Q4 2021 Synalloy Corp Earnings Call

Good afternoon, everyone and thank you for participating in today's conference call to discuss seen them always play national adult.

The first quarter and full year ended December 31, mainly to anyone joy.

Joining us today, our senior most executive chairman of the board been Rosensweig, President and CEO Questor C F O, England, Tim and the company's outside Investor Relations Advisor Cody Cree.

Following their remarks, we'll open the call for your questions.

Before before we go further I would like to turn the call over to Mr. <unk> 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 forward looking statements Cody. Please go ahead.

Thanks, Alexander Good afternoon, and thank you all for joining our conference call to discuss <unk> fourth quarter and full year 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.

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.

Oh Boy 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 or uncertainties.

<unk> does not undertake the responsibility to update any forward looking statements.

The discussion today may include non-GAAP measures in accordance with regulation G. The company has reconciled these amounts back to the closest GAAP based measurement reconciliations can be found in the earnings press release issued earlier today and pushed out the investors section of the company's website at <unk> Dot com.

Please note that this call is available for replay via a webcast link that is also posted on the investors section of the company's website.

With that I'd like to turn the call over to <unk> Executive Chairman of the board, It's Ben Rosenzweig.

Thank you Cody and good afternoon, everyone.

I'd like to start by congratulating, Chris and the removal of the interim tag and his appointment as president and CEO .

Speaking for the board as well as the company's largest shareholder we continue to have confidence in Chris to lead the organization and felt that now was the right time to make this announcement.

This truly brings an owner operator mentality of the company and has done an incredible job in ensuring that this mindset permeates the rest of the executive team.

Throughout the organization.

Chris and I work very well together on the new roles are merely a formalization of what we've already been doing for the past year plus.

I'd also like to take the time to welcome Aldo Mazzaferro to the Synalloy Board, although it has a tremendous amount of knowledge about the steel industry and has seen it all throughout this year is covering the sector for major wall Street banks and brokerage firms L.

It'll be a fantastic resource for us as we continue to grow both organically and through acquisitions and look to amplify our story across the investment community and.

In the fourth quarter, we capped off a record year. It's in line with revenue earnings and adjusted EBITDA all at the highest levels in the history of the company.

I'm extremely pleased that we were able to achieve these results in our first full year since embarking on our turnaround strategy over.

Over the course of 2020 , one we made tremendous strides across the organization to set this company up for sustained success and I cannot be prouder of all of our dedicated employees that have responded so well to a rapid transformation efforts. The hard work and actions are reflected in the strong financial results. We reported this year, but there are many achieve.

At the business level that give us confidence we've done much more than just possibly take orders all year.

As one example, there have been major upgrades to the way the commercial team has been positioning our go to market strategy as we attempt to capture additional market share across all of our products.

Our operations team has also wasted no time in building systematic processes as we strive for best in class reliability and customer satisfaction.

Our finance team rebuilt under Aaron's leadership has worked tirelessly to ensure we're getting the highest return out of our fixed expenses.

We're hopeful that as our personnel stabilizes and the team has more time with each other we can further leverage data analytics and insights across the business units to be able to take a step back and provide additional value to our operators.

Even though 2021 was unquestionably a success. This is not a self congratulatory type of call.

We've put in place a strong foundation and created some value when there's too much opportunity ahead for us to slow our sense of urgency our unwavering commitment to doing right by our shareholders continues to be at the center of our decision making process.

We evaluate and execute on growth initiatives to best drive long term shareholder value.

To that end as we continued to balance prudent capital allocation with a focus on long term growth, we initiated a rights offering for our current shareholders towards the end of the year to prepare for additional investment opportunities.

We successfully raised $10 million in gross proceeds in an oversubscribed offering solidifying the confidence of our shareholder base has in the long term potential of synalloy.

We're very pleased with the outcome of this capital raise especially since we were able to do so in such a cost efficient and shareholder friendly manner.

As we look ahead to 2020 to both segments of our business are continuing to show signs of strength. However, we're keenly aware that we operate in a very dynamic market environment.

From where we sit today, we expect pricing to begin normalizing sometime in the second quarter as a result, continuing to proactively ensure we can earn competitive margins in any pricing environment remains one of our top priorities this year.

We're also going to make focused investments in technology and automation to further drive operational efficiencies and bolster our product development efforts in both segments.

We will continue to be opportunistic and exploring acquisitions that can strengthen our manufacturing capabilities bring innovative product offerings to our catalog and further expand our customer base.

As market and macro conditions remain fluid I'm, not going to give too much specificity into future expectations, but what I will say is that we don't anticipate our growth this year being as linear as it has been over the past several quarters, we remain committed to executing on our strategy excelling in the areas that we can control and trying to build value brick by brick.

Now I'd like to pass the call over to Chris to provide more details on our operations across both segments, but I'll be available later on to answer any questions Chris over to you.

Yeah.

Thanks, Ben and thank you all for joining today's call I'd, just like to say that I'm honored by the board continuing faith in me and I'm proud to be a part of the incredible similar team.

Ben and I have been deliberate in building an organization that we can profitably scale, while working to fill it with talented people who share our goals and work ethic.

Pleasure to get to know many of you personally over the past year or so and I'm incredibly excited about what we'll accomplish together in the future.

As Ben mentioned 2021 was a transformative year a percent or like we would not be in the position. We are today without such hardworking personnel in both segments and the leadership team that is firmly committed to executing our strategic vision I'd like to acknowledge everyone within our organization along with our stakeholders for their tireless support throughout this firm.

First full year of our turnaround strategy.

The momentum we've generated throughout the year continued in the fourth quarter as we closed out the year reporting our third consecutive quarter of year over year growth in net sales net income and adjusted EBITDA, our efforts to drive operational efficiencies and better position. The company commercially allowed us to further capitalize on the strong pricing environment we.

<unk> in both segments. Additionally, our teams across the organization worked relentlessly to make timely deliveries to our customers despite supply chain challenges and labor constraints that impacted us throughout the quarter.

With that let's dive deeper into operational reviews of each segment starting with metals.

This segment ended the year benefiting from the continued strong demand and pricing environment, our business development team did an excellent job capitalizing on order flow.

With an increase in bookings across all product lines. This resulted in a 65% year over year increase in net sales for the fourth quarter. Additionally.

Leveraging our enhancements we've made in our operations and cost structure, we were able to translate this topline growth into a more than 1000 basis point improvement in our adjusted EBITDA margin.

When we embarked on our turnaround strategy, we ambition to our metals segment to be the premier solution provider in the industry through high quality products.

<unk> customer experience consistently providing on time deliveries and operating the safest plants for our employees to produce material for order book.

We have continued to make this vision a reality throughout the year and I'd like to note some of the incremental progress we made this quarter.

First and foremost is the health and safety of our employees I'm happy to say that we continue to make significant strides on our safety statistics with a 21% decline in our total recordable incident rate during 2021.

I expect this trend to continue and our culture of safety first has fully embraced at all levels of the organization.

Further enhancements to safety for this year include adding automation high risk workstations, while transitioning these roles to other value add responsibilities within our plants.

Second.

We have made significant investment in our business development team.

And enhanced our focus on new business opportunities.

Ben alluded shifting from a reactive to proactive culture is not easy.

I'd like to thank John Mark our senior Vice President of commercial operations within metals.

Tireless efforts on improving customer engagement as well as identifying new product growth ideas.

Our new commercial sales structure expanded both our business development team and customer service team, while creating a new role dedicated a marketing and customer experience. These.

These changes are increasing new customer identification, expanding our direct relationships with customers and reducing our reliance on that employee sales representatives to drive our commercial growth.

In addition to these commercial improvements we also made strides in rolling out operational metric enhancements and expanded inventory visibility for our sales team to better capture spot sales opportunities exam.

Examples include O E dashboards milk capacity reports and what backlog status all in an effort to ensure we deliver on time to our customers.

We are eliminating the proverbial blame game between commercial and operations by providing visibility and open communication between the teams and further aligning incentives to be consistent with our one metals mantra.

In terms of where we stand today customer demand and bookings remained strong and we have exceeded our shipping and production targets. In this segment during the first two months of the year.

We anticipate demand remaining elevated for the near future in a more normalized pricing environment. Once there was additional clarity about how the current global conflicts will impact nickel costing and supply.

Additionally, we've been making a concerted effort to expand that and streamline our footprint as well as increase our product offerings.

Looking at our current footprint, we expect to increase our production volume with the installation of an additional high frequency mill and finishing equipment in 2022.

Further we are exploring the growth of our footprint to better locate products to our distribution points and direct customer base.

Forward to sharing additional news as this initiative progresses.

Looking at our macro environment for 2022, we continue to monitor both headwinds and opportunities emerging in our end markets.

As we mentioned last call we are closely watching outcomes around the world in regards to certain section 232 tariffs being lifted.

As a reminder, these tariffs are country specific and to date only.

The U K and Japan have had modifications.

I'll ever as the situation unfolds, we could be affected by an increase of foreign supply in the back half of the year that may drive prices down from current levels.

Additionally, we are keeping a close eye on the situation in Ukraine. Given they are currently the ninth largest exporter of steel in the world and this conflict has caused significant price swings of nickel values.

Another large factor impacting nickel cost as the surging worldwide production of batteries.

And we expect continued upward pressure on this raw material cost based on what we've seen thus far.

Given the volatility in the macro environment. These past few years, we are still focused on tightly managing our working capital and demonstrating consistent operational excellence regardless of market conditions.

Overall I'm extremely pleased with the progress we've made in this segment throughout 2021, we inherited a metals business that had stagnating growth with generating low single digit adjusted EBITDA margins.

Since then we have returned it to a state of consistent profitable growth through.

Through significant operational and management level changes that.

The turnaround in results has proven there's a bright future ahead, and I look forward to capitalizing on its potential.

Now turning to our chemical segment.

Our chemicals business continued to grow as we experienced a 95% year over year increase in net sales for the fourth quarter of 2021 .

Approximately half of that coming from our Dan come acquisition.

We continue to make pricing adjustments throughout the quarter to offset some of the operational challenges.

Such as trucking shortages that have been persistent in our industry. However, with the pricing adjustments and the addition of Dan came in the fourth quarter, we were able to overcome these challenges and grow our adjusted EBITA margin by 303 basis points.

I'm pleased to report that the integration of Dan came into our chemical segment has gone smoothly and having John Zufall at the helm has accelerated the implementation of our one chemical team approach guns past experience executing a highly successful turnaround strategy in this industry is evident and.

And we've been impressed with what he's been able to accomplish in just a few short months.

One of his main focuses has been converting our cri business into a specialty chemical plant versus just utilizing this as a tolling facility.

With our industry, leading reactor and hot oil system already in place at Cri, we can sell significantly higher value added services that come with an improved margin profile.

Further the breadth and depth of our equipment and capabilities across three sites now enables us to provide a broader range of product alternatives and manufacturing redundancies than many of our smaller competitors don't have.

Furthermore, we have experienced noteworthy cross selling between <unk> customer base and our existing customer base that we expect to accelerate in 'twenty to 'twenty two.

As we look at the overall chemicals market.

Continuing to see signs of strength starting off this year.

<unk> to our outlook for the metal segment, we believe that having a clear message of who we are is paramount.

Our chemicals business is focused on being a premier specialty chemical manufacturer utilizing our exceptional engineering and process design team to assist our customers solve complex chemistries.

With our go to market focus refined.

We have also transformed our commercial team and new market experts under areas of focus, including chase pulp and paper water treatment.

Agriculture oil and gas and construction and textile.

This refinement will primarily drive sales efficiency and we believe it will lead to a significant funnel growth in 2020 three and beyond.

Overall, we maintain high expectations for this segment.

We believe the full benefit of the outcome in 2022, along with driving facility optimization and cross selling opportunities, we will see more consistent improvements throughout the year.

We expect to capitalize on this strength and further utilize our newly acquired resources to better optimize the segment and start capitalizing on new growth opportunities.

We are confident that our combined platform will continue to drive profitable growth into this year and we look forward to sharing our progress along the way.

Across both segments in terms of our operational focus for the year, we're going to be heavily focused on investing in technology and automation within our facilities to counter some of the pervasive wage inflation, we're seeing as well as to help offset any labor constraints that may arise in the future.

We will be diligent and opportunistic when it comes to future acquisitions that can expand our capabilities footprint customer base. While also looking to grow these areas organically.

Most importantly, we will build upon our culture of high effort results based performance to further empower our dedicated staff to continue executing at the highest level.

As Ben stated earlier, there is much to be proud of when recapping the year, but the hard work has only just begun as we continue executing our strategy.

We were we will remain steadfast in our commitment to our shareholders to deliver long term value and we firmly believe that we are on the right path.

I'd like to now turn it over to our CFO , Eric Tam to walk through our fourth quarter financial results in more detail then I'll return to answer any questions. You may have Aaron the floor is yours.

Thank you, Chris and good afternoon, everyone, let's jump right into our fourth quarter financial results.

Net sales increased 71% to $95 7 million compared to $55 9 million in the prior year period.

The increase was attributable to a continuation of strong commodities pricing and adjustments made to our mix in the metals segment to better meet end market demand. It's.

It is important to note that our net sales for the fourth quarter of 2021, including $5 7 million from the Dan Cam acquisition. Excluding this benefit net sales increased approximately 61% compared to the same period last year.

Gross profit increased significantly $19 9 million compared to $6 1 million in the fourth quarter of 2020.

Margins increased 980 basis points to 28% from 11.0% in the prior year period.

Proven in both gross profit and gross margin was primarily attributable to the benefit from pricing power as a result of increased customer demand along with operational efficiencies to offset higher raw material costs.

Net income in the fourth quarter increased considerably to $8 1 million or 84 cents diluted earnings per share compared to a net loss of $8 6 million or <unk> 93 cents diluted loss per share for the fourth quarter of 2020.

While the increase was primarily attributable to the strong net sales performance net income for the fourth quarter of 2021 included a zero point $6 million benefit from the Dash Cam acquisition.

Note. The prior year period also had a one cent impact diluted loss per share as a result of the rights offering compared to what we had previously reported.

Adjusted EBITDA.

In the fourth quarter increased significantly to $14 9 million and adjusted EBITDA margin also improved 1010 basis points to 15, 5% both compared to prior year period.

Adjusted EBITDA for fourth quarter of 2021 included a $1 1 million benefit from the acquisition of Dan counts.

Lastly, looking at our liquidity position as of December 31, 2021, total debt was $70 4 million compared to $61 4 million at December 31, two.

'twenty with the balance increasing due to the closing of the Dan Chem acquisition in October for a total purchase price of approximately $33 million.

As of the end of the year, we had $39 4 million of borrowing.

Past me 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 Sir at this time I would like to remind everyone or inform everyone in order to ask a question. Please press star one on your telephone keypad again that is star one to ask a question.

And your first question comes from the line of David Siegfried Your line's open.

Hey, congratulations guys impressive results.

Thanks, David.

So I noticed you paid off a good chunk of the <unk> acquisition.

Can that continue going forward with.

Cash flow the way it is right now.

I would say our continued focus David is on working capital efficiency.

And improvement of our working capital throughput to pay down our revolving credit facility. So.

We would expect to continue to generate cash as we convert this pricing environment into receivables and then ultimately cash.

Right and I'll Echo what I said before David is that you know.

It's tough to forecast and judge the business on a quarterly basis. So you look at it that way.

It's going to be tougher than to maintain that linear progression, but I think if you look at it in larger chunks every six to 12 months, obviously, we're happy in the direction that its going and we would expect that to continue.

Yeah. Thank you.

Now the three domestic stainless steel producers or are they still being disciplined with their with their stainless production.

There'll be some pricing declines in the second quarter and going forward.

<unk>.

Is it like a decline or collapse.

Pricing.

Well I'm not sure I understand the question entirely I can't speak to their discipline although.

We see we see continued strength in our order book and order volume.

We are definitely operating in a very disciplined manner ourselves so.

I don't think if your question is is there going be flooding the market of domestic.

Stainless pipe and tube I don't believe that would be the case.

Got it okay.

How is that going from the transition from being a producer and stockpile or to just being a producer.

[laughter], it's a it's been very welcoming for our mill operators as well as our customer base that can now count on product being delivered in a timely fashion.

So when you when you run the business like it should be run as a mill.

And you're booking your mills out based on our production schedule you can now fulfill your orders based on the order or a <unk> appeal process versus.

Committing to a date and then not being able to put into production schedule, because you're changing your production schedule consistently.

So, it's becoming a much more operationally efficient business to provide consistent.

Throughput through our facilities.

Okay.

Now I noticed in the past Dan Kim had a customer who contributed some capital that they used to purchase equipment and build out capacity.

To produce their products, that's something that could be a roadmap.

Help with Capex.

The chemical side of the business going forward. Yeah. That's just that's the strategy, we're going to continue to implement and try to foster within the existing facilities.

Facilities, we have we actually have.

Something that could be a unique opportunity very similar to what Dan chems.

Implemented within the Danville facility at a few of other facilities with our customer base now so that is the strategy that John utilizes and it's the strategy that we would adopt as a team it's been awake.

Okay beautiful.

One last question you know with the quarter first quarter almost silver can you comment on the first quarter and how that I guess, you did make some comments already but.

Anything further.

I think I'll stick to those comments.

Given we're not providing guidance.

No I was just right.

Right.

Very good impressive results and thank you for your hard work.

Thanks, David.

Again, if he would like to ask a question. Please prices car one telephone keypad again that is star one to ask a question.

We have your next question.

Mike Hughes with S. T at capital. Please proceed.

Good afternoon, Thanks for taking my questions.

First wanted to start with the chemicals business. He has five backup of Tam Dan Chem acquisition. It looks like there's about 300 basis points of our.

Margin erosion sequentially from the third quarter into the fourth quarter and I assume that that you you referenced this as far as catching up with pricing because of the higher transportation costs and some other things. So how quickly can you recapture that and.

Remind me what the ultimate goal for that that businesses from a margin perspective.

Paul.

Great question, I think I'll start off by answering the margin erosion.

With obviously not only logistics, but also our raw material inputs for our product in the in the fourth quarter.

We've made significant changes within our procurement team.

<unk> identified some weaknesses that we since corrected and are now making modifications to make sure you don't get behind the supply chain curve.

In the 2022 and going forward, so we expect to make that up.

During 2022.

Regarding our our margin profile of the business.

We expect it to.

Exceed what we delivered in 2021, but but will not provide a specific number to the market.

Okay, but you you think you can recapture the 300 basis points he lost sequentially from pricing.

And the core business.

Yes, I do cycle, that's certainly our goal.

Okay. Okay.

And then moving onto the welded stainless steel up.

Pipe business can you just speak to any issues with stainless steel availability.

Actually availability is not.

That challenge at the moment.

Yet to be seen how the mill producers have any if they have any true nickel impact to their book of business, but we.

We have no issues getting hot rolled or cold rolled or ability out of our domestic ore.

For Knowles.

Okay and the prior question alluded to a price decline and I think I think you've talked about maybe peak pricing in the second quarter I just want to be clear on that.

I assume all you're alluding to there is just the alloy surcharge being at a very elevated level right now and that might soften off is that what you're referring to.

Yeah, that's that's primarily what we're referring to correct.

But some of our businesses outside of obviously welded stainless pipe and two when you go into our heavy wall, which is more carbon based product, which follows more of the hot rolled market more than a stainless or surcharge type market.

Okay, I mean in the hot rolled steel has recovered.

Because of the war and you Ukraine, you're just assuming would that comment youre, assuming that that's probably going to roll back over to.

Correct.

Okay, Okay that that's that's fair and conservative.

Second question are on that business.

The past management team would talk about the specialty alloy aspect to that business, which was a very small versus P. A three or four and $3 16 business.

But the indication was the margins were like four to five acts of the three or four in the 316 business and I think one of the drivers of that business.

Laws LNG projects and you know just just reading the headlines it looks like we're going to see significant capex on the LNG front, starting next year and beyond so just just any thoughts on that part of your business.

I mean, I would say the overall tailwind from an infrastructure Bill is gonna help across all capital projects from <unk>.

<unk>, two chemical plants to where.

Binary capacity.

Obviously, our anti corrosion material goes into a majority of those infrastructure related projects. So we would expect to see some benefit from that.

Okay, Okay, and then I would say and I.

I would also add that the.

The team we have today on the metal side as a much deeper metallurgical background than the prior management team. So I would anticipate capitalizing on more complex grades of material and our ability to produce and welded deliberate defect free to the market today versus years ago.

Okay, and then can you just speak to our channel inventory I'm not sure.

How great a handle you have on that but any color you can kind of shut shed on what what level of inventory. The distributors are holding at this point, where it where it is versus historical levels.

I don't know exactly given I'm involved and no facts of our private distributor that I'm involved in at the <unk> side I would say the inventory that they have are at relatively all time lows. So I think broad based.

If you look at the public peers, whether it be Olympic or Ryerson or reliance I think all of your inventories are relatively disciplined on days on hand.

Okay.

And then just one more on that business are you referenced market share earlier.

I would assume it's rather difficult in this business to track your share, but do you have any comments on what you think is actually happening with your market share.

I would say.

Don't think our market share is in terms of the total north American market has changed much as a percentage I think we continue to.

Earn out a greater reputation or a better reputation of delivering product on a timely basis, which is a driver of demand and I would say given our pounds shipped were probably chipping away at a little bit more of the overall market, but I don't have exact statistics I can provide.

Okay and then just one last question for you just on the S. P T business.

Can you just speak to the level of the business in your Houston facility I would assume that its still well off peak levels and that's an opportunity on a go forward basis.

Yeah, I think it is obviously it's off of.

The historic So we saw you know when there was significant rig and drilling.

Three plus years ago, but it is starting to obviously pick up with the price of crude and we are also expanding our SKU level there too.

Carry more of our traditional inventory to deliver it closer to our end use space and distributor base versus just trying to supply SPT type material out of that facility.

Okay, great. Thank you very much.

Thank you.

We have your next question from Charles schools with Twist. Your line is open.

Thank you very much congratulations its a fabulous report and we appreciate your hard work.

I'm very interested in nonrecurring expenses.

And whether we.

Continue to put things behind us.

Disappointed that Dave.

Siegfried didn't ask about the <unk>.

Earn outs going away, that's a question that he's asking quarter after quarter. So in his honor.

Are we near the end of earn outs for some of the acquisitions that took place a couple of years ago.

Yeah, Charles the light is at the end of the tunnel so.

It's not another train right.

[laughter] well add another train I think I believe Aaron if I'm wrong, there's two two more payments and they should be done this year.

Right we have.

We've got two different earn out streams. One finishes are actually here in early part of the second quarter and the other one has the last payment in July .

And then were terrific.

In the same vein.

You've had several people leave that were you know had.

Tracks in.

Pay them.

Severance or.

Whatever it was due is is that.

Is that ended.

Yes.

And then acquisition costs would be I guess in other.

Item that would be a one time item unless you do.

Some more acquisitions is that.

Is that correctly.

Yes.

Tim.

Go ahead and get it.

Now that was my bad there I was just gonna say, Dan Kim did not have an earn out structure.

We do anticipate.

Hopefully identifying targets that fulfill the needs and growth objectives of synalloy and you would incur some additional obviously acquisition costs there but.

There's nothing to announce on this call.

And are all the quarters apples to apples or were there any accounting changes made because you had talked about.

Uh huh.

Taking the inventory aspect to make that.

Less important.

And I think earlier question had to do with that.

I guess it was David's question about.

Producing.

For orders and not building inventories so are we looking at apples and apples.

Yeah on that point Charles.

There's nothing of any real material change in the fourth quarter.

We are making changes in the first quarter dealing with are.

Looking at our material costs are on a more of an actual cost basis.

As well as.

As opposed to the way that we've done in the past is to give us more clarity of the business.

And really help us even refine and take advantage of a lot of those price adjustments and price strategy that Chris alluded to in your opening remarks.

But to your question Charles everything is always going to be viewed on an apples to apples basis. There should we make any changes in how we do things it will be it will be made retroactively as well for comparison purposes. So we're not trying to you know make.

Make any changes to somehow artificially enhance our earnings in a in a way that it doesn't have the comparability really doing this in order to run the business better you know we believe that if we if we do this it will help us match, our pricing with our cost better we'll be able to generate more sustainable in a higher level.

All of the kind of run rate revenue and cash flow and then we will be able to present that to our shareholders in an apples to apples fashion.

Well, it's a terrific report and thank you for your hard work I really appreciate it.

Thanks Charles.

Thanks for the question.

We have your next question from adult Laughlin.

Your line is open.

Hello.

I was actually going to ask about the substantial cash generation you guys did Dan can we talk about potential targets is there a particular.

Is there a particular industry or sub sub industry that you're gonna be targeting going forward for your acquisitions and then I have a follow up after that.

I mean, obviously regarding our acquisition strategy, we have our two segments they need to fit within those segments, we're not looking outside of our segments to add businesses.

I would obviously be either our capability expansion of footprint expansion or a.

Product line expansion.

Okay perfect.

My next question was about international does it does the North American steel market kind of flow through the price of the international market impact of the domestic market because I'm seeing interesting headlines about you know Russian pipes being offline impacting oil and gas does that mean pricing.

Pricing will improve domestically for you guys and thanks.

Yeah, I mean, I would say, obviously feel pricing is dictated by the cost to produce the material as well as any surcharge involved when I was speaking of stainless type paper too obviously.

Obviously with international shipping the cost to ship today is significantly different than it was two three years ago on bringing product and be a port so.

There's obviously a favor favorite environment to produce domestically.

And be extremely cost competitive.

Versus years ago.

Uh huh.

If I can answer that I don't know if I can answer the question about the Russian product because now.

We haven't signed.

Okay.

You guys had that greatly amazing quarter. Thanks, guys for answering my questions. Thank you Sir thanks.

Thanks, Doug.

We have your next question from Arthur Byrnes with Deltec asset management. Your line is open.

Thank you.

<unk> relatively insignificant questions. One you mentioned labor issues in the quarter and I don't think anyone said anything more about that can you can you just say what that was all about.

Shortage right.

Yeah, I mean, it's obviously I think every businesses. This is Chris is encountering a difficult labor environment.

And.

We're thankful for the hard working men and women, we have but it's still hard to fill open positions and we have plenty of open positions to for skilled labor.

So it's it's a it's a tough hiring environment I think you know everywhere in North America.

So so that it has had some impact on you.

Yeah, and then you know not that we're seeing significant COVID-19 outbreaks, but you still have employees with lost man hours related to Covid and those related illnesses. So yeah.

I believe we're still counting on a quarterly basis thousands of lost man hours.

Related to <unk>.

Unfilled vacancies or sickness.

Hmm.

A second question on the rights issue you raised $10 million, what why did you need $10 million in equity as opposed to borrowing it or did you have some balance sheet issue that you're.

Trying to correct or or.

And if you're going to do a rights offering why didn't you do $30 million.

Well, that's a great. It's a great question and this has been by the way so.

And I'm, a friend, who I'm a friend of your friends. That's right. That's good to hear your voice again, so I appreciate it and appreciate your interest.

You know obviously capital allocation is an inexact science. So the best we can do is work with the information that we have you know in hindsight when we have them.

Wanted to raise.

Maybe more maybe less at a higher price certainly, but we viewed $10 million with the visibility that we had at the time as a prudent.

Use of capital because of the you know the target.

Target leverage that we were hoping to achieve in the near term cash flow generation that we expected. We obviously want to be acquisitive. So we do believe that we're going to continue to make acquisitions that can be added into our business lines and create additional value. So I would what I would tell you is we're very very happy with our current capital position there could be the opportunity.

To raise more capital further down the road. So we have a very very good use for it and we believe our earns its cost and I think that there could be opportunities for that so what I will say is by doing it in a fashion that we did with the rights offering we felt as though by limiting it to existing shareholders that it would actually be a little bit less Duluth.

It is.

Also having an over over allotment allocation so people could decide to subscribe for additional chairs that even though it might be a little bit dilutive to our value raising a 12 75. When we thought we were worth a little bit more that value would stay kind of in a closed system a closed loop among our current shareholders and hopefully still.

Fortify our balance sheet should we decided to be more acquisitive than we expect or are you is your balance sheet right sized at the moment.

Yes, I feel very good about our balance sheet right now.

Very good well nice quarter and you guys are so you guys have done a great job turning the turning the ship around keep it up thank you very much.

Thanks for the question.

At this time. This concludes our question and answer session I would now like to turn the call back over to Mr. Hunter for closing remarks.

Thank you Alexander well.

Well, we'd like to thank everyone for listening to today's call and we look forward to speaking with you again, when we report our first quarter 2022 results.

Operator, ladies and 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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