Sypris Reports First Quarter Results

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Sypris Solutions, Inc. (Nasdaq/GM: SYPR) today reported financial results for its first quarter ended April 5, 2020. 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 the Companys cost structure while diversifying its book of business in terms of both customers and markets.

Results for the first quarter of 2020 fundamentally reflected these expectations, with year-over-year gains in gross margin and operating income. However, the Company began to experience lower revenue late in the first quarter due to the global economic impact of the COVID-19 pandemic. The Company expects this impact to increase during the coming months.

HIGHLIGHTS

  • The Companys first quarter revenue increased 14.6% compared to the prior-year quarter and increased 3.7% sequentially as shipments from new programs increased for both segments of the business.
  • The Companys gross margin increased to 16.0% of revenue, up from 4.4% in the first quarter of 2019 and up 350 basis points sequentially.
  • The Companys operating income was positive for the quarter, driven by a 317.6% increase in gross profit and a 6.7% decrease in SG&A when compared to the prior-year period. Sequentially, gross profit increased 32.6% while SG&A decreased 7.2%.
  • For Sypris Technologies, gross margin increased 390 basis points to 18.2% compared to the prior-year quarter despite lower revenue, while operating income increased 7.0%. Operating margin increased to 8.2% of sales, up from 6.5% for the same period in 2019 and up from 5.4% sequentially.
  • For Sypris Electronics, revenue increased 154.4% during the quarter compared to the prior-year period, reflecting the improved availability of electronic components. Gross margin increased to 12.6% of sales, while operating margin increased to 4.7% of revenue. Orders increased 132.6% year-over-year, resulting in a 45.1% increase in backlog.
  • During the quarter, Sypris Electronics announced that it had received a new contract award from BAE Systems to manufacture and test electronic power supply modules for a large, mission-critical military program, with production to begin this year.
  • Subsequent to quarter end, the Company completed the sale of its 90-year-old former manufacturing facility that was located on approximately 20 acres of land in Louisville, Kentucky, for $1.7 million. The facility had been closed and unoccupied since the fourth quarter of 2017.
  • Additionally, the Company secured a $3.6 million loan in May under the Paycheck Protection Program of the Coronavirus Aid, Relief and Economic Securities Act, which will be used to cover payroll costs, rent and utility costs in accordance with the terms and conditions of the loan.

While the economic headwinds and disruptions in the quarter had an impact on our results, we are pleased with our performance during the period, commented Jeffrey T. Gill, President and Chief Executive Officer. Gross margin for Sypris Technologies increased 390 basis points for the first quarter, despite the reduced demand in the commercial vehicle market and lower energy product sales. We believe that the market diversification Sypris Technologies has accomplished over recent years by adding new programs in the automotive, sport-utility and off-highway markets has benefited and will continue to be of benefit to the Company going forward.

Revenue for Sypris Electronics increased 154.4% from the prior-year first quarter, reflecting the resolution of some of the challenges we faced during the prior year with shortages of certain electronic components. As shipments rebounded to normal run rates, we continued to focus on improving operational performance.

Concluding, Mr. Gill said, 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. We are closely monitoring the developments and will act promptly to mitigate the risks to our business as we navigate through these uncertain times.

First Quarter Results

The Company reported revenue of $22.4 million for the first quarter of 2020, compared to $19.6 million for the prior-year period. Additionally, the Company reported operating income of $0.3 million and a net loss of $0.3 million for the first quarter, or $0.01 per share, compared to an operating loss of $2.7 million and a net loss of $3.0 million, or $0.15 per share, for the prior-year period. Results for the quarter ended April 5, 2020, include pension and foreign exchange related expenses of $0.4 million as compared to $0.1 million in the prior-year comparable period.

Sypris Technologies

Revenue for Sypris Technologies was $13.7 million in the first quarter of 2020, compared to $16.1 million for the prior-year period, primarily reflecting the anticipated cyclical decline in the commercial vehicle market, coupled with the impact of the COVID-19 pandemic. Decreased volumes in the commercial vehicle market and the decline in energy related product sales were partially offset by growth of new programs in the automotive, light truck and sport utility markets. Gross profit for the first quarter was $2.5 million, or 18.2% of revenue, compared to $2.3 million, or 14.3% of revenue, for the same period in 2019.

Sypris Electronics

Revenue for Sypris Electronics was $8.7 million in the first quarter of 2020, compared to $3.4 million for the prior-year period. In the prior year, revenue for the first quarter was negatively impacted by shortages of certain electronic components and extensive lead-time issues in the electronic manufacturing industry. Additionally, the first quarter of 2019 was also impacted by shipments accelerated into the fourth quarter of 2018 as the Company planned for the implementation of a new ERP system effective in January 2019. Many of the challenges faced during the prior year with the electronic component shortages have been resolved and production rebounded to more normal run rates during the first quarter of 2020. Gross profit for the quarter was $1.1 million, or 12.6% of revenue, compared to a loss of $1.4 million, or 42.2% or revenue, for the same period in 2019.

Outlook

Commenting on the future, Mr. Gill added, Our performance in the first quarter of 2020 improved on both a year-over-year and sequential basis in terms of gross margin and operating income, and our business was not materially impacted by COVID-19 during the period until very late in the quarter. However, the environment is 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.

Our operations have remained open to meet the important needs of our customers who serve defense, energy, transportation and other critical infrastructure industries. We expect the road back for the economy to be a potentially uncertain journey. If accurate, we would anticipate the impact to be felt less on customers in defense-related markets and more on those who serve industrial, consumer and travel-related markets.

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 companys 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 ability to comply with the requirements of the SBA and seek forgiveness of all or a portion of the PPP Loan; 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; 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; 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 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 inability to regain compliance with the NASDAQ listing standards minimum closing bid price in a timely manner 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; 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; 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

 

April 5,

 

March 31,

 

2020

 

2019

 (Unaudited)
Revenue 

$

22,425

 

 

$

19,564

 

Net loss 

$

(305

)

 

$

(3,036

)

Loss per common share:  
Basic 

$

(0.01

)

 

$

(0.15

)

Diluted 

 

(0.01

)

 

 

(0.15

)

Weighted average shares outstanding:  
Basic 

 

20,988

 

 

 

20,669

 

Diluted 

 

20,988

 

 

 

20,669

 

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

Three Months Ended

 

April 5,

 

March 31,

 

2020

 

2019

 (Unaudited)
Net revenue:  
Sypris Technologies 

$

13,717

 

 

$

16,141

 

Sypris Electronics 

 

8,708

 

 

 

3,423

 

Total net revenue 

 

22,425

 

 

 

19,564

 

Cost of sales:  
Sypris Technologies 

 

11,224

 

 

 

13,837

 

Sypris Electronics 

 

7,610

 

 

 

4,867

 

Total cost of sales 

 

18,834

 

 

 

18,704

 

Gross profit (loss):  
Sypris Technologies 

 

2,493

 

 

 

2,304

 

Sypris Electronics 

 

1,098

 

 

 

(1,444

)

Total gross profit 

 

3,591

 

 

 

860

 

Selling, general and administrative 

 

3,223

 

 

 

3,454

 

Severance, relocation and other costs 

 

91

 

 

 

98

 

Operating income (loss) 

 

277

 

 

 

(2,692

)

Interest expense, net 

 

227

 

 

 

217

 

Other expense, net 

 

283

 

 

 

51

 

Loss before taxes 

 

(233

)

 

 

(2,960

)

Income tax expense, net 

 

72

 

 

 

76

 

Net loss 

$

(305

)

 

$

(3,036

)

Loss per common share:  
Basic 

$

(0.01

)

 

$

(0.15

)

Diluted 

$

(0.01

)

 

$

(0.15

)

Dividends declared per common share 

$

 

 

$

 

Weighted average shares outstanding:  
Basic 

 

20,988

 

 

 

20,669

 

Diluted 

 

20,988

 

 

 

20,669

 

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

April 5,

 

December 31,

 

2020

 

2019

 (Unaudited) (Note)
ASSETS
Current assets:  
Cash and cash equivalents 

$

5,206

 

 

$

5,095

 

Accounts receivable, net 

 

8,922

 

 

 

7,444

 

Inventory, net 

 

19,401

 

 

 

20,784

 

Other current assets 

 

3,782

 

 

 

4,282

 

Assets held for sale 

 

2,167

 

 

 

2,233

 

Total current assets 

 

39,478

 

 

 

39,838

 

Property, plant and equipment, net 

 

9,687

 

 

 

11,675

 

Operating lease right-of-use assets 

 

6,727

 

 

 

7,014

 

Other assets 

 

1,374

 

 

 

1,529

 

Total assets 

$

57,266

 

 

$

60,056

 

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:  
Accounts payable 

$

10,686

 

 

$

9,346

 

Accrued liabilities 

 

11,624

 

 

 

12,495

 

Operating lease liabilities, current portion 

 

862

 

 

 

841

 

Finance lease obligations, current portion 

 

667

 

 

 

684

 

Note payable – related party, current portion 

 

2,500

 

 

 

 

Total current liabilities 

 

26,339

 

 

 

23,366

 

   
Operating lease liabilities, net of current portion 

 

6,672

 

 

 

6,906

 

Finance lease obligations, net of current portion 

 

2,225

 

 

 

2,351

 

Note payable – related party 

 

3,967

 

 

 

6,463

 

Other liabilities 

 

6,756

 

 

 

7,539

 

Total liabilities 

 

45,959

 

 

 

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; 21,324,618 shares issued and 21,309,580 outstanding in 2020 and 21,324,618 shares issued and 21,298,426 outstanding in 2019

213

213

Additional paid-in capital 

 

154,789

 

 

 

154,702

 

Accumulated deficit 

 

(117,738

)

 

 

(117,433

)

Accumulated other comprehensive loss 

 

(25,957

)

 

 

(24,051

)

Treasury stock, 15,038 and 26,192 in 2020 and 2019, respectively 

 

 

 

 

 

Total stockholders equity 

 

11,307

 

 

 

13,431

 

Total liabilities and stockholders equity 

$

57,266

 

 

$

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)
  
 

Three Months Ended

 

April 5,

 

March 31,

 

2020

 

2019

 (Unaudited)
Cash flows from operating activities:  
Net loss 

$

(305

)

 

$

(3,036

)

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

 

620

 

 

 

691

 

Non-cash compensation expense 

 

94

 

 

 

111

 

Deferred loan costs recognized 

 

4

 

 

 

4

 

Net gain on the sale of assets 

 

(154

)

 

 

 

Provision for excess and obsolete inventory 

 

40

 

 

 

37

 

Non-cash lease expense 

 

288

 

 

 

164

 

Other noncash items 

 

190

 

 

 

(86

)

Contributions to pension plans 

 

(34

)

 

 

(10

)

Changes in operating assets and liabilities:  
Accounts receivable 

 

(1,478

)

 

 

758

 

Inventory 

 

846

 

 

 

(2,486

)

Prepaid expenses and other assets 

 

(99

)

 

 

473

 

Accounts payable 

 

1,474

 

 

 

(1,187

)

Accrued and other liabilities 

 

(772

)

 

 

40

 

Net cash provided by (used in) operating activities 

 

714

 

 

 

(4,527

)

Cash flows from investing activities:  
Capital expenditures 

 

(453

)

 

 

(348

)

Proceeds from sale of assets 

 

288

 

 

 

 

Net cash used in investing activities 

 

(165

)

 

 

(348

)

Cash flows from financing activities:  
Finance lease payments 

 

(143

)

 

 

(146

)

Indirect repurchase of shares for minimum statutory tax withholdings 

 

(7

)

 

 

(49

)

Net cash used in financing activities 

 

(150

)

 

 

(195

)

Effect of exchange rate changes on cash balances 

 

(288

)

 

 

55

 

Net increase (decrease) in cash and cash equivalents 

 

111

 

 

 

(5,015

)

Cash and cash equivalents at beginning of period 

 

5,095

 

 

 

10,704

 

Cash and cash equivalents at end of period 

$

5,206

 

 

$

5,689

 

 

Anthony C. Allen

Chief Financial Officer

(502) 329-2000