Reaffirms 2018 Growth and Margin Expansion
Guidance
Sypris Solutions, Inc. (Nasdaq/GM: SYPR) today reported
financial results for its first quarter ended
April 1, 2018. Sypris Solutions has completed several
strategic initiatives in order to better align its cost structure
and diversify the Company’s book of business, both in terms of
customers and markets. As a result, the Company has stabilized its
revenue base and is positioned to achieve attractive top-line
growth in 2018, along with higher gross profit and a return to
profitable operations.
HIGHLIGHTS
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- The Company’s first quarter revenue
increased 9.7% compared to the prior-year quarter, while gross
margin improved to 10.2%, up from a negative 3.0% last year.
- Revenue for Sypris Technologies
increased 13.7% during the quarter compared to the prior-year
period, reflecting the impact of new contract awards and positive
market conditions.
- Gross margin for Sypris Technologies
improved to 14.5% for the quarter, up from a negative 5.0% for the
prior-year period, and increased 320 basis points sequentially from
the fourth quarter of 2017, reflecting significantly lower
operating costs and improved mix.
- Orders for Sypris Electronics increased
84.1% during the quarter compared to the same period in 2017.
Revenue was unchanged on a year-over-year basis and down
sequentially, reflecting the short-term impact on sales from the
delay in the receipt of certain electronic components.
- During the quarter, the Company
announced new contract awards for Sypris Electronics for the
production of electronic assemblies for use in munition dispensing
systems and global undersea communications projects.
- The Company reaffirmed its financial
guidance for the year, with revenue forecast to be in the range of
$90.0-$96.0 million for 2018, representing top-line growth of 13.0%
at the midpoint on a year-over-year basis, with gross profit
forecast to be in the range of 15.0%-17.0% of revenue. As a result,
the Company expects to be profitable for the year.
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“We are pleased to report that the gross margin and adjusted
operating income of Sypris Technologies increased for the second
consecutive quarter, reflecting the benefits of our previously
announced cost reduction efforts and our work to target more
strategic marketing opportunities,” commented Jeffrey T. Gill,
president and chief executive officer. “With all of our cost
reduction programs now complete, we can look forward to the full
impact of these actions rolling into our 2018 results, with further
meaningful improvements in gross margin expected to be reported
during the balance of the year.
“The financial results of Sypris Electronics continued to be
affected during the first quarter by materials availability, which
resulted in lower shipment levels than were otherwise planned.
Importantly, we expect to see progressively higher levels of
shipments sequentially through 2018, with a full recovery to normal
deliveries during the second half of the year.
“As noted in our fourth quarter update, electronic component
shortages and extensive lead-time issues are currently prevalent in
the electronics manufacturing industry. We are continuing to work
with our customers to qualify alternative components and/or
suppliers to mitigate the impact on our business and expedite
shipments to our customers. The majority of our aerospace and
defense programs require specific components or components that are
sole-sourced to specific suppliers; therefore, the resolution of
supplier constraints requires coordination with our customers or
the end-users of the products.
“We continue to see strong demand in each of our primary markets
to support our revenue outlook for the balance of the year. The
combination of our expected revenue growth and lower fixed
manufacturing overhead costs, driven by our cost reduction actions,
will contribute to our return to profitability for 2018,” Mr. Gill
added.
Concluding, Mr. Gill said, “With the closure of the Broadway
Plant, we have taken 450,000 square feet out of our operating
footprint, our SG&A expense will continue to decline as a
percentage of revenue, and our customer base and markets served are
resilient, growing and are considerably more diversified than at
any point in our history. We have substantially improved the
Company’s competitiveness.”
First Quarter Results
The Company reported revenue of $19.9 million for the first
quarter compared to $18.2 million for the prior-year period.
Additionally, the Company reported a net loss of $1.8 million,
or $0.09 per share, compared to a loss of $3.3 million,
or $0.16 per share, for the prior-year period. The results for
the quarter ended April 1, 2018, include a gain of
$0.3 million from the sale of excess equipment by Sypris
Technologies and costs of $0.5 million related to preparing
the Broadway facility for sale or other use. Results for the
quarter ended April 2, 2017, include a gain of
$2.4 million from the sale of excess equipment by Sypris
Technologies, a foreign exchange translation loss of $0.4 million
and severance and relocation costs of $1.0 million related to
the Broadway transition. Excluding the gains on sales of equipment,
severance and relocation costs and foreign exchange translation
loss, the net loss for the quarter ended April 1, 2018 and April 2,
2017, would have been $1.6 million and $4.3 million,
respectively.
Sypris Technologies
Revenue for Sypris Technologies was $14.5 million in the
first quarter compared to $12.8 million for the prior-year
period, primarily reflecting an increase in demand from customers
in the oil and gas, automotive and commercial vehicle industries.
Gross profit for the quarter was $2.2 million, or 14.5% of
revenue, compared to a loss of $0.6 million, or a negative
5.0% of revenue, for the same period in 2017. Gross profit was
positively affected by the increase in volume and productivity
improvements realized following the transfer of production from our
Broadway Plant, which was completed as of the end of 2017.
Sypris Electronics
Revenue for Sypris Electronics was flat at $5.4 million in
the first quarter of 2018 compared to the prior year-period.
Revenue for the quarter was affected by shortages of certain
electronic components and extensive lead-time issues in the
electronics manufacturing industry. Gross profit for the quarter
was a loss of $0.1 million, compared to a profit of
$0.1 million for the prior-year period, primarily reflecting
changes in revenue mix.
Outlook
Commenting on the future, Mr. Gill added, “Our markets are
poised to provide Sypris with the opportunity for healthy,
double-digit revenue growth during 2018. New contract awards and
market expansion are expected to occur in each of our targeted
markets for energy, automotive, commercial vehicle and aerospace
and defense products.
“Third-party forecasts for the Class 8 commercial vehicle market
indicate production will be up over 30% in 2018 compared to 2017.
The energy market continues to benefit from increased demand and
higher oil prices. The National Defense Authorization Act for
Fiscal Year 2018 provides nearly $700 billion in funding for
the U.S. Department of Defense, which is expected to support
program growth and market expansion for Aerospace and Defense
participants during the coming year. And from a cost standpoint, we
expect 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 are pleased to reaffirm our guidance for 2018,
with full-year revenue and gross margin expected to be in the range
of $90.0-$96.0 million and 15.0%-17.0%, respectively. Revenue and
gross margin for the first six months of 2018 are forecast to be in
the range of $43.0-$45.0 million and 13.0%-15.0%, respectively,
while revenue and gross margin for the second half of the year are
forecast to be in the range of $47.0-$51.0 million and 16.0%-18.0%,
respectively.
“Taking a closer look at the first half of 2018, we are
forecasting consolidated revenue and gross margin for the second
quarter of $23.0-$25.0 million and 16.0%-18.0%, respectively.
Sypris Technologies is expected to generate revenue and gross
margin of $16.0-$17.0 million and 18.0%-21.0%, respectively, for
the quarter, while revenue and gross margin for Sypris Electronics
is forecast to be in the range of $7.0-$8.0 million and
10.0%-12.0%, respectively.
“We expect selling, general and administrative spending to be in
the range of 13.0%-14.5% of revenue for the full year, subject to
actual top line performance. The net result is that we expect to
return to profitability on a consolidated basis for 2018.”
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. 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 and
cash flows includes significant gains and proceeds 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; 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, tariffs, freight or expediting costs; our
failure to successfully migrate to a more diversified base of
customers in the commercial vehicle markets who place high
strategic value on our innovation, flexibility and lean
manufacturing capabilities, including the targeted increase in
sales of our Tube Turns® energy-related products; cost and
availability of raw materials such as steel, component parts
(especially electronic components), natural gas or utilities;
inventory valuation risks including excessive or obsolescent
valuations or price erosions of raw materials or component parts on
hand; breakdowns, relocations or major repairs of machinery and
equipment, especially in our Toluca Plant; our failure to
successfully complete final contract negotiations with regard to
our announced contract “orders,” “wins” or “awards”; dependence on,
retention or recruitment of key employees; disputes or litigation
involving supplier, customer, employee, creditor, stockholder,
product liability or environmental claims; 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, and in turn
cause increases in our inventory and working capital levels; the
fees, costs and supply of, or access to, debt, equity capital, or
other sources of liquidity; potential impairments,
non-recoverability or write-offs of assets or deferred costs; the
costs of compliance with our auditing, regulatory or contractual
obligations; regulatory actions or sanctions; changes in licenses,
security clearances, or other legal rights to operate, manage our
work force or import and export as needed; 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; our inability
to patent or otherwise protect our inventions or other intellectual
property from potential competitors; 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; U.S. government spending on products and services that
Sypris Electronics provides, including the timing of budgetary
decisions; risks of foreign operations; currency exchange rates;
war, terrorism, or political uncertainty; cyber security threats
and disruptions; 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 April
1, April 2, 2018 2017
(Unaudited) Revenue $ 19,942 $ 18,185 Net loss $ (1,795 ) $
(3,308 ) Loss per common share: Basic $ (0.09 ) $ (0.16 ) Diluted
(0.09 ) (0.16 ) Weighted average shares outstanding: Basic 20,394
20,173 Diluted 20,394 20,173
Sypris Solutions,
Inc. Consolidated Statements of Operations (in
thousands, except for per share data)
Three Months Ended April 1,
April 2, 2018 2017 (Unaudited) Net
revenue: Sypris Technologies $ 14,507 $ 12,760 Sypris Electronics
5,435 5,425
Total net revenue 19,942 18,185 Cost of sales: Sypris Technologies
12,400 13,404 Sypris Electronics
5,511
5,328 Total cost of sales 17,911 18,732
Gross profit (loss): Sypris Technologies 2,107 (644 ) Sypris
Electronics
(76 )
97 Total gross profit (loss) 2,031 (547 )
Selling, general and administrative 3,148 3,410 Research and
development - 22 Severance, relocation and other costs
509 998 Operating
loss (1,626 ) (4,977 ) Interest expense, net 213 188 Other income,
net
(84 )
(1,848 ) Loss before taxes (1,755 )
(3,317 ) Income tax expense (benefit), net
40
(9 ) Net loss
$ (1,795 ) $
(3,308 ) Loss per common share: Basic $
(0.09 ) $ (0.16 ) Diluted $ (0.09 ) $ (0.16 ) Dividends declared
per common share $ - $ - Weighted average shares outstanding: Basic
20,394 20,173 Diluted 20,394 20,173
Sypris
Solutions, Inc. Consolidated Balance Sheets (in
thousands, except for share data)
April 1, December 31, 2018
2017 (Unaudited) (Note) ASSETS Current
assets: Cash and cash equivalents $ 7,030 $ 8,144 Accounts
receivable, net 9,998 9,317 Inventory, net 16,579 17,641 Other
current assets 4,155 2,003 Assets held for sale
2,861 2,898 Total
current assets 40,623 40,003 Property, plant and equipment, net
15,706 15,574 Other assets
1,394
1,578 Total assets
$
57,723 $ 57,155
LIABILITIES AND STOCKHOLDERS' EQUITY Current
liabilities: Accounts payable $ 11,524 $ 10,465 Accrued liabilities
11,176 10,330 Current portion of capital lease obligations
516 829 Total
current liabilities 23,216 21,624 Long-term capital lease
obligations 3,286 3,397 Note payable - related party 6,438 6,435
Other liabilities
8,927
8,769 Total liabilities 41,867 40,225
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; 21,372,374 shares issued and
21,356,182 outstanding in 2018 and 21,438,269 shares issued and
21,422,077 outstanding in 2017
214 214 Additional paid-in capital 154,001 153,858 Accumulated
deficit (113,216 ) (111,591 ) Accumulated other comprehensive loss
(25,143 ) (25,551 ) Treasury stock, 16,192 in 2018 and 2017
- - Total
stockholders’ equity
15,856
16,930 Total liabilities and stockholders’
equity
$ 57,723 $
57,155
Note: The balance sheet at December 31, 2017, 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)
Three Months Ended April 1, April
2, 2018 2017 (Unaudited) Cash flows from
operating activities: Net loss $ (1,795 ) $ (3,308 )
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 672 1,016 Stock-based compensation
expense 143 175 Deferred loan costs recognized 3 15 Gain on the
sale of assets (281 ) (2,416 ) Provision for excess and obsolete
inventory (75 ) 35 Other noncash items 68 507 Contributions to
pension plans (11 ) - Changes in operating assets and liabilities:
Accounts receivable (675 ) (1,041 ) Inventory 78 (5,027 ) Prepaid
expenses and other assets (667 ) 413 Accounts payable 1,047 5,729
Accrued and other liabilities
847
3,062 Net cash used in operating activities
(646 ) (840 ) Cash flows from investing activities: Capital
expenditures (406 ) (176 ) Proceeds from sale of assets
363 2,502 Net cash
(used in) provided by investing activities (43 ) 2,326 Cash flows
from financing activities: Capital lease payments (425 ) (37 )
Indirect repurchase of shares for minimum statutory tax
withholdings
- (2
) Net cash used in financing activities
(425 ) (39
) Net (decrease) increase in cash and cash equivalents
(1,114 ) 1,447 Cash and cash equivalents at beginning of period
8,144 15,270
Cash and cash equivalents at end of period
$
7,030 $ 16,717
View source
version on businesswire.com: https://www.businesswire.com/news/home/20180515005402/en/
Sypris Solutions, Inc.Anthony C. Allen, 502-329-2000Chief
Financial Officer
Sypris Solutions (NASDAQ:SYPR)
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