Earnings Conference Call Transcript

Synalloy Corporation NasdaqGM:SYNL

FQ3 2021 Earnings Call Transcripts

Tuesday, November 09, 2021 5:00 PM ET

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Contents

Table of Contents

Call Participants........................................................................................................................................................	3
Presentation........................................................................................................................................................	4
Question and Answer........................................................................................................................................................	9

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SYNALLOY CORPORATION FQ3 2021 EARNINGS CALL | NOV 09, 2021

Call Participants

EXECUTIVES

Aaron M. Tam

Chief Financial Officer

Benjamin L. Rosenzweig

Chairman of the Board

Christopher Gerald Hutter

Interim President, CEO & Director

ANALYSTS

Michael E. Hughes

SGF Capital Management, LP

ATTENDEES

Cody Cree

Gateway Group, Inc.

Unknown Attendee

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SYNALLOY CORPORATION FQ3 2021 EARNINGS CALL | NOV 09, 2021

Presentation

Operator

Good afternoon, everyone, and thank you for participating in today's conference call to discuss Synalloy's financial results for the third quarter ended September 30, 2021. Joining us today are Synalloy's Chairman of the Board; Ben Rosenzweig, Interim President and CEO; Chris Hutter; CFO, Aaron Tam; and the company's outside investor relations adviser, Cody Cree.

Following the remarks, we'll open the call for your questions. Before we go further, I would like to turn the call over to Mr. Cree as he reads the company's safe harbor statements within the meaning of the Private Securities Litigation Reform Act of 1995 that provides important cautions regarding forward-looking statements. Cody, please go ahead.

Cody Cree

Gateway Group, Inc.

Thanks, Jeff. Good afternoon, and thank you all for joining our conference call to discuss Synalloy's Third Quarter 2021 Financial Results. Before we continue, we would like to remind all participants that the discussion today may contain certain forward-looking statements pursuant to the safe harbor provisions of the federal securities laws. These statements are based on information currently available to us and are subject to various risks and uncertainties that could cause actual results to differ materially.

Synalloy advises all of those listening to this call to review the latest 10-Q and 10-K posted on its website for a summary of these risks and uncertainties. Synalloy does not undertake the responsibility to update any forward-looking statements. Further, the discussion today may include non-GAAP measures. In accordance with Regulation G, the company has reconciled these amounts back to the closest GAAP-based measurement. The reconciliations can be found in the earnings press release issued earlier today and posted on the Investors section of the company's website at Synalloy.com. Please note that this call is available for a replay via webcast link that is also posted on the Investors section of the company's website.

With that, I'd like to turn the call over to Synalloy's Chairman of the Board, Ben Rosenzweig. Ben?

Benjamin L. Rosenzweig

Chairman of the Board

Thank you, Cody, and good afternoon. Over the course of the past few months, I believe we've continued to make strides on our journey to create value for all of our stakeholders. We said from the beginning that we had full conviction in the attractive economic characteristics of our core businesses and that changing the leadership and strategic oversight could help us return to profitable growth.

I firmly believe the actions we've taken to date against the backdrop of favorable market conditions have enabled us to get a jump on our long-term goals. It won't always be as linear as it's been over the past few quarters. And the last thing you'll see from us is self-congratulations. But I do think it's important to quickly pause and examine the amount this team has accomplished in a short period of time.

Since beginning to implement our desired changes just over 1 year ago, we've been able to dramatically improve our liquidity position with the new credit facility. We've appointed new leaders across the entire organization with relevant industry experience and expertise. The business has produced multiple consecutive quarters of profitable growth, and we acquired a leading specialty chemicals manufacturer to bolster our chemicals platform. This amount of change is

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SYNALLOY CORPORATION FQ3 2021 EARNINGS CALL | NOV 09, 2021

never easy, but a company of our size can't afford to be stagnant. And in order to capture the growth opportunities I see ahead of us, we'll need to continue to hustle and innovate.

I'd like to take a moment to highlight our recent acquisition of DanChem, which Chris will discuss in more detail. DanChem is a great example of an investment we're willing to make to ensure that we're solidifying our platforms with extended capabilities and bringing on additional executive talent. It is an ideal complement for similar chemicals, offering tremendous cross-selling opportunities across business processes that we know quite well. Additionally, DanChem brings over 120 employees, a management team with a track record of demonstrated growth and 3 state-of-the-art production plants on a large campus in Southern Virginia. With this combination, we've created one of the largest specialty chemicals contract manufacturers in the U.S. that is now primed for continued expansion.

We purchased DanChem for approximately 6x estimated 2021 EBITDA, which I believe is a compelling valuation in this market environment, especially considering all the additional long-term capabilities and knowledge this combination brings. The purchase was funded entirely through our existing credit facility, bringing our pro forma net leverage to just over 2x EBITDA on an LTM basis, inclusive of DanChem's earnings. Going forward, we'll continue to be opportunistic in deploying capital to strategic growth initiatives that meet our internal return thresholds, both organically and through acquisition. As we move through November and look to finish out our first full year, I remain excited and invigorated by the opportunity that sits in front of us today. I feel very confident in our team's ability to continue to drive efficiencies in our production processes while developing and expanding our commercial positioning. Although we still have much more to do in order to reach our ambitious goals, I firmly believe we've established a strong foundation for long-term success, and I look forward to what we'll accomplish.

Now I'd like to pass the call over to Chris and Aaron, and I'll be available later on to take any questions. Chris, over to you.

Christopher Gerald Hutter

Interim President, CEO & Director

Thanks, Ben, and thank you all for joining today's call. It's been about 1 year since I first joined Synalloy as Interim President and CEO, and I'm pleased with the progress we've made to date, including another quarter of strong results. While we're only just beginning to scratch the surface of success I believe this organization is capable of, I still want to thank everyone involved in helping us reach this point and continuing to execute on the strategies we have laid out.

During the third quarter, we experienced profitable growth across both our business segments with momentum from the first half of the year not slowing down. Customer demand maintained its strength amidst the strong pricing environment while our teams across the organization continued to drive operational efficiencies. As discussed on our last call, we remain committed to ongoing refinement of our throughputs to ensure our production schedule is aligned with customer demand.

We continued to work on this throughout the quarter, which had a positive impact on our customer relationships as well as our reputation in the market. Getting high-quality product out of the door in a timely fashion that meets or exceeds expectations is a critical component to our strategy. And as we work to meet our demand this quarter, our improving process has led to substantial year-over-year and sequential increases in net income, adjusted EBITDA and adjusted EBITDA margin.

Before we dive into each segment, I wanted to call out an important change we made to our executive team. In August, we appointed Aaron Tam as Chief Financial Officer. Aaron brings over 20 years of executive level experience in finance and accounting, having served in CFO roles across a variety of industries. Most recently, Aaron was the CFO of North Star Aerospace, a leading independent manufacturer of components and assemblies to the global aerospace industry, where he was instrumental in establishing a culture of metrics-based analysis, capital discipline, cash conversion and margin enhancement processes. We firmly believe his deep functional experience and technical knowledge in all

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