Business context and reporting period
This filing is a Form 10-Q for the quarter and nine months ended September 30, 2021. The filing identifies the registrant as Synalloy Corporation (Nasdaq: SYNL), not Ascent Industries Co.; investors should verify the intended company and filing.
Synalloy operates Metals and Specialty Chemicals segments. Results are unaudited; interim results may not indicate full-year performance.
Key financial metrics
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Net sales | $86.2 million | $59.3 million | $239.0 million | $200.1 million |
| Gross profit | $18.0 million | $5.0 million | $40.8 million | $16.5 million |
| Gross margin | 20.9% | 8.4% | 17.1% | 8.2% |
| Operating income (loss) | $10.7 million | $(12.6) million | $16.9 million | $(24.2) million |
| Net income (loss) | $8.2 million | $(10.5) million | $12.2 million | $(18.7) million |
| Diluted EPS | $0.87 | $(1.16) | $1.30 | $(2.06) |
| Adjusted EBITDA | $14.8 million | $1.6 million | $29.4 million | $6.2 million |
Cash flow: Nine-month operating cash flow was $16.2 million, versus $6.0 million in 2020; investing cash flow was $0.3 million and financing cash flow was $(15.5) million. Cash increased $0.9 million to $1.2 million.
Liquidity and debt: At September 30, cash was $1.2 million, total debt was $49.0 million, and remaining availability under the BMO facility was $56.0 million. The company reported covenant compliance. The current ratio was 3.0, compared with 4.1 at December 31, 2020; debt to capital was 34%, down from 43%.
Material changes versus prior comparable periods
- Q3 sales rose 45.4% year over year, driven by higher average selling prices (24.4%) and shipment volume (16.4%). Nine-month sales rose 19.5%, with prices up 9.4% and pounds shipped up 9.1%.
- Profitability recovered sharply, particularly in Metals, reflecting stronger demand and prices and the absence of 2020 goodwill impairment. Q3 Metals operating income was $11.7 million versus a loss of $11.6 million; nine-month Metals operating income was $21.8 million versus a loss of $19.8 million.
- Specialty Chemicals sales increased, but nine-month segment operating income declined to $2.0 million from $3.5 million, mainly due to higher SG&A, including severance, bad debt and environmental costs.
- Working capital absorbed cash: accounts receivable and inventory each increased about $15.5 million during the first nine months, largely to support higher sales and customer demand.
- Debt fell by $12.4 million from year-end 2020. The January 2021 refinancing replaced the prior Truist facilities with a four-year BMO credit facility, with up to $150 million borrowing capacity and an initial $110 million capacity.
Outlook, commentary, risks and unusual items
- Management reported improving economic conditions and higher demand in the first nine months of 2021, but gave no numerical earnings or revenue guidance. It said liquidity should be sufficient for operations, anticipated capital expenditures and debt obligations over the next 12 months.
- COVID-19-related uncertainty and supply-chain disruption remained risks. Management cited raw-material and freight cost increases, availability constraints, customer and demand risks, labor and hiring challenges, and debt covenant requirements.
- Palmer operations are expected to cease permanently by December 31, 2021, with the facility to be subleased; the company expected the exit costs and effect on other operating units to be immaterial.
- On October 22, 2021, after quarter-end, Synalloy acquired DanChem Technologies for $32.95 million, subject to customary adjustments, funded under its credit facility. Purchase accounting and pro forma financial information were incomplete at filing. On November 5, it drew a $5 million delayed-draw term loan and applied the proceeds to its revolver.
- Quarter results included $0.8 million of severance expense; nine-month results included $1.4 million of unfavorable earn-out fair-value adjustments, $0.2 million of asset impairment, and a $0.2 million debt-extinguishment loss. The 2020 comparison included $10.7 million of goodwill impairment and $6.1 million of asset impairments.
- Related-party matters included a $0.6 million reimbursement of proxy-contest expenses to Privet and UPG, a new office lease with an entity affiliated with the interim CEO, and a shared-services agreement with UPG. Management said no known legal matters were expected to materially affect financial condition or results.
Important facts for investors to verify
- Confirm that Synalloy Corporation, rather than Ascent Industries Co., is the intended registrant and filing.
- Assess whether improved pricing and shipment trends can persist as raw-material, freight and supply-chain pressures evolve.
- Review the DanChem acquisition’s final purchase accounting, pro forma results, financing impact and integration performance when disclosed.
- Monitor working-capital requirements, borrowing availability, debt covenants and post-acquisition leverage.
- Review the Palmer closure and sublease progress, and the amounts and outcomes of any further proxy-contest insurance recoveries.