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spk02: 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.
spk08: 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.
spk01: 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.
spk09: I noticed you moved your corporate offices to Chicago. So my question is, you know, the former corporate office in Richmond and also the manufacturing space there in Texas, that Palmer facility in and any other extra footprint that you may have, have you been able to sublease some of that to free up some of that expense?
spk02: Yeah, we've subleased a portion of our Texas facility, and our Richmond lease expires this year in a few months. So the obligation there terminates in a few months. And then we're working on, there's a little bit of space left in our Texas, the former Palmer operation that we're working on subleasing the balance of that.
spk09: Good. Okay. That new high-frequency mill that was discussed last quarter in Munhall, has that installation started yet?
spk02: Yeah, we're in the process of mapping out in the facility where it's going as well as upgrading some of the equipment that needs to go along with installing the new mill. But that is anticipated to be operational this year.
spk09: Got it. Okay. And then the automation, the investments that you've been making in your facilities, what type of payback do you expect? Like a one-year payback, or is that something that's more long-term oriented?
spk02: Some of it is shorter term, and then some of it's longer term. It depends on what we're installing or putting in place. Obviously, our preferred is the shortest possible payback is possible, but the majority of it is Two areas of focus. One is safety for our employees, taking out higher risk repetitive tasks that can be accomplished through automation, which some of those have a little bit longer payback. And the other is pure efficiency implementation of automation that has a shorter term payback.
spk09: Got it. The earn out liability, that last one, is that dropping off here in second quarter?
spk02: Aaron, I believe so.
spk08: Yes, it is. We have just remaining ASTI is no longer obligated, and all we have left are a couple of payments for Munhall. Both of them will be booked in Q2, although the last one actually from a cash standpoint won't be paid until July. Okay.
spk09: All right. Another question, you know, recently the administration has said that the infrastructure package product that needs to needs to be, that's procured through that package, needs to be American-made. So my question is, can you source enough raw material from the U.S. to, you know, to go into chemicals and your metals to meet that demand?
spk02: Yeah, that's a great question. From a supply chain, you know, we're primarily procuring hot roll and cold roll stainless steel and we have sufficient North American supply base to handle the projects that we're looking at to be awarded from a production standpoint.
spk09: Okay. Has the internal control issues been rectified yet?
spk08: We have developed a detailed remediation plan with the help of as well as our internal resources, and been mapping out what's required to make sure that we remediate all of those internal control concerns. They will be tested internally by the end of the second quarter, and then we'll begin to work with our auditor, BDO, to test those thereafter to make sure that they are fully tested and vetted by year end.
spk09: Okay, good. So it's well in hand then.
spk08: Correct.
spk09: Two other questions. With the market turmoil recently, do you think some of the market turmoil can actually maybe soften up the pricing a little bit for some of your acquisition targets and make them perhaps more attractive? I think potentially.
spk02: Potentially. I think the one thing it will definitely do is, obviously with higher interest rates going into certain buyer profiles that competed against us for deals in the past, it changes their economics and what they're willing to pay for on a multiple standpoint. But also, I think we're seeing some of the market participants from a competitive standpoint, from a bid side, you're seeing some of them fall out of the process. So, I mean, anecdotally, I've seen a couple of transactions that are coming back to market because of failed processes. So I think hopefully the deal flow does accelerate. And I think, you know, Ben and I are very involved in active discussions with potential targets. And it's significantly greater volume than it was two months ago.
spk09: Okay. Good. One last question. You did $44 million in EBITDA in 2021. 17 million adjusted EBITDA in first quarter and a market cap of 150 million. Do you think that, what do you think it will take for others to see the disconnect?
spk02: It's a great question. I wish I knew the answer. I complain about it to Ben all the time.
spk07: Yeah. I mean, David, there's no question that the stock is, is way too cheap. You know, we're, We're expecting to generate more cash over the course of the year, as Aaron said. Right now, our LTM adjusted EBITDA is north of $56 million. So we're, I guess, trading at an enterprise value to LTM adjusted EBITDA of about four times with a pretty conservative leverage profile, about one and a quarter times. So we're feeling really good about what we've done. We've done everything that we feel like we said we were going to do and hopefully more. And now it's on us, right? We can't just sit here and wait for people to recognize it. We're going to go out and spread the gospel. We feel like we've been unfairly characterized as potentially maybe a metals company. Chris and I talk about this all the time. We're a manufacturing company. We've got a great presence in specialty chemicals. We're providing value-add solutions on the pipe and tube side with commodity inputs and that are very unique, and a pricing and solution provider that is, you know, has an amazing reputation. So, you know, we feel like there aren't maybe a ton of pure play pipe tube or metals manufacturing peers that are out there, but we do feel the valuation is especially punitive, and even more so potentially on the specialty chemicals side.
spk09: Yeah. Well, I see you have a conference, what, Sedota Conference, Thursday, I believe, or Wednesday. So I suppose that will help get some transparency and get the word out there. Well, thank you, guys. Great quarter. Excellent quarter. Good talking with you.
spk10: Thanks, David.
spk09: Thanks.
spk01: And just as a reminder, if you'd like to enter the queue, please press 01 on your touchtone phone. Again, that's 01 to enter the queue to ask a question. And currently we have no questions. This concludes our question and answer session. I'll now turn the call back over to Mr. Hutter for closing remarks.
spk02: Thank you, Adrienne. 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 second quarter 2022 results.
spk01: Thank you, ladies and gentlemen. This concludes today's conference call. Thank you for participating. And if you now disconnect, speakers, please stand by for your post. you Thank you. Thank you. Bye. I'm you Good afternoon, everyone, and thank you for participating in today's conference call to discuss Sinaloa's financial results for the first quarter ended March 31, 2022. Joining us today are Sinaloa's Executive Chairman of the Board, Ben Rosenweg, President and CEO, Chris Hutter, CFO, Aaron Tam, and the company's Outside Investor Relations Advisor, Cody Cree. Following their remarks, we'll open your calls for your questions. Before we go further, I'd like to turn the call over to Mr. Crete as he reads this company's safe harbor statement within the meaning of the Private Securities Allegation Reform Act of 1995 that provides important cautions regarding forward-looking statements. Cody, please go ahead.
spk04: Thanks, Adrienne. Before we continue, I'd 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 law. 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. Sinaloa advises all of those listening to this call to review the latest 10Q and 10K posted on its website for a summary of these risks and uncertainties. Sinaloa 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 gap-based measurement. The reconciliations can be found in the earnings press release issued earlier today and posted on the investor section of the company's website at Sinaloa.com. Please note that this call is available for replay via webcast link that is also posted on the investor section of the company's website. With that, I'd like to turn the call over to Sinaloa's Executive Chairman of the Board, Ben Rosenzweig. Ben, over to you.
spk07: Thank you, Cody, and good afternoon, everyone. Sinaloa had a very strong start to 2022, leading to our fourth consecutive quarter of year-over-year growth and second consecutive quarter of record results for revenue, net income, and adjusted EBITDA. We're very pleased that our dedicated employees are able to see the fruits of their labor manifest in our record results. They worked tirelessly to set this company up for sustained success and continue to transform Sinaloa and to the premier provider of pipe, tube, and specialty chemical solutions. Throughout the quarter, we capitalized on a favorable pricing environment due to the significant progress we've made in our operations since the start of our turnaround. This market dynamic drove higher than expected margins and allowed us to benefit at a much greater rate from the continued elevated demand we experienced. We believe we can continue to improve productivity, but I am pleased with our efforts in enhancing our sales and operations planning to unlock greater efficiency within our platform. A prime example of this has been our efforts across both divisions to break down prior silos and operate as one cohesive unit. We've made meaningful progress in manufacturing and selling certain products across multiple sites in order to better control costs and improve lead times. And I wanted to take a moment to commend Tim and John for the one team unified mentality that they bring to their respective organizations. ensuring that we fully capitalize on our broad manufacturing and distribution capabilities to become a full-service solutions provider for our customers. Providing solutions will always prove more durable and profitable than just selling products. Our finance team continues to focus on monitoring the pricing environment and developing better ways to refine our pricing adjustments in real time. We continue to prioritize investments that automate our forecasting processes, allowing us to reallocate resources to growth-related pursuits. As you may remember, we made substantial progress updating our inventory accounting system beginning in January. We've already seen the benefits of doing so, as our operators now have better insight into their costs, enabling them to make more informed pricing and production decisions. Further to improving our decision-making, we've identified multiple lessons learned from the integration of DanCam that we plan to leverage for future acquisitions. We remain opportunistic in our M&A strategy, and have found several potential prospects that we believe could be additive to our growth plans. We'll continue to be disciplined with how we allocate our capital and look to focus on both organic and inorganic growth. We have ample liquidity available and plan to continuously assess what offers our shareholders the highest return on incremental capital deployed. We're cognizant of the tailwinds that have helped us achieve our record results. We remain focused on capitalizing on the market conditions while prioritizing longer-term initiatives like diversifying our revenue streams in both segments, continuously improving core operational efficiencies through automation and disciplined process control levers, as well as developing best-in-class commercial and consumer excellence to retain our loyal customers and further cement ourselves as a premier solution provider. The work that we've been performing these past 18 months has revolved around building a company that can withstand the inevitability of cyclical pricing environments. We feel good with where we sit today, but there's certainly more work ahead to drive long-term value for our shareholders. Now, I'd like to pass the call over to Chris to provide greater details on our operations across both segments, but I'll be available later on to answer any questions. Chris, over to you.
spk02: Thanks, Ben, and thank you all for joining today's call. Like Ben said, we continued our momentum and capitalized on the strong market environment to drive our record results for this quarter. Let's start by discussing our metals segment. While the entire supply chain experienced higher material costs, we worked with our customers to pass through the increased indirect expenses, often realizing a greater contribution margin on those incremental sales taking place at higher prices. With our improved delivery timelines, reliability, and overall product quality, our hope is that we can provide some level of differentiation so that pricing becomes stickier even as the macro environment normalizes. We've previously discussed several initiatives that we were working on that will help position this segment for long-term success. We maintain our focus on improving manufacturing efficiency and prudent cost control procedures, which includes finding favorable material costing in our supply chain, investing in new technologies and automation upgrades, and having disciplined inventory management systems. Also with our capacity growing each day, we have and will continue to invest in our sales and business development teams to go out into the market and secure orders from large blue chip customers in the space. We anticipate materials, Material pricing may begin to normalize for the second half of 2022, and we have made good progress in our deliberate shift from producing to stock to producing for specific orders. We are optimistic that moving toward a manufacturing model where we do not even begin to order certain materials 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 Dankem, 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 Danchem 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.
spk08: 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 99 cents diluted earnings per share compared to net income of 1.1 million or 12 cents 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 An 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.
spk01: 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. We're standing by for questions. And our first question is from David Siegfried.
spk09: I noticed you moved your corporate offices to Chicago. So my question is, you know, the former corporate office in Richmond and also the manufacturing space there in Texas, that Palmer facility in and any other extra footprint that you may have, have you been able to sublease some of that to free up some of that expense?
spk02: Yeah, we've subleased a portion of our Texas facility, and our Richmond lease expires this year in a few months. So the obligation there terminates in a few months. And then we're working on, there's a little bit of space left in our Texas, the former Palmer operation that we're working on subleasing the balance of that.
spk09: Good. Okay. That new high-frequency mill that was discussed last quarter in Munhall, has that installation started yet?
spk02: Yeah, we're in the process of mapping out in the facility where it's going as well as upgrading some of the equipment that needs to go along with installing the new mill. But that is anticipated to be operational this year.
spk09: Got it. Okay. And then the automation, the investments that you've been making in your facilities, what type of payback do you expect? Like a one-year payback, or is that something that's more long-term oriented?
spk02: Some of it is shorter term, and then some of it's longer term. It depends on what we're installing or putting in place. Obviously, our preferred is the shortest possible payback is possible, but the majority of it is Two areas of focus. One is safety for our employees, taking out higher-risk repetitive tasks that can be accomplished through automation, which some of those have a little bit longer payback. And the other is pure efficiency implementation of automation that has a shorter-term payback.
spk09: Got it. The earn-out liability, that last one, is that dropping off here in second quarter?
spk02: Aaron, I believe so.
spk08: Yes, it is. We have just remaining, ASTI is no longer obligated, and all we have left are a couple of payments for Munhall. Both of them will be booked in Q2, although the last one actually from a cash standpoint won't be paid until July. Okay.
spk09: All right. Another question, you know, recently the administration has said that the infrastructure package product that needs to needs to be, that's procured through that package, needs to be American-made. So my question is, can you source enough raw material from the U.S. to, you know, to go into chemicals and your metals to meet that demand?
spk02: Yeah, that's a great question. From a supply chain, you know, we're primarily procuring hot roll and cold roll stainless steel. and we have sufficient North American supply base to handle the projects that we're looking at to be awarded from a production standpoint.
spk09: Okay. Has the internal control issues been rectified yet?
spk08: We have developed a detailed remediation plan with the help of as well as our internal resources, and been mapping out what's required to make sure that we remediate all of those internal control concerns. They will be tested internally by the end of the second quarter, and then we'll begin to work with our auditor, BDO, to test those thereafter to make sure that they are fully tested and vetted by year end.
spk09: Okay, good. So it's well in hand then.
spk08: Correct.
spk09: Two other questions. So with the market turmoil recently, do you think some of the market turmoil can actually maybe soften up the pricing a little bit for some of your acquisition targets and make them perhaps more attractive?
spk02: I think potentially, yeah. I think the one thing it will definitely do is, obviously with higher interest rates going into certain buyer profiles that competed against us for deals in the past, it changes their economics and what they're willing to pay for on a multiple standpoint. But also, I think we're seeing some of the market participants from a competitive standpoint, from a bid side, you're seeing some of them fall out of the process. So, I mean, anecdotally, I've seen a couple of transactions that are coming back to market because of failed processes. So I think hopefully the deal flow does accelerate. And I think, you know, Ben and I are very involved in active discussions with potential targets. And it's significantly greater volume than it was two months ago.
spk09: Okay, good. One last question. You did $44 million in EBITDA in 2021. 17 million adjusted EBITDA in first quarter and a market cap of 150 million. Do you think that, what do you think it will take for others to see the disconnect?
spk02: It's a great question. I wish I knew the answer. I complain about it to Ben all the time.
spk07: Yeah. I mean, David, there's no question that the stock is, is way too cheap. You know, we're, We're expecting to generate more cash over the course of the year, as Aaron said. Right now, our LTM adjusted EBITDA is north of $56 million. So we're, I guess, trading at an enterprise value to LTM adjusted EBITDA of about four times with a pretty conservative leverage profile, about one and a quarter times. So we're feeling really good about what we've done. We've done everything that we feel like we said we were going to do and hopefully more. And now it's on us, right? We can't just sit here and wait for people to recognize it. We're going to go out and spread the gospel. We feel like we've been unfairly characterized as potentially maybe a metals company. Chris and I talk about this all the time. We're a manufacturing company. We've got a great presence in specialty chemicals. We're providing value-add solutions on the pipe and tube side with commodity inputs and that are very unique, and a pricing and solution provider that is, you know, has an amazing reputation. So, you know, we feel like there aren't maybe a ton of pure play pipe tube or metals manufacturing peers that are out there, but we do feel the valuation is especially punitive, and even more so potentially on the specialty chemicals side.
spk09: Yeah. Well, I see you have a conference, what, Sedota Conference, Thursday, I believe, or Wednesday. So I suppose that will help get some transparency and get the word out there. Well, thank you, guys. Great quarter. Excellent quarter. Good talking with you.
spk10: Thanks, David. Appreciate it. Thanks.
spk01: And just as a reminder, if you'd like to enter the queue, please press 01 on your touchtone phone. Again, that's 01 to enter the queue to ask a question. And currently we have no questions. This concludes our question and answer session. I'll now turn the call back over to Mr. Hutter for closing remarks.
spk02: Thank you, Adrienne. 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 second quarter 2022 results.
spk01: Thank you, ladies and gentlemen. This concludes today's conference call. Thank you for participating. And we now disconnect. Speakers, please stand by for your posts.
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