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Sypris Solutions Inc. has reported financial results for its third quarter ended October 2, 2016.
Revenue for the company was $21.4 million, reflecting a reduction in demand for commercial vehicles from Q3 of 2015, the rebalancing of inventory by certain customers and the impact of the sale of the Cyber Security Solutions business (CSS) of Sypris Electronics to Analog Devices Inc. (ADI) for $42 million of cash during the quarter, as previously announced. Net income for the quarter was $21 million, or $1.02 per diluted share, reflecting the gain on the sale of the CSS business.
Revenue from the CSS product lines was $1.8 million and $11.1 million for the three and nine-month periods ended October 2, 2016, respectively, compared to $6.8 million and $10.8 million for the prior year. The net proceeds of $39.3 million from the sale were used in part to retire all outstanding senior debt and support working capital needs with the balance being used primarily to reinvest in the Company going forward.
Backlog for the retained Sypris Electronics business was $30.3 million as of the end of the third quarter of 2016 compared to $26.8 million for the second quarter of 2016 and $12 million as of the end of the third quarter of 2015.
Backlog for energy products business increased approximately 42% year over year and 38% sequentially.
Sypris Electronics began its move to a new manufacturing facility during the third quarter, which is expected to significantly reduce its annual operating facility costs by approximately $2.0 million beginning in 2017.
Commenting on the CSS transaction, Jeffrey T. Gill, president and CEO of Sypris Solutions, stated, “We are pleased to complete this transaction with Analog Devices. Analog is a global leader in its markets and as a result, will have the ability to accelerate the introduction of the new, ground-breaking cybersecurity technologies and capabilities that we have developed in recent years into a variety of automotive, industrial, aerospace, healthcare, IoT and safe cities applications.”
The transaction included the intellectual property and know-how for SiOMetrics, Sypher, the Sypris Cyber Range and the Data Systems product line. Approximately 67 people, or 33% of the headcount employed by Sypris Electronics, will be transferring to ADI, including people located in Tampa, Florida; Columbia, Maryland; West Lafayette, Indiana; and Copenhagen, Denmark.
Gill continued, “Going forward, Sypris Electronics will continue to be based in Tampa, Florida and will focus on building upon its core capabilities as a trusted manufacturer for customers such as Harris, Lockheed Martin, Northrop Grumman, Rockwell Collins, TE SubCom and now Analog Devices. The proceeds from the sale were used to repay the Company’s senior debt and will be available to reinvest in the business to support future growth initiatives.”
For the nine months ended October 2, 2016, the company reported revenue of $71.8 million compared to $116.2 million for the first nine months of 2015. The company reported net income for the nine months ended October 2, 2016 of $10.7 million, or $0.52 per diluted share, as compared to a net loss of $21.7 million or $1.10 per share in the prior year comparable period.
The results for the three and nine months ended October 2, 2016 include a gain of $31.2 million from the CSS sale and a gain of $2.4 million from a sale-leaseback transaction, which occurred during the first quarter of 2016. The results for the three and nine months ended October 4, 2015 include a gain of $7.7 million from the sale of the Company’s manufacturing facility in Morganton, North Carolina partially offset by a non-cash charge of $2.4 million to reserve the net deferred tax asset in Mexico.
“With the proceeds generated from the sale to ADI, we will be able to focus on our trusted manufacturing services platform going forward, which is poised for meaningful growth in the future,” said Gill. “Sypris Technologies continues to adjust manpower and overhead expenses to reflect the continued softness in the commercial vehicle market that started during the fourth quarter of 2015. We have worked diligently to control our costs while taking actions to rebuild and diversify our customer base.”
Revenue for Sypris Technologies decreased 46.8% to $14.8 million in the third quarter of 2016 compared to $27.8 million for the prior year period, primarily as a result of softness in the commercial vehicle industry. Gross profit for the quarter was a loss of $0.4 million, compared to profit of $2.0 million for the same period in 2015.
Revenue for Sypris Electronics was $6.6 million in the third quarter of 2016, reflecting the sale of the CSS business. However, sales from electronic manufacturing services increased $1.0 million from the prior year comparable period. Gross profit for the quarter was a loss of $0.4 million, compared to profit of $0.5 million for the prior year period, primarily reflecting lower volumes and an unfavorable mix in sales of products and services. Backlog for the remaining business as of the end of the third quarter of 2016 was $30.3 million as compared to $26.8 million as of the end the second quarter of 2016 and $12.0 million as of the end of the third quarter of 2015.
Revenue from the CSS product lines for the three and nine months ended October 2, 2016 was $1.8 million and $11.1 million, respectively. Revenue from the CSS product lines for the three and nine months ended October 4, 2015 was $6.8 million and $10.8 million, respectively.
Gill added, “The completion of the sale of the CSS business to ADI during the third quarter was another important milestone for the Company. As we move forward into 2017, the proceeds from this transaction also enables us to complete the actions we started in 2015 to position the Company to return to profitability. The Company is working to adjust manpower and overhead expenses to align with projected levels of customer demand and market requirements, while optimizing our ability to bring in potential new business.”
Sypris Solutions is a diversified provider of outsourced services and specialty products. The Company performs a wide range of manufacturing, engineering and other technical services, typically under multi-year, sole-source contracts with corporations and government agencies in the markets for truck components and assemblies and aerospace and defense electronics. For more information about Sypris Solutions, visit its Web site at www.sypris.com.