Sypris Reports Third Quarter Results


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Sypris Solutions, Inc. reported financial results for its third quarter ended October 2, 2022.

Highlights:

  • Orders for Sypris Electronics increased 75% during the third quarter compared to the same period in 2021, driving firm backlog up in excess of $100 million, representing a 99% increase over the prior-year period and 86% year-to-date.
  • Orders for Sypris Technologies energy products increased 33% during the third quarter compared to the same period in 2021, pushing backlog up 15% over the prior-year period and 84% year-to-date.
  • Revenue for the quarter decreased slightly on a year-over-year basis, reflecting the impact of supply chain shortages and disruptions on shipments, which resulted in a material reduction in planned sales for the quarter. Much of this shortfall is expected to ship in the fourth quarter.
  • Gross margin for the quarter decreased from the prior year primarily reflecting the lower-than-planned shipments, production inefficiencies and sales mix.
  • On September 6, Sypris Technologies announced an award for specialty high-pressure closures for use in the Permian Highway Pipeline Expansion Project, with shipments expected to be completed by year-end. The closures will range in size up to 70” in diameter and will weigh up to 20,000 pounds each.
  • On September 15, Sypris Technologies also announced that it had acquired the intellectual property rights for the rapid opening closure product line from Pipeline Engineering and Supply Co. Limited located in Catterick, UK. The purchase of the product line for use in oil, gas and petrochemical infrastructure projects is expected to expand our market presence in Europe, Asia and the Middle East.
  • On October 6, Sypris Electronics announced an amendment to an existing multi-year supply agreement to increase deliveries for a large, mission-critical Navy program. The amended contract, including options, now provides for the purchase of up to $77.0 million of assemblies, representing a 39.5% increase in potential volume compared to the original base contract. Sypris also received releases for the first year of production with shipments scheduled to begin in 2023.
  • On November 10, Sypris Electronics also announced a follow-on award from a U.S. DOD prime contractor for a secure communications infrastructure program. Sypris will produce and test the embedded circuit card assemblies that will perform certain of the cryptographic functions for the Army Key Management System. Production is expected to begin in 2023.
  • The Company updated its full-year outlook for 2022, with revenue now expected to increase 15-20% year-over-year, down from prior guidance due to supply chain challenges. We expect margins to recover to prior period levels during the fourth quarter from the low reported for the current period. Cash flow from operations is expected to show double digit percentage growth reflecting favorable working capital changes during the year.
  • The outlook for 2023 remains quite positive, reflecting the continued momentum of new contract awards and strong backlog across many of the Company’s markets. Revenue for 2023 is forecast to increase 20-25% and gross margins are expected to expand 150-200 basis points year-over-year.
“Our results for the quarter were impacted by continued supply chain disruptions as well as production inefficiencies driven by volatile customer demand schedules. We continue to work with our customers and vendors to navigate the market conditions and identify solutions to satisfy our customers and the end users of our products,” commented Jeffrey T. Gill, President and Chief Executive Officer.
 
“Backlog for Sypris Electronics continued to increase on both a year-over-year and sequential basis, resulting in our largest book of business in over a decade. The record $100 million backlog is expected to support revenue growth over the balance of this year and through 2023, with a portion of the orders with delivery dates extending into 2025. Customer funding has already been secured for a portion of these key programs, which enables us to procure inventory under multi-year purchase orders to mitigate future supply chain issues.
 
“Overall demand from customers serving the automotive, commercial vehicle, sport utility and off-highway markets has remained somewhat stable, with new product line shipments offsetting headwinds for automotive and commercial vehicle components as our customers adjust inventory levels to align with OEM build schedules.

“We continue to invest in new equipment, maintain or upgrade existing assets, and drive continuous improvement initiatives to add capacity and support more cost-efficient operations in the future. The successful extension of long-term contracts with two of our key customers during the year supports our revenue base and provides opportunities to expand these relationships in the coming years.

“Orders for our energy products during the third quarter increased 33% year-over-year, with open quotes outstanding on several large projects. Additional opportunities for growth may exist with new projects in support of increasing rig counts over pre-pandemic levels. We are also actively pursuing applications for our products in adjacent markets to further diversify our industry and customer portfolios.”

Third Quarter Results

The Company reported revenue of $25.2 million for the third quarter of 2022, compared to $25.7 million for the prior-year comparable period. Additionally, the Company reported a net loss of $2.2 million, or $0.10 per share, compared to net income of $0.3 million, or $0.01 per diluted share, for the prior-year period.

For the nine months ended October 2, 2022, the Company reported revenue of $80.4 million compared with $71.6 million for the first nine months of 2021. The Company reported a net loss of $2.6 million, or $0.12 per share, compared with net income of $2.5 million, or $0.11 per diluted share, for the prior-year period. Results for the nine months ended October 3, 2021, included the recognition of a $3.6 million gain on the forgiveness of the Company’s PPP loan.

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