Nortech Systems (NASDAQ:NSYS) reported higher third-quarter sales and a return to profitability, as increased production helped improve margins and a growing order backlog gave management confidence in the company’s outlook.
Net sales rose 8.4% from a year earlier to $33 million, while net income was $637,000, or $0.21 per diluted share. That compared with a net loss of $146,000, or $0.05 per diluted share, in the third quarter of 2025.
Gross margin improved to 17.8% from 16.5%, and operating income increased to $1.4 million from $945,000. President and CEO Jay Miller said higher production activity and improved manufacturing cost absorption helped margins, partly offset by an unfavorable customer and geographic sales mix and costs tied to a supplier quality issue. The company expects the quality issue to be resolved in the fourth quarter.
For the first nine months of 2026, sales rose 10.1% to $96.9 million and operating income increased to $2.1 million from $74,000. Net income was $919,000, compared with a $1.1 million loss a year earlier.
Backlog grows, led by aerospace and industrial orders
Total order backlog stood at $92.8 million on Sept. 30, up 20% from $77.3 million a year earlier but slightly below $93.8 million at the end of June. Miller called backlog the company’s most important forward-looking indicator.
Aerospace and defense backlog rose 43% year over year to $42.8 million, while industrial backlog increased approximately 70% to $21.2 million. Both categories also grew from the end of June.
The 90-day shipment backlog was $31.5 million. Miller noted that the reported 90-day and total backlog figures include orders for which $17.2 million in revenue has already been recognized and included in contract assets.
Management said its priority is to convert the backlog into profitable shipments while improving cash generation.
China operations drive sales growth
Third-quarter sales from Nortech’s China operations rose 56.5% to $8.2 million, representing approximately 25% of companywide sales, compared with about 17% a year earlier.
For the first nine months, China sales increased 53.5% to $21.5 million and accounted for approximately 85% of Nortech’s year-over-year revenue growth. Miller said growth in China largely offset a year-to-date decline in the industrial market, which was affected by customer inventory adjustments and temporary production disruptions associated with transferring manufacturing activities to Monterrey, Mexico.
Nortech operates in the U.S., Mexico and China. Miller said the manufacturing footprint helps the company match engineering and production resources to customer needs.
Expenses, tariff recoveries and cash flow
Third-quarter operating expenses rose to $4.5 million from $4.1 million. CFO and Senior Vice President of Finance Andrew LaFrence said the company reversed $647,000 of 2026 incentive compensation expense during the quarter.
General and administrative expenses included $236,000 in third-quarter costs associated with a review of Nortech’s long-term strategy and opportunities to enhance shareholder value. Those costs totaled $440,000 for the first nine months. Miller said the company did not intend to comment further on the review.
LaFrence said Nortech received $177,000 in refunds for previously paid IEEPA tariffs during the first nine months and recognized a $227,000 receivable at Sept. 30 for additional submitted claims deemed recoverable. The company continues to pursue other recoveries, though their timing and amount remain uncertain.
Cash used in operating activities was $275,000 for the first nine months, compared with $2.9 million a year earlier. Accounts receivable and contract assets used a combined $5.7 million of cash, while inventory used $4.6 million, primarily reflecting material purchases to support backlog and anticipated production. Customer deposits and accounts payable partly offset those uses.
Nortech ended September with $3 million in cash, $1.1 million in restricted cash and an $8 million revolving credit balance. Unused borrowing availability was approximately $3 million, subject to the borrowing base, LaFrence said.
Patents and outlook
Miller said Nortech received two U.S. patents covering active optical cable capabilities. One covers a non-magnetic connector designed for environments such as MRI systems; the other covers cable diagnostics that can be paused during noise-sensitive operations.
He also said the company has developed artificial intelligence tools for tariff accounting and is investing in employees’ AI skills. Management expects technological developments across its markets, along with stabilization in supply chains and customer orders, to support sales momentum into 2027 and beyond.
About Nortech Systems (NASDAQ:NSYS)
Nortech Systems Incorporated is an electronics manufacturing services and engineering company headquartered in Maple Plain, Minnesota. The company helps customers design, develop, manufacture, and support complex electromechanical products and systems. Its capabilities include printed circuit board assembly, cable and wire harness assembly, electromechanical assembly, box-build manufacturing, system integration, prototyping, testing, and related engineering and supply-chain services. Nortech works with customers from product development through production and ongoing support.
