Nortech Systems Q2 2026 Earnings Surge Driven by Medical Device and Imaging Demand

Nortech Systems (NSYS) announced second-quarter 2026 financial results, reporting net sales of $33.5 million, an increase of 9.3% year-over-year, driven by strong demand in the medical device and medical imaging markets. Gross margin expanded to 17%, up 120 basis points from the prior year period, reflecting improved manufacturing cost absorption from increased production activity.

Medical device revenue grew 36% year-over-year, primarily due to higher demand from existing customers and the ramp-up of new programs. Medical imaging sales increased 12.2%, supported by a stocking program with a key customer that enabled shorter lead times. However, industrial segment revenue declined 4.7%, reflecting customer inventory adjustments and temporary production disruptions during the transfer of manufacturing activities to Monterrey, Mexico. Aerospace and Defense revenue decreased 12.8% for the quarter, yet year-to-date figures showed an 8.7% increase compared with the prior year period, benefiting from higher production volumes at the Bemidji location.

The company’s 90-day shipment backlog reached $33.4 million, up 25.8% year-over-year and 6.3% from the beginning of the quarter. Total order backlog stood at $93.8 million, up 19.8% year-over-year, partially driven by aerospace and defense and medical imaging orders. Operating income was $623,000, down from $742,000 in the prior year period, primarily attributable to higher incentive compensation accruals. Incentive compensation expense totaled $402,000 for the quarter, representing a $533,000 swing from a $131,000 reversal in the prior year period.

Net interest expense declined to $197,000 from $257,000 year-over-year, reflecting lower average borrowings and new financing arrangements. Net income came in at $316,000, or $0.11 per diluted share, compared with $313,000 or $0.12 per diluted share in the second quarter of 2025. Year-to-date net income reached $282,000, or $0.09 per share, compared with a net loss of $1 million in the same prior period.

Cash used in operating activities totaled $2.4 million year-to-date, an improvement from $2.8 million in the first six months of 2025. Accounts receivable and contract assets consumed $4.5 million in cash due to the timing of customer shipments and support for future orders. Inventory investment used $3.5 million in cash to support the growing order backlog. At quarter end, cash and restricted cash totaled $1.7 million. Under the Associated Bank facility, the revolving credit facility balance was $7.6 million, with $3.6 million of unused availability. Total term loan debt stood at $2.1 million, comprised of $432,000 in current portions and $1.6 million in long-term debt. Adjusted EBITDA was $938,000, compared with $1.1 million in the prior year period.

Management highlighted several strategic initiatives during the call. The company noted that its North American footprint, including Maquiladora operations in Monterrey, Mexico and facilities in Minnesota and China, positions it well within the framework of the USMCA trade agreement. While the tariff environment remains uncertain, Nortech is pursuing reimbursement for previously paid IEPA-related tariffs, though the timing and amount of any recoveries remain unclear.

The company emphasized its focus on nearshoring strategies and operational execution. Power Over Fiber technology was identified as a key focus for reducing weight and electromagnetic interference in medical and aerospace applications. Nortech also integrated its Digital Diagnostics Xtreme platform to provide real-time performance data, transitioning customers toward predictive maintenance strategies. Chief Executive Officer Jay Miller stated the company is allocating resources to build AI skills across all employee functions to improve productivity and product quality.

The company added a new Vice President of Supply Chain in June 2026 to help manage component constraints and price volatility. While exploring opportunities in the data center market for complex fiber optic cables, management noted that significant business has not yet been closed in that space. Facilities in Minnesota, Mexico, and China have sufficient capacity to support growth for several years without requiring significant additional capital expenditures.

Year-to-date cash used in operations improved, and the company indicated its focus for the remainder of 2026 includes reducing inventory investments and generating cash through working capital reductions. With backlog strengthening, improved gross margins, and a more flexible capital structure, Nortech believes it is well positioned to continue building momentum through the year and beyond.

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