Good afternoon, everyone, and thank you for participating in today’s conference call to discuss Synalloy’s financial results for the fourth quarter and full-year ended December 31, 2021. Joining us today are Synalloy’s Chairman of the Board; Ben Rosenzweig, 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.

Thanks, Alexander. Good afternoon, and thank you all for joining our conference call to discuss Synalloy’s Fourth Quarter and Full Year 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 Executive Chairman of the Board, Ben Rosenzweig. Ben?

Thank you Cody and good afternoon, everyone I’d like to start by congratulating Chris on the removal of the interim tag in his appointment as President and CEO. Speaking for the board, as well as the company’s largest shareholder, we continue to have confidence in Chris to lead the organization and felt that now is the right time to make this announcement. Chris truly brings an owner-operator mentality to the company and has done an incredible job in ensuring that this mindset permeates the rest of the executive team and flows throughout the organization. Chris and I worked very well together and the new roles are merely a formalization of what we’ve already been doing for the past year plus. I’d also like to take the time to welcome Aldo Mazzaferro to the Synalloy board. Aldo has a tremendous amount of knowledge about the steel industry and has seen it all throughout his years, covering the sector for major Wall Street banks and brokerage firms. He’ll be a fantastic resource for us as we continue to grow both organically and through acquisitions and look to amplify our story across the investment community. In the fourth quarter, we capped off a record year at Synalloy, with revenue, earnings and adjusted EBITDA all at the highest levels in the history of the company. I’m extremely pleased that we were able to achieve these results in our first full year, since embarking on our turnaround strategy. Over the course of 2021, we made tremendous strides across the organization to set this company up for sustained success. And I cannot be prouder of all of our dedicated employees that have responded so well to our rapid transformation efforts. Their hard work and actions are reflected in the strong financial results we reported this year,…

Thanks, Ben. And thank you all for joining today’s call. I’d just like to say that I’m honored by the board, continuing faith in me, and I’m proud to be a part of the incredible Synalloy team. Ben and I have been deliberate in building an organization that we can profitably scale while working to fill it with talented people who share our goals and work ethic. I’ve had the pleasure to get to know many of you personally over the past year or so. And I’m incredibly excited about what we’ll accomplish together in the future. As Ben mentioned, 2021 was a transformative year for Synalloy. We would not be in the position we are today without such heart working personnel in both segments and the leadership team that is firmly committed to executing our strategic vision. I’d like to acknowledge everyone within our organization, along with our stakeholders, for their tireless support throughout this first full year of our turnaround strategy. The momentum we’ve generated throughout the year continued in the fourth quarter as we close out the year reporting our third consecutive quarter of year-over-year growth in net sales, net income and adjusted EBITDA. Our efforts to drive operational efficiencies and better position the company commercially allowed us to further capitalize on the strong pricing environment we experienced in both segments. Additionally, our teams across the organization worked relentlessly to make timely deliveries to our customers, despite supply chain challenges and labor constraints that impacted us throughout the quarter. With that, let’s dive deeper into operational reviews of each segment, starting with metals. This segment ended the year benefiting from the continued strong demand and pricing environment. Our business development team did an excellent job capitalizing on order flow with an increase in bookings across all product…

Thank you, Chris, and good afternoon, everyone. Let’s jump right into our fourth quarter financial results. Net sales increased 71% to $95.7 million compared to $55.9 million in the prior year period. The increase was attributable to a continuation of strong commodities pricing and adjustments made to our mix in the Metals segment to better meet end market demand. It’s important to note that our net sales for the fourth quarter of 2021 included $5.7 million from the DanChem acquisition. Excluding this benefit, net sales increased approximately 61% compared to the same period last year. Gross profit increased significantly $19.9 million compared to $6.1 million in the fourth quarter of 2020. Our gross margins increased 980 basis points to 20.8% from 11.0% in the prior year period. The improvement in both gross profit and gross margin was primarily attributable to the benefit from pricing power as a result of increased customer demand along with operational efficiencies to offset higher raw material costs. Net income in the fourth quarter increased considerably to $8.1 million or $0.84 diluted earnings per share compared to a net loss of $8.6 million or $0.93 diluted loss per share for the fourth quarter of 2020. While the increase was primarily attributable to the strong net sales performance, net income for the fourth quarter of 2021 included a $0.6 million benefit from the DanChem acquisition. Note, the prior year period also had a $0.01 impact diluted loss per share as a result of the rights offering, compared to what we had previously reported. Adjusted EBITDA in the fourth quarter increase significantly to $14.9 million and adjusted EBITDA margin also improved 1010 basis points to 15.5% both compared to prior year period. Adjusted EBITDA for fourth quarter of 2021 included a $1.1 million benefit from the acquisition of DanChem. Lastly, looking at our liquidity position as of December 31, 2021, total debt was $70.4 million compared to $61.4 million at December 31, 2020 with the balance increasing due to the closing of the DanChem acquisition in October for a total purchase price of approximately $33 million. As of the end of the year, we had $39.4 million of borrowing capacity under our revolving credit facility compared to $11 million at December 31, 2020. With that, I will now turn it back over to the operator for Q&A.

Thank you, sir. [Operator Instructions] And your first question comes from the line of David Siegfried [ph]. Your line is open.

Hey, congratulations guys. Impressive results.

Thanks, David.

Thanks.

So I noticed you paid off a good chunk of the DanChem acquisition. Can that pace continue going forward with cash flow the way it is right now?

I would say our continued focus David is on working capital efficiency and improvement of our working capital throughput to pay down our revolving credit facilities. So we would expect to continue to generate cash is we convert this pricing environment into receivables and ultimately cash.

Right. And I’ll echo what I said before David is that, it’s tough to forecast and judge the business on a quarterly basis. So you look at it that way, it’s going to be tougher to maintain that linear progression. But I think if you look at it in larger chunks every 6 months to 12 months, obviously we’re happy in the direction that it’s going and we would expect that to continue.

Sure. Yes. Thank you. Now the three domestic stainless steel producers are they still being disciplined with their stainless production? I mean I know there’ll be some pricing declines in the second quarter and going forward, but is it like a decline or a collapse of pricing?

Well, I’m not sure I understand the question entirely. I can’t speak to their discipline.

All right.

We see continued strength in our order book and order volume. We are definitely operating in a very disciplined manner ourselves. So I don’t think if your question is, is there going to be flooding of market of domestic stainless pipe and tube? I don’t believe that would be the case.

Got it. Okay. How is that going from the transition from being a producer and stockpile there to just being a producer?

It’s been very welcoming for our mill operators as well as our customer base that can now count on product being delivered in a timely fashion. So when you run the business like it should be run as a mill and you booking your mills out based on a production schedule, you can now fulfill your orders based on the order RFQ or PO process versus committing to a date and then not being able to fit into a production schedule because you’re changing your production schedule consistently. So it’s becoming a much more operationally efficient business to provide consistent throughput through our facilities.

Okay. Yes. Now I noticed in the past that DanChem had a customer who contributed some capital that they used to purchase equipment and build out capacity to produce our product. Is that something that could be a roadmap to help with CapEx on the chemical side of the business going forward?

Yes, that’s a strategy we’re going to continue to implement and try to foster within the existing facilities we have – we actually have something that could be a unique opportunity, very similar to what DanChem’s implement within the Danville facility at a few of other facilities with our customer base now. So that is the strategy that John utilizes and it’s the strategy that we would adopt as a team of Synalloy.

Okay. Beautiful. One last question, with the quarter – first quarter, almost over, any comment on the first quarter, how that’s I guess you did make some comments already, but anything further?

I think I’d stick to those comments, it’s given we’re not providing guidance.

Yes. No, I was just – right, but thank you, very good, impressive results and thank you for your hard work.

Thanks, David.

Yes.

[Operator Instructions] We have your next question from a Mike Hughes with SGF Capital. Please proceed.

Good afternoon. Thanks for taking my questions. First, I wanted to start with the chemicals business. If I backup the DanChem acquisition, it looks like there’s about 300 basis points of margin erosion sequentially from the third quarter to the fourth quarter. And I assume that that you reference this as far as catching up with pricing because of the higher transportation costs and some other things. So how quickly can you recapture that and remind me what the ultimate goal for that, that business is from a margin perspective?

Well, great question. I think I’ll start off by answering the margin erosion with obviously not only logistics, but also our raw material inputs for product in the fourth quarter. We’ve made significant changes within our procurement team. John’s identified some weaknesses that we’ve since corrected and are now making modifications to make sure you don’t get behind the supply chain curve in the 2022 and going forward. So we expect to make that up during 2022. Regarding our margin profile of the business, we expected to exceed what we delivered in 2021, but we’ll not provide a specific number to the market.

Okay. But you think you can recapture the 300 basis points you lost sequentially from pricing in the core business?

Yes, I do.

That’s a goal. That’s certainly our goal.

Okay. Okay. Okay. And then moving onto the welded stainless steel pipe business, can you just speak to any issues with stainless steel availability?

Actually availability is not that challenge at the moment. It’s yet to be seen how the mill producers have any – if they have any true nickel impact to their book of business, but we have no issues getting hot roll or cold roll availability out of our domestic or foreign mills.

Okay. And the prior question alluded to a price decline, and I think you talked about maybe peak pricing in the second quarter. I just want to be clear on that. I assume all you’re alluding to there is just the alloy surcharge being a very elevated level right now and that might soften up. Is that what you’re referring to?

Yeah, that’s primarily what we’re referring to, correct. But some of our businesses outside of obviously welded stainless pipe and two, when you go into our heavy wall, which is more carbon based product, which follows more the hot roll market, more than a stainless or surcharge type market.

Okay. I mean hot roll steel has recovered because of the war in Ukraine, you’re just assuming with that comment, you’re assuming that that’s probably going to roll back over to.

Correct.

Okay. Okay. That’s fair and conservative. Second question on that business the past management team would talk about the specialty alloy aspect of that business, which was very small versus the 304 and 316 business. But the indication was the margins were like four to 5x of the 304 and the 316 business. And I think one of the drivers of that business was LNG projects. And just reading the headlines, it looks like we’re going to see significant CapEx on the LNG front starting next year and beyond, so just any thoughts on that part of your business.

I mean I would say the overall tailwind from an infrastructure bill is going to help across all capital projects from LNG to chemical plants to refinery capacity. So obviously our anticorrosion material goes into a majority of those infrastructure related projects. So we would expect to see some benefit from that.

Okay. Okay. And then…

I would say that – and then I would also add that the team we have today on the metal side as a much deeper metallurgical background than the prior management team. So I would anticipate capitalizing on more complex grades of material and our ability to produce and weld it and deliver it defect free to the market today versus years ago.

Okay. And then can you just speak to channel inventory? I’m not sure how great a handle you have on that, but any color you could kind of shed on what level of inventory the distributors are holding at this point where it is versus historical levels.

I don’t know exactly, given I’m involved in no facts of a Privet distributor that I’m involved in at the UPG side. I would say the inventory that they have are at relatively all time lows. So I think broad based if you look at the public payers, whether it be Olympic or Ryerson or Reliance, I think all of your inventories are relatively disciplined on days on hand.

Okay. And then just one more on that business, you referenced market share earlier I would assume it’s rather difficult in this business to track your share, but do you have any comments on what you think is actually happening with your market share?

I would say, I don’t think our market share is terms of the total North American market has changed much as a percentage. I think we continue to earn a greater reputation or a better reputation of delivering product on a timely basis, which is a driver of demand. And I would say given our pound shift, we are probably chipping away a little bit more of the overall market, but I don’t have exact statistics I can provide.

Okay. And then one last question for you just on the SPT business. Can you just speak to the level of the business in your Houston facility? I would assume that it’s still well off peak levels and that’s an opportunity a go forward basis.

Yeah. I think it is obviously it’s off of, the historic. So we saw, when there was significant rig and drilling, three plus years ago, but it is starting to obviously pick up with the price of crude. And we are also expanding our SKU level there to carry more of our traditional inventory to deliver it closer to our end-user base and industry base, versus just trying to supply SPT type material out of that facility.

Okay. Great. Thank you very much.

Yeah. Thank you.

We have your next question from Charles Gold with Truist. Your line is open.

Thank you very much. Congratulations. It’s a fabulous report and we appreciate your hard work. I’m very interested in non-recurring expenses and whether we continue to put things behind us, I was disappointed that Dave Siegfried didn’t ask about the earn outs going away. That’s a question that he’s asked quarter-after-quarter. So in his honor, are we near the end of earn outs for some of the acquisitions that took place a couple years ago?

Yeah, Charles, the light is at the end of the tunnel, so

It’s not another train, right?

Not another train. I think I believe Aaron, if I’m wrong, there’s two more payments. And they should be done this year.

Right. We’ve got two different earn out streams, one finishes actually here in early part of the second quarter and the other one has a last payment in July. And then we’re done.

Terrific. In the same vein you’ve had had several people leave that were – had contracts and you paid them severance or whatever was due. Is that – has that ended?

Yes.

And then acquisition costs would be, I guess another item that would be a one-time item, unless you do some more acquisitions. Is that correctly?

Yeah. The…

No, that was me Ben. Yeah. I was just going to say DanChem did not have an earn out structure, we do anticipate hopefully identifying targets that fulfill the needs and growth objectives of Synalloy and you would incur some additional, obviously acquisition costs there, but there’s nothing to announce on this call.

And are all the quarters apples-to-apple or were there any accounting changes made, because you had talked about taking the inventory aspect to make that less important. And I think earlier question had to do with that, which I guess was David’s question about producing for orders and not building inventories. So are we looking at apples-and-apples?

Yeah. On that point, Charles there’s nothing of any real material change in the fourth quarter. We are making changes in the first quarter dealing with looking at our material costs on a more of an actual cost basis as well as opposed to the way that we’ve done it in the past, just to give us more clarity the business and really help plus even refine and take advantage a lot of those price adjustments and price strategies that Chris and Ben alluded to in their opening remarks.

But to your question, Charles, everything is always going to be viewed on apples-to-apple basis. So should we make any changes in how we do things? It will be made retroactively as well for comparison purposes. So we’re not trying to make any changes to somehow artificially enhance our earnings in a way that doesn’t have the comparability. We’re really doing this in order to run the business better. We believe that if we – if we do this, it’ll help us match our pricing with our costs better. We’ll be able to generate more or sustainable in the higher level of kind of run rate revenue and cash flow. And then we’ll be able to present that to our shareholders in an apples-to-apples fashion.

Well, it’s a terrific report and thank you for your hard work. I really appreciate it.

Thanks Charles.

Yes. Thanks for the question

We have your next question from Doug Laughlin [ph]. Your line is open.

Hello. I was actually going to ask about the substantial past generation, you guys with DanChem, you talked about potential targets. Is there a particular industry or sub-industry that you’re going to be targeting going forward for your acquisitions? And then I have a follow up after that.

I mean, obviously regarding our acquisition strategy, we have our two segments, they need to fit within those segments. We’re not looking outside our segments to add businesses. It would obviously be either capability expansion, a footprint expansion or a product line expansion.

Okay, perfect. And my next question was about international, does the North American steel market kind of flow through? Does price of the international market impact the domestic market? Because I’m seeing interesting headlines about Russian pipes being offline, impacting oil and gas. Does that mean pricing will improve domestically for you guys and things like this?

Yeah, I mean, I would say obviously, pricing is dictated by the cost to produce the material, as well as any surcharge involved when I’m speaking of a stainless type pipe or tube. Obviously with international shipping, the cost to ship today is significantly different than it was two, three years ago on bringing product in via port. So there’s obviously a favored environment to produce domestically and be extremely cost competitive versus years ago. I don’t know if can answer the question about the Russian product, because ….

You guys had a amazing quarter. Thanks guys for answering my questions. Take care.

Okay. Thanks, Doug.

We have your next question, Arthur Byrnes with Deltec Asset Management. Your line is open.

Thank you. Two relatively insignificant questions. One, you mentioned labor issues in the quarter, and I don’t think anyone said anything more about that. Can you just say what that was all about shortage of labor, right?

Yeah. I mean, it’s obviously, I think every business is, this is Chris, is encountering a difficult labor environment. And we’re thankful for the hard working men and women we have, but it’s still hard to fill open positions and we have plenty of open positions to for skilled labor. So it’s a tough hiring environment, I think everywhere in North America.

Yeah. So that it’s had some impact on you.

Yeah. And then, not that we’re seeing significant COVID outbreaks, but you still have employees with lost man hours related to COVID and those related illnesses. So I believe we’re still counting on a quarterly basis, thousands of lost man hours related to unfilled vacancies or sickness.

Second question on the rights issue, you raised $10 million. Why did you need $10 million in equity as opposed to borrowing it? Did you have some balance sheet issue that you’re trying to correct or/and if you’re going to do a rights offering, why didn’t you do $30 million?

Well, that’s a great question. And this is Ben by the way.

Ben, I’m a friend of your friends.

That’s right. That’s good to hear your voice again already. So I appreciate it. I appreciate your interest. Obviously capital allocation isn’t exact science. So the best we can do is work with the information that we have, in hindsight, would we have wanted to raise maybe more, maybe less at a higher price, certainly, but we viewed $10 million with the visibility that we had at the time as a prudent use of capital because of the target leverage that we’re hoping to achieve and near-term cash flow generation that we expected. We obviously want to be acquisitive. So we do believe that we’re going to continue to make acquisitions that can be additive to our business lines and create additional value. So I would – what I would say is we’re very, very happy with our current capital position. There could be the opportunity to raise more capital further down the road. So we have a very, very good use for it. That we believe out earns its cost. And I think that there could be opportunities for that. What I will say is by doing it in the fashion that we did with the right offering, we felt as though by limiting it to existing shareholders, that it would actually be a little bit less dilutive. Also having an overallotment allocation, so people could decide to subscribe for additional shares that even though it might be a little bit dilutive to our value raising at $12.75, when we thought we were worth a little bit more, that value would stay kind of in a closed system. A closed loop among our current shareholders and hopefully still fortify our balance sheet. Should we decide to be more inquisitive than we expect.

Are you – is your balance sheet right sized at the moment?

Yes. I feel very good about our balance sheet right now.

Very good. Well, nice quarter. And you guys have done a great job, turning the ship around. Keep it up. Thank you very much.

Thanks for the question. Thank you.

At this time, this concludes our question-and-answer session. I would now like to turn the call back over it to Mr. Hutter for his closing remarks.

Thank you, Alexander. Well, we’d like to thank everyone for listening to today’s call and we look forward to speaking with you again when we report our first quarter 2022 results.

Operator?

Ladies and gentlemen, this does conclude today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.