SYPR Sypris Solutions Inc

New Contracts and Market Strength Fuel 2021 Outlook

Sypris Solutions, Inc. (Nasdaq/GM: SYPR) today reported financial results for its fourth quarter and full-year ended December 31, 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 increasing margins. These initiatives have included reducing and realigning the Company’s cost structure while diversifying its book of business in terms of both customers and markets.

The Company’s results for 2020 fundamentally reflected these expectations, highlighted by the improved performance of Sypris Electronics. The essential nature of the defense and communication programs served by Sypris Electronics continued to enable this segment to sustain operations at planned levels throughout the year. The commercial vehicle and automotive markets served by Sypris Technologies recovered during the second half of 2020 from the sharp reduction in demand during the second quarter, as the global economic impact of the COVID-19 pandemic continued to lessen. Favorable market conditions for both segments are forecasted in 2021, positioning the Company for top line growth and expanding margins.

HIGHLIGHTS

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• Consolidated gross margin for the full year 2020 increased 280 basis points from 2019 to 14.0% despite a 6.3% decrease in revenue primarily attributable to the impact of COVID-19 in the second quarter.
• Consolidated gross profit for the full year 2020 improved 17.0% from 2019 and, when combined with lower spending for selling, general and administrative expenses, contributed to a 102.1% increase in operating income compared to 2019.
• Earnings per diluted share for the full year 2020 increased to $0.08 compared to a loss of $0.19 per share for the prior year, reflecting the improvement in operating income and the release of a valuation allowance on certain foreign deferred tax assets.
• Full year 2020 revenue for Sypris Electronics increased 41.3% from the prior year, reflecting its strong backlog and improved electronic component availability. Gross margin improved 1,420 basis points from the prior year to 14.6% in 2020.
• Subsequent to quarter-end, Sypris Electronics announced a contract award to manufacture and test a variety of electronic power supply modules for a mission-critical, long-range, precision-guided anti-ship missile system, with production to begin during 2021.
• Subsequent to quarter-end, Sypris Technologies announced a long-term contract extension with a leading commercial vehicle manufacturer. The new contract continues the existing product lines and includes the award of two additional axle shaft model lines to begin production in 2021 and the adoption of certain Sypris Ultra® series lightweight axle shaft design features.
• Subsequent to quarter-end, Sypris Technologies also announced awards from two high-pressure energy projects. The contracts, which provide for the use of closures in the Anchor Field development project in the Gulf of Mexico and the planned upgrade of a natural gas pipeline system in North America, call for shipments to begin prior to year-end 2021.
• The impact of these recent contract wins, when combined with current positive market conditions, is forecast to fuel an increase of 20% in revenue, a 200 to 300 basis point expansion of margins and strong double-digit percentage growth in cash flow from operations for the year.

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“While the economic headwinds and disruptions in 2020 had an impact on our results, we are pleased with our performance during the year. Our operations performed extremely well during 2020 and returned to profitability, despite the adverse conditions incurred during the second quarter, which continued during the course of the year,” commented Jeffrey T. Gill, President and Chief Executive Officer. “Last year presented historic challenges brought on by the pandemic, yet 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 year.

“Full year revenue for Sypris Electronics increased 41.3% from the prior year, reflecting its strong backlog and improved electronic component availability. Gross margin improved 1,420 basis points from the prior year to 14.6% in 2020, and recent contact wins are expected to provide important support for the growth of the business during the coming year. 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 2020.

“Demand from customers serving the automotive, commercial vehicle, sport utility, and off-highway markets recovered in the second half of 2020, with Class 8 North American production up almost 32% over the first half. The recent announcement of the long-term contract extension with one of our key customers combined with the improved outlook for these markets, gives us a clear path to support our growth objectives in the coming year.

“The energy markets faced unprecedented pressures in 2020, with the COVID-19 outbreak driving depressed demand, uncertainty and spending reductions for the entire oil and gas industry. We have remained vigilant in our pursuit of new opportunities in these markets, which has resulted in recent contract awards. While we expect activity levels in this market to remain challenging during the first half of 2021, steadily improving commodity prices, gradually reopening economies and increasing pipeline activity is anticipated to lead to year-over-year growth.

“Gross profit for 2020 was $11.6 million, or 14.0% of revenue, as compared to gross margin of 11.2% for 2019. Given 2020 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 expect further improvement in 2021.”

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 risks and take the necessary steps required to ensure deliveries continue to be made to our customers in a timely manner.”

Fourth Quarter and Full-Year Results

The Company reported revenue of $20.6 million for the fourth quarter ended December 31, 2020, compared to $21.6 million for the prior-year period. Additionally, the Company reported a net loss of $1.2 million for the fourth quarter of 2020, or $0.06 per share, compared to a net loss of $0.9 million, or $0.04 per share, for the prior-year period. Results for the quarter ended December 31, 2020, include a loss of $0.6 million on the disposal of assets. Results for the quarter ended December 31, 2019, include a $0.2 million gain on the sale of assets.

For the full-year 2020, the Company reported revenue of $82.3 million compared with $87.9 million for the prior year. The Company reported net income of $1.7 million, or $0.08 per diluted share, for 2020 compared with a net loss of $3.9 million, or $0.19 per share, for the prior-year. Results for 2020 include an income tax benefit of $3.0 million, primarily from the release of a valuation allowance on certain foreign deferred tax assets and net gains of $0.2 million from the sale or disposal of idle assets. Results for 2019 include a gain of $1.5 million in connection with a contract settlement with a customer and net gains of $0.7 million from the sale of idle assets, partially offset by costs of $0.5 million related to preparing the Broadway facility for sale.

Sypris Technologies

Revenue for Sypris Technologies was $12.1 million in the fourth quarter of 2020 compared to $13.0 million for the prior-year period, primarily reflecting reduced demand in the oil and gas market partially offset by a rebound in the commercial vehicle market. Gross profit for the fourth quarter of 2020 was $1.5 million, or 12.7% of revenue, compared to $2.0 million, or 15.4% of revenue, for the same period in 2019.

Sypris Electronics

Revenue for Sypris Electronics was $8.5 million in the fourth quarter of 2020 compared to $8.6 million for the prior-year period. Shipments during the fourth quarter of 2020 were impacted by delays on certain programs due to customer design modifications. However, management was able to largely offset these delays by increasing production on other programs, reflecting the impact of a 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 fourth quarter of 2020 was $1.0 million, or 11.9% of revenue, compared to $0.7 million, or 8.2% 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 the pandemic remains unknown, we are optimistic regarding the current economic outlook for 2021.

“Demand has strengthened significantly from customers serving the automotive, commercial vehicle and sport utility markets, with Class 8 forecasts showing year-over-year production increases of over 41% for 2021. Similarly, demand from customers in the defense and communications sector remains robust. While the energy market continues to be volatile, we continue to secure new orders on important projects around the world.

“The continuing momentum of new contract awards, when combined with increasingly positive market conditions, provide important support for our financial outlook for 2021, which includes 20% growth in the Company’s top line, 200 to 300 basis points of further expansion in the Company’s gross margin and strong double digit percentage growth in cash flow generated from operations.

“As we 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 very positive for Sypris and we approach our new fiscal year with optimism.”

About Sypris Solutions

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 the current coronavirus disease (“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 successfully win new business; the termination or non-renewal of existing contracts by customers; 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 require us to sell assets to fund operating losses; breakdowns, relocations or major repairs of machinery and equipment, especially in our Toluca Plant; 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, warranty or environmental claims; 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 our Paycheck Protection Program loan; 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; 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; costs associated with environmental claims relating to properties previously owned; 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; risk related to owning our common stock including increased volatility; 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 December 31,

 

2020

 

 

 

2019

 

(Unaudited) Revenue

$

20,614

 

 

$

21,624

 

Net loss

$

(1,174

)

 

$

(859

)

Loss per common share:   Basic

$

(0.06

)

 

$

(0.04

)

Diluted

$

(0.06

)

 

$

(0.04

)

Weighted average shares outstanding:   Basic

 

21,259

 

 

 

20,974

 

Diluted

 

21,259

 

 

 

20,974

 

          Year Ended December 31,

 

2020

 

 

 

2019

 

(Unaudited) Revenue

$

82,346

 

 

$

87,891

 

Net income (loss)

$

1,668

 

 

$

(3,949

)

Income (loss) per common share:   Basic

$

0.08

 

 

$

(0.19

)

Diluted

 

0.08

 

 

 

(0.19

)

Weighted average shares outstanding:   Basic

 

21,084

 

 

 

20,865

 

Diluted

 

21,086

 

 

 

20,865

 

Sypris Solutions, Inc. Consolidated Statements of Operations (in thousands, except for per share data)   Three Months Ended Year Ended December 31, December 31,

 

2020

 

 

2019

 

 

2020

 

 

2019

 

(Unaudited) (Unaudited) Net revenue: Sypris Technologies

$

12,087

 

$

13,010

 

$

45,321

 

$

61,683

 

Sypris Electronics

 

8,527

 

 

8,614

 

 

37,025

 

 

26,208

 

Total net revenue

 

20,614

 

 

21,624

 

 

82,346

 

 

87,891

 

Cost of sales: Sypris Technologies

 

10,552

 

 

11,006

 

 

39,157

 

 

51,898

 

Sypris Electronics

 

7,512

 

 

7,910

 

 

31,624

 

 

26,110

 

Total cost of sales

 

18,064

 

 

18,916

 

 

70,781

 

 

78,008

 

Gross profit: Sypris Technologies

 

1,535

 

 

2,004

 

 

6,164

 

 

9,785

 

Sypris Electronics

 

1,015

 

 

704

 

 

5,401

 

 

98

 

Total gross profit

 

2,550

 

 

2,708

 

 

11,565

 

 

9,883

 

Selling, general and administrative

 

2,721

 

 

3,474

 

 

11,351

 

 

13,680

 

Severance, relocation and other costs

 

-

 

 

118

 

 

124

 

 

509

 

Operating (loss) income

 

(171

)

 

(884

)

 

90

 

 

(4,306

)

Interest expense, net

 

202

 

 

227

 

 

838

 

 

903

 

Other expense (income), net

 

658

 

 

(100

)

 

544

 

 

(1,256

)

Loss before income taxes

 

(1,031

)

 

(1,011

)

 

(1,292

)

 

(3,953

)

Income tax expense (benefit), net

 

143

 

 

(152

)

 

(2,960

)

 

(4

)

Net (loss) income

$

(1,174

)

$

(859

)

$

1,668

 

$

(3,949

)

(Loss) income per common share: Basic

$

(0.06

)

$

(0.04

)

$

0.08

 

$

(0.19

)

Diluted

$

(0.06

)

$

(0.04

)

$

0.08

 

$

(0.19

)

Dividends declared per common share

$

-

 

$

-

 

$

-

 

$

-

 

Weighted average shares outstanding: Basic

 

21,259

 

 

20,974

 

 

21,084

 

 

20,865

 

Diluted

 

21,259

 

 

20,974

 

 

21,086

 

 

20,865

 

Sypris Solutions, Inc. Consolidated Balance Sheets (in thousands, except for share data)   December 31, December 31,

 

2020

 

 

2019

 

(Unaudited) ASSETS Current assets: Cash and cash equivalents

$

11,606

 

$

5,095

 

Accounts receivable, net

 

7,234

 

 

7,444

 

Inventory, net

 

16,236

 

 

20,784

 

Other current assets

 

3,948

 

 

4,282

 

Assets held for sale

 

412

 

 

2,233

 

Total current assets

 

39,436

 

 

39,838

 

Property, plant and equipment, net

 

10,161

 

 

11,675

 

Operating lease right-of-use assets

 

6,103

 

 

7,014

 

Other assets

 

5,008

 

 

1,529

 

Total assets

$

60,708

 

$

60,056

 

LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable

$

6,734

 

$

9,346

 

Accrued liabilities

 

13,409

 

 

12,495

 

Operating lease liabilities, current portion

 

965

 

 

841

 

Finance lease obligations, current portion

 

393

 

 

684

 

Note payable - PPP loan, current portion

 

1,186

 

 

-

 

Total current liabilities

 

22,687

 

 

23,366

 

  Operating lease liabilities, net of current portion

 

5,941

 

 

6,906

 

Finance lease obligations, net of current portion

 

1,927

 

 

2,351

 

Note payable - related party

 

6,477

 

 

6,463

 

Note payable - PPP Loan, net of current portion

 

2,372

 

 

-

 

Other liabilities

 

6,529

 

 

7,539

 

Total liabilities

 

45,933

 

 

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; 21,302,194 shares issued and 21,300,958 outstanding in 2020 and 21,324,618 shares issued and 21,298,426 outstanding in 2019

 

213

 

 

213

 

Additional paid-in capital

 

155,025

 

 

154,702

 

Accumulated deficit

 

(115,765

)

 

(117,433

)

Accumulated other comprehensive loss

 

(24,698

)

 

(24,051

)

Treasury stock, 1,236 and 26,192 in 2020 and 2019

 

-

 

 

-

 

Total stockholders’ equity

 

14,775

 

 

13,431

 

Total liabilities and stockholders’ equity

$

60,708

 

$

60,056

 

Sypris Solutions, Inc. Consolidated Cash Flow Statements (in thousands)   Year Ended, December 31,

 

2020

 

 

2019

 

(Unaudited) Cash flows from operating activities: Net income (loss)

$

1,668

 

$

(3,949

)

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization

 

2,503

 

 

2,671

 

Deferred income taxes

 

(3,070

)

 

(260

)

Stock-based compensation expense

 

426

 

 

469

 

Deferred loan costs recognized

 

14

 

 

11

 

Net gain on the disposal or abandonment of assets

 

(236

)

 

(654

)

Provision for excess and obsolete inventory

 

222

 

 

616

 

Non-cash lease expense

 

911

 

 

650

 

Other noncash items

 

(1

)

 

52

 

Contributions to pension plans

 

(862

)

 

(382

)

Changes in operating assets and liabilities: Accounts receivable

 

214

 

 

2,425

 

Inventory

 

4,230

 

 

(2,621

)

Prepaid expenses and other assets

 

(204

)

 

756

 

Accounts payable

 

(2,591

)

 

(4,100

)

Accrued and other liabilities

 

424

 

 

(1,537

)

Net cash provided by (used in) operating activities

 

3,648

 

 

(5,853

)

Cash flows from investing activities: Capital expenditures

 

(1,542

)

 

(859

)

Proceeds from sale of assets

 

1,969

 

 

1,858

 

Net cash provided by investing activities

 

427

 

 

999

 

Cash flows from financing activities: Principal payments on finance lease obligations

 

(715

)

 

(632

)

Proceeds from Paycheck Protection Program loan

 

3,558

 

 

-

 

Indirect repurchase of shares for minimum statutory tax withholdings

 

(103

)

 

(156

)

Net cash provided by (used in) financing activities

 

2,740

 

 

(788

)

Effect of exchange rate changes on cash balances

 

(304

)

 

33

 

Net increase (decrease) in cash and cash equivalents

 

6,511

 

 

(5,609

)

Cash and cash equivalents at beginning of period

 

5,095

 

 

10,704

 

Cash and cash equivalents at end of period

$

11,606

 

$

5,095

 

 

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20210318005188/en/

Anthony C. Allen Chief Financial Officer (502) 329-2000