — Jay D. Miller .
  • “Gross profit totaled $5 million or 16.5% of net sales… the increase… was the result of increased facility utilization, increased manufacturing productivity, and a change in the reporting structure” — Andrew LaFrence .
  • “Income tax expense… was $818,000… pre‑tax income of $672,000… more than offset with income tax expense resulting in a net loss” — Andrew LaFrence .
  • “We are extremely focused on continuing to strengthen our balance sheet… reduce our inventory investments… close a new asset‑backed line of credit in early 2026” — Andrew LaFrence .

Q&A Highlights

  • No analyst questions were asked; the call concluded without a Q&A session .
  • No additional clarifications beyond prepared remarks could be probed due to absent Q&A .

Estimates Context

  • Street consensus for Q3 2025 EPS and revenue was not available via S&P Global; only actual revenue was populated. We therefore cannot assess beat/miss versus consensus this quarter (Values retrieved from S&P Global)*.
MetricQ3 2025 ConsensusAvailability
Primary EPS Consensus MeanN/A*Unavailable*
Revenue Consensus MeanN/A*Unavailable*

Values retrieved from S&P Global*.

Key Takeaways for Investors

  • Margin and EBITDA inflection: Despite modest revenue decline, gross margin expanded to 16.5% and adjusted EBITDA improved markedly, validating restructuring and efficiency gains — a key narrative driver going into Q4 .
  • Tax distortion in EPS: Elevated tax expense (R&D expensing/GILTI effects) produced a GAAP net loss despite positive pre‑tax income; monitor Q4 tax elections/optimization for EPS normalization .
  • Backlog resilience: Total backlog ($77.3M) and 90‑day backlog ($31.3M) support near‑term visibility, with shorter lead times and faster shipment cycles for select programs — positive for revenue cadence and working capital turns if collections improve .
  • Aerospace & Defense mix: Near‑term A&D softness from transfer timing is giving way to a pivot toward ruggedized fiber solutions; AS9100:D and CMMC 2.0 should enable pipeline conversion and pricing discipline .
  • Balance sheet priorities: Continued inventory reduction and a targeted ABL in early 2026 should improve liquidity and financial flexibility; watch operating cash flow trajectory and receivables/contract assets management .
  • Nearshoring positioning: Maquiladora structure mitigates direct tariff exposure; cost pass‑throughs on components and diversified global footprint provide a defensible margin framework amid policy shifts .
  • Trading setup: With consensus unavailable, focus near‑term on operational KPIs (margin, EBITDA, backlog conversion, tax normalization) and regulatory wins as catalysts for sentiment and potential multiple re‑rating .
Note: All financial figures and commentary are sourced from company filings and earnings materials. Where SPGI consensus data was unavailable, this is explicitly noted and values are marked as N/A*. Values retrieved from S&P Global*.