Sypris Solutions, Inc. (Nasdaq/GM: SYPR) today reported financial
results for its first quarter ended March 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 for 2019. 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 first quarter of 2019 fundamentally reflected these
expectations, especially with respect to Sypris Technologies. However,
an anticipated and ongoing shortage of electronic components and
resulting labor inefficiencies continued to have a negative impact on
Sypris Electronics in the first quarter and, in turn, the Company’s
consolidated results.
HIGHLIGHTS
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The Company’s first quarter 2019 consolidated revenue was largely flat
compared with the prior-year quarter, while consolidated gross margin
for the first quarter declined to 8.1% from 10.2% in the year-earlier
quarter, both reflecting primarily the expected near-term drag from
Sypris Electronics. -
Revenue for Sypris Technologies increased 11.3% during the quarter
compared to the prior-year period, primarily reflecting increased
sales volume with customers in the commercial vehicle market. -
Gross profit for Sypris Technologies increased 9.3% for the first
quarter of 2019 from the year-earlier quarter, while operating income
increased 245% to 6.5% of sales, up from 2.1% for the prior year
period. -
Revenue for Sypris Electronics declined in the first quarter of 2019,
compared with the year-earlier quarter, reflecting a delay in
shipments under a pending new contract and the effect of
aforementioned shortages of certain electronic components and
extensive lead-time issues in the electronic industry. -
The Company reaffirmed its outlook for 2019, including revenue of
$100-$110 million for the year, representing 19% year-over-year growth
at the midpoint, and gross margin of 14%-16%, with both business
segments forecasted to register solid profitability beginning in the
last half of the year.
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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. “Shipment volumes remained strong in the quarter to support
demand coming from the automotive and commercial vehicle markets. Energy
products also performed well during the period despite some orders that
shifted out of the quarter.
“While shipments at Sypris Electronics were generally in line with
expectations for the quarter, its results were adversely affected by the
labor inefficiencies and overhead absorption challenges that accompanied
the lower shipment volumes. We expect to see progressively higher levels
of shipments sequentially through 2019, with a full recovery to normal
deliveries during the second half of the year.”
Concluding, Mr. Gill said, “We continue to see strong demand in each of
our primary markets to support our revenue outlook for the balance of
the year. Our customer base and the markets we serve remain resilient
and are considerably more diversified than at any point in our recent
history. The combination of our expected revenue growth and lower fixed
manufacturing overhead costs, driven by effective cost reduction
actions, are the keys to our return to profitability for 2019.”
First Quarter Results
The Company reported revenue of $19.6 million for the first quarter,
compared to $19.9 million for the prior-year period. Additionally, the
Company reported a net loss of $2.3 million, or $0.11 per share,
compared to a loss of $1.8 million, or $0.09 per share, for the
prior-year period. The results for the quarter ended March 31, 2019,
include costs of $0.1 million related to preparing the Broadway facility
for sale or other use. Results for the quarter ended April 1, 2018,
include severance, relocation and other costs of $0.5 million partially
offset by a gain of $0.3 million from the sale of excess equipment by
Sypris Technologies.
Sypris Technologies
Revenue for Sypris Technologies was $16.1 million in the first quarter,
compared to $14.5 million for the prior-year period, primarily
reflecting an increase in demand from customers in the automotive and
commercial vehicle industries. Gross profit for the quarter was
$2.3 million, or 14.3% of revenue, compared to $2.1 million, or 14.5% of
revenue, for the same period in 2018. Gross profit was negatively
affected by product mix during the first quarter of 2019, as well as the
incurrence of expenses associated with the launch of several new
programs.
Sypris Electronics
Revenue for Sypris Electronics was $3.4 million in the first quarter of
2019, compared to $5.4 million for the prior year-period. Revenue for
the quarter was affected by shortages of certain electronic components
and extensive lead-time issues in the electronics manufacturing
industry, as well as the delay of shipments pending the successful
resolution of a new contract. The low volumes in the first quarter of
2019 also reflect shipments accelerated into the fourth quarter of 2018
as the Company planned for the implementation of a new ERP system
effective in January of this year. Gross profit for the quarter was a
loss of $0.7 million, compared to a loss of $0.1 million for the
prior-year period, primarily reflecting lower volumes.
Outlook
Commenting on the future, Mr. Gill added, “Our markets are poised to
provide Sypris with the opportunity for healthy, double-digit revenue
growth during 2019. We anticipate new contract awards and market
expansion in each of our targeted markets for energy, automotive,
commercial vehicle, and aerospace and defense products as well as new
electronics programs.
“Third-party forecasts for the Class 8 commercial vehicle market
indicate production will be up approximately 4% in 2019 over the record
setting highs in 2018. The energy market continues to benefit from
strong demand and higher oil prices. The National Defense Authorization
Act for Fiscal Year 2019 provides nearly $700 billion in funding for the
U.S. Department of Defense, which is expected to support program growth
and market expansion for Aerospace and Defense participants during the
coming year.
“As a result, we are pleased to reaffirm our guidance for 2019, with
full-year revenue expected to be in the range of $100-$110 million,
which primarily reflects strong market conditions for the commercial
vehicle and energy markets and our expectation that headwinds from
component availability will improve in the aerospace and defense market
allowing shipments to increase sequentially through the year. Of note,
shipments have commenced under the new contract referred to previously,
as well as for programs that previously had been waiting for electronic
components.
“We expect to see meaningful improvements in gross margin, up to 14%-16%
for the year as a whole, with sequential improvements from the first to
second half periods.”
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: our
failure to achieve targeted gains and cash proceeds from the anticipated
sale of certain equipment; 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; 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; 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; 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; our reliance on a
few key customers, third party vendors and sub-suppliers; continued
shortages and extensive lead-times for electronic components;
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; 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; failure
to adequately insure or to identify environmental or other insurable
risks; unanticipated or uninsured disasters, losses or business risks;
inaccurate data about markets, customers or business conditions; or
unknown risks and uncertainties.
| SYPRIS SOLUTIONS, INC. | |||||||||||
|
Financial Highlights |
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|
(In thousands, except per share amounts) |
|||||||||||
| Three Months Ended | |||||||||||
| March 31, | April 1, | ||||||||||
| 2019 | 2018 | ||||||||||
| (Unaudited) | |||||||||||
| Revenue | $ | 19,564 | $ | 19,942 | |||||||
| Net loss | $ | (2,305 | ) | $ | (1,795 | ) | |||||
| Loss per common share: | |||||||||||
| Basic | $ | (0.11 | ) | $ | (0.09 | ) | |||||
| Diluted | (0.11 | ) | (0.09 | ) | |||||||
| Weighted average shares outstanding: | |||||||||||
| Basic | 20,669 | 20,394 | |||||||||
| Diluted | 20,669 | 20,394 | |||||||||
| Sypris Solutions, Inc. | |||||||||||
| Consolidated Statements of Operations | |||||||||||
| (in thousands, except for per share data) | |||||||||||
| Three Months Ended | |||||||||||
| March 31, | April 1, | ||||||||||
| 2019 | 2018 | ||||||||||
| (Unaudited) | |||||||||||
| Net revenue: | |||||||||||
| Sypris Technologies | $ | 16,141 | $ | 14,507 | |||||||
| Sypris Electronics | 3,423 | 5,435 | |||||||||
| Total net revenue | 19,564 | 19,942 | |||||||||
| Cost of sales: | |||||||||||
| Sypris Technologies | 13,837 | 12,400 | |||||||||
| Sypris Electronics | 4,136 | 5,511 | |||||||||
| Total cost of sales | 17,973 | 17,911 | |||||||||
| Gross profit (loss): | |||||||||||
| Sypris Technologies | 2,304 | 2,107 | |||||||||
| Sypris Electronics | (713 | ) | (76 | ) | |||||||
| Total gross profit | 1,591 | 2,031 | |||||||||
| Selling, general and administrative | 3,454 | 3,148 | |||||||||
| Severance, relocation and other costs | 98 | 509 | |||||||||
| Operating loss | (1,961 | ) | (1,626 | ) | |||||||
| Interest expense, net | 217 | 213 | |||||||||
| Other expense (income), net | 51 | (84 | ) | ||||||||
| Loss before taxes | (2,229 | ) | (1,755 | ) | |||||||
| Income tax expense, net | 76 | 40 | |||||||||
| Net loss | $ | (2,305 | ) | $ | (1,795 | ) | |||||
| Loss per common share: | |||||||||||
| Basic | $ | (0.11 | ) | $ | (0.09 | ) | |||||
| Diluted | $ | (0.11 | ) | $ | (0.09 | ) | |||||
| Dividends declared per common share | $ | – | $ | – | |||||||
| Weighted average shares outstanding: | |||||||||||
| Basic | 20,669 | 20,394 | |||||||||
| Diluted | 20,669 | 20,394 | |||||||||
| Sypris Solutions, Inc. | |||||||||||
| Consolidated Balance Sheets | |||||||||||
| (in thousands, except for share data) | |||||||||||
| March 31, | December 31, | ||||||||||
| 2019 | 2018 | ||||||||||
| (Unaudited) | (Note) | ||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | 5,689 | $ | 10,704 | |||||||
| Accounts receivable, net | 9,120 | 9,881 | |||||||||
| Inventory, net | 21,209 | 18,584 | |||||||||
| Other current assets | 4,385 | 4,755 | |||||||||
| Assets held for sale | 1,474 | 1,474 | |||||||||
| Total current assets | 41,877 | 45,398 | |||||||||
| Property, plant and equipment, net | 14,758 | 14,655 | |||||||||
| Operating lease right-of-use assets | 7,532 | – | |||||||||
| Other assets | 1,509 | 1,515 | |||||||||
| Total assets | $ | 65,676 | $ | 61,568 | |||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | 11,670 | $ | 13,427 | |||||||
| Accrued liabilities | 14,717 | 14,965 | |||||||||
| Operating lease liabilities, current portion | 980 | – | |||||||||
| Finance lease obligations, current portion | 632 | 593 | |||||||||
| Total current liabilities | 27,999 | 28,985 | |||||||||
| Note payable – related party | 6,453 | 6,449 | |||||||||
| Operating lease liabilities, net of current portion | 7,367 | – | |||||||||
| Finance lease obligations, net of current portion | 2,889 | 2,804 | |||||||||
| Other liabilities | 6,810 | 8,496 | |||||||||
| Total liabilities | 51,518 | 46,734 | |||||||||
| Stockholders’ equity: | |||||||||||
|
Preferred stock, par value $0.01 per share, 975,150 shares |
– | – | |||||||||
|
Series A preferred stock, par value $0.01 per share, 24,850 shares |
– | – | |||||||||
|
Common stock, non-voting, par value $0.01 per share, 10,000,000 |
– | – | |||||||||
|
Common stock, par value $0.01 per share, 30,000,000 shares |
214 | 214 | |||||||||
| Additional paid-in capital | 154,450 | 154,388 | |||||||||
| Accumulated deficit | (115,789 | ) | (114,926 | ) | |||||||
| Accumulated other comprehensive loss | (24,717 | ) | (24,842 | ) | |||||||
| Treasury stock, 16,192 in 2019 and 2018 | – | – | |||||||||
| Total stockholders’ equity | 14,158 | 14,834 | |||||||||
| Total liabilities and stockholders’ equity | $ | 65,676 | $ | 61,568 | |||||||
|
Note: The balance sheet at December 31, 2018, has been derived |
|||||||||||
| Sypris Solutions, Inc. | |||||||||||
| Consolidated Cash Flow Statements | |||||||||||
| (in thousands) | |||||||||||
| Three Months Ended | |||||||||||
| March 31, | April 1, | ||||||||||
| 2019 | 2018 | ||||||||||
| (Unaudited) | |||||||||||
| Cash flows from operating activities: | |||||||||||
| Net loss | $ | (2,305 | ) | $ | (1,795 | ) | |||||
|
Adjustments to reconcile net loss to net cash used in operating |
|||||||||||
| Depreciation and amortization | 691 | 672 | |||||||||
| Stock-based compensation expense | 111 | 143 | |||||||||
| Deferred loan costs recognized | 4 | 3 | |||||||||
| Gain on the sale of assets | – | (281 | ) | ||||||||
| Provision for excess and obsolete inventory | 37 | (75 | ) | ||||||||
| Other noncash items | (127 | ) | 68 | ||||||||
| Contributions to pension plans | (10 | ) | (11 | ) | |||||||
| Changes in operating assets and liabilities: | |||||||||||
| Accounts receivable | 758 | (675 | ) | ||||||||
| Inventory | (2,664 | ) | 78 | ||||||||
| Prepaid expenses and other assets | 398 | (667 | ) | ||||||||
| Accounts payable | (1,801 | ) | 1,047 | ||||||||
| Accrued and other liabilities | 436 | 847 | |||||||||
| Net cash used in operating activities | (4,472 | ) | (646 | ) | |||||||
| Cash flows from investing activities: | |||||||||||
| Capital expenditures | (348 | ) | (406 | ) | |||||||
| Proceeds from sale of assets | – | 363 | |||||||||
| Net cash used in investing activities | (348 | ) | (43 | ) | |||||||
| Cash flows from financing activities: | |||||||||||
| Capital lease payments | (146 | ) | (425 | ) | |||||||
| Indirect repurchase of shares for minimum statutory tax withholdings | (49 | ) | – | ||||||||
| Net cash used in financing activities | (195 | ) | (425 | ) | |||||||
| Net decrease in cash and cash equivalents | (5,015 | ) | (1,114 | ) | |||||||
| Cash and cash equivalents at beginning of period | 10,704 | 8,144 | |||||||||
| Cash and cash equivalents at end of period | $ | 5,689 | $ | 7,030 | |||||||
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