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Sypris Solutions, Inc. reported financial results for its third quarter ended October 3, 2021.
- Revenue for the third quarter increased 15.9% year-over-year, driven by the 38.3% expansion of shipments at Sypris Technologies, despite the impact of material shortages and supply chain challenges.
- Gross profit increased 12.4% year-over-year, reflecting the 14.5% growth at Sypris Electronics and 10.6% increase for Sypris Technologies. Gross margin increased 460 basis points to 20.8% for Sypris Electronics, while gross margin for Sypris Technologies declined to 12.6% reflecting mix and expenses incurred to increase capacity.
- Backlog for Sypris Electronics increased 24.0% year-over-year and 51.3% year-to-date on the strength of orders in the first nine months of 2021. Similarly, backlog for the energy products of Sypris Technologies increased 38.8% year-over-year and 59.6% year-to-date.
- Sypris Electronics announced a number of important contract awards during the quarter, including the following:
- A contract to manufacture and test embedded circuit card assemblies that will perform certain Cryptographic functions for the Army Key Management System, with production to begin before year-end; and
- A contract to produce and test multiple power supply modules for the upgrade of the electronic warfare suite of certain U.S. fighter jets. The system will deliver fully integrated radar warning, situational awareness, geolocation and self-protection capabilities. Production is expected to begin during the first quarter of 2022.
- The Company updated its full-year outlook for 2021, with revenue now expected to increase 20-25% year-over-year, down from prior guidance due to supply chain challenges. Gross margin is expected to expand 400-500 basis points year-over-year in the fourth quarter and contribute to strong double-digit percentage growth in cash flow generated from operations for the full year.
- The outlook for 2022 remains quite positive, reflecting the continued momentum of new contract awards and strong demand across many of the Company’s markets. Revenue for 2022 is forecast to increase 25%, gross margins are expected to expand 200 basis points, and cash flow from operations is forecast to increase materially year-over-year.
“Both operating segments reported gross profit growth for the quarter, contributing to a strong performance for the Company and positioning the business for further progress. Backlog for Sypris Electronics is up 24.0% from the third quarter of 2020 and up 51.3% since the beginning of the year, while the OEM backlog of Class 8 commercial vehicles is estimated to be up 210% year-over-year,” commented Jeffrey T. Gill, President and Chief Executive Officer.
“Backlog for Sypris Electronics in 2021 remains at its highest point in over a decade, with deliveries now scheduled well into 2023. While shipments during the quarter were impacted by the delayed receipt of material necessary to complete the build of certain products, we expect shipments from our recent contract wins to begin to contribute to revenue in the fourth quarter and provide meaningful growth in the top line going forward. In support of the expected increase in shipments, we secured customer funding for certain key programs to partially fund an increase in our inventories which should help to minimize production disruptions arising from supply chain constraints over the term of the related contracts.
“Demand from customers serving the automotive, commercial vehicle, sport utility, and off-highway markets remains strong, although our revised guidance is primarily driven by customer production levels that are lower than what we had previously anticipated. Freight demand is currently overwhelming industry capacity, with supply chain constraints currently dictating OEM production levels, which is flowing down and impacting demand for our products. Although the near-term outlook remains constrained, we have a clear path to capitalize on our growth objectives going forward as the various challenges facing this industry begin to subside.
“As we discussed on our previous earnings call, activity levels in the oil and gas industry remained challenging during the first nine months of 2021. However, steadily improving commodity prices, gradually reopening economies and increasing pipeline activity have resulted in increased orders recently of our energy related products, and an expected increase in volume during the fourth quarter of 2021 is well supported by a solid backlog of orders.”
Third Quarter Results
The Company reported revenue of $25.7 million for the third quarter of 2021, compared to $22.2 million for the prior-year period. Additionally, the Company reported net income of $0.3 million for the third quarter of 2021, or $0.01 per diluted share, compared to net income of $3.5 million, or $0.17 per diluted share, for the prior-year period. Results for the quarter ended October 4, 2020, include an income tax benefit of $3.2 million, primarily from the release of a valuation allowance on certain foreign deferred tax assets.
For the nine months ended October 3, 2021, the Company reported revenue of $71.6 million compared with $61.7 million for the first nine months of 2020. The Company reported net income for the nine-month period of $2.5 million, or $0.11 per diluted share, compared with $2.8 million, or $0.14 per diluted share, for the prior-year period. Results for the nine months ended October 3, 2021, include the recognition of a $3.6 million gain on the forgiveness of the Company’s PPP loan. Results for the nine months ended October 4, 2020, include net gains of $0.8 million from the sale of idle assets by Sypris Technologies and an income tax benefit of $3.2 million, primarily from the release of a valuation allowance on certain foreign deferred tax assets.