Q3 2023 Sypris Solutions Inc Earnings Call
Okay.
Good day and welcome suppressor.
First 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 President and Chief Executive Officer, Mr. Jeffrey Gill. Please go ahead Sir.
Thank you Nick and good morning, everyone Rich Davis, and I would like to work in the to this call.
Purpose of which is to review the company's financial results for the third quarter 2023.
For those who 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.
<unk> can be given that these projections and statements will be achieved.
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 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 market.
Rich will then provide you with a more detailed review of our financial results for the period.
Now, let's begin with the overview on slide four.
We are pleased to report that revenue for the quarter increased 33% year over year, reflecting continued strength across each of our business segments with.
With revenue rising 73, 5% for Cypress electronics, and 13, 8% for Cypress technologies on a year over year basis.
Gross profit increased 105% for the period, reflecting an increase of 186, 8% at Cypress electronics, and 36, 2% Cypress technology.
Gross margin for the company followed suit rising by 420 basis points for the quarter driven by an increase of 710 basis points for Cypress electronics and by 120 basis points for Cypress technologies.
Backlog for the period increased eight 4% consolidated basis, which was an important accomplishment following the 33% increase in sales during the period.
Backlog for Cypress electronics increased 9% to $109 $5 million at the end of the quarter.
$9 million from the prior year period.
The company's financial performance was particularly notable since a bore the negative way debate hundreds of thousand dollars in the form of foreign currency headwinds when compared to the prior year period.
In other words from an operating standpoint, it was another very positive quarter.
As we mentioned previously we have entered an inflection point.
We're rapidly rising demand is intersecting with increasingly availability of material.
We believe that the pace of conversion of our backlog and the revenue will continue to accelerate.
As we now ramp up new programs to full rate production.
Turning now to slide five.
We have been pleased to announce several additional additional new contract awards during the quarter.
More specifically Cypress technologies.
In August we announced an award for 72 inch insulated joints for use in the expansion of the total water pipeline for.
The Oklahoma City water utilities Trust.
According to new sources. The second I took a pipeline is being built to provide Oklahoma city and its surrounding areas with potable water.
The project is the largest municipal water infrastructure project in the history of the state.
And includes a new 100 mile long 72 inch diameter pipeline that.
That will transport raw water from late <unk> to Lake Stanley Draper and Oklahoma City.
We will then be treated and delivered to more than one 4 million people in central Oklahoma.
The pipeline is slated to cost to $800 million and move more than 100 million gallons of water per day.
Sure.
Cypress has agreed to manufacturing supply its tube turns branded monolithic insulated joints for cathodic protection of the new 72 inch polyethylene coated and cement mortar line steel pipeline.
These insulated joints will be 72 inches in diameter and it will be related to a pressure of 300 <unk> stock.
Shipments under this contract are expected to start in 2023 and finish in 2024.
In August we announced an award for specialty high pressure closures for use of the venture global CB, two LNG export terminal and.
And the venture Global CP Express natural gas pipeline project.
The CPE to the LNG facility will be a natural gas liquid patient liquefaction export terminal with a nameplate export capacity of 20 million metric tons per annum.
<unk> LNG will be the second LNG export project developed by venture Global LNG and Cameron parish, Louisiana.
The first being the Calcasieu pass project.
Together, they represent more than what $10 billion of direct investment in the parish according to news sources.
<unk> Express will consist of approximately 85 miles of new 48 inch diameter natural gas pipeline.
Approximately $5 nine miles of new 24 inch diameter lateral pipeline to connect the CP two LNG terminal to the existing natural gas pipeline grid East, Texas and southwest Louisiana.
The investment will support the objective of global venture LNG to develop clean and reliable North American energy supplies.
The project is proposed to be in service by mid 2025.
Cypress has agreed to manufacture and supply its tube turns branded specialty high pressure tool disclosures for use on the filtration systems for the project.
These closures will range up to 70 inches in diameter will be related to a pressure 2100 ADP aside.
And OE up to as much as 17 five tons each.
Shipments under this award are expected to be completed by year end.
Sure.
Turning now to slide six.
At Cypress Electronics, we recently announced the receipt of two multimillion dollar follow on contract awards from our U S. Global defense contractor to produce modules to be incorporated into an advanced integrated electronic warfare and communications avionics system.
But one of the largest program so the department of defense.
The program is for an American family of single seat single engine, all weather stealth multi row combat aircraft that is intended to perform both air superiority.
And strike initiatives.
The aircraft is also able to provide electronic warfare and intelligence surveillance and reconnaissance capabilities.
According to new sources U S plans to purchase versions of the aircraft through the year 2044.
And the aircraft is expected to operate until 2017.
Okay.
Cypress will produce and test the advanced integrated electronic avionics system modules for the communications navigation and identification suite of the aircraft.
This system supports the simultaneous operation of multiple critical functions, such as identified identification of friend or foe pre.
Precision navigation.
And various secure voice and data communications.
Production is expected to begin in 2023.
We also announced that we received a follow on award from the U S. Dod Prime contractor to manufacturing test embedded circuit card assemblies that will perform certain of the cryptographic functions for the army and management system.
The 8-K M's was fielded system that consists of three sub systems.
Local communications security management software.
Automated communications engineering software.
And the simple kilo device.
Under the umbrella of our nation's electronic key management system.
<unk> provides tactical units and sustaining basis with an organic key generation capability and an efficient secure electronic key distribution means.
The embedded circuit card assemblies to be produced by Cypress will perform the cryptographic functions for our Ruggedized portable handheld simple key load device that will be used to securely receive.
Store and 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 instructions.
Production is expected to begin in 2023.
Each of these contracts are representative of the high cost of failure applications for which cypress as well now.
We expect the momentum of new contract wins to continue into the coming year, and we remain very optimistic about the potential for future program and revenue growth as we move forward.
We expect full year revenue growth for 2023 to approximate 25%.
With gross profit rising biosimilar precise percentage despite the drag associated with the continued strength of the Mexican peso on a year over year basis.
Our initial outlook for 2024 is positive.
Reflecting our strong backlog and the continued momentum of new contract awards across many of our markets.
Revenues forecast forecast increased 15% to 20% with gross profit rising 25% to 30% while gross margins are expected to expand 150 to 200 basis points.
Now, let's advance to slide seven to review the outlook for each of our major markets.
According to ACP research the demand for the production of commercial vehicles is now expected to rise seven 3% to 625000 vehicles during 2023 and first softening of demand to.
Occur in 2024 with production forecast to decline by 13 four.
4% for the year before rising sequentially in each of the following two years.
We believe that the potential exists to grow through the cycles with momentum continuing to favor the re shoring of production to North America, and within North America to Mexico.
Turning now to slide eight.
The market for the transportation end use of natural gas is key for Cypress.
It's 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 source its needs elsewhere.
E <unk>.
<unk> 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 coming online starting in mid 2025.
The outlook projects.
Projects.
64 million metric tons of annual liquidation 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.
By way of illustration.
The U S exported 10 6 billion cubic feet per day in 2022.
And as forecasted export $13 3 billion cubic feet per day in 2024, and $22 5 billion cubic feet per day by 2027.
The maps to the right to pick the various projects underway in the U S and Europe identifying those that are proposed.
<unk> under construction and in operation.
The continued 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.
As you'll see from the chart on slide nine the long term market for defense spending remains positive.
Within the overall budgetary allocations spending for technology upgrades of strategic platforms continues to be a very high priority.
Our backlog of business now stands at $109 $5 million.
Up 9% year over year with firm orders extending into 2025.
We are very pleased with the level of new business momentum and we are optimistic that this important trend will continue going forward.
During previous calls we discussed the changes that have taken place in our market mix over the past several years.
Turning now to slide 10 please.
Please note that revenues forecast increased 15% to 20% for 2024.
With shipments to our customers in defense related markets expected increased significantly.
As a result of defense electronics is forecast to represent 46% of consolidated sales in 2024 up from 33% in 2023.
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 33%, while gross profit increased 105% and.
Gross margins expanded 420 basis points.
Right the negative drag of the Mexican peso on our year over year results.
The defense market should benefit from increased spending in fiscal 2024.
Discretionary and emergency funding combining to exceed $1 trillion for the year.
And within this overall expected spend invest.
Investments in electronic warfare avionics and communications are forecast to rise disproportionately.
Yes.
As a result, we are pleased to issue our initial outlook for 2020 floor with revenue expected to.
To increase 15% to 20% year over year.
We expect gross profit to rise, 25% to 30% while gross margin is forecast to expand 150 to 200 basis points for the year.
Turning now to slide 12, which Davis will lead you through the balance of our presentation.
Rich thanks, Jeff.
Everyone I'd like to discuss with you some of the highlights of our third quarter and year to date financial results. Please advance to slide 13.
Q3, consolidated revenue was $33 6 million, an increase of 33% from the third quarter of last year.
Consolidated gross profit was $4 million for the quarter, increasing 105% from the prior year quarter due to overall higher production and shipment volumes in both segments and favorable mix offset by the impact of <unk> million and unfavorable peso to dollar exchange rates.
Revenue for Cypress technologies increased 13, 8% year over year to $19 3 million for the quarter.
Gross margin was up 120 basis points from the prior year quarter due to favorable mix offset by the unfavorable peso to dollar exchange rate impact.
On the cost side.
<unk> experienced some of the inflationary pressures that are being felt across the economy.
Prices of consumable supplies and tooling have increased utility rates.
We continue to do daily management of spend excuse me in these areas, including scheduling production in off peak utility rate hours as much as possible.
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 $14 2 million for the quarter, an increase of 73% year over year.
Gross margin was 18, 1% an increase of 710 basis points year over year on higher production and shipment volumes favorable mix material cost savings on certain programs.
And the impact of our continuous improvement initiatives.
We continue to implement a comprehensive approach to continuous improvement and lean manufacturing at Cypress electronics.
And to expand its workforce to reinforce the team's efforts to effectively serve its customers and the execution of significant sequential quarterly increases in shipments in 2023 and on into 2024. We also continue to implement additional automated production and exception inspection equipment.
To further improve our manufacturing efficiency.
We expect these efforts to cost effectively further boost manufacturing output to meet the planned shipment increases.
As we increased production and continue to make manufacturing process improvements, we anticipate an improvement in labor productivity and overhead absorption, resulting in an improvement in margins.
Consolidated operating operating income for Q3 was 110 million loss due to the <unk> million dollars unfavorable peso to dollar exchange rate impact noted earlier.
Up from a loss of $1 6 million in the prior year due principally to the increase in gross profit.
Our operations teams are focused on execution and meeting our objectives for customer service and expanded volume levels, while also reducing cost per unit.
Our strong backlog in place provides a solid foundation to support this growth through the remainder of 2023 and into 2024.
Please advance to slide 14.
Year to date consolidated revenue was $101 $5 million, an increase of $21 1 million or 26% from the nine months of last year.
Both segments contributed to this year over year revenue growth year.
Year to date consolidated gross profit increased 25% to $12 9 million.
Excluding the impact of $1 8 million and year to date unfavorable peso to dollar exchange rates gross profit would've increased by 43% to $14 7 million.
Year to date revenue for Cypress Electronics was $42 6 million, an increase of 50% from the prior year and gross profit increased 72% to $6 8 million.
Gross margin improved 202 basis points to 15, 9%.
In addition to the factors previously noted for Q3, the comparison of year to date revenue and gross margin for Cypress electronics to the prior year periods reflects the significant increase in revenue volume, resulting from a very high level of bookings achieved in 2022 and continuing into 2023.
And the significant progress our integrated manufacturing and continuous continuous improvement team has made in delivering on the steeply increased backlog.
Year to date revenue for Cypress technologies increased 13% to $58 9 million.
Gross profit decreased three 6% to $6 1 million, mainly due to the $1 $8 billion year to date unfavorable peso to dollar exchange rate impact.
Excluding the impact of the unfavorable exchange rates gross profit would have increased by 25% to $7 9 million.
Gross margin decreased 180 basis points to 10, 4% for the period, excluding the impact of the unfavorable exchange rates gross margin would have improved 125 basis points.
To 13, 4%.
The Mexican peso strengthened significantly against the US dollar in 2023 to levels not seen since before the pandemic.
In 2019, the rate varied from $18 706 pesos per dollar to $19 91 pesos per dollar.
After the disruption of the pandemic the rate move to 19.
407 pesos per dollar on December 29, 2022.
After having varied in a range above that from early 2020 to that date.
Since that date the rate has fallen to 17 32 as of this morning, a rate not seen in the previous five years.
Forecast of the future rates vary widely we were evaluating currency hedging options at this time under a variety of scenarios.
Our year to date consolidated SG&A expense was $11 6 million an increase of eight 6% over the prior year.
Merit pay increases and limited editions to business development and program management personnel contributed to the increase.
SG&A as a percent of revenue decreased to 11, 4% from 13, 3% a year ago.
As our revenue increases we expect further reductions in SG&A as a percent of revenue as operating leverage improves.
Our year to date operating income was $1 3 million an increase of over three five times the operating loss of four tenths of $1 million for the same period in 2022.
Please advance to slide 15.
On this slide we show our trend of consolidated gross margin for 2022, and 2023, along with the performance.
<unk> for 2024.
2023 is expected to approximate the prior year as the impact of negative peso have a negative peso to dollar exchange rate more than offset.
The positive impacts of higher volumes on production efficiencies favorable mix material savings on certain programs and the positive impact of our continuous improvement initiatives.
As noted in the 2023 pro forma bar on the graph our gross margin would have been 14, 4% or 90 basis points higher had it not been subject to the full year estimate of $1 9 million with the unfavorable peso dollar exchange rate impact.
With our 2020 for outlook for a revenue increase of 15% to 20% and a more limited impact of the peso dollar exchange rate. Our 2020 for gross margin outlook is 14, 8% on higher volumes at the expected mix.
We will strive to continuously improve manufacturing output and productivity, while maintaining excellent quality. We will also continue our efforts to diversify our markets served in 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 16 for a quick summary of our comments.
Key highlights for the quarter and year to date include the continued strong backlog position and a significant increase in gross profit both through the third quarter and the year to date periods.
Despite the unfavorable impact of the Mexican peso relative to the U S dollar.
We expect rapid growth in Cyprus electronics defense market supplemented by additional funding to meet the defense needs of our allies.
This market will likely exceed $1 trillion for the fiscal year 2024.
We also expect significant growth in its communications and space markets.
The outlook for Cypress technologies remains positive.
Current forecast for commercial vehicles in 2024 is for year over year decline of 13, 4%.
That decline is expected to be offset by planned increases in new programs with existing commercial and other vehicle customers and currently strong demand for its energy products for use in the rapidly growing LNG export markets among others.
Cypress technologies in addition to expanding its energy product line to include <unk>.
Augmenting its distribution resources to expand its energy products presence in Europe Asia, the Middle East and Mexico is booked its first order for insulated joints and a water line expansion application.
Based on our strong backlog growing new business funnel and growing market potential we offer our initial guidance for 2024 at 15% to 20% growth in revenue.
25% to 30% growth in gross profit and a 15% to 200 basis point increase in gross margin.
We look forward to the opportunity to continue the positive momentum of growth and continuous improvement in 2023 into a bigger and more profitable 2024.
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 for joining us on this call. This morning.
Looking forward to another year of double digit growth expanding margins and increased profitability.
And please know we appreciate your continued interest in our business.
Thank you and have a good day.
Conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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Good day, and welcome Zebra solutions incorporated conference call.
Today's call is being recorded.
At this time for opening remarks.
The call over to the President and Chief Executive Officer, Mr. Jeffrey Gill. Please go ahead Sir.
Thank you Nick and good morning, everyone.
Rich Davis and I would like to work in the to this call.
So which is to review the company's financial results for the third quarter 2023.
For those who 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 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 market.
Rich will then provide you with a more detailed review of our financial results for the period.
Now, let's begin with the overview on slide four.
We are pleased to report that revenue for the quarter increased 33% year over year, reflecting continued strength across each of our business segments.
With revenue raising 73, 5% for Cypress electronics, and 13, 8% for Cypress technologies on a year over year basis.
Gross profit increased 105% for the period, reflecting an increase of 186, 8% at Cypress electronics, and 36, 2% Cypress technology.
Gross margin for the company followed suit rising by 420 basis points for the quarter driven by an increase of 710 basis points for Cypress electronics and by 120 basis points for Cypress technologies.
Backlog for the period increased eight 4% consolidated basis, which was an important accomplishment falling to 33% increase in sales during the period.
Backlog for Cypress electronics increased 9% to $109 $5 million at the end of the quarter up $9 million from the prior year period.
The company's financial performance was particularly notable since a bore the negative way to $800000 in the form of foreign currency headwinds when compared to the prior year period.
In other words from an operating standpoint, it was another very positive quarter.
As we mentioned previously we have entered an inflection point.
We're rapidly rising demand is intersecting with increasingly availability of material.
We believe that the pace of conversion of our backlog and the revenue will continue to accelerate.
As we now ramp up new programs to full rate production.
Turning now to slide five.
We have been pleased to announce several additional additional new contract awards during the quarter.
More specifically Cypress technologies.
In August we announced an award for 72 inch insulated joints for use in the expansion of the cocoa water pipeline for.
The Oklahoma City water utilities Trust.
According to new sources, the second of Tokyo pipeline is being built to provide Oklahoma city and its surrounding areas with potable water.
The project is the largest municipal water infrastructure project in the history of the state.
And includes a new 100 mile long 72 inch diameter pipeline that.
That will transport raw water from Lake a toga to Lake Stanley Draper and Oklahoma City.
We will then be treated and delivered to more than $1 4 million people in central Oklahoma.
The pipeline is slated to cost $800 million and move more than 100 million gallons of water per day.
Sure.
Cypress has agreed to manufacturing supply its tube turns branded monolithic insulated joints for cathartic protection of the new 72 inch polyethylene coated and cement mortar lines steel pipeline.
These insulated joints will be 72 inches in diameter and it'll be related to a pressure of 300 <unk> stock.
Shipments under this contract are expected to start in 2023 and finish in 2024.
In August we announced an award for specialty high pressure closures for use of the venture global CB, two LNG export terminal and.
And the venture Global CP Express natural gas pipeline project.
The CPE to the LNG facility will be a natural gas liquid liquefaction export terminal with a nameplate export capacity of 20 million metric tons per annum.
<unk> LNG will be the second LNG export project developed by venture Global LNG and Cameron parish, Louisiana.
The first being the Calcasieu pass project.
Together, they represent more than what $10 billion of direct investment in the parish according to new sources.
<unk> Express will consist of approximately 85 miles of new 48 inch diameter natural gas pipeline.
Approximately $5 nine miles of new 24 inch diameter lateral pipeline to connect the CP two LNG terminal to the existing natural gas pipeline grid East, Texas and southwest Louisiana.
The investment will support the objective of global venture LNG to develop clean and reliable North American energy supplies.
The project is proposed to be in service by mid 2025.
Cypress has agreed to manufacture and supply its tube turns branded specialty high pressure tool disclosures for use on the filtration systems for the project.
These closures will range up to 70 inches in diameter will be related to a pressure 2100 ADP aside.
And OE up to as much as 17 five tons each.
Shipments under this award are expected to be completed by year end.
Sure.
Turning now to slide six.
At Cypress Electronics, we recently announced the receipt of two multimillion dollar follow on contract awards from our U S. Global defense contractor to produce modules to be incorporated into an advanced integrated electronic warfare and communications avionics system.
But one of the largest program so the department of defense.
The program is for an American family of single seat single engine, all weather stealth multi row combat aircraft that is intended to perform both air superiority.
And strike initiatives.
The aircraft is also able to provide electronic warfare and intelligence surveillance and reconnaissance capabilities.
According to new sources U S plans to purchase versions of the aircraft through the year 2044.
And the aircraft is expected to operate until 2017.
Okay.
Cypress will produce and test the advanced integrated electronic avionics system modules for the communications navigation and identification suite of the aircraft.
The system supports the simultaneous operation of multiple critical functions, such as identified identification of friend or foe precision navigation and.
At various secure voice and data communications.
Production is expected to begin in 2023.
We also announced that we received a follow on award from a USDA prime contractor.
Manufacturing test embedded circuit card assemblies that will perform certain of the cryptographic functions for the army and management system.
The Atms as a fielded system that consists of three subsystems.
Local communications security management software.
Automated communications engineering software.
And the simple kilo device.
Under the umbrella of our nation's electronic key management system.
<unk> provides tactical units and sustaining basis within organic key generation capability and an efficient secure electronic key distribution means.
The embedded circuit card assemblies to be produced by Cypress will perform the cryptographic functions for our Ruggedized portable handheld simple key load device that will be used to securely receive.
Store and transfer data between compatible cryptographic and communications equipment.
The device incorporates features to provide for the streamlined management and communications security key.
Electronic protection data and signal operation instructions.
Production is expected to begin in 2023.
Each of these contracts are representative of the high cost of failure applications for which cypress as well now.
We expect the momentum of new contract wins to continue into the coming year, and we remain very optimistic about the potential for future program and revenue growth as we move forward.
We expect full year revenue growth for 2023 to approximate 25% with.
With gross profit rising biosimilar precision percentage, despite the drag associated with the continued strength of the Mexican peso on our year over year basis.
Our initial outlook for 2024 is positive, reflecting our strong backlog and the continued momentum of new contract awards across many of our markets.
Revenues for Kraft forecast increased 15% to 20%.
With gross profit rising 25% to 30%.
Our gross margins are expect to expand 150 to 200 basis points.
Now, let's advance to slide seven to review the outlook for each of our major markets.
According to <unk> research the demand for the production of commercial vehicles is now expected to rise seven 3% to 625000 vehicles during 2023.
And for a softening of demand to occur in 2024 with production forecast to decline by 34, 4% for the year before rising sequentially each of the following two years.
We believe that the potential exists to grow through the cycles with momentum continuing to favor the re shoring of production to North America, and within North America to Mexico.
Turning now to slide eight the.
The market for the transportation end use of natural gas is key for Cypress.
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 source its needs elsewhere.
The I E.
Forecast that Europe will increase its LNG import capacity.
By 33% by the end of 2024 and.
And that the global LNG market will see a tidal wave of projects coming online starting in mid 2025.
The outlook projects.
Projects at 64 million metric tons of annual liquidation 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.
By way of illustration.
The U S exported $10 6 billion cubic feet per day in 2022.
And as forecasted export $13 3 billion cubic feet per day in 2024, and $22 5 billion cubic feet per day by 2027.
The maps to the right to pick the various projects underway in the U S and Europe identifying those that are proposed approved under construction and in operation.
The continued 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 picked up.
As Youll see from the chart on slide nine the long term market for defense spending remains positive.
Within the overall budgetary allocations spending for technology upgrades that strategic platforms continues to be a very high priority.
Our backlog of business now stands at $109 $5 million.
At 9% year over year with firm orders extending into 2025.
We are very pleased with the level of new business momentum and we are optimistic that this important trend will continue going forward.
During previous calls we discussed the changes that have taken place in our market mix over the past several years.
Turning now to slide 10. Please note that revenues forecast increased 15% to 20% for 2024 with shipments to our customers in defense related markets expect to increase significantly.
As a result of defense electronics is forecast to represent 46% of consolidated sales in 2024.
Up from 33% of 2023.
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 33%, while gross profit increased 105%.
Gross margins expanded 420 basis points, despite the negative drag of the Mexican peso on our year over year results.
The defense market should benefit from increased spending in fiscal 2024 with discretionary and emergency funding combining to exceed $1 trillion for the year.
And within this overall expected spend.
Investments in electronic warfare avionics and communications are forecast to rise disproportionately.
Sure.
As a result, we are pleased to issue our initial outlook for 2020 floor with revenue expected to.
To increase 15% to 20% year over year.
We expect gross profit derived 25% to 30%.
Gross margin is forecast to expand 150 to 200 basis points for the year.
Turning now to slide 12, which Davis will lead you through the balance of our presentation. So rich.
Rich Thanks, Jeff Good morning, everyone I'd like to discuss with you some of the highlights of our third quarter and year to date financial results. Please advance to slide 13.
Q3, consolidated revenue was $33 6 million, an increase of 33% from the third quarter of last year.
Consolidated gross profit was 4 million for the quarter, increasing 105% from the prior year quarter due to overall higher production and shipment volumes in both segments and favorable mix offset by the impact of <unk> million and unfavorable peso to dollar exchange rates.
Revenue for Cypress technologies increased 13, 8% year over year to $19 3 million for the quarter.
Gross margin was up 120 basis points from the prior year quarter due to favorable mix offset by the unfavorable peso to dollar exchange rate impact.
On the cost side.
<unk> experienced some of the inflationary pressures that are being felt across the economy.
Prices of consumable supplies and tooling have increased utility rates.
We continue to do daily management of spend excuse me in these areas, including scheduling production and off peak utility rate hours as much as possible.
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 $14 2 million for the quarter, an increase of 73% year over year.
Gross margin was at 18, 1% an increase of 710 basis points year over year on higher production and shipment volumes favorable mix material cost savings on certain programs.
And the impact of our continuous improvement initiatives.
We continue to implement a comprehensive approach to continuous improvement and lean manufacturing at Cypress electronics.
And to expand its workforce to reinforce the team's efforts to effectively serve its customers and the execution of significant sequential quarterly increases in shipments in 2023 and on into 2024. We also continue to implement additional automated production and expect inspection equipment.
To further improve our manufacturing efficiency.
We expect these efforts to cost effectively further boost manufacturing output to meet the planned shipment increases.
As we increased production and continue to make manufacturing process improvements, we anticipate an improvement in labor productivity and overhead absorption, resulting in an improvement in margins.
Consolidated operating operating income for Q3 was 110 million loss due to the <unk> million dollars unfavorable peso to dollar exchange rate impact noted earlier.
Up from a loss of $1 6 million in the prior year.
Due principally to the increase in gross profit.
Our operations teams are focused on execution and meeting our objectives for customer service and expanded volume levels, while also reducing cost per unit.
The strong backlog in place provides a solid foundation to support this growth through the remainder of 2023 and into 2024.
Please advance to slide 14.
Year to date consolidated revenue was $101 5 million, an increase of $21 1 million or 26% from the nine months of last year.
Both segments contributed to this year over year revenue growth.
Year to date consolidated gross profit increased 25% to $12 9 million excluding.
Excluding the impact of $1 8 million and year to date unfavorable peso to dollar exchange rates gross profit would have increased by 43% to $14 7 million.
Year to date revenue for Cypress Electronics was $42 6 million, an increase of 50% from the prior year and gross profit increased 72% to $6 8 million gross.
Gross margin improved 202 basis points to 15, 9%.
In addition to the factors previously noted for Q3, the comparison of year to date revenue and gross margin for Cypress electronics to the prior year periods reflects the significant increase in revenue volume, resulting from a very high level of bookings achieved in 2022 and continuing into 2023.
And the significant progress our integrated manufacturing and continuous continuous improvement team has made in delivering on a steeply increase backlog.
Year to date revenue for Cypress technologies increased 13% to $58 9 million.
Gross profit decreased three 6% to $6 1 million, mainly due to the $1 $8 billion year to date unfavorable peso.
Exchange rate impact.
Excluding the impact of the unfavorable exchange rates gross profit would have increased by 25% to $7 9 million.
Gross margin decreased 180 basis points to 10, 4% for the period, excluding the impact of the unfavorable exchange rates gross margin would have improved 125 basis points.
To 13, 4%.
The Mexican peso strengthened significantly against the US dollar in 2023 to levels not seen since before the pandemic.
In 2019 the rate varied from 18 706 pesos per dollar to $19 91 pesos per dollar.
After the disruption of the pandemic the rate move to 19.
$4 seven pesos per dollar on December 29, 2022.
After having varied in a range above that from early 2020 to that date.
Since that date the rate has fallen to 17 32 as of this morning, a rate not seen in the previous five years.
Forecast of the future rates vary widely we are evaluating currency hedging options at this time under a variety of scenarios.
Our year to date consolidated SG&A expense was $11 6 million an increase of eight 6% over the prior year.
Merit pay increases and limited editions to business development and program management personnel contributed to the increase.
<unk> as a percent of revenue decreased to 11, 4% from 13, 3% a year ago.
As our revenue increases we expect further reductions in SG&A as a percent of revenue as operating leverage improves.
Our year to date operating income was $1 3 million an increase of over three five times the operating loss of four tenths of $1 million for the same period in 2022.
Please advance to slide 15.
On this slide we show our trend of consolidated gross margin for 2022, and 2023, along with the performance.
<unk> for 2024.
2023 is expected to approximate the prior year as the impact of negative peso of the negative peso to dollar exchange rate more than offset.
The positive impacts of higher volumes on production efficiencies favorable mix material savings on certain programs and the positive impact of our continuous improvement initiatives.
As noted in the 2023 pro forma bar on the graph our gross margin would have been 14, 4% or 90 basis points higher had it not been subject to the full year estimate of $1 9 million with the unfavorable peso dollar exchange rate impact.
With our 2020 for outlook for a revenue increase of 15% to 20% and a more limited impact of the peso dollar exchange rate. Our 2020 for gross margin outlook is 14, 8% on higher volumes at the expected mix.
We will strive to continuously improve manufacturing output and productivity, while maintaining excellent quality. We will also continue our efforts to diversify our markets served in 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.
Yes.
Please advance to slide 16 for a quick summary of our comments.
Key highlights for the quarter and year to date include the continued strong backlog position and a significant increase in gross profit both through the third quarter and the year to date periods. Despite the unfavorable impact of the Mexican peso relative to the U S dollar.
We expect rapid growth in Cyprus electronics defense market supplemented by additional funding to meet the defense needs of our allies.
This market will likely exceed $1 trillion for the fiscal year 2024.
We also expect significant growth in its communications and space markets.
The outlook for Cypress technologies remained positive, though the current forecast for commercial vehicles in 2024 is for year over year decline of 13, 4%.
That decline is expected to be offset by planned increases in new programs with existing commercial and other vehicle customers and currently strong demands for its energy products for use in the rapidly growing LNG export markets among others.
Cypress technologies in addition to expanding its energy product line to include <unk>.
Augmenting its distribution resources to expand its energy products presence in Europe Asia, the Middle East and Mexico is booked its first order for insulated joints and a water line expansion application.
Based on our strong backlog growing new business funnel and growing market potential we offer our initial guidance for 2024 at 15% to 20% growth in revenue.
25% to 30% growth in gross profit.
And a 15% to 200 basis point increase in gross margin.
We look forward to the opportunity to continue the positive momentum of growth and continuous improvement in 2023 into a bigger and more profitable 2024.
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 for joining us on this call. This morning.
Looking forward to another year of double digit growth expanding margins and increased profitability.
Please know we appreciate your continued interest in our business.
Thank you and have a good day.
Conference has now concluded. Thank you for attending today's presentation you may now disconnect.