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Sypris Reports Third Quarter Results

November 12, 2019

LOUISVILLE, Ky.--(BUSINESS WIRE)--Nov 12, 2019--

Sypris Solutions, Inc. (Nasdaq/GM: SYPR) today reported financial results for its third quarter ended September 29, 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 its cost structure while diversifying its book of business in terms of both customers and markets.

Results for the third quarter of 2019 reflected year-over-year gains in revenue and gross margin; however, our performance was impacted by lower than expected shipments for Sypris Electronics that related primarily to two specific supply chain challenges early in the quarter. Sypris Technologies delivered another profitable quarter with gross margin of 16.1% compared with 8.9% in the prior year.

HIGHLIGHTS
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“We are pleased with the year-over-year revenue growth at Sypris Technologies,” 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 international customers. Sales within the commercial vehicle market also performed well in spite of signals of reduced demand due to Class 8 production ramping down beginning late in the third quarter. Our margins for both the quarter and year-to-date periods have been impacted by additional costs associated with implementing the processes and equipment infrastructure for new programs launching this year, but are not expected to carry over into 2020.

“The financial results of Sypris Electronics were affected during the third quarter by two discrete material issues which resulted in lower shipment levels than planned. The first issue involved a temporary interruption in the supply of a coating applied by a subcontractor to one of the components used on a high volume program. The second issue involved a delay in the prime contractor’s approval of a substitute component on a program after our customer had previously approved the component. Both of these issues were resolved late in the third quarter allowing shipments to rebound to normal run rates by quarter end.”

Concluding, Mr. Gill said, “While we continue to onboard new programs in each of our primary markets, we adjusted our guidance for 2019 to reflect the supply chain challenges that dampened revenue in the third quarter and softer demand beginning in the fourth quarter in the commercial vehicle market. Our customer base and the markets we serve are considerably more diversified than at any point in our recent history and we are confident we can offset the cyclical market volatility with new program revenue as we approach our 2020 business planning cycle.”

Third Quarter Results

The Company reported revenue of $22.3 million for the third quarter, compared to $21.1 million for the prior-year period. Additionally, the Company reported a net loss of $1.6 million, or $0.07 per share, compared to a net loss of $2.3 million, or $0.11 per share, for the prior-year period.

For the nine months ended September 29, 2019, the Company reported revenue of $66.3 million compared with $64.0 million for the first nine months of 2018. The Company reported a net loss for the nine-month period of $3.1 million, or $0.15 per share, compared with a net loss of $3.3 million, or $0.16 per share, for the prior-year period. Results for the nine months ended September 29, 2019, include a gain of $1.5 million in connection with a contract settlement with one of its customers and a gain of $0.5 million on the sale of excess equipment. Results for the nine months ended September 29, 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.

Sypris Technologies

Revenue for Sypris Technologies was $15.7 million in the third quarter, compared to $14.9 million for the prior-year period, primarily reflecting an increase in energy related product sales and price increases for a commercial vehicle program implemented during the fourth quarter of 2018. Gross profit for the quarter was $2.5 million, or 16.1% of revenue, compared to $1.3 million, or 8.9% of revenue, for the same period in 2018.

Sypris Electronics

Revenue for Sypris Electronics was $6.6 million in the third quarter, compared to $6.2 million for the prior-year period. Revenue for the quarter was affected by the supply chain issues previously discussed which also drove gross profit lower than expected. Gross profit for the quarter was a loss of $0.2 million compared to a loss of $0.1 million for the prior-year period. Gross profit for the quarter further included the impact of inventory related charges of $0.3 million for a quarter-end physical inventory adjustment and excess and obsolete inventory reserves of $0.1 million.

Outlook

Commenting on the future, Mr. Gill added, “We anticipate new contract awards in each of our targeted markets for energy, automotive, commercial vehicle, and aerospace and defense products as well as new electronics programs.

“The recent demand volatility in the commercial vehicle market is anticipated to put downward pressure on volumes as we enter the fourth quarter of 2019. However, the ramp up of the recently announced new programs is expected to mitigate the softness coming from the commercial vehicle market. The energy market continues to benefit from strong oil and natural gas infrastructure development providing opportunities to grow revenue from our product offerings. Both the House and Senate versions of the Fiscal Year 2020 National Defense Authorization Act would provide over $700 billion of funding 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 year.

“Our revenue outlook for the fourth quarter is forecasted to be in the range of $23-$25 million and gross margin is forecasted to be in the range of 15%-17%. Our preliminary outlook for 2020 includes revenue of $95-$105 million and gross margin continuing in the range of 15%-17%.”

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.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 quantitative effects of the restatement of our previously issued unaudited consolidated interim financial statements as of and for the quarter ended March 31, 2019; the effectiveness of our internal control over financial reporting and our disclosure controls and procedures; 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; dependence on, retention or recruitment of key employees; 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; cost, quality and availability of raw materials such as steel, component parts (especially electronic components), natural gas or utilities; 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; the fees, costs and supply of, or access to, debt, equity capital, or other sources of liquidity; failure to adequately insure or to identify environmental or other insurable risks; unanticipated or uninsured disasters, losses or business risks; breakdowns, relocations or major repairs of machinery and equipment, especially in our Toluca Plant; 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; our inability to develop new or improved products or new markets for our products; 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.

 
SYPRIS SOLUTIONS, INC.
Financial Highlights
(In thousands, except per share amounts)
 
Three Months Ended
September 29,September 30,

2019

2018

(Unaudited)
Revenue

$

22,259

 

$

21,101

 

Net loss

$

(1,557

)

$

(2,336

)

Loss per common share:
Basic

$

(0.07

)

$

(0.11

)

Diluted

$

(0.07

)

$

(0.11

)

Weighted average shares outstanding:
Basic

 

20,941

 

 

20,555

 

Diluted

 

20,941

 

 

20,555

 

 
 
 
 
Nine Months Ended
September 29,September 30,

2019

2018

(Unaudited)
Revenue

$

66,267

 

$

64,014

 

Net loss

$

(3,090

)

$

(3,317

)

Loss per common share:
Basic

$

(0.15

)

$

(0.16

)

Diluted

 

(0.15

)

 

(0.16

)

Weighted average shares outstanding:
Basic

 

20,829

 

 

20,497

 

Diluted

 

20,829

 

 

20,497

 

 
 
Sypris Solutions, Inc.
Consolidated Statements of Operations
(in thousands, except for per share data)
 
Three Months EndedNine Months Ended
September 29,September 30,September 29,September 30,

2019

2018

2019

2018

(Unaudited)(Unaudited)
Net revenue:
Sypris Technologies

$

15,654

 

$

14,852

 

$

48,673

 

$

44,686

 

Sypris Electronics

 

6,605

 

 

6,249

 

 

17,594

 

 

19,328

 

Total net revenue

 

22,259

 

 

21,101

 

 

66,267

 

 

64,014

 

Cost of sales:
Sypris Technologies

 

13,140

 

 

13,523

 

 

40,892

 

 

39,320

 

Sypris Electronics

 

6,793

 

 

6,376

 

 

18,200

 

 

18,527

 

Total cost of sales

 

19,933

 

 

19,899

 

 

59,092

 

 

57,847

 

Gross profit (loss):
Sypris Technologies

 

2,514

 

 

1,329

 

 

7,781

 

 

5,366

 

Sypris Electronics

 

(188

)

 

(127

)

 

(606

)

 

801

 

Total gross profit

 

2,326

 

 

1,202

 

 

7,175

 

 

6,167

 

Selling, general and administrative

 

3,148

 

 

2,942

 

 

10,206

 

 

9,261

 

Severance, relocation and other costs

 

190

 

 

274

 

 

391

 

 

1,088

 

Operating loss

 

(1,012

)

 

(2,014

)

 

(3,422

)

 

(4,182

)

Interest expense, net

 

227

 

 

231

 

 

676

 

 

665

 

Other expense (income), net

 

286

 

 

56

 

 

(1,156

)

 

(1,651

)

Loss before taxes

 

(1,525

)

 

(2,301

)

 

(2,942

)

 

(3,196

)

Income tax expense, net

 

32

 

 

35

 

 

148

 

 

121

 

Net Loss

$

(1,557

)

$

(2,336

)

$

(3,090

)

$

(3,317

)

Loss per common share:
Basic

$

(0.07

)

$

(0.11

)

$

(0.15

)

$

(0.16

)

Diluted

$

(0.07

)

$

(0.11

)

$

(0.15

)

$

(0.16

)

Dividends declared per common share

$

-

 

$

-

 

$

-

 

$

-

 

Weighted average shares outstanding:
Basic

 

20,941

 

 

20,555

 

 

20,829

 

 

20,497

 

Diluted

 

20,941

 

 

20,555

 

 

20,829

 

 

20,497

 

 
 
Sypris Solutions, Inc.
Consolidated Balance Sheets
(in thousands, except for share data)
 
September 29,December 31,

2019

2018

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

$

7,053

 

$

10,704

 

Accounts receivable, net

 

8,668

 

 

9,881

 

Inventory, net

 

20,566

 

 

18,584

 

Other current assets

 

4,672

 

 

4,755

 

Assets held for sale

 

1,288

 

 

1,474

 

Total current assets

 

42,247

 

 

45,398

 

Property, plant and equipment, net

 

13,262

 

 

14,655

 

Operating lease right-of-use assets

 

7,123

 

 

-

 

Other assets

 

1,599

 

 

1,515

 

Total assets

$

64,231

 

$

61,568

 

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable

$

10,098

 

$

13,427

 

Accrued liabilities

 

16,557

 

 

14,965

 

Operating lease liabilities, current portion

 

820

 

 

-

 

Finance lease obligations, current portion

 

666

 

 

593

 

Total current liabilities

 

28,141

 

 

28,985

 

 
Note payable - related party

 

6,460

 

 

6,449

 

Operating lease liabilities, net of current portion

 

7,131

 

 

-

 

Finance lease obligations, net of current portion

 

2,535

 

 

2,804

 

Other liabilities

 

6,552

 

 

8,496

 

Total liabilities

 

50,819

 

 

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 21,308,426 outstanding in 2019 and
21,414,374 shares issued and 21,398,182 outstanding in 2018

 

214

 

 

214

 

Additional paid-in capital

 

154,640

 

 

154,388

 

Accumulated deficit

 

(116,574

)

 

(114,926

)

Accumulated other comprehensive loss

 

(24,868

)

 

(24,842

)

Treasury stock, 16,192 in 2019 and 2018

 

-

 

 

-

 

Total stockholders’ equity

 

13,412

 

 

14,834

 

Total liabilities and stockholders’ equity

$

64,231

 

$

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)
 
Nine Months Ended
September 29,September 30,

2019

2018

(Unaudited)
Cash flows from operating activities:
Net loss

$

(3,090

)

$

(3,317

)

Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization

 

2,106

 

 

1,988

 

Stock-based compensation expense

 

389

 

 

493

 

Deferred loan costs recognized

 

11

 

 

11

 

Net (gain) loss on the sale of assets

 

(467

)

 

241

 

Insurance recovery gain

 

-

 

 

(2,275

)

Provision for excess and obsolete inventory

 

503

 

 

(125

)

Non-cash lease expense

 

541

 

 

-

 

Other noncash items

 

(122

)

 

127

 

Contributions to pension plans

 

(348

)

 

(77

)

Changes in operating assets and liabilities:
Accounts receivable

 

1,198

 

 

(2,164

)

Inventory

 

(2,485

)

 

(2,184

)

Prepaid expenses and other assets

 

23

 

 

(2,681

)

Accounts payable

 

(3,314

)

 

4,007

 

Accrued and other liabilities

 

1,908

 

 

4,891

 

Net cash used in operating activities

 

(3,147

)

 

(1,065

)

Cash flows from investing activities:
Capital expenditures

 

(553

)

 

(1,321

)

Proceeds from sale of assets

 

653

 

 

1,388

 

Insurance proceeds for recovery of property damage, net

 

-

 

 

2,275

 

Net cash provided by investing activities

 

100

 

 

2,342

 

Cash flows from financing activities:
Capital lease payments

 

(466

)

 

(691

)

Indirect repurchase of shares for minimum statutory tax withholdings

 

(138

)

 

(107

)

Net cash used in financing activities

 

(604

)

 

(798

)

Net (decrease) increase in cash and cash equivalents

 

(3,651

)

 

479

 

Cash and cash equivalents at beginning of period

 

10,704

 

 

8,144

 

Cash and cash equivalents at end of period

$

7,053

 

$

8,623

 

 

View source version on businesswire.com:https://www.businesswire.com/news/home/20191112005271/en/

CONTACT: Anthony C. Allen

Chief Financial Officer

(502) 329-2000

KEYWORD: KENTUCKY UNITED STATES NORTH AMERICA

INDUSTRY KEYWORD: AUTOMOTIVE MANUFACTURING AEROSPACE OIL/GAS MANUFACTURING ENERGY OTHER MANUFACTURING

SOURCE: Sypris Solutions, Inc.

Copyright Business Wire 2019.

PUB: 11/12/2019 07:45 AM/DISC: 11/12/2019 07:45 AM

http://www.businesswire.com/news/home/20191112005271/en