Surge Components, Inc. Announces First Quarter 2023 Results

Company Delivers Solid Q1 Net Sales of $9.2 Million

Strong Operational Management Drives 60 Bps Q1 Gross Margin Expansion to 28.8%

Generated Sizable Q1 Net Cashflow from Operating Activities

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 28, 2023.

Financial Highlights for the First Fiscal Quarter February 28, 2023

• Net income available to common shareholders of $392,660; EPS of $0.07 compared to net income available to common shareholders of $669,253; EPS of $0.12 in the prior-year-period.
• Net sales of $9.2 million, compared to $10.5 million in the prior-year-period.
• Gross profit of $2.6 million, compared to $3.0 million in the prior-year-period.
• Gross profit margin of 28.8%, compared to 28.2% in the prior-year-period.

Operational Highlights

• Surge is benefitting from the reopening of Chinese markets, growing its presence in Asia through its key sales manager in China.
• The Company continues to position itself for future growth in European markets through the successful development of its London, UK sales office.
• Challenge and Surge divisions are well-positioned to capitalize on the industry’s eventual rebound as industry dynamics improve.
• Surge maintained its superior lead times, maintaining stable production to better serve customers and preserve a competitive advantage over peers.

“We are pleased with our solid performance in the first quarter, which demonstrated our ability to adapt and remain agile in the face of shifting industry dynamics and global headwinds,” said Ira Levy, President and Chief Executive Officer of Surge. "Putting our strong Q1 performance into context, last year we received a record number of product orders as customers worked to get ahead of supply chain constraints and delays, which directly contributed to record quarterly sales volume in Q1 2022. Although supply chain issues have abated in 2023, rising macroeconomic and industry headwinds have since dampened near-term customer order rates, which directly impacted first quarter year-over-year comparisons. Despite this, our ability to tightly manage our operations and quickly adapt to the changing macroeconomic environment helped us achieve a strong gross profit of $2.6 million and expand gross profit margins by 60 basis points over the prior-year-period. Furthermore, our disciplined approach to liquidity management resulted in significant positive net cashflows from operations. We remain confident in our ability to capitalize on the industry’s eventual rebound as dynamics improve.

“Amidst this economic backdrop, our Surge and Challenge businesses also continue to benefit from best-in-class industry lead times despite supply chain constraints and semiconductor chip shortages. This success allows us to continue our meaningful engagement with existing and new customers on existing and new projects even as order timelines have accordingly been pushed out. We are also continuing to see growing customer interest in our European and Asian markets, driven in part by China’s reopening and the continued growth of our London sales office.

“Looking ahead, we remain cautiously optimistic and committed to enhancing our profitability while driving shareholder value. We believe that our operational excellence, coupled with line-of-sight into customer demand cycles, has positioned the Company to capitalize on the impending industry rebound.”

Results of Operations for the Three Months Ended February 28, 2023

Net sales for the three months ended February 28, 2023, decreased 12.6% to $9.2 million as compared to net sales of $10.5 million for the three months ended February 28, 2022. The decrease in net sales for the three-month period as compared to the same period a year ago is attributable to the challenging macroeconomic climate as well as new and existing customers pushing out orders due to their significantly higher 2022 order rates. This in turn has led to a decrease in business with new and existing customers.

Gross profit for the three months ended February 28, 2023, decreased 10.6% to $2.6 million as compared to $3.0 for the three months ended February 28, 2022. Gross profit margin as a percentage of net sales increased to 28.8% for the three months ended February 28, 2023, compared to 28.2% in the three months ended February 28, 2022. We attribute the decrease in gross profit to a decrease in sales volume in the three months ended February 28, 2023. We attribute the increase in gross profit margin as a percentage of net sales to the Company shipping out orders with a higher profit margin during the three months ended February 28, 2023. Our industry will continue to receive pressure from customers for price reductions.

Selling and shipping expenses for the three months ended February 28, 2023 increased 10.1% to $771,539 as compared to $700,978 for the three months ended February 28, 2022. We attribute the increase to an increase in salesman payroll, travel and entertainment expenses and freight out, partially offset by a decrease in salesman commission expenses and automobile expenses.

General and administrative expenses for the three months ended February 28, 2023 decreased less than 1% to $1.3 million, as compared to the three months ended February 28, 2022. The decrease is due primarily to decreases in professional fees, office expenses as well as public company expenses, directors fees and public company expenses, partially offset by increases in utilities, computer expenses as well as pension and maintenance expenses in the three months ended February 28, 2022.

Net income for the three months ended February 28, 2023, was $395,160, compared to a net income of $671,753 for the three months ended February 28, 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, 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," "expects," "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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