Good day ladies and gentlemen and welcome to the Synalloy Second Quarter Earnings Conference Call. At this time all participants are in a listen-only mode. [Operator Instructions] We will have a question-and-answer session later and instructions will follow at that time. As reminder this conference call is being recorded. Now I would like to welcome and turn the call to the President and CEO of Synalloy Corporation, Mr. Craig Bram. You may begin sir.

Good morning everyone. Welcome to Synalloy Corporation's second quarter 2016 conference call. With me today is Dennis Loughran, our CFO. Dennis is going to start with a review of the Q2 financials and then I will provide some comments on our two business segments. Following my comments we will open the call to questions. Dennis?

Hello everyone, as usual the financial results will be presented using three different methods. GAAP based EPS, adjusted net income, the non-GAAP measures defined in the earnings release and the adjusted EBITDA, a non-GAAP measure also defined in the earnings release. Also, since we did incur a small charge related to a discontinued operation, all amounts referenced will be for continuing operations only. Second quarter GAAP based losses were $1.58 million or $0.18 per share as compared with earnings of $2.45 million or $0.28 per share in the second quarter 2015. Significance differences in year-over-year performance include Q2 of this year had a pre-tax inventory loss of $2.18 million as compared to an inventory loss of $2.32 million in Q2 last year. The lower cost of market adjustment for this year reduced the inventory loss by $0.71 million. As compared to the LCM adjusted last year, increasing the inventory loss by $0.13 million. Q2 of this year include unfavorable net onetime adjustments and amortization of manufacturing variances totaling $361,000. Q2 of this year also included $75,000 of acquisition and $122,000 of shelf registration related to expenses compared to only $11,000 combined for those items last year. Second quarter non-GAAP adjusted net income was $0.4 million or inconsequence of per share basis down 99% as compared with adjusted net income of $3.35 million or $0.38 per share in the second quarter of 2015. Second quarter non-GAAP adjusted EBITDA totaled $2.21 million or 6.3% of sales, a decrease of 68% from the prior year second quarter total of $6.98 million of 13.9% of sales. The combined adjusted EBITDA margin for the operating businesses in the second quarter was 9.6% comparable sequentially to the first quarter 2016 down from prior year second quarter of 16.1%. This includes the parent company cost. Term debt at the end of the first quarter was $23.8 million while the line of credit was $4.6 million. Total net debt at the end of Q1 was $26.3 million, excuse me at the end of Q2 was $26.3 million. This totaled down by $7.4 million or 22% since the second quarter of last year. We remained committed to managing our cost tightly and our balance sheet effectively during difficult business climate. I will now turn the call back over to Craig.

Let me start with discussion on the chemical segment. Revenue for the first half of this year was down 22% from the same period last year with pounds down by 17% and selling prices down by 5%. As previously reported the loss of several products that were taken in house negatively impacted the first half of the year. We are starting to see the gradual ramping of several new product lines that will gain momentum as the second half of the year progresses. Q2 revenue for the chemical segment was actually up 4% over Q1 of this year reflecting the start of this increased activity. EBITDA margins for the chemical segment improved in the first half of this year to 13.6% from 11.9% from the same period last year. We continue to reduce cost wherever possible. In July we completed the installation of new cooling tower at manufacturers of chemical. The total cost was approximately $400,000. Annual savings on the water bill will approach $250,000. In addition we will realize faster turnover of reactors as cooling times are reduced. We are in the process now of replacing reactor 4 which will result in production efficiencies and reduce maintenance. A customer's been recently awarded a contract with a large furniture manufacturer. CRI Tolling will be manufacturing the product for delivery to several plants in Mexico within the next several months with the potential of also supplying facilities in Europe. Let me move on to Metal segments. For the first six months of this year pounds shipped to stainless steel pipe to North America producers was down 14% from the same period last year reflecting the continued absence of large project work, our volume was off about 19% during the first half of this year. Blended pricing for commodity pipe and special…

Thank you. [Operator Instructions] And our first question is from the line of Charles Gold with Scott & Stringfellow. Please go ahead Charles.

Hello, Dennis and Craig. Two questions to start. First on share repurchases. I believe you had authorized a million shares and you had done, I guess, a little over $100,000 if that's correct. With the book value and please correct these numbers, a little over $10 and the tangible book, approximately $9. Would this be an activity that you would start to accelerate trading under $7?

Good Charles, will certainly be taken that up again in our board meeting next week. We've been in a close trading window war several months so. That window maybe opening later this week, but will certainly be chatting about that the use of capital in board meeting next week.

So you have to wait for that board meeting, you don't have an authorization to go ahead after let's say 48 hours.

We do have an authorization but because of the -- If the window opens is likely going to be the end of this week. And so we probably couldn't jump on it until early next week, and we got a board meeting on Thursday, we will be talking about that at the board meeting on Thursday.

Second questions about the color and please don't put too much weight on the semantics here, you'll get the idea. Has any money trains and between you and the counter party or is it due to change hands based on the activity in nickels to put some color on.

Yes, through June we had a total of under $5,000 exchange hands with two small – two of our monthly layers having closed out with a price just above the upper in of the caller. We have a market-to-market liability on the books for the with the movement up a nickel so that his callers own close out it's possible that they're going to be above that price, we've done an analysis, we're about 40% of our nickel is hedged is now that we have multiple monthly players in the books, we did not hedge the cumulative balance the inventory, it was there at 12.31 [ph], so I suspect based on our policy of doing monthly callers that 85% of our monthly purchases, that 40% number is going to be about where it's going and Charles. So as we buy and sell it about equivalent pounds each month, so while we will end up paying out as mental rises on certain layers. We've accumulated over a $1.1 million of metal gains during the year on the unhedged portion. Really offsetting tremendously the small amount of liability that we have if that if the prices do end up but the caller. So it's working we're buying insurance against the downside, not paying out much and still taking a significant advantage of the upside.

Well, I guess the good news I guess it's better for you to play out small amounts then get paid. I guess if you're receiving check so that would mean Nickel be crashing.

Yes, that's worth working and we will based our policy will be like the present the board the policy as flexible as we get to our market where the upside and downside becomes more balanced the approach and the caller level but in the end and maybe going to different methodology might be appropriate but for now we feel comfortable with what we're doing.

As Craig stated earlier to be pretty difficult to know when the upside and down side are balanced. I mean, this is a big guessing game it just looked like $3.50 down from $12, looks like at the lower end of the spectrum. And it seems like the big problem is really top line, the sales issue, sale description.

Yes, absolutely there are still softness in the in the metal segment really across all 3 segments of storage tanks, the thing with carbon pipe, and the stainless steel pipe. There's been pretty limited ordering activity and when it when it occurs it's much smaller than what we typically seen. And at this point we hadn't seen any indication that that those markets are ready to turn, on the chemicals side it's been much more. Businesses is usual kind of steady influx of activity within the ranking of the new products. We should see improved results over the next several quarters as products come online. Yes I think the chemical side analysis typically been elastic with gold in the metal side of the house and that certainly been the case this year.

Well, speaking for myself and the Shareholders who give me there strong opinions. We would love to see the company use its capital to buy shares at 20& to 25% below tangible book, we think it's the time it would be great for that so you have my boarded support on that issue and I'll turn it over to other questioners, thank you very much.

Thank you, Charles.

[Operator instructions] And we have a question from the line on Bill Dezellem with Tieton Capital. Please go ahead.

Thank you, that's Tieton Capital. A couple of questions; first of all relative to the chemicals segment; would you please discuss a little bit further the new product delays that you have experienced and now as the ramp for wind up that you are has seen? And then secondarily, I'd like to talk about the tanks business please.

Sure. On the chemical side we tried to put each of our product opportunities in different buckets. Phase four of the products that had been fully tested by our customers and our customers, customers. And the actual production has started. And those products probably cover of six or seven different categories right now. And in total when they fully ramped there's about 15 million pounds of annual volume across its products.

That 15 million pounds equates to in revenue?

Sure, well it's easier build battalion terms of volume. When you look at the pounds being shipped across both of our facilities, we're looking at about 120 million pounds, and so 15 million pounds represents a pretty sizeable bump. And I don't have the specifics to tell you which of the facilities those pounds are being allocated to, but I think it this point a fairly large percentage of them will go into the MC plant in Cleveland Tennessee, because that's where the larger product line that was taken in house departed from that facility. We think about the pounds more in terms of contribution margin. And so the contribution margin across the 15 million pounds when they're fully ramping is worth about $2.5 million last time I looked at it. As far as the timing goes though that the reason why it's not particularly easy for the chemical gas to forecast you know which monitor, which quarter that the product is going to start in. Is -- lot of it depends on the demand from our customer's customer and when they need the product. We've had a couple of issues with some raw material shortages -- I think we mentioned on the last call the lithium grease product for Lubrizol, it's been hard to get a hold of the lithium product because of all the work being done in the car battery area. But most of the difficulty in forecasting when it's going to ramp is really gets down to our customer's customer and their production schedules.

That's helpful. And you did say the contribution margin on that 15 million pounds -- is that roughly $2.5million?

That's right.

And is that a normal sort of matrix to think about it, I'm going to try to oversimplify here -- the $2.5 million on 15 million pounds is about 16.5%, dollars to pound, I realize I am mixing apples-and-oranges here, but is that a reasonable way to look at profitability of incremental business or is that just happened to be specific to this 15 million pounds?

Yes, it's going to be specific to this 15 million pounds because it is very much driven by product mix, if we for example if we take a product and we supply the raw material, we get a markup on raw material plus the tolling charge, if we simply are taking the customers provided raw material then we are going to get a tolling charge on the activity. So it really depends on the product that we are talking about.

Okay, that is fair. And then moving to the tanks business that really wasn't addressed any detail in your opening comment, can you just talk about what you are seeing there from that business, please?

Sure. I'd say that the ordering activity and the backlog activity is been pretty stable over the last several quarters. We've seen a little bit of activity pick up in terms of some new rigs coming into the Permian for our customers, obviously, we support the big guys, so if you were to look at the recent earnings release and some of the investor presentation for folks like EOG, Apache, Pioneer; all of those guys are starting to report increase rig activity. And I think a lot of that got kicked off when WTI prices moved back closer to $50 -- of course we've seen them drift back down over the last 30 days, closer to I think $43 this morning. But there has been increased activity in terms of rig count; EOG, the other day reported that they were going to increase the number of drill but uncompleted wells -- they're going to increase the number of those wells, they frac from 270 this year to 350. Those are all very pretty much in the Permian basin and EOG has historically been one of Palmer's larger customers. Apache has done some additional rigs in the Permian. They have actually got a couple of new wells that we have been asked to support that we are looking at orders between 40 and 50, 400 and 500 barrel tanks and those are going primarily into New Mexico where they have done some new work that those wells are producing at very high rates. And they had indicated even at $40 it's a pretty exciting play form. The current sea of pioneer natural resources did a presentation recently where he basically talked about the quality of the Permian Basin and the fact that that was going to be the Permian supply of growth in US oil supply over the next 10 years. So we continue to see some very positive commentary on what's going on in the Permian, we are fortunate to be in that area, we can service the Eagle Ford as well. But there is no doubt that the Permian has one of the better cost structures of any of the Shale plays in North America, and we're well positioned to support that when the turn comes.

Thank you. And Craig, I am not even sure if this next question has relevance on a solid basis. But are you seeing a difference where the drilled uncompleted wells, that the operators are looking to complete now? If they are leaning towards those where there is already infrastructure in place, meaning that maybe there are some tanks that are under-utilized, or other infrastructure that is under-utilized. Will they go and complete those wells? That's an increased activity but it doesn't do you a lot of good because they just use existing infrastructure.

That's a great question Bill. About the last time we looked at this. About two-thirds of the drilled but uncompleted wells are in areas where there are existing infrastructure. And so, typically with that we are going to sell fewer tanks than we would in a Greenfield area. What we generally see in areas that had infrastructure is instead of them purchasing on a typical tank battery, they may have two steel tanks or fiberglass tank and a couple of pressure vessels. If the infrastructures already in place they may buy only a single steel tank or typically a couple of pressure vessels, whereas in a Greenfield we get the full, we sell the full breadth of our product line in the Greenfield.

And as a result the initial docks that are completed probably aren't going to be near as vibrant in terms of your sales but as time goes on they are going to eventually work towards those that have less infrastructure.

I think that's a fair way to look at it. I would say it gets a little more complicated. If they have a, let's say they have drilled a well in the area that doesn't have infrastructure but they believe the flow rate is going to be substantially better with a well that has been drilled and an area that does have an infrastructure. Even though the costs going in maybe lower in that infrastructure play, then they actually tackle the Greenfield with the better flow rates. So, there are some other factors Bill but I think by and large your conclusion is a fair one.

Great, thank you for the detailed answers.

Thank you. And I am not showing any further questions in the queue. I will turn the call back to Craig Bram for any final remarks.

Thank you for your time today. We appreciate your continued support of the company.