SYPRIS SOLUTIONS INC Q2 FY2022 earnings call

Management Statement and Operational Highlights

• Revenue for the quarter increased 12% year-over-year, driven by 26% growth in Sypris Electronics and 5% growth in Sypris Technologies. Orders increased 360% year-over-year and 169% sequentially, with Sypris Electronics seeing a 524% year-over-year order increase. Backlog jumped 77% year-over-year and 70% year-to-date.
• Announced new contract awards in defense, including a multi-million-dollar follow-on contract for an advanced integrated electronic warfare and communications avionic system, and multi-year awards for power supply modules. In Sypris Technologies, a multi-year contract extension for drive train components in commercial vehicles.
• Gross margin decreased 360 basis points year-over-year due to supply chain issues, but expected to expand 400-500 basis points by Q4. Market outlooks: defense spending positive, Class 8 heavy vehicle production expected to increase 17% in 2022, energy market has positive backlog trends.

Segment Performance

• Sypris Electronics: Revenue increased 26% year-over-year to $11.1 million in Q2. Year-to-date revenue was $20.1 million, up 28.7%. Gross margin in Q2 was 14.9%, a decrease of 550 basis points from the prior year. Orders for Sypris Electronics increased 524% year-over-year.
• Sypris Technologies: Revenue increased 5% year-over-year to $18 million in Q2. Year-to-date revenue was $35.1 million, up 15.8%. Gross margin in Q2 was 11.9%, a decrease of 270 basis points from the prior year. Production in the Class 8 market was impacted by supply chain constraints.

Guidance

• Revenue for 2022 expected to increase 25-30% year-over-year.
• Gross margin outlook tempered to 25-50 basis points accretion in 2022, reflecting near-term supply chain impact but expected improvement in Q4.
• Cash flow from operations expected to increase materially due to increased profitability and working capital improvement.

Risks

• Supply chain disruptions and material shortages continuing to impact gross margin in the short term.
• Uncertainty in the energy market outlook and potential softening in Class 8 production in 2023 due to economic cycling.

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