Synalloy Corporation — Q1 2020 Form 10-Q
Entity note: The supplied filing is for Synalloy Corporation (NASDAQ: SYNL), not ASCENT INDUSTRIES CO. The filing covers the three months ended March 31, 2020; financial statements are unaudited.
Business context and results
Synalloy operates Metals and Specialty Chemicals segments. It reported net sales of $74.7 million, down 11.9% from $84.8 million in Q1 2019. Metals sales declined 14.7% to $60.7 million; Specialty Chemicals sales increased 2.4% to $14.0 million.
- Gross profit was $7.2 million, or 9.6% of sales, versus $8.7 million, or 10.2%, a year earlier.
- Operating loss was $0.9 million, compared with a $0.6 million loss. Net loss was $1.2 million, or $0.13 per diluted share, versus $0.9 million, or $0.10 per share.
- Non-GAAP adjusted EBITDA was $2.6 million (3.5% of sales), down from $4.8 million (5.6%). The company cautions that this non-GAAP measure is not a substitute for GAAP results.
- Metals operating income fell to $0.9 million from $1.4 million; Specialty Chemicals operating income fell to $0.5 million from $0.6 million.
Cash flow, debt and liquidity
- Operating cash flow was negative $0.6 million, versus positive $6.1 million in Q1 2019. Capital expenditures were $0.6 million. Ending cash was $22,000, down from $626,000 at year-end 2019.
- Total borrowings were $77.8 million: $62.4 million on the revolving line and $15.3 million on the term loan. Available revolver capacity was $18.8 million; the company reported compliance with its debt covenants at quarter-end.
- Current assets were $154.3 million and current liabilities $42.4 million; management reported a 3.6 current ratio. Long-term debt to capital was 43%, versus 41% at December 31, 2019.
- Management said liquidity sources should be sufficient for operations, debt obligations and anticipated capital expenditures over the next 12 months, while warning that COVID-19 could affect liquidity and covenant compliance.
Material changes, outlook and risks
- The Metals sales decrease was principally driven by a $6.4 million decline in liquid storage tanks and separation equipment at Palmer, amid collapsing oil-and-gas demand. Metals results also reflected lower pricing and reduced shipments in certain product lines. Specialty Chemicals benefited from higher demand for value-added contract manufacturing and increased production of hand sanitizer and cleaning aids, but lower tolling volumes weighed on operating income.
- After quarter-end, Palmer suspended manufacturing effective April 1, 2020. The company said it hoped to resume when oil-and-gas pricing and demand normalize. The filing provides no quantified full-year earnings or revenue guidance and says the pandemic’s effects cannot be predicted reliably.
- On April 2, the company announced plans to engage an independent financial adviser for a strategic alternatives review after market conditions stabilize, including a possible sale of all or part of the company.
- COVID-19 risks include weaker demand, customer and supplier disruption, employee impacts, further facility suspensions, margin pressure and potential difficulty meeting credit covenants. The company warned that lender waivers, amendments or alternative financing might be needed if conditions worsen.
- Other notable items: a $0.9 million unrealized loss on equity investments; $0.4 million of inventory price-change losses, versus $3.4 million in Q1 2019; and a $0.45 million opening retained-earnings adjustment upon adopting the expected-credit-loss standard. The quarter’s effective tax rate was 54%, with benefits attributed to stock compensation and the CARES Act.
- The board adopted a shareholder rights plan expiring March 31, 2021, with a 15% ownership trigger. The company also repurchased 59,617 shares for about $0.6 million during the quarter. Management reported no known legal matter expected to materially affect financial condition or results.
Important facts for investors to verify
- Confirm the issuer identity: this filing is Synalloy Corporation, not the company named in the request metadata.
- Track Palmer’s suspension, any restart, and the associated demand and cash-flow effects.
- Monitor operating cash generation, working-capital needs, revolver availability and compliance with lender covenants.
- Assess whether COVID-19 disruption, market conditions or the strategic alternatives review lead to material changes in operations, financing or ownership.
- Review the equity-investment valuation losses, receivables allowance and any subsequent credit-loss developments.