Business context and reporting period
The supplied filing is Synalloy Corporation’s unaudited Form 10-Q for the quarter ended March 31, 2021 (filed May 10, 2021; ticker SYNL). The request identifies Ascent Industries Co.; the filing itself names Synalloy Corporation as the registrant, so issuer attribution should be verified.
Synalloy reports two segments: Metals, including pipe, tube, tanks and separation equipment, and Specialty Chemicals. The filing says COVID-19-related production and delivery delays continued, while management also reported increased product demand during the quarter.
Financial results and liquidity
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Net sales | $69.8 million | $74.7 million |
| Gross profit / gross margin | $8.7 million / 12.5% | $7.2 million / 9.6% |
| Operating income (loss) | $2.1 million | $(0.9) million |
| Net income (loss) | $1.1 million | $(1.2) million |
| Diluted EPS | $0.12 | $(0.13) |
| Adjusted EBITDA (non-GAAP) | $4.9 million; 7.0% of sales | $2.6 million; 3.5% of sales |
| Cash from operating activities | $(0.8) million | $(0.6) million |
- Sales fell 6.6% year over year. Excluding Palmer, which had curtailed operations in 2020, sales declined 2.3%.
- Metals sales were $55.2 million, down 9.0%; segment operating income increased to $2.6 million from $0.9 million. Specialty Chemicals sales rose 3.8% to $14.6 million, and segment operating income increased to $1.1 million from $0.5 million.
- At March 31, cash was $0.4 million, total debt was $63.8 million, and remaining availability under the credit facility was $41.2 million. The current ratio was 3.8, versus 4.1 at year-end 2020; debt to capital was 44%, versus 43%.
- Operating cash outflow reflected working-capital needs, including increases in receivables and inventory. Cash increased $0.2 million during the quarter, with financing activities providing $1.2 million.
Material changes and unusual items
- Gross margin improved to 12.5% from 9.6%, which management attributed to operational efficiencies and a rising surcharge environment. Stainless-steel alloy surcharges increased substantially year over year.
- On January 15, 2021, Synalloy refinanced its prior Truist facilities with a new BMO four-year revolving facility, with up to $150 million of stated borrowing capacity. Initial borrowing capacity was $110 million; the weighted-average interest rate was 2.42% at quarter-end. The facility is secured by company assets and includes a fixed-charge coverage covenant that applies if availability falls below specified thresholds.
- Q1 results included a $0.5 million insurance recovery receivable relating to prior proxy-contest costs, a $0.4 million non-cash loss on divestiture of its corporate-jet ownership interest, a $0.2 million debt-extinguishment loss, and a $0.2 million earn-out fair-value adjustment. The insurance proceeds were received in Q2; further recoveries were not considered probable or estimable.
- The board authorized permanent closure of the Palmer facility and divestiture of its remaining assets. The amount, nature and timing of closure charges could not be reasonably estimated.
Outlook, risks and contingencies
No numerical earnings or revenue guidance is provided. Management said it believed available liquidity would fund operations, anticipated capital expenditures and debt obligations over the next 12 months. It cautioned that the pandemic’s duration and effects remained uncertain, including possible impacts from production and delivery delays, customer demand, supply chains and future developments in COVID-19.
Other disclosed risks include adverse economic conditions, raw-material cost and availability, customer financial stability, competition, labor and operating efficiency, environmental matters, and compliance with debt covenants. Management reported no known legal matter expected to materially affect financial condition or results, and no material change to previously disclosed risk factors. The Palmer closure’s costs remain uncertain.
Important facts for investors to verify
- Confirm whether this Synalloy filing is the intended filing for the request naming Ascent Industries Co.
- Review subsequent filings for the Palmer closure plan, asset disposition and any related charges.
- Monitor working-capital conversion and operating cash flow, given the quarter’s receivables and inventory increases.
- Check debt-facility availability, borrowing costs and covenant headroom as business conditions change.
- Distinguish GAAP results from adjusted EBITDA and assess the effect of proxy-contest recovery, jet divestiture, refinancing and earn-out items.