Synalloy Corporation (Nasdaq: SYNL), today announced net sales for
the third quarter of 2019 of $73.6 million. This represents a
decrease of $4.2 million or 5.3% when compared to net sales for the
third quarter of 2018. Excluding net sales of ASTI, net sales
for the third quarter of 2019 decreased $12.6 million, or 16.2%
compared to net sales for the third quarter of 2018. Net sales for
the first nine months of 2019 were $237.2 million, an increase
of $29.1 million or 14.0% from the first nine months
of 2018. Excluding net sales of ASTI (for the nine months ended
September 30, 2019) and Munhall-Galvanized (for the first six
months of 2019), net sales for the first nine months of 2019
decreased $10.4 million, or 5.0% compared to net sales for the
first nine months of 2018.
For the third quarter of 2019, the Company
recorded a net loss of $1.0 million, or $0.11 loss per diluted
share, compared to net income of $5.0 million, or $0.56 per diluted
share for the third quarter of 2018. Excluding the financial
results of ASTI, net income for the third quarter of 2019 decreased
$6.8 million, or 134.9% compared to net income for the third
quarter of 2018. The third quarter of 2019 was negatively impacted
by inventory price change losses which, on a pre-tax basis, totaled
$0.6 million, compared to a $1.6 million gain in the third quarter
of 2018, as well as non-recurring items, described in more detail
below, which totaled $1.6 million.
For the first nine months of 2019, net loss was
$2.1 million, or $0.24 loss per diluted earnings per
share. This compares to net income of $12.5 million,
or $1.42 per diluted earnings per share for the first
nine months of 2018. Excluding the financial results of ASTI (for
the nine months ended September 30, 2019) and Munhall-Galvanized
(for the first six months of 2019), net income for the first nine
months of 2019 decreased $16.4 million, or 130.4% compared to net
income for the first nine months of 2018. The first nine months of
2019 were negatively impacted by inventory price change losses
which, on a pre-tax basis, totaled $5.7 million, compared to a $5.1
million gain for the first nine months of 2018, as well as
non-recurring items, described in more detail below, which totaled
$1.9 million.
The Company also reports its performance
utilizing two non-GAAP financial measures: Adjusted Net (Loss)
Income and Adjusted EBITDA. The Company's performance, as
calculated under the two measures, is as follows:
- Adjusted Net Loss for the third quarter of 2019 was $0.7
million, or $0.08 adjusted diluted loss per share, a decrease of
$6.6 million from Adjusted Net Income of $5.8 million, or $0.65
adjusted diluted earnings per share for the third quarter of
2018. For the first nine months of 2019, Adjusted Net Loss
was $0.4 million, or $0.04 per adjusted diluted loss
per share, compared to $16.3 million Adjusted Net Income,
or $1.84 adjusted diluted earnings per share for the first
nine months of 2018.
- Adjusted EBITDA decreased $7.5 million for the third quarter of
2019 to $2.8 million (3.7% of sales), from $10.3 million (13.2% of
sales) for the third quarter of 2018. For the first nine months of
2019, Adjusted EBITDA was $10.9 million (4.6% of
sales) compared to $28.2 million (13.6% of sales)
for the first nine months of 2018.
The Company's results are periodically impacted
by factors that are not included as adjustments to our non-GAAP
measures, but which represent items that help explain differences
in period to period results. As mentioned above, for the third
quarter of 2019, the most significant of those was inventory price
change losses which, on a pre-tax basis, totaled $0.6 million,
compared to a $1.6 million gain in the third quarter of 2018,
representing a decrease of $2.2 million in pre-tax income compared
to the third quarter 2018. Additionally, during the third
quarter, other significant non-recurring items occurred with an
estimated pre-tax impact of $1.6 million in the third quarter and
$1.9 million for the first nine months of 2019, and included the
following:
- Three year Long-Term Incentive Plan performance shares non-cash
awards for 2017-2019 were accrued in the third quarter of 2019, at
a cost of $0.7 million;
- Several stop loss medical claims that resulted in charges in
excess of $0.6 million in the third quarter of 2019;
- Downtime associated with the heavy wall press outage; $0.3
million and $0.6 million, for the third quarter of 2019 and for the
first nine months of 2019, respectively, of pre-tax earnings loss;
anticipate additional pre-tax loss of $0.4 million in the fourth
quarter of 2019. We have filed a claim with the insurance
carrier.
“The third quarter was a continuation of weak
demand and depressed pricing across most of our product lines and
end markets,” said Craig C. Bram, President and CEO. “In
spite of the challenging market, we experienced sequential volume
growth over the second quarter for both welded stainless-steel pipe
and seamless carbon pipe, taking market share in both product
lines. However, prices were down over the second quarter by
an average of 7.0%. Ornamental tube volume was off 3% from
the second quarter, while prices were up 2.0%, and our galvanized
tube showed mid-single digit volume and price declines from second
quarter levels. Surcharges for nickel jumped in September and
again in October. November surcharges were in line with
October, but preliminary estimates for December show declining
surcharges as nickel prices have fallen from the $8 plus per pound
level reached in August. Backlog pricing for welded
stainless-steel pipe is trending higher due to the increase in
surcharges and improved product mix. Our storage tank
business saw a decline in order activity in the third quarter as
capital outlays by E&P customers were limited. Drilled
but uncompleted wells have surged to over 3,800 in the Permian
Basin alone. Responding to the market, we have reduced our
headcount by one-third at our storage tank business. With the
recent start-up of two new pipelines in the Permian basin, we
expect to see order activity increase in the fourth quarter,
assuming WTI prices hold at current levels. Our Specialty
Chemical segment saw mid-single digit volume declines over the
second quarter, but this was primarily driven by product mix.
Pricing improved by 2.0% over the previous quarter,” said Bram.
Metals Segment
The Metals Segment's net sales for the third
quarter of 2019 totaled $60.1 million, a decrease of $0.9 million
or 1.5% from the third quarter of 2018. Excluding the net sales of
ASTI, Metals Segment net sales for the third quarter of 2019
decreased $9.4 million, or 15.4%, compared to net sales for the
third quarter of 2018.
Net sales for the first nine months of 2019 were
$195.7 million, an increase of $32.8
million or 20.2% from the first nine months of
2018. Excluding the net sales of ASTI and Munhall-Galvanized
(for the first six months of 2019), Metals Segment net sales for
the first nine months of 2019 decreased $6.6 million, or 4.1%,
compared to net sales for the first nine months of 2018.
Sales of seamless carbon pipe and tube were up
1.0% from last year’s third quarter. Storage tank and vessel sales
decreased 38.4% from last year’s third quarter. Excluding ASTI,
pipe and tube sales were down 13.6% from the third quarter of
2018.
The backlog for our subsidiary, Bristol Metals,
LLC, as of September 30, 2019 was $32.2 million, a decrease of
13.3% when compared to the same date in 2018. The decline is
primarily related to lower surcharges and customer pricing, with
total pounds backlog up by 50.0%, but indexed components of pricing
off between 6.0% and 11.0% in stainless product lines, and by 20.0%
in galvanized products from prior year levels, as well as some
reduction in base metal pricing. The backlog for our
subsidiary, Palmer of Texas Tanks, Inc., as of September 30,
2019, was $4.9 million, a decrease of 75.3%, when compared to the
same date in 2018. The decrease in backlog is attributable to
a significant retrenchment in completion of wells in the Permian
Basin during the third quarter, as well as stagnant oil prices that
are down 25.0% from this time last year.
The Metals Segment's operating income
decreased $7.6 million to $0.5 million for
the third quarter of 2019 compared to $8.0
million for the third quarter of 2018. For the
first nine months of 2019, operating income decreased for the
Metals Segment by $20.0 million to an operating income of $3.1
million compared to operating income of $23.1 million for
the same period of 2018.
Current quarter operating results were affected
by the following factors:
- Nickel prices and resulting surcharges for 304 and 316 alloys
ended the third quarter at the high point of 2019, with a late
third quarter increase in surcharges between 15.0% to 18.0%, but
still lower than prior year third quarter levels by between 6.0%
and 11.0%. With much of the pricing in the third quarter based on
prior lower surcharge levels, the third quarter generated a net
unfavorable operating impact of $0.6 million related to metal
pricing. Compared to a period of rising nickel prices in the third
quarter of 2018, which generated metal pricing gains of $1.6
million, the third quarter of 2019 was unfavorable by $2.2 million
compared to the third quarter of 2018;
- Operating profits for welded stainless pipe and galvanized tube
operations (excluding ASTI commented on in note c below) declined
approximately $5.3 million in the third quarter of 2019 compared to
the prior year period. The decline is primarily related to the
average pricing declines of approximately 16.0% that took place in
the second quarter of 2019 and sustained at lower levels in the
third quarter of 2019. While pounds increased an encouraging 3.0%,
overall revenue declined $6.0 million, with a majority of that
decline passing through to lower operating profit, offset only by a
slightly lower average cost of goods sold of $.10 per pound. For
the remainder of the year, we expect to see order book pricing
increase as a reflection of recent October and November surcharge
increases; however, due to timing of backlog shipments, we believe
most of that benefit will come in the first quarter of 2020;
- The American Stainless acquisition increased third quarter of
2019 operating income by $0.9 million, with no comparable results
in the prior year period; and
- Seamless carbon pipe and tube showed an increase of 12.1%
pounds shipped, with energy related project business up 19.0% and
general industrial up 9.0%. However, pricing pressures in the
third quarter lowered the overall average selling price by 11.1%,
lowering operating profit by approximately $1.2 million. We do
expect energy market-based sales to remain low for the remainder of
the year, and anticipate slightly lower general industrial sales in
the fourth quarter based on normal year-end seasonal declines.
Specialty Chemicals Segment
Net sales for the Specialty Chemicals Segment in
the third quarter of 2019 totaled $13.5 million, representing a
$3.2 million or 19.4% decrease from the third quarter of
2018. Sales for the first nine months of 2019 were $41.5
million, a decrease of $3.8
million or 8.4% from 2018 results.
The decline of net sales during the third
quarter is primarily attributable to opportunistic volume acquired
in 2018 for seasonal asphalt additive products totaling $2.4
million that did not repeat in 2019. Lower raw material input costs
negatively affected third quarter sales revenue by $0.8 million
when compared to third quarter 2018 for customers that receive
quarterly pricing. Through the first nine months of 2019, those
same factors, non-repeating asphalt volume and lower raw material
input costs, negatively affected sales revenue by $4.5 million and
$1.2 million, respectively.
Operating income for the Specialty Chemicals
Segment for the third quarter of 2019 was $0.8 million, a decrease
of $0.5 million from the same quarter of 2018. The decline in
operating income is directly related to the lower sales revenue and
more tolled product being shipped in 2019 compared to 2018.
Based on our 2018 and 2019 YTD analysis at the end of third
quarter, revenue per pound is flat and material margin per pound is
down by $0.01. For the first nine months of 2019, operating
income for the Specialty Chemicals Segment was $2.4 million
compared to operating income of $3.3 million for the same
period of 2018. The prior year's first nine months included a
one-time claim settlement gain of $0.3 million.
Other Items
Unallocated corporate expenses for the third
quarter of 2019 increased $0.5 million or 25.0% to $2.4 million
(3.2% of sales) compared to $1.9 million (2.4% of sales) for the
same period in the prior year comparative period. The third quarter
increase resulted primarily from higher stock compensation expense
and professional fees. For the first nine months of
2019, unallocated corporate expenses increased $1.0
million or 17.9% to $6.6 million (2.8% of
sales) from $5.6 million (2.7% of sales) in the prior
year comparative period. For the first nine months of 2019,
the increase to unallocated corporate expenses resulted primarily
from higher professional fees and stock compensation expense.
Acquisition costs were $0.1 million for the
third quarter of 2019 (all in unallocated SG&A), resulting from
costs associated with the January 1, 2019 American Stainless
acquisition. This compares to $0.4 million in acquisition cost
($0.2 million in unallocated SG&A and $0.2 million in Metals
Segment SG&A) during the third quarter of 2018 resulting from
costs associated with the 2018 MUSA-Galvanized acquisition. For the
first nine months of 2019 acquisition costs were $1.8 million ($1.4
million recorded in Metals Segment Cost of Sales and $0.4
million in unallocated SG&A) compared to $1.1
million for the first nine months of 2018 ($0.3
million recorded in Metals Segment Cost of Sales and $0.8
million in unallocated SG&A) resulting from costs
associated with the 2018 MUSA-Galvanized acquisition.
Interest expense was $0.9 million and $0.6
million for the third quarters of 2019 and 2018,
respectively. Interest expense was $3.0 million and $1.3
million for the first nine months of 2019 and 2018,
respectively. The increase was related to higher average debt
outstanding in the third quarter and the first nine months of 2019,
as additional borrowings were primarily related to acquisitions and
to support increased working capital requirements.
The effective tax rate was 10.6% and 23.6% for
the three and nine-month periods ended September 30, 2019. The
effective tax rate for the three month period ended
September 30, 2019 was lower than the statutory rate of 21.0%
due to state taxes, net of the federal benefit, and discrete tax
benefits on our stock compensation plan. The Company’s
effective tax rate was approximately equal to the U.S. statutory
rate of 21.0% for the nine months ended September 30, 2019
The effective tax rate was 22.0% for the three
and nine-month periods ended September 30, 2018, respectively.
The Company’s effective tax rate was approximately equal to the
U.S. statutory rate of 21.0%.
The Company's cash balance decreased $1.9
million to $0.3 million as of September 30, 2019 compared to
$2.2 million at December 31, 2018. Fluctuations affecting cash
flows during the nine months ended September 30, 2019 were
comprised of the following:
- Net inventories decreased $8.0 million at September 30,
2019 when compared to December 31, 2018, mainly due to efforts to
balance inventory with projected business levels. Excluding the
impact of acquired inventory as a result of the American Stainless
acquisition, the Company generated $14.0 million of operating cash
flows from the relief of inventory during the nine months ended
September 30, 2019. Inventory turns decreased slightly
from 1.81 turns at December 31, 2018, calculated on a
three-month average basis, to 1.78 turns at September 30,
2019;
- Accounts payable increased $0.5 million as of
September 30, 2019 as compared to December 31,
2018. Accounts payable days outstanding were approximately 32
days at September 30, 2019 compared to 37 days at
December 31, 2018;
- Net accounts receivable increased $0.8 million at
September 30, 2019 as compared to December 31, 2018,
which primarily resulted from the addition of ASTI’s sales and
receivables following the January 1, 2019 acquisition, offset
partially by a reduction in days outstanding of four days due to
better collection experience at the end of the third quarter.
Days sales outstanding, calculated using a nine-month average
basis, was 48 days outstanding at September 30, 2019 and for the
year ended December 2018, respectively;
- On January 1, 2019, the Company paid $21.9 million to complete
the American Stainless acquisition;
- The Company purchased and sold equity securities during the
nine-month period ended September 30, 2019, which resulted in net
cash proceeds of $0.5 million;
- Capital expenditures for the first nine months of 2019 were
$2.8 million; and
- The Company paid $2.9 million during the first nine months of
2019 related to the earn-out liabilities from the 2019 American
Stainless, 2018 MUSA-Galvanized and 2017 MUSA-Stainless
acquisitions.
The Company had $83.1 million of total
borrowings outstanding with its lender as of September 30,
2019. Since January 1, 2019 when the Company borrowed $22.7
million to fund the American Stainless acquisition ($20.0 million
term loan and $2.7 million against the Company’s line of credit),
the Company has reduced borrowings by $16.0 million ($2.7 million
term loan and $13.3 million line of credit). Covenants under
the Credit Agreement include maintaining a minimum fixed charge
coverage ratio, maintaining a minimum tangible net worth, and a
limitation on the Company’s maximum amount of capital expenditures
per year, which is in line with currently projected needs. As of
September 30, 2019, the Company had $16.9 million of remaining
available capacity under its line of credit. The Company was in
compliance with all covenants as of September 30, 2019.
Outlook
With less than two months remaining in 2019, we
see no signs of improving demand in our end markets.
Inventory levels in the welded stainless steel pipe market have
normalized, which is a prerequisite for stronger order activity
going forward, but is too late to provide any benefit to the
current year. We are now projecting Adjusted EBITDA for 2019
of approximately $15.0 million. This forecast takes into
consideration the negative impact of inventory price change losses
for the year of $5.5 million and $1.9 million in non-recurring
items. We do anticipate inventory price change gains of
$250,000 in the fourth quarter, reflecting the recent higher
surcharges. The Company continues to make excellent progress
in reducing its debt. The target for net debt at year-end
2019 is $67.0 million.
Synalloy Corporation (Nasdaq: SYNL) is a
growth-oriented company that engages in a number of diverse
business activities including the production of stainless steel
pipe and tubing, galvanized pipe and tubing, fiberglass and steel
storage tanks, specialty chemicals, and the master distribution of
seamless carbon pipe and tubing. For more information about
Synalloy Corporation, please visit our web site at
www.synalloy.com.
Forward-Looking Statements
This earnings release includes and incorporates
by reference "forward-looking statements" within the meaning of the
federal securities laws. All statements that are not historical
facts are "forward-looking statements." The words "estimate,"
"project," "intend," "expect," "believe," "should," "anticipate,"
"hope," "optimistic," "plan," "outlook," "should," "could," "may"
and similar expressions identify forward-looking statements. The
forward-looking statements are subject to certain risks and
uncertainties, including without limitation those identified below,
which could cause actual results to differ materially from
historical results or those anticipated. Readers are cautioned not
to place undue reliance on these forward-looking statements. The
following factors could cause actual results to differ materially
from historical results or those anticipated: adverse economic
conditions; the impact of competitive products and pricing; product
demand and acceptance risks; raw material and other increased
costs; raw materials availability; employee relations; ability to
maintain workforce by hiring trained employees; labor efficiencies;
customer delays or difficulties in the production of products; new
fracking regulations; a prolonged decrease in oil and nickel
prices; unforeseen delays in completing the integrations of
acquisitions; risks associated with mergers, acquisitions,
dispositions and other expansion activities; financial stability of
our customers; environmental issues; negative or unexpected results
from tax law changes; unavailability of debt financing on
acceptable terms and exposure to increased market interest rate
risk; inability to comply with covenants and ratios required by our
debt financing arrangements; ability to weather an economic
downturn; loss of consumer or investor confidence and other risks
detailed from time-to-time in the Company's Securities and Exchange
Commission filings. The Company assumes no obligation to update the
information included in this release.
Non-GAAP Financial
Information
Financial statement information included in this
earnings release includes non-GAAP (Generally Accepted Accounting
Principles) measures and should be read along with the accompanying
tables which provide a reconciliation of non-GAAP measures to GAAP
measures.
Adjusted Net (Loss) Income and Adjusted Diluted
Earnings per Share are non-GAAP measures and exclude discontinued
operations, goodwill impairment, stock option / grant costs,
straight line lease costs, acquisition costs, shelf registration
costs, earn-out adjustments, gain on excess death benefit, realized
and unrealized (gains) and losses on investments in equity
securities, casualty insurance gain, all (gains) losses associated
with a Sale-Leaseback, and retention costs from net income. They
also utilize a constant effective tax rate to reflect tax neutral
results.
Adjusted EBITDA is a non-GAAP measure and
excludes discontinued operations, goodwill impairment, interest
expense, change in fair value of interest rate swap, income taxes,
depreciation, amortization, stock option / grant costs, straight
line lease cost, acquisition costs, shelf registration costs,
earn-out adjustments, gain on excess death benefit, realized and
unrealized (gains) and losses on investments in equity securities,
casualty insurance gain, all (gains) losses associated with a
Sale-Leaseback, and retention costs from net income.
Management believes that these non-GAAP measures
provide additional useful information to allow readers to compare
the financial results between periods. Non-GAAP measures should not
be considered as an alternative to any measure of performance or
financial condition as promulgated under GAAP, and investors should
consider the Company's performance and financial condition as
reported under GAAP and all other relevant information when
assessing the performance or financial condition of the Company.
Non-GAAP measures have limitations as analytical tools, and
investors should not consider them in isolation or as a substitute
for analysis of the Company's results or financial condition as
reported under GAAP.
Contact: Dennis Loughran at (804) 822-3266
Synalloy Corporation Comparative Analysis |
Condensed Consolidated Statement of
Operations |
|
(Amounts in thousands, except per share data) |
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
Nine months ended September 30, |
(unaudited) |
2019 |
|
2018 |
|
2019 |
|
2018 |
Net
sales |
|
|
|
|
|
|
|
|
Metals Segment |
$ |
60,121 |
|
|
$ |
61,024 |
|
|
$ |
195,728 |
|
|
$ |
162,891 |
|
|
Specialty Chemicals
Segment |
13,519 |
|
|
16,769 |
|
|
41,494 |
|
|
45,276 |
|
|
|
$ |
73,640 |
|
|
$ |
77,793 |
|
|
$ |
237,222 |
|
|
$ |
208,167 |
|
Operating
income |
|
|
|
|
|
|
|
Metals Segment |
$ |
450 |
|
|
$ |
7,984 |
|
|
$ |
3,079 |
|
|
$ |
23,091 |
|
|
Specialty Chemicals
Segment |
846 |
|
|
1,355 |
|
|
2,387 |
|
|
3,325 |
|
|
|
|
|
|
|
|
|
|
Unallocated expense (income) |
|
|
|
|
|
|
|
|
Corporate |
2,369 |
|
|
1,895 |
|
|
6,622 |
|
|
5,617 |
|
|
Acquisition costs |
90 |
|
|
181 |
|
|
392 |
|
|
871 |
|
|
Earn-out adjustments |
(1,242 |
) |
|
(269 |
) |
|
(1,643 |
) |
|
2,193 |
|
|
Operating income |
79 |
|
|
7,532 |
|
|
95 |
|
|
17,735 |
|
|
Interest expense |
944 |
|
|
586 |
|
|
2,978 |
|
|
1,304 |
|
|
Change in fair value of
interest rate swap |
21 |
|
|
(7 |
) |
|
145 |
|
|
(100 |
) |
|
Other expense (income),
net |
180 |
|
|
493 |
|
|
(224 |
) |
|
523 |
|
Net (loss)
income before income taxes |
(1,066 |
) |
|
6,460 |
|
|
(2,803 |
) |
|
16,008 |
|
|
|
|
|
|
|
|
|
|
(Benefit) provision for income
taxes |
(113 |
) |
|
1,425 |
|
|
(660 |
) |
|
3,461 |
|
|
|
|
|
|
|
|
|
|
Net (loss)
income |
$ |
(953 |
) |
|
$ |
5,035 |
|
|
$ |
(2,143 |
) |
|
$ |
12,547 |
|
|
|
|
|
|
|
|
|
|
Net (loss)
income per common share |
|
|
|
|
|
|
|
|
Basic |
$ |
(0.11 |
) |
|
$ |
0.57 |
|
|
$ |
(0.24 |
) |
|
$ |
1.43 |
|
|
Diluted |
$ |
(0.11 |
) |
|
$ |
0.56 |
|
|
$ |
(0.24 |
) |
|
$ |
1.42 |
|
|
|
|
|
|
|
|
|
|
Average
shares outstanding |
|
|
|
|
|
|
|
|
Basic |
8,995 |
|
|
8,829 |
|
|
8,969 |
|
|
8,784 |
|
|
Diluted |
8,995 |
|
|
8,934 |
|
|
8,969 |
|
|
8,858 |
|
|
|
|
|
|
|
|
|
|
Other
data: |
|
|
|
|
|
|
|
|
Adjusted EBITDA (1) |
2,760 |
|
|
10,283 |
|
|
10,934 |
|
|
28,233 |
|
(1) The term Adjusted EBITDA is a
non-GAAP financial measure that the Company believes is useful to
investors in evaluating its results to determine the value of a
company. An item is included in the measure if its periodic value
is inconsistent and sufficiently material that not identifying the
item would render period comparability less meaningful to the
reader or if including the item provides a clearer representation
of normalized periodic earnings. The Company includes in
Adjusted EBITDA two categories of items: 1) Base EBITDA components,
including: earnings before discontinued operations, interest
(including change in fair value of interest rate swap), income
taxes, depreciation and amortization, and 2) Material transaction
costs including: goodwill impairment, acquisition costs,
acquisition related retention costs, shelf registration costs,
earn-out adjustments, gain on excess death benefit, (gains) losses
associated with Sale-leaseback, stock option/grant costs,
slight-line lease cost and other adjustments (lesser value items
meeting the criteria, where cumulative impact in a period is
material). For a reconciliation of this non-GAAP measure to the
most comparable GAAP equivalent, refer to the Reconciliation of Net
Income to Adjusted EBITDA as shown on next page.
|
Reconciliation of Net (Loss) Income to Adjusted
EBITDA |
|
|
|
|
|
|
|
|
|
Dollars in
thousands |
Three Months Ended September 30, |
|
Nine months ended September 30, |
(unaudited) |
2019 |
|
2018 |
|
2019 |
|
2018 |
Consolidated |
|
|
|
|
|
|
|
Net (loss)
income |
$ |
(953 |
) |
|
$ |
5,035 |
|
|
$ |
(2,143 |
) |
|
$ |
12,547 |
|
Adjustments: |
|
|
|
|
|
|
|
|
Interest expense |
944 |
|
|
586 |
|
|
2,978 |
|
|
1,304 |
|
|
Change in fair value of
interest rate swap |
21 |
|
|
(7 |
) |
|
145 |
|
|
(100 |
) |
|
Income taxes |
(113 |
) |
|
1,425 |
|
|
(660 |
) |
|
3,461 |
|
|
Depreciation |
1,858 |
|
|
1,710 |
|
|
5,690 |
|
|
4,584 |
|
|
Amortization |
871 |
|
|
616 |
|
|
2,614 |
|
|
1,763 |
|
EBITDA |
2,628 |
|
|
9,365 |
|
|
8,624 |
|
|
23,559 |
|
|
Acquisition costs (1) |
90 |
|
|
396 |
|
|
1,763 |
|
|
1,131 |
|
|
Shelf registration costs |
— |
|
|
54 |
|
|
10 |
|
|
54 |
|
|
Earn-out adjustments |
(1,242 |
) |
|
(269 |
) |
|
(1,643 |
) |
|
2,193 |
|
|
(Gain) loss on equity
securities |
180 |
|
|
494 |
|
|
(193 |
) |
|
523 |
|
|
Stock option / grant
costs |
908 |
|
|
206 |
|
|
1,760 |
|
|
622 |
|
|
Straight line lease cost |
144 |
|
|
92 |
|
|
432 |
|
|
276 |
|
|
Amortized gain on sale of
assets - sale-leaseback |
— |
|
|
(84 |
) |
|
— |
|
|
(251 |
) |
|
Retention expense |
51 |
|
|
29 |
|
|
181 |
|
|
126 |
|
Adjusted
EBITDA |
$ |
2,760 |
|
|
$ |
10,283 |
|
|
$ |
10,934 |
|
|
$ |
28,233 |
|
|
% sales |
3.7 |
% |
|
13.2 |
% |
|
4.6 |
% |
|
13.6 |
% |
|
|
|
|
|
|
|
|
|
Other
(unfavorable) favorable impacts to income (2): |
|
|
|
|
|
|
|
|
Inventory price change (loss) gain |
$ |
(566 |
) |
|
$ |
1,607 |
|
|
$ |
(5,730 |
) |
|
$ |
5,133 |
|
|
Inventory cost
adjustments |
(73 |
) |
|
(15 |
) |
|
77 |
|
|
171 |
|
|
Aged inventory adjustment |
(53 |
) |
|
58 |
|
|
(45 |
) |
|
22 |
|
|
Manufacturing variances |
(8 |
) |
|
585 |
|
|
16 |
|
|
984 |
|
|
Total other (unfavorable)
favorable impacts |
$ |
(700 |
) |
|
$ |
2,235 |
|
|
$ |
(5,682 |
) |
|
$ |
6,310 |
|
|
|
|
|
|
|
|
|
|
Metals
Segment |
|
|
|
|
|
|
|
Operating
income |
$ |
450 |
|
|
$ |
7,984 |
|
|
$ |
3,079 |
|
|
$ |
23,091 |
|
|
Depreciation expense |
1,461 |
|
|
1,321 |
|
|
4,476 |
|
|
3,403 |
|
|
Amortization expense |
871 |
|
|
616 |
|
|
2,614 |
|
|
1,758 |
|
EBITDA |
2,782 |
|
|
9,921 |
|
|
10,169 |
|
|
28,252 |
|
|
Acquisition costs |
1 |
|
|
216 |
|
|
1,371 |
|
|
260 |
|
|
Stock option / grant
costs |
195 |
|
|
52 |
|
|
405 |
|
|
152 |
|
|
Amortized gain on sale of
assets - sale-leaseback |
— |
|
|
(60 |
) |
|
|
|
(180 |
) |
|
Retention expense |
26 |
|
|
29 |
|
|
106 |
|
|
126 |
|
Metals Segment
Adjusted EBITDA |
$ |
3,004 |
|
|
$ |
10,158 |
|
|
$ |
12,051 |
|
|
$ |
28,610 |
|
|
% segment sales |
5.0 |
% |
|
16.6 |
% |
|
6.2 |
% |
|
17.6 |
% |
|
|
|
|
|
|
|
|
|
Other
(unfavorable) favorable impacts to income (2): |
|
|
|
|
|
|
|
|
Inventory price change (loss)
gain |
$ |
(566 |
) |
|
$ |
1,607 |
|
|
$ |
(5,730 |
) |
|
$ |
5,133 |
|
|
Inventory cost
adjustments |
(82 |
) |
|
4 |
|
|
53 |
|
|
184 |
|
|
Aged inventory adjustment |
(67 |
) |
|
(6 |
) |
|
(50 |
) |
|
(41 |
) |
|
Manufacturing variances |
37 |
|
|
616 |
|
|
244 |
|
|
1,210 |
|
|
Total other (unfavorable)
favorable impacts |
$ |
(678 |
) |
|
$ |
2,221 |
|
|
$ |
(5,483 |
) |
|
$ |
6,486 |
|
|
|
|
|
|
|
|
|
|
Specialty
Chemicals Segment |
|
|
|
|
|
|
|
Operating
income |
$ |
846 |
|
|
$ |
1,355 |
|
|
$ |
2,387 |
|
|
$ |
3,325 |
|
Adjustments: |
|
|
|
|
|
|
|
|
Depreciation expense |
355 |
|
|
352 |
|
|
1,094 |
|
|
1,069 |
|
|
Amortization expense |
— |
|
|
— |
|
|
— |
|
|
6 |
|
EBITDA |
1,201 |
|
|
1,707 |
|
|
3,481 |
|
|
4,400 |
|
|
Stock option / grant
costs |
108 |
|
|
26 |
|
|
204 |
|
|
77 |
|
|
Amortized gain on sale of
assets - sale-leaseback |
— |
|
|
(24 |
) |
|
— |
|
|
(71 |
) |
Specialty
Chemicals Segment Adjusted EBITDA |
$ |
1,310 |
|
|
$ |
1,709 |
|
|
$ |
3,686 |
|
|
$ |
4,406 |
|
|
% segment sales |
9.7 |
% |
|
10.2 |
% |
|
8.9 |
% |
|
9.7 |
% |
|
|
|
|
|
|
|
|
|
Other
(unfavorable) favorable impacts to income (2): |
|
|
|
|
|
|
|
|
Inventory cost
adjustments |
$ |
(9 |
) |
|
$ |
(19 |
) |
|
$ |
(24 |
) |
|
$ |
(13 |
) |
|
Aged inventory adjustment |
(14 |
) |
|
64 |
|
|
(5 |
) |
|
63 |
|
|
Manufacturing variances |
45 |
|
|
(31 |
) |
|
228 |
|
|
(227 |
) |
|
Total other (unfavorable)
favorable impacts |
$ |
22 |
|
|
$ |
14 |
|
|
$ |
199 |
|
|
$ |
(177 |
) |
(1) Acquisition costs include the
amortization of the incremental fair value above predecessor cost
associated with acquired inventory that was sold during the
quarter.
(2) Other favorable (unfavorable)
impacts to income - listed to provide investors with insight into
financial impacts, that cannot be included in the Non-GAAP measure
Adjusted EBITDA, but management believes can provide insight into
underlying operational earnings associated with the respective
period's activity level. The items include a) inventory price
change - the calculated value that profits improved (declined) due
to the increase (decrease) in metal and alloy pricing indices
during the period, and b)inventory valuation adjustments - value of
periodic adjustment to inventory carrying value unrelated to
periodic earnings including i) reserve for lower of cost or net
realizable value, ii) reserve for aged inventory and iii)
manufacturing variances - the calculated value of manufacturing
absorption deferred into inventory to be amortized in a later
period, rather than being shown in the period that created the
benefit or cost.
Reconciliation of (Loss) Income and (Loss) Earnings Per
ShareAdjusted Net (Loss) Income and Adjusted
(Loss) Earnings Per Share(Amounts in thousands, except per share
data) |
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
Nine months ended September 30, |
|
(unaudited) |
2019 |
|
2018 |
|
2019 |
|
2018 |
|
|
|
|
|
|
|
|
|
|
|
(Loss) income
before taxes |
$ |
(1,066 |
) |
|
$ |
6,460 |
|
|
$ |
(2,803 |
) |
|
$ |
16,008 |
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments: |
|
|
|
|
|
|
|
|
|
Acquisition costs |
90 |
|
|
396 |
|
|
1,763 |
|
|
1,131 |
|
|
|
Shelf registration costs |
— |
|
|
54 |
|
|
10 |
|
|
54 |
|
|
|
Earn-out adjustments |
(1,242 |
) |
|
(269 |
) |
|
(1,643 |
) |
|
2,193 |
|
|
|
(Gain) loss on investments in
equity securities |
180 |
|
|
494 |
|
|
(193 |
) |
|
523 |
|
|
|
Stock option / grant
costs |
908 |
|
|
206 |
|
|
1,760 |
|
|
622 |
|
|
|
Straight line lease cost |
144 |
|
|
92 |
|
|
432 |
|
|
276 |
|
|
|
Amortized gain on sale of
assets - sale-leaseback |
— |
|
|
(84 |
) |
|
— |
|
|
(251 |
) |
|
|
Retention expense |
51 |
|
|
29 |
|
|
181 |
|
|
126 |
|
|
Adjusted (loss)
income before income taxes |
(935 |
) |
|
7,378 |
|
|
(493 |
) |
|
20,682 |
|
|
|
(Benefit) provision for income
taxes at 21% |
(196 |
) |
|
1,549 |
|
|
(103 |
) |
|
4,343 |
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted net
(loss) income |
$ |
(739 |
) |
|
$ |
5,829 |
|
|
$ |
(390 |
) |
|
$ |
16,339 |
|
|
|
|
|
|
|
|
|
|
|
|
Average shares
outstanding, as reported |
|
|
|
|
|
|
|
|
|
Basic |
8,995 |
|
|
8,829 |
|
|
8,969 |
|
|
8,784 |
|
|
|
Diluted |
8,995 |
|
|
8,934 |
|
|
8,969 |
|
|
8,858 |
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted net
income per common share |
|
|
|
|
|
|
|
|
|
Basic |
$ |
(0.08 |
) |
|
$ |
0.66 |
|
|
$ |
(0.04 |
) |
|
$ |
1.86 |
|
|
|
Diluted |
$ |
(0.08 |
) |
|
$ |
0.65 |
|
|
$ |
(0.04 |
) |
|
$ |
1.84 |
|
|
|
|
|
|
|
|
|
|
|
|
Other
(unfavorable) favorable impacts to income (2): |
|
|
|
|
|
|
|
|
Inventory price change (loss)
gain |
$ |
(566 |
) |
|
$ |
1,607 |
|
|
$ |
(5,730 |
) |
|
$ |
5,133 |
|
|
|
Inventory cost adjustment |
(73 |
) |
|
(15 |
) |
|
77 |
|
|
171 |
|
|
|
Aged inventory adjustment |
(53 |
) |
|
58 |
|
|
(45 |
) |
|
22 |
|
|
|
Manufacturing variance |
(8 |
) |
|
585 |
|
|
16 |
|
|
984 |
|
|
|
|
|
|
|
|
|
|
|
|
Total other
(unfavorable) favorable impacts |
$ |
(700 |
) |
|
$ |
2,235 |
|
|
$ |
(5,682 |
) |
|
$ |
6,310 |
|
|
|
Other impacts, net of tax |
$ |
(553 |
) |
|
$ |
1,766 |
|
|
$ |
(4,489 |
) |
|
$ |
4,985 |
|
|
(2) Other favorable (unfavorable)
impacts to income - listed to provide investors with insight into
financial impacts, that cannot be included in the Non-GAAP measure
Adjusted Net Income, but management believes can provide insight
into underlying operational earnings associated with the respective
period's activity level. The items include a) inventory price
change - the calculated value that profits improved (declined) due
to the increase (decrease) in metal and alloy pricing indices
during the period, and b)inventory valuation adjustments - value of
periodic adjustment to inventory carrying value unrelated to
periodic earnings including i) reserve for lower of cost or net
realizable value, ii) reserve for aged inventory and iii)
manufacturing variances - the calculated value of manufacturing
absorption deferred into inventory to be amortized in a later
period, rather than being shown in the period that created the
benefit or cost.
Condensed
Consolidated Balance Sheets (Dollars in
thousands) |
(unaudited) |
September 30, 2019 |
|
December 31, 2018 |
|
|
|
|
Assets |
|
|
|
|
Cash |
$ |
254 |
|
|
$ |
2,220 |
|
|
Accounts receivable, net |
41,912 |
|
|
41,065 |
|
|
Inventories, net |
106,204 |
|
|
114,201 |
|
|
Other current assets |
12,401 |
|
|
9,983 |
|
|
Total current
assets |
160,771 |
|
|
167,469 |
|
|
|
|
|
|
|
Property, plant and equipment,
net |
40,729 |
|
|
40,925 |
|
|
Right-of-use assets, operating
leases |
36,102 |
|
|
— |
|
|
Goodwill |
17,558 |
|
|
9,800 |
|
|
Intangible assets, net |
16,586 |
|
|
9,696 |
|
|
Other assets |
388 |
|
|
508 |
|
Total
assets |
$ |
272,134 |
|
|
$ |
228,398 |
|
|
|
|
|
|
Liabilities and Shareholders' Equity |
|
|
|
|
Accounts payable |
$ |
25,564 |
|
|
$ |
25,074 |
|
|
Accrued expenses and other
current liabilities |
12,696 |
|
|
12,163 |
|
|
Current portion of long-term
debt |
4,000 |
|
|
— |
|
|
Current portion operating
lease liabilities |
3,544 |
|
|
— |
|
|
Current portion of finance
lease liabilities |
253 |
|
|
— |
|
|
Total current
liabilities |
46,057 |
|
|
37,237 |
|
|
|
|
|
|
|
Long-term debt |
79,108 |
|
|
76,405 |
|
|
Long-term portion of earn-out
liability |
4,453 |
|
|
4,703 |
|
|
Long-term portion of operating
lease liabilities |
33,942 |
|
|
— |
|
|
Long-term portion of finance
lease liabilities |
398 |
|
|
— |
|
|
Long-term portion of deferred
sale-leaseback gain |
— |
|
|
5,599 |
|
|
Other long-term
liabilities |
155 |
|
|
1,717 |
|
|
Deferred income taxes |
992 |
|
|
253 |
|
Shareholders' equity |
107,028 |
|
|
102,484 |
|
Total
liabilities and shareholders' equity |
$ |
272,134 |
|
|
$ |
228,398 |
|
Note: The condensed consolidated balance sheet at December 31,
2018 has been derived from the audited consolidated financial
statements at that date.
Reconciliation of Forecasted 2019 Net Loss to Forecasted
2019 Adjusted EBITDA |
Dollars in thousands |
|
(unaudited) |
2019 Forecast |
Consolidated |
|
Net loss |
$ |
(2,450 |
) |
Adjustments: |
|
|
Interest expense |
3,978 |
|
|
Income taxes |
(568 |
) |
|
Depreciation |
7,636 |
|
|
Amortization |
3,486 |
|
|
EBITDA |
12,082 |
|
|
Earn-out adjustments |
(1,572 |
) |
|
Acquisition costs |
1,761 |
|
|
Stock option / grant costs |
2,051 |
|
|
Shelf registration costs |
10 |
|
|
Loss on investments |
(193 |
) |
|
Straight line lease cost |
560 |
|
|
Retention expense |
232 |
|
Adjusted EBITDA |
$ |
14,931 |
|
|
|
|
Other favorable (unfavorable) impacts to income (2) |
|
|
Inventory price change loss |
$ |
(5,473 |
) |
|
Inventory cost adjustments |
90 |
|
|
Aged inventory adjustment |
(45 |
) |
|
Manufacturing variances |
(241 |
) |
|
Total other unfavorable impacts |
$ |
(5,669 |
) |
(2) Other favorable (unfavorable)
impacts to income - listed to provide investors with insight into
financial impacts, that cannot be included in the Non-GAAP measure
Adjusted Net Income, but management believes can provide insight
into underlying operational earnings associated with the respective
period's activity level. The items include a) inventory price
change - the calculated value that profits improved (declined) due
to the increase (decrease) in metal and alloy pricing indices
during the period, and b)inventory valuation adjustments - value of
periodic adjustment to inventory carrying value unrelated to
periodic earnings including i) reserve for lower of cost or net
realizable value, ii) reserve for aged inventory and iii)
manufacturing variances - the calculated value of manufacturing
absorption deferred into inventory to be amortized in a later
period, rather than being shown in the period that created the
benefit or cost.
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