Q2 2021 Synalloy Corp Earnings Call
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Good afternoon, everyone and thank you for participating in today's conference call to discuss on the line financial results for the second quarter ended June 32 Paulsen for anyone.
Joining us today are synalloy chairman of the board Dan Rosensweig.
Interim president and CEO, Chris hotter.
C S O Sally Cunningham.
And the company's outside Investor Relations advisor Cody Cree.
Following their remarks, well open the call for your questions before we further I would like to turn the call over to Mr. Cui as he reads the company's safe Harbor statement within the meaning of the private Securities Litigation Reform Act of 1995 that provides important cautions regarding.
For 1 looking statements Cody. Please go ahead.
Thanks, Lori good afternoon, and thank you all for joining our conference call to discuss the noise second quarter 2021 financial results.
Before we continue we'd like to remind all participants that the discussion today may contain certain forward looking statements pursuant to the safe Harbor provisions of the federal Securities laws.
The statements are based on information currently available to us and are subject to various risks and uncertainties that could cause actual results to differ materially.
The Synalloy advisors all of those listening to this call to review the latest 10-Q and 10-K posted on its website for a summary of these risks and uncertainties synalloy does not undertake the responsibility to update any forward looking statements.
Further the discussion today may include non-GAAP measures in accordance with the regulation G. The company has reconciled these amounts back of the closest GAAP based on measurement. The reconciliations can be found in the earnings press release issued earlier today and posted on the investors section of the company's website at Synalloy Dot Com vs.
Note that this call is available for replay via a webcast link that is also posted on the investors section of the Companys website with that I'd like to turn the call over to <unk> Chairman of the board Ben Rosenzweig Vin.
Thank you Cody.
I'd like to start by saying, how appreciative I am to be here in San Hawaii, as Chris and I have said all along we think synalloy has incredible potential and are confident that with the right strategy personnel and oversight. This company will do great things to benefit all stakeholders.
It begins with our employees and we've made a concerted effort to invest in our talent starting by bringing in experienced leaders from outside of the organization, who we're confident can best position of our incredibly skilled and loyal team members for success.
Truly enjoyed seeing our workforce reacted enthusiastically to these changes and the energy is palpable as we continue to professionalize the organization and drive a cohesive will to win attitude across all of our facilities.
I'd also like to reiterate what Chris has stated in the past we're not just here to fix we're here to grow this year has been about getting back to basics with our new team focused on identifying and executing on the building blocks of our future operational success.
We've made great strides and quickly right sizing our cost structure and we will remain mindful of our expenses moving forward, we're not in cost cutting mode. We're simply in establishing a culture of scrutinizing our expenditures to make sure we're getting Max benefit out of every dollar.
There's a tremendous amount of potential value on our businesses and the bulk of that will be realized through being a best in class operator capable of continuing to grow share with our loyal customers, we won't hesitate to spend money on targeted well vetted growth initiatives that deliver value to the marketplace and provide an attractive risk adjusted return.
My hope is that our strategic growth can be achieved by surrounding ourselves with the principals and motivated leaders and giving them every resource they need to be successful.
We're committed to an inclusive data driven decision, making and believe in driving a pervasive ownership mentality throughout the organization, we're aligned incentives and transparency with the culture of accountability.
I am excited by the opportunity we have in front of us and proud of what the team has been able to accomplish so far we're building this company for the long term.
Theres still lots of work to do I genuinely believe we're taking the right measures to set synalloy up for lasting success.
Now I'd like to pass the call over to Chris and Sally and I'll be happy to rejoin at the end for questions Chris.
Thanks Ben.
Good afternoon, everyone and thank you for joining today's call I'm pleased to report that the second quarter showed nice improvement as we continue to progress on our journey towards consistent profitable growth and sustained shareholder value creation.
I am honored to have the opportunity to lead this exceptional team and I am proud of the advancements we've made during the first half of 2021 the.
Those who know me know that I'm never satisfied, but the progress we've made strengthens my confidence on our ability to be successful in building a company that can provide durable value to all of our stakeholders. In Q2, we achieved our second consecutive quarter of sequential increases of net sales across each of synalloy's business segments. We also reported improvements in profit.
Ability driven by rebound in customer demand a strong raw materials market, our continued efforts to improve quality and driving down costs through process efficiencies. These improvements helped deliver notable increases to our net income adjusted EBITDA and adjusted EBITDA margin, both on a year over year and sequential basis.
From a strategic and operational standpoint, we're continuing to refine throughput in an effort to optimize customer demand with our production schedule and expect to see reductions on earnings volatility as we execute on our operational improvement plan.
We believe our operations planning and margin enhancement initiatives will ultimately work to minimize the fluctuations are input costs have on our profitability.
Now I'll dive a bit deeper into each of our segments.
During the quarter, our metal segment benefited from a continued strong commodity pricing environment and overall demand tailwind. We also made steady safety and operational enhancements throughout the segment to lay the foundation for long term growth and success as previously announced Tim Lynch took the helm of the segment in late April and we are proud of the progress.
He has already made is the ramped into his role.
Tim has done an incredible job of assembling of proven and capable team in the short period and I am very excited about the initiatives and operating procedures they've begun to implement.
Part of the initiatives include a revised vision and mission for our metal segment that I would like to share our metals vision is to be the premier solution provider through best in class safety quality and customer experience, while creating value for all team members and the stakeholders are metals mission as the safely produce best in class quality, while improving on time delivery efficiency and finance.
Performance.
I am proud that everyone within our metals segment had the opportunity to contribute to our revised vision and mission and I couldnt be prouder of the team.
Additional Q2 highlights for the segment include the implementation of the safety summit baseline of standardization of efficiencies as well as measurements of all aspects of our sales and production processes, Tim on the entire metals team are drawing the roadmap to success and Q2 provided evidence that the changes are working.
The team is working tirelessly to build the metals segment that focuses on results through communication transparency and accountability. The combination of these will deliver consistent growth profit and opportunity for all stakeholders.
In our chemical segment net sales grew slightly despite challenging year over year comps given the unprecedented demand for hand sanitizer of that accompanied the onsite of the pandemic and the year ago quarter.
Also experienced operational challenges due to labor constraints and product shipment delays related to trucking shortages, which weighed on the segment's profitability to combat. These challenges we implemented price increases later in the quarter, but we will not see the full benefits realized until the back half of the year, we are taking proactive measures to better realize the opportunity in chemicals.
Including the appointment of Dave Koozie as the executive Vice President of the segment day.
Dave is not only of seasoned executive with C suite experience of multinational chemical companies, but he has a proven history of cultivating teams built upon the principles of culture safety and accountability I am excited to have Dave on board and look forward to seeing our chemical segment growth and thrive under his leadership.
Additionally, we recently expanded our executive team with the appointment of Doug ticket of Synalloy's, Chief Legal officer, Doug brings decades of experience in corporate law and governance, including with public companies such as support Dot Com and Star Trek.
We are confident in <unk> ability to guide our executive team and board of directors and all of legal and commercial matters and.
And firmly believe has the expertise will be of crucial asset.
While there is certainly room to continue to expand and improve our management team, particularly in role supporting our commercial group and operations.
I am proud of the progress we have made in upgrading our talent during the first half of the year.
We will continue to leverage the collective knowledge and experience of our high performing team members, including both the recent appointments and our experienced contributors.
I firmly believe that we can't be successful without surrounding ourselves of a talent.
And it feels good to see the teams efforts begin to bear fruit.
I invested in Synalloy and joined this company with the vision for what it could become and we are just beginning of the process to turn the vision into a reality.
Although we still have much to do I am thankful for the contributions from every member across our organization and I firmly believe we are establishing a strong foundation that will enable us to build towards our vision for <unk> future sales.
Sally audio.
Thank you, Chris and good afternoon, everyone.
Second quarter 2021, net sales increased 26% the $83.1 million compared to $66.1 million in the prior year period.
The increase was attributable to a strong strong performance in our metals segment, which benefited from price increases improved operational throughput and rebounding demand.
Gross profit increased 220%, the $14.1 million compared to $4.4 million in the prior year period of.
Gross profit margin more than doubled to 17% from 6.6% in the prior year period.
Gross profit and gross profit margin was attributable to the increased pricing and surcharges that benefited net sales during the quarter, along with better operational efficiencies that accompanied the higher volume.
Net income in Q2 with $2.9 million or 31 cents per diluted earnings per share, which is the considerable improvement from the net losses of 7 million for 77 cents diluted loss per share.
In the second quarter of 2020.
Excluding the impacts from 2020 associated with exiting the Palmer business net income in the second quarter improved $1.9 million from the prior year period.
Adjusted EBITDA in Q2 increased more than 4 times, the $9.8 million and adjusted EBITDA margin also improved 880 basis points.
1.7% growth compared to the prior year period.
Lastly, looking at our liquidity position as of June 30 of 2021 total debt was $59.5 million compared to $61.4 million at December 31, 2020.
With $45.5 million of borrowing capacity under our revolving credit facility compared to $11 million at December 31, 2020.
With that I'll now turn it back over to the operator for Q&A.
Thank you ma'am.
The question you will need to press the star 1 on your telephone to withdraw your question Brad the pound key.
Again in order to ask the question. Please press star 1.
Please standby, while we compile the Q&A roster.
And now the first the question will come from David.
Thanks Frank.
Investor. Please proceed.
Congratulations guys on your second consecutive quarter of net income net reduction in operating efficiencies really nice to see.
Thanks, David.
Question. So the capital expenditures are those still expected to be $4 million or less for this this year.
Yeah as you can see we're tracking significantly below that number and I anticipate that.
We will be.
Nowhere near of the $4 million as we originally projected.
Got it.
I noticed there is.
The 632000 cash expense related to the proxy contest.
Could you explain a little bit about that.
Hey, Ben you on to take that.
Yes sure.
Well I think I don't want to speak for the independent directors, but that was the.
Our reimbursement for private and <unk> on the proxy contest. So the reason that we thought reimbursement is because we placed 3 highly qualified directors on the board as well as being able to bring in Christmas season. So we think thats worked out well and the board gave it a little bit of distance to evaluate whether that was still a good investment for the shareholders and they determined that.
It was so that was something that was accrued for in the second quarter and will be paid out in the third quarter.
Got it.
And then after third quarter Thats down from.
Close the books on that.
Correct Okay.
Okay, Great Alright.
Getting product produced out of the door and delivered on time in the metals segment. It looks like there's improvement there or is there still room for more improvement.
Yes, there is definitely room for more improvement on the flow through on efficiency side I would say our supply chain team is definitely working very well with matching inbound customer orders via through mill coordination on the master coil and through our production efficiency processes through the mills and then finished goods.
<unk>.
I think we're in the sixth or seventh inning on getting a great process put in but we are definitely significantly further along on the word on the last quarter.
Okay and the speak at some specific details on that as our on time delivery is.
At the highest level of that of spend in the last at least 1 year. So we're definitely making significant strides on getting product delivered on time to our customers.
Excellent is the bank.
<unk> still growing.
Backlog is very robust.
Yeah.
Question regarding inflation now.
For the price of material, but it seems like maybe the chemicals, a little bit but can we continue to pass on these increases to customers or is there a point, where it begins to hurt the margins.
Yes.
Pushed us again, the the elasticity we've tested definitely on our pricing I would say more so in the metal side than our chemical side and we were behind the 8 ball on increasing our chemicals prices as fast as we should of and have caught up with that process now, but we are not seeing any significant pushback from our customers on <unk>.
<unk>, they're more concerned about can they get the product in the door to make whatever theyre, making and deliver their product to their customer.
So it's.
It's definitely an interesting market.
Yeah Okay.
This is the team getting closer to putting out of strategic plan.
Yes, I mean, we're definitely working on strategic plan as you can as you heard on the call with our vision and mission within metals I think.
We are definitely close closer in the metals segment in our chemical segment, but that is something that we hope to announce here on on a complete holistic.
Strategic roadmap to deliver to shareholders in the next few quarters.
Okay.
Now some of the competitors mentioned.
On the strong business cycle, they thought it would.
Great.
Phil over the 2022 on that.
Infrastructure is past there'd be a strong 2023 and beyond so you kind of see that with cinema line as well.
I would definitely echo that.
But.
We say, we're such a small component of the market globally in terms of what's the NOI produces and there is always ways, we can gain market share regardless of the demand cycle of the macro environment. So I mean, we're building a team that is willing to capture market share in every market cycle and truly.
As Ben mentioned, we have the will the wind. So we're building just the different culture different mentality.
We're not kind of blamed pricing our market on our performance. We are really trying to be the the authors of our future success based on the metrics we put in place.
Got it.
Well, congratulations again excellent quarter. Thank you.
Thanks, David.
Hey, Thanks, sorry, Minder to ask the question you will need to press star 1 on your telephone again that is star 1 to ask a question.
Our next question is from Mike you of.
S GDS capital. Please proceed.
Good afternoon, Thanks for taking my questions.
Can you start out by just talking about the specialty pipe and tube business, the master distribution business I think.
Most of the businesses in Houston in Ohio, and if Youre seeing any variances and then just overall strength of that business.
Yes, that's of Great question, obviously, that's a business, where we are of distributor of heavy wall seamless pipe and tube.
The Houston market in the first half of the year, obviously was continued to be.
Impacted by rebounding oil demand, we are seeing a significant pickup in that business, specifically related to the Texas distribution side.
And the Ohio market with the Midwest has been very robust with the applications that the.
Materials going into think of hydraulic applications construction equipment high.
High pressure applications valves fittings, so anything related to of rebounding economy. They are definitely seeing of tailwind there.
Okay. So you expect the strength to continue on into the back half.
Yes, we do.
And.
2 if I remember correctly that that business carries a very high EBITDA margin.
It carries a very relatively healthy defined high I think it's a healthy EBITDA margin.
We're making strides into again refining our supply chain process within that business by refining the number of Skus, we have on hand truly identifying ABCD items and an overall.
Implementation of our new inventory program, which we've implemented and have seen our inventory days reduced significantly to better align supply with demand.
Okay, and then on the the Bristol and Munhall business.
Did you disclose what the volume did on neither pound I guess end up using the metric of pounds on a year over year basis.
Sally do you of those numbers by chance.
Yeah.
I do.
The.
I just have it at the metals segment net metals as a whole year over year, we were up on the 20.
21, 21%.
21.
And Christy did you quantify where the backlog was just up in percentage terms versus the end of the March quarter was it actually up.
Higher to surcharges.
Backlog is up in the areas, where we want it to be up in terms of the customer profile that we're going to be looking for going forward, so without getting into significant detail backlog in general is up but we're changing the mix on the end use profile of where we expect our backlog to be <unk>.
<unk>.
Presumably to optimize margins.
That would be correct.
Okay on the the chemicals of business.
Well, let's take until the fourth quarter to get back to kind of a more normalized EBITDA margin for that business.
I hope sooner than that.
I am giving Dave some benefit of the doubt he is really coming into a situation where he has got to build the team get operational excellence and really understand the book of business.
Thank you.
Having been in the chemical side, the I was new to chemicals, and starting to turnover leaves and understand it and we provide a highly value added process and product to many many customers and most fortune 500 type names on the chemicals business.
So.
I don't think we've been charging enough in terms of the the value, we're providing to our customers in the <unk>.
Prices that were asking for it and net implement the changes all of that started really in end of Q2.
<unk>.
We're seeing complete acceptance from the customer base on.
New pricing strategy.
Beyond leveraging the corporate overhead costs, what are the real synergies of having the chemicals business along with the metals business.
I mean, when you look at the overall spend on vendors I mean, there's the synergies within the of the expense side, whether it be uniforms, whether it be certain raw material inputs of everything from logistics.
I like the business because it should have a healthier margin in my opinion the metals.
We just have to go capture it.
Okay and then last question for you remind me are you on LIFO or FIFO accounting.
Sal do you want to take that it depends on I think the drilling of taxes tax basis or net.
We are on.
We're on neither.
Okay.
How do you is it a weighted average cost.
As you are.
Inventory costs, how do they flow in.
The standard costing.
Okay.
Okay.
Okay.
Thats all I had I appreciate your time thank you.
Thanks, Mike.
At this time. This concludes our question and answer the question I would now like to turn the call back over to Mr. Hutton.
The <unk> interim president and CEO for closing remarks.
Thank you Laurie again, I would just like to thank all of our employees for their efforts that contributed to what I would say is a significantly improved performance in this quarter.
Look forward of our continued success in the second half of the year and believe we can capture it.
I also like to thank everyone on this call for listening we look forward to speaking with you again, when we report our third quarter 2021 results in November.
Lorie over to you.
Ladies and gentlemen, this does conclude today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation.
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