# Sypris Solutions Inc: Form 10-Q for the period ended Jun 30, 2024

- Company: [Sypris Solutions Inc](/companies/sypr.md) (CIK 864240)
- Form: 10-Q
- Filed: 2024-08-13
- Accepted by EDGAR: Aug 13, 2024, 11:24 ET
- Period: 2024-06-30
- Accession: 0001437749-24-026231
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/864240/000143774924026231/sypr20240630_10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/864240/000143774924026231/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-06-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2024-04-01 to 2024-06-30 | $35.5m | us-gaap:RevenueFromContractWithCustomerIncludingAssessedTax |
| Revenue | 6 months, 2024-01-01 to 2024-06-30 | $71.1m | us-gaap:RevenueFromContractWithCustomerIncludingAssessedTax |
| Cost of revenue | 3 months, 2024-04-01 to 2024-06-30 | $29.9m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 6 months, 2024-01-01 to 2024-06-30 | $62.5m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2024-04-01 to 2024-06-30 | $5.6m | us-gaap:GrossProfit |
| Gross profit | 6 months, 2024-01-01 to 2024-06-30 | $8.5m | us-gaap:GrossProfit |
| Selling, general and administrative | 3 months, 2024-04-01 to 2024-06-30 | $4.4m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 6 months, 2024-01-01 to 2024-06-30 | $8.6m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2024-04-01 to 2024-06-30 | $1.3m | us-gaap:OperatingIncomeLoss |
| Operating income | 6 months, 2024-01-01 to 2024-06-30 | −$101.0k | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2024-04-01 to 2024-06-30 | $604.0k | us-gaap:InterestExpense |
| Interest expense | 6 months, 2024-01-01 to 2024-06-30 | $922.0k | us-gaap:InterestExpense |
| Income tax | 3 months, 2024-04-01 to 2024-06-30 | $459.0k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 6 months, 2024-01-01 to 2024-06-30 | $647.0k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2024-04-01 to 2024-06-30 | $16.0k | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2024-01-01 to 2024-06-30 | −$2.2m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-04-01 to 2024-06-30 | $0.00 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 6 months, 2024-01-01 to 2024-06-30 | −$0.10 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-04-01 to 2024-06-30 | $0.00 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 6 months, 2024-01-01 to 2024-06-30 | −$0.10 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-04-01 to 2024-06-30 | 22,288,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 6 months, 2024-01-01 to 2024-06-30 | 21,973,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 6 months, 2024-01-01 to 2024-06-30 | $4.5m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 6 months, 2024-01-01 to 2024-06-30 | $508.0k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Current assets | at 2024-06-30 | $100.3m | us-gaap:AssetsCurrent |
| Total assets | at 2024-06-30 | $124.2m | us-gaap:Assets |
| Current liabilities | at 2024-06-30 | $78.6m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2024-06-30 | $105.2m | us-gaap:Liabilities |
| Shareholders' equity | at 2024-06-30 | $19.0m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 33,144 characters.

### Overview

We are a diversified provider of truck components, oil and gas pipeline components and aerospace and defense electronics. We offer a wide range of manufactured products, often under multi-year sole-source contracts.

We are organized into two business segments, Sypris Technologies and Sypris Electronics. Sypris Technologies, which is comprised 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 comprised 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.

We focus on those markets where we believe we have the expertise, qualifications and leadership position to sustain a competitive advantage. We target our 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. These contracts, many of which are sole-source by part number, have historically created opportunities to invest in leading-edge processes or technologies to help our customers remain competitive. The productivity and innovation that can result from such investments helps to differentiate us from our competition when it comes to cost, quality, reliability and customer service.

#### Economic Conditions

Our operations are impacted by global economic conditions, including inflationary increases of certain raw materials, as well as logistics, transportation, utilities and labor costs, supply chain constraints and increased interest rates. While we have taken pricing actions and implemented transformation initiatives that we expect to improve productivity and offset these cost increases, we expect supply chain pressures and inflationary cost increases to continue throughout 2024, which may continue thereafter and could negatively impact our results of operations.

#### Sypris Technologies Outlook

Conditions have remained relatively stable for the North American Class 4-8 commercial vehicle market in addition to the automotive, sport utility vehicle and off-highway markets also served by Sypris Technologies. During 2023, production of Class 8 trucks in North America increased 8% over 2022. The outlook for 2024 is for a 9% reduction in Class 8 production, with a significant decrease starting in the third quarter of 2024. We believe that the market diversification Sypris Technologies has accomplished over recent years by adding new programs in the automotive, sport-utility and off-highway markets has benefited and will continue to benefit the Company as the demand cycles for our products in these markets differs from than the Class 8 commercial vehicle market, thereby reducing volatility in our revenue profile.

The oil and gas markets served by our Tube Turns® brand of engineered products continues to be shaped largely by geopolitical factors, macroeconomic variables such as high interest rates and rising material costs, evolving policies and regulations and the emergence of new technologies. Sales in this market are dependent on, among other things, the level of worldwide oil and natural gas demand, the price of crude oil and natural gas and capital spending by exploration and production companies and drilling contractors. As production activity increased in 2023, particularly in liquefied natural gas shipments to Europe, customer demand in this market increased and is anticipated to increase marginally in 2024. However, the conflicts in the Middle East, the war between Russia and Ukraine and inflationary pressures have also led to disruption, instability and volatility in global markets and industries that could negatively impact our operations.

We will continue to pursue new business in a wide variety of markets from light automotive to new pressure vessel and pipeline applications to achieve a more balanced portfolio across our customers, markets and products.

#### Sypris Electronics Outlook

Supply chain challenges and delays continued to impact business in the prior year. The majority of the government aerospace and defense programs that we support require certain specific components that are sole-sourced to specific suppliers; therefore, the resolution of supplier constraints requires coordination with our customers or the end-users of the products. We have partnered with our customers to qualify alternative components or suppliers and will continue to focus on our supply chain to attempt to mitigate the impact of component supply shortages on our business. Electronic component shortages may continue to be a challenge during 2024. We may not be successful in addressing these shortages and other supply chain issues.

During 2023, we announced new program awards and releases for Sypris Electronics, with certain programs continuing into 2025. In addition to contract awards from Department of Defense (“DoD”) prime contractors related to weapons systems, electronic warfare and infrared countermeasures in our traditional aerospace and defense markets, we have also been awarded subcontracts for manufacturing services to the communication and navigation markets, which require our advanced capabilities for delivering products for complex, high cost of failure platforms.

On March 22, 2024, President Biden signed the second Fiscal Year (“FY”) 2024 Consolidated Appropriations package into law, which includes the DoD. This legislation reflects the Fiscal Responsibility Act (“FRA”) spending limit of $886 billion for national defense, of which $842 billion was for the DoD base budget.

The President’s FY 2025 budget request was submitted to Congress on March 11, 2024, initiating the FY 2025 defense authorization and appropriations legislative process. The request included $895 billion for national defense, of which $850 billion is for the DoD base budget, in keeping with the limit established by the FRA. While compression on overall requirements driven by the FRA limit is evident, the Office of the Secretary of Defense has stated the FY 2025 budget proposal meets their objectives of keeping National Defense Strategy priorities on track.

The House and Senate continue the legislative process on the FY 2025 budget. On May 22, 2024, the House Armed Services Committee (HASC) approved its version of the FY25 National Defense Authorization Act. The bill authorizes $849.8 billion in funding for the DoD, which is consistent with the President’s FY25 budget request. On June 28, 2024, the FY 2025 DoD Appropriations bill H.R. 8774 passed the House. This House bill supports additional funding above the President’s FY25 budget request. On July 8, 2024, the Senate Armed Service Committee (SASC) filed their version of the FY25 National Defense Authorization Act at a level $25 billion above the cap set by the FRA.

In the coming months, Congress will need to approve or revise the President’s FY 2025 budget proposal through enactment of appropriations bills and other policy legislation, which would then require final approval from the President in order for the FY 2025 budget to become law and complete the budget process.

Overall congressional sentiment remains strong for supporting the DoD’s National Defense Strategy and defense spending. However, we anticipate that the federal budget will continue to be subject to debate and compromise shaped by, among other things, heightened political tensions including the 2024 elections, the global security environment, inflationary pressures and macroeconomic conditions. The result may be shifting funding priorities, which could have material impacts on defense spending broadly, and the effect on individual programs or our results cannot be predicted at this time.

We expect to compete for follow-on business opportunities as a subcontractor on future builds of several existing government programs. However, the federal budget and debt ceiling are expected to continue to be the subject of considerable uncertainty and the impact on demand for our products and services and our business are difficult to predict.

See also the discussion of Congressional budgetary constraints or reallocations risks within “Item 1A, Risk Factors” included in our 2023 Form 10-K.

### Results of Operations

The tables below compare our segment and consolidated results for the three and six month periods of operations of 2024 to the three and six month periods of operations of 2023. The tables present the results for each period, the change in those results from 2023 to 2024 in both dollars and percentages and the results for each period as a percentage of net revenue.

- The first two columns in each table show the absolute results for each period presented.
- The columns entitled “Year Over Year Change” and “Year Over Year Percentage Change” show the change in results, both in dollars and percentages. These two columns show favorable changes as positive and unfavorable changes as negative. For example, when our net revenue increases from one period to the next, that change is shown as a positive number in both columns. Conversely, when expenses increase from one period to the next, that change is shown as a negative number in both columns.
- The last two columns in each table show the results for each period as a percentage of net revenue. In these two columns, the cost of sales and gross profit for each are given as a percentage of that segment’s net revenue. These amounts are shown in italics.

In addition, as used in the table, “NM” means “not meaningful.”

### Three Months Ended June 30, 2024 Compared to Three Months Ended July 2, 2023

*(in thousands, except percentage data)*

| Net revenue: | Three Months Ended, June 30, 2024 | July 2, 2023 | Year Over Year Change Favorable (Unfavorable) | Year Over Year Percentage Change Favorable (Unfavorable) | Results as Percentage of Net Revenue for the Three Months Ended June 30, 2024 | July 2, 2023 |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Sypris Technologies | $17,841 | $20,058 | $(2,217) | (11.1)% | 50.2% | 56.3% |
| Sypris Electronics | 17,680 | 15,557 | 2,123 | 13.6 | 49.8 | 43.7 |
| Total | 35,521 | 35,615 | (94) | (0.3) | 100.0 | 100.0 |
| Cost of sales: |  |  |  |  |  |  |
| Sypris Technologies | 15,122 | 18,051 | 2,929 | 16.2 | 84.8 | 90.0 |
| Sypris Electronics | 14,758 | 12,894 | (1,864) | (14.5) | 83.5 | 82.9 |
| Total | 29,880 | 30,945 | 1,065 | 3.4 | 84.1 | 86.9 |
| Gross profit: |  |  |  |  |  |  |
| Sypris Technologies | 2,719 | 2,007 | 712 | 35.5 | 15.2 | 10.0 |
| Sypris Electronics | 2,922 | 2,663 | 259 | 9.7 | 16.5 | 17.1 |
| Total | 5,641 | 4,670 | 971 | 20.8 | 15.9 | 13.1 |
| Selling, general and administrative | 4,368 | 3,704 | (664) | (17.9) | 12.3 | 10.4 |
| Operating income | 1,273 | 966 | 307 | 31.8 | 3.6 | 2.7 |
| Interest expense, net | 604 | 178 | (426) | (239.3) | 1.7 | 0.5 |
| Other expense, net | 194 | 513 | 319 | 62.2 | 0.6 | 1.4 |
| Income before taxes | 475 | 275 | 200 | 72.7 | 1.3 | 0.8 |
| Income tax expense, net | 459 | 62 | (397) | (640.3) | 1.3 | 0.2 |
| Net income | $16 | $213 | $(197) | (92.5) | 0.0% | 0.6% |

20

### Six Months Ended June 30, 2024 Compared to Six Months Ended July 2, 2023.

*(in thousands, except percentage data)*

| Net revenue: | Six Months Ended, June 30, 2024 | July 2, 2023 | Year Over Year Change Favorable (Unfavorable) | Year Over Year Percentage Change Favorable (Unfavorable) | Results as Percentage of Net Revenue for the Six Months Ended June 30, 2024 | July 2, 2023 |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Sypris Technologies | $36,191 | $39,558 | $(3,367) | (8.5)% | 50.9% | 58.3% |
| Sypris Electronics | 34,883 | 28,349 | 6,534 | 23.0 | 49.1 | 41.7 |
| Total | 71,074 | 67,907 | 3,167 | 4.7 | 100.0 | 100.0 |
| Cost of sales: |  |  |  |  |  |  |
| Sypris Technologies | 31,421 | 34,912 | 3,491 | 10.0 | 86.8 | 88.3 |
| Sypris Electronics | 31,128 | 24,164 | (6,964) | (28.8) | 89.2 | 85.2 |
| Total | 62,549 | 59,076 | (3,473) | (5.9) | 88.0 | 87.0 |
| Gross profit: |  |  |  |  |  |  |
| Sypris Technologies | 4,770 | 4,646 | 124 | 2.7 | 13.2 | 11.7 |
| Sypris Electronics | 3,755 | 4,185 | (430) | (10.3) | 10.8 | 14.8 |
| Total | 8,525 | 8,831 | (306) | (3.5) | 12.0 | 13.0 |
| Selling, general and administrative | 8,626 | 7,449 | (1,177) | (15.8) | 12.1 | 11.0 |
| Operating (loss) income | (101) | 1,382 | (1,483) | NM | (0.1) | 2.0 |
| Interest expense, net | 922 | 404 | (518) | (128.2) | 1.3 | 0.6 |
| Other expense, net | 535 | 584 | 49 | 8.4 | 0.8 | 0.9 |
| (Loss) income before taxes | (1,558) | 394 | (1,952) | NM | (2.2) | 0.6 |
| Income tax expense, net | 647 | 356 | (291) | (81.7) | 0.9 | 0.5 |
| Net (loss) income | $(2,205) | $38 | $(2,243) | NM | (3.1)% | 0.1% |

*Net Revenue*. Sypris Technologies derives its revenue from the sale of forged and finished steel components and subassemblies and high-pressure closures and other fabricated products. Net revenue for Sypris Technologies for the three and six month periods ended June 30, 2024 decreased $2.2 million and $3.4 million, respectively, from the prior year comparable periods. The net revenue decrease for the quarter and six month periods was primarily attributable to decreased sales volumes of $0.4 million and $1.1 million, respectively in energy product sales and $1.8 million and $2.3 million, respectively, attributable to the commercial vehicle market.

Sypris Electronics derives its revenue primarily from circuit card and full “box build” manufacturing, high reliability manufacturing and systems assembly and integration. Net revenue for Sypris Electronics increased $2.1 million and $6.5 million, respectively, for the three and six months ended June 30, 2024, from the prior year comparable periods. The increase in revenue for the three and six months ended June 30, 2024 was primarily attributable to the ramping of production during the periods for two follow-on programs.

*Gross Profit.* Sypris Technologies’ gross profit increased $0.7 million and $0.1 million for the three and six months ended June 30, 2024, respectively, from the prior year comparable periods due to improved mix and higher absorption.

Sypris Electronics’ gross profit increased $0.3 million and decreased $0.4 million for the three and six months ended June 30, 2024, respectively, from the prior year comparable periods. The increase in gross profit for the three months ended June 30, 2024 was primarily a result of the increase in revenue, which also had a positive impact on overhead absorption. The decrease in gross profit for the six months ended June 30, 2024 was primarily a result of an unfavorable mix of programs and a high amount of scrap incurred on two programs that ramped during the period. The order backlog for Sypris Electronics is expected to support a stable revenue rate during the balance of 2024. Gross margin for the three and six months ended June 30, 2024 was 16.5% and 10.8%, respectively, as compared to 17.1% and 14.8%, respectively, for the three and six months ended July 2, 2023.

*Selling, General and Administrative.* Selling, general and administrative increased $0.7 million and $1.2 million for the three and six months ended June 30, 2024, respectively, as compared to the prior year comparable periods. The increase for the three and six month periods was primarily as a result of unfavorable medical claims and additional headcount. Selling, general and administrative expense increased as a percentage of revenue to 12.3% and 12.1% for the three and six months ended June 30, 2024, respectively, from 10.4% and 11.0%, respectively, for the three and six months ended July 2, 2023.

*Income Taxes.* The Company’s income tax expense for the three and six months ended June 30, 2024 and July 2, 2023 consists primarily of foreign income taxes on its Mexican subsidiaries. Additionally, a deferred tax adjustment was recorded in 2024 related to the fixed asset valuation utilized by the Company’s foreign operation which increased the effective tax rate. Furthermore, the Company’s income tax expense for the three and six months ended June 30, 2024 includes an expense of $0.1 million to settle with Mexico’s Federal Tax Administration Service, Servicio de Administracion Tributaria’s for the 2016 tax audit (See Note 13 to the consolidated financial statements in this Quarterly Report on Form 10-Q).

Deferred tax assets and liabilities are determined separately for each tax jurisdiction in which we conduct our operations or otherwise incur taxable income or losses. The Company evaluates its deferred tax position on a quarterly basis and valuation allowances are provided as necessary. During this evaluation, the Company reviews its forecast of income in conjunction with other positive and negative evidence surrounding the realizability of its deferred tax assets to determine if a valuation allowance is needed. Based on its current forecast, the Company has established a valuation allowance against all U.S. deferred tax assets. Until an appropriate level and characterization of profitability is attained, the Company expects to continue to maintain a valuation allowance on its net deferred tax assets related to future U.S. tax benefits. If we determine that we would be able to realize our deferred tax assets in the future in excess of the net recorded amount, an adjustment to reduce the valuation allowance would increase net income in the period that such determination is made.

### Liquidity, Capital Resources

As reflected in the consolidated financial statements, the Company has an accumulated deficit as of June 30, 2024, as well as a net loss for the six months ended June 30, 2024 and negative cash flow from operating activities for the year ended December 31, 2023. A portion of the negative cash flow for the year ended December 31, 2023, was driven by a significant investment in inventory by our Sypris Electronics segment and a delay in timing of certain programs within this segment. The Company’s net inventory increased from $42.1 million to $77.3 million as of December 31, 2022 and 2023, respectively, primarily related to contracts with Sypris Electronics’ aerospace and defense customers. Shipments to customers on certain of these contracts were delayed beyond the initial delivery dates, which negatively impacted the cycle time to convert inventory to cash during the year ended December 31, 2023. As a result, the Company experienced a liquidity shortfall in the fourth quarter of 2023 and the first quarter of 2024. The shipment delays also contributed to an increase in trade payable balances with certain suppliers. The Company has entered into negotiations with these suppliers to amend payment and other terms. The Company received the benefit of additional loans totaling $5.0 million from Gill Family Capital Management, Inc. (“GFCM”) to help the Company manage its liquidity during those periods. This additional $5.0 million loaned to the Company by GFCM in the fourth quarter of 2023 and the first quarter of 2024 was approved by the Audit Committee and provided the Company necessary liquidity.

Our ability to service our current liabilities will require a significant amount of cash. Management has evaluated our ability to generate this cash to meet our obligations for the next twelve months. Our primary sources of funds to meet our liquidity and capital requirements include cash on hand, funds generated through continued revenue growth from the Company’s consolidated operations and reductions in the Company’s investment in working capital. Based upon our current forecast, we believe that we will have sufficient liquidity to finance our operations for the next twelve months.

Although we believe the assumptions underlying our current forecast are reasonable, management is also prepared to implement contingency plans that include other cost reduction initiatives to improve profitability and cash flow, or management can take additional steps such as adjusting the timing and amount of certain operating expenses as well as capital expenditures or the issuance of new debt. If we are unable to achieve our forecasted revenue, or if our costs are higher than expected, we may be required to revise our plans to provide for additional cost-cutting measures, seek additional financing or to consider other strategic alternatives.

*Cash Balance.* As of June 30, 2024, we had approximately $13.8 million of cash and cash equivalents, of which $3.3 million was held in jurisdictions outside of the U.S. that, if repatriated, could result in withholding taxes.

We expect existing cash and cash flows from operations to continue to be sufficient to fund our operating activities and cash commitments for investing and financing activities, such as capital expenditures, for at least the next twelve months. Significant changes from our current forecasts, including, but not limited to: (i) meaningful shortfalls in our projected revenues, (ii) unexpected costs or expenses, and/or (iii) operating difficulties which cause unexpected delays in scheduled shipments, could require us to seek additional funding or force us to make further reductions in spending, extend payment terms with suppliers, liquidate assets where possible and/or suspend or curtail planned programs. Any of these actions could materially harm our business, results of operations and future prospects. Additional financing may not be available to us.

### Material Cash Requirements

*Gill Family Capital Management Note.*

The Company has received the benefit of cash infusions from GFCM in the form of secured promissory note obligations totaling $9.0 million in principal as of June 30, 2024 and $6.5 million as of December 31, 2023 (the “Note”). GFCM is an entity controlled by the Company’s Chairman, President and Chief Executive Officer, Jeffrey T. Gill and one of our directors, R. Scott Gill. GFCM, Jeffrey T. Gill and R. Scott Gill are significant beneficial stockholders of the Company.

As of June 30, 2024, our principal commitment under the Note was $2.0 million due on April 1, 2025, $2.0 million on April 1, 2026 and the balance of $5.0 million due on April 1, 2027. Interest on the Note is reset on April 1 of each year, at the greater of 8.0% or 500 basis points above the five-year Treasury note average during the preceding 90-day period, in each case, payable quarterly. The Note allows for a deferral of payment for up to 60% of the interest due on the Note to April 1, 2025.

During the first quarter of 2024, the Company amended the Note to increase the principal amount due on April 1, 2027 by $2.5 million. The amendment increased the aggregate amount previously loaned by GFCM to the Company from $6.5 million to $9.0 million. This additional amount loaned to the Company in the first quarter of 2024 was approved by the Audit Committee and provided the Company necessary liquidity.

*Finance Lease Obligations.* As of June 30, 2024, the Company had $2.9 million outstanding under finance lease obligations for both property and machinery and equipment at its Sypris Technologies locations with maturities through 2028 and a weighted average interest rate of 8.8%.

*Equipment Financing Obligations.* As of June 30, 2024, the Company had $1.6 million outstanding under equipment financing facilities, with payments due through 2028, and a weighted average interest rate of 6.8%.

*Purchase Commitments.* We had purchase commitments totaling approximately $38.1 million at June 30, 2024, primarily for inventory and manufacturing equipment, which are due through 2026.

### Cash Flows

*Operating Activities.* Net cash provided by operating activities was $4.5 million in the first six months of 2023 as compared to $3.7 million in the same period of 2023. The aggregate increase in accounts receivable in 2024 resulted in a usage of cash of $2.7 million primarily as a result of an increase in revenue for Sypris Electronics over the prior year comparable period and the timing of receipts for Sypris Technologies. The decrease in inventory in 2024 resulted in a source of cash of $11.6 million. The decrease in inventory was primarily as a result of the ramp up of shipments within Sypris Electronics. A significant portion of the inventory had been purchased in previous periods and was funded through prepayments from customers, which were recorded as contract liabilities. As shipments have increased with Sypris Electronics during the period, these contract liabilities have also decreased, which is the primary component of the $0.7 million change in accrued and other liabilities during the first six months of 2024. Accounts payable decreased during the first six months of 2024, resulting in a use of cash of $4.1 million. Prepaid expenses and other current assets increased during the first six months of 2024, resulting in a cash use of $0.7 million primarily as a result of increased VAT taxes refundable in Mexico.

*Investing Activities.* Net cash used in investing activities was comprised of capital expenditures of $0.5 million for the first six months of 2024 as compared to $1.5 million for the first six months of 2023.

*Financing Activities.* Net cash provided by financing activities was $2.0 million for the first six months of 2024 and was comprised of proceeds from the Note of $2.5 million and proceeds from an equipment financing obligation of $0.4 million, partially offset by payments on finance leases and equipment financing obligation of $1.0 million. Net cash used in financing activities was $3.2 million for the first six months of 2023 and included principal payments of $2.5 million on the Note, principal payments on finance leases and equipment financing obligation of $0.6 million and payments of $0.1 million for minimum statutory tax withholdings on stock-based compensation.

### Critical Accounting Policies

See the information concerning our critical accounting policies included under Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operation - Critical Accounting Policies and Estimates” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023. There have been no significant changes in our critical accounting policies during the six months ended June 30, 2024.

### Forward-looking Statements

This Quarterly Report on Form 10-Q, and our other oral or written communications, may contain “forward-looking” statements. These statements may include our expectations or projections about the future of our business, industries, business strategies, prospects, potential acquisitions, liquidity, financial condition or financial results and our views about developments beyond our control, including domestic or global economic conditions, such as inflation, supply chain conditions, government spending, industry trends and market developments. These statements are based on management’s views and assumptions at the time originally made, and, except as required by law, we undertake no obligation to update these statements, even if, for example, they remain available on our website after those views and assumptions have changed. There can be no assurance that our expectations, projections or views will come to pass, and undue reliance should not be placed on these forward-looking statements.

A number of significant factors could materially affect our specific business operations and cause our performance to differ materially from any future results projected or implied by our prior statements. Many of these factors are identified in connection with the more specific descriptions contained throughout this report. Other factors which could also materially affect such future results currently include: the fees, costs and supply of, or access to, debt, equity capital, or other sources of liquidity; our failure to achieve and maintain profitability on a timely basis by steadily increasing our revenues from profitable contracts with a diversified group of customers, which would cause us to continue to use existing cash resources or require us to sell assets to fund operating losses; dependence on, retention or recruitment of key employees and highly skilled personnel and distribution of our human capital; the cost and availability of full-time accounting personnel with technical accounting knowledge to execute, review and approve all aspects of the financial statement close and reporting process; volatility of our customers’ forecasts and our contractual obligations to meet current scheduling demands and production levels, which may negatively impact our operational capacity and our effectiveness to integrate new customers or suppliers, and in turn cause increases in our inventory and working capital levels; risks of foreign operations, including foreign currency exchange rate risk exposure, which could impact our operating results; cost, quality and availability or lead times of raw materials such as steel, component parts (especially electronic components), natural gas or utilities including increased cost relating to inflation; the cost, quality, timeliness, efficiency and yield of our operations and capital investments, including the impact of inflation, tariffs, product recalls or related liabilities, employee training, working capital, production schedules, cycle times, scrap rates, injuries, wages, overtime costs, freight or expediting costs; the termination or non-renewal of existing contracts by customers; our failure to successfully complete final contract negotiations with regard to our announced contract “orders”, “wins” or “awards”; significant delays or reductions due to a prolonged continuing resolution or U.S. government shutdown reducing the spending on products and services that Sypris Electronics provides; adverse impacts of new technologies or other competitive pressures which increase our costs or erode our margins; the costs and supply of insurance on acceptable terms and with adequate coverage; breakdowns, relocations or major repairs of machinery and equipment, especially in our Toluca Plant; the costs of compliance with our auditing, regulatory or contractual obligations; pension valuation, health care or other benefit costs; our reliance on revenues from customers in the oil and gas and automotive markets, with increasing consumer pressure for reductions in environmental impacts attributed to greenhouse gas emissions and increased vehicle fuel economy; our failure to successfully win new business or develop new or improved products or new markets for our products; war, geopolitical conflict, terrorism, or political uncertainty, or disruptions resulting from the Russia-Ukraine war or the Israel and Gaza conflict, including arising out of international sanctions, foreign currency fluctuations and other economic impacts; our reliance on a few key customers, third party vendors and sub-suppliers; inventory valuation risks including excessive or obsolescent valuations or price erosions of raw materials or component parts on hand or other potential impairments, non-recoverability or write-offs of assets or deferred costs; disputes or litigation involving governmental, supplier, customer, employee, creditor, stockholder, product liability, warranty or environmental claims; failure to adequately insure or to identify product liability, environmental or other insurable risks; unanticipated or uninsured product liability claims, disasters, public health crises, losses or business risks; labor relations; strikes; union negotiations; costs associated with environmental claims relating to properties previously owned; our inability to patent or otherwise protect our inventions or other intellectual property rights from potential competitors or fully exploit such rights which could materially affect our ability to compete in our chosen markets; changes in licenses, security clearances, or other legal rights to operate, manage our work force or import and export as needed; cyber security threats and disruptions, including ransomware attacks on our systems and the systems of third-party vendors and other parties with which we conduct business, all of which may become more pronounced in the event of geopolitical conflicts and other uncertainties, such as the conflict in Ukraine; our ability to maintain compliance with the Nasdaq listing standards minimum closing bid price; risks related to owning our common stock, including increased volatility; possible public policy response to a public health emergency, including U. S or foreign government legislation or restrictions that may impact our operations or supply chain; or unknown risks and uncertainties and the risk factors disclosed in Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.

## Market risk

As filed, 221 characters.

We are a smaller reporting company as defined in Item 10(f)(1) of Regulation S-K and thus are not required to provide the quantitative and qualitative disclosures about market risk specified in Item 305 of Regulation S-K.

## Controls and procedures

As filed, 740 characters.

(a) *Evaluation of disclosure controls and procedures.* Based on the evaluation of our disclosure controls and procedures (as defined in Securities Exchange Act of 1934 Rules 13a-15(e) or 15d-15(e)) required by Securities Exchange Act Rules 13a-15(b) or 15d-15(b), our Chief Executive Officer and our Principal Financial Officer have concluded that as of the end of the period covered by this report, our disclosure controls and procedures were effective.

(b) *Changes in internal controls*. There were no changes in our internal control over financial reporting that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 468 characters.

Information regarding risk factors appears in Part I — Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Forward-Looking Statements,” in this Quarterly Report on Form 10-Q, and in Part I — Item 1A, “Risk Factors,” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023. There have been no material changes during the fiscal quarter from the risk factors disclosed in our Annual Report on Form 10-K.

Filed Aug 13, 2024.
Source: SEC EDGAR, the filing index for accession 0001437749-24-026231. Last ingested by Listed: Oct 24, 2026, 14:58 ET. No prices; not investment advice.