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Sypris Solutions, Inc. (SYPR)

Q1 2013 Earnings Call· Tue, May 14, 2013

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Transcript

Operator

Operator

Good day, and welcome to the Sypris Solutions Inc. Conference Call. Today's call is being recorded. At this time, for opening remarks, I would like to turn the call over to President and Chief Executive Officer, Mr. Jeffrey Gill. Please go ahead, sir.

Jeffrey T. Gill

Management

Thank you, Alicia, and good morning, everyone. Brian Lutes, Tony Allen and I would like to welcome you to this call, the purpose of which is to review the trends reflected in the company's financial results for the first quarter of 2013. For those of you who have access to our PowerPoint presentation this morning, please advance to Slide 2 now. We always begin these calls with a note that some of what we might discuss here today may include projections and other forward-looking statements. No assurance can be given that these projections and statements will be achieved, and actual results could differ materially from those projected as a result of several factors. These factors are included in the company's filings with the Securities and Exchange Commission. And in compliance with Regulation G, you can access our website at sypris.com to review the definitions of any non-GAAP financial measures that may be discussed during this call. With these qualifications in mind, we'd now like to proceed with the business discussion. Please advance to Slide 3. I will lead you through the first half of our presentation this morning, starting with an overview of the highlights for the quarter, to be followed by a brief discussion of each of our 2 business segments. Brian will then provide you with a more detailed review of our financial results for the quarter. Now let's begin with the overview on Slide 4.We're pleased to report that revenue was in line with our expectations for the quarter, albeit with a different mix than we would have forecast just a few months ago. Sales increased 16% sequentially from the fourth quarter of last year, rising to $78.4 million, driven by a 28% increase in revenue from our Industrial Group. The surprise came from our Aerospace &…

Brian A. Lutes

Management

Great. Thanks, Jeff. Good morning, everyone. I'd like to take you through the highlights of our first quarter 2013 financial results. And as Jeff mentioned, please advance to Slide 10. Q1 consolidated revenue totaled $78.4 million, this is down $18 million or 18.7%, attributed primarily to the much higher commercial vehicle volume in the prior year period. This was in line with our expectations for the quarter, but as Jeff mentioned, a much different mix, as the defense spending uncertainty caused program and approval delays as a result of the continuing sequestration. Despite the lower year-over-year sales decrease, we achieved $8.1 million in gross profit, gross margin came in at 10.3%, again, driven by the strength of our Industrial Group, but offset by the breakeven performance within our A&D segment as a result of both the decreased sales and a different product mix. I'll discuss both of the segments in more detail, including sequential views in a moment. With respect to earnings per diluted share, we came in at a $0.34 loss versus $0.27 positive in Q1 of 2012. But again, it does include a $6.9 million or $0.36 per share noncash impairment of all the remaining goodwill within our electronic group. In terms of the sequential view, let me move on and ask you to advance to Slide 11. Consolidated revenues increased 16% sequentially from the fourth quarter of last year, rising to $78.4 million and driven by the 28% increase in revenue that our Industrial Group achieved. This was a result of both rebalancing and the resourcing onshore of the manufacturing component. In addition, gross profit for the quarter came in at $8.1 million or 10.3% of sales, again driven by the strength of the rebound. Unfortunately, the 45% sequential increase in profit from the Industrial Group was…

Operator

Operator

[Operator Instructions] We'll go first to Jim Ricchiuti from Needham & Company. James Ricchiuti - Needham & Company, LLC, Research Division: The question I had, first on the Industrial business, just given the strength that you're seeing in the commercial vehicle market, as well as the energy markets, would you anticipate, at this point, that the revenue should improve sequentially over the course of the year, just given what you're seeing in the market?

Jeffrey T. Gill

Management

Jim, we would think so at this time. Yes. James Ricchiuti - Needham & Company, LLC, Research Division: Okay. And I mean, much tougher question, Jeff, on the A&D business. I mean, at this point, you seem to be at trough levels, but is there much improvement that you might see in the near term? Or is it just too uncertain an environment at this point?

Jeffrey T. Gill

Management

Well, you're right. That is a challenging question. At the moment, Jim, we see returning to, let's call it 2012 levels, in second half of the year. But that's what we see today and so we're just going have to play this out. It's really been quite surprising for us.

Brian A. Lutes

Management

And Jim, I would just add, I think Jeff's absolutely right. For the second quarter, I think our visibility is probably consistent with the trough in the first quarter. But we would -- based on the visibility we see and the programs and the timing, we believe there could be some lift in the second half. James Ricchiuti - Needham & Company, LLC, Research Division: Okay. And with respect to some of the newer initiatives, is there -- how confident are you that some of these will begin contributing to revenues next year?

Jeffrey T. Gill

Management

Well, I think that we're certainly planning on that being the case. And so… James Ricchiuti - Needham & Company, LLC, Research Division: And I mean, is that -- how dependent is that going to be, Jeff, just on the overall funding environment? Or is some of these just from international markets that you think have some different drivers to it?

Jeffrey T. Gill

Management

Yes, I think we're sufficiently balanced in the number of programs that we have going on, Jim, to build the revenue base back up that, while we certainly won't hit all of them, our plans are to hit some of them. And I think we should be fine in terms of starting to see some of the benefit from that as we look out beyond the short term.

Operator

Operator

[Operator Instructions] We have a follow-up from Jim Ricchiuti. James Ricchiuti - Needham & Company, LLC, Research Division: Go a little bit deeper into a comment, I think, Brian, that you made regarding opportunities in the Industrial business. I think you aggregated those opportunities at somewhere around $100 million or so. What's the timeline that you might anticipate seeing some of these potentially signed? And are we talking about several different contracts? Is there any further color you could provide on that?

Brian A. Lutes

Management

Yes, it's several different contracts, Jim, aggregating in the range of $100 million, and we would expect those to begin flowing through sometime during 2014. As you know, there's a lead time to the contract and the qualification of parts and the path in getting that through the quality and process engineering circles for the customer, but again, they would hit in 2014. James Ricchiuti - Needham & Company, LLC, Research Division: Okay. And as you look at that business, just given what you're seeing in terms of the overall pipeline, the market environment right now, do you foresee having to make any significant investments over and above what you normally would make in that business over the next year or so?

Brian A. Lutes

Management

I think we've traditionally ran, Jim, somewhere around 3% as -- in terms of percentage of revenues in that business. And I think that's going to run -- that would be probably consistent in the outward year somewhere between 3%, probably 3.5%. But there is nothing there that stands out that we're talking significant increase in CapEx. James Ricchiuti - Needham & Company, LLC, Research Division: Okay, okay. And Jeff, can you touch at all on acquisitions in terms of the A&D business and types of opportunities, without -- I know you can't be specific, but just in terms of the types of opportunities you might be looking at and maybe whether -- how active that is at the moment?

Jeffrey T. Gill

Management

Sure. Jim, we're focused on primarily EMS-type providers that would fit in with our high cost of failure, low-volume, high-mix, high-reliability, trusted source-type applications. And we've been pretty active in reviewing a number of different candidates. At this point, we haven't found the right one that we feel clears our filters and would meet our criteria, but we've got several resources inside the company focused on that and we're really going to pursue this quite actively as we go forward.

Operator

Operator

We'll go next to Tristan Thomas of Sidoti & Company. Tristan Thomas - Sidoti & Company, LLC: A lot of my questions were already answered, I just had a question regarding the product mix in the Aerospace & Defense segment. You mentioned that, that was different. Could you give me a little color on that? What changed and where you expect it to be this year and into 2014?

Brian A. Lutes

Management

Yes, I think, Tristan, the mention of the fourth quarter as we released fourth quarter earnings, the mix, it involved the sale of secure communication devices to international customers in the fourth quarter. We do not have that to repeat in Q1 so that was certainly one of the changes in mix for Q4 versus Q1. Tristan Thomas - Sidoti & Company, LLC: Okay. Now, do you expect that to come back later on this year?

Brian A. Lutes

Management

We're optimistic and we have visibility to returning or achieving some degree of international sales during the second half of the year.

Operator

Operator

And we have no further questions.

Jeffrey T. Gill

Management

Okay. Well thank you, Alicia, and thank you, everyone. Brian, Tony and I would like to thank you for joining us on this call. We certainly welcome your continued interest and, of course, your questions about our business. Thank you, and have a great day.

Operator

Operator

That does conclude today's conference. We thank you for your participation.