Surge Components, Inc. Announces Third Quarter 2023 Results

Company Delivers Strong Q3 Net Sales of $8.9 Million

Company Continues to Drive Operating Leverage and Efficiencies

Q3 Gross Profit Margin of 25.9% Remains Steady Year-over-Year

Nine-Month Gross Profit Margins of 27.8%, up from 27.2% in Same Period Last Year

Surge Components, Inc. (“Surge” or the “Company”) (OTC Pink: SPRS), a leading supplier of capacitors, discrete semi-conductors, switches, and audible/sounding devices, today announced financial results for the third quarter ended August 31, 2023.

Operational Highlights

• The Company is investing in growth assets, including new sales talent.
• Challenge and Surge divisions are well-positioned to capitalize on the industry’s eventual rebound as industry dynamics and prospects improve.
• The Company maintained its superior lead times and stable production to better serve customers and preserve a competitive advantage over peers.
• The Company has been successfully designing customized new products for customers to differentiate and increase competitiveness.

Financial Highlights for the Third Fiscal Quarter Ended August 31, 2023

• Net income available to common shareholders of $130,780; EPS of $0.02 compared to net income available to common shareholders of $1,232,923; EPS of $0.22 in the prior-year-period.
• Net Sales of $8.9 million, compared to $14.0 million in the prior-year-period.
• Gross profit of $2.3 million, compared to $3.6 million in the prior-year-period.
• Gross profit margin of 25.9%, compared to 26.0% in the prior-year-period.

“Our third quarter financial and operational performance again demonstrated our business’ resilience as we continued to adapt and remain agile in the face of sustained and challenging macroeconomic headwinds,” said Ira Levy, President and Chief Executive Officer of Surge. “As we’ve previously discussed, our business has been impacted in the near-term by the global economic downturn as well as existing record customer inventory levels arising from last year’s one-time demand dynamic as they over-ordered and scrambled to secure the components vital to their businesses. We believe it could take customers another four to six quarters to work through this one-time excess inventory dynamic and begin re-ordering at pre-pandemic levels. And yet despite this challenging environment that impacted our sales, we remained profitable while continuing to tightly manage our operations and achieved gross profit margins in line with the same period’s last year, 25.9% in Q3 2023 versus 26.0% in Q3 2022. Similarly, our nine-month gross profit margins rose to 27.8% through Q3 2023 from 27.2% through Q3 2022. Furthermore, we continue to maintain sufficient liquidity levels to sustain our operations during this temporary industry downturn. We know we have plenty of work ahead of us as these headwinds will likely persist for the foreseeable future, and we remain confident in our execution in identifying and developing new business opportunities while investing in assets that can help the company grow, including new sales talent.

“Our operational prowess has positioned the Surge and Challenge businesses to benefit from best-in-class industry lead times despite sustained industry constraints. The Company has been successful in designing customized new products for customers to improve their products’ performance capabilities. This proactive and tailored approach separates our products from the more commoditized products found in the market. We continue to navigate the current environment while diligently working on the Surge and Challenge business’ growth prospects.

“As we look ahead through 2023, we remain positive on our business’ prospects and the work we are putting in place to capitalize on the industry’s expected rebound that we believe will begin sometime in 2024.”

Results of Operations for the Three Months Ended August 31, 2023

Net Sales for the three months ended August 31, 2023, decreased 36.5% to $8.9 million as compared to net sales of $14.0 million for the three months ended August 31, 2022. The decrease for the three-month period as compared to the same period a year ago is attributable to: a one-time demand dynamic observed last year that lifted the entire industry’s sales; current and persistent industry headwinds, including dampened customer sentiment, that led to a decrease in business with new and existing customers, and; customers expanding ordering cycles due to customers’ over-ordering in 2022.

Gross profit for the three months ended August 31, 2023, decreased 36.7% to $2.3 million, as compared to $3.6 million for the three months ended August 31, 2022. Gross profit margin as a percentage of net sales remained relatively stable at 25.9% for the three months ended August 31, 2023, as compared to 26.0% for the three months ended August 31, 2022. The decrease in gross profit is attributable to a decrease in sales volume in the three months ended August 31, 2023. The stability in gross profit margin as a percentage of net sales is attributable to the Company shipping out orders with a higher profit margin during the three months ended August 31, 2023, as compared to the three months ended August 31, 2022. These increases were offset by the Company’s decrease in sales volume for some of its customers with higher profit margins and increase in sales volume for customers with a lower gross profit margin during the three months ended August 31, 2023.

Selling and shipping expenses for the three months ended August 31, 2023, decreased 9.0% to $748,920, as compared to $823,133 for the three months ended August 31, 2022. The decrease for the three-month period as compared to the same period a year ago is primarily attributable to a decrease in commission expenses, as well as freight out and messenger and delivery expenses. These decreases were offset by increases in salesman payroll due to the hiring of new regional sales managers and travel expenses.

General and administrative expenses for the three months ended August 31, 2023, decreased 5.7% to $1.3 million as compared to $1.4 million for the three months ended August 31, 2022. The decreases for the three months ended August 31, 2023, can be attributed to decreases in officer salary, health insurance and general insurance as well as decreases in temporary help expenses, office expenses and bad debt expenses as partially offset by increases in salaries, rent expenses, computer expenses as well as professional fees and consulting expenses.

Net income for the three months ended August 31, 2023, was $133,280, compared to net income of $1.2 million for the three months ended August 31, 2022.

This press release should be read in conjunction with the Company’s consolidated financial statements included in the Company’s most recent Quarterly Report on Form 10-Q, which can be found at www.surgecomponents.com and at www.sec.gov.

Cautionary Note Regarding Forward-Looking Statements

This press release contains forward-looking statements. All statements other than statements of historical facts contained herein, including statements regarding global economic conditions, expected rebound in the market, supply chain challenges, customer lead times, our future results of operations and financial position, business strategy and plans and objectives of management for future operations, are forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.

In some cases, forward-looking statements can be identified by terms such as "may," "will," "should," "expected," "plans," "anticipates," "could," "intends," "target," "projects," "contemplates," "believes," "estimates," "predicts," "potential" or "continue" or the negative of these terms or other similar words. These statements are only predictions and are based largely on our current expectations and projections about future events and financial trends that may affect our business, financial condition and results of operations. We discuss many of the risks in greater detail under the heading "Risk Factors" in our Annual Report on Form 10-K. These forward-looking statements represent our estimates and assumptions only as of the date of this press release. We assume no obligation to update any forward-looking statements for events or circumstances occurring after the date of this press release, except as required by law.

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