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Synalloy Reports Strong Second Quarter 2022 Results

·17 min read

Fifth Consecutive Quarter of Year-Over-Year Growth in Net Sales, Net Income, and Adjusted EBITDA

Upcoming Rebrand to Ascent Industries Co. Better Aligns Go-to-Market Strategy with Long-Term Strategic Vision

OAK BROOK, Ill., August 09, 2022—(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

MetalsNet 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 ChemicalsNet 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 ACNT@gatewayir.com.

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 %

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20220809005817/en/

Contacts

Company

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