Q1 2023 Ascent Industries Co. Earnings Call

[noise] good afternoon, everyone and thank you for participating in today's conference call just cause essence financial results for the first quarter ended March 31st 2023.

Today, our essence executive chairman of the board.

Then rosensweig, President and CEO , Chris Headache, CFO cycle.

Cycle and accompanies outside Investor Relations adviser Cody Cree following their remarks will open to call for your questions. Before we go further I would like to turn the call over Dakota Cree as he read the company Safe Harbor statements within the meaning of the private Securities Litigation Reform Act of 1995 that provides important <unk>.

Cautions regarding forward looking statements Cody. Please go ahead.

Thanks, Victor before we continue I'd like to remind all participants that the discussion today may contain search and forward looking statements pursuant to the safe Harbor provisions of the federal Securities laws.

[noise] statements are based on information currently available to us and our subject to various risks and uncertainties exit cause the actual results to differ materially.

Santa advises all of those listening to this call to review the latest in queue and 10-K posted on its web site for a summary of these risks and uncertainties.

Does not undertake the responsibility to update any forward looking statements.

Further the discussion today may include non-GAAP measures in accordance with the regulation G. The company's reconcile these amounts back to the closest gap base measurement reconciliations can be found in the earnings press release issued earlier today and posted on the investors section of the company's web site Saint co Dot com.

Note that this call is available for replay via webcast link that is also posted on the investors section of the company's web site. We've also uploaded and updated investor presentation to the investors section of the website, which we encourage you to view.

I'd like to turn the call over to a sense executive chairman of the board and rosenzweig been over a year.

Thank you Cody and good afternoon.

Since we were just on the phone with everyone a little over a month ago I will try to keep it brief.

On our last call. We are very clear that we expected the weakness from the fourth quarter to persist through our financial results into the first quarter.

A meaningful portion of that headwind was attributable to the exit of galvanized business and munhall, which is mostly been completed and will not have a material impact on our results moving forward.

As a refresher when we inherited our galvanized business, we knew right away that it did not fit within our long term plan for growth and profitability, mainly due to its commodity like nature and susceptibility to import competition. However, we were able to generate significant cash from the business for a short period when the global supply chain was disrupted.

Particularly the important market in demand and pricing of our galvanized products Spike in light of that we held onto the business longer than originally expected and capitalize on the positive impact of is having on our consolidated the results.

In the middle of 2022, the supply chain rebounded more rapidly than we anticipated as important as quickly became viable again, which puts significant pressure on pricing.

This negatively impacted the bottom line for our galvanized products and our munhall facility as a whole.

We've worked quickly to exit the galvanized product line will sell fulfilling our contractual obligations. We continue to evaluate strategic alternatives for that facility and inspect that as we sit here on may 9th the material negative results, we reported over the past three quarters are largely behind us.

Going forward, we anticipate our tubular product segment will begin stabilizing and the second quarter and continue to improve throughout the rest of the year.

Despite the complexities we faced in Q1 from the confluence of our galvanized wind down and fairly broad channel Destocking. We remain confident that we can produce a less volatile and more normalized earnings stream and our tubular business over the latter half of the year.

Recently, we were pleased to announce that Bill <unk> has joined the scent is our new CFO .

With his extensive experience in revitalizing and building finance organizations for both public and private companies were confident in his ability to lead our finance and accounting functions and help us drive additional operating efficiencies throughout the organization.

Over the past few years, Chris and I recognize the inherited challenges facing our tubular segment and that focused our growth and capital allocation priorities on our specialty chemicals business, which we firmly believe has the potential to be the long term growth engine percent.

Industrywide destocking trends affecting our sales base throughout the quarter, we remain optimistic about the opportunities in our pipeline and expect the headwinds to ease over the coming months.

Additionally, we believe that our efforts on our specialty chemical segment will enable us to leverage its stability and diverse asset base, allowing us to secure longer and more stable contracts and revenue streams that are less vulnerable to macroeconomic pressures.

We are excited about the growth potential in this segment and are committed to unlocking its value.

As we pursue Britain, we continue to prioritise efficiently, managing or working capital and cash flow to drive tangible value creation.

We're pleased with our progress in the first quarter as we generated over $12 million of free cash flow and will look to continue that trend over the balance of the year.

As I mentioned on prior calls we believe that M&A will play an important role in achieving our long term objectives per cent chemicals.

That said, we feel confident that our current public market valuation does not accurately reflect are more normalized earnings potential asset valuation gap persists, we will continue to aggressively utilize share buybacks within our capital allocation strategy.

Now I would like to pass the call over to Chris to provide a summary of our operations across both segments, but I'll be available again later on to answer any questions.

Over the years.

Thanks Man and thank you all for joining today's call, let's dive right into our tubular product segment on our previous call. We emphasize the importance of transparency with our stakeholders regarding both the opportunities and challenges facing our tubular product segment and.

In the first quarter, we continue to follow our established playbook, focusing on our top down approach to improving our safety culture and go to market strategy.

We have previously noted the challenges within our tubular operations are primarily related to specific sites or materials or riots from fluctuations in and use to demand from our project customers or distribution customers.

We remain highly attuned to these issues and are committed to proactively addressing them to ensure the continued success of a cent tubular.

With the impending exit of our galvanized pipe and tube operations will be eliminating a meaningful consumer over operational and financial resources that are obviously not generated an acceptable rate of return we.

We are excited about freeing up the capital and bandwidth to focus all of our resources on our higher value add more defensible product lines.

As part of data from the Metal Service Center Institute. The service Center inventories are currently near their historic lows.

As of today, we're beginning to see signs of service centers are slowly restocking their inventories from historically and back to historically normal normal levels and we expect to benefit from this reverse into a more normalized inventory level and the distribution channel overall.

Overall the markets in which are tubular second operates have remained resilient, even though uncertainty has caused some of the expected orders to be pushed a bit out of our customers are taking a wait and see approach we've.

Not really seen much in the way of order cancellation.

Some of the uptick we've seen over the past few weeks, we're optimistic that we will continue to capture these orders even if they are ultimately delayed a few months.

Now, let's turn to our specialty chemical segment.

Cause we have set over the course of several calls were confident that our specialty chemicals segment has the potential to become a significant driver of growth and profitability four cent and.

And we are fully committed to ensuring it's success.

Despite facing pressure from the continuation of last year's Industrywide Destocking in the first quarter.

We expect these trends to improve in the back half of the year when.

When it comes to our sales tunnel, we have continued to make inroads with several blue chip customers that would begin to ramp in late 2023 with full commercial scale up in 2024 pending successful trials.

Our specialty chemicals clients tend to have a longer sales cycle, but this enables us to establish long term relationships with them, resulting in consistent revenue streams.

While it may take more time to acquire new clients. We view this as a strategic investment that aligns with our company's long term vision.

<unk> profitability instability over short term growth as a tradeoff we are willing to make.

To build enduring partnerships.

We have continued to fill out our sales and customer engagement teams over the past 12 months they've been pleased with the preliminary results as our final continues to grow and we have seen an increase in overall touchpoints with both existing and prospective customers.

Overall, we are confident about our sales pipeline for the rest of 2023, and we are actively looking to expand our specialty chemicals business. While we believe M&A remains the tool for a long term objectives were exercising patience and waiting for opportunities to help us better <unk> better service, our customers and can be acquired for reasonable valuations, while we wait.

We remain focused on growing our existing business and maximizing operating income to deliver value.

One of the things that sets, our specialty chemicals business apart from other chemicals manufacturers as our scale.

That enables us to be flexible and sourcing materials filling orders and maintaining margins.

We're able to leverage our cross facility capabilities to ensure that we are the go to provider for customers seeking stability accountability and their supply chain management efforts.

Going forward.

Ultimately with full confidence in our ability to achieve sustain a profitable growth over the long term.

<unk>, we will continue to prioritize the delivery of exceptional products and services invest in technology and automation to improve efficiency perceived strategic acquisitions that align with our financial objectives.

Our dedicated team is committed to creating longterm value for stakeholders through hard work and performance driven outcomes and we remain steadfast on the right path in support of all of our stakeholders as we work through this transformational time.

There is a significant shareholder myself I strongly believe that patients in our long term vision percent. Ultimately result in significant payoff and we look forward to fulfilling those expectations.

I would like to turn the call over to our new CFO Bill cycle, we will provide a more detailed overview, our first quarter financial results.

And then I'll return to answer any questions you might have filled the floor is yours.

Okay.

Thank you, Chris and good afternoon, everyone I'd.

I'd like to briefly taking a moment to experience how excited I am to be a part of the.

Leadership team in the short in my short time, if the company, we've certainly been busy so.

But it's already clear to me how great. This opportunity really is.

We will work methodically to try and help our operators drive results in their segments.

Looking for continued deficiencies in our corporate accounting and operational practices.

Very confident that we can make steady progress will ultimately bear tangible fruit and I'm looking forward to this journey.

Now, let's jump into our financial results for the first quarter.

Net sales for $82.5 million compared to $116 $2 million in the prior year period.

The decrease is due to the intention of reduction in low margin sales at our <unk> all facility within the tubular products segment in conjunction with distributor Destocking.

Along with the sales decline within the specialty.

Segment due to industrywide Destocking trends there also.

Most profit was $4.3 million compared to $22.5 million in the first quarter of 2022.

Paul gross margin was 5.2% compared to 19.4% in the prior year period.

The decrease.

Is primarily driven by the aforementioned declines in net net sales.

As well as some minor some pressures on input and labor costs.

Net loss in the first quarter was $5.2 million or 51.

Loss per share compared to net income of $10.3 million or 99 diluted earnings per share for the first quarter of 2022.

The decline is primarily attributable to the aforementioned lower gross profit as well as higher restructuring and several severance costs.

Within the tubular product segment.

Adjusted EBITDA in the first quarter was a negative one $6 million compared to $17 million in the year ago quarter.

And adjusted EBITDA margin was a negative 1.9% compared to $14, 6% in the year ago quarter.

The decrease again is primarily attributable attributable to the aforementioned lower net sales associated primarily with our siphon tube operations.

And an increase in corporate expenses during the period, mostly associated with our year end audit activities.

Lastly, looking at our liquidity position as of March 31, 2023.

Total debt was $58.7 million compared to $71.5 million at December 31st 2022.

As of March 31, 2023, we had $50 million with borrowing capacity under our revolving credit facility.

Compared to 37 $6 million at December 31, 2022.

The first quarter of 2023, we also repurchased 32313 shares.

$4.3 million through our share repurchase program.

With that I will now turn the call back over to vicar, our operator for Q&A.

Okay.

And to ask a question. Please press star one on your telephone and wait for it to be announced to withdraw your question. Please press star one again <unk>.

<unk> with a composite kunai roster.

One moment for our first question.

Our first question comes from the line of David Siegfried as a private investor UN is open.

Hey, Thank you for taking my call.

It's been a tough six months here, but I did notice that 13, almost $13 million paid.

Lay down and that in the first quarter. So that's really good.

Is that all connected with the working capital release from Munhall or is that just.

Other sources of that cash came from.

It's a little bit of everything David a lot of that thing, it's working capital, but not all of that is associated with Munhoz brought broad based effort across the entire business to re align working capital with a more normalised level of revenue.

I think we've made some good strides on working capital and there's still some more to go but they're still another opportunity with one hall, both from continuing to.

Sell the inventory, we have there and repurpose that inventory to help us save on replenishment efforts across the other parts of the tubular business.

Got it.

Then is it fair to say that there could be more substantial paydown of debt over the next quarter or two.

Yes, I think thats background.

Okay do you have a debt level that you want to get too.

Target.

No not specifically I mean, we certainly believe that we can.

Pay down additional debt through free cash flow generation. So we want to continue doing that but it's it's not an arbitrary target I mean, we want to make sure that our working capital as efficient as it possibly can be and I think that's gonna be continuous effort and if there are opportunities for us to allocate capital in the high returning initiatives will do that but we understand where.

What are that cost is when our equity cost is and some of the other things that we can be doing with that capital.

Got it yeah that makes sense.

So.

<unk> growth right now or at declining sales environment, but you know connected with mine Hall.

Chemical slowdown, but we've seen business stabilise in second quarter in D C.

Potential growth in the near future.

Yeah, let's definitely stabilising over the course of the second quarter, we're seeing a little bit in April and hopefully more through may and continuing through June and into the summer.

Is going to be dependent on the division and dependent on the measurement period rates, if they're talking year over year versus quarterly that's different.

We were talking about specific divisions, rather than the aggregate and related is just depending right and so I think <unk>.

Skew things a little bit. So you you would be hard pressed to see growth. If you were looking at a year over year basis that was inclusive of lump hall compared to now, but if you were to exclude munhall.

And then look at it sequentially it wouldn't be parts of the business that are growing so yeah. I mean, I think we're going to try to do a better job of maybe disaggregating some of it a little bit better and that's going to be exclusive of mine hall. So people can see apples to apples comparisons but.

Yes, we're certainly targeting stabilization and return to growth.

Got it.

And then share buyback so 42000 shares brought in the first quarter I mean.

It's.

It's nice.

I think there's some that website to see maybe a more aggressive.

<unk>, so I know, there's limitations with volume of shares and things but.

There any way that you could tender for shares or increase the pace.

You buy back.

Yes, everything's on the table I think the first quarter was.

Ah confluence certain issues pertaining to.

Restrictions that we had based on a regulatory basis, partially resulting from our delay.

And getting the audit filed but now that we've returned to a more regular filing cadence I think you can see is.

Be a little bit more.

Read up and less limited and being able to continue to repurchases, obviously still within the structures.

That are laid out by the SEC, but we will continue to try to be as aggressive as possible to work within those.

Got it okay well.

Well. Thank you for the good work and and thank you for getting the.

10-Q out on time and we appreciate your work.

Thanks, David.

As a reminder that stolen for questions started one one moment for next question.

Once again, that's star one for questions.

And the next question was Super lineup, Larry Hitler as as as a private Investor Your line is open.

I have several questions. The first one pertains to market makers.

How many market makers there is there is in our stock.

I don't have that information right now.

They already but we can flag that as a follow up for Ya.

Secondly, I noticed that predominantly trades occur in small odd lots.

And rather than law trading is probably less than 10%.

<unk> that occur can you explain that to me.

Again, no I don't have that at.

At my Fingertips, that's not something that's.

That's an area that we spend a lotta time delving into but happy to.

Happy to take that issue offline and we can explore it further.

Also are there any analysts who follow our company or brokerage firms that were connected to that that Ken comment.

On the.

<unk> of our shares.

Oh, Great question I think that's something that we've worked fairly diligent on over the past few months now that we've settled in a little bit more.

Hopeful that we might have some positive announcements they are with respect to the additional brokerage firms that might be following us a little bit more closely over the coming months, but as of this moment in time, there or not.

I noticed in the in the last report to the F. C C b.

<unk> mentioned.

Mentioned that our internal controls.

We're deficient, especially with respect to financial reports inventory revenue in technology items.

How has that been addressed.

[laughter].

You want to take that one bell.

Sure well.

This is bill Larry.

CFO .

I will tell you that.

We have been very focused on getting the the 10-K filed in Q1, then I joined the company basically at the end of the quarter.

And then.

I'm, sorry, and then we.

Filed our quarterly report on time.

We have engaged with.

With affirm that we have used in the past to start working on a plan for repeating remediating those weaknesses.

It will take some time.

Those are things.

Things that we can we can immediately fixed.

One quarter.

We'll do it on a on a measured pace with a with a plan in place.

And.

That will happen over the course of this year.

And some of those are a little more complex than others and we will take some.

There is some some.

Involvement in some some systems work and obviously some procedures and people work that needs to go into that so we.

We will be turning our focus to that very significantly here now that we're through sort of this busy filing period at the start of the year.

And I would add that I.

I have a personal.

Personally been through that and one of my previous roles and we're meeting Remediating weaknesses and.

Did it very very successfully and.

Hi, I would just say that it's something that.

And we have a plan to attack.

Thank you and at this time. This concludes our question and answer session.

To turn the call back over to Mister Hunter for any closing remarks.

Thank you Victor 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 2023 results.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation have a great day.

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