SALES, GROSS PROFIT AND BACKLOG UP; 2022
OUTLOOK: REVENUE UP 25%
Sypris Solutions, Inc. (Nasdaq/GM: SYPR) today reported
financial results for its third quarter ended October 3, 2021.
HIGHLIGHTS
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- Revenue for
the third quarter increased 15.9% year-over-year, driven by the
38.3% expansion of shipments at Sypris Technologies, despite the
impact of material shortages and supply chain
challenges.
- Gross profit
increased 12.4% year-over-year, reflecting the 14.5% growth at
Sypris Electronics and 10.6% increase for Sypris Technologies.
Gross margin increased 460 basis points to 20.8% for Sypris
Electronics, while gross margin for Sypris Technologies declined to
12.6% reflecting mix and expenses incurred to increase
capacity.
- Backlog for
Sypris Electronics increased 24.0% year-over-year and 51.3%
year-to-date on the strength of orders in the first nine months of
2021. Similarly, backlog for the energy products of Sypris
Technologies increased 38.8% year-over-year and 59.6%
year-to-date.
- Sypris
Electronics announced a number of important contract awards during
the quarter, including the following:
- A contract
to manufacture and test embedded circuit card assemblies that will
perform certain Cryptographic functions for the Army Key Management
System, with production to begin before year-end; and
- A contract
to produce and test multiple power supply modules for the upgrade
of the electronic warfare suite of certain U.S. fighter jets. The
system will deliver fully integrated radar warning, situational
awareness, geolocation and self-protection capabilities. Production
is expected to begin during the first quarter of 2022.
- The Company
updated its full-year outlook for 2021, with revenue now expected
to increase 20-25% year-over-year, down from prior guidance due to
supply chain challenges. Gross margin is expected to expand 400-500
basis points year-over-year in the fourth quarter and contribute to
strong double-digit percentage growth in cash flow generated from
operations for the full year.
- The outlook
for 2022 remains quite positive, reflecting the continued momentum
of new contract awards and strong demand across many of the
Company’s markets. Revenue for 2022 is forecast to increase 25%,
gross margins are expected to expand 200 basis points, and cash
flow from operations is forecast to increase materially
year-over-year.
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“Both operating segments reported gross profit growth for the
quarter, contributing to a strong performance for the Company and
positioning the business for further progress. Backlog for Sypris
Electronics is up 24.0% from the third quarter of 2020 and up 51.3%
since the beginning of the year, while the OEM backlog of Class 8
commercial vehicles is estimated to be up 210% year-over-year,”
commented Jeffrey T. Gill, President and Chief Executive
Officer.
“Backlog for Sypris Electronics in 2021 remains at its highest
point in over a decade, with deliveries now scheduled well into
2023. While shipments during the quarter were impacted by the
delayed receipt of material necessary to complete the build of
certain products, we expect shipments from our recent contract wins
to begin to contribute to revenue in the fourth quarter and provide
meaningful growth in the top line going forward. In support of the
expected increase in shipments, we secured customer funding for
certain key programs to partially fund an increase in our
inventories which should help to minimize production disruptions
arising from supply chain constraints over the term of the related
contracts.
“Demand from customers serving the automotive, commercial
vehicle, sport utility, and off-highway markets remains strong,
although our revised guidance is primarily driven by customer
production levels that are lower than what we had previously
anticipated. Freight demand is currently overwhelming industry
capacity, with supply chain constraints currently dictating OEM
production levels, which is flowing down and impacting demand for
our products. Although the near-term outlook remains constrained,
we have a clear path to capitalize on our growth objectives going
forward as the various challenges facing this industry begin to
subside.
“As we discussed on our previous earnings call, activity levels
in the oil and gas industry remained challenging during the first
nine months of 2021. However, steadily improving commodity prices,
gradually reopening economies and increasing pipeline activity have
resulted in increased orders recently of our energy related
products, and an expected increase in volume during the fourth
quarter of 2021 is well supported by a solid backlog of
orders.”
Third Quarter Results
The Company reported revenue of $25.7 million for the third
quarter of 2021, compared to $22.2 million for the prior-year
period. Additionally, the Company reported net income of $0.3
million for the third quarter of 2021, or $0.01 per diluted share,
compared to net income of $3.5 million, or $0.17 per diluted 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.
For the nine months ended October 3, 2021, the Company reported
revenue of $71.6 million compared with $61.7 million for the first
nine months of 2020. The Company reported net income for the
nine-month period of $2.5 million, or $0.11 per diluted share,
compared with $2.8 million, or $0.14 per diluted share, for the
prior-year period. Results for the nine months ended October 3,
2021, include the recognition of a $3.6 million gain on the
forgiveness of the Company’s PPP loan. Results for the nine months
ended October 4, 2020, include net gains of $0.8 million from the
sale of idle assets by Sypris Technologies and an income tax
benefit of $3.2 million, primarily from the release of a valuation
allowance on certain foreign deferred tax assets.
Sypris Technologies
Revenue for Sypris Technologies was $16.7 million in the third
quarter of 2021 compared to $12.1 million for the prior-year
period, reflecting the positive impact of new programs and the
strength of the commercial vehicle market, partially offset by
decreased energy related product sales. Gross profit for the third
quarter of 2021 was $2.1 million, or 12.6% of revenue, compared to
$1.9 million, or 15.8% of revenue, for the same period in 2020.
Gross profit for the third quarter of 2021 was negatively impacted
by product mix, increased operating supply spend and equipment
maintenance expenses as we prepare for higher production levels
anticipated in 2022.
Sypris Electronics
Revenue for Sypris Electronics was $9.0 million in the third
quarter of 2021 compared to $10.1 million for the prior-year
period. Shipments during the third quarter of 2021 were lower than
the prior-year period as production tapered down on a limited rate
production contract for a key program that is expected to ramp up
beginning late in the fourth quarter as full rate production is
launched. Certain programs have also been impacted by material
availability, as receipts of a limited number of specific parts
necessary to complete the build of the products were delayed or, in
other instances, required us to resource and obtain alternative
parts or use alternative suppliers. Gross profit for the third
quarter of 2021 was $1.9 million, or 20.8% of revenue, compared to
$1.6 million, or 16.2% of revenue, for the same period in 2020 due
to a more favorable mix.
Outlook
Commenting on the future, Mr. Gill added, “While challenging
supply chain conditions impacted our third-quarter results and
forecast for the remainder of the year, the overall outlook for the
U.S. economy remains positive. Demand is up considerably
year-over-year from customers serving the automotive, commercial
vehicle and sport utility markets, with Class 8 forecasts showing
year-over-year production increases of over 22.9% for 2021, 18.3%
in 2022 and an additional 15.5% in 2023. 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.
“We expect the significant growth in orders and strength of our
markets to have a substantial impact on our financial results
through the remainder of the year and into 2022, with strong
increases in revenue, margins and income forecast for the period
and continuing going forward.
“We have updated our outlook to include a 20-25% growth in the
Company’s top line in 2021, which is down from our previous
guidance. Gross margin is forecast to expand in the fourth quarter
400-500 basis points over the comparable period in 2020, which is
expected to contribute to strong double-digit percentage growth in
cash flow generated from operations for the full year.
“As we close out this year and prepare for 2022, we remain
focused on meeting the important needs of our customers who serve
defense, communications, energy, transportation, and other critical
infrastructure industries. In our initial outlook for 2022, we
expect the top line to increase 25% year-over-year as a result of
the combined strength of our backlog for Sypris Electronics, the
Class 8 industry production forecasts and improving market
conditions for our energy products. We also expect to achieve
further gross margin expansion in the range of 200 basis points in
2022, while cash flow from operations is forecast to materially
increase year-over-year.”
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.
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; the
impact of potential U.S. Government COVID-19 vaccine mandates on
our ability to attract and retain employees and on our business and
results of operations; 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;
volatility of our customers’ forecasts especially in the commercial
truck markets and our contractual obligations to meet current
scheduling demands and production levels (especially in our Toluca
Plant), which may 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;
cost, quality and availability or lead times of raw materials such
as steel, component parts (especially electronic components),
natural gas or utilities; 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; inaccurate data about markets,
customers or business conditions; disputes or litigation involving
governmental, supplier, customer, employee, creditor, stockholder,
product liability, warranty or environmental claims; 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 maintain 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; 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; 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; our reliance on revenues
from customers in the oil and gas and automotive markets, with
increasing consumer pressure for reductions in environmental
impacts attributed to greenhouse gas emissions and increased
vehicle fuel economy; 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; our ability to maintain compliance with
the Nasdaq listing standards minimum closing bid price; 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 October 3, October 4,
2021
2020
(Unaudited) Revenue
$
25,683
$
22,154
Net income
$
294
$
3,495
Income per common share: Basic
$
0.01
$
0.17
Diluted
$
0.01
$
0.17
Weighted average shares outstanding: Basic
21,536
21,064
Diluted
22,940
21,080
Nine Months Ended October
3, October 4,
2021
2020
(Unaudited) Revenue
$
71,634
$
61,732
Net income
$
2,487
$
2,842
Income per common share: Basic
$
0.12
$
0.14
Diluted
$
0.11
$
0.14
Weighted average shares outstanding: Basic
21,522
21,026
Diluted
22,994
21,026
Sypris Solutions, Inc. Consolidated Statements of
Operations (in thousands, except for per share data)
Three Months Ended Nine Months Ended
October 3, October 4, October 3, October
4,
2021
2020
2021
2020
(Unaudited) (Unaudited) Net revenue: Sypris
Technologies
$
16,693
$
12,072
$
47,022
$
33,234
Sypris Electronics
8,990
10,082
24,612
28,498
Total net revenue
25,683
22,154
71,634
61,732
Cost of sales: Sypris Technologies
14,584
10,165
41,233
28,605
Sypris Electronics
7,121
8,450
20,298
23,742
Total cost of sales
21,705
18,615
61,531
52,347
Gross profit: Sypris Technologies
2,109
1,907
5,789
4,629
Sypris Electronics
1,869
1,632
4,314
4,756
Total gross profit
3,978
3,539
10,103
9,385
Selling, general and administrative
3,007
2,695
9,305
9,124
Operating income
971
844
798
261
Interest expense, net
211
216
644
636
Other expense (income), net
132
372
498
(114
)
Forgiveness of PPP Loan and related interest
-
-
(3,599
)
-
Income (loss) before taxes
628
256
3,255
(261
)
Income tax expense (benefit), net
334
(3,239
)
768
(3,103
)
Net income
$
294
$
3,495
$
2,487
$
2,842
Income per common share: Basic
$
0.01
$
0.17
$
0.12
$
0.14
Diluted
$
0.01
$
0.17
$
0.11
$
0.14
Dividends declared per common share
$
-
$
-
$
-
$
-
Weighted average shares outstanding: Basic
21,536
21,064
21,522
21,026
Diluted
22,940
21,080
22,994
21,026
Sypris Solutions, Inc. Consolidated Balance
Sheets (in thousands, except for share data)
October 3, December 31,
2021
2020
(Unaudited) (Note) ASSETS Current assets: Cash
and cash equivalents
$
11,101
$
11,606
Accounts receivable, net
11,463
7,234
Inventory, net
27,438
16,236
Other current assets
5,780
4,360
Total current assets
55,782
39,436
Property, plant and equipment, net
11,239
10,161
Operating lease right-of-use assets
5,439
6,103
Other assets
4,169
5,008
Total assets
$
76,629
$
60,708
LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities:
Accounts payable
$
12,855
$
6,734
Accrued liabilities
16,215
13,409
Operating lease liabilities, current portion
1,037
965
Finance lease obligations, current portion
453
393
Equipment financing obligations, current portion
307
-
Note payable - PPP Loan, current portion
-
1,186
Note payable - related party, current portion
2,500
-
Total current liabilities
33,367
22,687
Operating lease liabilities, net of current portion
5,152
5,941
Finance lease obligations, net of current portion
1,712
1,927
Equipment financing obligations, net of current portion
760
-
Note payable - PPP Loan, net of current portion
-
2,372
Note payable - related party, net of current portion
3,983
6,477
Other liabilities
14,874
6,529
Total liabilities
59,848
45,933
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; 21,743,567 shares issued and 21,743,548
outstanding in 2021 and 21,302,194 shares issued and
21,300,958 outstanding in 2020
217
213
Additional paid-in capital
154,969
155,025
Accumulated deficit
(113,278
)
(115,765
)
Accumulated other comprehensive loss
(25,127
)
(24,698
)
Treasury stock, 19 and 1,236 in 2021 and 2020, respectively
-
-
Total stockholders’ equity
16,781
14,775
Total liabilities and stockholders’ equity
$
76,629
$
60,708
Note: The balance sheet at December 31, 2020, 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 3,
October 4,
2021
2020
(Unaudited) Cash flows from operating activities: Net income
$
2,487
$
2,842
Adjustments to reconcile net income to net cash provided by
operating activities: Depreciation and amortization
1,944
1,883
Forgiveness of PPP Loan and related interest
(3,599
)
-
Deferred income taxes
755
(3,257
)
Stock-based compensation expense
351
335
Deferred loan costs recognized
5
11
Net loss (gain) on the sale of assets
11
(813
)
Provision for excess and obsolete inventory
134
222
Non-cash lease expense
664
699
Other noncash items
93
72
Contributions to pension plans
(283
)
(34
)
Changes in operating assets and liabilities: Accounts receivable
(4,256
)
(1,158
)
Inventory
(11,312
)
2,409
Prepaid expenses and other assets
(1,197
)
(983
)
Accounts payable
6,355
(1,036
)
Accrued and other liabilities
10,005
(1,114
)
Net cash provided by operating activities
2,157
78
Cash flows from investing activities: Capital expenditures
(1,829
)
(1,151
)
Proceeds from sale of assets
10
1,969
Net cash (used in) provided by investing activities
(1,819
)
818
Cash flows from financing activities: Principal payments on finance
lease obligations
(359
)
(623
)
Principal payments on equipment financing obligations
(132
)
-
Proceeds from Paycheck Protection Program loan
-
3,558
Indirect repurchase of shares for minimum statutory tax
withholdings
(405
)
(33
)
Net cash (used in) provided by financing activities
(896
)
2,902
Effect of exchange rate changes on cash balances
53
(599
)
Net (decrease) increase in cash and cash equivalents
(505
)
3,199
Cash and cash equivalents at beginning of period
11,606
5,095
Cash and cash equivalents at end of period
$
11,101
$
8,294
View source
version on businesswire.com: https://www.businesswire.com/news/home/20211110005228/en/
Anthony C. Allen Chief Financial Officer (502)
329-2000
Sypris Solutions (NASDAQ:SYPR)
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