Nortech Systems (NASDAQ:NSYS) executives highlighted improved profitability metrics, operational execution, and a higher year-end backlog during the company’s fourth-quarter 2025 earnings call, while also discussing a new banking arrangement and the company’s positioning amid nearshoring and tariff uncertainty.
Operational momentum and restructuring benefits
President and CEO Jay Miller said the fourth quarter marked the company’s third consecutive quarter of positive operating and EBITDA results, which he attributed to execution of the company’s strategy and restructuring initiatives carried out in late 2024 and early 2025. Miller said those efforts contributed to a $2.1 million improvement in income from operations in the fourth quarter of 2025 compared with the same quarter of 2024.
On quality, Miller said the company has posted significant improvements in key metrics such as defective parts per million (DPPM) and escapes. He described the company’s quality metrics as “world-class,” particularly in the low-volume, high-mix market.
Backlog rises as customers seek shorter lead times
Management emphasized a higher customer backlog. Miller said backlog increased to $77.3 million at year-end 2025, up 17.4% from the end of 2024, and added that the company continued to see a positive backlog trend during the first quarter of 2026.
Miller said the backlog growth has come alongside customer ordering behavior that includes shorter lead times. He said Nortech implemented just-in-time finished product delivery strategies with several large customers that allow for smaller-quantity orders based on long-term binding forecasts, reducing delivery times for many items from more than 100 days to 20 days or less. He also noted signs of strength among aerospace and defense customers.
Fourth-quarter margins improve; full-year sales decline
Chief Financial Officer Andrew LaFrence said management encourages investors to evaluate performance on a 12-month basis given the potential for quarterly volatility from factors such as seasonal timing, customer shipments, and supply chain issues.
For the full year 2025, LaFrence reported net sales of $118.4 million, down 7.6% from $128.1 million in 2024. Fourth-quarter 2025 net sales were $3.3 million, up 5.9% from $28.6 million in the fourth quarter of 2024.
By market:
- Medical imaging: Net sales increased 6.7%, or $2.5 million, in 2025 compared with 2024, which LaFrence attributed to program transfers and new product introductions. Medical imaging net sales were up $1.4 million in the fourth quarter versus the prior-year quarter.
- Medical device: Net sales increased $2.7 million, or 7.8%, in 2025 compared with 2024, though LaFrence said results were affected by inventory rebalancing, timing of customer product launches, and lower productivity tied to facility consolidation early in 2025. Medical device net sales declined $184,000 in the fourth quarter compared with the prior-year quarter.
- Aerospace and Defense: Net sales declined $5 million in 2025, which LaFrence said reflected increased production in mid-2024 and the anticipation of moving manufacturing from the former Blue Earth facility to the Bemidji facility, as well as delays in certain customer product approvals at the end of 2025. Fourth-quarter Aerospace and Defense net sales increased by $1.1 million year over year, reflecting the impact of the Blue Earth facility closing in 2024.
- Industrial: Net sales fell $4.6 million, or 12.9%, in 2025 due to softened demand, lower customer orders, and certain component shortages. Industrial net sales were down $607,000, or 7.7%, in the fourth quarter compared with the same period in 2024.
LaFrence said gross margin improved to 15.2% in 2025 from 13.1% in 2024. In the fourth quarter, gross profit was $5.1 million, or 16.7% of net sales, compared with $2.8 million, or 9.9% of net sales, in the prior-year quarter. He attributed the improvement to increased facility utilization, higher manufacturing productivity, restructuring impacts, and a change that moved customer managers’ reporting from operations to a sales function, which he said more than offset lower net sales.
Operating expenses for 2025 excluding restructuring charges increased by $419,000 versus 2024, and fourth-quarter operating expenses excluding restructuring charges rose $420,000 year over year, which LaFrence attributed to higher selling expenses tied to the sales-function realignment.
Cash flow, tax items, and leverage
On taxes, LaFrence reported income tax expense of $263,000 for 2025 versus $356,000 in 2024. The fourth quarter posted an income tax benefit of $216,000 compared with an expense of $55,000 in the fourth quarter of 2024; he said the benefit reflected an updated analysis of the “One Big Beautiful Bill Act” signed in the third quarter of 2025.
As of Dec. 31, 2025, cash totaled $1.7 million, up from $916,000 a year earlier. LaFrence said cash fluctuations reflected timing of receipts and expenditures, distributions from Chinese operations, and credit line borrowings that totaled $7 million at quarter-end. Accounts receivable rose to $17.5 million from $14.9 million due largely to shipment timing. Inventories declined to $20.7 million from $21.6 million, reflecting what he called a planned decrease in inventory balances during 2025.
The contract asset balance (revenue earned but not yet billed) increased to $15.2 million from $13.8 million, which LaFrence said reflected shipment timing and a focus on increased production to reduce raw material balances, optimize plant operations, and provide ready-to-ship inventory to reduce lead times.
Net cash provided by operating activities was $2.7 million in 2025, compared with a $2.3 million cash use in 2024. On profitability measures, LaFrence reported adjusted EBITDA of $1.2 million in the fourth quarter of 2025, compared with an $889,000 loss in the prior-year quarter. For the full year, adjusted EBITDA was $2.5 million compared with $2.1 million in 2024.
Financing update, tariffs, and technology focus
Miller said the company entered into new agreements with Associated Bank for a $2.2 million term note and a $15 million asset-backed line of credit. He said management believes the asset-backed structure is more flexible and better aligned with the company’s business model, lowers borrowing costs, and provides a three-year arrangement to support growth.
On tariffs and trade policy, Miller said Nortech is seeing strong quoting activity as customers evaluate nearshore manufacturing strategies across North America and Asia. He highlighted Nortech’s North American footprint, including its Monterrey maquiladora operations and Minnesota facilities operating under USMCA. While noting uncertainty in the tariff environment, including tariffs involving Mexico, Miller said Nortech is not the importer of record into the United States for goods produced in Mexico under its maquiladora structure, which he said materially reduces direct exposure. He added that when tariffs apply to imported components, the company is working with customers to pass through costs, and that management is monitoring a Supreme Court decision related to IEEPA tariffs and any reimbursement process, which he said could be a net positive because some customers have not fully paid Nortech for IEEPA tariffs it incurred.
In closing remarks, Miller discussed the company’s engineering services, innovation efforts, and sustainability plans, emphasizing fiber optic and digital technologies aimed at ruggedization, connected diagnostics, and lighter, more sustainable solutions. The company also pointed to AI as an opportunity to improve internal processes and customer service.
No questions were asked during the call. Miller said the company expects to report first-quarter 2026 results in May.
About Nortech Systems (NASDAQ:NSYS)
Nortech Systems, Inc is a specialized engineering and manufacturing company that designs, develops and produces custom gas distribution and control solutions. Its core offerings include cryogenic valves and regulators, gas distribution panels and manifolds, and precision instrumentation for monitoring and controlling the delivery of industrial, specialty and medical gases. The company leverages in-house engineering, machining and assembly capabilities to tailor products to the exact specifications of its customers.
In addition to its mechanical product lines, Nortech Systems provides electronic monitoring and control systems.
