Surge Components, Inc. Announces First Quarter 2024 Results

Delivered Solid Q1 Net Sales of $7.1 Million

Drove Strong Operating Leverage and Expanded Gross Margin to 29.0%

Reduced Liabilities and Strengthened Balance Sheet

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 first quarter ended February 29, 2024.

Operational Highlights

• The Company continues to invest 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 begin to improve.
• The Company continues to maintain its superior lead times and stable production to better serve customers and preserve a competitive advantage over peers.
• The Company continues to successfully design customized new products for customers to differentiate and increase competitiveness.

Financial Highlights for the First Quarter Ended February 29, 2024

• Net loss available to common shareholders of $74,501; loss per share of $0.01 compared to net income available to common shareholders of $392,660; EPS of $0.07 in the prior-year-period.
• Net sales of $7.1 million, compared to $9.2 million in the prior-year period.
• Gross profit of $2.0 million, compared to $2.6 million in the prior-year period.
• Gross profit margin of 29.0%, compared to 28.8% in the prior-year period.

“Our first quarter results again demonstrated our ability to successfully adapt to and navigate a challenging and difficult macroeconomic backdrop that continues to weigh on our entire industry,” said Ira Levy, President and Chief Executive Officer of Surge. “Customer inventory levels remain consistently high after recent record levels due to the previously discussed one-time demand dynamic driven by supply-chain constraints that arose during the recent pandemic era. While we continue to believe it will take customers time to work through their excess inventory levels and begin re-ordering at pre-pandemic levels, we remain focused on selling higher-margin products where possible and on our business’ fundamentals. Despite the headwinds that directly impacted this quarter’s sales, our focus on driving operational efficiencies helped us achieve a gross profit margin of 29.0% in the quarter versus 28.8% in the same quarter last year. Furthermore, we continued to strengthen our balance sheet by again reducing our overall liabilities.

“Simultaneously, we continued to lay the groundwork to position the company to capitalize on the industry’s eventual turnaround. In the quarter, we hired more sales and engineering talent while maintaining our best-in-class industry lead times despite the challenging industry environment to remain competitive. The Surge division now has local sales managers in both the southern and eastern regions of China, and we look forward to their contributions.

“We continue to believe the near-term will be difficult for the broader industry, with the eventual turnaround likely to begin towards the end of 2024. We remain positive on our business’ overall outlook as we strengthen our foundation and continue to invest in our capabilities and our people while solidifying our relationships to capitalize on the future rebound.”

Results of Operations for the Three Months Ended February 29, 2024

Net sales for the three months ended February 29, 2024, decreased by $2,138,067 or 23.3%, to $7,053,706 as compared to net sales of $9,191,773 for the three months ended February 28, 2023. The decrease is attributable to a decrease in business with new customers as well as a decrease in business with existing customers as well as to customers pushing out orders due to them over ordering in 2022. These customers have excess inventory that they need to consume before re-ordering those products and have therefore not launched new product development as their cash is tied up in the inventory. Net sales for the three months ended February 29, 2024, and February 28, 2023, reflect $154,486 and $394,793, respectively of tariff costs that the Company was able to pass on to its customers.

Gross profit for the three months ended February 29, 2024, decreased by $606,940 to $2,042,128, or 22.9%, as compared to $2,649,068 for the three months ended February 28, 2023. Gross margin as a percentage of net sales increased to 29.0% for the three months ended February 29, 2024, compared to 28.8% for the three months ended February 28, 2023. The decrease in gross profit is attributable to a decrease in sales volume in the three months ended February 29, 2024, as compared to the prior-year period. The increase in gross margin can be attributed to certain products being sold at a higher profit margin in the three months ended February 29, 2024, as compared to the prior-year period.

Selling and shipping expenses for the three months ended February 29, 2024, was $672,403, a decrease of $99,136, or 12.8%, as compared to $771,539 for three months ended February 28, 2023. The decrease is attributable to decreases in sales and the resulting selling expenses such as commission expenses, travel expenses, and auto and freight out expenses, offset by entertainment and printing expenses.

General and administrative expenses for the three months ended February 29, 2024, was $1,436,904, an increase of $136,441, or 10.5%, as compared to $1,300,463 for the three months ended February 28, 2023. The increase is due primarily to increases in salaries and related payroll tax expenses as well as rent expenses, general insurance expenses, as well as computer and maintenance expenses and consulting, professional fees and public company expenses as partially offset by decreases in officer salaries and health insurance as well as temporary help expenses.

Net loss for the three months ended February 29, 2024, was $72,001, compared to a net income of $395,160 for the three months ended February 28, 2023.

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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