Sypris Electronics Sales up 28%; Gross
Profit Up 73%
Sypris Solutions, Inc. (Nasdaq/GM: SYPR) today reported
financial results for its second quarter ended July 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 second quarter of 2020 fundamentally reflected
these expectations, highlighted by the improved performance of
Sypris Electronics. The global economic impact of the COVID-19
pandemic was felt in the majority of the Company’s markets during
the quarter, however the essential nature of the defense and
communication programs served by Sypris Electronics allowed this
segment to sustain operations near planned levels. The Company
expects customer demand will improve sequentially in its other
markets during the third quarter, albeit with continued uncertainty
related to the pandemic.
HIGHLIGHTS ─────────────────────
- The Company’s second quarter
revenue decreased 29.8% compared to the prior-year quarter and
23.5% sequentially, reflecting lower market volumes driven by the
temporary closure of customer operations in response to the
pandemic, while the subsequent restart of operations in June has
had a corresponding positive impact on demand.
- Sypris Electronics revenue
increased 28.3% during the quarter compared to the prior-year
period and 11.5% sequentially, supported by a strong backlog of
orders, which has increased 22.5% since year-end 2019.
- Sypris Electronics gross
profit increased 72.9% and 61.6% on a year-over-year and sequential
basis, respectively. Gross margin increased 470 basis points
compared to the prior year and 570 basis points sequentially to
18.3%.
- As a result of the higher
levels of shipments, operating margins for Sypris Electronics
increased to 10.6%, reflecting a material improvement over its
historical results on both a year-over-year and sequential
basis.
- Sypris Technologies revenue
decreased 55.9% during the quarter compared to the prior-year
period and 45.7% sequentially due to many customers idling
operations throughout the quarter in response to the pandemic.
These operations have since reopened, resulting in a positive
impact on demand.
- During the second quarter,
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.
- The Company secured a $3.6
million loan in May under the Paycheck Protection Program of the
Coronavirus Aid, Relief and Economic Securities Act. The proceeds
have been used to cover payroll costs, rent and utility costs in
accordance with the terms and conditions of the loan.
- Subsequent to quarter-end,
Sypris Electronics announced an initial contract award from the
Leonardo DRS Naval Electronics business unit to manufacture and
test electronic assemblies for a shipboard system with production
to begin during 2020.
- Subsequent to quarter-end,
Sypris Technologies announced the award of orders for projects in
Brazil and Canada. The contracts, which provide for the use of
Ultra-High-Pressure closures in the Libra Oil Field deep water
project in Brazil and Double-Bolt closures in the Trans Mountain
Pipeline Expansion project in Canada, call for shipments to begin
in the second half of 2020.
─────────────────────
“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. “In the face of unprecedented challenges brought
on by the pandemic, our businesses pulled together to protect our
people, while balancing the needs of our customers, communities and
business partners during these difficult times.
“Revenue for Sypris Electronics increased 28.3% from the
prior-year quarter and 11.5% sequentially, reflecting its strong
backlog and improved electronic component availability. Sales are
up 67.6% for the first half of 2020 compared to the prior year,
while backlog has increased 22.5% since year-end. We have been
designated as an essential supplier to our customers serving the
defense and communications industries and as such, our team has
done an excellent job making sure that we were able to provide for
their increasing needs during the period.
“The temporary closure of operations by customers serving the
energy, automotive, commercial vehicle, sport utility and
off-highway markets had a significant impact on Sypris Technologies
during the months of April and May, before we began to see demand
recover in June. The outlook going forward has much improved with
all customer plants open at this time. It is worth noting that this
business of ours has remained profitable on a year-to-date basis,
which is a remarkable feat and serves as testimony to the
capabilities of our people.
“Sypris Technologies has also been designated as an essential
supplier to our customers serving the energy and transportation
sectors of our country and as a result, our team will continue to
take whatever steps are necessary to ensure that the needs of our
customers are reliably met without delay.”
Concluding, Mr. Gill said, “Our customer base and the markets we
serve are considerably more diversified than at any point in our
recent history. As an essential business, we have a responsibility
to ensure that our defense, communications, energy and
transportation sectors remain vibrant. We will continue to monitor
developments, act promptly to mitigate the risks and take the
necessary steps required to ensure deliveries continue to be made
in a timely manner.”
Second Quarter Results
The Company reported revenue of $17.2 million for the second
quarter ended July 5, 2020, compared to $24.4 million for the
prior-year period. Additionally, the Company reported a net loss of
$0.3 million for the second quarter, or $0.02 per share, compared
to net income of $1.5 million, or $0.07 per share, for the
prior‑year period. Results for the quarter ended July 5, 2020,
include net gains of $0.8 million from the sale of idle assets by
Sypris Technologies. Results for the quarter ended June 30, 2019,
include a gain of $1.5 million in connection with a contract
settlement with one of its customers.
For the six months ended July 5, 2020, the Company reported
revenue of $39.6 million compared with $44.0 million for the first
half of 2019. The Company reported a net loss for the six-month
period of $0.7 million, or $0.03 per share, compared with a net
loss of $1.5 million, or $0.07 per share, for the prior year
period. Results for the six months ended July 5, 2020, include
gains of $1.0 million from the sale of idle asset by Sypris
Technologies. Results for the six months ended June 30, 2019,
include a gain of $1.5 million in connection with a contract
settlement with one of its customers and net gains of $0.5 million
from the sale of idle assets.
Sypris Technologies
Revenue for Sypris Technologies was $7.4 million in the second
quarter of 2020 compared to $16.9 million for the prior-year
period, primarily reflecting reduced demand attributable to the
COVID-19 pandemic coupled with the anticipated cyclical decline in
the commercial vehicle market. Gross profit for the second quarter
was $0.2 million, or 3.1% of revenue, compared to $3.0 million, or
17.6% of revenue, for the same period in 2019.
Sypris Electronics
Revenue for Sypris Electronics was $9.7 million in the second
quarter of 2020 compared to $7.6 million for the prior-year period.
Shipments during the second quarter reflected the fact that our
customer base serving the defense and communications markets
remained open at near normal levels throughout the period.
Additionally, many of the challenges faced during the prior year
with electronic component shortages and extensive lead-times have
been resolved. Gross profit for the quarter was $1.8 million, or
18.3% of revenue, compared to $1.0 million, or 13.6% of revenue,
for the same period in 2019.
Outlook
Commenting on the future, Mr. Gill added, “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 environment is changing rapidly with regard to
customers, suppliers and public policy, and we are paying close
attention to developments on a daily basis. The extent and duration
of the impacts that the pandemic may have on our business are not
known at this time, but we are monitoring developments as we seek
to navigate the challenging conditions in our markets.
“As anticipated, the impact of the pandemic has been felt less
on customers in defense-related markets and as a result, the
outlook for Sypris Electronics remains positive. We have seen a
rebound in orders within the commercial vehicle market since June,
resulting in an improvement in our outlook for Sypris Technologies
to approach pre-pandemic expectations during the second half of
2020. While the energy market continues to be volatile, we continue
to see wins on important large projects around the world.
“Our operations have remained open to meet the important needs
of our customers who serve defense, communications, energy,
transportation and other critical infrastructure industries. We
expect the road back for the economy to be a potentially uncertain
journey.”
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
successfully complete final contract negotiations with regard to
our announced contract “orders”, “wins” or “awards”; 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;
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
July 5,
June 30,
2020
2019
(Unaudited)
Revenue
$
17,153
$
24,444
Net (loss) income
$
(348
)
$
1,503
(Loss) income per common share: Basic
$
(0.02
)
$
0.07
Diluted
$
(0.02
)
$
0.07
Weighted average shares outstanding: Basic
21,016
20,875
Diluted
21,016
20,875
Six Months Ended
July 5,
June 30,
2020
2019
(Unaudited)
Revenue
$
39,578
$
44,008
Net loss
$
(653
)
$
(1,533
)
Loss per common share: Basic
$
(0.03
)
$
(0.07
)
Diluted
(0.03
)
(0.07
)
Weighted average shares outstanding: Basic
21,005
20,772
Diluted
21,005
20,772
Sypris Solutions, Inc.
Consolidated Statements of
Operations
(in thousands, except for per
share data)
Three Months Ended
Six Months Ended
July 5,
June 30,
July 5,
June 30,
2020
2019
2020
2019
(Unaudited)
(Unaudited)
Net revenue: Sypris Technologies
$
7,445
$
16,878
$
21,162
$
33,019
Sypris Electronics
9,708
7,566
18,416
10,989
Total net revenue
17,153
24,444
39,578
44,008
Cost of sales: Sypris Technologies
7,216
13,915
18,440
27,752
Sypris Electronics
7,934
6,540
15,544
11,407
Total cost of sales
15,150
20,455
33,984
39,159
Gross profit (loss): Sypris Technologies
229
2,963
2,722
5,267
Sypris Electronics
1,774
1,026
2,872
(418
)
Total gross profit
2,003
3,989
5,594
4,849
Selling, general and administrative
2,830
3,604
6,053
7,058
Severance, relocation and other costs
33
103
124
201
Operating (loss) income
(860
)
282
(583
)
(2,410
)
Interest expense, net
193
232
420
449
Other (income), net
(769
)
(1,493
)
(486
)
(1,442
)
(Loss) income before taxes
(284
)
1,543
(517
)
(1,417
)
Income tax expense, net
64
40
136
116
Net (loss) income
$
(348
)
$
1,503
$
(653
)
$
(1,533
)
(Loss) income per common share: Basic
$
(0.02
)
$
0.07
$
(0.03
)
$
(0.07
)
Diluted
$
(0.02
)
$
0.07
$
(0.03
)
$
(0.07
)
Dividends declared per common share
$
-
$
-
$
-
$
-
Weighted average shares outstanding: Basic
21,016
20,875
21,005
20,772
Diluted
21,016
20,875
21,005
20,772
Sypris Solutions, Inc.
Consolidated Balance
Sheets
(in thousands, except for
share data)
July 5,
December 31,
2020
2019
(Unaudited)
(Note)
ASSETS Current assets: Cash and cash equivalents
$
7,810
$
5,095
Accounts receivable, net
6,376
7,444
Inventory, net
18,485
20,784
Other current assets
4,309
4,282
Assets held for sale
1,230
2,233
Total current assets
38,210
39,838
Property, plant and equipment, net
9,883
11,675
Operating lease right-of-use assets
6,523
7,014
Other assets
1,407
1,529
Total assets
$
56,023
$
60,056
LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities:
Accounts payable
$
6,536
$
9,346
Accrued liabilities
12,358
12,495
Operating lease liabilities, current portion
919
841
Finance lease obligations, current portion
587
684
Note payable - related party, current portion
2,500
-
Note payable - PPP loan, current portion
1,581
-
Total current liabilities
24,481
23,366
Operating lease liabilities, net of current portion
6,433
6,906
Finance lease obligations, net of current portion
2,128
2,351
Note payable - related party
3,971
6,463
Note payable - PPP Loan
1,977
-
Other liabilities
5,515
7,539
Total liabilities
44,505
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; 21,384,618 shares issued and 21,369,580
outstanding in 2020 and 21,324,618 shares issued and
21,298,426 outstanding in 2019
213
213
Additional paid-in capital
154,923
154,702
Accumulated deficit
(118,086
)
(117,433
)
Accumulated other comprehensive loss
(25,532
)
(24,051
)
Treasury stock, 15,038 and 26,192 in 2020 and 2019
-
-
Total stockholders’ equity
11,518
13,431
Total liabilities and stockholders’ equity
$
56,023
$
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)
Six Months Ended
July 5,
June 30,
2020
2019
(Unaudited)
Cash flows from operating activities: Net loss
$
(653
)
$
(1,533
)
Adjustments to reconcile net loss to net cash used in operating
activities: Depreciation and amortization
1,259
1,407
Stock-based compensation expense
228
283
Deferred loan costs recognized
7
7
Net gain on the sale of assets
(958
)
(477
)
Provision for excess and obsolete inventory
125
283
Non-cash lease expense
491
452
Other noncash items
100
(130
)
Contributions to pension plans
(34
)
(45
)
Changes in operating assets and liabilities: Accounts receivable
1,053
(1,248
)
Inventory
1,813
(1,425
)
Prepaid expenses and other assets
(457
)
(1,088
)
Accounts payable
(2,697
)
(2,457
)
Accrued and other liabilities
(1,318
)
177
Net cash used in operating activities
(1,041
)
(5,794
)
Cash flows from investing activities: Capital expenditures
(833
)
(671
)
Proceeds from sale of assets
1,968
634
Net cash provided by (used in) investing activities
1,135
(37
)
Cash flows from financing activities: Finance lease payments
(320
)
(304
)
Proceeds from Paycheck Protection Program loan
3,558
-
Indirect repurchase of shares for minimum statutory tax
withholdings
(7
)
(133
)
Net cash provided by (used in) financing activities
3,231
(437
)
Effect of exchange rate changes on cash balances
(610
)
26
Net increase (decrease) in cash and cash equivalents
2,715
(6,242
)
Cash and cash equivalents at beginning of period
5,095
10,704
Cash and cash equivalents at end of period
$
7,810
$
4,462
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200813005078/en/
Anthony C. Allen Chief Financial Officer (502)
329-2000
Sypris Solutions (NASDAQ:SYPR)
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