Raises Second Half Revenue Guidance;
Confirms 15%-17% Margin Outlook
Sypris Solutions, Inc. (Nasdaq/GM: SYPR) today reported
financial results for its second quarter ended
July 2, 2017. Sypris Solutions continued to make
important progress on several strategic initiatives to regain
revenue momentum and better align its cost structure, while
diversifying the Company’s book of business, both in terms of
customers and markets. Many of those steps have been completed or
are nearing completion. As a result, the Company is positioned to
achieve a growing and more stable revenue base, along with higher
gross profit and a return to profitable operations.
HIGHLIGHTS─────────────────────
- Revenue for the Company increased 16.8%
sequentially to $21.2 million for the quarter, while gross
margin expanded to 7.5% from a loss of 3.8% in the first quarter of
2017.
- Revenue for Sypris Electronics
increased 32.5% sequentially for the second quarter of 2017, while
gross margin increased to 18.1% from 1.8% for the first
quarter.
- Revenue for Sypris Technologies
increased 10.2% sequentially for the quarter, while gross margin
expanded to 2.1% from a loss of 6.2% in the first quarter of
2017.
- Selling, general and administrative
expense was reduced by 31.8% when compared to the prior-year
period, reflecting the positive impact of the Company’s previously
announced $26.3 million, two-year cost improvement target.
- Subsequent to quarter end, the Company
announced the receipt of multiple contract awards from Harris
Corporation to manufacture a variety of mission-critical electronic
assemblies for U.S. Military and Space programs.
- As a result of recent contract awards
in both business units, the Company expects to benefit from $20.7
million of new sales in 2018 and $24.8 million of new sales in
2019.
- The Company raised its revenue guidance
for the second half of 2017 to $42.0-$44.0 million and
confirmed its margin outlook, with gross margin of 15.0% to 17.0%
and EBITDA margin of 7.0%-9.0%, reflecting the benefit of the
substantial completion of the Company’s cost improvement
initiatives, increased sales and improved revenue mix during the
second half of 2017.
─────────────────────
“We are pleased to announce that all major actions have now been
completed as of August with regard to our two-year, $26.3 million
cost improvement target, which is composed of an $11.8 million
reduction in the cost of sales, a $9.0 million reduction of
SG&A and a $5.5 million reduction of interest and debt-related
charges for 2018 when compared to 2016 actual results,” commented
Jeffrey T. Gill, president and chief executive officer. “Our
original objective was to have completed this program by the end of
May, but as the date neared, we made the decision to build
additional inventory and rebuild equipment to further protect
customer deliveries, both of which required additional time.”
“We expect that the progress made last year and during the first
half of 2017 will enable the Company’s operations to return to
profitability by the second half of 2017,” Mr. Gill said. “The
Company’s total manufacturing overhead costs are being reduced, our
underperforming and underutilized assets are being divested,
significant liquidity has been created and important new business
continues to be secured, the most recent of which included the
award of four new contracts with Harris Corporation.”
Mr. Gill added, “As a result of our transitional efforts to exit
or dispose of the Broadway Plant, together with our sale of the CSS
business in 2016, the elimination of commercial debt and our other
cost reduction initiatives, we have streamlined our cost structure
significantly and have significantly improved the Company’s
competitiveness.”
Transition Plan Status Update
The transition of the Broadway operations is moving forward,
with substantial completion scheduled for the end of August. Our
team remains focused on achieving its cost targets and exceeding
customer expectations, which has resulted in favorable operating
metrics for the period as compared to its plan. The Broadway
transition is expected to result in a lower fixed overhead
structure along with lower selling, general and administrative
expenses, which will improve the overall cost profile of the
Company.
The lower cost profile combined with a more favorable revenue
mix is expected to drive an increase in overall margin performance
going forward. The Company expects margins to reach 15-17% of
revenue for the second half of 2017, which is nearly a 50% increase
as compared to 2014 when we had significantly higher customer
volume and market concentration.
New Program Awards
“The Company’s commitment to cost, quality and on-time delivery
continues to drive significant new business opportunities within
both of our segments,” stated Mr. Gill. “During the past 12 months,
the award of new, multi-year programs has been very positive. We
now expect revenue from new programs of $15.8 million for
2018, of which $3.4 million was recently awarded, and
$12.9 million for 2019, with an average term of more than four
years. In addition, follow-on business for future builds of these
programs is expected to contribute revenue of $4.9 million for
2018 and $11.9 million for 2019, resulting in expected total
new revenue of $20.7 million and $24.8 million in 2018 and 2019,
respectively.”
“The new program awards are balanced across customers, markets
and products and provide a solid multi-year foundation for growth.
The new awards fit within our existing capacity with only
incremental capital needs.”
Second Quarter Results
The Company reported revenue of $21.2 million for the
second quarter compared to $23.5 million for the prior-year
period. The Company's net loss continued to narrow, declining to
$3.1 million, or $0.15 per share, from a loss of
$5.2 million, or $0.26 per share, for the prior-year
comparable period. The results for the quarter ended
July 2, 2017, include severance and relocation costs of
$0.9 million related to the Broadway transition.
For the six months ended July 2, 2017, the Company
reported revenue of $39.4 million compared to
$50.4 million for the first half of 2016. The Company reported
a net loss for the six months ended July 2, 2017, of
$6.5 million, or $0.32 per share, as compared to a net
loss of $10.3 million, or $0.52 per share in the prior-year
comparable period. Results for the six months ended
July 2, 2017, include net gains of $2.5 million
related to the sale of idle assets partially offset by severance,
relocation and other costs of $1.9 million. Results for the
six months ended July 3, 2016, include a gain of
$2.4 million related to a sale-leaseback transaction
recognized during the period partially offset by severance costs of
$0.5 million. Additionally, results for the three and six
months ended July 3, 2016 included the CSS operations
sold in August 2016.
Sypris Technologies
Revenue for Sypris Technologies was $14.1 million in the
second quarter compared to $14.8 million for the prior-year
period, primarily reflecting the conclusion of a customer contract
partially offset by increased sales of oil and gas products. Gross
profit for the quarter was $0.3 million, or 2.1% of revenue,
compared to a loss of $0.3 million, or 1.8% of revenue, for
the same period in 2016. On a sequential basis, gross margin
increased to 2.1% from a loss of 6.2% in the first quarter of
2017.
Sypris Electronics
Revenue for Sypris Electronics was $7.2 million in the
second quarter of 2017 as compared to $8.7 million for the
prior-year period, reflecting the impact of the sale of the CSS
business. Revenue from the CSS business was included in results of
operations in 2016 until the time of sale, since the sale was not
classified as a discontinued operation in our consolidated
financial statements. Gross profit for the quarter was
$1.3 million compared to $1.0 million for the prior-year
period, primarily reflecting a favorable mix in sales of
higher-margin products on programs that began ramping in the second
quarter, partially offset by an overall decrease in volumes as a
result of the CSS sale. On a sequential basis, gross margin in the
second quarter increased to 18.1% from 1.8% in the first
quarter.
Outlook
Commenting on the future, Mr. Gill added, “The combination of
significant cost savings, improved revenue mix and the elimination
of high-cost commercial debt, among other items, is expected to
have a positive, material impact on the Company’s financial
performance in 2017. The second half of the year is expected to
benefit from significantly lower fixed overhead and production
costs at Sypris Technologies, as well as from the elimination of
severance and other expenses.”
“As a result, we expect gross margin to increase to 15.0%-17.0%
of revenue for the second half of the year. Selling, general and
administrative expense is expected to fall to 15.0%-16.0% during
the second half of the year. We are raising our expected revenue
outlook for the second half of 2017, which is now expected to range
from $42.0-$44.0 million. EBITDA is expected to be 7.0%-9.0% of
revenue for the second half of 2017. We expect to see further
meaningful improvements in gross margin, SG&A as a percent of
revenue and EBITDA in 2018, as the Company’s financial statements
reflect the full-year impact of the 2017 cost saving
initiatives.”
Sypris Solutions is a diversified provider of truck components,
oil and gas pipeline components and aerospace and defense
electronics. The Company performs a wide range of manufacturing
services, often under multi-year, sole-source contracts with
corporations and government agencies. For more information about
Sypris Solutions, visit its Web site at www.sypris.com.
Forward Looking Statements
This press release contains “forward-looking” statements within
the meaning of the federal securities laws. Forward-looking
statements include our plans and expectations of future financial
and operational performance. Each forward-looking statement herein
is subject to risks and uncertainties, as detailed in our most
recent Form 10-K and Form 10-Q and other SEC filings. Briefly, we
currently believe that such risks also include the following: our
estimated EBITDA includes significant gains from the anticipated
sale of certain equipment, but there can be no assurances that such
sales will be achieved as planned; our failure to return to
profitability on a timely basis, which would cause us to continue
to use existing cash resources or other assets to fund operating
losses; our failure to successfully complete final contract
negotiations with regard to our announced contract “awards”; our
failure to develop and implement specific plans (a) to offset the
impact of reduced revenues as we migrate our focus from a small
number of traditional tier 1 customers in the commercial vehicle
markets to a more diversified base of customers who are able to
place higher strategic value on our innovation, flexibility and
lean manufacturing capabilities, (b) to implement our cost-savings
initiatives and to consolidate and streamline operations in
accordance with the modified exit or disposal plan related to our
Broadway Plant and our other plans; breakdowns, relocations or
major repairs of machinery and equipment; volatility of our
customers’ forecasts, scheduling demands and production levels
which negatively impact our operational capacity and our
effectiveness to integrate new customers or suppliers; potential
impairments, non-recoverability or write-offs of assets or deferred
costs; inventory valuation risks including excessive or obsolescent
valuations; the fees, costs and supply of, or access to, debt,
equity capital, or other sources of liquidity; dependence on,
retention or recruitment of key employees especially in the
Broadway Plant; risks of foreign operations; currency exchange
rates; war, terrorism, or political uncertainty; the cost, quality,
timeliness, efficiency and yield of our operations and capital
investments, including working capital, production schedules, cycle
times, scrap rates, injuries, wages, overtime costs, freight or
expediting costs; cost and availability of raw materials such as
steel, component parts, natural gas or utilities; changes in
licenses, security clearances, or other legal rights to operate,
manage our work force or import and export as needed; our ability
to successfully develop, launch or sustain new products and
programs; labor relations; strikes; union negotiations; pension
valuation, health care or other benefit costs; potential weaknesses
in internal controls over financial reporting and enterprise risk
management; disputes or litigation involving supplier, customer,
employee, creditor, stockholder, product liability or environmental
claims; our inability to patent or otherwise protect our inventions
or other intellectual property from potential competitors; the
costs of compliance with our auditing, regulatory or contractual
obligations; our reliance on third party vendors and sub-suppliers;
adverse impacts of new technologies or other competitive pressures
which increase our costs or erode our margins; regulatory actions
or sanctions; U.S. government spending on products and services
that Sypris Electronics provides, including the timing of budgetary
decisions; cyber security threats and disruptions; changes or
delays in customer budgets, funding or programs; failure to
adequately insure or to identify environmental or other insurable
risks; unanticipated or uninsured disasters, losses or business
risks; inaccurate data about markets, customers or business
conditions; or unknown risks and uncertainties.
SYPRIS SOLUTIONS, INC. Financial
Highlights (In thousands, except per share amounts)
Three Months Ended July
2, July 3, 2017 2016 (Unaudited)
Revenue $ 21,249 $ 23,504 Net loss $ (3,147 ) $ (5,203 ) Loss per
common share: Basic $ (0.15 ) $ (0.26 ) Diluted $ (0.15 ) $ (0.26 )
Weighted average shares outstanding: Basic 20,350 19,749 Diluted
20,350 19,749
Six Months Ended July 2,
July 3, 2017 2016 (Unaudited) Revenue $
39,434 $ 50,442 Net loss $ (6,455 ) $ (10,302 ) Loss per common
share: Basic $ (0.32 ) $ (0.52 ) Diluted (0.32 ) (0.52 ) Weighted
average shares outstanding: Basic 20,261 19,725 Diluted 20,261
19,725
Sypris Solutions, Inc. Consolidated
Statements of Operations (in thousands, except for per share
data)
Three Months Ended Six Months Ended July
2, July 3, July 2, July 3, 2017
2016 2017 2016 (Unaudited)
(Unaudited) Net revenue: Sypris Technologies $ 14,059 $
14,769 $ 26,819 $ 32,596 Sypris Electronics
7,190 8,735
12,615 17,846 Total
net revenue 21,249 23,504 39,434 50,442 Cost of sales: Sypris
Technologies 13,769 15,029 27,316 33,512 Sypris Electronics
5,890 7,726
11,218 15,454 Total
cost of sales 19,659 22,755 38,534 48,966 Gross profit (loss):
Sypris Technologies 290 (260 ) (497 ) (916 ) Sypris Electronics
1,300 1,009
1,397 2,392
Total gross profit 1,590 749 900 1,476 Selling, general and
administrative 3,591 5,268 7,014 11,771 Research and development 9
90 31 214 Severance and equipment relocation costs
880 38
1,878 522 Operating
loss (2,890 ) (4,647 ) (8,023 ) (11,031 ) Interest expense, net 206
964 394 1,840 Other income, net
27
(409 ) (1,977
) (2,571 ) Loss
before taxes (3,123 ) (5,202 ) (6,440 ) (10,300 ) Income tax
expense, net
24 1
15 2
Net loss
$ (3,147 )
$ (5,203 ) $
(6,455 ) $
(10,302 ) Loss per common share: Basic $
(0.15 ) $ (0.26 ) $ (0.32 ) $ (0.52 ) Diluted $ (0.15 ) $ (0.26 ) $
(0.32 ) $ (0.52 ) Dividends declared per common share $ - $ - $ - $
- Weighted average shares outstanding: Basic 20,350 19,749
20,261 19,725 Diluted 20,350 19,749 20,261 19,725
Sypris Solutions, Inc. Consolidated
Balance Sheets (in thousands, except for share data)
July 2, December 31, 2017
2016 (Unaudited) (Note) ASSETS Current
assets: Cash and cash equivalents $ 10,738 $ 15,270 Restricted cash
1,500 1,500 Accounts receivable, net 10,801 8,010 Inventory, net
23,895 14,558 Other current assets 1,886 2,730 Assets held for sale
1,040 832
Total current assets 49,860 42,900 Property, plant and equipment,
net 17,635 17,943 Other assets
1,423
1,794 Total assets
$
68,918 $ 62,637
LIABILITIES AND STOCKHOLDERS' EQUITY Current
liabilities: Accounts payable $ 15,491 $ 6,973 Accrued liabilities
12,962 10,541 Current portion of capital lease obligations
238 208 Total
current liabilities 28,691 17,722 Long-term capital lease
obligations 2,828 2,950 Note payable - related party 6,405 6,375
Other liabilities
9,885
9,492 Total liabilities 47,809 36,539
Stockholders’ equity:
Preferred stock, par value $0.01 per
share, 975,150 shares authorized; no shares issued
- -
Series A preferred stock, par value $0.01
per share, 24,850 shares authorized; no shares issued
- -
Common stock, non-voting, par value $0.01
per share, 10,000,000 shares authorized; no shares issued
- -
Common stock, par value $0.01 per share,
30,000,000 shares authorized; 21,446,580 shares issued and
21,436,388 outstanding in 2017 and 21,330,882 shares issued and
21,329,690 outstanding in 2016
214 213 Additional paid-in capital 153,537 153,252 Accumulated
deficit (107,224 ) (100,769 ) Accumulated other comprehensive loss
(25,418 ) (26,598 ) Treasury stock, 10,192 and 1,192 shares in 2017
and 2016, respectively
-
- Total stockholders’ equity
21,109 26,098 Total
liabilities and stockholders’ equity
$
68,918 $ 62,637
Note: The balance sheet at December 31, 2016 has been
derived from the audited consolidated financial statements at that
date but does not include all information and footnotes required by
accounting principles generally accepted in the United States for a
complete set of financial statements.
Sypris Solutions, Inc. Consolidated
Cash Flow Statements (in thousands)
Six Months Ended July 2, July 3,
2017 2016 (Unaudited) Cash flows from
operating activities: Net loss $ (6,455 ) $ (10,302 )
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 1,972 3,678 Stock-based compensation
expense 395 703 Deferred loan costs recognized 30 435 Gain on the
sale of assets (2,537 ) (2,391 ) Provision for excess and obsolete
inventory 109 86 Other noncash items 596 (505 ) Changes in
operating assets and liabilities: Accounts receivable (2,915 ) 151
Inventory (9,451 ) (494 ) Prepaid expenses and other assets 1,232
(215 ) Accounts payable 8,518 (369 ) Accrued and other liabilities
2,548 2,288
Net cash used in operating activities (5,958 ) (6,935 ) Cash
flows from investing activities: Capital expenditures (997 ) (115 )
Proceeds from sale of assets 2,623 11,086 Change in restricted cash
- (6,000
) Net cash provided by investing activities 1,626
4,971 Cash flows from financing activities: Capital lease
payments (92 ) (51 ) Principal payments on Term Loan - (857 )
Proceeds from related party note payable - 1,000 Net change in debt
under New Revolving Credit Agreement - 2,721 Debt issuance and
modification costs - (379 ) Indirect repurchase of shares for
minimum statutory tax withholdings
(108
) - Net cash (used in)
provided by financing activities
(200
) 2,434 Net
(decrease) increase in cash and cash equivalents (4,532 ) 470 Cash
and cash equivalents at beginning of period
15,270 1,349 Cash
and cash equivalents at end of period
$
10,738 $ 1,819
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version on businesswire.com: http://www.businesswire.com/news/home/20170815005323/en/
Sypris Solutions, Inc.Anthony C. Allen,
502-329-2000Chief Financial Officer
Sypris Solutions (NASDAQ:SYPR)
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