Q4 2022 Sypris Solutions Inc Earnings Call
[music].
Good day and welcome to this <unk>.
Solutions incorporated conference call.
This call is being recorded at this time for opening remarks.
Like to turn the call over.
President and Chief Executive Officer, Mr. Jeffrey Gill. Please go ahead Sir.
Thank you and good morning, everyone Rich Davis, and I would like to welcome. It to this call. The purpose of which is to review the company's financial results for the fourth quarter and full year 2022.
For those of you have access to our Powerpoint presentation. This morning. Please.
These 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 the Companys filings with the Securities and Exchange Commission.
And in compliance with regulation G. You can access our website 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.
Rich will then provide you with a more detailed review of our financial results for the quarter and the year.
Now, let's begin with the overview on slide four.
We are pleased to report that revenue for the quarter increased 15, 2% year over year, and 17, 9% sequentially, reflecting continued strength across each of our business segments.
Gross profit for the quarter increased four 3% year over year, and 133% sequentially supported by 164% expansion for Cypress electronics.
107% increase for Cypress technologies, each when compared to the third quarter of 2022.
The company reported earnings of one seven per share, which reflected an improvement of <unk> 11 per share sequentially from the third quarter of last year.
Orders for the quarter were up 103% year over year and increased 71% sequentially.
<unk> backlog rose, 117% year over year and 17% sequentially.
Both segments contributed to the year over year growth, despite the well reported challenges of the supply chain.
Quarterly revenue per Cypress electronics increased 13% year over year, while orders jumped 110% and backlog climbed to $118 $5 million at the end of 2022.
$64 $5 million year over year, and up $18 $1 million sequentially.
In a similar fashion revenue per Cypress technologies increased 17% year over year, while orders for the segments energy products increased 71% during the period.
<unk> and the 76% year over year increase in backlog at year end.
Turning now to slide five we've been pleased to announce several additional new contract awards during the quarter.
More specifically at Cypress electronics.
In early October we announced that we'd entered into an amendment to an existing multi year supply agreement to include the production of electronic power logic assemblies for a large mission critical maybe program.
The amended contract, including options now provides for the purchase of up to $77 million of assemblies from Cypress.
Over the term of the agreement.
Representing a 39% increase in potential volume when compared to the original base contract announced in early 2022.
In conjunction with the amendment, we also receive releases for the first year of production.
With shipments scheduled to begin in 2023.
The modules to be produced by Cypress will be integrated into an electronic warfare improvement program for the U S. Navy.
According to new sources, you upgrade will provide the capability to actively jam incoming missiles that threatened to worship.
Q decoys and adapt quickly to evolving threats.
The improvements to the electronic attack portion will provide integrated countermeasures against radio frequency guided threats. According to the Navy.
The U S Naval Institute reported that the systems capability for non kinetic electronic attack options can be further deployed an additional critical areas.
From a dense communications to multiple waveforms multifunction application. So this system will provide enhanced mission critical capabilities to the U S Navy fleet.
Presenting opportunities for future reductions in cost size weight and power.
And in November we announced that we'd received a follow on award from the U S. D O D prime contractor to manufacture and test embedded circuit card assemblies that will perform certain of the cryptographic functions from the army key management system.
The 8-K M. S fielded system that consists of three subsystems.
Local communications security management software.
The LCM is.
Automated communications engineering software the AC, yes, and the simple kilo device.
Under the umbrella of our nation's electronic key management system.
<unk> provides tactical units and sustaining basis within our organic key generation capability and an efficient secure electronic key distribution means.
The L. CMS workstation provides automated key generation.
Distribution and communications security accounting.
The Asa Es, which is a frequency management portion of 8-K M S.
It's been designated by the military Communications Electronics Board as the standard for use by all services and the development of the frequency management cryptographic net planning and signal operations instructions generation.
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.
Transfer data between compatible cryptographic and communications equipment.
The device incorporates features that provide for the streamline management of communications security key.
Electronic protection data and signal operation obstructions.
Production is expected to begin in 2023.
Subsequent to quarter end, you'll note on slide six we announced an award to produce some tests electronic interface modules for department of defense weapons system that is an important part of the dod's ongoing modernization effort.
Production on this program is expected to begin later in 2023.
And in March of this year Cypress technologies announced that it entered into an amendment to its current supply agreement with Detroit Diesel Corporation, a subsidiary of Daimler truck North America.
Daimler truck North America is itself a subsidiary of Daimler truck holding AG, one of the world's largest commercial vehicle manufacturers.
The amendment adds a new series of part numbers to the agreement with DTC for drivetrain components for use of Ddc's Detroit branded drive axles.
Our components to be produced by Cypress will be essential to performance of the drive axles are freight liners heavy duty vehicles pre.
Production of these additional part numbers under the amended contract are expected to commence in 2023.
Okay.
Each of these contracts are representative of a high cost of failure applications for which cypress as well no.
We expect the momentum of new contract wins to continue during 2023.
Main very optimistic about the potential for future program and revenue growth as we move forward.
In summary, we are pleased with the substantial progress that continues to be made across our business.
The supply chain challenges are beginning to abate.
Focus is clearly on meeting the growing demand of our customers.
We have reached the inflection point.
Future shipments now expected to reflect the impact of our growing backlog.
Looking forward the substantial growth of this backlog when combined with the improving outlook for the supply chain.
<unk> provides.
<unk> provides us with the confidence to increase our outlook for 2023.
Our new forecast now includes top line growth, 25% to 30%.
Margin expansion of 175 to 225 basis points and for cash flow from operations to once again be solidly positive.
Reflecting the benefit of our earnings growth.
Now, let's advance to slide seven to review the outlook each of our major markets.
[noise]. According to ACP research the demand for the production of class eight heavy vehicles increased 19% in 2022.
<unk> is expected to remain essentially flat at this elevated level during 2023.
There are many factors that are having a positive influence on the demand for transportation.
Unfilled demand from 2022.
Capacity shortfalls in the supply chain.
Elevated carrier profitability and the continued transition to e-commerce among other factors.
Shortages of semiconductor chips steel and other components that serve to hold down OEM production levels, pushing the backlog well into 2023.
The current acte outlets calls for medium and heavy duty truck production to remain at elevated levels into Q3 before easing somewhat in the second half of 2023.
Turning now to slide eight the market for the transportation end use of natural gas is key for Cypress and it has become increasingly dynamic over this past year.
European countries boosted LNG imports by 60% in 2022 to offset declining pipeline shipments from Russia.
As part of the strategic response to their former dependency on Russia.
The reliable supply of natural gas Europe has embarked upon an aggressive campaign to source its means elsewhere.
Yeah, I E F. A forecast that Europe will increase its LNG import capacity.
33% at the end of 2024.
And that the global LNG market will see a tidal wave of projects come online starting in mid 2025.
The outlet projects that 64 million metric tons of annual liquefaction capacity will be added by 2026.
The U S is a major provider of LNG and became the world's largest exporter in 2022 with plans to do even more in the future.
The maps to the right to pick the various projects underway in the U S and Europe .
Identifying those that are operational and under construction.
Proved and proposed.
The 76% growth in our energy products backlog year over year reflects the strong and growing demand to support these infrastructure programs we remain.
Cautiously optimistic that this positive outlook will remain in effect for some time to come.
As you'll see from the chart on slide nine in the long term market for defense spending remains positive and within the overall budgetary allocations.
Pending for technology upgrades on strategic platforms continues to be a very high priority.
Our backlog for future business now stands at $118 $5 million, that's up 119% or $64 $5 million as of year end with form orders now extending well into 2024.
We were very pleased with the level of new business momentum, while we were optimistic that this important trend 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 10 please.
Please note that revenue forecast increased 25% to 30% for 2023.
Shipments to our customers in defense related markets expected to result in a 32% increase in overall mix right.
And the 37% of sales in 2023 up from 28% of sales in 2022.
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 11 for a brief summary.
Revenue for the quarter increased 15% backlog grew by 117%.
Providing a strong platform to support future growth in 2023.
Backlog at Cypress Electronics, now stands at $118 $5 million.
<unk>, a 119% or 65 $64 $5 million increase from the prior year.
In a similar fashion backlog for energy products is up more than 76% year over year.
Our markets are in good shape.
Defense spending is rising and we may yet feel some additional tailwind depending.
Depending upon the future outcome of the current unfortunate geopolitical situations.
Our recent contract awards are expected to provide further support for topline expansion during the year.
While we remain optimistic about the potential for additional contract wins and successes.
As a result, we have increased our outlook for 2023.
From the initial guidance, we provided in November of last year.
Revenues now expected to increase 25% to 30% year over year.
Spec gross margin follow suit expanding 175 to 225 basis points into 2023, while cash flow from operations is forecast to remain strong supported by our outlook for earnings growth.
Quite simply we are looking forward to the task of building the business profitably during the coming year and beyond.
Turning now to slide 12, Rich Davis will lead you through the balance of our presentation. This morning rich.
Thanks, Jeff excuse me good morning, everyone I'd like to discuss with you some of the highlights of our fourth quarter financial results. Please advance to slide 13.
Q4 consolidated revenue was $29 7 million an increase of 15, 2% from the fourth quarter of last year, driven mainly by an increase in bookings in 2022, and an increase in an increased 17, 9% sequentially as we recover from supply chain issues in Q3.
Consolidated gross profit was $4 6 million for the quarter, an increase of four 3% from the prior year.
And up 133% sequentially on the growth in revenue over the prior quarter.
Gross margin was off 160 basis points compared to the prior year Q4, due to an unfavorable shift in mix. It was up 770 basis points sequentially to 15, 5% on the rebound in revenue.
Revenue for Cypress technologies increased 16, 6% year over year to $17 2 million for the quarter gross margin was down 290 basis points from the prior year due to raw material price increases pass through to the customer without markup. However, gross margin was up 660 basis.
Points from Q3 on increased shipments of higher margin branded products.
While production in the class a truck market at the OEM level continue to be constrained in 2022 by supply chain issues unrelated to the availability of the components we manufacture it.
It continued at a high level compared to the prior year.
However, our shipment volume went down in Q4 as our customers rebalance their inventory levels at year end.
Shipments have subsequently returned to normal levels in January .
Let's say demand finished 2022 of the 19, 2% increase over 2021 and is expected to be essentially flat at that high level through 2023 with a slight decline in the second half excuse me.
Fourth quarter orders in backlog for energy products increased 71% and 76% respectively year over year.
And we expect revenue from these products will increase in 2023.
On the cost side, we are experiencing some of the inflationary pressures that are being felt across the economy.
This is a consumable supplies cooling have increased as have utility rates.
We're working both internally and with our vendors on cost effective solutions to control spend in these areas.
We also incurred additional cost during the year to support increased demand in the commercial vehicle market in 2022.
And new programs planned for 2023.
The price of steel has increased over the prior year at certain of our contract terms provide for sales price adjustments to pass increased costs onto our customers.
Our engineering and product development teams have also.
Initiatives underway to reduce steel consumption in both our forging and machining processes to improve our margins and deliver cost savings to our customers.
Revenue for Cypress Electronics was $12 5 million for the quarter, an increase of 13, 2% from the prior year and 53% sequentially as it rebounded from the supply chain issues that impeded shipments in the third quarter.
Gross margin was at 18, 9% an increase of 20 basis points from the prior year and 790 basis points from Q3 on the rebound in revenue.
We ramped up an advanced version of an assembly for a large defense electronics program in the quarter, while production for communication customers also continue to increase.
We continue to expand our workforce in the quarter at Cypress electronics reinforced the team's efforts to execute the significant planned increase in shipments in 2023.
We're not limited by material availability. These efforts along with increased capital expenditures will boost manufacturing capacity and capability for the planned increase.
As we increased increased production <unk> transitioned from limited rate to full rate build on programs our margin rates typically increased during the life of the program as labor productivity improves and engineering resource requirements and rework decline.
As program programs mature, we also have the opportunity to reduce material costs by working together with our suppliers and customers to qualify components that lower our cost per unit.
Consolidated operating income for Q4 was 800000 down 28% from the prior year, mainly due to increases in selling and administrative cost, but up 150% sequentially due to the revenue improvement in Q4.
Our operations teams are focused on execution and meeting our objectives for customer service and cost.
The strong backlog in place provides a solid foundation to support growth into 2023.
Please advance to slide 14.
Consolidated revenue for the full year increased $12 7 million or 13% from the prior year.
Both segments contributed to the year over year revenue growth.
Consolidated gross profit increased two 4% to $14 9 million.
Gross margins decreased year over year by 140 basis points to 13, 5% on unfavorable mix.
Revenue for Cypress technologies increased 12, 2% year over year to $69 3 million and gross profit increased five 4% to $8 6 million gross margin decreased 80 basis points to 12, 3% for the period.
The 2022 revenue mix with Cypress technologies was unfavorable compared to the prior year due to increased revenue from material price pass through adjustments, which increased revenue without increasing gross profit.
Having a decrease in gross margin.
Revenue for Cypress Electronics increased 14, 5% from the prior year the.
Gross profit decreased one 4% to $6 3 million gross margin declined 250 basis points to 15 four.
Okay.
The comparison of year over year revenue gross margin for Cypress electronics reflects the material availability challenges we faced during 2022.
And their impact on overhead absorption along with unfavorable mix compared to the prior year.
Excluding the results of Q3, which was quite negatively impacted by the supply chain challenges 2022 gross margin would have been 110 basis.
Basis points higher.
2022, operating income decreased $1 5 million from the prior year due mainly to a decrease of increases in selling and administrative costs.
The comparison of year over year net income highlights the $3 $6 million benefit recognized in 2021 on the forgiveness of the PPP loan.
Please advance to slide 15.
This slide we show our consolidated gross margin for 2021, and 2022, along with the performance expected for 2023.
2022 decreased by 140 basis points from the prior year on production inefficiencies induced by the supply chain challenges and unfavorable mix.
With the strength of shipment volume increases required by the increase in our backlog, we expect revenue growth in the range of 25% to 30% as we enter 2023.
We expect to deliver year over year margin improvement and a range of 175 to 225 basis points, placing us at a 15, 5% margin at the midpoint of this range in 2023.
We again want to recognize the efforts of all of our teammates involved in securing the orders received this year to push our backlog to a record level and we are excited about the opportunities. It provides to improve our margins and profitably grow our business.
We also want to recognize and thank our reinforced cypress electronics team for its intense focused efforts to meet its customers' expectations for rising shipments in 2023.
And the Cypress technologies team with similar efforts to implement new programs for existing customers.
Yeah.
We will also continue our efforts to diversify our markets served and our customer base 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.
For a quick summary of our comments.
A key highlight for the quarter and the year was the significant increase in orders and backlog in both segments.
Cypress electronics orders were $105 4 million for 2022 up 87% year over year.
Increasing its backlog to $118 5 million from $54 million in 2021.
We expect shipments to rise in 2023 is a function of the increase in backlog.
Cypress technologies entity energy products orders were up 23% for the year with fourth quarter orders up 71% over the prior year period.
Outlook for Cypress technologies remains favorable with the current forecast for class eight production in 2023, basically even with the high level of 2022 and further supported by planned increases in new programs with existing customers.
Cypress technologies is augmented its product line and distribution resources to expand its energy products presence in Europe Asia and the Middle East.
We expect both segments will generate double digit year over year top line growth in 2023 significantly increasing gross margin.
Based on our record backlog and momentum in orders, we expect continued revenue growth 25% to 30%.
And a 175 to 225 basis point improvement in gross margin in 2023.
Thank you for your continued support and interest in our business now I'd like to turn it over to Jeff for closing remarks.
Thank you rich and thank you everyone for joining us on the call. This morning.
We're looking forward to another year of double digit growth expanding margins and increased profitability.
And please note.
We appreciate your continued interest in our business.
And have a great day.
Thank you.
Conference has now concluded. Thank you for attending today's presentation you may now disconnect.
[music].
Good day and welcome to <unk> Solutions incorporated conference call. Today's call is being recorded at this time for opening remarks, I'd like to turn the call over to the pros.
And Chief Executive Officer, Mr. Jeffrey Gill. Please go ahead Sir.
Thank you and good morning, everyone Rich Davis, and I would like to welcome. It to this call. The purpose of which is to review the company's financial results for the fourth quarter and full year 2022.
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.
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 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 to 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.
Rich will then provide you with a more detailed review of our financial results for the quarter and the year.
Now, let's begin with the overview on slide four.
We're pleased to report that revenue for the quarter increased 15, 2% year over year and 17.
<unk>, 9% sequentially, reflecting continued strength across each of our business segments.
Gross profit for the quarter increased four 3% year over year, and 133% sequentially supported by 164% expansion for Cypress electronics, and a 107% increase for Cypress technologies, each when compared to the third quarter of 2022.
Hi.
The company reported earnings of <unk> <unk> per share, which reflected an improvement of <unk> 11 per share sequentially from the third quarter of last year.
Orders for the quarter were up 103% year over year and increased 71% sequentially.
<unk> backlog rose, 117% year over year and 17% sequentially.
Both segments contributed to the year over year growth, despite the well reported challenges of the supply chain.
Quarterly revenue per Cypress electronics increased 13% year over year.
Our orders jumped 110%.
And backlog climbed to $118 $5 million at the end of 2022.
Up $64 $5 million year over year, and up $18 $1 million sequentially.
In a similar fashion revenue for Cypress technologies increased 17% year over year by orders for the segments energy products increased 71% during the period.
Resulting in a 76% year over year increase in backlog at year end.
Turning now to slide five we've been pleased to announce several additional new contract awards during the quarter.
More specifically at Cypress electronics.
In early October we announced that we've entered into an amendment.
To an existing multi year supply agreement to include the production of electronic Corelogic assemblies for a large mission critical Navy program.
The amended contract, including options now provides for the purchase of up to $77 million of assemblies from Cypress over the term of the agreement representing.
Representing a 39% increase in potential volume when compared to the original based contract announced in early 2022.
In conjunction with the amendment, we also receive releases for the first year of production.
With shipments scheduled to begin in 2023.
For modules to be produced by Cypress will be integrated into an electronic warfare improvement program for the U S. Navy.
According to new sources, the upgrade will provide the capability to actively jab incoming missiles that threaten or ship.
Decoys and adapt quickly to evolving threats.
The improvements to the electronic attack portion will provide integrated countermeasures against radiofrequency guided threats. According to the Navy.
The U S Naval Institute reported that the systems capability for non kinetic electronic attack options can be further deployed an additional critical areas.
From a dense communications to multiple waveforms.
Multi function applications. So this system will provide enhanced mission critical capabilities to the U S Navy fleet.
While presenting opportunities for future reductions in cost size weight and power.
And in November we announced that we received a follow on award from a USDA prime contractor to manufacturing test embedded circuit card assemblies.
We will perform certain of the cryptographic functions from the Army key management system.
The 8-K M's fielded system that consists of three sub systems.
Local communications security management software the LCM is.
Automated communications engineering software, the Acs and the simple kilo device.
Under the umbrella of our nation's electronic key management system.
The 8-K M's provides tactical units and sustaining basis within our organic key generation capability and an efficient secure electronic key distribution needs.
The CMS workstation provides automated key generation distribution and communications security accounting.
The Asa Es, which is a frequency management portion of AK MFS.
<unk> has been designated by the military Communications Electronics Board as the standard for use by all services and the development of the frequency management cryptographic net planning and signal operations instructions generation.
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 <unk>.
Store and transfer data between compatible cryptographic and communications equipment.
The device incorporates features that provide for the streamline management of communication security key electric.
Electronic protection data and signal operation obstructions.
Production is expected to begin in 2023.
Subsequent to quarter end, you'll note on slide six we announced an award to produce some tests electronic interface modules for department of defense weapons system that is an important part of the dod's ongoing modernization effort.
Production on this program is expected to begin later in 2023.
And in March of this year Cypress technologies announced that it entered into an amendment to its current supply agreement with Detroit Diesel Corporation.
A subsidiary of Daimler truck North America.
Daimler truck North America is itself a subsidiary of Daimler truck holding AG, one of the world's largest commercial vehicle manufacturers.
The amendment adds a new series of part numbers to the agreement with DDC for drivetrain components for use of Ddc's Detroit branded drive axles.
Components to be produced by Cypress will be essential to the performance of the drive axles are freight liners heavy duty vehicles.
Production of these additional part numbers under the amended contract are expected to commence in 2023.
Okay.
Each of these contracts are representative of the high cost of failure applications for which cypress is well known.
We expect the momentum of new contract wins to continue during 2023, and we remain very optimistic about the potential for future program and revenue growth as we move forward.
In summary, we are pleased with the substantial progress that continues to be made across our business.
The supply chain challenges are beginning to abate and our focus is clearly on meeting the growing demand of our customers.
We have reached the inflection point.
Future shipments now expected to reflect the impact of our growing backlog.
Looking forward the.
The substantial growth of this backlog when combined with the improving outlook for the supply chain.
It provides.
<unk> provides us with the confidence to increase our outlook for 2023.
Our new forecast now includes topline growth, 25% to 30%.
Margin expansion of 175 to 225 basis points and for cash flow from operations to once again be solidly positive.
Reflecting the benefit of our earnings growth.
Now, let's advance to slide seven to review the outlook for each of our major markets.
Sure.
According to ACP research the demand for the production of class eight heavy vehicles increased 19% in 2022.
<unk> is expected to remain essentially flat at this elevated level during 2023.
There are many factors that are having a positive influence on the demand for transportation.
Unfilled demand from 2022.
Capacity shortfalls in the supply chain.
Elevated carrier profitability and the continued transition to e-commerce among other factors.
Shortages of semiconductor chips steel and other components that serve to hold down OEM production levels, pushing the backlog well into 2023.
The current acte outlook calls for medium and heavy duty truck production to remain at elevated levels into Q3 before easing somewhat in the second half of 2023.
Turning now to slide eight the market for the transportation end use of natural gas is key for Cypress and it has become increasingly dynamic over this past year.
European countries boosted LNG imports by 60% in 2022 to offset declining pipeline shipments from Russia.
As part of the strategic response to their former dependency on Russia.
For the reliable supply of natural gas Europe has embarked upon an aggressive campaign to sources needs elsewhere.
The E F. A forecast that Europe will increase its LNG import capacity.
By 33% by the end of 2024.
And that the global LNG market will see a tidal wave of projects come online starting in mid 2025.
The outlet projects that 64 million metric tons of annual liquefaction capacity will be added by 2026.
The U S is a major provider of LNG and became the world's largest exporter in 2022 with plans to do even more in the future.
The maps to the right to pick the various projects underway in the U S and Europe identifying.
Identifying those that are operational under construction.
Proved and proposed.
The 76% growth in our energy products backlog year over year reflects the strong and growing demand to support these infrastructure programs we.
We remain cautiously optimistic that this positive outlook will remain in effect for some time to come.
As you'll see from the chart on slide nine 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 for future business now stands at $118 $5 million is up 119% or $64 $5 million as of year end with form orders now extending well into 2024.
We are very pleased with the level of new business momentum and we are optimistic business important trend 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 10 please.
Please note that revenue forecast increased 25% to 30% for 2023.
With shipments to our customers in defense related markets expected to result in a 32% increase in overall mix.
Rising to 37% of sales in 2023 up from 28% of sales in 2022.
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 11 for a brief summary.
Okay.
Revenue for the quarter increased 15% backlog grew by 117%.
Providing a strong platform to support future growth in 2023.
Backlog at Cypress Electronics, now stands at a $118 $5 million.
<unk>, a 119% or 65 $64 $5 million increase from the prior year end.
In a similar fashion backlog current energy products is up more than 76% year over year.
Our markets are in good shape.
Defense spending is rising and we may yet feel some additional tailwind.
Upon the future outcome of the current unfortunate geopolitical situations.
Our recent contract awards are expected to provide further support for topline expansion during the year.
While we remain optimistic about the potential for good additional contract wins and successes.
As a result, we have increased our outlook for 2023.
From the initial guidance, we provided in November of last year.
Revenues now expected to increase 25% to 30% year over year.
Spec gross margin follow suit expanding 175 to 225 basis points into 2023, while cash flow from operations is forecast to remain strong supported by our outlook for earnings growth.
Quite simply we are looking forward to the task of building the business profitably during the coming year and beyond.
Turning now to slide 12, Rich Davis will lead you through the balance of our presentation. This morning rich.
Rich.
Thanks, Jeff excuse me good morning, everyone I'd like to discuss with you some of the highlights of our fourth quarter financial results. Please advance to slide 13.
Q4 consolidated revenue was $29 7 million an increase of 15, 2% from the fourth quarter of last year, driven mainly by an increase in bookings in 2022, and an increase in an increased 17, 9% sequentially as we recovered from supply chain issues in Q3.
Consolidated gross profit was $4 6 million for the quarter, an increase of four 3% from the prior year.
And up 133% sequentially on the growth in revenue over the prior quarter.
Gross margin was off 160 basis points compared to the prior year Q4, due to an unfavorable shift in mix. It was up 770 basis points sequentially to 15, 5% on the rebound in revenue.
Revenue for Cypress technologies increased 16, 6% year over year to $17 2 million for the quarter gross margin was down 290 basis points from the prior year due to raw material price increases pass through to the customer without markup. However, gross margin was up 660 basis.
Points from Q3 on increased shipments of higher margin branded products.
While production in the class a truck market at the OEM level continued to be constrained in 2022 by supply chain issues unrelated to the availability of the components we manufacture it.
It continued at a high level compared to the prior year.
However, our shipment volume went down in Q4 as our customers rebalance their inventory levels at year end.
Shipments have subsequently returned to normal levels in January .
Lastly, demand finished 2022 of the 19, 2% increase over 2021 and is expected to be essentially flat at that high level through 2023 with a slight decline in the second half excuse me.
Fourth quarter orders in backlog for energy products increased 71% and 76% respectively year over year.
And we expect revenue from these products will increase in 2023.
On the cost side, we are experiencing some of the inflationary pressures that are being felt across the economy.
This is a consumable supplies tooling have increased as have utility rates.
We are working both internally and with our vendors on cost effective solutions to control spend in these areas.
We also incurred additional cost during the year to support increased demand in the commercial vehicle market in 2022.
And new programs planned for 2023.
The price of steel has increased over the prior year and certain of our contract terms provide for sales price adjustments to pass increased costs onto our customers.
Our engineering and product development teams have also.
Initiatives underway to reduce steel consumption in both our forging and machining processes to improve our margins and deliver cost savings to our customers.
Revenue for Cypress Electronics was $12 5 million for the quarter, an increase of 13, 2% from the prior year and 53% sequentially as it rebounded from the supply chain issues that impeded shipments in the third quarter.
Gross margin was at 18, 9% an increase of 20 basis points from the prior year and 790 basis points from Q3 on the rebound in revenue.
We ramped up an advanced version of an assembly for a large defense electronics program in the quarter, while production for communication customers also continue to increase.
We continue to expand our workforce in the quarter at Cypress electronics to reinforce the team's efforts to execute the significant planned increase in shipments in 2023.
We're not limited by material availability. These efforts along with increased capital expenditures will boost manufacturing capacity and capability for the planned increase.
As we increased increased production <unk> transitioned from limited rate to full rate build on programs our margin rates typically increased during the life of the program as labor productivity improves and engineering resource requirements and rework decline.
As program programs mature, we also have the opportunity to reduce material costs by working together with our suppliers and customers to qualify components that lower our cost per unit.
Consolidated operating income for Q4 was 800000 down 28% from the prior year, mainly due to increases in selling and administrative cost, but up 150% sequentially due to the revenue improvement in Q4.
Our operations teams are focused on execution and meeting our objectives for customer service and cost.
The strong backlog in place provides a solid foundation to support growth into 2023.
Please advance to slide 14.
Consolidated revenue for the full year increased $12 7 million or 13% from the prior year.
Both segments contributed to the year over year revenue growth.
Consolidated gross profit increased two 4% to $14 9 million.
Gross margin decreased year over year by 140 basis points to 13, 5% on unfavorable mix.
Revenue for Cypress technologies increased 12, 2% year over year to $69 3 million and gross profit increased five 4% to $8 6 million gross.
Gross margin decreased 80 basis points to 12, 3% for the period.
The 2022 revenue mix with Cypress technologies was unfavorable compared to the prior year due to increased revenue from material price pass through adjustments, which increased revenue without increasing gross profit driving a decrease in gross margin.
Revenue for Cypress Electronics increased 14, 5% from the prior year the.
Gross profit decreased one 4% to $6 3 million gross margin declined 250 basis points to 15 four.
Okay.
The comparison of year over year revenue gross margin for Cypress electronics reflects the material availability challenges we faced during 2022.
And their impact on overhead absorption along with unfavorable mix compared to the prior year.
Excluding the results of Q3, which was quite negatively impacted by the supply chain challenges 2022 gross margin would have been 110 basis.
Basis points higher.
2022, operating income decreased $1 5 million from the prior year due mainly to decrease and increases in selling and administrative costs.
The comparison of year over year net income highlights the $3 $6 million benefit recognized in 2021 on the forgiveness of the PPP loan.
Please advance to slide 15.
This slide we show our consolidated gross margin for 2021, and 2022, along with the performance expected for 2023.
2022 decreased by 140 basis points from the prior year on production inefficiencies induced by the supply chain challenges and unfavorable mix.
With the strength of shipment volume increases required by the increase in our backlog.
We expect revenue growth in the range of 25% to 30% as we enter 2023.
We expect to deliver year over year margin improvement and a range of 175 to 225 basis points, placing us at a 15, 5% margin at the midpoint of this range in 2023.
We again want to recognize the efforts of all of our teammates involved in securing the orders received this year to push our backlog to a record level and we are excited about the opportunities. It provides to improve our margins and profitably grow our business.
We also want to recognize and thank our reinforced cypress electronics team for its intense focused efforts to meet its customers' expectations for rising shipments in 2023 and.
And the Cypress technologies team with similar efforts to implement new programs for existing customers.
We will also continue our efforts to diversify our markets served and our customer base to deliver more value add services to our customers, which we believe can provide further upside to our current margin levels.
Please advance to slide 15.
A quick summary of our comments.
A key highlight for the quarter and the year was the significant increase in orders and backlog in both segments.
Cypress electronics orders were $105 4 million for 2022 up 87% year over year.
Increasing its backlog to $118 5 million from $54 million in 2021.
We expect shipments to rise in 2023 is a function of the increase in backlog.
Cypress technologies entity energy products orders were up 23% for the year with fourth quarter orders up 71% over the prior year period.
The outlook for Cypress technologies remains favorable with the current forecast for class eight production in 2023, basically even with the high level of 2022 and further supported by planned increases in new programs with existing customers.
Cypress technologies is augmented its product line and distribution resources to expand its energy products presence in Europe Asia and the Middle East.
We expect both segments will generate double digit year over year topline growth in 2023 significantly increasing gross margin.
Based on our record backlog and momentum in orders, we expect continued revenue growth 25% to 30%.
And a 175 to 225 basis point improvement in gross margin in 2023.
Thank you for your continued support and interest in our business now I'd like to turn it over to Jeff for closing remarks.
Thank you rich and thank you everyone for joining us on the call. This morning.
We're looking forward to another year of double digit growth expanding margins and increased profitability.
And please note.
We appreciate your continued interest in our business.
And have a great day.
Thank you.
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