Q2 2021 Sypris Solutions Inc Earnings Call
[music].
Thank you Albert.
Good day and welcome to the Cypress 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.
Thank you Chad and good morning, everyone.
Tony Allen and I would like to working with to this call. The purpose of which is to review the Companys financial results for the second quarter of 2021.
For those of you have access to our Powerpoint presentation. This morning, please advance to slide two 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 Cypress Dot 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 three.
I will lead you through the first half of our presentation. This morning, starting with an overview of the highlights for the quarter to.
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.
Now, let's begin with the overview on slide four.
We are pleased to report that revenue increased 51% year over year and 30% sequentially. The.
The year over year improvement was driven by Cypress technologies with revenue for the period exceeding all quarterly results reported during the past five years.
On a sequential basis each of our markets contribute to the strong double digit growth of our consolidated results, thereby providing an important barometer for the future performance of our business.
Gross profit increased 103% year over year and 137% sequentially.
While gross margin expanded to 16, 6% of sales.
420 basis points year over year, and up 750 basis points sequentially with both business segments reporting margin expansion.
Earnings Rose to 17 cents per diluted share up from a loss of <unk> <unk> per share for the prior year period, reflecting the positive impact of strong revenue growth.
Spanning margins and the forgiveness of the PPP loan from the SBA during the period, which Tony will address in greater detail shortly.
Orders remained robust during the quarter with backlog up 29% year over year for Cypress electronics and up 52% year to date.
The order board from truck and all training customers for Cypress technologies continued to increase significantly while backlog from energy related customers increased 56% year over year and 32% year to date.
A combination of new contract awards continued market strength and positive outlook for the U S economy provide us with the confidence to increase our outlook for the second time in recent months.
We now believe that revenue for 2021 will increase 30% to 35% year over year.
Up from our prior forecast of 25% to 30%. This past may and have further from our original estimate of 20% that we provided in March.
Additionally, we believe that the company's financial performance will accelerate further during the second half of 2021 with.
With the resulting gross margin for the period, expanding 300 to 400 basis points when compared to the second half of 2020.
In short the second quarter of 2021 proved to be the inflection point that we have discussed in the past.
Reflecting the ongoing strength of new contract awards.
And the positive market dynamics across our businesses.
Turning now to slide five we've been pleased to announce several additional new awards since we last spoke in May.
More specifically at Cypress Electronics, we announced a follow on award from a U S. Dod prime contractor.
To manufacture and test electronic assemblies for a government deep space program with production scheduled to begin in 2021.
The spacecraft will serve as the exploration vehicle that will carry the crew into space provide emergency aboard capability sustained missions and provide safe reentry from deep space return velocity.
The spacecraft will utilize advances in propulsion communications life support structural design navigation empower according to news releases.
We announced an agreement to produce electronic power supply modules for multiple subsea communication networks with production expected to begin in 2021 and continue into 2022.
These next generation high capacity high speed systems spans thousands of kilometers undersea and are being constructed to support the growth in digital services and data consumption.
We received a full rate production award to manufacturing test multiple electronic modules for a large mission critical U S. Navy program with production scheduled to begin during the second half of 2021.
The program is in electronic warfare improvement program for Navy ships.
Greg will provide the capability to actively jam incoming missiles that threaten the warship.
Q decoys and adapt rapidly to evolving threats.
The system is software defined meaning that unlike analog radar the past the transmitters and receivers can easily adjust to send and receive different waveforms.
The systems game changing capability for non kinetic electronic attack options.
Has the potential to do much more.
According to the U S Naval Institute.
The multi function applications of the system will provide enhanced mission capabilities.
Presenting opportunities for future reductions in cost size weight and power.
And subsequent to quarter end, we announced the award to build embedded circuit card assemblies that will perform certain cryptographic functions for the army key management system or 8-K M. S with production expected to start in 2021.
The <unk> is a field that system that consists of three sub systems local communications management software automated communications engineering software.
And the simple key load device.
The embedded circuit card assemblies to be produced by Cypress will perform the cryptographic functions for our Ruggedized portable handheld simple kilo device that will be used to securely received store and transfer data between compatible cryptographic and communications.
<unk>.
Turning now to Cypress technologies we.
Announced the receipt of two orders for specialty high pressure closures.
Two large projects.
The Golden pass LNG export project and the Cherry point refinery renewable diesel optimization project.
Shipments for both programs are supposed to expected to take place this year.
The closures for Golden pass, which will be used in filtration systems protecting three compressor stations.
Will be you will be up to 56 inches in diameter weigh up to eight tons, each and we'll be ready to a pressure of just under 1500 Psi.
In a similar fashion.
The closures for the Cherry point refinery will be used in filtration systems to upgrade the refinery.
These closures will be 60 inches in diameter, we approximately four three times each.
And we will be well overlaid with 316 stainless steel to prevent corrosion.
<unk>.
Each of these contracts are representative of the high cost of failure applications for switch Cypress is well known.
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.
Now, let's advance to slide six to review the outlook for each of our major markets.
According to <unk> research.
All indicators, we use to track the heavy duty truck market point to extraordinarily strong market conditions. So.
So much so that the 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 in 2021.
And increasingly strong U S economy housing.
Housing strength manufacturing prosperity carrier profitability the.
The acceleration of the transition to E commerce and fiscal stimulus are combining to drive demand for freight to high levels.
In short freight demand currently appears to be overwhelming capacity.
As a result, ACD is now forecasting a 35% increase in demand for 2021.
To be followed by an additional 25% expansion in 2022.
It should be noted that this forecast represents a reduction for the current year from its previous outlook due.
Due to the inability of Oems to ramp up production to meet demand.
Shortages of semiconductor chips steel and other key components are serving to hold back even higher levels of production.
OEM class eight backlog is currently up 187% to an estimated 257000 units on a year over year basis.
Despite these short term issues the outlook remains extremely healthy.
Turning now to slide seven the market for the transportation end use of natural gas is key for cypress to be followed by the market for transportation and processing of crude oil.
Oil prices have increased significantly over the past year.
The price for West, Texas Intermediate up 75% from August of 2020.
Brent is up 64% for the same period.
The outlook for the second half of $2021.72 per barrel, which reflects a 39% or more increase from year end 2020.
Total rig count is up to just under 500 rigs are up 93% year over year and is up 101% since two a record low of 244 rigs last August.
Our sense is that the continued strong expansion in the U S. Economy will eventually result in higher prices for all forms of energy, which in turn will bode well for capital projects as providers adjust to meet increased levels of demand.
Our backlog is up 56% year over year is up 32% year to date, which is perhaps a good sign of things to come.
As Youll see from the chart on slide eight 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 was up 52% year to date is up 29% year over year.
With firm orders extending well into 2022.
We're very pleased with the level of new business momentum with orders up 28% year to date.
We are optimistic that this important momentum will continue going forward.
During previous calls we discussed the changes have taken place in our market mix over the past several years.
Turning now to slide nine. Please note that while revenue is now forecast to increase 30% to 35% for 2021.
Our market mix remains fairly well balanced despite the significant growth forecast for commercial vehicles.
The mix is maintained as a result of the expected continued expansion of defense electronics, especially 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 two 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.
New contract awards, when combined with the strength of our markets is expected to fuel a 30% to 35% growth in the top line.
A 300 to 400 basis point expansion in margins year over year during the second half of 2021.
And strong double digit 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 surely challenges, but this is always the case and the issues associated with growth.
Much appreciated when weighed against the severity of the surprises we faced during the previous year and the pandemic.
Quite simply we are really looking forward to the task of building the business profitably during the coming year and beyond.
Turning now to slide 11, Tony Allen will lead you through the balance of our presentation. This morning.
Tony.
Thanks, Jeff and good morning, everyone.
I'd like to discuss with you some of the highlights of our second quarter financial results. Please advance to slide 12.
Q2, consolidated revenue was $26 million, an increase of $8.8 million or 51, 4% from the second quarter of last year.
The year over year increase in revenue contributed to consolidated gross profit of $4.3 million for the quarter more than double the $2.1 million reported in the prior year period.
Consolidated gross margin was 16, 6% for the second quarter up 420 basis points from the prior year with both segments reporting margin improvements for the quarter.
Revenue for Cypress technologies increased to 130% to $17.1 million from seven 4 million a year ago, while gross profit increased $2.3 million and gross margin improved 150 basis points to 14, 6%.
In Q2.
The Covid 19 pandemic had a significant impact on this segment of our business in the second quarter of 2020, and the year over year comparisons highlight the turnaround in demand for our commercial vehicle automotive and off road components that started in the second half of 2020 and further.
Accelerated in the first half of 2021.
With the benefit of an expanding economy and the diversification we've achieved with new programs Q2 revenue for Cypress technologies surpassed the pre pandemic quarterly levels reached during 2019 in Q1 of 2020 to report our highest revenue since Q.
One of 2016.
Based on industry forecast, we expect to see commercial vehicle demand continue to increase in the second half of 'twenty, one and further into 2022.
Our current customer order boards are falling in line with these forecasts and we are developing and executing our business plans to capitalize on the surge in demand.
Our energy product shipments improved in the second quarter from a low Q1 and posted a slight increase in revenue year over year.
The pace of the recovery for our customers in this market is lagging that of the commercial vehicle market, However, with oil prices and natural gas prices up in a growing economy, we expect to see custard customer demand continue to increase during the second half of the year.
While the majority of the year over year improvement in gross margin was driven by volume for Cypress technologies. The sequential improvement in gross margin from eight 9% to 14, 6% further reflects favorable cost variances as labor productivity improved and equipment.
Maintenance and repair costs declined.
During our call last quarter, we discussed the efforts we are undertaking to meet the surge in demand from the commercial vehicle market during 2021, and 2022, including additional headcount and training as well as repairs upgrades and preventive maintenance projects to improve overall equipment.
<unk> uptime as demand rises.
While these efforts continued in Q2 and will be ongoing as the market demand peaks the amount of spend in Q2 was down sequentially from Q1.
As specific projects were completed.
We also had a slightly higher mix of energy products revenue in Q2, as compared to Q1, which had a favorable impact on gross margin.
Revenue for Cypress Electronics was $8.8 million in Q2, a decrease of 9% from the prior year and gross profit dropped 100000, while gross margin improved 90 basis points to 24% for the quarter.
Although revenue was down from the prior year. Our Q2 revenue was up sequentially from Q1 and was in line with our expectations. One of our larger programs is transitioning from limited rate to full rate production and we expect to resume shipments on this program again during the fourth quarter of this year.
We expect revenue to increase sequentially again in Q3 before a full rate production on this program launches, which is expected to drive revenue even higher in Q4.
The 90 basis point gross margin improvement for Cypress electronics on lower revenue reflects a change in mix and improved efficiencies in our operation.
The sequential change in margin for Cypress electronics is even more notable.
With a 1090 basis point improvement as revenue increased 30% over Q1.
Our consolidated SG&A expense was $3.4 million for Q2, an increase of approximately 400000 year over year.
SG&A as a percent of revenue decreased to 13, 2% in Q2 from 17, 4% a year ago.
Operating income for Q2 was 900000 compared to a loss of 900000 in Q2 of 2020, reflecting the increase in consolidated gross profit.
Surely offset by higher SG&A spend.
On July one of this year, we filed a form 8-K with the SEC to report that we received notice that our application for forgiveness of our Paycheck protection program loan was approved by the SBA.
As you recall, we received a PPP loan in the second quarter of 2020, and the amount of $3 million $558000.
Proceeds from the PPP loan were used to fund payroll costs and.
And allowed us to.
To successfully retain our domestic workforce during the pandemic.
Accrued interest expense on the PPP loan of approximately $41000 was also forgiven.
The forgiveness resulted in recognition of a gain of three $3.6 million in the quarter and contributed to our pre tax income of $4.1 million and net income of $3.8 million or <unk> 17 per diluted share.
Please advance to slide 13.
Consolidated revenue for the first half was $46 million, an increase of $6.4 million or 16, 1% from the first half of last year.
The year over year increase in revenue was followed by an increase in consolidated gross profit of $3 million.
Consolidated gross margin was 13, 3% for the first half down 150 basis points from the prior year.
Gross margin improved 750 basis points sequentially from Q1 to Q2, however on a year to date basis, we werent able to fully close the gap created in Q1.
Our outlook improves in the second half with consolidated margin expected to increase 300 to 400 basis points from the comparable period of 2020.
Revenue for Cypress technologies increased 43, 3% to $30.3 million from $21.2 million a year ago.
While gross profit increased $1 million and gross margin was down 80 basis points to 12, 1%.
Revenue for Cypress Electronics was $15.6 million for the first half a decrease of 15, 2% from the prior year and gross profit dropped 0.7 million, while gross margin declined 130 basis points to 15, 7% for the period.
With our updated revenue and margin outlook for the second half of this year. We expect these year to date comparisons will swing favorable in both operating segments segments.
As we exit Q3 and finished the year.
Our consolidated.
Elevated SG&A expense was $6.3 million for the first half, which is flat with the prior year.
SG&A as a percent of revenue decreased to 13, 7% from 16, 2% a year ago.
We are slightly negative with an operating loss of <unk> 2 million in the quarter. However, with the gain on the PPP loan forgiveness. We are reporting net income for the first half of $2.2 million or <unk> 10 per diluted share.
Please advance to slide 14.
On this slide we show our trend of consolidated gross margin over the most recent five years along with the performance expected for 2021.
Our Q2 results push us closer to our expectations for consolidated gross margin as we posted a 750 basis point improvement over Q1, and a 420 basis point improvement year over year.
Our outlook for the second half caused for a year over year gross margin improvement of 300 to 400 basis points over the second half of 2020.
The improved gross margin for Q2, and the expected improvement in the second half will more than offset the margin shortfall, we experienced in Q1 and drive us to a full year increase over 2020.
Revenue is expected to increase in the second half for both segments and gains in labor productivity and cost efficiencies from continuous improvement actions are also expected to contribute to margin expansion.
Our revenue for the revenue outlook for the full year 2021, now reflects 30% to 35% growth over 2020, which is supported by the strength, we see in our markets currently and the growth in our order backlog since the beginning of the year.
As we look beyond 2021, we will continue our efforts to diversify our market served and our customer base and to deliver more value added services to our customers, which we believe can provide further upside to our current margin levels.
Please advance to slide 15.
We were pleased with our operating results for Q2 as consolidated revenue increased 51, 4% and gross margin increased 420 basis points compared to the same quarter a year ago.
Additionally, the forgiveness of our PPP loan was recognized in Q2 and included in our consolidated net income of $3.8 million or <unk> 17 per diluted share for the quarter.
Cypress electronics ended the quarter with backlog up 29, 3% from Q2 of 2020 and 51, 9% since the beginning of the year.
The backlog growth has been driven by strong performance in new orders for the first half and with the positive long term outlook for defense spending we are excited about the potential for this business to continue to grow beyond 2021.
Current industry forecasts show class eight commercial vehicle demand, increasing 34, 6% for the full year 2021 over over last year and an additional 24, 6% in 2022, thereby providing cypress technologies with a strong base for demand.
Over the next 18 months.
Our backlog for energy products is up 56, 4% over the prior year and 32, 3% since the beginning of the year.
Our outlook in this market is improving this transmission conversion and exports spending are expected to benefit from higher oil and natural gas prices.
A combination of new contract awards positive market conditions and market diversification support our consolidated revenue growth targets and further margin expansion in 2021.
Our updated outlook calls for 30% to 35% growth in revenue for the full year over the prior year.
Revenue increased 30% sequentially from Q1 to Q2, and we expect to drive sequential and year over year top line and margin improvements for the balance of 2021.
During the second half of 2021, we expect to achieve at <unk> at 300 to 400 basis point increase in gross margin over the second half of last year.
Cash flow from operations for 2021 is expected to improve over last year as revenue and profitability increase and through our collective efforts to manage working capital efficiently.
With a strong backlog and recovering markets. We look forward to the remainder of 2021 with a great deal of 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 wed like to thank you for joining us on our call. This morning, 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.
And have a good day.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.
Okay.
[music].
Sure.
[music].
[music].
[music].
Good day and welcome to the Cypress Solutions, Inc Conference call today's call is being recorded.
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.
Thank you Chad and good morning, everyone Tony.
Tony Allen and I would like to work in to this call.
Purpose of which is to review the company's financial results for the second quarter of 2021.
For those of you have access to our Powerpoint presentation. This morning, please advance to slide two 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 Cypress Dot 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 three.
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 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.
Now, let's begin with the overview on slide four.
We are pleased to report that revenue increased 51% year over year and 30% sequentially.
Year over year improvement was driven by Cypress technologies with revenue for the period exceeding all quarterly results reported during the past five years.
On a sequential basis each of our markets contribute to the strong double digit growth of our consolidated results, thereby providing an important barometer for the future performance of our business.
Gross profit increased 103% year over year and 137% sequentially.
While gross margin expanded to 16, 6% of sales up 420 basis points year over year, and up 750 basis points sequentially with both business segments reporting margin expansion.
Earnings Rose to 17 cents per diluted share up from a loss of <unk> <unk> per share for the prior year period.
Selecting the positive impact of strong revenue growth expanding margins and the forgiveness of the PPP loan from the SBA during the period, which Tony will address in greater detail shortly.
Orders remained robust during the quarter with backlog up 29% year over year for Cypress electronics and up 52% year to date.
The order board from truck can all trained customers for Cypress technologies continued to increase significantly while backlog from energy related customers increased 56% year over year and 32% year to date.
The combination of new contract awards continued market strength and positive outlook for the U S economy provide us with the confidence to increase our outlook for the second time in recent months.
We now believe that revenue for 2021 will increase 30% to 35% year over year.
Up from our prior forecast of 25% to 30%. This past may and have further from our original estimate of 20% that we provided in March.
Additionally, we believe that the company's financial performance will accelerate further during the second half of 2021 with the resulting gross margin for the period, expanding 300 to 400 basis points when compared to the second half of 2020.
In short the second quarter of 2021 proved to be the inflection point that we have discussed in the past, reflecting the ongoing strength of new contract awards and the positive market dynamics across our business.
Turning now to slide five we've been pleased to announce several additional new awards since we last spoke in May.
More specifically at Cypress Electronics, we announced a follow on award from the U S. Dod Prime contractor.
To manufacture and test electronics assemblies for a government deep space program with production scheduled to begin in 2021.
The spacecraft will serve as the exploration vehicle that will carry the crew into space provide emergency aboard capability sustained missions and provide safe reentry from deep space returned velocities.
The spacecraft will utilize advances in proportion communications life support structural design navigation empower according to news releases.
We announced an agreement to produce electronic power supply modules for multiple subsea communication networks with production expected to begin in 2021 and continue into 2022.
These next generation high capacity high speed systems spans thousands of kilometers undersea and are being constructed to support the growth in digital services and data consumption.
We received a full rate production award to manufacturing test multiple electronic modules for a large mission critical U S. Navy program with production scheduled to begin during the second half of 2021.
The program is in electronic warfare improvement program for Navy ships.
The upgrade will provide the capability to actively jam incoming missiles that threaten award ship.
Q decoys and adapt rapidly to evolving threats.
System and software defined meaning that unlike analog radar the past the transmitters and receivers can easily adjust to send and receive different waveforms.
The systems game changing capability for non kinetic electronic attack options has the potential to do much more.
According to the U S Naval Institute.
The multi function applications of the system will provide enhanced commission capabilities, while presenting opportunities for future reductions in cost size weight and power.
And subsequent to quarter end, we announced the award to build embedded circuit card assemblies that will perform certain cryptographic functions for the army key management system or 8-K M. S with production expected to start in 2021.
The 8-K I Miss is a field that system that consists of three sub systems local communications management software automated communications engineering software.
And the simple key load device.
The embedded circuit card assemblies to be produced by Cypress will perform the cryptographic functions for our Ruggedized portable handheld simple kilo device that will be used to securely receive store and transfer data between compatible cryptographic and communications.
Yeah.
Turning now to Cypress technologies, we announced the receipt of two orders for specialty high pressure closures.
For two large projects.
Golden Pass LNG export project and the Cherry point refinery renewable diesel optimization project.
Shipments for both programs are supposed to expected to take place this year.
The closures for Golden pass, which will be used in filtration systems protecting three compressor stations will be you will be up to 56 inches in diameter.
Way up to eight tons, each and we'll be ready to a pressure of just under 1500 Psi.
In a similar fashion.
Closures for the Cherry point refinery will be used in filtration systems to upgrade the refinery. These.
These closures will be 60 inches in diameter, we approximately four three tons, each and we will be well overlaid with 316 stainless steel to prevent corrosion.
<unk>.
Each of these contracts are representative of the high cost of failure applications for switch Cypress is well known.
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.
Now, let's advance to slide six to review the outlook for each of our major markets.
According to ICT research.
All indicators, we use to track the heavy duty truck market point to extraordinarily strong market conditions. So much so that the 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 in 2021.
And increasingly strong U S economy.
Housing strength manufacturing prosperity.
Carrier profitability.
The acceleration of the transition to E commerce and fiscal stimulus are combining to drive demand for freight to high levels.
In short freight demand currently appears to be overwhelming capacity.
As a result, ACP is now forecasting a 35% increase in demand for 2021.
To be followed by an additional 25% expansion in 2022.
It should be noted that this forecast represents a reduction for the current year from its previous outlook.
Due to the inability of Oems to ramp up production to meet demand.
Shortages of semiconductor chips steel and other key components are serving to hold back even higher levels of production.
OEM class eight backlog is currently up 187% to an estimated 257000 units on a year over year basis.
So despite these short term issues.
Outlook remains extremely healthy.
Turning now to slide seven the market for the transportation end use of natural gas is key for Cypress.
To be followed by the market for transportation and processing of crude oil.
Oil prices have increased significantly over the past year.
With a price for West, Texas intermediate up 75% from August 2020.
Brent is up 64% for the same period.
The outlook for the second half of 2021, new $72 per barrel, which reflects a 39% or more increased from year end 2020.
Total rig count is up to just under 500 rigs are up 93% year over year.
101% since two.
To a record low of 244 rigs last August.
Our sense is that the continued strong expansion in the U S. Economy will eventually result in higher prices for all forms of energy, which in turn will bode well for capital projects as providers adjust to meet increased levels of demand.
Our backlog is up 56% year over year is up 32% year to date, which is perhaps a good sign of things to come.
As you'll see from the chart on slide eight 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 was up 52% year to date is up 29% year over year with firm orders extending well into 2022.
We're very pleased with the level of new business momentum with orders up 28% year to date.
Optimistic that this important momentum will continue going forward.
During previous calls we discuss the changes have taken place in our market mix over the past several years.
Turning now to slide nine. Please note that while revenue is now forecast increased 30% to 35% for 2021.
Our market mix remains fairly well balanced despite the significant growth forecast for commercial vehicles.
The mix is maintained as a result of the expected continue expansion of defense electronics, especially automotive and energy.
We believe this to be quite an achievement that certainly represents a big change from our increasingly distant past when commercial vehicle represented 70% of the business and these sales were concentrated with two 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.
New contract awards, when combined with the strength of our markets is expected to fuel a 30% to 35% growth in the top line.
A 300 to 400 basis point expansion in margins year over year during the second half of 2021.
And strong double digit 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 mostly surely challenges, but this is always the case and the issues associated with growth.
It will be much appreciated when weighed against the severity of the surprises we faced during the previous year and the pandemic.
Quite simply we are really looking forward to the task of building the business profitably during the coming year and beyond.
Turning now to slide 11, Tony Allen will lead you through the balance of our presentation. This morning Tony.
Tony.
Thanks, Jeff and good morning, everyone.
Like to discuss with you some of the highlights of our second quarter financial results. Please advance to slide 12.
Q2, consolidated revenue was $26 million, an increase of $8.8 million or 51, 4% from the second quarter of last year.
The year over year increase in revenue contributed to consolidated gross profit of $4.3 million for the quarter more than double the $2.1 million reported in the prior year period.
Consolidated gross margin was 16, 6% for the second quarter up 420 basis points from the prior year with both segments reporting margin improvements for the quarter.
Revenue for Cypress technologies increased to 130% to $17.1 million from seven 4 million a year ago, while gross profit increased $2.3 million and gross margin improved to 1100.50 basis points to 14, 6%.
In Q2.
The Covid 19 pandemic had a significant impact on this segment of our business in the second quarter of 2020, and the year over year comparisons highlight the turnaround in demand for our commercial vehicle automotive and off road components that started in the second half of 2020.
And further accelerated in the first half of 2021.
With the benefit of an expanding economy and the diversification we have achieved with new programs Q2 revenue for <unk> technologies surpassed the pre pandemic quarterly levels reached during 2019 in Q1 of 2020 to report our highest revenue since Q.
One of 2016.
Based on industry forecast, we expect to see commercial vehicle demand continue to increase in the second half of 'twenty, one and further into 2022.
Our current customer order boards are falling in line with these forecasts and we are developing and executing our business plans to capitalize on the surge in demand.
Our energy product shipments improved in the second quarter from a low Q1 and posted a slight increase in revenue year over year.
The pace of the recovery for our customers in this market is lagging that of the commercial vehicle market, However, with oil prices and natural gas prices up in a growing economy, we expect to see custard customer demand continue to increase during the second half of the year.
While the majority of the year over year improvement in gross margin was driven by volume for Cypress technologies. The sequential improvement in gross margin from eight 9% to 14, 6% further reflects favorable cost variances as labor productivity improved and equipment.
Maintenance and repair costs declined.
During our call last quarter, we discussed the efforts we are undertaking to meet the surge in demand from the commercial vehicle market during 2021, and 2022, including additional head count and training as well as repairs upgrades and preventive maintenance projects to improve overall equipment.
<unk> uptime as demand rises.
While these efforts continued in Q2 and will be ongoing as the market demand peaks the amount of spend in Q2 was down sequentially from Q1.
As specific projects were completed.
We also had a slightly higher mix of energy products revenue in Q2, as compared to Q1, which had a favorable impact on gross margin.
Revenue for Cypress Electronics was $8.8 million in Q2, a decrease of 9% from the prior year and gross profit dropped 100000, while gross margin improved 90 basis points to 24% for the quarter.
Although revenue was down from the prior year. Our Q2 revenue was up sequentially from Q1 and was in line with our expectations. One of our larger programs is transitioning from limited rate to full rate production and we expect to resume shipments on this program again during the fourth quarter of this year.
We expect revenue to increase sequentially again in Q3 before a full rate production on this program launches, which is expected to drive revenue even higher in Q4.
The 90 basis point gross margin improvement for Cypress electronics on lower revenue reflects a change in mix and improved efficiencies in our operation.
The sequential change in margin for Cypress electronics is even more notable with a 1090 basis point improvement as revenue increased 30% over Q1.
Our consolidated SG&A expense was $3.4 million for Q2, an increase of approximately 400000 year over year.
G&A as a percentage of revenue decreased to 13, 2% in Q2 from 17, 4% a year ago.
Operating income for Q2 was 900000 compared to a loss of 900000 in Q2 of 2020, reflecting the increase in consolidated gross profit.
Partially offset by higher SG&A spend.
On July one of this year, we filed a form 8-K with the SEC to report that we received notice that our application for forgiveness of our Paycheck protection program loan was approved by the SBA.
As you recall, we received a PPP loan in the second quarter of 2020, and the amount of $3 million $558000.
Proceeds from the PPP loan were used to fund payroll costs.
And allowed us to.
To successfully retain our domestic workforce during the pandemic.
Accrued interest expense on the PPP loan of approximately $41000 was also forgiving.
The forgiveness resulted in recognition of a gain of three $3.6 million in the quarter and contributed to our pre tax income of $4.1 million and net income of $3.8 million or <unk> 17 per diluted share.
Please advance to slide 13.
Consolidated revenue for the first half was $46 million, an increase of $6.4 million or 16, 1% from the first half of last year.
The year over year increase in revenue was followed by an increase in consolidated gross profit of $3 million.
Consolidated gross margin was 13, 3% for the first half down 150 basis points from the prior year.
Gross margin improved 750 basis points sequentially from Q1 to Q2, however on a year to date basis, we werent able to fully close the gap created in Q1.
Our outlook improves in the second half with consolidated margin expected to increase 300 to 400 basis points from the comparable period of 2020.
Revenue for Cypress technologies increased 43, 3% to $30.3 million grew $21.2 million a year ago.
While gross profit increased $1 million and gross margin was down 80 basis points to 12, 1%.
Revenue for Cypress Electronics was $15.6 million for the first half a decrease of 15, 2% from the prior year and gross profit dropped 0.7 million, while gross margin declined 130 basis points to 15, 7% for the period.
With our updated revenue and margin outlook for the second half of this year. We expect these year to date comparisons will swing favorable in both operating segments segments.
As we exit Q3 and finished the year.
Our consolidated.
Elevated SG&A expense was $6.3 million for the first half, which is flat with the prior year.
SG&A as a percent of revenue decreased to 13, 7% from 16, 2% a year ago.
We are slightly negative with an operating loss of $2 million in the quarter. However, with the gain on the PPP loan forgiveness. We are reporting net income for the first half of $2.2 million or <unk> 10 per diluted share.
Please advance to slide 14.
On this slide we show our trend of consolidated gross margin over the most recent five years along with the performance expected for 2021.
Our Q2 results push us closer to our expectations for consolidated gross margin as we posted a 750 basis point improvement over Q1, and a 420 basis point improvement year over year.
Our outlook for the second half caused for a year over year gross margin improvement of 300 to 400 basis points over the second half of 2020.
The improved gross margin for Q2, and the expected improvement in the second half will more than offset the margin shortfall, we experienced in Q1 and drive us to a full year increase over 2020.
Revenue is expected to increase in the second half for both segments and gains in labor productivity and cost efficiencies from continuous improvement actions are also expected to contribute to margin expansion.
Our revenue for the revenue outlook for the full year 2021, now reflects 30% to 35% growth over 2020, which is supported by the strength, we see in our markets currently and the growth in our order backlog since the beginning of the year.
As we look beyond 2021, we will continue our efforts to diversify our market served and our customer base and to deliver more value added services to our customers, which we believe can provide further upside to our current margin levels.
Please advance to slide 15.
We were pleased with our operating results for Q2 as consolidated revenue increased 51, 4% and gross margin increased 420 basis points compared to the same quarter a year ago.
Additionally, the forgiveness of our PPP loan was recognized in Q2 and included in our consolidated net income of $3.8 million or <unk> 17 per diluted share for the quarter.
Cypress electronics ended the quarter with backlog up 29, 3% from Q2 of 2020 and 51, 9% since the beginning of the year.
The backlog growth has been driven by strong performance in new orders for the first half and with the positive long term outlook for defense spending we are excited about the potential for this business to continue to grow beyond 2021.
Current industry forecasts show class, a commercial vehicle demand, increasing 34, 6% for the full year 2021 over over last year and an additional 24, 6% in 2022, thereby providing cypress technologies with a strong base for demand over the <unk>.
Next 18 months.
Our backlog for energy products is up 56, 4% over the prior year and 32, 3% since the beginning of the year.
Our outlook in this market is improving this transmission conversion and exports spending are expected to benefit from higher oil and natural gas prices.
A combination of new contract awards positive market conditions and market diversification support our consolidated revenue growth targets and further margin expansion in 2021.
Our updated outlook cause for 30% to 35% growth in revenue for the full year over the prior year.
Revenue increased 30% sequentially from Q1 to Q2, and we expect to drive sequential and year over year top line and margin improvements for the balance of 2021.
During the second half of 2021, we expect to achieve at <unk> at 300 to 400 basis point increase in gross margin over the second half of last year.
Cash flow from operations for 2021 is expected to improve over last year as revenue and profitability increase and through our collective efforts to manage working capital efficiently.
With a strong backlog and recovering markets. We look forward to the remainder of 2021 with a great deal of 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 wed like to thank you for joining us on our call. This morning, we are looking forward to year of double digit growth expanding margins and increase profitability.
And please note we certainly appreciate your continued interest in our business.
And have a good day.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.