Synalloy Reports Record First Quarter 2022 Results

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

OAK BROOK, Ill.--()--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.

 

Contacts

Company Contact

Aaron Tam
Chief Financial Officer
1-804-822-3260

Investor Relations

Cody Slach and Cody Cree
Gateway Group, Inc.
1-949-574-3860
SYNL@gatewayir.com

Release Summary

Synalloy Reports Record First Quarter 2022 Results

Contacts

Company Contact

Aaron Tam
Chief Financial Officer
1-804-822-3260

Investor Relations

Cody Slach and Cody Cree
Gateway Group, Inc.
1-949-574-3860
SYNL@gatewayir.com