Sypris Solutions(SYPR) - 2022 Q4 - Annual Report

Part I Business Sypris Solutions provides components for trucks, oil & gas, and aerospace & defense, operating through two segments with customer concentration - The company is organized into two business segments: Sypris Technologies (truck and energy components) and Sypris Electronics (aerospace and defense electronics)[19] Segment Revenue Contribution (2022) | Segment | 2022 Net Revenue Contribution | | :--- | :--- | | Sypris Technologies | ~63% | | Sypris Electronics | ~37% | - The business strategy focuses on core markets, strategic partnerships, potential acquisitions, and expanding value-added manufacturing capabilities[39][40][42] Customer Concentration | Year | Top 5 Customers' Share of Net Revenue | | :--- | :--- | | 2022 | 70% | | 2021 | 68% | - Operations in Mexico accounted for 47% of consolidated net revenues in both 2022 ($51.2 million) and 2021 ($45.4 million)[46] Risk Factors The company faces risks from customer concentration, cyclical industries, fixed-price contracts, supply chain, and cybersecurity - The company reported a net loss of $2.5 million in 2022 and needs to increase revenues to achieve and maintain profitability[71] - High customer concentration risk: The top five customers accounted for 70% of 2022 net revenue, where the loss of any would have a material adverse impact[73] - The aerospace and defense business, representing approximately 28% of 2022 net revenue, is subject to risks from congressional budgetary constraints and shifts in defense spending priorities[80][81] - The company is experiencing inflationary pressures on operating costs, including labor, raw materials, and transportation, which may not be fully offset by price increases[85] - As a U.S. defense subcontractor, the company faces significant cyber security threats, including ransomware attacks, which could disrupt operations and lead to misuse of sensitive information[95][96] Unresolved Staff Comments The company reports no unresolved staff comments - None[124] Properties Principal manufacturing facilities are in Kentucky, Florida, and Mexico, holding key industry certifications Principal Facilities | Location | Segment | Ownership | Approx. Sq. Feet | | :--- | :--- | :--- | :--- | | Louisville, KY | Sypris Technologies | Own | 57,000 | | Tampa, FL | Sypris Electronics | Lease (2027) | 50,000 | | Toluca, Mexico | Sypris Technologies | Lease (2026) | 215,000 | | Louisville, KY | Corporate Office | Lease (2024) | 13,800 | Legal Proceedings The company is involved in ordinary course legal proceedings, with no material adverse effect expected - The company is involved in litigation arising in the normal course of business, but management does not anticipate a material adverse effect from these matters[131] Mine Safety Disclosures This item is not applicable to the company - Not applicable[132] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Common stock trades on Nasdaq under SYPR; no cash dividends were paid in 2022 or 2021 - Common stock is traded on the Nasdaq Global Market under the symbol "SYPR"[136] - No cash dividends were paid in 2022 or 2021, and none are anticipated in 2023[136] Management's Discussion and Analysis of Financial Condition and Results of Operations Net revenue increased 13.0% to $110.1 million in 2022, resulting in a net loss, but cash improved Consolidated Results of Operations (2022 vs. 2021, in thousands) | Metric | 2022 (in thousands) | 2021 (in thousands) | % Change | | :--- | :--- | :--- | :--- | | Total Net Revenue | $110,121 | $97,434 | 13.0% | | Total Gross Profit | $14,853 | $14,506 | 2.4% | | Operating Income | $364 | $1,910 | -80.9% | | Net (Loss) Income | $(2,494) | $2,923 | NM | - Sypris Technologies' revenue increased 12.2% to $69.3 million, partly due to $4.1 million in contractual steel price pass-throughs and higher shipment volumes[170] - Sypris Electronics' revenue grew 14.5% to $40.9 million, driven by the ramp-up of two follow-on programs, though results were impacted by material availability issues[171] - The 2021 net income included a $3.6 million gain from the forgiveness of a PPP Loan and related interest, which was not present in 2022[176] - Cash and cash equivalents increased to $21.6 million at year-end 2022 from $11.6 million in 2021, with net cash from operating activities at $13.8 million primarily from customer prepayments funding inventory growth[180][184] Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, Sypris Solutions, Inc. is not required to provide market risk disclosures - The company is not required to provide these disclosures as it qualifies as a smaller reporting company[188] Financial Statements and Supplementary Data Audited financial statements with an unqualified auditor's opinion are presented, noting revenue recognition as a critical audit matter - The independent auditor, Crowe LLP, issued an unqualified opinion on the financial statements[193] - The auditor identified "Net revenue and gross profit recognized over time" for aerospace and defense contracts as a critical audit matter due to significant judgment in estimating percentage of completion[197][198] Key Financial Highlights (in thousands) | Metric | 2022 | 2021 | | :--- | :--- | :--- | | Operations | | | | Net Revenue | $110,121 | $97,434 | | Gross Profit | $14,853 | $14,506 | | Net (Loss) Income | $(2,494) | $2,923 | | Financial Position | | | | Total Assets | $104,144 | $79,505 | | Total Liabilities | $84,569 | $60,219 | | Cash & Equivalents | $21,648 | $11,620 | - As of December 31, 2022, the company had $97.1 million in remaining performance obligations for long-term Sypris Electronics contracts, with 57% expected to be recognized as revenue in 2023[251] Changes in and Disagreements With Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[325] Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of December 31, 2022[326] - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2022, based on the criteria set forth by COSO[330] Other Information The company reports no other information - None[332] Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to the company - Not applicable[333] Part III Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference - Information is incorporated by reference from the company's Proxy Statement[336] Executive Compensation Information on executive and director compensation is incorporated by reference from the Proxy Statement - Information is incorporated by reference from the company's Proxy Statement[338] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information on security ownership by beneficial owners and management is incorporated by reference - Information regarding security ownership is incorporated by reference from the company's Proxy Statement[339] Equity Compensation Plan Information (as of Dec 31, 2022) | Plan Category | Securities to be Issued Upon Exercise | Weighted Avg. Exercise Price | Securities Remaining for Future Issuance | | :--- | :--- | :--- | :--- | | Approved by Stockholders | 2,031,850 | $1.31 | 2,895,771 | Certain Relationships and Related Transactions, and Director Independence Information on related party transactions and director independence is incorporated by reference - Information is incorporated by reference from the company's Proxy Statement[343] Principal Accounting Fees and Services Information on principal accounting fees and services is incorporated by reference from the Proxy Statement - Information is incorporated by reference from the company's Proxy Statement[344] Part IV Exhibits and Financial Statement Schedules This section lists financial statements from Item 8 and all exhibits filed with the Form 10-K - This section contains the financial statements from Item 8 and a list of exhibits filed with the report[346] Form 10-K Summary The company did not provide a Form 10-K summary - None provided[353]