Ascent Industries Co (ACNT) 2015 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Synalloy first-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 that time.

(Operator Instructions).

I would now like to introduce your host for today's conference, Craig Bram, President and CEO.

Sir, you may begin.

Good morning, everyone.

Welcome to Synalloy Corporation's first-quarter 2015 conference call.

With me today is Rick Sieradzki, our CFO.

We are off to a reasonably good start to 2015 and are cautiously optimistic as we look out to the second quarter and beyond.

Nickel and oil prices, while under considerable pressure from most of the first quarter, appear to be finding a bottom.

Consensus opinions suggest that we should see some improvement in commodity prices from here.

While our revenue targets were not achieved during the first quarter, we did manage to improve our gross margins and EBITDA margins over the prior year.

Favorable product mix and tight control over costs made this possible.

In comparing this year's financial performance to last year, last year's results will be for continuing operations only.

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

We believe the two non-GAAP measures will provide additional clarity on the performance of our respective businesses.

First-quarter GAAP-based earnings were $3.64 million or $0.42 per share as compared with earnings of $2.25 million or $0.26 per share in the first quarter of 2014.

First-quarter non-GAAP adjusted net income was $2.93 million or $0.34 per share, up 8% as compared with adjusted net income of $2.72 million or $0.31 per share in the first quarter of last year.

With nickel prices falling by over 13% in Q1, inventory losses at BRISMET totaled $1.03 million in the quarter.

Specialty's inventory was adjusted downward by a total of $190,000.

While inventory at Specialty that is over three years old is regularly sold during the course of business, for accounting purposes we accrue for obsolete inventory once the aging exceeds three years.

First-quarter non-GAAP adjusted EBITDA totaled $6.75 million or $0.77 per share, an increase of 16% over the prior year's total of $5.81 million or $0.67 per share.

Gross margin in Q1 was $8.95 million or 17.3% of revenue, up from $7.74 million or 15.5% of revenue in the first quarter of last year.

The combined adjusted EBITDA margin for the operating businesses in the first quarter was 14.8%, up from 13.4% for all of 2014.

This excludes the parent company cost.

Term debt at the end of the first quarter totaled $29.6 million, while the line of credit was $15.27 million.

Borrowings against the line of credit in Q1 reflect the raw material purchases to support the BRISMET order book and the delivery of pipe products to Specialty, following acquisition late last year.

These borrowings will decline as the finished pipe is delivered and paid for by the metals customers.

Moving on to the business unit summary, Manufacturers Chemical sales in Q1 were off 5% from the prior year, primarily due to the timing of large shipments that occurred last March.

Gross margin and EBITDA percentages improved by 20 basis points quarter-over-quarter.

New business opportunities in the next three quarters should provide an excess of 7 million pounds of finished product, allowing MC to achieve its targeted results for the remainder of 2015.

Moving over to CRI Tolling, sales in Q1 were up 33% over the prior year.

In January and February, our expenses ramped up very quickly as we added production staff to support our increased business activity.

Productivity in the first two months of the quarter was below target, but we settled into a sweet spot in March.

March shipments exceeded 4 million pounds, and operating profits and EBITDA exceeded our goals by a healthy margin.

EBITDA at CRI in March alone was 42% of total EBITDA achieved for all of 2014.

We anticipate strong performance from CRI through the remainder of 2015.

Looking at BRISMET, sales in the first quarter were down 10% over the prior year, due almost entirely to lower prices, but product mix was excellent as we shipped a greater percentage of large-OD project pipe.

Adjusted EBITDA nearly matched last year's strong first quarter, and EBITDA margins this year actually improved 120 basis points over last quarter.

Orders for commodity pipe in Q1 were soft, due to falling nickel prices and increased import activity, primarily from India.

We need to see a rebound in nickel prices to encourage more stock buys of commodity pipe from our distributor customers.

We had seen some inquiries in recent weeks for stock buys, and have also been quoting add-on inquiries for the larger-OD projects that were booked the latter part of last year.

Special alloy bookings have also picked up in April.

At this point, BRISMET's mix in Q2 should be as favorable as their shipments in Q1.

Moving over to Palmer, revenue in Q1 was down about 20% from the same quarter last year, while the backlog declined by 10% year-over-year.

EBITDA was down 50%-plus over the first quarter of last year, with EBITDA margins falling to approximately 8% of revenue.

January and February had lost shipping days due to weather, but we finally had a full month of shipping days in March, and produced excellent results.

We anticipate bookings and revenue in Q2 to be similar to Q1.

It is estimated that there are upwards of 3,000 uncompleted wells in Palmer's general service area.

As WTI prices approach $55 to $60 per barrel, where they happen to be this morning, we expect these wells to be targeted for completion.

Completion of these wells will result in additional tank and vessel orders in the future.

Palmer has had some recent success in landing new customers, both inside and outside the oil and gas sector.

As mentioned in the earnings release, we did eliminate the contingent earnout liability for Palmer as we no longer expect the business to earn the targeted EBITDA required to achieve the final earnout payment to the former owners.

Finally, Specialty Pipe & Tube -- Specialty Ohio, which caters to the industrial markets, had an excellent first quarter and continues to see strong order activity in April.

Specialty Houston, which supplies primarily upstream oil and gas markets, saw order activity decline as the first quarter progressed, and order activity has been particularly weak in April.

Distributor customers catering to the oil and gas market are keeping inventory levels extremely low at this point.

That being said, margins held up nicely in the first quarter, with EBITDA in line with targets and easily the best in the company.

Before getting into questions, I remind you that this year's annual meeting will be held on May 13 in Richmond, Virginia.

We look forward to seeing all of you.

Let's go ahead and open up the floor to questions.

(Operator Instructions) Todd Vencil, Sterne Agee.

Couple of things.

First of all, you mentioned imports from India.

That is a new one.

Can you talk a little bit about what the trend line looks like there?

Yes, Todd, the imports from India started picking up about the latter part of last year.

They have continued to grow.

We are assessing, along with the outside counsel we used, to look at the timing of dumping charges.

We are assessing that now.

We have not made the decision, at this point, to move forward.

And when I say we, I am talking about all of the domestic manufacturers, the other three parties.

But we are continuing to keep an eye on that.

And if it continues to pick up in activity, it is likely that in the second half of this year we would pursue a dumping charge against certainly India and possibly South Korea.

Got it.

What is the magnitude of the dumping that is going on from India and South Korea, relative to what was going on from southeast Asia a couple of years ago?

It has not reached that level yet.

But we are continuing to keep an eye on it.

And there is a lot of factors that go into whether or not it makes sense to pursue charges.

And certainly the primary consideration is whether or not they are selling metal over here below our raw material cost.

So we are keeping a very close eye on that right now.

Got it.

You mentioned in the release they have got a lot of large-diameter, especially in alloy projects in the pipeline at BRISMET.

Can you talk about -- I am guessing that energy-specific projects are not particularly strong.

But can you talk about various end markets, and where the strengths and the weaknesses are?

As far as the large project -- the OD projects -- go right now, it is coming from multiple industries.

We have got several projects that involve breweries.

We have got a couple of projects that involve mining.

We have got some petrochemical projects, and we have got an ammonia project.

So it really is touching multiple industries.

And, as I said in the earlier comments, we are starting to see add-on inquiries to those projects that we have booked in November and December of last year.

You may recall that the bookings for BRISMET in that time period were over $30 million.

So that is kind of feeding the product mix for us right now.

And it is good to see those add-on inquiries coming in as well.

Good.

That is excellent.

Pulling out the telescope a little bit, you had some comments on the last call with regard to what you thought the impact on your prior guidance could be from lower oil prices.

How are we shaping up, relative to what you originally thought, how bad you thought it could get?

Kind of help us figure out where we are on that spectrum.

And if you want to go ahead and update your outlook for the year, that wouldn't hurt my feelings.

Well, let me say this.

I think we have very good visibility through Q2.

And we like what we see there.

The project work is robust.

The margins on that are very solid.

If we could get some pickup on the nickel price front, I see it is back over $6 a pound this morning.

If we can see some pickup there, then I think we will see some stock buying going on from our BRISMET customers.

The Palmer and the SPT Houston activity is about in the range of what we expected it to be at this point.

If I were betting on the forecast for this year, I am still looking at something in the neighborhood of $27 million to $28 million in adjusted EBITDA for the year.

And depending on the impact of some of those non-cash items, you are still probably in the neighborhood of $1.40 to $1.45 a share, would be my best estimate right now; based on what we know, based on what we are seeing in the order book.

That's perfect.

Thanks so much.

(Operator Instructions) Nick Prendergast, BB&T.

Maybe to piggyback a little bit on Todd's question here, just about the guidance.

What you gave is great.

Just wondering, are you still looking at around $232 million on the top line?

If the current order book -- the activity we have seen in Q1 were to play out for the rest of the year, we are certainly not going to hit that $230 million number.

But our margins, as we demonstrated in Q1, I think will be stronger than what we'd projected just because of the product mix.

But, I would suspect at this point that the top line, absent any acquisitions, is going to be closer to the $210 million, $215 million level.

Much of that will depend on how quickly we can continue to ramp CRI.

CRI, we were scrambling in January and February to add production staff.

We have about the right size production group right now.

And, in March, frankly, we killed it.

We really put pounds through the facility and did extremely well.

We have got a good forecasted pounds load for CRI, certainly out into the fall.

And we are hopeful that the bio-based project is going to expand again.

You may recall, we put in two reactors for that project and two mix tanks as well as a tank farm.

We're looking at adding some additional tank storage to the tank farm.

And when we built that space out, we made it possible for those mix tanks to be converted to reactors.

And we are hopeful that by the end of the year, we are going to need to do that.

So a lot will depend on the ramp from a revenue standpoint at CRI.

And really what happens with commodity pipe at BRISMET, if nickel prices start moving up and the stock buys pick up, then we could pick up some revenue out of that business unit as well.

Got it.

And, just briefly, I think you had said this when we were talking about the large-diameter projects.

I think you had said you saw some strength in mining.

Did I hear that correctly?

Yes.

We have got two projects on the mining front right now that we are doing.

One is a Freeport-McMoRan project.

The brewery projects involve Corona.

And, again, some ammonia and petrochemical plants that are really being driven by low net gas prices.

Got it.

Okay.

Well, that is it for me.

Thanks.

I'm showing no further questions.

I would like to turn the call back to Craig Bram for closing remarks.

Thanks, Amanda.

I appreciate everybody's time today.

We continue to be excited about the direction of the Company, and wish everybody the best.

Thank you.

Ladies and gentlemen, thank you for participating in today's conference.

This does conclude today's program.

You may all disconnect.

Everyone, have a great day.