Sypris Solutions Stock

Sypris Solutions, Inc. provides 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.

The company focuses on those markets where the company has the expertise, qualifications and leadership position to sustain a competitive advantage. The company targets its resources to support the needs of industry participants that embrace technological innovation and flexibility, coupled with multi-year contractual relationships, as a strategic component of their supply chain management.

The company’s manufacturing processes frequently involve the fabrication or assembly of a product or subassembly according to specifications provided by the company’s customers. The company strives to enhance its manufacturing capabilities by advanced quality and manufacturing techniques, lean manufacturing, just-in-time procurement and continuous flow manufacturing, six sigma, total quality management, stringent and real-time engineering change control routines and total cycle time reduction techniques. At the same time, the company is working to develop new designs and product innovations by re-engineering traditional solutions to eliminate cost without reducing durability or quality.

Segments

The company operates through two business segments, Sypris Technologies and Sypris Electronics.

Sypris Technologies, which is consisted of Sypris Technologies, Inc. and its subsidiaries, generates revenue primarily from the sale of forged, machined, welded and heat-treated steel components primarily for the heavy commercial vehicle and high-pressure energy pipeline applications.

Sypris Electronics, which is consisted of Sypris Electronics, LLC, generates revenue primarily through circuit card and full ‘box build’ manufacturing, high reliability manufacturing, systems assembly and integration, design for manufacturability and design to specification work.

Sypris Technologies

Through Sypris Technologies, the company is a significant supplier of forged and machined components, serving the commercial vehicle, off highway vehicle, recreational vehicle, automotive, industrial and energy markets in North America. The company has the capacity to produce drive train components, including axle shafts, transmission shafts, gear sets, steer axle knuckles, and other components for ultimate use by the leading automotive, truck and recreational vehicle manufacturers, including General Motors Company (GM), Freightliner LLC (Freightliner), Mack Truck (Mack), Navistar International Corporation (Navistar), PACCAR, Inc. (PACCAR), Volvo Truck Corporation (Volvo), and Bombradier Recreational Products (BRP). The company supports its customers’ strategies to outsource non-core operations by supplying additional components and providing additional value added operations for drive train assemblies. The company also manufactures high-pressure closures and other fabricated products for oil and gas pipelines.

The company’s manufacturing contracts for the truck components and assemblies markets are often sole-source by part number. Part numbers may be specified for inclusion in a single model or a range of models. Where the company is the sole-source provider by part number, the company is generally the exclusive provider to the company’s customer of those specific parts for the duration of the manufacturing contract.

Sypris Technologies also manufactures energy-related products, such as pressurized closures, insulated joints and other specialty products, primarily for oil and gas pipelines and related energy markets. These products are an important source of diversified revenues, which has become an area of greater focus for the company. The company is committed to exploring new product developments and potential new markets for the company’s energy-related products, which will also be an increasing area of focus for the company going forward.

Sypris Electronics

Sypris Electronics generates revenue primarily through circuit card and full box build manufacturing, high reliability manufacturing, systems assembly and integration, design for manufacturability and design to specification, for customers in the aerospace and defense electronics markets. This includes circuit card assemblies for electronic sensors and systems, including radar systems, tactical ground stations, navigation systems, weapons systems, targeting and warning systems and those used in the nation’s high priority space programs.

The company provides its customers with a broad variety of value added solutions, from low-volume prototype assembly to high-volume turnkey manufacturing. The company’s manufacturing contracts for the aerospace and defense electronics market are generally sole-source by part number. The company’s customers include large aerospace and defense companies, such as Northrop Grumman Corporation (Northrop Grumman), Lockheed Martin (Lockheed), L3Harris Technologies (L3Harris), Raytheon Technologies, including Collins Aerospace Systems (Raytheon), BAE Systems (BAE) and Analog Devices, Inc. (ADI). The company serves as a subcontractor on the U.S. government programs and do not serve as a prime contractor to the U.S. government.

During 2021 and 2022, the company announced new program awards for Sypris Electronics, with certain programs continuing into 2024. In addition to contract awards from Department of Defense (‘DoD’) prime contractors related to weapons systems, electronic warfare and infrared countermeasures in the company’s traditional aerospace and defense markets, the company has also been awarded subcontracts related to the communication and navigation markets.

The majority of the government aerospace and defense programs that the company supports require specific components that are sole-sourced to specific suppliers; therefore, the resolution of supplier constraints requires coordination with the company’s customers or the end-users of the products. The company has partnered with its customers to qualify alternative components or suppliers and will continue to focus on the company’s supply chain to attempt to mitigate the impact of supply component shortages on the company’s business.

Markets

Sypris Technologies

The industrial manufacturing markets of this segment include automotive, truck and off-highway components and assemblies and specialty closures. The automotive, truck and off-highway components and assemblies market consists of the original equipment manufacturers, or OEMs, including FCA, Freightliner, GM, Mack, Navistar, PACCAR and Volvo, and an extensive supply chain of companies of all types and sizes that are classified into different levels or tiers. Tier 1 companies represent the primary suppliers to the OEMs and include Meritor, Detroit Diesel Corporation (Detroit Diesel), American Axle & Manufacturing Holdings, Inc. (America Axle) and Transmisiones y Equipos Mecanicos, S.A. de C.V. (Tremec), among others. Below this group of companies reside numerous suppliers that either supply the OEMs directly or supply the Tier I companies. The customers for the company’s specialty closure products consists primarily of operators and builders of oil and gas pipelines.

Sypris Electronics

Although the company’s programs are well aligned with national defense and other priorities, shifts in domestic and international spending and tax policy, changes in security, defense and intelligence priorities, the affordability of the company’s products, changes in or preferences for new or different technologies, general economic conditions, tariffs and other factors may affect the level of funding for existing or proposed programs.

Business Strategy

The company’s strategies are to concentrate on the company’s core markets; dedicate the company’s resources to support strategic partnerships; pursue the strategic acquisition of assets; and grow through the addition of new value-added manufacturing capabilities.

Customer Concentration

The company’s five largest customers in 2022 were Sistemas Automotrices de Mexico, S.A de C.V. (Sistemas), Detroit Diesel, Northrop Grumman, ADI and SubCom, LLC (SubCom), which in the aggregate accounted for 70% of net revenue. In 2022, Sistemas, Detroit Diesel and Northrop Grumman, represented approximately 22%, 18% and 14% of the company’s net revenue, respectively.

Sypris Electronics serves as a contractor for large aerospace and defense companies, such as Northrop Grumman, BAE Systems and Collins Aerospace, typically under federally funded programs, which represented approximately 28% of net revenue in 2022.

Geographic Areas

The company’s operations are located in the U.S. and Mexico. The company’s Mexican subsidiary is a part of Sypris Technologies and manufacture and sell a number of products similar to those Sypris Technologies produces or previously produced in the U.S.

Sales and Business Development

The company’s principal sources of new business originate from the expansion of existing relationships, referrals and direct sales through senior management, direct sales personnel, domestic and international sales representatives, distributors and market specialists. The company supplements these selling efforts with a variety of sales literature, advertising in trade media and participating in trade shows. The company also utilizes engineering specialists to facilitate the sales process by working with potential customers to reduce the cost of the products they need.

The company has signed long-term supply agreements with Detroit Diesel, Volvo, Tremec and Sistemas. The company has launched the Sypris Ultra axle shaft with Detroit Diesel and have strong interest from others within the customer base who are interested in this patented product. The company is continuing to explore other opportunities as they arise and have a significant number of outstanding quotations in progress, but there can be no assurances that the company’s efforts to develop new sources of revenues will be successful.

Competition

In the industrial manufacturing markets, the company competes primarily against other component suppliers, such as Ramkrishna Forgings Limited, Mid-West Forge, Inc., GNA Axles Limited, Brunner International, Inc., Bharat Forge, Commercial Forged Products, Spencer Forge and Machine, Inc., Traxle, SPX Flow, Inc., T.D. Williamson Inc. and National Oilwell Varco, Inc., certain of which serve as suppliers to many Tier I and smaller companies.

In the aerospace and defense electronics market, the company competes primarily against other component suppliers, such as Celestica Inc., Jabil Circuit, Inc. and Spartronics.

Government Regulation

The company must comply with detailed government procurement and contracting regulations and with the U.S. Government security regulations, certain of which carry substantial penalty provisions for nonperformance or misrepresentation in the course of negotiations.

The company is required to maintain the U.S. Government security clearances in connection with certain activities of Sypris Electronics.

Trademarks

‘Sypris Solutions’ and ‘Sypris’ are the company’s trademarks.

History

Sypris Solutions, Inc. was founded in 1997. The company, a Delaware corporation, was incorporated in 1997.