SYNL - Earnings call transcript Q2 2018

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Operator

Good day, ladies and gentlemen, and welcome to Synalloy Second Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at the time. [Operator Instructions] I would now like to turn the conference over to Craig Bram, President and CEO. Sir, you may begin.

Craig Bram

everyone. morning, Good Corporation's Synalloy XXXX call. conference Welcome second to quarter Loughran, With me CFO. Dennis is today our a the segments review then provide seeing will Denis of of balance some trends we XXXX. on for positive the I'll QX comments our the business and that are provide and financials,

then open to questions. call will We Dennis? the

Dennis Loughran

everyone. Hello

EBITDA, financial as be EPS; adjusted presented the net income, non-GAAP defined adjusted and second, the a a three release; different usual, defined earnings As measure also using results will non-GAAP in earnings GAAP-based in methods; release. measure first, third, the

Second quarter the compared in $X.X per or GAAP-based with income or as share of per second was quarter million net share, $X.X $X.XX million, profit of net XXXX. of income $X.XX

million to the earn-out XQ steel adjustments The second quarter of acquisition XXXX XXXX business results X,XXX year. were Metals to $X.X compared liability company's charge Munhall related negatively in last the pre-tax of Bristol impacted only stainless to increase by

which we the the in pipe significant described As US to new present include acquisition require value sales. and GAAP and a release, other our of booking ornamental anticipate accounting The section of product manufacturing governing sales rules earnings through have through this that expenses items expanded year. anticipated be the compared $XXX,XXX earn-out case expenses $XXX,XXX to of life included February such year last this made will the of agreement, of payments XXXX. of in is the QX acquisition related

required quarter accounting into third are continue cost of as complete expect We other to activities. and services acquisition the costs various XXXX such incurred to startup professional and

second of million tax in rate $XXX,XXX The reach acquisition of net yield stainless Munhall in approximately last the total related recent incremental year's expect to to XX.X% quarter rate from related change galvanized $X.X expenditures the total income. comparable total full to last XX% effective the We year's a an to the to for XXXX acquisition. Munhall

income adjusted as of $X.XX per per income quarter quarter share $X.X Second $X.X $X.XX second with in non-GAAP million or was compared or the net share adjusted net XXXX. million of

XX.X% the quarter $XX.X of totaled million, Second quarter to or or adjusted year EBITDA second million, sales of compared sales. non-GAAP total of X.X% $X.X prior

As $X.X swing a the release, of a between earnings in of change second totaled million basis XXXX for the in favorable pre-tax quarters. out quarter, inventory $X.X gained impacting $X.X million on compared last quarter results loss pointed in a year second million two the total to price

last remaining EBITDA that While impact the just $X.X of excluding second year adjusted of total. increase year-over-year explains some of mentioned, that the improvement, quarter doubling a million represents

approximately over facility to components XXXX back cost, call ABL I XX, inventory. calculated our the as $XX.X turn over across and EBITDA At steel of adjusted remaining take the describe Craig percent outstanding more The detail, line increases availability our now borrowings June continue of used was improvement XX.X%. our of from to for as capital operating total XX, the July the end galvanized increase benefits a businesses related working quarter funds the the activity will substantial As are primarily The product will second up total. newest year's improvements increased $XX.X due increase December for is to of of hold. million, against XX.X%. The ABL X to second million in the expansions increased and the acquisition, quarter acquisition replacement as of in sales broad-based portfolio, XXXX improve $XX the prior in quarter, and the The will was our Craig. combined facility based million. substantially

Craig Bram

you, Thank Dennis.

positive another unit, momentum from record the company revenue the second With the as an metal acceleration The well coming saw in quarter produced continue second new quarter of as the year. online chemical that in segment, performance the every in of into the began products the mix momentum half Backlogs first and earnings. months segment the and XXXX. product of will of three business improving

of the market of entry generate from the year. the pipe the operation the June. incremental completed and also galvanized Marcegaglia half this into We million tube should This acquisition ornamental revenue $XX coupled business tube at of end in second with our of

adjusted for With million. activity, are total to raising our we $XXX the increased business revenue million $XX We year total for forecast now expect XXXX. the to and EBITDA

of segment With second per Directors and be an special dividend per second the to share paid exceptionally to $X.XX in visibility We December. the sales announce the the year, The the alloys the well an financial year's Metal performed of dividend into in saw share. performance of quarter. annual is of has to This date $X.XX in excellent last half up from decided Board uptick steel The quarter. in the first quarter tube has shipped sales shipped At and Bristol alloys order business. represented almost of pipe very also our pounds year. currently pounds nickel Munhall X.X% for Bristol, stainless order accounting alloys backlog in second the and quarter the in tubing X.X% the the a special book. in the up XX% at special of second this large from of

know, higher commodity margins than conversion these and enjoy alloys. products the As prices you

for project. booked As order $X we these In order last for projects, new typically million And products $X.X expansion encouraged of new plastics are a we to just see million week activity. improved infrastructure a July, facility. mining the ordered level a a are we for of booked

sector seamless the at business been of robust Looking as is we acquired at sales the outstanding tube heavy showing the in have Sales year. particularly markets that improvement XXXX, carbon the operation that industrial and end an to having energy well. pipe with

in better limits of increase we of to increase has support working with fiberglass could allow acquired to of mix we and activity. tanks to trending the in business forward. going Permian is to both is Texas come its product the Basin higher Our this the larger tank XXXX. level drilling suppliers emission since now This Should to pass, production steel prices. tanks backlog Product area the highest storage selling line West

been segment, business, manufacturing the come address that several to to sector. that the what companies, question steel has they earnings tariffs? manufacturing looked not were multiple past Barron's want issue, at a In turning And numerous recent unexpectedly QX across vary. the only I up has of and in the but times Before reports in is the not months from chemical impact responses our

could the with However, than XXXX, tariffs was COGS in of inflation believing represented the passed easily of majority expected these viewed impact be less to customer. cases the negligible. on the of as in Tariffs many costs XX%

increase as our rising have For steel In and of come the our we lines. pipe stainless business increases chrome material in that moly. much due the cost nickel, of has in by to seen We due price from tariffs raw risen surcharges metal believe as cost segment, much of each have and steel the increase XXXX. our product X% for material to tube input

of related increases the course, are on buyers price surcharge cost increases. tariffs passed Of these products input then to our as and

prices trailed shipped selling sizes. had QX prices. by average favorable alloys our also XXX for X% various X% tubing in mix XXX XXXX selling of the and The average alloys nickel pricing this levels on Our change product Interestingly, reflect respectively. year order including large the still QX both and a and impact

five the the been of impact import tariffs market, which many tariffs picture of before months the at exports this for actually US in front-running their the tube has the negative pipe increase available. in to at of the on the data and the With manufacturers, the least Looking domestic announced. year volume is were tariffs first for countries

in during an exports were up year; total this about to from While more consumption five was its steady XX% XX.X% XXX%. share months China share the through up held North Imports Italy America India first up from annualized market rate captured slipped run first year XX% actually the at from market the the Bristol percentage of Korea XX%, XX.X% a metals year. by year among have was of manufacturers XX%; months. this including imports five domestic and was volume On prior last

we to months of year the of negative. point the volume US to I out been want this manufacturers through of While the has the exports expect balance did decline year, five that first over domestic the impact to

revenue have some is always you million. On the all less the in back XXXX, quarter $X.X the of business degree than in-house Tolling was generated loss product in this business second Tolling. new of business about whether of to we will CRI sales. $X.X as bringing new direct customers been or particularly assets at bringing due this of CRI on In bringing successful attrition net alone products Chemicals annual revenue the on back year, front, million. we've When business end the acquired customers competition,

completed, should transaction add acquisitions has strong at in business evaluating integration margins amount, expect this flex the June in $XX in this The conferences. pick after improve and business. institutional Dennis expect We half at dividend, of occur. activity including early tied IDEAS balance gone in the year-end in approximately Parts up the capital is as end in decline to the Chicago million galvanized in be volume believe continue $XX month we net second acquisitions. down Of new Advisors I the Absent Munhall several our the we at for participating With end both of increased stages sheet debt facilities. typically smoothly. the that of several Conference. will The million. remains any operating the at working investor the debt We will Three to net $XX and Midwest of of investors a this business debt announced support these possible We total to totaling with to million. our we're to portion

Synalloy be a will materials website presentation of available Our around time meeting. in the the

will to now questions. call up open We the

Operator

of SGF comes [Operator question from Instructions] with first our Capital. Michael Hughes line the And

Your now line open. is

Michael Hughes

the chemicals wanted the perspective. a and have very sustainable full-year some that Craig correct? about that the half? morning, a sequential margins I is going operate back comments you level is into start to to the And XX% maybe back that from revenue revenue in imply is that Good then would of business growth which -XX% Dennis. strong half, Is operating on business,

Craig Bram

into the a volume continue in chemical half. a absorption CRI into obviously buck is the going course amount We of and on going has you a operating side. And to lot situation right. results excess you that and bigger like bring in get time and That's of the volume group that like pipeline we is the believe And that for which income product second bang capacity. the to that increase has the of the mix favorable business in EBITDA a any the fair overhead that facility,

Michael Hughes

that? Okay, on system Do of kind I'm the hit Korea the just on the then I think which June. late as for larger a quota such some that steel information tariffs. quota have of South good. player thanks under And curious any is you color June

Craig Bram

heard -- thing ignored we've Korea is their on tapped same Mike, that the me, Yes. out basically quota. South excuse

So able the will they balance product be into year. for not any new of the to the US ship

they've of charges a As tariffs recall dumping and of home then India duties year a they're the go, below with some a on other with X% it been against hit evidence got look below and that at XX% US still up and far countries that may in to with India hard because see starting the course anywhere what from ago. their tariff about certainly still duties a of taking you they're on taking in into And triple again companies And a that we're dumping countries. selling successful over cost, that. digits. top were even simply the we some them we're India as dumping And hit half product to with those

being So have taking we results India another metals we on look of what's there, going half Bristol the simply major of see up point. not from be as at to volume tariffs half but as enjoyed their in kind used any improved But go, far to the would may benefit quota Korea year. the we having and first see second expect at this this with

Michael Hughes

Korea? from Do you have a South rough imports are of what ballpark percentage estimate of

Craig Bram

up today, later information in shout my Mike. you I pull a of give pass that if do me on. it and after that the have But I'll piece call fingertips, not

Michael Hughes

to the of to one it they're US? say exporters fair the Is Okay. larger

Craig Bram

Volume two number Yes. to wise are Taiwan. they

Michael Hughes

it increases like the Okay on book the in place backlog have there it the better quarter kind quarter. second and versus then of the price you commentary in the put of a do pricing so sounds necessarily just pricing second is the the you to benefit quarter in for Bristol, first And honor you we the lower quarter, line the would would revenue right. have a lag, seen in It not that start at backlog in back just flow to have because through the right? half that second because was in

Craig Bram

right. That's

Michael Hughes

can alloy the the are? Okay about How on talk specialty higher conversion and they business? much margins then you just

Craig Bram

type alloy a a alloy commodity a pound of, that depends on could of alloys a you be on a a about again be might but talking about $X.XX Really the with alloy the special you're Yes. and special selling, be pound. $X.XX up could margin to talking you product it conversion $X depending on pound,

Michael Hughes

right. a acquisition. bit higher. could little And so then about if just Okay, significantly you the talk All it's more maybe

it think May I believe at announced this closed was and it's in point. late I

Just history to its end grow the beyond in business and that potential with your current business and that level. the markets

Craig Bram

Sure.

steel the containers. the galvanized are and markets. business These several the around galvanize into we the to chemical uses them. have intermediate are all So they bulk market, One is end skeleton a that protect that are acquired totes them sells time, IBC which business

making those the tubes the into that that totes. we're So go make machines

a couple IBC customers. of have we large So

large product but would over also road to do also doors. above in, buy product tonnage into there construction. galvanized with they see XX% about market business. the product conversations would doing we're had bring two very of The sell are ideally we're construction now. guys galvanized year productive garage-door that garage they imports the by a for we've And IBC to customers, all increase applications us road some what some and our them providing like We now the for and IBC Right domestically. into framing in their some the prefer selling multiple We're

the a as We prior like potential tube they've the personnel. market. for sold of metal a sales so for we know stainless And We've Bristol operating the members several the team history of processes over galvanized it sold of the been product well. that year have the Italians we So also know in the and ornamental these

end business from the a So we're with production very sales both comfortable standpoint. standpoint, market

focused So that on going coming we're initiatives it's be to definitely the organic growth one of months. our in

Michael Hughes

in you the mentioned to CapEx How increase that increase pipe much Okay order potential would business required? be to XX%. the by

Craig Bram

that a put on side, Not as get I than million work and gets on the CapEx's done. and ornamental but of there's system tooling couple $X.XX some actually of what's the $XXX,XXX different place handles into less it's We've in the details CapEx. much And of involved, as the you that galvanized And think. won't it's a of side, approved tooling some recent would there's probably tubing we'll that shapes. exit

So of negligible it's CapEx a of fairly amount growth. to kind support that

Michael Hughes

in Okay someone one jump then and more unless else question here.

on and well issues in tank. know to quarter. had performing million the a right? $X.X hit this that capacity out Just lot been out called but take of you that of is the with seems margin a -- push perspectives, be backlog away the quarter talk just business just There's from Palmer perspective Permian, I last presumably

Craig Bram

I some there calls, changes far shifting along, Energy to the basins which out the much of don't out think both drilling have But made their capacity getting they realize that of emissions ability of so takeaway there's the we Mike, produce apparently announcements recently that same a previous in where activity basins. more are. said as were were been absent of prices any they right. could other some are than I Permian and in you the currently some as really the out That's potentially that some from pretty to activity EOG the of the we of been they other There's seen announcements we've Permian that to had. I'm -- point couple selling until sure increased Noble

it world. Permian, outside and Once handle of the in the to that drilling continue little So Basin a the in takeaway it's that we low even in short shifting got area plenty cost backlog of thing. drilling as if -- a - that increased frankly capacity because the activity see we've a the there's short-lived will activity gets gets

Michael Hughes

Okay.

about if points, could $XXX,XXX to a basis million terms. XXX you margins business do very in quarter think So just basically it the acquisition, the that is kind XXX another chemicals high continue said EBITDA to half. that's $XX to a rough by quarter, I of the up related X.XX and a step quarter thinking level back The operating that

EBITDA that's think right? I

Dennis Loughran

full, we six Mike, that the At through level run be will months ramping full that's the Right. to rate, acquisition. up of

So we're have EBITDA to million ramp-up going less in of than $X period. the

Michael Hughes

you've in South then and it the to back at there a starting volume little then start then through and a faced Okay up And less and bit specialty the through there. more least some pricing Korea to flow probably like sounds with little you'll got competition be pick that'll half. the flow

You're half good pretty right? set back well up for a

Dennis Loughran

feel We now. right very it optimistic about

Operator

your comes the And from of question next with BB&T. Gold line Charles

is Your now line open.

Charles Gold

you That's I over Craig. alloy, to another mix, hour and specialty half, the most important $XXX percentage and but say. one million Dennis. of $XXX my rate Hey, to had train you're after in a second million much thing the Congratulations with larger thought lost higher forecasting on I've here, the question the last chemical. a margin half run of

So for half? half revenue in on we're the higher it's net the to second safe say first margins than looking the

Craig Bram

That's right.

Charles Gold

on -- pipe going mean the the didn't on guess haven't I and given Permian. there mentioned I you've You color division. us what's specialty all we the need

was that So other question. my

Craig Bram

and some an business Ferguson we part performing first bit, bought that slow during business that million Houston revenue November that of making were Then that believe our They We that the of the their we out business. months it Yes. highest six facility actually made owned money the are We margins were to were but enjoyed $XX in XXXX. They comparable little loosely. and time other their back tremendously in down we part roughly highest a tube they've margins it. picture of oil a realized even for We good gas they company that paid in what But the Charles businesses. to in the and history. mentioned year, doing last seamless the they've off, in the is in referred -- in well. we at been the change, level saw we really

they EBITDA XX% year finish range. with this should margins in So

$XX return -- get to a on XXXX. million that investment, sizable we simply we're So on that going in

slack won't has performing the really industrial not that got you've and is business you inventory business designed the very really year. sure business to appropriate well. want is That six the have the up once strong of distribution And make from are been we years, only times it carry standpoint. that impressed as demand to only maybe sector. levels know a business we're product That inventory, an So and in who the from to to typically pick things with supplier and turns but fix continuing only when reason We're with a is inventory that doing other year. how guys the that that primary houses why thing is you turns is biggest feed

to on a million order. plus time very ground So of any niche that fill and at important the allows million us we've million $XX distributors, $XX in for probably got point $XX inventory those and on

metal a very it's now. contributor to right so And segment strong Charles. the

Operator

Bram the Thank would closing to remarks. Craig any call to you. now over not further this am for I any turn at like time. questions showing back I

Craig Bram

It's for As our support. got always better have news. these thank to when their shareholders we've our our customers calls always we and favorable employees and

see we've the been what for about very far XXXX. And the this And optimistic of about year. balance we so so progress excited

much. thank very you So

Operator

conclude in does program. Everyone And wonderful you and Ladies today's day. thank disconnect. gentlemen, may participating have conference. a you This for all today's

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