Gross Margins Expand; Orders up 133% at
Sypris Electronics
Sypris Solutions, Inc. (Nasdaq/GM: SYPR) today reported
financial results for its first quarter ended April 5, 2020. 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 the Company’s cost structure
while diversifying its book of business in terms of both customers
and markets.
Results for the first quarter of 2020 fundamentally reflected
these expectations, with year-over-year gains in gross margin and
operating income. However, the Company began to experience lower
revenue late in the first quarter due to the global economic impact
of the COVID-19 pandemic. The Company expects this impact to
increase during the coming months.
HIGHLIGHTS
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- The
Company’s first quarter revenue increased 14.6% compared to the
prior-year quarter and increased 3.7% sequentially as shipments
from new programs increased for both segments of the
business.
- The
Company’s gross margin increased to 16.0% of revenue, up from 4.4%
in the first quarter of 2019 and up 350 basis points
sequentially.
- The
Company’s operating income was positive for the quarter, driven by
a 317.6% increase in gross profit and a 6.7% decrease in SG&A
when compared to the prior-year period. Sequentially, gross profit
increased 32.6% while SG&A decreased 7.2%.
- For Sypris
Technologies, gross margin increased 390 basis points to 18.2%
compared to the prior-year quarter despite lower revenue, while
operating income increased 7.0%. Operating margin increased to 8.2%
of sales, up from 6.5% for the same period in 2019 and up from 5.4%
sequentially.
- For Sypris
Electronics, revenue increased 154.4% during the quarter compared
to the prior-year period, reflecting the improved availability of
electronic components. Gross margin increased to 12.6% of sales,
while operating margin increased to 4.7% of revenue. Orders
increased 132.6% year-over-year, resulting in a 45.1% increase in
backlog.
- During the
quarter, Sypris Electronics announced that it had received a new
contract award from BAE Systems to manufacture and test electronic
power supply modules for a large, mission-critical military
program, with production to begin this year.
- Subsequent
to quarter end, the Company completed the sale of its 90-year-old
former manufacturing facility that was located on approximately 20
acres of land in Louisville, Kentucky, for $1.7 million. The
facility had been closed and unoccupied since the fourth quarter of
2017.
- Additionally, the Company secured a $3.6
million loan in May under the Paycheck Protection Program of the
Coronavirus Aid, Relief and Economic Securities Act, which will be
used to cover payroll costs, rent and utility costs in accordance
with the terms and conditions of the loan.
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“While the economic headwinds and disruptions in the quarter had
an impact on our results, we are pleased with our performance
during the period,” commented Jeffrey T. Gill, President and Chief
Executive Officer. “Gross margin for Sypris Technologies increased
390 basis points for the first quarter, despite the reduced demand
in the commercial vehicle market and lower energy product sales. We
believe that the market diversification Sypris Technologies has
accomplished over recent years by adding new programs in the
automotive, sport-utility and off-highway markets has benefited and
will continue to be of benefit to the Company going forward.
“Revenue for Sypris Electronics increased 154.4% from the
prior-year first quarter, reflecting the resolution of some of the
challenges we faced during the prior year with shortages of certain
electronic components. As shipments rebounded to normal run rates,
we continued to focus on improving operational performance.”
Concluding, Mr. Gill said, “Our customer base and the markets we
serve are considerably more diversified than at any point in our
recent history. With that said, the global macroeconomic
environment is experiencing uncertainty and volatility as a result
of the COVID-19 outbreak. We are closely monitoring the
developments and will act promptly to mitigate the risks to our
business as we navigate through these uncertain times.”
First Quarter Results
The Company reported revenue of $22.4 million for the first
quarter of 2020, compared to $19.6 million for the prior-year
period. Additionally, the Company reported operating income of $0.3
million and a net loss of $0.3 million for the first quarter, or
$0.01 per share, compared to an operating loss of $2.7 million and
a net loss of $3.0 million, or $0.15 per share, for the prior-year
period. Results for the quarter ended April 5, 2020, include
pension and foreign exchange related expenses of $0.4 million as
compared to $0.1 million in the prior-year comparable period.
Sypris Technologies
Revenue for Sypris Technologies was $13.7 million in the first
quarter of 2020, compared to $16.1 million for the prior-year
period, primarily reflecting the anticipated cyclical decline in
the commercial vehicle market, coupled with the impact of the
COVID-19 pandemic. Decreased volumes in the commercial vehicle
market and the decline in energy related product sales were
partially offset by growth of new programs in the automotive, light
truck and sport utility markets. Gross profit for the first quarter
was $2.5 million, or 18.2% of revenue, compared to $2.3 million, or
14.3% of revenue, for the same period in 2019.
Sypris Electronics
Revenue for Sypris Electronics was $8.7 million in the first
quarter of 2020, compared to $3.4 million for the prior-year
period. In the prior year, revenue for the first quarter was
negatively impacted by shortages of certain electronic components
and extensive lead-time issues in the electronic manufacturing
industry. Additionally, the first quarter of 2019 was also impacted
by shipments accelerated into the fourth quarter of 2018 as the
Company planned for the implementation of a new ERP system
effective in January 2019. Many of the challenges faced during the
prior year with the electronic component shortages have been
resolved and production rebounded to more normal run rates during
the first quarter of 2020. Gross profit for the quarter was $1.1
million, or 12.6% of revenue, compared to a loss of $1.4 million,
or 42.2% or revenue, for the same period in 2019.
Outlook
Commenting on the future, Mr. Gill added, “Our performance in
the first quarter of 2020 improved on both a year-over-year and
sequential basis in terms of gross margin and operating income, and
our business was not materially impacted by COVID-19 during the
period until very late in the quarter. However, the environment is
changing rapidly with regard to customers, suppliers and public
policy, and we are paying close attention to developments on a
daily basis.
“First and foremost, we are focused on the health and safety of
our employees, their families and our customers. We are closely
monitoring local, state and federal government agencies and will
follow all recommendations. The extent and duration of the impacts
that COVID-19 may have on our business are not known at this time,
but we are monitoring developments in order to be in a position to
take appropriate action.
“Our operations have remained open to meet the important needs
of our customers who serve defense, energy, transportation and
other critical infrastructure industries. We expect the road back
for the economy to be a potentially uncertain journey. If accurate,
we would anticipate the impact to be felt less on customers in
defense-related markets and more on those who serve industrial,
consumer and travel-related markets.”
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. Such statements
may relate to projections of the company’s revenue, earnings, and
other financial and operational measures, our liquidity, our
ability to mitigate or manage disruptions posed by COVID-19, and
the impact of COVID-19 and economic conditions on our future
operations, among other matters. In March 2020, the President of
the United States declared the COVID-19 outbreak a national
emergency. COVID-19 continues to spread throughout the United
States and other countries across the world, and the duration and
severity of its effects are currently unknown. The COVID-19
pandemic has resulted, and is likely to continue to result, in
significant economic disruption and has and will likely adversely
affect our business. The Company has continued to operate at each
location and sought to remain compliant with government regulations
imposed due to the COVID-19 pandemic.
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 impact of COVID-19 and
economic conditions on our future operations; possible public
policy response to the pandemic, including legislation or
restrictions that may impact our operations or supply chain; our
ability to comply with the requirements of the SBA and seek
forgiveness of all or a portion of the PPP Loan; our failure to
achieve and maintain 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; 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
and distribution of our human capital; 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; disputes or litigation
involving governmental, supplier, customer, employee, creditor,
stockholder, product liability or environmental claims; our
inability to develop new or improved products or new markets for
our products; cost, quality and availability of raw materials such
as steel, component parts (especially electronic components),
natural gas or utilities; breakdowns, relocations or major repairs
of machinery and equipment, especially in our Toluca Plant; our
inability to regain compliance with the NASDAQ listing standards
minimum closing bid price in a timely manner 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; failure to adequately insure or to identify
environmental or other insurable risks; unanticipated or uninsured
disasters, public health crises, losses or business risks; 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; 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; 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. We undertake no obligation to update our
forward-looking statements, except as may be required by law.
SYPRIS SOLUTIONS, INC. Financial Highlights
(In thousands, except per share amounts)
Three Months Ended
April 5,
March 31,
2020
2019
(Unaudited) Revenue
$
22,425
$
19,564
Net loss
$
(305
)
$
(3,036
)
Loss per common share: Basic
$
(0.01
)
$
(0.15
)
Diluted
(0.01
)
(0.15
)
Weighted average shares outstanding: Basic
20,988
20,669
Diluted
20,988
20,669
Sypris Solutions, Inc. Consolidated Statements of
Operations (in thousands, except for per share data)
Three Months Ended
April 5,
March 31,
2020
2019
(Unaudited) Net revenue: Sypris
Technologies
$
13,717
$
16,141
Sypris Electronics
8,708
3,423
Total net revenue
22,425
19,564
Cost of sales: Sypris Technologies
11,224
13,837
Sypris Electronics
7,610
4,867
Total cost of sales
18,834
18,704
Gross profit (loss): Sypris Technologies
2,493
2,304
Sypris Electronics
1,098
(1,444
)
Total gross profit
3,591
860
Selling, general and administrative
3,223
3,454
Severance, relocation and other costs
91
98
Operating income (loss)
277
(2,692
)
Interest expense, net
227
217
Other expense, net
283
51
Loss before taxes
(233
)
(2,960
)
Income tax expense, net
72
76
Net loss
$
(305
)
$
(3,036
)
Loss per common share: Basic
$
(0.01
)
$
(0.15
)
Diluted
$
(0.01
)
$
(0.15
)
Dividends declared per common share
$
-
$
-
Weighted average shares outstanding: Basic
20,988
20,669
Diluted
20,988
20,669
Sypris Solutions, Inc. Consolidated Balance
Sheets (in thousands, except for share data)
April 5,
December 31,
2020
2019
(Unaudited) (Note) ASSETS
Current assets: Cash and cash equivalents
$
5,206
$
5,095
Accounts receivable, net
8,922
7,444
Inventory, net
19,401
20,784
Other current assets
3,782
4,282
Assets held for sale
2,167
2,233
Total current assets
39,478
39,838
Property, plant and equipment, net
9,687
11,675
Operating lease right-of-use assets
6,727
7,014
Other assets
1,374
1,529
Total assets
$
57,266
$
60,056
LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities:
Accounts payable
$
10,686
$
9,346
Accrued liabilities
11,624
12,495
Operating lease liabilities, current portion
862
841
Finance lease obligations, current portion
667
684
Note payable - related party, current portion
2,500
-
Total current liabilities
26,339
23,366
Operating lease liabilities, net of current
portion
6,672
6,906
Finance lease obligations, net of current portion
2,225
2,351
Note payable - related party
3,967
6,463
Other liabilities
6,756
7,539
Total liabilities
45,959
46,625
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; 21,324,618 shares issued and 21,309,580 outstanding in
2020 and 21,324,618 shares issued and 21,298,426 outstanding in
2019
213
213
Additional paid-in capital
154,789
154,702
Accumulated deficit
(117,738
)
(117,433
)
Accumulated other comprehensive loss
(25,957
)
(24,051
)
Treasury stock, 15,038 and 26,192 in 2020 and 2019, respectively
-
-
Total stockholders’ equity
11,307
13,431
Total liabilities and stockholders’ equity
$
57,266
$
60,056
Note: The balance sheet at December 31, 2019,
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 5,
March 31,
2020
2019
(Unaudited) Cash flows from operating activities:
Net loss
$
(305
)
$
(3,036
)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities: Depreciation and amortization
620
691
Non-cash compensation expense
94
111
Deferred loan costs recognized
4
4
Net gain on the sale of assets
(154
)
-
Provision for excess and obsolete inventory
40
37
Non-cash lease expense
288
164
Other noncash items
190
(86
)
Contributions to pension plans
(34
)
(10
)
Changes in operating assets and liabilities: Accounts
receivable
(1,478
)
758
Inventory
846
(2,486
)
Prepaid expenses and other assets
(99
)
473
Accounts payable
1,474
(1,187
)
Accrued and other liabilities
(772
)
40
Net cash provided by (used in) operating activities
714
(4,527
)
Cash flows from investing activities: Capital
expenditures
(453
)
(348
)
Proceeds from sale of assets
288
-
Net cash used in investing activities
(165
)
(348
)
Cash flows from financing activities: Finance lease
payments
(143
)
(146
)
Indirect repurchase of shares for minimum statutory tax
withholdings
(7
)
(49
)
Net cash used in financing activities
(150
)
(195
)
Effect of exchange rate changes on cash balances
(288
)
55
Net increase (decrease) in cash and cash equivalents
111
(5,015
)
Cash and cash equivalents at beginning of period
5,095
10,704
Cash and cash equivalents at end of period
$
5,206
$
5,689
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200520005047/en/
Anthony C. Allen Chief Financial Officer (502)
329-2000
Sypris Solutions (NASDAQ:SYPR)
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