Synalloy Corporation (Nasdaq: SYNL), today announced its results
for the third quarter of 2020. Net sales for the third quarter of
2020 totaled $59.3 million. This represents a decrease of $14.4
million or 19.5% when compared to net sales for the third quarter
of 2019. Net sales for the first nine months of 2020 were $200.1
million, a decrease of $37.1 million or 15.6% from net sales for
the first nine months of 2019. Excluding the curtailed Palmer
operations, sales in the third quarter were $58.7 million, down
13.7% from the third quarter of 2019 and net sales for the first
nine months of 2020 were $195.1 million, down 7.8% from the
previous year periods.
“The team has done a good job managing the factors that are
within our control given the challenges presented by the COVID-19
pandemic, the proxy contest, and a business cycle trough year for
our largest subsidiary, Bristol Metals,” said Craig Bram,
Synalloy’s President and CEO. “I am proud of how the Company has
performed so far this year.”
For the third quarter of 2020, the Company recorded a net loss
of $10.5 million, or $1.16 diluted loss per share, compared to a
net loss of $1.0 million, or $0.11 diluted loss per share for the
third quarter of 2019. The third quarter of 2020 was negatively
impacted by:
- Non-cash goodwill impairment in our Metals Segment of $10.7
million;
- Operating losses at Palmer totaling $0.9 million;
- Inventory price change losses which, on a pre-tax basis,
totaled $1.6 million;
- Proxy contest costs of $0.2 million related to the Company's
proxy contest and election of directors at the 2020 Annual Meeting
of Shareholders; and
- Costs related to the hotline investigation regarding the
accounting for Palmer and other matters of $0.7 million, found
within acquisition costs and other.
For the first nine months of 2020, the Company reported a net
loss of $18.7 million, or $2.06 diluted loss per share. This
compares to a net loss of $2.1 million, or $0.24 diluted loss per
share for the first nine months of 2019. The first nine months of
2020 were negatively impacted by:
- Non-cash goodwill impairment in our Metals Segment of $10.7
million;
- Operating losses at Palmer totaling $3.6 million and $6.1
million in non-cash, pre-tax asset impairment charges;
- Inventory price change losses, which on a pre-tax basis totaled
$5.5 million, compared to a $5.7 million loss for the first nine
months of 2019;
- Proxy contest costs of $3.1 million related to the Company's
proxy contest and election of directors at the 2020 Annual Meeting
of Shareholders; and
- Costs related to the hotline investigation regarding the
accounting for Palmer and other matters of $0.7 million, found
within acquisition costs and other.
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 2020 was $1.0
million, or $0.11 adjusted diluted loss per share compared to an
Adjusted Net Loss of $0.7 million, or $0.08 adjusted diluted loss
per share for the third quarter of 2019. For the first nine months
of 2020, Adjusted Net Loss was $2.9 million, or $0.31 adjusted
diluted loss per share, compared to an Adjusted Net Loss of $0.4
million, or $0.04 adjusted diluted loss per share for the first
nine months of 2019.
- Adjusted EBITDA decreased $1.2 million for the third quarter of
2020 to $1.6 million (2.8% of sales), from $2.8 million (3.7% of
sales) for the third quarter of 2019. For the first nine months of
2020, Adjusted EBITDA was $6.2 million (3.1% of sales), compared to
$10.9 million (4.6% of sales) for the first nine months of
2019.
Both the Adjusted Net Income and Adjusted EBITDA metrics for the
first nine months of 2020 include add-backs of the non-cash
goodwill impairment of $10.7 million, $6.1 million in non-cash
asset impairment charges for the Palmer operation, $3.1 million in
costs associated with the Company's proxy contest as noted above
and $0.7 million in costs associated with the hotline investigation
regarding the accounting for Palmer and other matters, found within
acquisition costs and other. These costs were added back due to the
nature of the charges as one-time charges unrelated to the ongoing
operations of the Company.
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, operating losses at Palmer totaled
$0.9 million and $3.6 million for the third quarter and first nine
months of 2020, respectively. Additionally results were negatively
impacted by inventory price change losses which, on a pre-tax
basis, totaled $1.6 million and $5.5 million for the third quarter
and first nine months of 2020, respectively.
“The third quarter certainly had its challenges, but looking at
the core operations of the Company, there was solid improvement
over the third quarter of last year. First, we had to overcome a
sales decline of $9.4 million from the third quarter of last year,
excluding the Palmer business. Inventory price change losses in the
third quarter were up $1.0 million over last year, with most of the
losses occurring in July 2020. As expected, inventory price change
results in September were break-even. With current surcharges, we
expect to post inventory price change profits in the fourth
quarter. Expenses associated with the proxy contest and the hotline
investigation regarding the accounting for Palmer and other matters
combined to lower pre-tax results in the third quarter of this year
by $0.9 million. In last year’s third quarter, we realized a gain
from adjusting the earn-out of $1.2 million, as compared with a
gain of $0.1 million in the third quarter of this year. Also in
this year's third quarter, we took a $10.7 million non-cash
goodwill impairment charge. Excluding the Palmer operations and
taking into account the aforementioned items, we showed a $1.9
million improvement in pre-tax income over the third quarter of
last year. Achieving this on a sales decline of $9.4 million,
speaks to the Company’s cost cutting efforts over the past twelve
months,” said Mr. Bram.
Metals Segment
The Metals Segment's net sales for the third quarter of 2020
totaled $47.1 million, a decrease of $13.0 million or 21.7% from
the third quarter of 2019. Excluding the Palmer business, net sales
for the third quarter of 2020 totaled $46.5 million, a decrease of
$8.0 million, or 14.7%, from the same quarter last year.
Net sales for the first nine months of 2020 totaled $159.8
million, a decrease of $36.0 million, or 18.4%, from the first nine
months of 2019. Excluding the Palmer business, net sales for the
first nine months of 2020 totaled $154.8 million, a decrease of
$15.3 million, or 9.0%, from the first nine months of 2019.
Sales of heavy wall seamless carbon pipe and tube were down
31.7% from last year’s third quarter, while pounds were down 26.1%,
primarily due to decreased demand in the oil and gas sector. On a
year to date basis, this product line contributed $2.8 million in
Adjusted EBITDA, before corporate allocations. This was after
inventory price change losses of $1.4 million.
Sales of welded pipe and tube in the third quarter of this year
were down 11.8% over the third quarter of last year, while pounds
were down 17.6%, primarily due to decreased levels of North
American consumption of stainless steel welded pipe and tube
impacting the Bristol Metals subsidiary. On a year to date basis,
welded pipe and tube contributed $7.5 million in Adjusted EBITDA,
before corporate allocations. This was after inventory price change
losses of $4.1 million.
The backlog for our subsidiary, Bristol Metals, LLC, as of
September 30, 2020, was $24.1 million, a decrease of 18.3% when
compared to the same period in 2019.
“For our largest subsidiary Bristol Metals, 2020 has definitely
been a trough year in the business cycle. Data from the Metals
Service Center Institute (MSCI) shows that North American
consumption of welded stainless-steel pipe is running at an annual
pace of just over 93,000 tons in 2020, down about 5% from 2019.
This volume is consistent with North American consumption during
the previous trough of 2015-2016. During trough years, pricing gets
very aggressive as manufacturers fight for critical volume. Bristol
Metals has been successful so far this year in taking market share,
with an increase of 210 basis points and shipments up about 3% over
last year. Profitability between peak and trough years for welded
stainless steel pipe is highly volatile. In the peak year of 2018,
Bristol Metals contributed Adjusted EBITDA, before corporate
overhead allocations, totaling $25.1 million. This was after
inventory price change gains of $3.5 million. In the current trough
year, Bristol Metals has contributed Adjusted EBITDA for the same
nine-month period, before corporate overhead allocations, of $3.7
million. This is after inventory price change losses of $4.5
million,” said Mr. Bram.
The Metals Segment's reported operating losses of $11.6 million
for the third quarter of 2020 compared to operating income of $0.4
million for the third quarter of 2019. Excluding the Palmer
business, operating losses for the third quarter of 2020 were $10.7
million as compared to operating income of $0.9 million for the
same quarter last year.
For the first nine months of 2020, the Metals Segment reported
operating losses of $19.8 million compared to operating income of
$3.1 million for the same period of 2019. Excluding the Palmer
business, operating losses were $16.2 million for the first nine
months of 2020 as compared to operating income of $3.5 million for
the same period of 2019.
Current quarter operating results were affected by nickel prices
and resulting surcharges for 304 and 316 alloys. The third quarter
of 2020 proved to be a more unfavorable environment than the third
quarter of 2019, with net metal pricing losses of $1.6 million,
compared to last year's $0.6 million in metal pricing losses. Net
metal pricing losses for the first nine months of 2020 totaled $5.5
million, compared to $5.7 million in metal pricing losses for the
same period of 2019.
In light of the decrease in the Company's market capitalization
as of September 30, 2020, we concluded that a triggering event had
occurred potentially indicating the fair value of certain reporting
units was less than their carrying value as of September 30, 2020.
Therefore, we performed a quantitative goodwill assessment as of
September 30, 2020 that resulted in a non-cash goodwill impairment
charge of $10.7 million in our Metals Segment.
"As some of our Metals peer group companies begin reporting
their financial results for the September 30th ending quarter, it
is apparent that the end markets that we serve have been
challenging for everyone. Year over year sales for the quarter were
down an average of 29% for our customers and down 33% for our
suppliers," said Mr. Bram.
Specialty Chemicals
Segment
Net sales for the Specialty Chemicals Segment in the third
quarter of 2020 totaled $12.2 million, representing a $1.3 million
or 9.9% decrease from the third quarter of 2019. Net sales for the
first nine months of 2020 totaled $40.3 million, representing a
$1.2 million, or 2.8%, decrease from the same period in 2019.
Operating income for the Specialty Chemicals Segment for the
third quarter of 2020 was $1.1 million, an increase of $0.2 million
from the same quarter of 2019. Operating income for the first nine
months of 2020 totaled $3.5 million, an increase of $1.1 million
over the same period of 2019. On a year to date basis, the
Specialty Chemicals Segment contributed $5.5 million in Adjusted
EBITDA, before corporate overhead allocations.
The U.S. specialty chemical industry continues to face
significant downturns in demand due to weak industrial and
manufacturing activities related to the COVID-19 pandemic. However,
during the first nine months of 2020, the Specialty Chemicals
Segment was able to demonstrate relative strength in sales by
increasing production of hand sanitizer and cleaning aids to offset
reduced production for the oil and gas industry. Additionally, the
Specialty Chemicals Segment’s cost cutting efforts have generated a
decrease in selling, general and administrative costs of $0.2
million and $0.6 million for the third quarter and first nine
months of 2020, respectively. These cost cutting measures have
allowed the Specialty Chemicals Segment to generate increased
profits on lower sales volume.
Other Items
Unallocated corporate expenses for the third quarter of 2020
decreased $0.9 million or 35.6% to $1.5 million (2.6% of sales)
compared to $2.4 million (3.2% of sales) for the same period in the
prior year. The third quarter decrease resulted primarily from
lower professional fees, incentive bonuses, and travel expenses in
the period.
Interest expense was $0.5 million and $0.9 million for the third
quarter of 2020 and 2019, respectively. The decrease was related to
lower average debt outstanding in the third quarter of 2020
compared to the third quarter of 2019.
The effective tax rate was 19.4% and 10.6% for the three months
ended September 30, 2020 and September 30, 2019, respectively,
resulting in a tax benefit of $2.5 million and $0.1 million,
respectively. The September 30, 2020 effective tax rate was
approximately equal to the U.S. statutory rate of 21.0%.
The effective tax rate was 24.4% and 23.6% for the nine months
ended September 30, 2020 and 2019, respectively, resulting in a tax
benefit of $6.0 million and $0.7 million, respectively. The
effective tax rate for the first nine months of 2020 was higher
than the statutory rate of 21.0% due to the discrete treatment of
costs attributable to our proxy contest, and tax benefits on our
stock compensation plan and estimated tax benefits associated with
the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”)
which was signed into law on March 27, 2020. The CARES Act includes
various income and payroll tax provisions, notably enabling us to
carry back net operating losses and recover taxes paid in prior
years.
The Company's cash balance decreased $0.4 million to $0.2
million as of September 30, 2020 compared to $0.6 million at
December 31, 2019. Fluctuations affecting cash flows during the
nine months ended September 30, 2020 were comprised of the
following:
a)
Net inventories decreased $9.2 million at
September 30, 2020 when compared to December 31, 2019, mainly due
to efforts to balance inventory with projected business levels and
the write-down of inventory related to the Palmer business in the
second quarter of 2020. Inventory turns increased from 1.62 turns
at December 31, 2019, calculated on a three-month average basis, to
1.73 turns at September 30, 2020;
b)
Accounts payable decreased $1.6 million as
of September 30, 2020 as compared to December 31, 2019, primarily
due to the reduction of payables at the curtailed Palmer
operations. Accounts payable days outstanding, calculated using a
nine-month average basis, were approximately 30 days at September
30, 2020 and, also calculated using a nine-month average basis,
approximately 36 days at December 31, 2019. Accounts payable days
outstanding calculated using a three-month average basis was
approximately 38 days at September 30, 2020;
c)
Net accounts receivable decreased $1.9
million at September 30, 2020 as compared to December 31, 2019, due
primarily to the reduction of receivables at the curtailed Palmer
operations. Days sales outstanding, calculated using a nine-month
average basis, was 47 days outstanding at September 30, 2020 and,
also using a nine-month average basis, 51 days at December 31,
2019. Days sales outstanding, calculated using a three-month
average basis, was approximately 54 days outstanding at September
30, 2020;
d)
Capital expenditures for the first nine
months of 2020 were $2.8 million; and
e)
The Company paid $3.2 million during the
first nine months of 2020 related to the earn-out liabilities from
the 2019 American Stainless, 2018 MUSA-Galvanized and 2017
MUSA-Stainless acquisitions.
The Company had $71.3 million of total borrowings outstanding
with its lender as of September 30, 2020. The total is down $4.2
million from the balance at December 31, 2019. As of September 30,
2020, the Company had $7.5 million of remaining available capacity
under its line of credit.
Pursuant to the Credit Agreement, the Company is subject to
certain covenants including maintaining a minimum fixed charge
coverage ratio of not less than 1.25, maintaining a minimum
tangible net worth of not less than $60.0 million, and a limitation
on the Company’s maximum amount of capital expenditures per year,
which is in line with currently projected needs.
The Company notified its bank of a technical default of the
fixed charge coverage ratio in its Credit Agreement at the quarter
ended September 30, 2020. To address the technical default, the
Company entered into an amendment to its Credit Agreement with its
bank subsequent to the end of the third quarter. On October 23,
2020, the Company entered into the Fifth Amendment to the Third
Amended and Restated Loan Agreement (the "Fifth Amendment") with
its bank. The Fifth Amendment amended the definition of the fixed
charge coverage ratio to include in the numerator (i) the
calculation of losses from the suspended operations of Palmer in
the amount of $1,560,000, which is effective for the quarter ended
June 30, 2020 and for the directly following three quarters after
June 30, 2020, (ii) the calculation of losses from the suspended
operations of Palmer in the amount of $740,000, which is effective
for the quarter ended September 30, 2020 and for the directly
following three quarters after September 30, 2020, and (iii) the
extraordinary expenses related to the investigation of a
whistleblower complaint in the amount of $636,000, which is
effective for the quarter ended September 30, 2020 and for the
directly following three quarters after September 30, 2020.
At September 30, 2020, the Company had a minimum fixed charge
coverage ratio of 1.47 and a minimum tangible net worth of $67.7
million.
Outlook
The manufacturing sector will continue to face challenges over
the next several quarters. As a result of the uncertainty related
to the COVID-19 pandemic, we have suspended all Fiscal 2020
guidance and are not providing guidance at this time. With a
restart of the economy pending, we cannot predict the impact on our
various businesses. We remain diligent and thoughtful in managing
profitability and liquidity while navigating these unprecedented
times and continuing to execute our strategy.
Synalloy Corporation (Nasdaq: SYNL) is a growth-oriented company
that engages in a number of diverse business activities including
the production of stainless steel and galvanized pipe and tube, the
master distribution of seamless carbon pipe and tube, and the
production of specialty chemicals. 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 nickel and oil
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, risks relating
to the impact and spread of COVID-19 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 (Loss) Earnings per Share are non-GAAP measures and exclude
discontinued operations, goodwill impairment, asset impairment,
gain on lease modification, stock option / grant costs, non-cash
lease costs, acquisition costs and other fees, proxy contest 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, asset
impairment, gain on lease modification, interest expense (including
change in fair value of interest rate swap), income taxes,
depreciation, amortization, stock option / grant costs, non-cash
lease cost, acquisition costs and other fees, proxy contest 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.
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)
2020
2019
2020
2019
Net sales
Metals Segment
47,079
60,121
159,761
195,728
Specialty Chemicals Segment
12,187
13,519
40,338
41,494
$
59,266
$
73,640
$
200,099
$
237,222
Operating (loss) income
Metals Segment
(11,563
)
450
(19,784
)
3,125
Specialty Chemicals Segment
1,061
846
3,508
2,387
Unallocated expense (income)
Corporate
1,526
2,369
5,132
6,622
Acquisition costs and other
656
90
803
438
Proxy contest costs
207
—
3,105
—
Earn-out adjustments
(146
)
(1,242
)
(969
)
(1,643
)
Gain on lease modification
(171
)
—
(171
)
—
Operating (loss) income
(12,574
)
79
(24,176
)
95
Interest expense
452
944
1,703
2,977
Change in fair value of interest rate
swap
(16
)
21
65
145
Other (income) expense, net
59
180
(1,244
)
(224
)
Net loss before income taxes
(13,069
)
(1,066
)
(24,700
)
(2,803
)
Income tax benefit
(2,530
)
(112
)
(6,026
)
(660
)
Net loss
$
(10,539
)
$
(954
)
$
(18,674
)
$
(2,143
)
Net loss per common share
Basic
$
(1.16
)
$
(0.11
)
$
(2.06
)
$
(0.24
)
Diluted
$
(1.16
)
$
(0.11
)
$
(2.06
)
$
(0.24
)
Average shares outstanding
Basic
9,105
8,995
9,079
8,969
Diluted
9,105
8,995
9,079
8,969
Other data:
Adjusted EBITDA (1)
1,640
2,759
6,230
10,933
(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, asset impairment, gain on lease modification,
acquisition costs and other fees, proxy contest 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 gains, all (gains) losses
associated with Sale-leaseback, stock option/grant costs, non-cash
lease cost, and retention costs from net income. 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)
to Adjusted EBITDA
($ in thousands)
Three Months Ended September
30,
Nine Months Ended September
30,
(unaudited)
2020
2019
2020
2019
Consolidated
Net loss
$
(10,539
)
$
(954
)
$
(18,674
)
$
(2,143
)
Adjustments:
Interest expense
452
944
1,703
2,977
Change in fair value of interest rate
swap
(16
)
21
65
145
Income taxes
(2,530
)
(112
)
(6,026
)
(660
)
Depreciation
1,805
1,858
5,752
5,690
Amortization
705
871
2,324
2,614
EBITDA
(10,123
)
2,628
(14,856
)
8,623
Acquisition costs and other
656
90
807
1,763
Proxy contest costs
207
—
3,105
—
Shelf registration costs
—
—
—
10
Earn-out adjustments
(146
)
(1,242
)
(969
)
(1,643
)
Loss/(gain) on investments in equity
securities
69
180
(170
)
(193
)
Asset impairments
—
—
6,079
—
Goodwill impairment
10,748
—
10,748
—
Gain on lease modification
(171
)
—
(171
)
—
Stock-based compensation
270
908
1,036
1,760
Non-cash lease expense
130
144
386
432
Retention expense
—
51
235
181
Adjusted EBITDA
$
1,640
$
2,759
$
6,230
$
10,933
% sales
2.8
%
3.7
%
3.1
%
4.6
%
Other (unfavorable) favorable impacts to
income (1):
Inventory price change loss
$
(1,554
)
$
(566
)
$
(5,490
)
$
(5,730
)
Inventory cost adjustments
—
(73
)
70
77
Aged inventory adjustment
(10
)
(53
)
94
(45
)
Total other (unfavorable) favorable
impacts
$
(1,564
)
$
(692
)
$
(5,326
)
$
(5,698
)
Metals Segment
Net (loss) income
$
(11,417
)
$
1,671
$
(17,798
)
$
4,658
Adjustments:
Interest expense
—
20
11
64
Depreciation expense
1,387
1,461
4,457
4,476
Amortization expense
705
872
2,324
2,614
EBITDA
(9,325
)
4,024
(11,006
)
11,812
Acquisition costs and other
—
1
3
1,371
Earn-out adjustments
(146
)
(1,242
)
(969
)
(1,643
)
Asset impairments
—
—
6,079
—
Goodwill impairment
10,748
—
10,748
—
Stock-based compensation
78
195
249
405
Retention expense
—
26
—
106
Metals Segment Adjusted EBITDA
$
1,355
$
3,004
$
5,104
$
12,051
% segment sales
2.9
%
5.0
%
3.2
%
6.2
%
Other (unfavorable) favorable impacts to
income (1):
Inventory price change loss
$
(1,554
)
$
(566
)
$
(5,490
)
$
(5,730
)
Inventory cost adjustments
—
(82
)
100
53
Aged inventory adjustment
(4
)
(67
)
93
(50
)
Total other (unfavorable) favorable
impacts
$
(1,558
)
$
(715
)
$
(5,297
)
$
(5,727
)
Specialty Chemicals Segment
Net income
$
1,061
$
846
$
3,521
$
2,386
Adjustments:
Interest expense
—
—
9
1
Depreciation expense
378
355
1,170
1,094
EBITDA
1,439
1,201
4,700
3,481
Stock-based compensation
59
108
178
204
Specialty Chemicals Segment Adjusted
EBITDA
$
1,498
$
1,309
$
4,878
$
3,685
% segment sales
12.3
%
9.7
%
12.1
%
8.9
%
Other (unfavorable) favorable impacts to
income (1):
Inventory cost adjustments
—
(9
)
(30
)
24
Aged inventory adjustment
6
(14
)
1
5
Total other (unfavorable) favorable
impacts
$
6
$
(23
)
$
(29
)
$
29
(1) 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, and ii) reserve for aged
inventory.
Reconciliation of (Loss) and
(Loss) Earnings Per Share to Adjusted 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)
2020
2019
2020
2019
Loss before taxes
$
(13,069
)
$
(1,066
)
$
(24,700
)
$
(2,803
)
Adjustments:
Acquisition costs and other
656
90
807
1,763
Proxy contest costs
207
—
3,105
—
Shelf registration costs
—
—
—
10
Earn-out adjustments
(146
)
(1,242
)
(969
)
(1,643
)
Loss/(gain) on investments in equity
securities
69
180
(170
)
(193
)
Asset impairments
—
—
6,079
—
Goodwill impairment
10,748
—
10,748
—
Gain on lease modification
(171
)
—
(171
)
—
Stock-based compensation
270
908
1,036
1,760
Non-cash lease expense
130
144
386
432
Retention expense
—
51
235
181
Adjusted loss before income taxes
(1,306
)
(935
)
(3,614
)
(493
)
(Benefit) for income taxes at 21%
(274
)
(196
)
(759
)
(104
)
Adjusted net loss
$
(1,032
)
$
(739
)
$
(2,855
)
$
(389
)
Average shares outstanding, as
reported
Basic
9,105
8,995
9,079
8,969
Diluted
9,105
8,995
9,079
8,969
Adjusted net loss per common share
Basic
$
(0.11
)
$
(0.08
)
$
(0.31
)
$
(0.04
)
Diluted
$
(0.11
)
$
(0.08
)
$
(0.31
)
$
(0.04
)
Other (unfavorable) favorable impacts to
income (1):
Inventory price change loss
$
(1,554
)
$
(566
)
$
(5,490
)
$
(5,730
)
Inventory cost adjustment
—
(73
)
70
77
Aged inventory adjustment
(10
)
(53
)
94
(45
)
Total other (unfavorable) favorable
impacts
$
(1,564
)
$
(692
)
$
(5,326
)
$
(5,698
)
Other impacts, net of tax
$
(1,236
)
$
(547
)
$
(4,208
)
$
(4,501
)
(1) Other (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 and ii) reserve for aged
inventory.
Condensed Consolidated Balance
Sheets
(Unaudited)
($ in thousands)
September 30, 2020
December 31, 2019
Assets
Cash
$
163
$
626
Accounts receivable, net of allowance for
credit losses of $237 and $70, respectively
33,132
35,074
Inventories, net
89,007
98,186
Prepaid expenses and other current
assets
13,453
13,229
Total current assets
135,755
147,115
Property, plant and equipment, net
36,331
40,690
Right-of-use assets, operating leases,
net
32,090
35,772
Goodwill
6,810
17,558
Intangible assets, net
12,131
15,714
Deferred income taxes
1,327
—
Deferred charges, net
271
348
Total assets
$
224,715
$
257,197
Liabilities and Shareholders'
Equity
Accounts payable
$
19,514
$
21,150
Accrued expenses and other current
liabilities
6,718
6,037
Current portion of long-term debt
4,000
4,000
Current portion of earn-out liability
3,959
5,576
Current portion operating lease
liabilities
835
3,562
Current portion of finance lease
liabilities
26
253
Total current liabilities
35,052
40,578
Long-term debt
67,343
71,554
Long-term portion of earn-out
liability
994
3,578
Deferred income taxes
—
790
Long-term portion of operating lease
liabilities
33,000
33,723
Long-term portion of finance lease
liabilities
41
336
Other long-term liabilities
92
127
Shareholders' equity
88,193
106,511
Total liabilities and shareholders'
equity
$
224,715
$
257,197
Note: The condensed consolidated balance sheet at December 31,
2019 has been derived from the audited consolidated financial
statements at that date.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20201109005074/en/
Sally Cunningham, (804) 822-3267
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