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 the President and Chief Executive Officer, Mr. Jeffrey Gill. Please go ahead..

Thank you, Grant, and good morning, everyone. Tony Allen and I would like to welcome you to this call this morning. The purpose of which is to review the company's financial results for the fourth quarter and full year 2020. 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 year to be followed by an update on the outlook for each of our primary markets.

Tony will then provide you with a more detailed review of our financial results for the quarter and year. But before we get started, I'd like to take just a moment to thank our employees and their families for their support and dedication during this past year. 2020 was a year unlike any other.

Presenting unique physical, psychological and personal concerns for everyone. The unwavering commitment of our people enabled our company, not only to meet the needs of our customers, but to do so while increasing its margins, expanding its profitability and generating positive growing cash flow at the same time, within the competition.

Thank you, one and all. Now let's begin with the overview on Slide 4. Gross margin for the full year 2020 increased 280 basis points to 14%, despite the 6.3% decrease in revenue during the year.

The year-over-year change in revenue reflected the impact of the 30% reduction in the top line that we experienced during the second quarter as customers in the economy shut down in response to the pandemic.

Gross profit for the full year improved 17% from 2019 and when combined with lower spend for SG&A, contributed to 102% increase in operating income despite the costs and margin compression imposed by the impact of the virus.

EPS for the full year increased to $0.08 per share compared to a loss of $0.19 per share for the prior year, while cash generation from operations increased significantly, rising from a use in 2019 to a meaningful generation in 2020.

We believe these results to be significant, especially in light of the unique challenges that were presented during the year. Revenue for Sypris Electronics increased 41.3% year-over-year, reflecting the continued strong demand from customers in defense and communications market, a growing multiyear backlog and improved component availability.

Gross margin for Sypris Electronics benefited from the growth in the top line and improved operational performance, rising 1,420 basis points to 14.6%.

We believe these margins are reflective of the vast improvements that have been achieved operationally as well as the improved mix that reflects the diversification that has taken place in recent years. We believe that there is room for further margin expansion as our markets continue to recover going forward.

And what a year - what a difference a year makes, the momentum in each of our major markets appears to be very positive. While a number of recently announced contract awards are expected to layer in additional top line growth.

The combination of these 2 very positive events is forecast to fuel a 20% increase in revenue for 2021, a 200 to 300-basis-point expansion in margins and strong double-digit percentage growth in cash flow from operations.

So let's take a moment to review each of these important underlying factors that provide the source for our optimism for the coming year. Starting with our most recent contract awards on Slide 5. At Sypris Electronics, we recently announced a follow-on award from the U.S.

DoD prime contract the manufacturing test, electronic power supply modules for a mission-critical long-range precision-guided antiship missile system, with production set to begin during 2021. The program is designed to meet the needs of U.S. Navy and Air Force war fighters.

The system provides range, survivability and technology that no other current system provides according to new sources.

More specifically, the missile system employs precision routing and guidance, day or night, in all-weather conditions, and is designed to detect and destroy specific targets within groups of ships by employing advanced technologies that reduce dependence on intelligence, surveillance, and reconnaissant platforms, network links and GPS navigation in contested environments.

This most recent contract award follows on the back of 2 new awards, we received - we viewed during our last call, which included an initial contract award from Leonardo DRS Naval Electronics, the manufacturing test to electronic assemblies for enable radar tracking system.

We also discussed contract awards to manufacture a variety of electronic assemblies for mission-critical airborne munition dispensing systems. With production slated to begin during the second quarter of 2021.

We expect the momentum of new contract wins to continue during 2021 and we remain very optimistic about the potential for future program and revenue growth as we move forward, with backlog now extending into 2023. At Sypris Technologies, we recently announced an agreement to extend our long-term contract for the leading commercial vehicle OEM.

The new contract continues our existing product lines, and includes the award of 2 additional model lines to be produced by Sypris, beginning in 2021.

And perhaps just as importantly, the new agreement provides for the conversion of an existing high-volume axle shaft model line to adopt certain features of the patented Sypris Ultra series axle shaft design.

The patented Sypris Ultra series lightweight axle shaft reduces the weight of drive axle assemblies by an estimated 16 pounds for the typical Class 8 commercial vehicle. This important weight savings is believed to contribute to shorter braking distances and greater fuel efficiency for the fleet owner.

It is also believed that by reducing the weight of these shafts, more horsepower may be transferred to the pavement, thereby further enhancing the performance of the vehicle.

We also recently announced the receipt of orders for specialty closures for use in high-pressure oil and gas applications, including the Anchor Field development project in the Gulf of Mexico, and the planned upgrade of a natural gas pipeline system in North America.

For the Anchor Field project, we will provide specialty high-pressure closures that are rated up to 4,885 psi and use Inconel Alloy 625. A nickel-based super alloy that possesses high-strength properties and resistance to elevated temperatures.

For the natural gas pipeline system, we will provide closures for a multiple compressor system upgrade as part of an EPA program to reduce harmful emissions from aging equipment. These closures will be 72 inches in diameter, weigh 11.25 tons each and will be ready to a pressure of 1,200 psi.

During our last call, we announced the award of new orders for closures for projects located in Brazil and Canada. In the case of the Libra Oil Field in Brazil, the project is one of the world's largest ultra-deepwater oil discoveries at over 6,600 feet deep and containing between 7.9 and 15 billion barrels of oil.

The project is expected to produce up to 1.4 million barrels of oil per day with an estimated development cost of $80 billion. We will be providing specialty closures for this project that can handle pressure approximating 10,000 psi.

In Canada, the Trans Mountain Pipeline Expansion project will add 609 miles of 42-inch pipeline to transport 590,000 barrels of oil per day accounted as West Coast for shipment to world markets. The project is estimated to cost $12.6 billion.

We will be providing closures ranging in size from 30 inches to 48 inches in diameter that will be automated for the use of opening.

We also announced a contract for the delivery of a 58-inch tubeless closure, weighing 5.5 tons each for use in the Alberta XPress gas project, which will expand transmission capacity from Manitoba to delivery locations in the Midwestern and Southern U.S.

These projects serve as excellent examples of the type of work we do for demanding high cost of failure applications around the world. Now let's advance to Slide 6 to review the outlook for each of our major markets.

According to ACT Research in its March 10, 2021 publication, all indicators we use to track the heavy-duty truck market point to extraordinarily strong market conditions. So much so that sales metrics on the year will be determined by the supply side by the ability of manufacturers to keep up with customer demand for the product.

There are a number of factors that are having a positive influence on the demand for transportation as the economy begins to expand at a 5% to 6% annualized rate. Housing strength, manufacturing, prosperity, carrier profitability, relatively low fuel prices.

The acceleration of the transition to e-commerce and fiscal stimulus are combining to drive demand for freight to new highs. OEM backlog, at the end of February, was estimated to be up 144% from August of 2020, a period during which fleets ordered more vehicles than the combined total of the previous 18 months.

As a result, ACT is forecasting a 41% increase in demand for 2021 to be followed by an additional 15% expansion in 2022. ACT concludes that further upside to the outlook exists, subject to supply chain performance and its ability to meet the OEM's needs.

The outlook presumes that the first quarter of 2021 will be about even with the fourth quarter of 2020, after which, the year-over-year and sequential comparisons for demand to escalate rapidly. In short, the outlook for this part of our business appears to be extremely positive. Turning now to Slide 7.

The market for transportation and use of natural gas is key to Sypris to be followed by the market for transportation and processing of crude oil.

According to a February 2021 report by McKinsey, 138 metric tons of LNG capacity is currently under construction with an additional 100 metric tons of capacity needed in the future to meet forecasted demand.

Oil prices have increased significantly over the past year, with the price of West Texas Intermediate, up 129% from March 16, 2020 to March 12, 2021. Rent is up 118% for the same period. The outlook for year-end was $75 per barrel, which would reflect a 75% increase from the prior year.

Rig count has increased by 64% over the past 6 months and is forecast to increase an additional 45% by year-end. Our sense is that the economics are now such, the capital investment that was suspended during the pandemic, will increasingly find its way into projects to meet the needs of an expanding economy.

The signals are certainly increasingly positive. As you will see from the chart on Slide 8, the long-term market for defense spending remains positive. And within the overall budgetary allocations, spending for technology upgrades on strategic platforms continues to be a very high priority.

Our backlog of future business now extends into 2023 and we are very pleased with the level of new business momentum as we enter 2021. During previous calls, we discussed the changes that have taken place in our market mix over the past several years. Turning now to Slide 9. Please note that while revenue is forecast to increase 20% during 2021.

Our market mix remains fairly well balanced. Despite the significant growth forecast for commercial vehicle. The mix is maintained as a result of the expected continued expansion of defense electronics, specialty automotive and energy.

We believe this to be quite an achievement, and it certainly represents a big change from our increasingly distant past when commercial vehicle represented 70% of the business, and these sales were concentrated with 2 customers. We have a much more balanced business today, both in terms of market served and customer concentration.

This diversification has served us well during the pandemic, both in terms of volume and margin. Looking forward, we expect margins to expand further, reflecting increased value-add and technical requirements, while continuing to move away from commodity products and services.

We believe that additional opportunity exists to further diversify our business, and we will continue to aggressively pursue this outcome. Now let's turn to Slide 10 for a brief summary.

The strength of our markets, when combined with the positive leverage of new contract awards, is expected to fuel a 20% growth in the top line, a 200 to 300 basis point expansion in margins and strong double-digit percentage growth in cash flow from operations for the year. The wind is clearly at our back. So our focus must and will be on execution.

There will be surprises and most assuredly, challenges. But this is always the case, and the issues associated with growth will be much appreciated when weighed against the severity of the surprises we faced during the previous year in the pandemic.

Quite simply, we are really looking forward to the task of building the business profitably during the coming year. Turning now to Slide 11. Tony will lead you through the balance of our presentation this morning..

Thanks, Jeff, and good morning, everyone. I'd like to discuss with you some of the highlights of our fourth quarter financial results. Please advance to Slide 12. Q4 consolidated revenue was $20.6 million, a decrease of 4.7% from the fourth quarter of last year.

The reduction from the prior year was primarily driven by lower energy sales for Sypris Technologies as short-term demand in this market continued to be impacted by uncertainties related to the COVID-19 pandemic, partially offsetting the decline during Q4 were increased sales into the commercial vehicle market, consistent with the levels reported for Q3 and about 2.5x that reported for Q2 during the low point for the pandemic.

Revenue for the Electronics segment in Q4 was in line with the prior year, closing out 2020 with a 41.3% increase over the full year 2019. Consolidated gross margin was essentially flat to 12.4% compared to Q4 of 2019.

Gross margin for Sypris Technologies was 12.7% during Q4, down 270 basis points from the prior year, reflecting the decline in revenue and a change in mix due to the lower energy product sales. Gross margin for Sypris Electronics of 11.9% improved 370 basis points from the prior year. Our consolidated SG&A expense was $2.7 million for Q4.

And a decrease of 21.7% or $750,000 from the prior year. The decrease in Q4 SG&A primarily reflects actions by management to reduce discretionary spend in response to the COVID-19 pandemic.

Cost reduction actions include reduced hiring activities, reduced compensation for our CEO and certain other senior leadership and corporate personnel and suspended fees paid to our Board of Directors. Lower travel-related spend and reductions in other areas of controllable costs.

With lower revenue and gross profit for the quarter, we fell short of our profit goal at the operating income line, but still made considerable improvement from the prior year loss. We understand the importance of delivering consistent quarterly results and remain committed to improving our operating results in the coming year.

Please advance to Slide 13. Consolidated revenue for the full year was $82.3 million, a decrease of $5.5 million or 6.3% from 2019. The year-over-year decline reflects the impact of the pandemic during the second quarter when consolidated revenue declined 30% from the prior year.

If you recall, revenue for Sypris Technologies for Q2, was down $9.4 million or 55.9% from the prior year. As we enter 2020, the commercial vehicle market was projected to decline from the record levels of 2019, and the pandemic's impact only made that curve steeper during the first half before rebounding in Q3.

As Jeff discussed earlier, Class 8 demand is expected to increase 41% in 2021, which can provide substantial lift to our top line in the coming year. Despite the decrease in consolidated revenue in 2020, gross margin improved 200 basis points over 2019. The margin improvement reflects a solid year for Sypris Electronics.

Improved mix with our diversification efforts and improved efficiencies, driven by our continuous improvement initiatives. Full year revenue for Sypris Technologies was $45.3 million, which is $16.4 million or 26.5% below the prior year, reflecting both the COVID-19 impact and the cyclical decline in the Class 8 commercial vehicle market.

The launch of new programs provided some boost to revenue for the year, but not enough to overcome the lower market demand. We have also experienced some softening in our energy product over the quarters since the pandemic outbreak, as customers have delayed projects or reduced spending as they navigate through these uncertain times.

The reduction in revenue drove gross margins lower for 2020. Dropping 230 basis points to 13.6% for the full year. Full year revenue for Sypris Electronics was $37 million, an increase of $10.8 million or 41.3% above the prior year.

The material availability issues we experienced in the prior year period have largely been resolved, and our team has worked effectively with our customer base to successfully manage the routine production challenges we face daily and deliver more consistent results in 2020. Our team's confidence continues to grow.

And with our existing backlog of business and the new opportunities we are pursuing, our outlook for 2021 remains favorable. Gross margin for this segment was 14.6% for the year, a considerable improvement from the 0.4% reported for 2019.

Our consolidated SG&A expense was $11.4 million for the full year 2020, a decrease of $2.3 million or 17% from the prior year. For 2020, SG&A expense represents 13.8% of revenue, down 180 basis points from 2019.

Certain of the spending reductions discussed on the previous slide were implemented late in Q1 in response to the COVID outbreak and carried through the last 9 months of the year.

Additionally, we incurred certain consulting fees related to the implementation of a new ERP system for Sypris Electronics during 2019, and those costs were not incurred in the current year. Our consolidated operating income for 2020 ended in positive territory, as we recovered from the Q2 setback from COVID-19.

This represents an improvement of $4.4 million year-over-year, despite a 6.3% decline in revenue. Given the challenges imposed by COVID-19, we are pleased with our performance for the year and look forward to driving further improvements in our operating results in 2021. Please advance to Slide 14.

And we will take a look at our consolidated quarterly revenue trend over the last 2 years. The Class 8 commercial vehicle market started its downturn in Q4 of last year.

New program launches at Sypris Technologies for automotive and sport utility components began contributing to revenue in the first quarter of 2020, partially offsetting some of the softness in the market. Additionally, the Electronics segment increased revenue as component availability improved and backlog remained healthy.

This allowed Q1 revenue to increase sequentially from Q4 and before COVID-19 began affecting revenue in late March. The impact of COVID-19 on Sypris Technologies drove segment and consolidated revenue, down significantly in Q2 and before recovery in Q3.

Aside from Q2, our consolidated revenue in the other three quarters was north of $20 million per quarter, averaging $21.7 million. Q2 impact of COVID-19 on Sypris Technologies proved to be more than we could overcome to generate growth in our consolidated revenue year-over-year despite the 41.3% increase for Sypris Electronics.

This ties into the market diversification discussion that Jeff covered earlier, and our ongoing focus to expand our top line in all markets and deliver more consistent operating results. As Jeff noted in his comments, our market conditions are favorable, as we look forward to 2021.

We expect revenue for Q1 will be in line with the 2023 quarter average of $21.7 million just discussed and expect to show sequential quarterly and year-over-year growth over the balance of the year to achieve a 20% growth target. Please advance to Slide 15.

On this slide, we show our trend of consolidated gross margin over the last 5 years and our expectation for 2021. Consolidated gross margin was 14% for 2020 and a 280 basis point improvement over 2019. Driving the margin expansion for 2020 was the Electronics segment, with an increase of 1,420 basis points over the prior year to 14.6%.

The increase in margin for SE demonstrates the leverage that we gained from the growth in revenue by this segment. The contribution margin we pick up on additional revenue converts to higher gross margin.

Improved material availability also contributed to the SE margin improvement, which enabled our management team to more efficiently balance production schedules and increased our overhead absorption.

Sypris Technologies reported 13.6% gross margin for 2020, which is 230 basis points below the prior year, but includes the second quarter that was heavily impacted by COVID-19 and saw gross margin decline to only 3.1%.

Similar to the revenue analysis in which we carved out the second quarter, this segment's gross margin for the balance of 2020 was 15.7%, which is in line with our expectations under more normal economic conditions. Considering the revenue growth we expect for 2021 and the anticipated results of continuous improvement initiatives that are underway.

We expect further margin expansion in 2021 in the range of 200 to 300 basis points, resulting in 16.5% consolidated gross margin at the midpoint of that range. Please advance to Slide 16, and I will offer a few takeaways.

Consolidated revenue for 2020 was $82.3 million, a decrease of 6.3%, primarily attributable to the impact of COVID-19 on the second quarter. Gross margin improved 280 basis points to 14% for 2020, fueled by the top line growth and margin expansion of Sypris Electronics.

Earnings per share for 2020 was $0.08 per share compared to a loss of $0.19 per share in 2019. An increase in operating income of $4.4 million and the release of a deferred tax asset valuation allowance contributed to net income of $1.7 million for the year.

Demand from our customers in the commercial vehicle market rebounded during the second half of 2020 as market conditions improved. North American Class 8 production is forecast to grow 41% in 2021, and additional 15% in 2022. New contract awards, positive market conditions and market diversification support revenue growth and margin expansion in 2021.

We are projecting a 20% growth in revenue for 2021 and expect gross margin to expand 200 to 300 basis points. Revenue is expected to increase from our current run rate beginning in the second quarter of 2021, and we are expecting sequential and year-over-year improvements for the final 3 quarters of the year.

We also expect cash flow from operations to improve in 2021, driven by improved profitability and continuing to aggressively manage working capital. We greatly appreciate the support of our employees, customers and suppliers during a very challenging 2020, and we look forward to the coming year with optimism.

Thank you for your continued support and interest in our business, and I'd like to turn it over to Jeff for closing remarks..

Thank you, Tony. We are looking forward to a year of double-digit growth, expanding margins and increased profitability. And please note, we certainly appreciate your continued interest in our business. Thank you, and have a good day..

Conference has now concluded. Thank you for attending today's presentation. You may now disconnect..

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