Synalloy Co.

Synalloy Corporation (NASDAQ:SYNL ) Q2 2022 Earnings Conference Call August 9, 2022 5:00 PM ET Company Participants Cody Cree - Director of Gateway IR Ben Rosenzweig - Executive Chairman of the Board Chris Hutter - President & CEO Aaron Tam - CFO Conference Call Participants Operator Good afternoon, everyone, and thank you for participating in today's conference call to discuss Synalloy's Financial Results for the Second Quarter ended June 30, 2022. Joining us today are Synalloy's Executive Chairman of the Board, Ben Rosenzweig; President and CEO, Chris Hutter; CFO, Aaron Tam; and the company's outside Investor Relations adviser, Cody Cree. » Mehr auf seekingalpha.com

OAK BROOK, Ill.--(BUSINESS WIRE)--Synalloy Corporation (Nasdaq: SYNL) (“Synalloy” or the “Company”), an industrials company focused on the production and distribution of industrial tubular products and specialty chemicals, is reporting its results for the second quarter ended June 30, 2022. Second Quarter 2022 Summary (in millions, expect per share and margin) Q2 20221 Q2 2021 Change Net Sales $116.2 $83.1 40% Gross Profit $20.9 $14.1 48% Gross Profit Margin 18.0% 17.0% 100bps Net Income $11.1 $2.9 283% Diluted Earnings per share $1.06 $0.31 242% Adjusted EBITDA $15.5 $9.8 58% Adjusted EBITDA Margin 13.3% 11.7% 160bps Management Commentary “After a strong start to the year, we sustained our momentum and generated a fifth consecutive quarter of year-over-year growth across the top and bottom line,” said Chris Hutter, president and CEO of Synalloy. “We continued to make progress on our transformation efforts through diversifying our supply chain, widening our sales funnel, and steadily growing our footprint and manufacturing capacity. In our metals segment, or what we will be referring to as tubular products going forward, we added new international suppliers which strengthened and diversified our supply chain network, resulting in lower lead times and incremental margin improvements. In specialty chemicals, we strengthened our sales team with key talent, allowing us to better cross-sell, build deeper relationships and provide higher quality customer service. We also enhanced our manufacturing capabilities with upgrades to existing equipment, the implementation of 24/7 operations in multiple facilities and investments in automation to better address the growing demand and long-term expansion goals for this segment. “As recently announced, our rebrand to Ascent Industries Co.(‘Ascent’) better reflects our go-forward strategic vision. Since the start of our transformation journey, our goal has always been to build best-in-class industrial manufacturing companies through maximizing efficiency across our operations and relentlessly innovating our production capabilities and portfolio of products. Rebranding to Ascent better aligns the company with our refreshed mission statement, our focus on unlocking the full potential of our existing operations, and identifying value-additive acquisition opportunities with strong research and development capabilities. “For the back half of the year, we expect to continue executing on our strategic priorities: refining and progressing our commercial strategy, identifying and investing in automation and technology, further integrating our facilities to promote cross-functional work processes, and improving labor and asset mixes to maximize our working capital use. We remain steadfast in our commitment towards driving long-term, sustainable growth through our robust platform and creating value for our shareholders.” 1 The second quarter of 2022 included $8.4 million in net sales, $0.2 million in net income and $0.8 million in adjusted EBITDA from the acquisition of DanChem, which closed on October 22, 2021. Second Quarter 2022 Financial Results Net sales increased 40% to $116.2 million compared to $83.1 million in the prior year period, primarily driven by favorable product mix shifts and broad-based pricing increases. Gross profit increased 48% to $20.9 million, or 18.0% of net sales, compared to $14.1 million, or 17.0% of net sales, in the second quarter of 2021. Gross profit and gross margin benefited from a shift to higher margin products, increased selling prices and an expanded supplier base, which offset the impact of increased raw material and freight costs. Net income increased significantly to $11.1 million, or $1.06 diluted earnings per share, compared to $2.9 million, or $0.31 diluted earnings per share, in the second quarter of 2021. The increase was primarily a result of the strong sales and gross profit performance. Adjusted EBITDA increased 58% to $15.5 million compared to $9.8 million in the second quarter of 2021. Adjusted EBITDA margin also improved 160 basis points to 13.3% compared to 11.7% in the prior year period. Segment Results Metals – Net sales in the second quarter of 2022 increased 28% to $87.2 million compared to $68.1 million in the second quarter of 2021. Operating income in the second quarter increased 72% to $12.9 million compared to $7.5 million in the prior year period. Adjusted EBITDA in the second quarter increased 46% to $14.7 million compared to $10.1 million in the prior year period. As a percentage of segment net sales, adjusted EBITDA improved 210 basis points to 16.9% compared to 14.8% in the second quarter of 2021. Specialty Chemicals – Net sales in the second quarter of 2022 increased 94% to $29.0 million compared to $15.0 million in the second quarter of 2021. Operating income in the second quarter increased significantly to $2.6 million compared to $(0.4) million in the prior year period. Adjusted EBITDA in the second quarter increased significantly to $3.6 million compared to $0.8 million in the prior year period. Adjusted EBITDA margin improved 740 basis points to 12.6% compared to 5.2% in the second quarter of 2021. Liquidity As of June 30, 2022, total debt was $68.3 million under the Company’s credit facility, compared to $70.4 million in debt at December 31, 2021. As of the end of the second quarter of 2022, the Company had $41.2 million of remaining available borrowing capacity under its credit facility, compared to $39.4 million at December 31, 2021. Rebrand to Ascent Industries Co. As a reminder, Synalloy’s rebrand to Ascent Industries Co. will go into effect on August 10, 2022. The Company’s stock ticker symbol will change from “SYNL” to “ACNT” on the Nasdaq stock exchange, and trading under the new stock ticker symbol will commence on August 10th. The Company’s corporate website, including the investor relations portion of the site, will be relocating to www.ascentco.com. Additionally, the public will be able to reach the investor relations department at [email protected]. In celebration of the Company’s rebrand, the executive leadership team will be visiting the Nasdaq MarketSite in Times Square, New York to ring the Nasdaq Stock Market Closing Bell on August 15, 2022. On the day of the ceremony, a live stream of the Nasdaq Closing Bell will be available at https://www.nasdaq.com/marketsite/bell-ringing-ceremony. To view a video of the Company’s rebranded vision coming to life, please click here. Conference Call Synalloy will conduct a conference call today at 5:00 p.m. Eastern time to discuss its results for the second quarter ended June 30, 2022. Synalloy management will host the conference call, followed by a question-and-answer period. Date: Tuesday, August 09, 2022 Time: 5:00 p.m. Eastern time Live Call Registration Link: Here Webcast Registration Link: Here To access the call by phone, please register via the live call registration link above or here and you will be provided with dial-in instructions and details. If you have any difficulty connecting with the conference call, please contact Gateway Group at 1-949-574-3860. The conference call will also be broadcast live and available for replay via the webcast registration link above or here. The webcast will be archived for one year in the investor relations section of the Company’s website at www.synalloy.com. About Synalloy Corporation Synalloy Corporation (Nasdaq: SYNL) is a company that engages in a number of diverse business activities including the production of stainless steel and galvanized pipe and tube, the distribution of seamless tubular products, and the production of specialty chemicals. For more information about Synalloy Corporation, please visit its website at www.synalloy.com. Forward-Looking Statements This press release may include "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 and other applicable federal securities laws. All statements that are not historical facts are forward-looking statements. Forward looking statements can be identified through the use of words such as "estimate," "project," "intend," "expect," "believe," "should," "anticipate," "hope," "optimistic," "plan," "outlook," "should," "could," "may" and similar expressions. The forward-looking statements are subject to certain risks and uncertainties which could cause actual results to differ materially from historical results or those anticipated. Readers are cautioned not to place undue reliance on these forward-looking statements and to review the risks. as set forth in more detail in Synalloy Corporation's Securities and Exchange Commission filings, including our Annual Report on Form 10-K, which filings are available from the SEC or on our website. Synalloy Corporation assumes no obligation to update any forward-looking information included in this release. Non-GAAP Financial Information Financial statement information included in this earnings release includes non-GAAP (Generally Accepted Accounting Principles) measures and should be read along with the accompanying tables which provide a reconciliation of non-GAAP measures to GAAP measures. Adjusted EBITDA is a non-GAAP financial measure that the Company believes is useful to investors in evaluating its results to determine the value of a company. An item is excluded in the measure if its periodic value is inconsistent and sufficiently material that not identifying the item would render period comparability less meaningful to the reader or if including the item provides a clearer representation of normalized periodic earnings. The Company excludes in Adjusted EBITDA two categories of items: 1) Base EBITDA components, including: interest expense (including change in fair value of interest rate swap), income taxes, depreciation and amortization, and 2) Material transaction costs including: goodwill impairment, asset impairment, gain on lease modification, stock-based compensation, non-cash lease cost, acquisition costs and other fees, proxy contest costs and recoveries, loss on extinguishment of debt, earn-out adjustments, realized and unrealized (gains) and losses on investments in equity securities and other investments, retention costs and restructuring & severance costs from net income. Management believes that these non-GAAP measures provide additional useful information to allow readers to compare the financial results between periods. Non-GAAP measures should not be considered as an alternative to any measure of performance or financial condition as promulgated under GAAP, and investors should consider the Company's performance and financial condition as reported under GAAP and all other relevant information when assessing the performance or financial condition of the Company. Non-GAAP measures have limitations as analytical tools, and investors should not consider them in isolation or as a substitute for analysis of the Company's results or financial condition as reported under GAAP. SYNALLOY CORPORATION Condensed Consolidated Balance Sheets ($ in thousands) (Unaudited) June 30, 2022 December 31, 2021 Assets Current assets: Cash and cash equivalents $ 245 $ 2,021 Accounts receivable, net of allowance for credit losses of $748 and $216, respectively 63,932 50,126 Inventories, net 134,529 103,249 Prepaid expenses and other current assets 4,883 3,728 Assets held for sale 785 855 Total current assets 204,374 159,979 Property, plant and equipment, net 42,177 43,720 Right-of-use assets, operating leases, net 29,950 30,811 Goodwill 12,637 12,637 Intangible assets, net 12,940 14,382 Deferred charges, net 253 302 Other non-current assets, net 4,110 4,171 Total assets $ 306,441 $ 266,002 Liabilities and Shareholders' Equity Current liabilities: Accounts payable $ 56,167 $ 32,318 Accounts payable - related parties 2 2 Accrued expenses and other current liabilities 10,800 12,407 Current portion of note payable 871 — Current portion of long-term debt 2,464 2,464 Current portion of earn-out liabilities 415 1,961 Current portion of operating lease liabilities 1,061 1,104 Current portion of finance lease liabilities 259 233 Total current liabilities 72,039 50,489 Long-term debt 65,849 67,928 Long-term portion of operating lease liabilities 31,445 32,059 Long-term portion of finance lease liabilities 1,363 1,414 Deferred income taxes 1,791 2,433 Other long-term liabilities 70 89 Total non-current liabilities 100,518 103,923 Commitments and contingencies Shareholders' equity: Common stock, par value $1 per share; authorized 24,000,000 shares; issued 11,085,000 shares 11,085 11,085 Capital in excess of par value 46,162 46,058 Retained earnings 84,397 63,080 141,644 120,223 Less: cost of common stock in treasury - 825,570 and 918,471 shares, respectively 7,760 8,633 Total shareholders' equity 133,884 111,590 Total liabilities and shareholders' equity $ 306,441 $ 266,002 Note: The condensed consolidated balance sheet at December 31, 2021 has been derived from the audited consolidated financial statements at that date. See accompanying notes to condensed consolidated financial statements. SYNALLOY CORPORATION Condensed Consolidated Statements of Income - Comparative Analysis (Unaudited) ($ in thousands, except per share data) Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Net sales Metals Segment $ 87,182 $ 68,097 $ 175,679 $ 123,311 Specialty Chemicals Segment 29,020 14,990 56,741 29,554 $ 116,202 $ 83,087 $ 232,420 $ 152,865 Operating income (loss) Metals Segment $ 12,934 $ 7,504 $ 27,426 $ 10,081 Specialty Chemicals Segment 2,627 (414) 5,014 642 Unallocated expense (income) Corporate 3,322 1,360 6,351 3,127 Acquisition costs and other 157 — 688 — Proxy contest costs and recoveries — 632 — 168 Earn-out adjustments (109) 1,044 (7) 1,270 Operating income 12,191 4,054 25,408 6,158 Interest expense 407 353 810 739 Change in fair value of interest rate swap — — — (2) Loss on extinguishment of debt — — — 223 Other, net (23) — (58) 162 Income before income taxes 11,807 3,701 24,656 5,036 Income tax provision 750 815 3,339 1,056 Net income $ 11,057 $ 2,886 $ 21,317 $ 3,980 Net income per common share Basic $ 1.08 $ 0.31 $ 2.08 $ 0.43 Diluted $ 1.06 $ 0.31 $ 2.05 $ 0.43 Average shares outstanding Basic 10,244 9,233 10,226 9,212 Diluted 10,431 9,331 10,377 9,315 Other data: Adjusted EBITDA1 $ 15,453 $ 9,763 $ 32,414 $ 14,639 1The term Adjusted EBITDA is a non-GAAP financial measure that the Company believes is useful to investors in evaluating its results to determine the value of a company. An item is excluded in the measure if its periodic value is inconsistent and sufficiently material that not identifying the item would render period comparability less meaningful to the reader or if including the item provides a clearer representation of normalized periodic earnings. The Company excludes in Adjusted EBITDA two categories of items: 1) Base EBITDA components, including: interest expense (including change in fair value of interest rate swap), income taxes, depreciation and amortization, and 2) Material transaction costs including: goodwill impairment, asset impairment, gain on lease modification, stock-based compensation, non-cash lease cost, acquisition costs and other fees, proxy contest costs and recoveries, loss on extinguishment of debt, earn-out adjustments, realized and unrealized (gains) and losses on investments in equity securities and other investments, retention costs and restructuring & severance costs from net income. For a reconciliation of this non-GAAP measure to the most comparable GAAP equivalent, refer to the Reconciliation of Net Income (Loss) to Adjusted EBITDA. SYNALLOY CORPORATION Consolidated Statements of Cash Flows (Unaudited) ($ in thousands) Six Months Ended June 30, 2022 2021 Operating activities Net income $ 21,317 $ 3,980 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation expense 4,208 3,591 Amortization expense 1,442 1,360 Amortization of debt issuance costs 49 46 Asset impairments — 233 Loss on extinguishment of debt — 223 Deferred income taxes (642) (76) Earn-out adjustments (7) 1,270 Payments of earn-out liabilities in excess of acquisition date fair value (372) — Provision for (reduction of) losses on accounts receivable 532 (362) Provision for losses on inventories 1,234 368 Gain on disposal of property, plant and equipment (5) (81) Non-cash lease expense 214 249 Change in fair value of interest rate swap — (2) Issuance of treasury stock for director fees 364 — Stock-based compensation expense 452 456 Changes in operating assets and liabilities: Accounts receivable (14,339) (12,536) Inventories (32,442) (5,482) Other assets and liabilities (1,022) (570) Accounts payable 23,591 5,575 Accounts payable - related parties — 632 Accrued expenses (1,795) 1,370 Accrued income taxes 110 4,751 Net cash provided by operating activities 2,889 4,995 Investing activities Purchases of property, plant and equipment (2,330) (563) Proceeds from disposal of property, plant and equipment 5 138 Net cash used in investing activities (2,325) (425) Financing activities Borrowings from long-term debt 237,938 38,398 Proceeds from note payable 967 — Proceeds from the exercise of stock options 161 — Payments on long-term debt (240,017) (40,269) Payments on note payable (96) — Principal payments on finance lease obligations (126) (19) Payments on earn-out liabilities (1,167) (1,944) Payments for termination of interest rate swap — (46) Payments for deferred financing costs — (165) Net cash used in financing activities (2,340) (4,045) (Decrease) increase in cash and cash equivalents (1,776) 525 Cash and cash equivalents, beginning of period 2,021 236 Cash and cash equivalents, end of period $ 245 $ 761 Supplemental Disclosure of Cash Flow Information Cash paid for: Interest $ 699 $ 620 Income taxes $ 3,874 $ 24 Noncash Investing Activities: Capital expenditures, not yet paid $ 336 $ — SYNALLOY CORPORATION Non-GAAP Financial Measures Reconciliation Reconciliation of Net Income to Adjusted EBITDA (Unaudited) ($ in thousands) Three Months Ended June 30, Six Months Ended June 30, ($ in thousands) 2022 2021 2022 2021 Consolidated Net income $ 11,057 $ 2,886 $ 21,317 $ 3,980 Adjustments: Interest expense 407 353 810 739 Change in fair value of interest rate swap — — — (2) Income taxes 750 815 3,339 1,056 Depreciation 2,092 1,774 4,208 3,591 Amortization 721 680 1,442 1,360 EBITDA 15,027 6,508 31,116 10,724 Acquisition costs and other 157 — 688 — Proxy contest costs and recoveries1 — 632 — 168 Loss on extinguishment of debt — — — 223 Earn-out adjustments (109) 1,044 (7) 1,270 Loss on investment in equity securities and other investments — — — 363 Asset impairments — 233 — 233 Gain on lease modification (2) — (2) — Stock-based compensation 263 269 395 456 Non-cash lease expense 107 124 214 249 Retention expense — 476 — 476 Restructuring and severance costs 10 477 10 477 Adjusted EBITDA $ 15,453 $ 9,763 $ 32,414 $ 14,639 % sales 13.3 % 11.7 % 13.9 % 9.6 % 1Proxy contest costs and recoveries for the three months ended June 30, 2021 are reimbursements of documented, out-of-pocket costs to Privet and UPG related to the 2020 shareholder activism. Proxy contest costs and recoveries for the six months ended June 30, 2021 are reimbursements of documented, out-of-pocket costs to Privet and UPG partially offset by insurance recoveries for costs related to the 2020 shareholder activism. SYNALLOY CORPORATION Non-GAAP Financial Measures Reconciliation Reconciliation of Net Income to Adjusted EBITDA (Unaudited) ($ in thousands) Three Months Ended June 30, Six Months Ended June 30, ($ in thousands) 2022 2021 2022 2021 Metals Segment Net income $ 13,074 $ 6,463 $ 27,498 $ 9,002 Adjustments: Depreciation expense 1,163 1,350 2,376 2,742 Amortization expense 625 680 1,250 1,360 EBITDA 14,862 8,493 31,124 13,104 Earn-out adjustments (109) 1,044 (7) 1,270 Stock-based compensation (11) 46 24 83 Non-cash lease expense (1) — (1) — Retention expense — 476 — 476 Restructuring and severance costs — 50 — 50 Metals Segment Adjusted EBITDA $ 14,741 $ 10,109 $ 31,140 $ 14,983 % segment sales 16.9 % 14.8 % 17.7 % 12.2 % Specialty Chemicals Segment Net income (loss) $ 2,617 $ (414) $ 4,995 $ 641 Adjustments: Interest expense 9 — 18 — Depreciation expense 915 390 1,800 776 Amortization expense 96 — 192 — EBITDA 3,637 (24) 7,005 1,417 Acquisition costs and other — — — — Asset impairments — 233 — 233 Stock-based compensation 11 136 18 167 Restructuring and severance costs — 427 — 427 Specialty Chemicals Segment Adjusted EBITDA $ 3,648 $ 772 $ 7,023 $ 2,244 % segment sales 12.6 % 5.2 % 12.4 % 7.6 % » Mehr auf businesswire.com

OAK BROOK, Ill.--(BUSINESS WIRE)--Synalloy Corporation Sets Second Quarter 2022 Earnings Conference Call for August 9, 2022, at 5:00 p.m. ET » Mehr auf businesswire.com