Q3 2020 Synalloy Corp Earnings Call

Ladies and gentlemen, this is the operator todays conference is scheduled to begin momentarily until that time your lines will again be placed on music hold thank you for your patience.

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Ladies and gentlemen, thank you for standing by and welcome to the Cynically third quarter 2020 earnings Conference call. At this time, all participants are any listen only mode. After.

After the speaker presentation, there will be a question and answer session to ask a question. During the session you will need to press star one on your telephone.

If you require any further assistance. Please press star zero I would now like to hand, the conference over to Mr., Craig Bram President and CEO. Thank you. Please go ahead Sir.

Good morning, everyone welcome to Similarly Corporation's third quarter 2020 conference call.

Joining me today is our CFO Sally Cunningham also on the phone today is Chris Sautter.

This will be assuming the role of interim president and CEO. Upon my retirement from the company Tomorrow.

Oh, absolutely report on the Q3 financials, and then I will provide some commentary on each of the business like much.

Part of the Q1 day, Chris will have some comments as well so ill now turn the call over to you.

Good morning.

As is usual practice I will present, the financial results using three different methods.

[noise] based EPS.

Adjusted net income a non-GAAP measure as defined in the earnings release and adjusted EBITDA, a non-GAAP measure also defined in our earnings release.

Starting with GAAP based EPS.

But the third quarter the company reported a net loss of $10.5 million or $1.16 cents diluted loss per share as compared with a net loss of $1 million or 11 cents diluted loss per share for the third quarter of 2019.

The primary factors contributing to the current quarter losses were.

A noncash goodwill impairment in our metals segment $10.7 million.

Operating losses at Palmer totaling zero point $9 million.

An inventory price change losses, which on a pretax basis totaled $1.6 million.

For the nine month period, the company reported a net loss of $18.7 million or $2.06 diluted loss per share.

As compared with a net loss of $2.1 million or 24 cents diluted loss per share for the first nine months in 2019.

The primary factors contributing to the current year to date losses were.

A noncash goodwill impairment in our metals segment of $10.7 million.

A noncash impairment charge at Palmer of $6.1 million.

Operating losses at Palmer totaling $3.6 million.

Proxy contest cost of $3.1 million.

And inventory price.

Price change losses, which on a pre tax basis totaled $5.5 million.

Third quarter non-GAAP, adjusted net loss was $1 million or 11 cents diluted loss per share compared with an adjusted net loss of zero point $7 million or eight cents diluted loss per share for the third quarter 2019.

For the nine months period, the adjusted net loss was $2.9 million or 31 cents diluted loss per share in.

Compared with the adjusted net loss of zero point $4 million or four cents diluted loss per share for the first nine months of 2019.

Third quarter non-GAAP, adjusted EBITDA was $1.6 million.

Down from $2.8 million in the third quarter of 2018.

For the first nine months of 2020.

Adjusted EBITDA was $6.2 million down from $10.9 million dollars for the first nine months to 2019.

That's the adjusted net income and the adjusted EBITDA metrics for the first nine months of 2020 include add backs of the noncash goodwill impairment of $10.7 million in our metals segment.

The $6.1 million.

$6.1 million and noncash asset impairment for the polymer operation and $3.1 million in cost associated with the company's proxy contest.

As pointed out in the earnings release operating losses at Palmer totaled zero point $9 million and $3.6 million for the third quarter and first nine months of 2020, respectively.

Additionally results were negatively impacted by the inventory price change losses, which on a pretax basis totaled $1.6 million and $5.5 million for the third quarter and first nine months and 2020, respectively.

Net debt at the end of the third quarter totaled approximately $71.3 million down from $77 million at the end of the second quarter.

I will now turn the call back over to crack.

Thanks, Sally would go up and it continued to make solid progress on multiple fronts in the third quarter.

Looking at the balance sheet net debt was reduced by $6 million and we expect to bring that down, but an additional $9 million by year end.

We will file for federal tax refunds totaling $4.5 million $1 million targeted Jewish she possibly but before you is and the balance is targeted to be received prior to the end of the second quarter of 2021.

The company continues to show off assets related to.

Businesses that we exited years ago war or in the process of exiting now like the Palmer operation.

Expected proceeds from these sales in Q4 will total $500000.

All of our sales proceeds in the first half of next year are expected to generate upwards of 2 million in additional cash.

We recently received a favorable court ruling regarding a dispute over industrial gas pricing that are more in all facilities.

As a result, Bristol metals search to receive up to $200000 in overcharges for 2020 and.

And should realize comparable annual savings for a period of three years starting in 2021.

As noted in the earnings release Q3, adjusted pre tax income showed substantial improvement over the same quarter last year up $1.9 million.

Performance of the core <unk>, considering a decline in sales of roughly $9 million year over year speaks to continue efforts to bring down our cost structure.

The chemicals segment was witness similar declines in volume in the quarter as its largest chemical customers experienced in their businesses.

In spite of this operating income for the segment was up 25%.

And 47% over the third quarter and nine month periods of last year, respectively.

The pipeline of new products remains favorable.

We'll have a significantly positive impact on the films in South Carolina facility and 2021.

Our pipe and tube businesses continued to generate mixed results in the quarter and year to date.

Polished ornamental tubing remained reasonably strong in Q3.

With its consumer oriented markets, including marine and transportation, leading the way.

As we anticipated when we acquired this business in January 2019.

It has helped to offset the more volatile infrastructure cycled at Bristol metals competed.

The heavy wall seamless carbon pipe and tube businesses.

I've been relatively steady at our mineral ridge facility.

Which serves primarily the industrial markets Houston operation has been under pressure.

With that said the reliance on the energy industry.

By far the most challenging market conditions had been in the welded pipe and tube business is a Bristol metals gold.

North American consumption of welded stainless steel pipe is annualizing at roughly 93000 tons for 2020. This.

This is about 5% less than 2019 and is in line with the previous 12 years in the infrastructure spending cycle of 2015 2016.

And also 2009 2010.

While Bristol metals is taken market share in the past two years aggressive pricing is pressured margins across all product lines.

Not surprisingly weak demand also led the falling nickel surcharges in the first half of the year.

Generating inventory price change losses, totaling five and a half million dollars in the first nine months of 2020.

Nickel surcharges turned positive in late summer.

And we expect to generate inventory price change gains in 2004.

Inventory profits in October exceeded $230000.

Historically, the infrastructure cycle that drives Bristol metals end markets has been 24 to 30 months of weak demand followed by a comparable period and strong demand.

Industry participants or the opinion that demand for welded stainless steel pipe in North America should begin to pick up in the second half of next year, yes.

The expectation is that stimulus plans will include include a focus on infrastructure and that capital spending will increase across key end markets.

As stated in the earnings release because of the uncertainty related to the code of 19 pandemic. We have suspended all fiscal 2020 guidance and are not providing guidance for 2021 at this time.

Finally, I'd like to thank all the employees of similarly for making the last 10 years the highlight of my business career.

You said financial records at the peak of the business cycle and have shown the resiliency and the most challenging years I'm, especially proud of your efforts in 2020.

The company is well positioned for the next leg up in the manufacturing economy and I know you will continue to perform at the top of your game best wishes to all of you.

Last I'll now ask Chris to office and as some of his comments to the listeners as well.

Thank you Sally. Thank you Craig appreciate it I want to start by commending all my new colleagues to synalloy for their tremendous efforts throughout this recent pandemic and over the past several years.

For more than 500 hard working employees are producing high quality products and providing exceptional service to customers on a daily basis.

Even during these trying times are helping us to fuel American industry and drive results for all of our stakeholders.

Looking forward to rolling up my sleeves, and working side by side with everyone at the company to build on this foundation and ultimately position us as a perennial industry leader.

Also want to take this opportunity to thank the board for placing us confidence in me as interim CEO I've only been working with my fellow directors for a few months, but an EPS short time, we've established a truly collaborative partnership I believe this will be a tremendous asset for the company and myself as I take on this new role.

As I continue learning more about the company each day it only reinforces my belief in the long term growth potential across all of our businesses I saw this potential as an investor and I am excited to help realize that as interim CEO.

I believe we have the ability to become truly remarkable in the chemicals and metals segments, our shareholders employees and stakeholders have my commitment that all worked tirelessly to leverage my experience market knowledge and relationships to further strengthen and grow our presence in these high potential areas.

I am also committed to ensuring that our culture from top to bottom phosphorus accountability respect transparency and teamwork, we will always show respect for our stakeholders in the communities environments. This synergy operates in over the course of the next few months I look forward to keeping our workforce safe and sharing our plans for the future and demonstrated progress in greater detail. Thank you.

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Thanks, Chris will now open the call to questions.

As a reminder, if you would like to ask a question you may do so by pressing Star then the number one on your telephone keypad again that is star one if you would like to ask a question well pause for just a moment to compile became a day roster.

Your first question is from David Secret of he's a private investor.

Hey, good morning.

Just a quick question.

Hey, good morning so.

Nice progress on debt reduction.

Thank you for giving us some clarity on that.

The progress that you expect to see over the next couple of quarters with that that's good just.

Just a question on debt so right now market cap is about $50 million debt over $70 million will.

Will that affect the ability to refinance line of credit that expires in December 2021.

I'm happy to take that Sallie you can you can add some comments as well.

David we've had preliminary conversations with the journalists and they remain very excited about the.

The renewal and we expect to have the ABS deal and the term debt renewed prior to the end of the year.

Okay.

Very good. Thank you another question.

It was mentioned I think last call that you'd be performing inventory valuation in October.

And that with higher nickel prices, you might be able to increase their capacity on line of credit is there anything that.

Was able to happen.

The inventory revaluation was that it was not able to happened in October to covet related reasons that we are in the process of getting a new valuation and we do expect to have a higher inventory prices with the increasing increasing nickel prices.

Okay.

And then.

No now where X. Palmer were less connected to the price of oil.

I think Craig if I got this right is about 80% of company revenue comes from end markets not connected with oil and gas is that sound about right.

Yes, David I think that's in the ballpark.

When you look at the remaining businesses the non polymer businesses.

The specialty pipe into the operation down in Houston.

Has exposure to both the.

Midstream energy business and also offshore.

So the offshore you know at this point is a very very slow.

And then when you look at Bristol metals.

There is the downstream energy market.

But what we're talking about there is exposure to.

Infrastructure spending on LNG.

Petrochemical and chemical operations. So it's in that downstream energy market, but obviously not nearly as volatile as the upstream energy markets that Palmer.

In specialty have some exposure to.

Okay.

And then.

Do you see with the New administration.

Who medically do you see a catalyst or a boost for companies that support.

Manufacturing construction.

Potentially.

You know there is a.

A water and waste water initiative in the Senate submit in there since the summer time, but.

But obviously hasn't gone anywhere.

Stimulus spending we would expect if that were to occur that would include some spending on infrastructure.

But that's probably Anybodys guess right now as to how that plays out.

I don't know that any of us have a sense of.

Where the Senate's goal and in terms of control and how that might impact us.

Some of the initiatives, but.

Yes, when you look at infrastructure spending is I as I mentioned in the earnings release.

You know there are it's typically two and a half years of.

Strong demand followed by two and a half years of weak demand and.

And we certainly in 2019 and 2020.

Infrastructure spending has been very very low.

So.

If it sticks to that kind of schedule and certainly stimulus would help turn that around and we would expect to see some improvement in the second half of next year and that's that's what our customers are telling us right now.

Makes sense.

No I noticed tangible net worth 67.7 million I think thats about 744, a share that's about consistent with June thirtyth.

Yes.

[noise] I noticed a.

In the chemical itself, it's nice to see a little operating income increase from third quarter last year and that was good.

I noticed there was an article.

In textile word on October eightth much.

Material Science group, that's in a lawyer introduces bioglue equaled seven.

Yeah, I think design for fiber extrusion.

Is how is that being accepted in the marketplace.

You know the chemical business has always been a and products that have catered to the the lubricants, which go into the textile industry.

You know and we've had.

Over the years multiple products that that kind of fit that description.

I've not heard anything specifically from our guys that.

That that is a product line that's.

Goes beyond a particular customer.

Typically we told those products through for a specific customer.

But thats that something we could look into Dave if you if you want to follow up.

We can get a little more detail on that product line fully.

Okay.

Thank you.

Wish you the best Greg and any future endeavors.

Coughing here soon I wouldn't.

Thank you David I appreciate it.

Hey, just one other question.

So right now we have a board members with with with you on the board, but you know effective I think tomorrow, we'll be down to seven board members if that is.

Is there an expectation that.

With the new CEO eventually.

That will be back up to eight or is that anything that you could talk about.

I don't know that the board is even contemplated that at this point, how they're going to deal with it.

Right Okay.

Very good.

Well, that's all I have at this time thank you.

Thanks, David.

As a reminder, if you would like to ask a question you may do so by pressing Star then the number one on your telephone keypad again that is star one if you would like to ask a question.

At this time, we have no other questions in queue.

Do you all have any closing remarks.

Thank you as always for your time, we appreciate it.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.

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