Sypris Reports Fourth Quarter and Full Year 2017 Results

Sypris Solutions, Inc. (Nasdaq/GM: SYPR) today reported financial
results for its fourth quarter and full year ended December 31, 2017.
Sypris Solutions continued to make important progress on several
strategic initiatives to regain revenue momentum and better align its
cost structure, while diversifying the Company’s book of business, both
in terms of customers and markets. Many of those steps have been
completed. As a result, the Company is positioned to achieve a growing
and more stable revenue base, as demonstrated in its fourth quarter
results, along with higher gross profit and a return to profitable
operations.

HIGHLIGHTS

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• The Company’s fourth quarter revenue increased 7.6% over the
  prior-year quarter, while gross margin improved to 6.6% from a
  negative 0.8% last year.
• Sypris Electronics’ fourth quarter revenue increased 72.4% over the
  prior-year comparable period.
• Sypris Technologies’ fourth quarter revenue declined from the
  prior-year comparable period, but increased 7.2% sequentially as
  increased shipments of energy and heavy truck components continued to
  offset the completion of a contract at the end of 2016.
• Gross margin for Sypris Technologies was 10.7% for the quarter,
  resulting in positive operating income for the period driven by
  improved mix and significantly lower operating costs.
• The Company completed the closure of its 450,000-square foot Broadway
  plant during November, which represented the final step of its
  previously announced $26.3 million two-year cost improvement target.
• Selling, general and administrative expense declined 39% compared with
  the prior-year period, reflecting the positive impact of achieving the
  Company’s cost improvement targets.
• During the quarter, the Company announced several new contract awards
  for Sypris Electronics for the production of electronic assemblies for
  use in US Military, Space and global Deep Sea communications programs.
• The Company raised its revenue guidance to $90.0-$96.0 million for
  2018 from its previous outlook of $86.0-$92.0 million, reflecting the
  impact of new contract awards and positive market conditions. Gross
  margin for the year is expected to be in the range of 15%-17%.

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“We are pleased to report that Sypris Technologies has returned to
profitability for the first quarterly period since 2014, reflecting our
efforts to target more strategic marketing opportunities,” commented
Jeffrey T. Gill, president and chief executive officer. “This
represented a major milestone following three years of work to adjust to
the completion of two large contracts at the end of 2014 and 2016. The
considerable and growing strength in the commercial vehicle and energy
markets should contribute to further improvement for this segment in
2018.

“This milestone coincides with the termination of all production at our
Broadway Plant as of the end of the year, which completed the major
actions planned with regard to the two-year, $26.3 million cost
improvement target we announced a year ago. The year-over-year increase
in consolidated gross profit and the reductions in selling, general and
administrative expense and interest and debt-related expense were
essential to the achievement of that goal.

“Sypris Electronics’ results were affected during the fourth quarter by
an unfavorable revenue mix, which included the start-up of new programs
and shortages of certain electronic components. Certain higher volume,
higher margin programs were replaced with the start-up of new programs.
Additionally, we incurred charges for certain year-end inventory
adjustments during the fourth quarter. Despite the fourth quarter
results, Sypris Electronics posted revenue growth and margin expansion
for the full year 2017 over 2016. The majority of the cost reductions
affecting Sypris Electronics were complete as we entered 2017, and our
team continued to control costs while meeting customer expectations
throughout the year.

“Electronic component shortages and extensive lead-time issues are
becoming prevalent in the electronic manufacturing industry. We are
working with our customers to qualify alternative components or
suppliers to mitigate the impact on our business. The majority of our
aerospace and defense programs require specific components or components
that are sole-sourced to specific suppliers; therefore, the resolution
of supplier constraints requires coordination with our customers or the
end-users of the products.

“We expect that the progress made in 2016 and 2017, combined with the
strength in the overall market, will enable the Company’s consolidated
operations to return to profitability for 2018,” Mr. Gill added. “The
Company’s total fixed manufacturing overhead costs have been reduced,
our underutilized assets are being divested and important new business
continues to be secured, the most recent of which included the award of
new contracts with Harris Corporation.”

Concluding, Mr. Gill said, “With the closure of the Broadway Plant, we
have taken 450,000 square feet out of our operating footprint, our
year-to-date SG&A expense is down $8.9 million from the prior year and
our customer base and markets served are growing and are considerably
more diversified than at any point in our history. We have streamlined
our cost structure significantly and have substantially improved the
Company’s competitiveness.”

Fourth Quarter and Year End Results

The Company reported revenue of $21.5 million for the fourth quarter
compared to $20.0 million for the prior-year period. The Company's net
loss was $1.2 million, or $0.06 per share, as compared to a net loss of
$4.6 million, or $0.23 per share, for the prior-year comparable period.

For the full year ended December 31, 2017, the Company reported revenue
of $82.3 million compared to $91.8 million for the prior year and a net
loss of $10.8 million, or $0.53 per share, as compared to net income of
$6.0 million, or $0.30 per diluted share, for the prior year. Results
for the year ended December 31, 2017, included net gains of $2.7 million
related to the sale of idle assets offset by severance, relocation and
other costs of $2.4 million.

The results for the year ended December 31, 2016, included a gain of
$31.2 million from the CSS sale during the third quarter, a gain of
$2.4 million related to a sale-leaseback and severance, relocation and
other costs of $1.2 million. Additionally, results for the year ended
December 31, 2016, included the CSS operations sold in August 2016.

Sypris Technologies

Revenue for Sypris Technologies was $14.5 million in the fourth quarter
compared to $15.9 million for the prior-year period, primarily
reflecting the completion of a customer contract partially offset by
increased sales of oil and gas pipeline components. Gross profit for the
quarter was $1.6 million, or 10.7% of revenue, compared to $1.0 million,
or 6.4% of revenue, for the same period in 2016.

Sypris Electronics

Revenue for Sypris Electronics increased to $7.0 million in the fourth
quarter of 2017 as compared to $4.0 million for the prior-year period,
reflecting sales on new programs during the period. Gross profit for the
quarter was a negative $0.1 million compared to a negative $1.2 million
for the prior-year period, primarily reflecting the increase in 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 2018. New contract awards and market expansion are
expected to occur in each of our targeted markets for energy, commercial
vehicle and aerospace and defense products.

“Third-party forecasts for the Class 8 commercial vehicle market show
production up over 30% in 2018 as compared to 2017. The oil and gas
pipeline market continues to benefit from increased demand and higher
oil prices. The full fiscal year 2018 is also forecast to benefit from
significantly lower fixed overhead and production costs at Sypris
Technologies, as well as from the elimination of severance and other
expenses. Additionally, the National Defense Authorization Act for
Fiscal Year 2018 provides nearly $700 billion in funding for the U.S.
Department of Defense, which is expected to support program growth and
market expansion during the coming year for Aerospace and Defense
participants.

“Our outlook for revenue for 2018 is in the range of $90.0-$96.0 million
with first-half revenue comprising $43.0-$45.0 million of the total,
primarily reflecting the impact of delayed electronic component
receipts. The second half of 2018 is expected to benefit from a
normalization of these receipts and new program launches, resulting in
revenue in the range of $47.0-$51.0 million.

We expect to see further meaningful improvements in gross margin to
15%-17% for the year, with sequential improvements from the first to
second half periods. We expect selling, general and administrative
spending to decline in 2018 from the prior year, and to be in the range
of 13.0%-14.5% of revenue for the full year, subject to our actual
top-line performance. The net result is that we expect to return to
profitability on a consolidated basis for 2018.”

Sypris Solutions is a diversified provider of truck components, oil and
gas pipeline components and aerospace and defense electronics. The
Company produces a wide range of manufactured products, 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 estimated EBITDA and cash flows
includes significant gains and proceeds from the anticipated sale of
certain equipment, but there can be no assurances that such sales will
be achieved as planned; our failure to return to profitability on a
timely basis, which would cause us to continue to use existing cash
resources or other assets to fund operating losses; our failure to
successfully complete final contract negotiations with regard to our
announced contract “awards”; our failure to implement specific plans (a)
to offset the impact of reduced revenues as we migrate our focus from a
small number of traditional tier 1 customers in the commercial vehicle
markets to a more diversified base of customers who are able to place
higher strategic value on our innovation, flexibility and lean
manufacturing capabilities, including an increase in sales of our Tube
Turns® product line, and (b) to implement our cost-savings initiatives
and to consolidate and streamline operations in accordance with the
modified exit or disposal plan related to our Broadway Plant and our
other plans, including the ability of our Toluca Plant to successfully
consolidate any relocated operations or business lines; the fees, costs
and supply of, or access to, debt, equity capital, or other sources of
liquidity; inventory valuation risks including excessive or obsolescent
valuations or price erosions of raw materials or component parts on
hand; breakdowns, relocations or major repairs of machinery and
equipment, especially in our Toluca Plant; disputes or litigation
involving supplier, customer, employee, creditor, stockholder, product
liability or environmental claims; 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; potential impairments, non-recoverability or
write-offs of assets or deferred costs; the costs of compliance with our
auditing, regulatory or contractual obligations; regulatory actions or
sanctions; dependence on, retention or recruitment of key employees; the
cost, quality, timeliness, efficiency and yield of our operations and
capital investments, including working capital, production schedules,
cycle times, scrap rates, injuries, wages, overtime costs, tariffs,
freight or expediting costs; cost and availability of raw materials such
as steel, component parts, natural gas or utilities; changes in
licenses, security clearances, or other legal rights to operate, manage
our work force or import and export as needed; labor relations; strikes;
union negotiations; pension valuation, health care or other benefit
costs; potential weaknesses in internal controls over financial
reporting and enterprise risk management; our inability to patent or
otherwise protect our inventions or other intellectual property from
potential competitors; our reliance on third party vendors and
sub-suppliers; 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; 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,
							2017				2016
						(Unaudited)
Revenue						$	21,489			$	19,971
Net (loss) income						$	(1,234	)		$	(4,648	)
(Loss) income per common share:
Basic						$	(0.06	)		$	(0.23	)
Diluted						$	(0.06	)		$	(0.23	)
Weighted average shares outstanding:
Basic							20,393				20,165
Diluted							20,393				20,165
						Year Ended
						December 31,
							2017				2016
						(Unaudited)
Revenue						$	82,294			$	91,797
Net (loss) income						$	(10,822	)		$	6,043
(Loss) income per common share:
Basic						$	(0.53	)		$	0.30
Diluted							(0.53	)			0.30
Weighted average shares outstanding:
Basic							20,326				19,861
Diluted							20,326				19,761

Sypris Solutions, Inc.
Consolidated Statements of Operations
(in thousands, except for per share data)
			Three Months Ended								Year Ended
			December 31,								December 31,
				2017				2016				2017				2016
			(Unaudited)								(Unaudited)
Net revenue:
Sypris Technologies			$	14,525			$	15,932			$	54,891			$	63,324
Sypris Electronics				6,964				4,039				27,403				28,473
Total net revenue				21,489				19,971				82,294				91,797
Cost of sales:
Sypris Technologies				12,972				14,907				54,496				63,578
Sypris Electronics				7,089				5,232				24,816				27,470
Total cost of sales				20,061				20,139				79,312				91,048
Gross profit (loss):
Sypris Technologies				1,553				1,025				395				(254	)
Sypris Electronics				(125	)			(1,193	)			2,587				1,003
Total gross profit				1,428				(168	)			2,982				749
Selling, general and administrative				2,967				4,867				13,128				22,008
Research and development				2				12				38				330
Severance, relocation and other costs				125				647				2,360				1,169
Operating loss				(1,666	)			(5,694	)			(12,544	)			(22,758	)
Interest expense, net				207				214				809				4,882
Loss on extinguishment of debt				-				-				-				1,521
Other expense (income), net				49				(1,339	)			(1,913	)			(35,505	)
(Loss) income before taxes				(1,922	)			(4,569	)			(11,440	)			6,344
Income tax (benefit) expense, net				(688	)			79				(618	)			301
Net (loss) income			$	(1,234	)		$	(4,648	)		$	(10,822	)		$	6,043
(Loss) income per common share:
Basic			$	(0.06	)		$	(0.23	)		$	(0.53	)		$	0.30
Diluted			$	(0.06	)		$	(0.23	)		$	(0.53	)		$	0.30
Dividends declared per common share			$	-			$	-			$	-			$	-
Weighted average shares outstanding:
Basic				20,393				20,165				20,326				19,861
Diluted				20,393				20,165				20,326				19,761

Sypris Solutions, Inc.
Consolidated Balance Sheets
(in thousands, except for share data)
		December 31,				December 31,
			2017				2016
		(Unaudited)				(Note)
ASSETS
Current assets:
Cash and cash equivalents		$	8,144			$	15,270
Restricted cash			-				1,500
Accounts receivable, net			9,317				8,010
Inventory, net			17,641				14,558
Other current assets			2,003				2,730
Assets held for sale			2,898				832
Total current assets			40,003				42,900
Property, plant and equipment, net			15,574				17,943
Other assets			1,578				1,794
Total assets		$	57,155			$	62,637
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable		$	10,465			$	6,693
Accrued liabilities			10,330				10,821
Current portion of capital lease obligations			829				208
Total current liabilities			21,624				17,722
Long-term capital lease obligations			3,397				2,950
Note payable - related party			6,435				6,375
Other liabilities			8,769				9,492
Total liabilities			40,225				36,539
Stockholders’ equity:
Preferred stock, par value $0.01 per share, 975,150 shares authorized; no shares issued			-				-
Series A preferred stock, par value $0.01 per share, 24,850 shares authorized; no shares issued			-				-
Common stock, non-voting, par value $0.01 per share, 10,000,000 shares authorized; no shares issued			-				-
Common stock, par value $0.01 per share, 30,000,000 shares authorized; 21,438,269 shares issued and 21,422,077 outstanding in 2017 and 21,330,882 shares issued and 21,329,690 outstanding in 2016			214				213
Additional paid-in capital			153,858				153,252
Accumulated deficit			(111,591	)			(100,769	)
Accumulated other comprehensive loss			(25,551	)			(26,598	)
Treasury stock, 16,192 and 1,192 shares in 2017 and 2016, respectively			-				-
Total stockholders’ equity			16,930				26,098
Total liabilities and stockholders’ equity		$	57,155			$	62,637

Sypris Solutions, Inc.
Consolidated Cash Flow Statements
(in thousands)
		Year Ended
		December 31,
			2017				2016
		(Unaudited)
Cash flows from operating activities:
Net loss (income)		$	(10,822	)		$	6,043
Adjustments to reconcile net loss (income) to net cash used in operating activities:
Depreciation and amortization			3,884				6,288
Deferred income taxes			(667	)			-
Stock-based compensation expense			730				1,372
Deferred loan costs recognized			60				2,261
Loss on extinguishment of debt			-				1,521
Gain on the sale of assets			(2,668	)			(33,626	)
Provision for excess and obsolete inventory			116				880
Other noncash items			(32	)			(1,440	)
Changes in operating assets and liabilities:
Accounts receivable			(1,419	)			4,072
Inventory			(3,204	)			(1,809	)
Prepaid expenses and other assets			951				(81	)
Accounts payable			3,491				(4,610	)
Accrued and other liabilities			121				(175	)
Net cash used in operating activities			(9,459	)			(19,304	)
Cash flows from investing activities:
Capital expenditures			(1,637	)			(1,763	)
Proceeds from sale of assets			2,801				51,581
Change in restricted cash			1,500				(1,500	)
Net cash provided by investing activities			2,664				48,318
Cash flows from financing activities:
Capital lease payments			(208	)			(156	)
Repayment of term loan			-				(11,714	)
Repayment of revolving credit agreement			-				(2,132	)
Penalty paid on early extinguishment of debt			-				(1,521	)
Proceeds from related party note payable			-				1,000
Debt issuance and modification costs			-				(379	)
Indirect repurchase of shares for minimum statutory tax withholdings			(123	)			(191	)
Net cash used in financing activities			(331	)			(15,093	)
Net (decrease) increase in cash and cash equivalents			(7,126	)			13,921
Cash and cash equivalents at beginning of period			15,270				1,349
Cash and cash equivalents at end of period		$	8,144			$	15,270

View source version on businesswire.com: https://www.businesswire.com/news/home/20180320005448/en/

Source: Business Wire
(March 20, 2018 - 7:45 AM EDT)

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