Gross Margin Expands 480 Basis
Points
Sypris Solutions, Inc. (Nasdaq/GM: SYPR) today reported
financial results for its third quarter ended September 29, 2019.
Having completed a series of strategic initiatives over the past
several years, Sypris Solutions is now better positioned to achieve
long-term growth and a return to profitable operations. These steps
have included reducing and realigning its cost structure while
diversifying its book of business in terms of both customers and
markets.
Results for the third quarter of 2019 reflected year-over-year
gains in revenue and gross margin; however, our performance was
impacted by lower than expected shipments for Sypris Electronics
that related primarily to two specific supply chain challenges
early in the quarter. Sypris Technologies delivered another
profitable quarter with gross margin of 16.1% compared with 8.9% in
the prior year.
HIGHLIGHTS ─────────────────────
- The
Company’s third quarter 2019 consolidated revenue increased 5.5% to
$22.3 million compared with the prior-year quarter, while gross
margin increased 480 basis points to 10.5% and gross profit
increased 93.5% to $2.3 million, up from $1.2 million in the prior
year.
- Revenue for
Sypris Technologies increased 5.4% to $15.7 million during the
quarter compared to the prior-year period, while gross margin
increased 720 basis points to 16.1% from the third quarter of
2018.
- Revenue for
Sypris Electronics increased 5.7% to $6.6 million during the
quarter compared to the prior-year period while gross margin was
down slightly for the comparable quarterly period.
- During the
quarter, Sypris Electronics announced that it has received a
multi-year contract award from Northrop Grumman Corporation to
manufacture a variety of mission-critical electronic assemblies for
a large government Department of Defense program, with production
beginning in 2019 and continuing into 2021.
- During the
quarter, Sypris Technologies announced that it has received
significant orders for its Tube Turns® branded closures for use on
the Future Growth Project-Wellhead Pressure Management Project in
Kazakhstan and the Coastal GasLink Pipeline Project in British
Columbia, Canada. Production will begin in 2019 and continue into
2020.
- Subsequent
to quarter-end, the Company announced two long-term supply
agreements for Sypris Technologies to produce certain components
for use in a new automotive transmission and the transmission of a
leading all-terrain and powersports recreational vehicle
series.
- The Company
announced its financial guidance for the fourth quarter of 2019,
with revenue forecasted to be in the range of $23-$25 million and
gross margin in the range of 15%-17% with both business segments
forecasted to register solid profitability. The Company now expects
to achieve revenues of $89-$91 million for the year and gross
margin of 11%-12%.
- The
Company’s preliminary outlook for 2020 includes revenue of $95-$105
million, representing 11% year-over-year growth at the midpoint,
gross margin of 15%-17% and a return to profitability on a
consolidated basis.
─────────────────────
“We are pleased with the year-over-year revenue growth at Sypris
Technologies,” commented Jeffrey T. Gill, president and chief
executive officer. “Shipments of energy related products remained
strong in the quarter, reflecting demand from domestic as well as
international customers. Sales within the commercial vehicle market
also performed well in spite of signals of reduced demand due to
Class 8 production ramping down beginning late in the third
quarter. Our margins for both the quarter and year-to-date periods
have been impacted by additional costs associated with implementing
the processes and equipment infrastructure for new programs
launching this year, but are not expected to carry over into
2020.
“The financial results of Sypris Electronics were affected
during the third quarter by two discrete material issues which
resulted in lower shipment levels than planned. The first issue
involved a temporary interruption in the supply of a coating
applied by a subcontractor to one of the components used on a high
volume program. The second issue involved a delay in the prime
contractor’s approval of a substitute component on a program after
our customer had previously approved the component. Both of these
issues were resolved late in the third quarter allowing shipments
to rebound to normal run rates by quarter end.”
Concluding, Mr. Gill said, “While we continue to onboard new
programs in each of our primary markets, we adjusted our guidance
for 2019 to reflect the supply chain challenges that dampened
revenue in the third quarter and softer demand beginning in the
fourth quarter in the commercial vehicle market. Our customer base
and the markets we serve are considerably more diversified than at
any point in our recent history and we are confident we can offset
the cyclical market volatility with new program revenue as we
approach our 2020 business planning cycle.”
Third Quarter Results
The Company reported revenue of $22.3 million for the third
quarter, compared to $21.1 million for the prior-year period.
Additionally, the Company reported a net loss of $1.6 million, or
$0.07 per share, compared to a net loss of $2.3 million, or $0.11
per share, for the prior-year period.
For the nine months ended September 29, 2019, the Company
reported revenue of $66.3 million compared with $64.0 million for
the first nine months of 2018. The Company reported a net loss for
the nine-month period of $3.1 million, or $0.15 per share, compared
with a net loss of $3.3 million, or $0.16 per share, for the
prior-year period. Results for the nine months ended September 29,
2019, include a gain of $1.5 million in connection with a contract
settlement with one of its customers and a gain of $0.5 million on
the sale of excess equipment. Results for the nine months ended
September 29, 2018, included an insurance recovery gain of $2.3
million, which was partially offset by a loss of $0.2 million on
the sale of excess equipment.
Sypris Technologies
Revenue for Sypris Technologies was $15.7 million in the third
quarter, compared to $14.9 million for the prior-year period,
primarily reflecting an increase in energy related product sales
and price increases for a commercial vehicle program implemented
during the fourth quarter of 2018. Gross profit for the quarter was
$2.5 million, or 16.1% of revenue, compared to $1.3 million, or
8.9% of revenue, for the same period in 2018.
Sypris Electronics
Revenue for Sypris Electronics was $6.6 million in the third
quarter, compared to $6.2 million for the prior-year period.
Revenue for the quarter was affected by the supply chain issues
previously discussed which also drove gross profit lower than
expected. Gross profit for the quarter was a loss of $0.2 million
compared to a loss of $0.1 million for the prior-year period. Gross
profit for the quarter further included the impact of inventory
related charges of $0.3 million for a quarter-end physical
inventory adjustment and excess and obsolete inventory reserves of
$0.1 million.
Outlook
Commenting on the future, Mr. Gill added, “We anticipate new
contract awards in each of our targeted markets for energy,
automotive, commercial vehicle, and aerospace and defense products
as well as new electronics programs.
“The recent demand volatility in the commercial vehicle market
is anticipated to put downward pressure on volumes as we enter the
fourth quarter of 2019. However, the ramp up of the recently
announced new programs is expected to mitigate the softness coming
from the commercial vehicle market. The energy market continues to
benefit from strong oil and natural gas infrastructure development
providing opportunities to grow revenue from our product offerings.
Both the House and Senate versions of the Fiscal Year 2020 National
Defense Authorization Act would provide over $700 billion of
funding for the Department of Defense. Maintaining defense spending
at this level is expected to support program growth and market
expansion for aerospace and defense participants during the coming
year.
“Our revenue outlook for the fourth quarter is forecasted to be
in the range of $23-$25 million and gross margin is forecasted to
be in the range of 15%-17%. Our preliminary outlook for 2020
includes revenue of $95-$105 million and gross margin continuing in
the range of 15%-17%.”
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: the quantitative effects of
the restatement of our previously issued unaudited consolidated
interim financial statements as of and for the quarter ended March
31, 2019; the effectiveness of our internal control over financial
reporting and our disclosure controls and procedures; our failure
to return to profitability on a timely basis by steadily increasing
our revenues from profitable contracts with a diversified group of
customers, which would cause us to continue to use existing cash
resources or other assets to fund operating losses; our failure to
achieve targeted gains and cash proceeds from the anticipated sale
of certain equipment; dependence on, retention or recruitment of
key employees; the cost, quality, timeliness, efficiency and yield
of our operations and capital investments, including the impact of
tariffs, product recalls or related liabilities, employee training,
working capital, production schedules, cycle times, scrap rates,
injuries, wages, overtime costs, freight or expediting costs; cost,
quality and availability of raw materials such as steel, component
parts (especially electronic components), natural gas or utilities;
our reliance on a few key customers, third party vendors and
sub-suppliers; continued shortages and extensive lead-times for
electronic components; inventory valuation risks including
excessive or obsolescent valuations or price erosions of raw
materials or component parts on hand or other potential
impairments, non-recoverability or write-offs of assets or deferred
costs; other potential weaknesses in internal controls over
financial reporting and enterprise risk management; disputes or
litigation involving governmental, supplier, customer, employee,
creditor, stockholder, product liability or environmental claims;
the fees, costs and supply of, or access to, debt, equity capital,
or other sources of liquidity; failure to adequately insure or to
identify environmental or other insurable risks; unanticipated or
uninsured disasters, losses or business risks; 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”; 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 costs of
compliance with our auditing, regulatory or contractual
obligations; our inability to develop new or improved products or
new markets for our products; labor relations; strikes; union
negotiations; pension valuation, health care or other benefit
costs; our inability to patent or otherwise protect our inventions
or other intellectual property from potential competitors; adverse
impacts of new technologies or other competitive pressures which
increase our costs or erode our margins; our ability to maintain
compliance with the NASDAQ listing standards; U.S. government
spending on products and services that Sypris Electronics provides,
including the timing of budgetary decisions; changes in licenses,
security clearances, or other legal rights to operate, manage our
work force or import and export as needed; risks of foreign
operations; currency exchange rates; war, terrorism, or political
uncertainty; cyber security threats and disruptions; 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 September 29, September 30,
2019
2018
(Unaudited) Revenue
$
22,259
$
21,101
Net loss
$
(1,557
)
$
(2,336
)
Loss per common share: Basic
$
(0.07
)
$
(0.11
)
Diluted
$
(0.07
)
$
(0.11
)
Weighted average shares outstanding: Basic
20,941
20,555
Diluted
20,941
20,555
Nine Months Ended September
29, September 30,
2019
2018
(Unaudited) Revenue
$
66,267
$
64,014
Net loss
$
(3,090
)
$
(3,317
)
Loss per common share: Basic
$
(0.15
)
$
(0.16
)
Diluted
(0.15
)
(0.16
)
Weighted average shares outstanding: Basic
20,829
20,497
Diluted
20,829
20,497
Sypris Solutions, Inc. Consolidated
Statements of Operations (in thousands, except for per share
data) Three Months Ended Nine Months Ended
September 29, September 30, September 29,
September 30,
2019
2018
2019
2018
(Unaudited) (Unaudited) Net revenue: Sypris
Technologies
$
15,654
$
14,852
$
48,673
$
44,686
Sypris Electronics
6,605
6,249
17,594
19,328
Total net revenue
22,259
21,101
66,267
64,014
Cost of sales: Sypris Technologies
13,140
13,523
40,892
39,320
Sypris Electronics
6,793
6,376
18,200
18,527
Total cost of sales
19,933
19,899
59,092
57,847
Gross profit (loss): Sypris Technologies
2,514
1,329
7,781
5,366
Sypris Electronics
(188
)
(127
)
(606
)
801
Total gross profit
2,326
1,202
7,175
6,167
Selling, general and administrative
3,148
2,942
10,206
9,261
Severance, relocation and other costs
190
274
391
1,088
Operating loss
(1,012
)
(2,014
)
(3,422
)
(4,182
)
Interest expense, net
227
231
676
665
Other expense (income), net
286
56
(1,156
)
(1,651
)
Loss before taxes
(1,525
)
(2,301
)
(2,942
)
(3,196
)
Income tax expense, net
32
35
148
121
Net Loss
$
(1,557
)
$
(2,336
)
$
(3,090
)
$
(3,317
)
Loss per common share: Basic
$
(0.07
)
$
(0.11
)
$
(0.15
)
$
(0.16
)
Diluted
$
(0.07
)
$
(0.11
)
$
(0.15
)
$
(0.16
)
Dividends declared per common share
$
-
$
-
$
-
$
-
Weighted average shares outstanding: Basic
20,941
20,555
20,829
20,497
Diluted
20,941
20,555
20,829
20,497
Sypris Solutions, Inc. Consolidated Balance
Sheets (in thousands, except for share data)
September 29, December 31,
2019
2018
(Unaudited) (Note) ASSETS Current assets: Cash
and cash equivalents
$
7,053
$
10,704
Accounts receivable, net
8,668
9,881
Inventory, net
20,566
18,584
Other current assets
4,672
4,755
Assets held for sale
1,288
1,474
Total current assets
42,247
45,398
Property, plant and equipment, net
13,262
14,655
Operating lease right-of-use assets
7,123
-
Other assets
1,599
1,515
Total assets
$
64,231
$
61,568
LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities:
Accounts payable
$
10,098
$
13,427
Accrued liabilities
16,557
14,965
Operating lease liabilities, current portion
820
-
Finance lease obligations, current portion
666
593
Total current liabilities
28,141
28,985
Note payable - related party
6,460
6,449
Operating lease liabilities, net of current portion
7,131
-
Finance lease obligations, net of current portion
2,535
2,804
Other liabilities
6,552
8,496
Total liabilities
50,819
46,734
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
sharesauthorized; no shares issued
-
-
Common stock, non-voting, par value $0.01 per share, 10,000,000
sharesauthorized; no shares issued
-
-
Common stock, par value $0.01 per share, 30,000,000 shares
authorized; 21,324,618 shares issued and 21,308,426 outstanding in
2019 and 21,414,374 shares issued and 21,398,182 outstanding in
2018
214
214
Additional paid-in capital
154,640
154,388
Accumulated deficit
(116,574
)
(114,926
)
Accumulated other comprehensive loss
(24,868
)
(24,842
)
Treasury stock, 16,192 in 2019 and 2018
-
-
Total stockholders’ equity
13,412
14,834
Total liabilities and stockholders’ equity
$
64,231
$
61,568
Note: The balance sheet at December 31, 2018, 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) Nine Months Ended September 29,
September 30,
2019
2018
(Unaudited) Cash flows from operating activities: Net loss
$
(3,090
)
$
(3,317
)
Adjustments to reconcile net loss to net cashused in operating
activities: Depreciation and amortization
2,106
1,988
Stock-based compensation expense
389
493
Deferred loan costs recognized
11
11
Net (gain) loss on the sale of assets
(467
)
241
Insurance recovery gain
-
(2,275
)
Provision for excess and obsolete inventory
503
(125
)
Non-cash lease expense
541
-
Other noncash items
(122
)
127
Contributions to pension plans
(348
)
(77
)
Changes in operating assets and liabilities: Accounts receivable
1,198
(2,164
)
Inventory
(2,485
)
(2,184
)
Prepaid expenses and other assets
23
(2,681
)
Accounts payable
(3,314
)
4,007
Accrued and other liabilities
1,908
4,891
Net cash used in operating activities
(3,147
)
(1,065
)
Cash flows from investing activities: Capital expenditures
(553
)
(1,321
)
Proceeds from sale of assets
653
1,388
Insurance proceeds for recovery of property damage, net
-
2,275
Net cash provided by investing activities
100
2,342
Cash flows from financing activities: Capital lease payments
(466
)
(691
)
Indirect repurchase of shares for minimum statutory tax
withholdings
(138
)
(107
)
Net cash used in financing activities
(604
)
(798
)
Net (decrease) increase in cash and cash equivalents
(3,651
)
479
Cash and cash equivalents at beginning of period
10,704
8,144
Cash and cash equivalents at end of period
$
7,053
$
8,623
View source
version on businesswire.com: https://www.businesswire.com/news/home/20191112005271/en/
Anthony C. Allen Chief Financial Officer (502)
329-2000
Sypris Solutions (NASDAQ:SYPR)
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