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Synalloy Reports Record First Quarter 2022 Results

SYNL

2022 Starts Strong with Second Consecutive Quarter of Record Results for Net Sales, Net Income and Adjusted EBITDA

Poised to Continue Executing on Strategic Priorities Throughout the Year

Synalloy Corporation (Nasdaq: SYNL) (“Synalloy” or the “Company”), an industrials company focused on the production and distribution of piping, tubing and specialty chemicals, is reporting its results for the first quarter ended March 31, 2022.

First Quarter 2022 Summary

(in millions, expect per share and margin)

Q1 20221

Q1 2021

Change

Net Sales

$116.2

$69.8

67%

Gross Profit

$22.5

$8.7

158%

Gross Profit Margin

19.4%

12.5%

690bps

Net Income (Loss)

$10.3

$1.1

838%

Diluted Earnings (Loss) per share

$0.99

$0.12

725%

Adjusted EBITDA

$17.0

$4.9

248%

Adjusted EBITDA Margin

14.6%

7.0%

760bps

Management Commentary

“We started the year off strong with a second consecutive quarter of record results as we continued to make significant progress with our turnaround strategy,” said Chris Hutter, president and CEO of Synalloy. “The pricing environment remained strong for both business segments and we excelled at expanding our sales funnel and integrating operations of our chemicals segment. The improvements we’re in the process of making create a more efficient operating structure, allowing us to better capitalize on the dynamics within our end markets.

“Looking at the balance of the year, we are in a strong position to continue executing on the priorities we’ve laid out. While the macro-environment remains dynamic, we have confidence in the steps we’ve taken to operate more efficiently and achieve our goal of maintaining competitiveness throughout all environments. We remain committed to driving long-term shareholder value and are pleased that our strong results position us well to continue to build a robust and valuable platform.”

_______________________

1 The first quarter of 2022 included $7.5 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.

First Quarter 2022 Financial Results

Net sales increased 67% to $116.2 million compared to $69.8 million in the prior year period. The increase was primarily driven by continued strong demand from end-markets across both business segments leading to higher average selling prices.

Gross profit increased significantly to $22.5 million, or 19.4% of net sales, compared to $8.7 million, or 12.5% of net sales, in the first quarter of 2021. Gross profit and gross margin continued to benefit from increased customer demand of higher margin products and a favorable surcharge market environment, offset by increased raw material and freight costs.

Net income increased significantly to $10.3 million, or $0.99 diluted earnings per share, compared to a net income of $1.1 million, or $0.12 diluted earnings per share, in the first quarter of 2021. The increase was primarily a result of the continued strong net sales and commensurate gross profit performance.

Adjusted EBITDA increased significantly to $17.0 million compared to $4.9 million in the first quarter of 2021. Adjusted EBITDA margin also improved 760 basis points to 14.6% compared to 7.0% in the prior year period.

Segment Results

MetalsNet sales in the first quarter of 2022 increased 60% to $88.5 million compared to $55.2 million in the first quarter of 2021. Operating income in the first quarter increased significantly to $14.5 million compared to $2.6 million in the prior year period. Adjusted EBITDA in the first quarter increased significantly to $16.4 million compared to $4.9 million in the prior year period. As a percentage of segment net sales, adjusted EBITDA improved 970 basis points to 18.5% compared to 8.8% in the first quarter of 2021.

Specialty ChemicalsNet sales in the first quarter of 2022 increased 90% to $27.7 million compared to $14.6 million in the first quarter of 2021. Operating income in the first quarter increased significantly to $2.4 million compared to $1.1 million in the prior year period. Adjusted EBITDA in the first quarter increased significantly to $3.4 million compared to $1.5 million in the prior year period. Adjusted EBITDA margin improved 210 basis points to 12.2% compared to 10.1% in the first quarter of 2021.

Liquidity

As of March 31, 2022, total debt was $71.1 million under the Company’s revolving credit facility, compared to $70.4 million in debt at December 31, 2021. As of the end of the first quarter of 2022, the Company had $38.6 million of remaining available borrowing capacity under its revolving credit facility, compared to $39.4 million at December 31, 2021.

Conference Call

Synalloy will conduct a conference call today at 5:00 p.m. Eastern time to discuss its results for the first quarter ended March 31, 2022.

Synalloy management will host the conference call, followed by a question-and-answer period.

Date: Tuesday, May 10, 2022
Time: 5:00 p.m. Eastern time
Toll-free dial-in number: 1-866-374-5140
International dial-in number: 1-404-400-0571
Conference ID: 38157095

Please call the conference telephone number 5-10 minutes prior to the start time. An operator will register your name and organization. If you have any difficulty connecting with the conference call, please contact Gateway Group at 1-949-574-3860.

The conference call will be broadcast live and available for replay here and via 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 master distribution of seamless carbon pipe and tube, and the production of specialty chemicals. For more information about Synalloy Corporation, please visit its web site at www.synalloy.com.

Forward-Looking Statements

This press release includes "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, including without limitation those identified below, 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. The following factors could cause actual results to differ materially from historical results or those anticipated: adverse economic conditions, including risks relating to the impact and spread of and the government’s response to COVID-19; inability to weather an economic downturn; the impact of competitive products and pricing; product demand and acceptance risks; raw material and other increased costs; raw material availability; financial stability of the Company’s customers; customer delays or difficulties in the production of products; loss of consumer or investor confidence; employee relations; ability to maintain workforce by hiring trained employees; labor efficiencies; risks associated with acquisitions; environmental issues; negative or unexpected results from tax law changes; inability to comply with covenants and ratios required by the Company’s debt financing arrangements; and other risks detailed from time-to-time in Synalloy Corporation's Securities and Exchange Commission filings, including our Annual Report on Form 10-K, which filings are available from the SEC. 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)

March 31, 2022

December 31, 2021

Assets

Cash

$

1,241

$

2,021

Accounts receivable, net of allowance for credit losses of $456 and $216, respectively

67,819

50,126

Inventories, net

112,114

103,249

Prepaid expenses and other current assets

3,808

3,728

Assets held for sale

797

855

Total current assets

185,779

159,979

Property, plant and equipment, net

42,720

43,720

Right-of-use assets, operating leases, net

30,431

30,811

Goodwill

12,637

12,637

Intangible assets, net

13,661

14,382

Deferred charges, net

278

302

Other non-current assets

4,127

4,171

Total assets

$

289,633

$

266,002

Liabilities and Shareholders' Equity

Accounts payable

$

44,268

$

32,318

Accounts payable - related parties

2

2

Accrued expenses and other current liabilities

13,609

12,407

Current portion of long-term debt

2,464

2,464

Current portion of earn-out liability

891

1,961

Current portion operating lease liabilities

1,140

1,104

Current portion of finance lease liabilities

248

233

Total current liabilities

62,622

50,489

Long-term debt

68,610

67,928

Long-term portion of operating lease liabilities

31,748

32,059

Long-term portion of finance lease liabilities

1,362

1,414

Deferred income taxes

2,861

2,433

Other long-term liabilities

76

89

Shareholders' equity

122,354

111,590

Total liabilities and shareholders' equity

$

289,633

$

266,002

Note: The condensed consolidated balance sheet at December 31, 2021 has been derived from the audited consolidated financial statements at that date.

SYNALLOY CORPORATION

Condensed Consolidated Statement of Operations - Comparative Analysis (Unaudited)

($ in thousands, except per share data)

Three Months Ended
March 31,

2022

2021

Net sales

Metals Segment

$

88,497

$

55,213

Specialty Chemicals Segment

27,721

14,565

$

116,218

$

69,778

Operating income

Metals Segment

$

14,492

$

2,577

Specialty Chemicals Segment

2,387

1,056

Unallocated expense (income)

Corporate

3,029

1,767

Acquisition costs and other

531

Proxy contest costs and recoveries

(464

)

Earn-out adjustments

102

225

Operating income

13,217

2,105

Interest expense

403

387

Change in fair value of interest rate swap

(2

)

Loss on extinguishment of debt

223

Other, net

(35

)

162

Income before income taxes

12,849

1,335

Income tax provision

2,589

241

Net income

$

10,260

$

1,094

Net income per common share

Basic

$

1.00

$

0.12

Diluted

$

0.99

$

0.12

Average shares outstanding

Basic

10,209

9,191

Diluted

10,320

9,288

Other data:

Adjusted EBITDA1

$

16,961

$

4,875

1 The 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 Statement of Cash Flows (Unaudited)

($ in thousands)

Three Months Ended March 31,

2022

2021

Operating activities

Net income

$

10,260

$

1,094

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

Depreciation expense

2,116

1,817

Amortization expense

721

680

Amortization of debt issuance costs

25

21

Loss on extinguishment of debt

223

Deferred income taxes

428

(41

)

Earn-out adjustments

102

225

Payments of earn-out liabilities in excess of acquisition date fair value

(372

)

Provision for losses on accounts receivable

240

12

Provision for losses on inventories

496

184

(Gain) loss on disposal of property, plant and equipment

(5

)

28

Non-cash lease expense

107

124

Change in fair value of interest rate swap

(2

)

Issuance of treasury stock for director fees

254

Stock-based compensation expense

132

187

Changes in operating assets and liabilities:

Accounts receivable

(17,933

)

(11,181

)

Inventories

(9,302

)

(3,866

)

Other assets and liabilities

(27

)

38

Accounts payable

11,950

6,357

Accrued expenses

(959

)

(569

)

Accrued income taxes

2,161

3,901

Net cash provided by (used in) operating activities

394

(768

)

Investing activities

Purchases of property, plant and equipment

(1,117

)

(245

)

Proceeds from disposal of property, plant and equipment

5

18

Net cash used in investing activities

(1,112

)

(227

)

Financing activities

Borrowings from long-term debt

122,068

14,730

Proceeds from the exercise of stock options

118

Payments on long-term debt

(121,386

)

(12,333

)

Principal payments on finance lease obligations

(62

)

(10

)

Payments on earn-out liabilities

(800

)

(1,029

)

Payments for termination of interest rate swap

(46

)

Payments for deferred financing costs

(155

)

Net cash provided by financing activities

(62

)

1,157

(Decrease) increase in cash and cash equivalents

(780

)

162

Cash and cash equivalents, beginning of period

2,021

236

Cash and cash equivalents, end of period

$

1,241

$

398

SYNALLOY CORPORATION

Non-GAAP Financial Measures Reconciliation

Reconciliation of Net Income to Adjusted EBITDA (Unaudited)

($ in thousands)

Three Months Ended
March 31,

($ in thousands)

2022

2021

Consolidated

Net income

$

10,260

$

1,094

Adjustments:

Interest expense

403

387

Change in fair value of interest rate swap

(2

)

Income taxes

2,589

241

Depreciation

2,116

1,817

Amortization

721

680

EBITDA

16,089

4,217

Acquisition costs and other

531

Proxy contest costs and recoveries1

(464

)

Loss on extinguishment of debt

223

Earn-out adjustments

102

225

Loss on investment in equity securities and other investments

363

Stock-based compensation

132

187

Non-cash lease expense

107

124

Adjusted EBITDA

$

16,961

$

4,875

% sales

14.6

%

7.0

%

Metals Segment

Net income

$

14,424

$

2,538

Adjustments:

Interest expense

Depreciation expense

1,213

1,393

Amortization expense

625

680

EBITDA

16,262

4,611

Earn-out adjustments

102

225

Stock-based compensation

35

38

Metals Segment Adjusted EBITDA

$

16,399

$

4,874

% segment sales

18.5

%

8.8

%

Specialty Chemicals Segment

Net income

$

2,378

$

1,055

Adjustments:

Interest expense

9

Depreciation expense

886

386

Amortization expense

96

EBITDA

3,369

1,441

Stock-based compensation

6

31

Specialty Chemicals Segment Adjusted EBITDA

$

3,375

$

1,472

% segment sales

12.2

%

10.1

%

1 Proxy contest costs and recoveries for the year ended December 31, 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.

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