Synalloy Corporation — Form 10-Q summary
Issuer identification: The filing is for Synalloy Corporation (NASDAQ: SYNL), not Ascent Industries Co. The supplied company metadata and filing issuer do not match; verify the intended company before relying on this summary.
Business context and reporting period
This unaudited quarterly report covers the three and six months ended June 30, 2021, compared with the corresponding 2020 periods. Synalloy operated through its Metals and Specialty Chemicals segments. The Metals segment makes and distributes pipe and tube products and includes Palmer, whose facility the company plans to close; Specialty Chemicals manufactures and tolls specialty chemicals.
Key financial results
| Metric | Q2 2021 | Q2 2020 | First six months 2021 | First six months 2020 |
|---|---|---|---|---|
| Net sales | $83.1 million | $66.1 million | $152.9 million | $140.8 million |
| Gross profit / margin | $14.1 million / 17.0% | $4.4 million / 6.6% | $22.8 million / 14.9% | $11.5 million / 8.2% |
| Operating income (loss) | $4.1 million | $(10.7) million | $6.2 million | $(11.6) million |
| Net income (loss) | $2.9 million | $(7.0) million | $4.0 million | $(8.1) million |
| Diluted EPS | $0.31 | $(0.77) | $0.43 | $(0.90) |
| Adjusted EBITDA | $9.8 million | $1.9 million | $14.6 million | $4.6 million |
Adjusted EBITDA is a company-defined non-GAAP measure; the filing cautions it may not be comparable with similarly named measures at other companies. Q2 sales rose 25.6%, driven by higher average selling prices and shipments. For the first six months, sales increased 8.5%.
Cash flow and liquidity: Operating cash flow was $5.0 million for the first six months, versus cash used of $0.2 million in 2020. Investing activities used $0.4 million, including $0.6 million of capital expenditures; financing activities used $4.0 million. Cash was $0.8 million at June 30, versus $0.2 million at year-end 2020. Current assets were $142.4 million and current liabilities $40.3 million; the reported current ratio was 3.5.
Debt: Total borrowings were $59.5 million at June 30, down $1.9 million from December 31, 2020. The company reported $45.5 million of remaining availability under its new credit facility and a 2.27% weighted-average annual interest rate. The facility has a $150 million stated maximum, but initial borrowing capacity was $110 million and availability is subject to eligible collateral and facility terms.
Material changes and operating drivers
- Gross margin improved substantially, which management attributed to higher selling prices and volume-related operating efficiencies, partly offset by increased raw-material and freight costs.
- Metals segment Q2 sales increased 30.9% and operating income was $7.5 million, compared with an operating loss of $9.2 million in Q2 2020. Higher demand, shipments, and pricing contributed to the improvement.
- Specialty Chemicals Q2 sales increased 6.2%, but the segment recorded a $0.4 million operating loss, compared with $2.0 million of operating income a year earlier. Higher severance, impairment, bad-debt, environmental, and stock-compensation costs contributed. Six-month segment operating income declined to $0.6 million from $4.2 million.
- Interest expense fell to $0.4 million in Q2 and $0.7 million for the first half, compared with $0.5 million and $1.3 million, respectively, in 2020; management cited the January 2021 refinancing and more favorable interest rates.
- Working capital absorbed cash: first-half accounts receivable increased $12.5 million and inventories increased $5.5 million, partly offset by higher accounts payable and accrued liabilities.
Outlook, risks, and unusual items
- No quantified earnings, sales, or margin guidance is provided. Management said it believes available liquidity is sufficient for operations, anticipated capital expenditures, and debt obligations over the next 12 months.
- Management reported improving economic conditions and increased demand in the first half of 2021, but said COVID-19 impacts remain uncertain, including supply-chain disruption and possible effects from new variants, vaccine availability, and government actions.
- The board authorized permanent closure of the Palmer facility and divestiture of its remaining assets. Closure costs and timing could not be reasonably estimated; the company said costs were not expected to be material and the closure was not expected to materially affect other operating units.
- Q2 included a $0.2 million noncash impairment of obsolete Specialty Chemicals technology and a $1.0 million unfavorable earn-out fair-value adjustment. First-half results also included a $0.2 million loss on extinguishment of debt from the refinancing.
- The company recorded $0.6 million of proxy-contest reimbursement costs in Q2 and reported $0.5 million of related insurance recoveries. It said further insurance reimbursements were neither probable nor estimable.
- The credit agreement requires a minimum fixed-charge coverage ratio if excess availability falls below specified thresholds. Other stated risks include raw-material availability and costs, customer financial health, labor availability and efficiency, and compliance with debt covenants.
- Management reported no known asserted or unasserted matters expected to materially affect financial condition or results. It also stated disclosure controls were effective and there were no material changes in internal control during the quarter.
Important facts for investors to verify
- Confirm whether Synalloy Corporation, rather than Ascent Industries Co., is the intended issuer for this request.
- Review the new BMO facility’s collateral-based availability, covenant triggers, repayment schedule, and interest-rate exposure; reported unused capacity is not the same as unrestricted cash.
- Assess whether the Metals segment’s improved demand, pricing, and margins are sustainable as raw-material and freight costs rise.
- Track Specialty Chemicals’ cost increases and operating performance, and the financial and operational effects of the Palmer closure.
- Distinguish GAAP results from Adjusted EBITDA and evaluate the effect of proxy-related costs and recoveries, earn-out remeasurement, and other adjustments.
- Monitor working-capital needs, especially receivables and inventory, and any further COVID-19 or supply-chain effects.