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Synalloy Reports Strong Second Quarter 2021 Results

- Sequential and Year-Over-Year Growth in Net Sales, Gross Profit, Net Income and Adjusted EBITDA -

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 second quarter ended June 30, 2021.

Second Quarter 2021 Summary

(in millions, expect per share and margin)

Q2 2021

Q1 2021

Q2 2020

Net Sales

$83.1

$69.8

$66.1

Gross Profit

$14.1

$8.7

$4.4

Gross Profit Margin

17.0%

12.5%

6.6%

Net Income (Loss)

$2.9

$1.1

$(7.0)

Diluted Earnings (Loss) per share

$0.31

$0.12

$(0.77)

Adjusted EBITDA

$9.8

$4.9

$1.9

Adjusted EBITDA Margin

11.7%

7.0%

2.9%

Management Commentary

“Our second quarter results reflect continued progress on our operational initiatives across the business while establishing a permanent foundation to drive profitable growth,” said Chris Hutter, interim president and CEO of Synalloy. “We achieved net sales growth across both of our segments and continue to see improvements in customer demand for our products.

“The strength experienced in the second quarter is largely attributable to our metals segment, which generated year-over-year and sequential gains across all key financial metrics. This quarter, the segment benefited from favorable trends in commodities pricing, mill throughput and rebounding customer demand. The improvement is also directly attributable to the efforts of our metals segment team members as they work tirelessly to deliver results to our stakeholders. Profitability at our chemicals segment proved to be a challenge during the quarter, as we faced operational hurdles due to labor constraints and product shipment delays related to trucking shortages. Despite these challenges, we are encouraged by the demand from our customers going into the back half of the year and we are continuing to invest in our new leadership team as we take measures to better realize the embedded value in the segment going forward.

“Overall, I am proud of the work our team has put in during the first half of the year and I am grateful for all that we have accomplished together since I joined as interim CEO over nine months ago. Most importantly, we’ve continued to build out our leadership team with proven industry executives and are beginning to benefit from streamlined processes while deepening our customer relationships by delivering best-in-class products, services and solutions. I am confident that we are laying the foundation for sustained shareholder value creation.”

Second Quarter 2021 Financial Results

Net sales increased 26% to $83.1 million compared to $66.1 million in the second quarter of 2020. This increase was attributable to strong volumes and positive trends in commodity prices in the metals segment, as a result of re-opening-driven demand increases and a rising surcharge market.

Gross profit increased significantly to $14.1 million, or 17.0% of net sales, compared to $4.4 million, or 6.6% of net sales, in the second quarter of 2020. The increase in both gross profit and gross margin was driven by the increased pricing that benefited net sales during the quarter, along with operational efficiencies that came with higher volumes.

Net income increased to $2.9 million, or $0.31 diluted earnings per share, compared to a net loss of $(7.0) million, or $(0.77) diluted loss per share, in the second quarter of 2020. Excluding impacts from 2020 activities associated with exiting the Palmer business, net income in the second quarter of 2021 increased $1.9 million over the prior year period.

Adjusted EBITDA increased significantly to $9.8 million compared to $1.9 million in the second quarter of 2020. Adjusted EBITDA margin also improved 880 basis points to 11.7% compared to 2.9% in the prior year period.

Segment Results

MetalsNet sales in the second quarter of 2021 increased 31% to $68.1 million compared to $52.0 million in the second quarter of 2020. Net income in the second quarter increased materially to $6.5 million compared to a net loss of $7.3 million in the prior year period. Adjusted EBITDA in the second quarter increased significantly to $10.1 million compared to $0.5 million in the prior year period. As a percentage of segment net sales, adjusted EBITDA margin improved to 14.8% compared to 0.9% in the second quarter of 2020.

Specialty ChemicalsNet sales in the second quarter of 2021 increased 6% to $15.0 million compared to $14.1 million in the second quarter of 2020. Net loss in the second quarter was $(0.4) million compared to net income of $2.0 million in the prior year period. Adjusted EBITDA in the second quarter was $0.8 million compared to $2.5 million in the prior year period. Adjusted EBITDA margin was 5.2% compared to 17.4% in the second quarter of 2020.

Liquidity

As of June 30, 2021, total debt under the Company’s revolving credit facility was $59.5 million, compared to $61.4 million at December 31, 2020. As of the end of the second quarter of 2021, the Company had $45.5 million of remaining available borrowing capacity under its revolving credit facility, compared to $11.0 million at December 31, 2020.

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, 2021.

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

Date: Monday, August 9, 2021

Time: 5:00 p.m. Eastern time

Toll-free dial-in number: 1-877-303-6648

International dial-in number: 1-970-315-0443

Conference ID: 3593976

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 Investor Relations 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 earnings release includes and incorporates by reference "forward-looking statements" within the meaning of the federal securities laws. All statements that are not historical facts are forward-looking statements. The words "estimate," "project," "intend," "expect," "believe," "should," "anticipate," "hope," "optimistic," "plan," "outlook," "should," "could," "may" and similar expressions identify forward-looking statements. 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, which reflect opinions only as of the date hereof. 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; a prolonged decrease in nickel and oil prices; the impact of competitive products and pricing; product demand and acceptance risks; raw material and other increased costs; raw materials availability; financial stability of our 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 mergers, acquisitions, dispositions and other expansion activities; environmental issues; negative or unexpected results from tax law changes; inability to comply with covenants and ratios required by our debt financing arrangements; and other risks detailed in the Form 10-K for the fiscal year ended December 31, 2020 filed with the Securities and Exchange Commission ("SEC") on March 9, 2021, particularly under the heading of “Risk Factors” and from time-to-time in Synalloy Corporation's Securities and Exchange Commission filings. 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 measure and excludes asset impairments, interest expense (including change in fair value of interest rate swap), income taxes, depreciation, amortization, stock-based compensation, non-cash lease expense, acquisition costs and other, proxy contest costs and recoveries, earn-out adjustments, loss on extinguishment of debt, loss (gain) on investments in equity securities and other investments, retention expense and restructuring & severance costs from net income.

Management believes that these non-GAAP measures provides 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, 2021

 

December 31, 2020

Assets

 

 

 

Cash

$

761

 

 

$

236

 

Accounts receivable, net of allowance for credit losses of $134 and $496, respectively

41,081

 

 

28,183

 

Inventories, net

90,195

 

 

85,080

 

Prepaid expenses and other current assets

10,358

 

 

13,384

 

Total current assets

142,395

 

 

126,883

 

 

 

 

 

Property, plant and equipment, net

31,777

 

 

35,096

 

Right-of-use assets, operating leases, net

31,092

 

 

31,769

 

Goodwill

1,355

 

 

1,355

 

Intangible assets, net

10,066

 

 

11,426

 

Deferred charges, net

352

 

 

455

 

Total assets

$

217,037

 

 

$

206,984

 

 

 

 

 

Liabilities and Shareholders' Equity

 

 

 

Accounts payable

$

25,307

 

 

$

19,732

 

Accounts payable - related parties

632

 

 

 

Accrued expenses and other current liabilities

8,547

 

 

6,123

 

Current portion of long-term debt

1,750

 

 

875

 

Current portion of earn-out liability

3,047

 

 

3,434

 

Current portion operating lease liabilities

927

 

 

867

 

Current portion of finance lease liabilities

45

 

 

19

 

Total current liabilities

40,255

 

 

31,050

 

 

 

 

 

Long-term debt

57,750

 

 

60,495

 

Long-term portion of earn-out liability

 

 

287

 

Long-term portion of operating lease liabilities

32,281

 

 

32,771

 

Long-term portion of finance lease liabilities

53

 

 

37

 

Deferred income taxes

1,881

 

 

1,957

 

Other long-term liabilities

86

 

 

92

 

Shareholders' equity

84,731

 

 

80,295

 

Total liabilities and shareholders' equity

$

217,037

 

 

$

206,984

 

Note: The condensed consolidated balance sheet at December 31, 2020 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

June 30,

 

Six Months Ended

June 30,

 

2021

 

2020

 

2021

 

2020

Net sales

 

 

 

 

 

 

 

Metals Segment

$

68,097

 

 

$

52,018

 

 

$

123,311

 

 

$

112,681

 

Specialty Chemicals Segment

14,990

 

 

14,118

 

 

29,554

 

 

28,152

 

 

$

83,087

 

 

$

66,136

 

 

$

152,865

 

 

$

140,833

 

Operating income (loss)

 

 

 

 

 

 

Metals Segment

$

7,504

 

 

$

(9,155

)

 

$

10,081

 

 

$

(8,221

)

Specialty Chemicals Segment

(414

)

 

1,980

 

 

642

 

 

2,447

 

 

 

 

 

 

 

 

 

Unallocated expense (income)

 

 

 

 

 

 

 

Corporate

1,360

 

 

1,586

 

 

3,127

 

 

3,607

 

Acquisition costs and other

 

 

6

 

 

 

 

135

 

Proxy contest costs and recoveries

632

 

 

2,734

 

 

168

 

 

2,909

 

Earn-out adjustments

1,044

 

 

(827

)

 

1,270

 

 

(823

)

Operating income (loss)

4,054

 

 

(10,674

)

 

6,158

 

 

(11,602

)

Interest expense

353

 

 

532

 

 

739

 

 

1,251

 

Loss on extinguishment of debt

 

 

 

 

223

 

 

 

Change in fair value of interest rate swap

 

 

(4

)

 

(2

)

 

81

 

Other, net

 

 

(2,129

)

 

162

 

 

(1,303

)

Income (loss) before income taxes

3,701

 

 

(9,073

)

 

5,036

 

 

(11,631

)

Income tax provision (benefit)

815

 

 

(2,116

)

 

1,056

 

 

(3,496

)

Net income (loss)

$

2,886

 

 

$

(6,957

)

 

$

3,980

 

 

$

(8,135

)

 

 

 

 

 

 

 

 

Net income (loss) per common share

 

 

 

 

 

 

 

Basic

$

0.31

 

 

$

(0.77

)

 

$

0.43

 

 

$

(0.90

)

Diluted

$

0.31

 

 

$

(0.77

)

 

$

0.43

 

 

$

(0.90

)

 

 

 

 

 

 

 

 

Average shares outstanding

 

 

 

 

 

 

 

Basic

9,233

 

 

9,058

 

 

9,212

 

 

9,066

 

Diluted

9,331

 

 

9,058

 

 

9,315

 

 

9,066

 

 

 

 

 

 

 

 

 

Other data:

 

 

 

 

 

 

 

Adjusted EBITDA (1)

$

9,763

 

 

$

1,947

 

 

$

14,639

 

 

$

4,587

 

(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 included 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 includes 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: asset impairment, acquisition costs and other fees, loss on extinguishment of debt, proxy contest costs and recoveries, earn-out adjustments, realized and unrealized (gains) and losses on investments in equity securities and other investments, stock-based compensation, non-cash lease expense, 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)

 

 

Six Months Ended June 30,

(in thousands)

2021

 

2020

Operating activities

 

 

 

Net income (loss)

$

3,980

 

 

$

(8,135

)

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

 

 

 

Depreciation expense

3,591

 

 

3,866

 

Amortization expense

1,360

 

 

1,619

 

Amortization of debt issuance costs

46

 

 

80

 

Asset impairments

233

 

 

6,079

 

Loss on extinguishment of debt

223

 

 

 

Unrealized gain on equity securities

 

 

(208

)

Deferred income taxes

(76

)

 

(458

)

Proceeds from business interruption insurance

 

 

1,040

 

Gain on sale of equity securities

 

 

(31

)

Earn-out adjustments

1,270

 

 

(823

)

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

 

 

(292

)

(Reduction of) provision for losses on accounts receivable

(362

)

 

316

 

Provision for losses on inventories

368

 

 

553

 

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

(81

)

 

238

 

Non-cash lease expense

249

 

 

256

 

Non-cash lease termination loss

 

 

24

 

Change in fair value of interest rate swap

(2

)

 

81

 

Stock-based compensation expense

456

 

 

766

 

Changes in operating assets and liabilities:

 

 

 

Accounts receivable

(12,536

)

 

(1,917

)

Inventories

(5,482

)

 

(1,411

)

Other assets and liabilities

(570

)

 

(2,225

)

Accounts payable

5,575

 

 

3,694

 

Accounts payable - related parties

632

 

 

 

Accrued expenses

1,370

 

 

(203

)

Accrued income taxes

4,751

 

 

(3,082

)

Net cash provided by (used in) operating activities

4,995

 

 

(173

)

Investing activities

 

 

 

Purchases of property, plant and equipment

(563

)

 

(1,969

)

Proceeds from disposal of property, plant and equipment

138

 

 

100

 

Proceeds from sale of equity securities

 

 

2,667

 

Net cash (used in) provided by investing activities

(425

)

 

798

 

Financing activities

 

 

 

Borrowings from long-term debt

38,398

 

 

5,080

 

Payments on long-term debt

(40,269

)

 

(2,000

)

Principal payments on finance lease obligations

(19

)

 

(93

)

Payments for finance lease terminations

 

 

(204

)

Payments on earn-out liabilities

(1,944

)

 

(1,987

)

Payments for termination of interest rate swap

(46

)

 

 

Repurchase of common stock

 

 

(635

)

Payments for deferred financing costs

(165

)

 

 

Net cash (used in) provided by financing activities

(4,045

)

 

161

 

Increase in cash and cash equivalents

525

 

 

786

 

Cash and cash equivalents, beginning of period

236

 

 

626

 

Cash and cash equivalents, end of period

$

761

 

 

$

1,412

 

 

SYNALLOY CORPORATION

Non-GAAP Financial Measures Reconciliation

Reconciliation of Net Income (Loss) to Adjusted EBITDA (Unaudited)

($ in thousands)

 

 

Three Months Ended

June 30,

 

Six Months Ended

June 30,

 

2021

 

2020

 

2021

 

2020

Consolidated

 

 

 

 

 

 

 

Net income (loss)

$

2,886

 

 

$

(6,957

)

 

$

3,980

 

 

$

(8,135

)

Adjustments:

 

 

 

 

 

 

 

Interest expense

353

 

 

532

 

 

739

 

 

1,251

 

Change in fair value of interest rate swap

 

 

(4

)

 

(2

)

 

81

 

Income taxes

815

 

 

(2,116

)

 

1,056

 

 

(3,496

)

Depreciation

1,774

 

 

1,989

 

 

3,591

 

 

3,947

 

Amortization

680

 

 

810

 

 

1,360

 

 

1,619

 

EBITDA

6,508

 

 

(5,746

)

 

10,724

 

 

(4,733

)

Acquisition costs and other

 

 

6

 

 

 

 

138

 

Proxy contest costs and recoveries (1)

632

 

 

2,734

 

 

168

 

 

2,909

 

Loss on extinguishment of debt

 

 

 

 

223

 

 

 

Earn-out adjustments

1,044

 

 

(827

)

 

1,270

 

 

(823

)

Loss (gain) on investment in equity securities and other investments

 

 

(1,092

)

 

363

 

 

(240

)

Asset impairments

233

 

 

6,079

 

 

233

 

 

6,079

 

Stock-based compensation

269

 

 

430

 

 

456

 

 

766

 

Non-cash lease expense

124

 

 

128

 

 

249

 

 

256

 

Retention expense

476

 

 

235

 

 

476

 

 

235

 

Restructuring and severance costs

477

 

 

 

 

477

 

 

 

Adjusted EBITDA

$

9,763

 

 

$

1,947

 

 

$

14,639

 

 

$

4,587

 

% sales

11.7

%

 

2.9

%

 

9.6

%

 

3.3

%

 

 

 

 

 

 

 

 

Metals Segment

 

 

 

 

 

 

 

Net income (loss)

$

6,463

 

 

$

(7,308

)

 

$

9,002

 

 

$

(6,381

)

Adjustments:

 

 

 

 

 

 

 

Interest expense

 

 

7

 

 

 

 

11

 

Depreciation expense

1,350

 

 

1,559

 

 

2,742

 

 

3,070

 

Amortization expense

680

 

 

810

 

 

1,360

 

 

1,619

 

EBITDA

8,493

 

 

(4,932

)

 

13,104

 

 

(1,681

)

Acquisition costs and other

 

 

 

 

 

 

3

 

Earn-out adjustments

1,044

 

 

(827

)

 

1,270

 

 

(823

)

Asset impairments

 

 

6,079

 

 

 

 

6,079

 

Stock-based compensation

46

 

 

130

 

 

83

 

 

171

 

Retention expense

476

 

 

 

 

476

 

 

 

Restructuring and severance costs

50

 

 

 

 

50

 

 

 

Metals Segment Adjusted EBITDA

$

10,109

 

 

$

450

 

 

$

14,983

 

 

$

3,749

 

% segment sales

14.8

%

 

0.9

%

 

12.2

%

 

3.3

%

 

 

 

 

 

 

 

 

Specialty Chemicals Segment

 

 

 

 

 

 

 

Net income (loss)

$

(414

)

 

$

1,980

 

 

$

641

 

 

$

2,460

 

Adjustments:

 

 

 

 

 

 

 

Interest expense

 

 

1

 

 

 

 

9

 

Depreciation expense

390

 

 

389

 

 

776

 

 

792

 

EBITDA

(24

)

 

2,370

 

 

1,417

 

 

3,261

 

Asset impairments

233

 

 

 

 

233

 

 

 

Stock-based compensation

136

 

 

80

 

 

167

 

 

118

 

Restructuring and severance costs

427

 

 

 

 

427

 

 

 

Specialty Chemicals Segment Adjusted EBITDA

$

772

 

 

$

2,450

 

 

$

2,244

 

 

$

3,379

 

% segment sales

5.2

%

 

17.4

%

 

7.6

%

 

12.0

%

(1) Proxy contest costs and recoveries for the three months ended June 30, 2021 are reimbursements of documented, out-of-pocket costs to Privet and UPG. 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.

 

Contacts

Company

Sally Cunningham

Senior Vice President & Chief Financial Officer

1-804-822-3260

Investor Relations

Cody Slach or Cody Cree

Gateway Investor Relations

1-949-574-3860

SYNL@gatewayir.com

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