Gross Margins Expand; New Contracts Awarded
For 2020
Sypris Solutions, Inc. (Nasdaq/GM: SYPR) today reported
financial results for its fourth quarter and full-year ended
December 31, 2019. 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 our cost structure while diversifying our book of
business in terms of both customers and markets.
Results for 2019 fundamentally reflected these expectations,
especially with respect to Sypris Technologies, with year-over-year
gains in revenue and gross margin. However, our performance was
impacted by lower than expected shipments for Sypris Electronics in
2019 that related primarily to ongoing shortages of electronic
components and resulting labor inefficiencies during the year.
HIGHLIGHTS
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- The
Company’s fourth quarter 2019 consolidated gross margin increased
660 basis points compared to the prior year period and 200 basis
points sequentially to 12.5%, while gross profit increased 92.7%
compared to the prior year period and 16.4%
sequentially.
- For the
full-year, consolidated gross margin increased 260 basis points
from 2018 to 11.2%, while gross profit increased 30.5% from
2018.
- Gross margin
for Sypris Technologies for the fourth quarter of 2019 increased
110 basis points to 15.4% compared to the prior year quarter
despite lower revenue as a result of softening commercial vehicle
demand and year-end inventory rebalancing by certain
customers.
- During the
fourth quarter of 2019, Sypris Technologies announced the award of
two long-term contracts: one to produce components for a new,
dual-clutch sportscar transmission and another for the transmission
of a leading all-terrain vehicle. Both contracts are expected to
contribute meaningfully to the diversification and financial
results of the business beginning in the first half of
2020.
- Gross margin
for Sypris Electronics increased materially to 8.2% for the fourth
quarter of 2019, up from a gross margin loss of 8.5% for the fourth
quarter of 2018 and up from a gross margin loss of 2.8%
sequentially.
- During the
fourth quarter of 2019, Sypris Electronics announced that it
received a contract award from Collins Aerospace to manufacture and
test electronic assemblies for the power management, environmental
control and life support systems of the Deep-Space Orion spacecraft
program.
- Subsequent
to year-end, Sypris Electronics announced that it received a
contract award from BAE Systems to manufacture and test electronic
power supply modules for a large, mission-critical military
program, with production to begin in 2020.
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“Gross margin for Sypris Technologies increased 110 basis points
for the fourth quarter and expanded by 330 basis points for the
year, despite the reduced demand in the commercial vehicle market
at the end of 2019,” commented Jeffrey T. Gill, President and Chief
Executive Officer. “Shipments of energy related products remained
strong in the quarter, reflecting demand from domestic as well as
from international customers. The reduction of new program launch
costs going forward is expected to have a meaningful impact on the
financial results of the business beginning in early 2020.
“Revenue for Sypris Electronics increased 30.4% sequentially
during the fourth quarter, reflecting the resolution of some of the
challenges we have faced during the year with shortages of certain
electronic components. As shipments rebound to normal run rates, we
will continue to focus on improving operational performance, while
recent new contract wins are expected to provide important support
for the growth of the business during the coming year.”
Concluding, Mr. Gill said, “The ramp up of the recently
announced new program awards is expected to help mitigate the
softening within the commercial vehicle market. Our customer base
and the markets we serve are considerably more diversified than at
any point in our recent history. With that said, the global
macroeconomic environment is experiencing uncertainty and
volatility as a result of the COVID-19 outbreak, and we are closely
monitoring the developments and will act promptly to mitigate the
risks to our business as we look forward to 2020.”
Fourth Quarter and Full-Year Results
The Company reported revenue of $21.6 million for the fourth
quarter of 2019, compared to $24.0 million for the prior-year
period. Additionally, the Company reported a net loss of $0.9
million for the fourth quarter, or $0.04 per share, compared to a
net loss of $0.2 million, or $0.01 per share, for the prior-year
period. The results for the quarter ended December 31, 2018,
included a benefit in selling, general and administrative expense
of $1.9 million for the favorable resolution of a legal fee
dispute.
For the full-year 2019, the Company reported revenue of $87.9
million compared with $88.0 million for the prior year. The Company
reported a net loss of $3.9 million for 2019, or $0.19 per share,
compared with a net loss of $3.5 million, or $0.17 per share, for
2018. Results for 2019 include a gain of $1.5 million in connection
with a contract settlement with one of our customers and a gain of
$0.7 million on the sale of excess equipment, partially offset by
costs of $0.5 million related to preparing the Broadway facility
for sale. In addition to the $1.9 million legal fee benefit
recorded in the fourth quarter of 2018, results for 2018 included
an insurance recovery gain of $2.3 million, which was partially
offset by a loss of $0.2 million on the sale of excess equipment
and costs of $1.4 million related to preparing the Broadway
facility for sale or other use.
Sypris Technologies
Revenue for Sypris Technologies was $13.0 million in the fourth
quarter of 2019, compared to $15.1 million for the prior-year
period, reflecting the inventory rebalancing at year-end by certain
customers and the softness in the commercial vehicle market,
partially offset by an increase in energy related product sales.
Gross profit for the fourth quarter was $2.0 million, or 15.4% of
revenue, compared to $2.2 million, or 14.3% of revenue, for the
same period in 2018.
Sypris Electronics
Revenue for Sypris Electronics was $8.6 million in the fourth
quarter of 2019, compared to $8.8 million for the prior-year
period. Revenue for the quarter was affected by a delay in
production resulting from final pricing negotiations on a follow-on
program and the supply chain issues discussed above. Gross profit
for the quarter was $0.7 million, or 8.2% of revenue, compared to a
loss of $0.8 million, or 8.5% or revenue, for the same period in
2018. Gross profit for the quarter ended December 31, 2018,
included a $0.4 million physical inventory adjustment and
additional excess and obsolete inventory reserves of $0.5
million.
Outlook
Commenting on the future, Mr. Gill added, “The ramp up of the
recently announced new programs is expected to mitigate the
expected softness coming from the Class 8 commercial vehicle
market. The President of the United States’ proposed Fiscal Year
2021 budget request would provide $740 billion of funding for
national security, $705 billion of which is for the Department of
Defense. Maintaining defense spending at this level is expected to
support program growth and market expansion for aerospace and
defense participants during the coming years. The energy market has
benefited from oil and natural gas infrastructure development
providing opportunities to grow revenue from our product
offerings.
“Our performance in early 2020 has improved sequentially from
the fourth quarter of 2019 and is consistent with the outlook
discussed on our previous earnings call in November. At this point
our business has not been materially impacted by COVID-19, but the
environment appears to be changing rapidly with regard to
customers, suppliers and public policy, and we are paying close
attention to developments on a daily basis. 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 extent and duration of the impacts that
COVID-19 may have on our business are not known at this time, but
we are monitoring developments in order to be in a position to take
appropriate action.”
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. 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 return to 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; 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
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; disputes or
litigation involving governmental, supplier, customer, employee,
creditor, stockholder, product liability or environmental claims;
failure to adequately insure or to identify environmental or other
insurable risks; unanticipated or uninsured disasters, public
health crises, losses or business risks; our failure to
successfully complete final contract negotiations with regard to
our announced contract “orders”, “wins” or “awards”; 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; our ability to maintain compliance with
the NASDAQ listing standards; 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 December 31,
2019
2018
(Unaudited)
Revenue
$
21,624
$
23,955
Net loss
$
(859
)
$
(188
)
Loss per common share: Basic
$
(0.04
)
$
(0.01
)
Diluted
$
(0.04
)
$
(0.01
)
Weighted average shares outstanding: Basic
20,974
20,555
Diluted
20,974
20,555
Year Ended December 31,
2019
2018
(Unaudited) Revenue
$
87,891
$
87,969
Net loss
$
(3,949
)
$
(3,505
)
Loss per common share: Basic
$
(0.19
)
$
(0.17
)
Diluted
(0.19
)
(0.17
)
Weighted average shares outstanding: Basic
20,865
20,512
Diluted
20,865
20,512
Sypris Solutions, Inc. Consolidated Statements of
Operations (in thousands, except for per share data)
Three Months Ended Year Ended December
31, December 31,
2019
2018
2019
2018
(Unaudited) (Unaudited) Net revenue: Sypris
Technologies
$
13,010
$
15,130
$
61,683
$
59,816
Sypris Electronics
8,614
8,825
26,208
28,153
Total net revenue
21,624
23,955
87,891
87,969
Cost of sales: Sypris Technologies
11,006
12,973
51,898
52,293
Sypris Electronics
7,910
9,577
26,110
28,104
Total cost of sales
18,916
22,550
78,008
80,397
Gross profit (loss): Sypris Technologies
2,004
2,157
9,785
7,523
Sypris Electronics
704
(752
)
98
49
Total gross profit
2,708
1,405
9,883
7,572
Selling, general and administrative
3,474
1,213
13,680
10,474
Severance, relocation and other costs
118
306
509
1,394
Operating loss
(884
)
(114
)
(4,306
)
(4,296
)
Interest expense, net
227
185
903
850
Other (income) expense, net
(100
)
215
(1,256
)
(1,436
)
Loss before taxes
(1,011
)
(514
)
(3,953
)
(3,710
)
Income tax expense, net
(152
)
(326
)
(4
)
(205
)
Net Loss
$
(859
)
$
(188
)
$
(3,949
)
$
(3,505
)
Loss per common share: Basic
$
(0.04
)
$
(0.01
)
$
(0.19
)
$
(0.17
)
Diluted
$
(0.04
)
$
(0.01
)
$
(0.19
)
$
(0.17
)
Dividends declared per common share
$
-
$
-
$
-
$
-
Weighted average shares outstanding: Basic
20,974
20,555
20,865
20,512
Diluted
20,974
20,555
20,865
20,512
Sypris Solutions, Inc. Consolidated Balance Sheets
(in thousands, except for share data)
December 31,
December 31,
2019
2018
(Unaudited) (Note) ASSETS Current assets: Cash
and cash equivalents
$
5,095
$
10,704
Accounts receivable, net
7,444
9,881
Inventory, net
20,784
18,584
Other current assets
4,282
4,755
Assets held for sale
2,233
1,474
Total current assets
39,838
45,398
Property, plant and equipment, net
11,675
14,655
Operating lease right-of-use assets
7,014
-
Other assets
1,529
1,515
Total assets
$
60,056
$
61,568
LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities:
Accounts payable
$
9,346
$
13,427
Accrued liabilities
12,495
14,965
Operating lease liabilities, current portion
841
-
Finance lease obligations, current portion
684
593
Total current liabilities
23,366
28,985
Note payable - related party
6,463
6,449
Operating lease liabilities, net of current portion
6,906
-
Finance lease obligations, net of current portion
2,351
2,804
Other liabilities
7,539
8,496
Total liabilities
46,625
46,734
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; 21,324,618 shares issued and 21,298,426 outstanding in
2019 and 21,414,374 shares issued and 21,398,182 outstanding in
2018
213
214
Additional paid-in capital
154,702
154,388
Accumulated deficit
(117,433
)
(114,926
)
Accumulated other comprehensive loss
(24,051
)
(24,842
)
Treasury stock, 26,192 and 16,192 in 2019 and 2018, respectively
-
-
Total stockholders’ equity
13,431
14,834
Total liabilities and stockholders’ equity
$
60,056
$
61,568
Note: The balance sheet at December 31, 2018, 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)
Year Ended December 31,
2019
2018
(Unaudited) Cash flows from operating activities: Net loss
$
(3,949
)
$
(3,505
)
Adjustments to reconcile net loss to net cash (used in) provided by
operating activities: Depreciation and amortization
2,671
2,648
Deferred income taxes
(260
)
(509
)
Non-cash compensation expense
469
637
Deferred loan costs recognized
11
14
Net (gain) loss on the sale of assets
(654
)
249
Insurance recovery gain
-
(2,275
)
Settlement gain
-
(1,890
)
Provision for excess and obsolete inventory
616
520
Non-cash lease expense
650
-
Other noncash items
(69
)
278
Contributions to pension plans
(382
)
(77
)
Changes in operating assets and liabilities: Accounts receivable
2,425
(612
)
Inventory
(2,823
)
(2,857
)
Prepaid expenses and other assets
560
(1,163
)
Accounts payable
(4,066
)
2,948
Accrued and other liabilities
(1,019
)
7,486
Net cash (used in) provided by operating activities
(5,820
)
1,892
Cash flows from investing activities: Capital expenditures
(859
)
(2,051
)
Proceeds from sale of assets
1,858
1,380
Insurance proceeds for recovery of property damage, net
-
2,275
Net cash provided by investing activities
999
1,604
Cash flows from financing activities: Finance lease payments
(632
)
(829
)
Indirect repurchase of shares for minimum statutory tax
withholdings
(156
)
(107
)
Net cash used in financing activities
(788
)
(936
)
Net (decrease) increase in cash and cash equivalents
(5,609
)
2,560
Cash and cash equivalents at beginning of period
10,704
8,144
Cash and cash equivalents at end of period
$
5,095
$
10,704
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200319005181/en/
Anthony C. Allen Chief Financial Officer (502)
329-2000
Sypris Solutions (NASDAQ:SYPR)
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