Sypris Solutions, Inc. (Nasdaq/GM: SYPR) today reported financial
results for its fourth quarter and full year ended December 31, 2018.
Net revenue for the full year 2018 increased 6.9% over 2017 and gross
margin improved 460 basis points. These improvements continue to reflect
the successful implementation of strategic initiatives to better align
the Company’s revenue and cost structure and diversify the Company’s
book of business, both in terms of customers and markets.
HIGHLIGHTS
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The Company’s fourth quarter revenue increased 11.5% over the
prior-year quarter and 13.5% sequentially, with both segments
contributing to the improvements. -
Full-year revenue increased 9.0% for Sypris Technologies and 2.7% for
Sypris Electronics, underscoring favorable market conditions and
strong customer relationships. -
Gross margin for Sypris Technologies increased to 14.3% of revenue for
the quarter, up from 11.3% in the prior-year period and up from 8.9%
sequentially, reflecting mix and productivity improvements. -
Gross margin for Sypris Technologies increased to 12.6% in 2018, up
from 1.4% in 2017, primarily attributable to the full-year impact of
cost structure reductions, revenue growth and operational improvements. -
Company gross margin for the full year more than doubled in 2018,
reaching 8.6% compared with 4.0% for the prior-year. -
During the fourth quarter, the Company entered into a series of supply
agreements with Sistemas Automotrices de Mexico, S.A. de C.V.
(“Sisamex”), to supply Sisamex with a variety of driveline components
for use in the commercial vehicle, agricultural and all-terrain
markets. -
The Company’s outlook for 2019 includes revenue of $100-$110 million,
representing 19% year-over-year growth at the midpoint, and gross
margin of 14%-16%, with both business segments forecasted to register
solid profitability for the year.
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“We were pleased with the year-over-year revenue growth and margin
expansion 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, which experienced a 17% increase in shipments on a
year-over-year basis.
“We also experienced strengthening demand for our energy-related
products, which resulted in a 22% increase sequentially in revenue. A
number of production, supply and other constraints that we experienced
in the previous quarter were mitigated in the current period.
“During the fourth quarter, the Company entered into a series of
agreements to continue to supply axle shafts to Sisamex, in addition to
the introduction of new driveline products for use in the commercial
vehicle, agricultural and all-terrain markets. Sisamex is a long-term
strategic partner, and expanding the range of products we supply further
strengthens this relationship. We expect to begin production on the new
products during 2019,” he continued.
“While shipments at Sypris Electronics were generally on plan for the
quarter, its results were adversely affected by operational challenges
as we neared completion on an engineering manufacturing development
program that included numerous design and material changes, and the
ramp-up on a new program on which we incurred an unexpected level of
inefficiencies. Aside from operational challenges during the fourth
quarter, we recognized charges totaling approximately $0.9 million for a
physical inventory adjustment, which we performed at year-end concurrent
with our implementation of a new ERP system, and an increase to our
reserve for excess and obsolete inventory on certain specific programs.”
Concluding, Mr. Gill said, “We continue to see strong demand in each of
our primary markets to support our revenue outlook for 2019. Our
customer base and the markets we serve remain resilient and are
considerably more diversified than at any point in our recent history.
We are confident that the combination of our forecasted revenue growth
and lower fixed manufacturing overhead costs, driven by effective
cost-reduction actions, will contribute to our expected return to
profitability in 2019.”
Fourth Quarter and Full-Year Results
The Company reported revenue of $24.0 million for the fourth quarter
compared with $21.5 million for the prior-year period. The Company
reported a net loss of $0.2 million, or $0.01 per share, compared with a
loss of $1.2 million, or $0.06 per share, for the prior-year quarter.
The results for the quarter ended December 31, 2018, include a benefit
in selling, general and administrative expense of $1.9 million for the
favorable resolution of a legal fee.
For the full-year ended December 31, 2018, the Company reported revenue
of $88.0 million compared with $82.3 million for the prior-year. The
Company reported a net loss of $3.5 million, or $0.17 per share,
compared with a net loss of $10.8 million, or $0.53 per share, for 2017.
In addition to the $1.9 million legal fee benefit recorded in the fourth
quarter, results for the year ended December 31, 2018, included an
insurance recovery gain of $2.3 million, which was partially offset by a
net 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. Results for the year ended December 31, 2017, included net
gains of $2.7 million related to the sale of excess equipment, which was
partially offset by severance, relocation and other costs of
$2.4 million.
Sypris Technologies
Revenue for Sypris Technologies was $15.1 million in the fourth quarter
compared with $14.5 million for the prior-year period, primarily
reflecting an increase in demand from customers in the automotive and
commercial vehicle markets that was partially offset by lower energy
product sales. Gross profit for the quarter was $2.2 million, or 14.3%
of revenue, compared with $1.6 million, or 11.3% of revenue, for the
same period in 2017. Gross profit benefitted from the increase in volume
as well as cost improvements realized following the transfer of
production from our Broadway Plant, which was completed as of the end of
2017.
Sypris Electronics
Revenue for Sypris Electronics was $8.8 million in the fourth quarter of
2018 compared with $7.0 million for the prior-year period. The increase
in revenue over the prior-year was primarily due to the launch of a new
program beginning late in the third quarter of 2018 that ramped up
during the fourth quarter. Additionally, certain new smaller programs
and the expansion of programs with existing customers offset demand
reductions on legacy programs. However, electronic component
availability and labor inefficiencies dampened our margins during the
period. Gross profit was further affected during the fourth quarter of
2018 by 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, “Buoyed by current volume
growth, we expect to capitalize on additional opportunities across our
markets for healthy revenue expansion in 2019. We also 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 that freight volumes will remain strong well into the second
half of 2019, albeit off from record-breaking 2018 levels. The energy
market continues to benefit from increased 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.
“Our revenue outlook for 2019 is in the range of $100-$110 million,
which primarily reflects strong market conditions for the commercial
vehicle and energy markets that is partially offset by the impact of
delayed electronic component receipts for the aerospace and defense
market. We expect the second half of 2019 to improve sequentially as we
are targeting to benefit from a normalization of these receipts and new
program launches.
“We expect to see meaningful improvements in gross margin, up to
14.0%-16.0% 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; our reliance on a few key customers, third
party vendors and sub-suppliers; 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 fees, costs and supply of, or
access to, debt, equity capital, or other sources of liquidity; 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 | ||||||||||||
| (In thousands, except per share amounts) | ||||||||||||
| Three Months Ended | ||||||||||||
|
December 31, |
||||||||||||
| 2018 | 2017 | |||||||||||
| (Unaudited) | ||||||||||||
| Revenue | $ | 23,955 | $ | 21,489 | ||||||||
| Net loss | $ | (188 | ) | $ | (1,234 | ) | ||||||
| Loss per common share: | ||||||||||||
| Basic | $ | (0.01 | ) | $ | (0.06 | ) | ||||||
| Diluted | $ | (0.01 | ) | $ | (0.06 | ) | ||||||
| Weighted average shares outstanding: | ||||||||||||
| Basic | 20,555 | 20,393 | ||||||||||
| Diluted | 20,555 | 20,393 | ||||||||||
| Year Ended | ||||||||||||
|
December 31, |
||||||||||||
| 2018 | 2017 | |||||||||||
| (Unaudited) | ||||||||||||
| Revenue | $ | 87,969 | $ | 82,294 | ||||||||
| Net loss | $ | (3,505 | ) | $ | (10,822 | ) | ||||||
| Loss per common share: | ||||||||||||
| Basic | $ | (0.17 | ) | $ | (0.53 | ) | ||||||
| Diluted | (0.17 | ) | (0.53 | ) | ||||||||
| Weighted average shares outstanding: | ||||||||||||
| Basic | 20,512 | 20,326 | ||||||||||
| Diluted | 20,512 | 20,326 | ||||||||||
| Sypris Solutions, Inc. | |||||||||||||||||
| Consolidated Statements of Operations | |||||||||||||||||
| (in thousands, except for per share data) | |||||||||||||||||
| Three Months Ended | Year Ended | ||||||||||||||||
| December 31, | December 31, | ||||||||||||||||
| 2018 | 2017 | 2018 | 2017 | ||||||||||||||
| (Unaudited) | (Unaudited) | ||||||||||||||||
| Net revenue: | |||||||||||||||||
| Sypris Technologies | $ | 15,130 | $ | 14,525 | $ | 59,816 | $ | 54,891 | |||||||||
| Sypris Electronics | 8,825 | 6,964 | 28,153 | 27,403 | |||||||||||||
|
Total net revenue |
23,955 | 21,489 | 87,969 | 82,294 | |||||||||||||
| Cost of sales: | |||||||||||||||||
| Sypris Technologies | 12,973 | 12,887 | 52,293 | 54,148 | |||||||||||||
| Sypris Electronics | 9,577 | 7,089 | 28,104 | 24,816 | |||||||||||||
| Total cost of sales | 22,550 | 19,976 | 80,397 | 78,964 | |||||||||||||
| Gross profit (loss): | |||||||||||||||||
| Sypris Technologies | 2,157 | 1,638 | 7,523 | 743 | |||||||||||||
| Sypris Electronics | (752 | ) | (125 | ) | 49 | 2,587 | |||||||||||
| Total gross profit | 1,405 | 1,513 | 7,572 | 3,330 | |||||||||||||
| Selling, general and administrative | 1,213 | 2,953 | 10,474 | 13,078 | |||||||||||||
| Research and development | – | 2 | – | 38 | |||||||||||||
| Severance, relocation and other costs | 306 | 125 | 1,394 | 2,360 | |||||||||||||
| Operating loss | (114 | ) | (1,567 | ) | (4,296 | ) | (12,146 | ) | |||||||||
| Interest expense, net | 185 | 207 | 850 | 809 | |||||||||||||
| Other expense (income), net | 215 | 148 | (1,436 | ) | (1,515 | ) | |||||||||||
| Loss before taxes | (514 | ) | (1,922 | ) | (3,710 | ) | (11,440 | ) | |||||||||
| Income tax benefit, net | (326 | ) | (688 | ) | (205 | ) | (618 | ) | |||||||||
| Net loss | $ | (188 | ) | $ | (1,234 | ) | $ | (3,505 | ) | $ | (10,822 | ) | |||||
| Loss per common share: | |||||||||||||||||
| Basic | $ | (0.01 | ) | $ | (0.06 | ) | $ | (0.17 | ) | $ | (0.53 | ) | |||||
| Diluted | $ | (0.01 | ) | $ | (0.06 | ) | $ | (0.17 | ) | $ | (0.53 | ) | |||||
| Dividends declared per common share | $ | – | $ | – | $ | – | $ | – | |||||||||
| Weighted average shares outstanding: | |||||||||||||||||
| Basic | 20,555 | 20,393 | 20,512 | 20,326 | |||||||||||||
| Diluted | 20,555 | 20,393 | 20,512 | 20,326 | |||||||||||||
| Sypris Solutions, Inc. | ||||||||
| Consolidated Balance Sheets | ||||||||
| (in thousands, except for share data) | ||||||||
| December 31, | December 31, | |||||||
| 2018 | 2017 | |||||||
| (Unaudited) | (Note) | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 10,704 | $ | 8,144 | ||||
| Accounts receivable, net | 9,881 | 9,317 | ||||||
| Inventory, net | 18,584 | 17,641 | ||||||
| Other current assets | 4,755 | 2,003 | ||||||
| Assets held for sale | 1,474 | 2,898 | ||||||
| Total current assets | 45,398 | 40,003 | ||||||
| Property, plant and equipment, net | 14,655 | 15,574 | ||||||
| Other assets | 1,515 | 1,578 | ||||||
| Total assets | $ | 61,568 | $ | 57,155 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 13,427 | $ | 10,465 | ||||
| Accrued liabilities | 14,965 | 10,330 | ||||||
| Current portion of capital lease obligations | 593 | 829 | ||||||
| Total current liabilities | 28,985 | 21,624 | ||||||
| Long-term capital lease obligations | 2,804 | 3,397 | ||||||
| Note payable – related party | 6,449 | 6,435 | ||||||
| Other liabilities | 8,496 | 8,769 | ||||||
| Total liabilities | 46,734 | 40,225 | ||||||
| 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 | 154,388 | 153,858 | ||||||
| Accumulated deficit | (114,926 | ) | (111,591 | ) | ||||
| Accumulated other comprehensive loss | (24,842 | ) | (25,551 | ) | ||||
| Treasury stock, 16,192 in 2018 and 2017 | – | – | ||||||
| Total stockholders’ equity | 14,834 | 16,930 | ||||||
| Total liabilities and stockholders’ equity | $ | 61,568 | $ | 57,155 | ||||
|
Note: The balance sheet at December 31, 2017 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, |
||||||||
| 2018 | 2017 | |||||||
| (Unaudited) | ||||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | (3,505 | ) | $ | (10,822 | ) | ||
|
Adjustments to reconcile net loss to net cash provided by (used |
||||||||
| Depreciation and amortization | 2,648 | 3,884 | ||||||
| Deferred income taxes | (509 | ) | (667 | ) | ||||
| Stock-based compensation expense | 637 | 730 | ||||||
| Deferred loan costs recognized | 14 | 60 | ||||||
| Net loss (gain) on the sale of assets | 249 | (2,668 | ) | |||||
| Insurance recovery gain | (2,275 | ) | – | |||||
| Settlement gain | (1,890 | ) | – | |||||
| Provision for excess and obsolete inventory | 520 | 116 | ||||||
| Other noncash items | 278 | (32 | ) | |||||
| Contributions to pension plans | (77 | ) | – | |||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | (612 | ) | (1,419 | ) | ||||
| Inventory | (2,857 | ) | (3,204 | ) | ||||
| Prepaid expenses and other assets | (1,163 | ) | 951 | |||||
| Accounts payable | 2,948 | 3,491 | ||||||
| Accrued and other liabilities | 7,486 | 121 | ||||||
| Net cash provided by (used in) operating activities | 1,892 | (9,459 | ) | |||||
| Cash flows from investing activities: | ||||||||
| Capital expenditures | (2,051 | ) | (1,637 | ) | ||||
| Proceeds from sale of assets | 1,380 | 2,801 | ||||||
| Insurance proceeds for recovery of property damage, net | 2,275 | – | ||||||
| Net cash provided by investing activities | 1,604 | 1,164 | ||||||
| Cash flows from financing activities: | ||||||||
| Capital lease payments | (829 | ) | (208 | ) | ||||
| Indirect repurchase of shares for minimum statutory tax withholdings | (107 | ) | (123 | ) | ||||
| Net cash used in financing activities | (936 | ) | (331 | ) | ||||
| Net increase (decrease) in cash and cash equivalents | 2,560 | (8,626 | ) | |||||
| Cash, cash equivalents and restricted cash at beginning of period | 8,144 | 16,770 | ||||||
| Cash and cash equivalents at end of period | $ | 10,704 | $ | 8,144 | ||||
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