Synalloy Corporation

until the booking is in hand will help us to remove certain portions of the earnings risk that come with a volatile raw material pricing environment. Obviously, that shift cannot be successful unless we are dialed in with our sales and operations planning so we can effectively manage our production costs along the way, even if we are not operating at full capacity. So far, we're very pleased with the efforts of Clint Skipper, who is leading the operational execution for Tim's team, and we think the best is still to come. Throughout the quarter, we have also been thoughtful about strengthening our supply chain by broadening and diversifying our supplier base as we look to mitigate potential disruptions. We hope to continue to wield our increased purchasing power to drive favorable volume discounts and procurement rebates. We absolutely believe there are more opportunities for cost savings in our supply chain, and we will continue to aggressively pursue them. Technology and automation are also an area that we continue to invest in that will allow us to drive better operational margins. At our North Carolina facility, we have developed a roadmap that will guide us towards ramping automation to increase our operational margins. I expect we will see the additional benefits of reduced labor and overhead expenses slowly roll through towards the end of the year and into next. Given our current assets were assembled in a bit of a piecemeal fashion, we believe there will always be future opportunities for targeted technological and automated improvements if we are willing to get creative and aggressive. As Ben stated earlier, We are pursuing a high-growth strategy for this segment, and we invested heavily in our sales personnel over the past few quarters. Our overall capacity is improving, and in conjunction, our expanded sales team has seen encouraging results. Our business development efforts in this quarter resulted in over 120 new customers, and we expect to continue organically growing this number. I am proud of the progress we've made in our metal segment in the quarter. We made key foundational changes that have allowed us to take advantage of an attractive market to maintain the upward trajectory that we are on. Moving into our chemicals business, we continue to execute on our initiatives by improving our overall capacity and optimizing our processes to drive growth, increase profitability, and enhance our operational resiliency. Much like the metal segment, alongside rising costs and material labor, we made competitive price increases and achieved higher margins as a result. We drove higher year-over-year sales at all three sites while continuing to invest in our operations. Through this, we are prioritizing an organizational structure that can promote our high-growth mindset and set up our company for long-term success. While we are experiencing higher headcount costs in the near term, these additions are necessary and congruent with our expansionary efforts, and we anticipate will ultimately lead to robust pipeline opportunities, additional operational efficiency, and increased margins. Under John's leadership, we are investing in our engineering and process development team by adding process engineers to our South Carolina and Tennessee facilities. We are going to be utilizing a 24-7 work cycle in Tennessee to handle the increased volume. Our engineers will ensure that we maintain our growth mindset as we look to actively court our existing customers in order to win new programs. Our Virginia plant, which we acquired through Danchem, has been at the forefront of our engineering efforts, and we've been able to exploit our other sites in order to grow the overall pie for the entire division. Lastly, we have made meaningful changes to our South Carolina site, transforming our go-to-market strategy away from tolling and towards contract manufacturing. With our focus on scaling of this site's hot oil and reactor capabilities, we are already winning new specialty manufacturing business at a significantly improved margin. Our sales team has worked tirelessly to build out a vastly improved sales pipeline and we expect a strong ramp up in the coming quarters and years. We are continuously investing in our sales ecosystem and plan to enhance our team throughout the rest of the year. We expect to be aggressive in pursuing opportunities in the future through leveraging the scale of our footprint, diverse equipment base, and superior service by our dedicated team to manufacture our customers' complex chemistries. As the market continues to realize we are dedicated to quality, service, and safety, Our chemicals team is truly proving they are the go-to solution provider in the specialty chemical space. Our DANCOM acquisition continues to exceed our expectations. We are driving growth through our increased capacity and have utilized the team's expertise to develop higher value-added products. An improved product mix is going to be essential in driving our margins through a normalized pricing environment. We continue to look for any and all opportunities to expand our overall capacity and have identified areas to upgrade our legacy equipment to operate in line with our automation efforts. With the success of DanChem, we remain committed to reviewing potential acquisition opportunities that would complement our existing operations in the chemical segment. We believe we have vetted vision for value creation through our platform, and we will continue to be opportunistic pursuing our M&A strategy. There is still much work to be done, but with a strong foundation in place, we are excited for what the future holds for chemicals. Overall, in both segments, we are proud of the record results we experienced. While we enjoyed our accomplishments for the past quarter, we will remain active in executing our strategy to position this company for long-term success. With our core operations solidifying every quarter, our company is poised to become the premier provider that we set out at the start of our transformation. I'd now like to turn it over to our CFO, Aaron Tam, to walk through our first quarter financial results in more detail. Then I'll return to answer any questions you may have. Aaron, the floor is yours.

Thank you, Chris, and good afternoon, everyone. Let's jump right into our first quarter financial results. Net sales increased significantly to $116.2 million compared to $69.8 million in the prior year period. The increase was primarily attributable to continued strong demand and increased input prices, which drove favorable average selling prices. Also, it's important to note that our net sales included $7.5 million in Danchem sales that obviously weren't there in the prior year period. Gross profit increased significantly to $22.5 million compared to $8.7 million in the first quarter of 2021, while gross margin increased 690 basis points to 19.4% from 12.5% in the prior year period. The improvement in both gross profit and gross margin was primarily attributable to the aforementioned strong pricing environment, partially offset by increased raw material and freight costs. Net income in the first quarter increased considerably to $10.3 million, or $0.99 diluted earnings per share, compared to net income of $1.1 million, or $0.12 diluted earnings per share for the first quarter of 2021. The increase was primarily driven by record revenue and gross profit results, partially offset by increased SG&A spending from the hiring of additional sales and operational personnel in both segments. Adjusted EBITDA in the first quarter increased significantly to $17 million, from 4.9 million a year ago quarter, and adjusted EBITDA margin also improved 760 basis points to 14.6% from 7% in the year ago quarter. For reference, Dan Ken contributed 0.8 million in adjusted EBITDA for the first quarter of 2022. Lastly, looking at our liquidity position as of March 31st, 2022, the total debt was 71.1 million compared to 70.4 million at December 31st, 2021, As of March 31st, 2022, we had $38.6 million of borrowing capacity under our revolving credit facility compared to $39.4 million at December 31st, 2021. As you can see, we invested heavily in our working capital to support our strong sales demand. Even with these investments, we were still right about cash flow neutral for the quarter. I'd expect free cash flow to accelerate over the balance of the year in the event pricing normalizes to some extent. With that now, I'll turn it back over to the operator, Adrian, for Q&A.

Thank you, sir. We'll now begin the question and answer session. If you have a question, please press 01 on your touch-tone phone. If you wish to be removed from the queue, please press 02. If you're using a speakerphone, you may need to pick up the handset first before pressing the numbers. Once again, if you have a question, please press 01 on your touch-tone phone. Are you standing by for questions? And our first question is from David Siegfried.