Surge Components, Inc. Announces Second Quarter 2024 Results

Company Delivers Strong Q2 Net Sales of $7.3 Million, up 4% from Q1

Generated Positive Net Income and EPS; Improvement from Q1

First Half 2024 Gross Margins Remained above 28%

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 second quarter ended May 31, 2024.

Operational Highlights

• The Company continues to invest in growth assets, including hiring new sales talent in Europe and Asia.
• 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 Second Quarter Ended May 31, 2024

• Net income available to common shareholders of $197,940; earnings per share (fully diluted) of $0.03 compared to net income available to common shareholders of $524,261; earnings per share of $0.09 in the prior-year-period.
• Net sales of $7.3 million, compared to $10.2 million in the prior-year period.
• Gross profit of $2.0 million, compared to $2.9 million in the prior-year period.
• Gross profit margin of 27.3%, compared to 28.6% in the prior-year period.

“Surge’s second quarter financial and operations performance again validated our strategy and ability to remain agile and navigate a difficult macroeconomic environment that has, and continues, to weigh heavily on our entire industry,” said Ira Levy, President and Chief Executive Officer of Surge. “Customer inventory levels, though showing signs of slowly reducing, remain significantly elevated from their record highs due to the one-time supply-constrained dynamic previously discussed. In the face of these headwinds, we have focused on improving our operational efficiencies to drive better operational and financial results, achieving net cashflow from operating activities, remained positive in the first half of 2024 while gross margins remained above the 28% level. Furthermore, we have driven strong non-operating income by re-allocating a portion of our cash reserves to treasury bills.

“Concurrently, we continue to position the company to capitalize on the industry’s approaching turnaround. Building on last quarter, we again hired new sales talent – this quarter in China and Europe – and are looking to add at least another new sales representative in the near future, while maintaining our best-in-class industry lead times despite the challenging environment. And while customer order rates have not returned to pre-pandemic levels, we are receiving new orders and have been working with several customers on designing new products. Furthermore, Surge continues to deepen its engagement with industries, such as the automotive community, that have not been as impacted by the excess inventory dynamic.

“We continue to see difficulty for the broader industry over the second half of 2024 and believe that the eventual turnaround will begin closer to the end of the year and beginning of 2025. As customers continue to consume excess inventory, the company is optimistic and remains positive on our business’ outlook and we will continue to position ourselves to capitalize on this eventual turnaround by investing in our business and our people.”

Results of Operations for the Three Months Ended May 31, 2024

Net sales for the three months ended May 31, 2024, decreased by $2,854,226 or 28.0%, to $7,344,995 as compared to net sales of $10,199,221 for the three months ended May 31, 2023. The decrease for the three-month period as compared to the same period a year ago is attributable to: a decrease in business with new customers; a decrease in business with existing customers; and customers pushing out orders due to them over ordering in 2022. The customers have excess inventory that they need to consume before re-ordering those products. Additionally, many customers, because of having this excess inventory, have not launched new product development as their cash is tied up in their inventory.

Gross profit for the three months ended May 31, 2024, decreased by $919,127 to $2,002,565, or 31.5%, as compared to $2,921,692 for the three months ended May 31, 2023. Gross margin as a percentage of net sales decreased to 27.3% for the three months ended May 31, 2024, compared to 28.6% for the three months ended May 31, 2023. The decrease can be attributed to certain products being sold at a lower profit margin.

Selling and shipping expenses for the three months ended May 31, 2024, was $672,567, a decrease of $66,719, or 9.1%, as compared to $739,286 for three months ended May 31, 2023. The decrease is attributable to decreases in sales and the resulting selling expenses such as commission expenses, travel expenses, and freight out expenses, offset by increases in salesman payroll due to hiring of additional sales employees, as well as entertainment and auto expenses.

General and administrative expenses for the three months ended May 31, 2024, was $1,200,040, a decrease of $289,180, or 19.5% as compared to $1,489,220 for the three months ended May 31, 2023. The decrease is due primarily to decreases in officer salaries as well as health and general insurance expenses, as well as utilities, directors’ fees and consulting expenses as partially offset by increases in salaries and related payroll tax expenses, rent, office and professional fees as well as public company expenses and bank charges.

Net income for the three months ended May 31, 2024, was $197,940, compared to a net income of $524,261 for the three months ended May 31, 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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