SPRS · Surge Components, Inc.

Performance Summary

Surge Components, Inc. delivered solid financial results for FY 2025 with net sales of $36.3 million, representing a 16.4% increase from $31.2 million in FY 2024. The growth was attributed to increased business with new and existing customers and expansion through distribution channels. Gross profit increased 17.4% to $10.5 million, with gross margin improving to 28.8% from 28.5% in the prior year. Net income rose to $1.1 million from $0.8 million in FY 2024. The company maintained strong liquidity with $5.3 million in cash, $8.4 million in marketable securities, and working capital of $20.8 million. Operating cash flow was $0.9 million, while investing activities used $1.4 million primarily for marketable securities acquisitions.

Revenue Analysis

Revenue growth of 16.4% was driven by multiple factors including increased business with new customers, growth with existing customers, and expansion through distribution channels. The company's sales include $0.9 million in tariff costs passed through to customers. Commission revenue from sales agent activities totaled $0.3 million for FY 2025. The company operates through two sales groups: Surge Components (capacitors and discrete components) and Challenge Electronics (audible components). Capacitors accounted for approximately 28% of Surge's sales, with Lelon capacitors representing about 75% of capacitor sales. The company's backlog increased to $12.0 million from $9.4 million, indicating strong future demand.

Margins & Profitability

Gross margin improved to 28.8% from 28.5% in the prior year, attributed to increased sales to customers with higher gross profit margins. The company faces ongoing pressure for price reductions from customers, particularly electronic manufacturing service subcontractors who receive 5% rebates on future shipments. Operating expenses totaled $9.2 million, consisting of $2.9 million in selling and shipping expenses (up 6.1%) and $6.2 million in general and administrative expenses (up 19.9%). The G&A increase included $0.5 million in non-cash stock-based compensation. Operating income was $1.3 million, resulting in an operating margin of 3.6%.

Cash Flow & Balance Sheet

The company generated $0.9 million in operating cash flow, a decrease from $1.8 million in the prior year due to changes in working capital components. Investing activities used $1.4 million primarily for acquisition of marketable securities ($2.9 million) partially offset by proceeds from sales ($1.7 million). Financing activities provided $0.1 million from exercise of stock options. The balance sheet shows total assets of $27.1 million, including $25.8 million in current assets. Current liabilities were $5.0 million, resulting in working capital of $20.8 million. Total liabilities were $5.7 million, with shareholders' equity of $21.4 million. The company has operating lease obligations of $1.4 million payable over the next five years.

Outlook

Management is cautiously optimistic about continued growth in 2026 but expects challenges from inflation, economic conditions, and supply chain disruptions. The company faces risks from customer concentration (two customers accounted for 32% of sales), supplier dependence (Lelon Electronics accounted for 28% of purchases), and competitive pressures. Tariffs continue to impact the business, though less than previously. The company is taking steps to mitigate risks from U.S.-China relations by working with factory partners who have opened production facilities outside China. Management cites opportunities from new product introductions and customized solutions but acknowledges challenges from labor shortages, increased raw material costs, and longer product approval cycles.