SYPR Sypris Solutions Inc

Revenue Up 12%; Backlog Up 77% On Multiple Contract Awards

Sypris Solutions, Inc. (Nasdaq/GM: SYPR) today reported financial results for its second quarter ended July 3, 2022.

HIGHLIGHTS

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• Revenue for the quarter increased 11.8% year-over-year, driven by a 25.6% increase for Sypris Electronics and a 4.7% increase for Sypris Technologies.
• Orders increased 360% on a year-over-year basis and 169% sequentially driven by a 524% and 240% increase at Sypris Electronics, respectively.
• Backlog increased 77% driven by Sypris Electronics, which increased 84.1% year-over-year and 72.7% year-to-date on the strength of multiple contract awards.
• Gross margin for the quarter decreased 360 basis points from the prior year primarily reflecting a change in revenue mix for both segments and costs incurred to support capacity improvements.
• Sypris Electronics announced several important new contract awards and releases during the quarter, including the following:
  • A follow-on contract to manufacture advanced integrated electronic warfare and communications avionics system modules for an American family of single-seat, single-engine, all-weather stealth multirole combat aircraft. One of the largest government DOD programs, production is expected to begin in 2022;
  • A multi-year, follow-on, full-rate production contract to produce and test multiple power supply modules for the upgrade of the electronic warfare suite of an important U.S. fighter aircraft program. The upgrade is intended to replace the functionally obsolete self-protection system of the aircraft. The transition to full-rate production is expected to begin in 2022; and
  • Releases under a new, multi-year follow-on contract to produce and test power supply modules for a large, mission-critical U.S. Navy electronic warfare improvement program. The upgrade will provide the capability to jam incoming missiles that threaten a warship, cue decoys and adapt quickly to evolving threats. Full-rate production is expected to begin in 2022.
• Sypris Technologies announced that it has entered into a multi-year contract extension to provide drivetrain components for use in the production of medium and heavy-duty commercial vehicles with a leading global commercial vehicle original equipment manufacturer.
• The Company updated its full-year outlook for 2022, maintaining the expected increase in revenue at 25 to 30% year-over-year while adjusting the gross margin guidance to a 25 to 50 basis point increase with revenue mix and supply chain inefficiencies slowing the margin improvement in the near term. Cash flow from operations is expected to show double digit percentage growth reflecting increased year-over-year profitability and favorable working capital changes during the year.

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“We were pleased with our year-over-year revenue growth in both segments and the significant growth in backlog for Sypris Electronics. While the timing of program launches has been impacted by continued supply chain disruptions, we continue to work with our customers and vendors to navigate the market conditions and identify solutions to satisfy our customers and the end users of our products,” commented Jeffrey T. Gill, President and Chief Executive Officer.

“Backlog for Sypris Electronics continued to increase on both a year-over-year and sequential basis, resulting in our largest book of business in over a decade. The record backlog is expected to support revenue growth over the balance of this year and in 2023, with a portion of the orders with delivery dates extending into 2024. Customer funding has already been secured for a portion of these key programs, which enables us to procure inventory under multi-year purchase orders to mitigate future supply chain issues.

“Overall demand from customers serving the automotive, commercial vehicle, sport utility and off-highway markets has remained stable, with new product line shipments offsetting headwinds for automotive and commercial vehicle components as our customers adjust inventory levels to align with OEM build schedules. We continue to invest in new equipment, maintain or upgrade existing assets, and drive continuous improvement initiatives to add capacity and support more cost-efficient operations in the future. The recent successful extension of long-term contracts with two of our key customers supports our revenue base and provides opportunities to expand these relationships in the coming years.

“Orders for our energy products during the second quarter increased 13% year-over-year, with open quotes outstanding on several large projects. Additional opportunities for growth may exist with new projects in support of increasing rig counts over pre-pandemic levels. We are also actively pursuing applications for our products in adjacent markets to further diversify our industry and customer portfolios.”

Second Quarter Results

The Company reported revenue of $29.0 million for the second quarter of 2022, compared to $26.0 million for the prior-year comparable period. Additionally, the Company reported a net loss of $0.6 million, or $0.03 per share, compared to net income of $3.8 million, or $0.17 per diluted share, for the prior-year period. Net income in the second quarter of 2021 included the recognition of a $3.6 million gain on the forgiveness of the Company’s PPP loan.

For the six months ended July 3, 2022, the Company reported revenue of $55.2 million compared with $46.0 million for the first half of 2021. The Company reported a net loss of $0.4 million, or $0.02 per share, compared with net income of $2.2 million, or $0.10 per diluted share, for the prior-year period. Results for the six months ended July 4, 2021, included the gain from the forgiveness of the Company’s PPP loan noted above.

Sypris Technologies

Revenue for Sypris Technologies increased to $18.0 million in the second quarter of 2022, compared to $17.1 million for the prior-year period. Increased shipments of components for sport utility vehicles and price adjustments for the pass-through of increased steel prices were partially offset by a decline in energy-related product sales. Gross profit for the second quarter of 2022 was $2.1 million, or 11.9% of revenue, compared to $2.5 million, or 14.6% of revenue, for the same period in 2021. In addition to the change in revenue mix, gross profit for the second quarter of 2022 was impacted by additional costs incurred to support the increase in demand driven by the commercial vehicle market anticipated over the next two years.

Sypris Electronics

Revenue for Sypris Electronics increased to $11.1 million in the second quarter of 2022 compared to $8.8 million for the prior-year period. Shipments under a full-rate production contract began ramping up during the fourth quarter of 2021 and continued through the first half of 2022, driving the increase in revenue. Supply chain constraints partially offset these gains, limiting shipments on certain other programs during the second quarter of 2022. Gross profit for the second quarter of 2022 was $1.6 million, or 14.9% of revenue, compared to $1.8 million, or 20.4% of revenue, for the same period in 2021. Margins were impacted by production on-boarding and engineering costs, which are typically higher on programs that have not yet reached full rate production, and the completion of certain mature programs.

Outlook

Commenting on the future, Mr. Gill added, “Demand from customers serving the automotive, commercial vehicle and sport utility markets has remained at high levels, with Class 8 forecasts showing year-over-year production increases of 17.2% for 2022. Similarly, demand from customers in the defense and communications sector remains robust, while the outlook for the energy market continues to move in the right direction.

“With a strong backlog, new program wins and long-term contract extensions in place, we are confident that the remainder of 2022 has the potential to be very positive for Sypris. We continue to expect a revenue increase of 25 to 30% year-over-year and a significant increase in cash flow from operations supported by strong earnings growth. We are adjusting our gross margin expansion to 25 to 50 basis points over the prior year, as our expected revenue mix has shifted from our prior outlook, and we continue to expect supply chain inefficiencies will impact our production costs as new programs ramp up for Sypris Electronics.”

Webcast and Conference Call Information

Sypris Solutions will host a listen only conference call to discuss the Company's financial results today, August 16, 2022, at 9:00 a.m. (Eastern Time). To listen to the call, participants should dial (833) 316-0560 approximately 10 minutes prior to the start of the call (ask to be joined into the Sypris Solutions, Inc. call).

The live broadcast of Sypris’ quarterly conference call will also be available online at www.sypris.com on August 16, 2022, beginning at 9:00 a.m. (Eastern Time). The online replay will be available at approximately 11:00 a.m. (Eastern Time) and continue for 30 days. Related presentation materials will be posted to the “Investor Information” section of the Company’s website at www.sypris.com, located under the sub-heading “Upcoming Events,” prior to the call.

About Sypris Solutions

Sypris Solutions is a diversified manufacturing and engineering services company serving the defense, transportation, communications and energy industries. 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. 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: 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; our failure to successfully complete final contract negotiations with regard to our announced contract “orders”, “wins” or “awards”; dependence on, retention or recruitment of key employees and highly skilled personnel and distribution of our human capital; cost, quality and availability or lead times of raw materials such as steel, component parts (especially electronic components), natural gas or utilities including increased cost relating to inflation; our failure to successfully win new business or develop new or improved products or new markets for our products; 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; the fees, costs and supply of, or access to, debt, equity capital, or other sources of liquidity; the impact of COVID-19 and economic conditions on our future operations; possible public policy response to the pandemic, including U. S or foreign government legislation or restrictions that may impact our operations or supply chain; the cost, quality, timeliness, efficiency and yield of our operations and capital investments, including the impact of inflation, tariffs, product recalls or related liabilities, employee training, working capital, production schedules, cycle times, scrap rates, injuries, wages, overtime costs, freight or expediting costs; the termination or non-renewal of existing contracts by customers; inaccurate data about markets, customers or business conditions; disputes or litigation involving governmental, supplier, customer, employee, creditor, stockholder, product liability, warranty or environmental claims; 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; failure to adequately insure or to identify product liability, environmental or other insurable risks; unanticipated or uninsured product liability claims, disasters, public health crises, losses or business risks; the costs of compliance with our auditing, regulatory or contractual obligations; labor relations; strikes; union negotiations; costs associated with environmental claims relating to properties previously owned; 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; 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; inflation; war, geopolitical conflict, terrorism, or political uncertainty, including disruptions resulting from the conflict between Russia and Ukraine arising out of international sanctions, foreign currency fluctuations and other economic impacts; cyber security threats and disruptions, including ransomware attacks on our systems and the systems of third-party vendors and other parties with which we conduct business, all of which may become more pronounced in the event of geopolitical conflicts and other uncertainties, such as the conflict in Ukraine; our ability to maintain compliance with the Nasdaq listing standards minimum closing bid price; risks 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

July 3,

 

July 4,

2022

 

2021

(Unaudited) Revenue

$

29,044

 

 

$

25,969

Net (loss) income

$

(629

)

 

$

3,823

(Loss) income per common share:   Basic

$

(0.03

)

 

$

0.18

Diluted

$

(0.03

)

 

$

0.17

Weighted average shares outstanding:   Basic

 

21,723

 

 

 

21,356

Diluted

 

21,723

 

 

 

22,846

         

Six Months Ended

July 3,

 

July 4,

2022

 

2021

(Unaudited) Revenue

$

55,210

 

 

$

45,951

Net (loss) income

$

(392

)

 

$

2,193

(Loss) income per common share:   Basic

$

(0.02

)

 

$

0.10

Diluted

$

(0.02

)

 

$

0.10

Weighted average shares outstanding:   Basic

 

21,700

 

 

 

21,475

Diluted

 

21,700

 

 

 

22,979

Sypris Solutions, Inc. Consolidated Statements of Operations (in thousands, except for per share data)        

Three Months Ended

 

Six Months Ended

July 3,

 

July 4,

 

July 3,

 

July 4,

2022

 

2021

 

2022

 

2021

(Unaudited)   (Unaudited) Net revenue:       Sypris Technologies

$

17,951

 

 

$

17,139

 

 

$

35,106

 

 

$

30,329

 

Sypris Electronics

 

11,093

 

 

 

8,830

 

 

 

20,104

 

 

 

15,622

 

Total net revenue

 

29,044

 

 

 

25,969

 

 

 

55,210

 

 

 

45,951

 

Cost of sales:       Sypris Technologies

 

15,820

 

 

 

14,630

 

 

 

29,843

 

 

 

26,649

 

Sypris Electronics

 

9,444

 

 

 

7,030

 

 

 

17,078

 

 

 

13,177

 

Total cost of sales

 

25,264

 

 

 

21,660

 

 

 

46,921

 

 

 

39,826

 

Gross profit:       Sypris Technologies

 

2,131

 

 

 

2,509

 

 

 

5,263

 

 

 

3,680

 

Sypris Electronics

 

1,649

 

 

 

1,800

 

 

 

3,026

 

 

 

2,445

 

Total gross profit

 

3,780

 

 

 

4,309

 

 

 

8,289

 

 

 

6,125

 

Selling, general and administrative

 

3,737

 

 

 

3,416

 

 

 

7,126

 

 

 

6,298

 

Operating income (loss)

 

43

 

 

 

893

 

 

 

1,163

 

 

 

(173

)

Interest expense, net

 

263

 

 

 

211

 

 

 

511

 

 

 

433

 

Other expense, net

 

104

 

 

 

145

 

 

 

273

 

 

 

366

 

Forgiveness of PPP Loan and related interest

 

-

 

 

 

(3,599

)

 

 

-

 

 

 

(3,599

)

Loss (income) before taxes

 

(324

)

 

 

4,136

 

 

 

379

 

 

 

2,627

 

Income tax expense, net

 

305

 

 

 

313

 

 

 

771

 

 

 

434

 

Net (loss) income

$

(629

)

 

$

3,823

 

 

$

(392

)

 

$

2,193

 

(Loss) income per common share:       Basic

$

(0.03

)

 

$

0.18

 

 

$

(0.02

)

 

$

0.10

 

Diluted

$

(0.03

)

 

$

0.17

 

 

$

(0.02

)

 

$

0.10

 

Dividends declared per common share

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

Weighted average shares outstanding:       Basic

 

21,723

 

 

 

21,356

 

 

 

21,700

 

 

 

21,475

 

Diluted

 

21,723

 

 

 

22,846

 

 

 

21,700

 

 

 

22,979

 

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

July 3,

 

December 31,

2022

 

2021

(Unaudited)

 

(Note)

ASSETS Current assets:   Cash and cash equivalents

$

7,486

 

 

$

11,620

 

Accounts receivable, net

 

9,478

 

 

 

8,467

 

Inventory, net

 

29,379

 

 

 

30,100

 

Other current assets

 

6,792

 

 

 

5,868

 

Total current assets

 

53,135

 

 

 

56,055

 

Property, plant and equipment, net

 

14,625

 

 

 

14,140

 

Operating lease right-of-use assets

 

4,699

 

 

 

5,140

 

Other assets

 

3,902

 

 

 

4,170

 

Total assets

$

76,361

 

 

$

79,505

 

LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities:   Accounts payable

$

12,838

 

 

$

11,962

 

Accrued liabilities

 

21,086

 

 

 

19,646

 

Operating lease liabilities, current portion

 

1,114

 

 

 

1,063

 

Finance lease obligations, current portion

 

1,016

 

 

 

983

 

Equipment financing obligations, current portion

 

347

 

 

 

336

 

Note payable - related party, current portion

 

2,500

 

 

 

-

 

Total current liabilities

 

38,901

 

 

 

33,990

 

    Operating lease liabilities, net of current portion

 

4,306

 

 

 

4,878

 

Finance lease obligations, net of current portion

 

2,957

 

 

 

3,469

 

Equipment financing obligations, net of current portion

 

692

 

 

 

868

 

Note payable - related party, net of current portion

 

3,987

 

 

 

6,484

 

Other liabilities

 

5,880

 

 

 

10,530

 

Total liabilities

 

56,723

 

 

 

60,219

 

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;   22,132,002 shares issued and 22,131,983 outstanding in 2022 and   21,864,743 shares issued and 21,864,724 outstanding in 2021

 

221

 

 

 

218

 

Additional paid-in capital

 

155,214

 

 

 

154,904

 

Accumulated deficit

 

(113,234

)

 

 

(112,842

)

Accumulated other comprehensive loss

 

(22,563

)

 

 

(22,994

)

Treasury stock, 19 in 2022 and 2021

 

-

 

 

 

-

 

Total stockholders’ equity

 

19,638

 

 

 

19,286

 

Total liabilities and stockholders’ equity

$

76,361

$

79,505

 

Note: The balance sheet at December 31, 2021, 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 3,

 

July 4,

2022

 

2021

(Unaudited)

Cash flows from operating activities:   Net (loss) income

$

(392

)

 

$

2,193

 

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

 

1,531

 

 

 

1,274

 

Forgiveness of PPP Loan and related interest

 

-

 

 

 

(3,599

)

Deferred income taxes

 

225

 

 

 

266

 

Stock-based compensation expense

 

349

 

 

 

163

 

Deferred loan costs recognized

 

3

 

 

 

3

 

Net loss on the sale of assets

 

10

 

 

 

11

 

Provision for excess and obsolete inventory

 

129

 

 

 

65

 

Non-cash lease expense

 

442

 

 

 

438

 

Other noncash items

 

91

 

 

 

90

 

Contributions to pension plans

 

(47

)

 

 

(254

)

Changes in operating assets and liabilities:   Accounts receivable

 

(1,155

)

 

 

(3,270

)

Inventory

 

711

 

 

 

(7,063

)

Prepaid expenses and other assets

 

(819

)

 

 

(335

)

Accounts payable

 

805

 

 

 

7,218

 

Accrued and other liabilities

 

(3,892

)

 

 

11,406

 

Net cash (used in) provided by operating activities

 

(2,009

)

 

 

8,606

 

Cash flows from investing activities:   Capital expenditures

 

(1,840

)

 

 

(1,213

)

Proceeds from sale of assets

 

-

 

 

 

10

 

Net cash used in investing activities

 

(1,840

)

 

 

(1,203

)

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

 

(479

)

 

 

(211

)

Principal payments on equipment financing obligations

 

(165

)

 

 

(65

)

Indirect repurchase of shares for minimum statutory tax withholdings

 

(36

)

 

 

(382

)

Net cash used in financing activities

 

(680

)

 

 

(658

)

Effect of exchange rate changes on cash balances

 

395

 

 

 

(157

)

Net (decrease) increase in cash and cash equivalents

 

(4,134

)

 

 

6,588

 

Cash and cash equivalents at beginning of period

 

11,620

 

 

 

11,606

 

Cash and cash equivalents at end of period

$

7,486

$

18,194

 

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20220816005181/en/

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