Synalloy Corporation — FY2020 Form 10-K
Entity note: The supplied filing is for Synalloy Corporation (NASDAQ: SYNL), not Ascent Industries Co. It reports the fiscal year ended December 31, 2020; fourth-quarter results are also summarized below.
Business context and reporting period
Synalloy manufactures and distributes metal pipe, tube, tanks and related products, and specialty chemicals. Its reportable segments are Metals and Specialty Chemicals. The year was materially affected by COVID-19, reduced industrial and oil-and-gas demand, and volatile metal pricing. The company reported 526 employees at year-end.
Financial performance and liquidity
| Metric | 2020 | 2019 |
|---|---|---|
| Net sales | $256.0 million | $305.2 million |
| Gross profit / margin | $22.7 million / 8.8% | $30.8 million / 10.1% |
| Operating loss | $31.1 million | $1.7 million |
| Net loss | $27.3 million; $3.00 per diluted share | $3.0 million; $0.34 per diluted share |
| Adjusted EBITDA (non-GAAP) | $9.2 million; 3.6% of sales | $13.5 million; 4.4% of sales |
| Cash from operations | $18.0 million | $28.6 million |
| Capital expenditures | $3.7 million | $4.5 million |
At year-end, cash was $0.2 million, total debt was $61.4 million, and shareholders’ equity was $80.3 million. Current assets were $126.9 million and current liabilities $31.1 million; the reported current ratio was 4.1. The company had $11.0 million of availability under its then-existing revolving line. No dividends were paid in 2020 or 2019.
Segments and changes versus 2019
- Metals: Sales fell 19% to $204.5 million; operating results moved from $3.7 million income to a $24.6 million loss. The segment recorded $16.2 million of goodwill impairment and $6.2 million of asset impairments. Palmer’s operations were curtailed, with $4.0 million of operating losses. Stainless and carbon pipe sales also declined.
- Specialty Chemicals: Sales decreased 5% to $51.5 million, while operating income rose to $4.0 million from $2.8 million. Improved gross margin and cost reductions supported profitability; increased sanitizer and cleaning-aid production partly offset weaker demand elsewhere.
- Consolidated sales declined 16%. Cash from operations decreased by $10.7 million, while working-capital reductions supported cash generation. Interest expense fell to $2.1 million from $3.8 million.
- Fourth-quarter sales were $55.9 million, down 18%; net loss was $8.6 million versus $0.9 million a year earlier.
Outlook, risks and unusual items
- Management said manufacturing-sector challenges were expected to continue over the following several quarters, but stated that the pandemic’s ultimate effects could not be predicted. The filing provides no quantified earnings or revenue guidance.
- On February 17, 2021, the board authorized permanent closure of Palmer and divestiture of its remaining assets. Closure costs were not yet determinable; management said other operating units would not be affected.
- On January 15, 2021, Synalloy entered a new four-year BMO revolving credit facility with up to $150 million in capacity and $110 million of initial borrowing capacity, refinancing its prior facilities. The new agreement has no financial covenants while availability exceeds $11 million; below that threshold, a minimum fixed-charge coverage ratio applies.
- The company reported technical fixed-charge-coverage covenant defaults for the second and third quarters of 2020 and obtained amendments/waivers. It reported compliance with its covenants at December 31, 2020.
- Other significant 2020 items included $3.1 million of proxy-contest costs, $0.7 million of hotline-investigation costs, and $1.1 million of CEO severance. Nickel-price movements reduced Metals operating results by a net $5.3 million.
- Principal risks include cyclical industrial and oil-and-gas demand, COVID-19, nickel and other raw-material price fluctuations, customer and supplier concentration, competition and imports, debt and liquidity, environmental obligations, and leadership transitions. Operating lease commitments totaled $61.7 million undiscounted, largely tied to long-term facility leases.
- Management reported that internal controls were effective at year-end and that the material weakness identified earlier in 2020 had been remediated. The auditor did not provide an internal-control attestation because the company was a non-accelerated filer. The auditor identified valuation of acquisition earn-out liabilities as a critical audit matter. Management reported no currently known asserted or unasserted legal matters expected to have a material effect.
Important facts for investors to verify
- Confirm the issuer identity: this filing is Synalloy Corporation, despite the request metadata naming Ascent Industries Co.
- Review the Palmer closure, expected divestiture proceeds, and costs not quantified in this filing.
- Assess the new credit facility’s actual borrowing availability, pricing, collateral, and covenant headroom after refinancing.
- Examine whether Metals demand and margins recover, particularly in stainless pipe, carbon pipe, and oil-and-gas-related products.
- Review assumptions underlying the $16.2 million goodwill impairment, Palmer asset impairments, and $3.7 million earn-out liability.
- Track cash generation, working-capital requirements, lease obligations, and customer and supplier concentration.