Gross Profit Rises 47%; New Contracts
Announced
Sypris Solutions, Inc. (Nasdaq/GM: SYPR) today reported
financial results for its third quarter ended October 4, 2020.
Having completed a series of strategic initiatives over the past
several years, Sypris Solutions is now well 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 third quarter of 2020 fundamentally reflected
these expectations, highlighted by a rebound in demand for Sypris
Technologies from the unusually low levels of the second quarter
and the positive performance of Sypris Electronics. The global
economic impact of the COVID-19 pandemic lessened in several of the
Company’s markets during the quarter, while the essential nature of
the defense and communication programs served by Sypris Electronics
continued to enable this segment to sustain operations at or above
planned levels.
HIGHLIGHTS
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- The
Company’s third quarter revenue was even with the prior-year
period, but increased 29.2% sequentially, reflecting a rebound in
market conditions for Sypris Technologies and continued growth for
Sypris Electronics.
- Gross profit
increased 47.1% quarter-over-quarter and 70.8% sequentially, while
gross margin increased 490 basis points from the prior-year period
and 370 basis points sequentially.
- EPS
increased to $0.17 per share for the quarter compared to a loss of
$0.07 per share for the prior year, reflecting the 47.1%
improvement in gross profit and the release of a valuation
allowance on certain foreign deferred tax assets, in consideration
of the sustained profitability of and positive outlook for the
Company’s operations in Mexico, among other factors.
- Sypris
Electronics revenue increased 52.6% during the quarter compared to
the prior-year period, supported by a strong backlog of orders,
which has increased 27.2% since year-end 2019, while supporting a
62.0% increase in shipments year-to-date over the prior
year.
- During the
third quarter, 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.
- Sypris
Electronics also announced contracts to manufacture a variety of
electronic assemblies for mission-critical munition dispensing
systems with production to begin during 2020 and continue into
2021.
- Sypris
Technologies revenue increased 62.1% sequentially, as customers
reopened operations that were temporarily idled during the second
quarter in response to the global pandemic.
- Gross profit
for Sypris Technologies increased 732.8% sequentially, while gross
margin increased to 15.8%, up from 3.1% for the second quarter of
2020.
- 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 for use in the Trans Mountain
Pipeline Expansion project in Canada, call for shipments to begin
prior to year-end 2020.
- Sypris
Technologies also announced a contract for the delivery of 58”
Tool-less closures weighing 5.5 tons each for use in the Alberta
Xpress Gas project, which will expand transmission capacity from
Manitoba to delivery locations in the Midwestern and Southern US.
Shipments are to be completed prior to year-end.
─────────────────────
“Our operations performed extremely well during the third
quarter and returned to profitability as demand rebounded from the
adverse conditions incurred during the second quarter,” commented
Jeffrey T. Gill, President and Chief Executive Officer. “In the
face of the challenges brought on by the pandemic, our businesses
pulled together to protect our employees, while balancing the needs
of our customers, communities and business partners during these
difficult times. The effort and execution by our people resulted in
a strong performance for the third quarter.
“Revenue for Sypris Electronics increased 52.6% from the
prior-year quarter, reflecting its strong backlog and improved
electronic component availability. Sales are up 62.0% for the first
nine months of 2020 compared to the prior year, while backlog has
increased 27.2% 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.
“Demand from customers serving the automotive, commercial
vehicle, sport utility, and off-highway markets recovered in the
third quarter, resulting in a 62% increase in revenue sequentially.
The outlook going forward has also improved significantly for these
markets. Recent contract awards in our energy markets are also
expected to contribute in the fourth quarter and early 2021 as we
remain vigilant in our pursuit of new opportunities to support our
growth objectives in the coming year.
“Gross profit for the first nine months of 2020 was $9.0
million, or 14.6% of revenue as compared to gross margin of 11.2%
for the full year 2019. Given the current year-to-date margin
performance includes the burden of the pandemic’s impact on the
second quarter, we are pleased to be maintaining this trend line.
Our margins have improved steadily since 2016 and we believe we
have the opportunity to continue this into 2021.
“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.”
Third Quarter Results
The Company reported revenue of $22.2 million for the third
quarter ended October 4, 2020, compared to $22.3 million for the
prior-year period. Additionally, the Company reported net income of
$3.5 million for the third quarter, or $0.17 per diluted share,
compared to a net loss of $1.6 million, or $0.07 per share, for the
prior-year period. Results for the quarter ended October 4, 2020,
include an income tax benefit of $3.2 million, primarily from the
release of a valuation allowance on certain foreign deferred tax
assets.
The Company updated its quarterly evaluation on the
realizability of deferred tax assets associated with its Mexican
operating subsidiary as of October 4, 2020. The Mexico operation’s
cumulative income before taxes for the trailing 3-year period ended
October 4, 2020, is positive, and together with other positive
evidence, supports management’s conclusion that a valuation
allowance is no longer needed for the foreign deferred tax assets.
The release of the valuation allowance and the impact of deferred
tax expense for the nine months ended October 4, 2020, resulted in
a net tax benefit of $3.2 million for the third quarter.
For the nine months ended October 4, 2020, the Company reported
revenue of $61.7 million compared with $66.3 million for the first
nine months of 2019. The Company reported net income for the
nine-month period of $2.8 million, or $0.14 per diluted share,
compared with a net loss of $3.1 million, or $0.15 per share, for
the prior-year period. Results for the nine months ended October 4,
2020, include net gains of $0.8 million from the sale of idle
assets and an income tax benefit of $3.2 million, primarily from
the release of a valuation allowance on certain foreign deferred
tax assets. Results for the nine months ended September 29, 2019,
include a gain of $1.5 million in connection with a contract
settlement with a customer and net gains of $0.5 million from the
sale of idle assets.
Sypris Technologies
Revenue for Sypris Technologies was $12.1 million in the third
quarter of 2020 compared to $15.7 million for the prior-year
period, primarily reflecting reduced demand attributable to the
pandemic coupled with the anticipated cyclical decline in the
commercial vehicle market. Gross profit for the third quarter was
$1.9 million, or 15.8% of revenue, compared to $2.5 million, or
16.1% of revenue, for the same period in 2019.
Sypris Electronics
Revenue for Sypris Electronics was $10.1 million in the third
quarter of 2020 compared to $6.6 million for the prior-year period.
Shipments during the third quarter reflected the impact of the
growing backlog. 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
$1.5 million, or 15.0% of revenue, compared to a loss of $0.2
million, or 2.8% of revenue, for the same period in 2019.
Outlook
Commenting on the future, Mr. Gill added, “First and foremost,
we remain focused on the health and safety of our employees, their
families and our customers. While the future potential impact of a
second wave of the pandemic remains unknown, demand has
strengthened significantly from customers serving the automotive,
commercial vehicle and sport utility markets. Similarly, demand
from customers in the defense and communications sector remains
robust. While the energy market continues to be volatile, we
continue to see wins on important large projects around the
world.
“As we close out this year and prepare for 2021, we remain
focused on meeting the important needs of our customers who serve
defense, communications, energy, transportation, and other critical
infrastructure industries. With a strong backlog and recovering
markets, we believe that the outlook for the coming year has the
potential to be one of positive top line growth and further margin
expansion for Sypris. We are increasingly optimistic about the
coming year.”
Sypris Solutions is a diversified provider of truck components,
oil and gas pipeline components and aerospace and defense
electronics. The Company produces a wide range of manufactured
products, 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
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; our ability to comply with the requirements of the SBA
and seek forgiveness of all or a portion of the PPP Loan; 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; dependence on,
retention or recruitment of key employees and distribution of our
human capital; 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 or lead times 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 ability to
maintain compliance with the NASDAQ listing standards minimum
closing bid price; our reliance on a few key customers, third party
vendors and sub-suppliers; 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 product liability, environmental
or other insurable risks; unanticipated or uninsured disasters,
public health crises, losses or business risks; unanticipated or
uninsured product liability 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 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 October 4, September 29,
2020
2019
(Unaudited) Revenue
$
22,154
$
22,259
Net income (loss)
$
3,495
$
(1,557
)
Income (loss) per common share: Basic
$
0.17
$
(0.07
)
Diluted
$
0.17
$
(0.07
)
Weighted average shares outstanding: Basic
21,064
20,941
Diluted
21,080
20,941
Nine Months Ended October
4, September 29,
2020
2019
(Unaudited) Revenue
$
61,732
$
66,267
Net income (loss)
$
2,842
$
(3,090
)
Income (loss) per common share: Basic
$
0.14
$
(0.15
)
Diluted
0.14
(0.15
)
Weighted average shares outstanding: Basic
21,026
20,829
Diluted
21,026
20,829
Sypris Solutions, Inc. Consolidated Statements of
Operations (in thousands, except for per share data)
Three Months Ended Nine Months Ended October
4, September 29, October 4, September 29,
2020
2019
2020
2019
(Unaudited) (Unaudited) Net revenue: Sypris
Technologies
$
12,072
$
15,654
$
33,234
$
48,673
Sypris Electronics
10,082
6,605
28,498
17,594
Total net revenue
22,154
22,259
61,732
66,267
Cost of sales: Sypris Technologies
10,165
13,140
28,605
40,892
Sypris Electronics
8,568
6,793
24,112
18,200
Total cost of sales
18,733
19,933
52,717
59,092
Gross profit (loss): Sypris Technologies
1,907
2,514
4,629
7,781
Sypris Electronics
1,514
(188
)
4,386
(606
)
Total gross profit
3,421
2,326
9,015
7,175
Selling, general and administrative
2,577
3,148
8,630
10,206
Severance, relocation and other costs
-
190
124
391
Operating income (loss)
844
(1,012
)
261
(3,422
)
Interest expense, net
216
227
636
676
Other expense (income), net
372
286
(114
)
(1,156
)
Income (loss) before taxes
256
(1,525
)
(261
)
(2,942
)
Income tax (benefit) expense, net
(3,239
)
32
(3,103
)
148
Net Income (loss)
$
3,495
$
(1,557
)
$
2,842
$
(3,090
)
Income (loss) per common share: Basic
$
0.17
$
(0.07
)
$
0.14
$
(0.15
)
Diluted
$
0.17
$
(0.07
)
$
0.14
$
(0.15
)
Dividends declared per common share
$
-
$
-
$
-
$
-
Weighted average shares outstanding: Basic
21,064
20,941
21,026
20,829
Diluted
21,080
20,941
21,026
20,829
Sypris Solutions, Inc. Consolidated Balance
Sheets (in thousands, except for share data)
October
4, December 31,
2020
2019
(Unaudited) (Note) ASSETS Current assets: Cash
and cash equivalents
$
8,294
$
5,095
Accounts receivable, net
8,603
7,444
Inventory, net
17,844
20,784
Other current assets
4,766
4,282
Assets held for sale
1,069
2,233
Total current assets
40,576
39,838
Property, plant and equipment, net
9,727
11,675
Operating lease right-of-use assets
6,315
7,014
Other assets
4,760
1,529
Total assets
$
61,378
$
60,056
LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities:
Accounts payable
$
8,202
$
9,346
Accrued liabilities
12,583
12,495
Operating lease liabilities, current portion
942
841
Finance lease obligations, current portion
383
684
Note payable - related party, current portion
2,500
-
Note payable - PPP loan, current portion
2,174
-
Total current liabilities
26,784
23,366
Operating lease liabilities, net of current portion
6,189
6,906
Finance lease obligations, net of current portion
2,029
2,351
Note payable - related party
3,974
6,463
Note payable - PPP Loan
1,384
-
Other liabilities
5,816
7,539
Total liabilities
46,176
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; 21,321,790 shares issued and 21,316,752 outstanding in
2020 and 21,324,618 shares issued and 21,298,426 outstanding in
2019
213
213
Additional paid-in capital
155,004
154,702
Accumulated deficit
(114,591
)
(117,433
)
Accumulated other comprehensive loss
(25,424
)
(24,051
)
Treasury stock, 5,038 and 26,192 in 2020 and 2019
-
-
Total stockholders’ equity
15,202
13,431
Total liabilities and stockholders’ equity
$
61,378
$
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)
Nine Months Ended October 4,
September 29,
2020
2019
(Unaudited) Cash flows from operating activities: Net income
(loss)
$
2,842
$
(3,090
)
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities: Depreciation and amortization
1,883
2,106
Deferred income taxes
(3,257
)
-
Stock-based compensation expense
335
389
Deferred loan costs recognized
11
11
Net (gain) loss on the sale of assets
(813
)
(467
)
Provision for excess and obsolete inventory
222
503
Non-cash lease expense
699
541
Other noncash items
72
15
Contributions to pension plans
(34
)
(348
)
Changes in operating assets and liabilities: Accounts receivable
(1,158
)
1,198
Inventory
2,409
(2,415
)
Prepaid expenses and other assets
(983
)
207
Accounts payable
(1,036
)
(3,344
)
Accrued and other liabilities
(1,114
)
1,646
Net cash provided by (used in) operating activities
78
(3,048
)
Cash flows from investing activities: Capital expenditures
(1,151
)
(553
)
Proceeds from sale of assets
1,969
653
Net cash provided by investing activities
818
100
Cash flows from financing activities: Finance lease payments
(623
)
(466
)
Proceeds from Paycheck Protection Program loan
3,558
-
Indirect repurchase of shares for minimum statutory tax
withholdings
(33
)
(138
)
Net cash provided by (used in) financing activities
2,902
(604
)
Effect of exchange rate changes on cash balances
(599
)
(99
)
Net increase (decrease) in cash and cash equivalents
3,199
(3,651
)
Cash and cash equivalents at beginning of period
5,095
10,704
Cash and cash equivalents at end of period
$
8,294
$
7,053
View source
version on businesswire.com: https://www.businesswire.com/news/home/20201112005228/en/
Anthony C. Allen Chief Financial Officer (502)
329-2000
Sypris Solutions (NASDAQ:SYPR)
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