Q2 2023 Ascent Industries Co Earnings Call
Good afternoon, everyone for participating in today's conference call to discuss a sense financial adult for the second quarter ended June 30th 2000 twenty-three joining.
Joining us today are so it's executive chairman of the board.
N Roses, whack, President and CEO , Chris Heather CFO , Bill cycle, and the companies outside of Investor Relations adviser Cody Creek.
Following the air Marshal opened the call for your questions before.
Before we go further I would like to turn the call over to Cody Cree as he reached the company's safe Harbor statement within the meetings of the private security something like a short form act of 1995 that provides important causes regarding forward looking statements Cody. Please go ahead.
Thanks, Michelle 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 laws. These statements are based on information currently available to us are subject to various risks and uncertainties that could cause actual results to differ materially.
Senator advisers all of those listening to this call to review the latest 10-Q and 10-K posted on its web site for a summary of these risks and uncertainties.
<unk> does not a cent does not.
Take the responsibility to update any forward looking statements further the discussion today may include non-GAAP measures in accordance with regulation G. The company is reconcile these amounts back to the closest gap based measurement.
Reconciliations can be found in their earnings press release issued earlier today and posted on the investors section the company's web site at.
Saint co Dot com.
Please note that this call is available for replay V. A webcast link that is also posted on the investors section of the company's web site.
We have also uploaded and updated presentation to the investors section of the website, which we encourage you to view.
With that I'd like to turn the call over to a sense executive chairman of the board <unk> been over to you.
Thank you Cody and good afternoon, everyone.
During our last few earnings calls we've been transparent about the issues, we faced as an organization and the expected softness within our tubular product segment as we transition out of the manhole facility.
While this transition has been more of a drag on our business and originally anticipated macro headwinds and execution issues across many of our end markets and both segments has simultaneously affected our consolidated results more than we originally anticipated.
Speaking on behalf of our board and senior leadership team. We do not do you are current performance as acceptable and are working hard to take immediate corrective action.
That said I am pleased that during the second quarter, we made a strong push in her efforts to finalize the permanent closure of her munhall operations, which we expect to be fully shut down by the end of August as of today. There is very little laugh at Munhall, which is why we have moved into discontinued operations and are now showing the core business as it will be going for.
<unk> as well as in prior periods to enable a proper comparison.
The process of that <unk> has involved a lot of moving parts, including finishing production upon hall transitioning the remaining volume and evaluating the movement of certain mill sore facility at Bristol.
All of this is unquestionably been a distraction for our ability to execute on the core business, but it had to be done in order to remove the unnecessary volatility from our business that came from a product line outside of our core area of differentiation.
We are pleased to be moving on from this legacy element of the business and expect this will have a longterm effect stabilizing our tubular segment with a focus on higher margin more defensible product lines.
More broadly we still be with that chemicals is one of the longterm growth engines for a company, although macro volatility has made sales cycles, even longer than typical our team has been hard at work building relationships and expanding our pipeline.
As you may have seen in the 8-K, we filed over a month ago, we parted ways with our head of our segment.
This was an amicable parting can we feel very confident in who will be bringing on to next leave that segment. So stay tuned.
We're very focused on empowering leadership to further scale, the chemical segment and unlock the embedded growth and profitability potential or company is there over the coming years.
Despite all the challenges we face in Q2, we continued to focus on close to managing or working capital, we were able to generate cash pay down debt meaningfully clean up our accounts receivable and repurchase shares as aggressively as possible.
So far 2023, we repurchased over 50000 chairs and our top capital allocation priority remains continuing to buy back stock given where our price is today.
During the second quarter, we authorize the 10 B five repurchase plan you have effectively been repurchasing stock in the open market every single day.
Although we are constantly evaluating additional strategies the further deliver value to shareholders. We strongly believe this is a very attractive use of capital right now.
Based on the visibility we continue to gain in our future performance now that we've streamlined operations, we expect to remain active repurchases of our stock and the board is open to all alternatives to more aggressively repurchase our shares if the stock continues to trade at these levels are even lower.
No not ideal we firmly believe the short term impacts that come with the changes we're making today are the right moves for the business and the longterm.
We believe the largest of hurdles are now behind us and we anticipate seeing improvements in a consolidated results beginning next quarter than having more of a positive impact in Q4 and beyond.
We appreciate the patient shipper shareholders as you work through these challenges is that our business on the right course to ultimately deliver significant shareholder value.
Our leadership team remains highly line with the interests of our shareholders and we continue to believe in our ability to execute the longterm goals, we've set for ourselves.
Now I'd like to pass the call over to Chris to provide more details on our operational performance and both segments and I'll be back to answer any questions. During the Q and a portion crisp over to you.
Thanks, Ben and thank you all for joining today's call jumping right into our tubes of our products segment has been mentioned we are pleased to be moving on from our galvanized business and we'll be operating with a much more efficient footprint going forward. This.
This entire process has been distracting and time consuming for our entire organization, but it'd be a talk through on multiple occasions. We believe the strategic exit was necessary given the business did not meet our internal returned thresholds.
Looking at the remaining parts of the segment. We are now much more streamlined focusing on Bristol tubular products American stainless tubing and specialty piping too. We believe each of these businesses represent the best people and products within each of their competitive peer groups.
We can generate profitable growth and deliver attractive returns within each had acknowledged we have work to do.
To explain the current environment, we're continuing to deal with the effects of prolonged volatility in the macro economy.
And a second quarter, industrywide, destocking trends and meaningful and poor pressures continue to impact our bottom line of sales declined year over year, resulting in unacceptable adjusted EBITDA margin.
Although we generate any meaningful cash flow number we believe our businesses can and will perform better.
Overall, we are still seeing over inventory customers and in the first half of the year import products have been coming in and number cutting prices that said many of our customers have told us that these imports I've had quality issues and we are seeing these customers slowly come back into our sales pipeline.
Yeah Bristol.
<unk> falling surcharge market has caused many distribution customers to slow new purchase orders. They have also been a bit under inventory. It in the first half of this year as we've been focusing on working capital in light of the closure of munhall on the positive side surcharges to stabilize a good bit over the past few months and I also feel confident that we are much closer to a normal life.
Working capital position to enable us to see a ramp in sales beginning in August .
On the project site experienced more delays and cancellations overall macro uncertainty caused customers to delay projects that were we were assured and will ultimately move forward, but there's been more of a focus on derisking.
Overall, we believe the longterm viability of our end markets for tubular products remains intact and our industry data shows service center inventories are still below historical averages.
We are working hard to ensure we on the best possible position to capitalize on the momentum when depending on them does eventually swing in our favor again.
That being said, we continue to anticipate earnings improvements from this segment in the back half of 2023 with accelerating progress in the fourth quarter.
Turning to our specialty chemical segment.
I remain confident in this part of our business. Despite headwinds persisting in Q2 with continued destocking the loss of a customer program really affecting our short term results.
We're not the only ones facing this pressure is industry peers and customers have also been significantly impacted by this broad based pullback. However, we're not just waiting for demand to bounce back our sales team is aggressively pursuing profitable opportunities to generate more longterm revenue streams.
Both new and existing customers and I made good inroads in recent months.
We see trial activity coming on very strong in queue for Q1 of 2024 and remain hopeful that this will turn into more recurring revenue projects.
Post the loss of our customer and some other large relationships not meeting their volume projections, we've been working to move things around with the goal of improving our capacity utilization.
Admittedly the first half without a good performance in this area is all sides of an operating below our utilization targets, resulting in a disproportionate impact on the bottom line.
I've taken some corrective action to reduce certain operating expenses and I believe that by two four.
Closer to the growth track being bad.
Overall organization continues to make progress towards a long term goals, we have a very specific vision for a cent and we believe we are on track to achieving what we set out to accomplish a few years ago.
We have come a long way since 2020th we have essentially stripped the organisation down to its core implemented an entirely new processes and mindset says we work to build it back stronger than ever.
We have turned over nearly every leadership position in the organization as we search for World class business leaders capable of growing and optimizing their business units.
We've made many mistakes and it will be the first to acknowledge them <unk>.
While challenging micro dynamics this you're a exasperated our execution issues. Please recognize that some of our pain as a result of intentional decisions that we believe will put our business in a better position to succeed over the long run.
We don't expect our results to turn on a dime, but we do believe the worst is over now and we can begin to substantially grow from this point dramatically reducing earnings volatility.
We appreciate the continued support and patience of our investors and look forward to delivering upon expectations, we've set out for ourselves.
Now I would like to turn the call over to our CFO Bill cycle will provide a detailed overview our second quarter financial results.
And then I'll return to answer any questions you may have fill the floor is yours.
Thank you, Chris and good afternoon, everyone.
Before I jumped into the queue to results. So I wanted to call out the accounting change you may have noticed.
While the financial statements. We released this afternoon as a result of the decision to permanently cease operations at <unk>.
We have categorized the financial results from the facility into discontinued operations.
To give a more accurate representation of our performance X mud all the results I'll be discussing today are from continuing operations and we have adjusted our prior year periods.
To reflect the results X munhall as well to enable more relevant comparisons.
Additionally, I wanted to reiterate the impact we expect the closure of mud hole to have on our full year financials Curran.
Currently we expect to incur pretax cash charges of approximately 2.8 million to $6.7 million in 2023.
Which is expected to include $2.6 million in severance costs, and 2.2 million to 4.1 million in other restructuring costs that come with the facility shut down pross processes contract termination transfer production and carrying costs.
We also expect to incur non-cash charges over approximately two and a half million to 10.3 million in acid impairments inventory write downs and other non-cash restructuring charges for 2023.
Through the second quarter, we have incurred approximately 2 million.
Of the pre tax cash charges in approximately 6.4 million <unk> cash charges, we expected.
With that let's let's talk about the second quarter.
Net sales from continuing operations for 60.7 million compared to $84.6 million in the prior year period.
The decrease is due to lower overall sales volumes within both tubular products and specialty chemical segments.
Gross profit from continuing operations was 3.2 million or 5.3% of net sales compared to 22 million or 23.9% of net sales in the second quarter of 2022.
Decreases primarily attributable to the previously mentioned decline in net sales as.
As well as increased raw material and labor costs.
Net loss from continuing operations was 2.7 million or 37 cents diluted loss per share compared to net income from continuing operations of 10.8 million or a dollar for diluted earnings per share in the second quarter of 2022.
The decrease is primarily attributable to the aforementioned decline in gross profit and higher interest expense.
Adjusted EBITDA was negative 1.5 million compared to $14.8 million in the second quarter of 2022.
Adjusted EBITDA margin was negative 2.4 per cent compared to 17.4% in the prior year period.
Lastly, looking at our liquidity position as of June 30th 2023, total that was 54.5 million compared to 71.5 million at December 31st 2022.
So June 30th 2023, we had 45.4 million of borrowing capacity under our revolving credit facility.
Compared to 37.6 million.
Any 22.
During the second quarter of 20th twenty-three, we repurchased 18843 shares at an average cost of $9.34 per share for approximately $176000.
Bringing total year to date repurchases for 2023, two over 51000 shares.
We currently have 628.
822, 23 shares remaining under our share repurchase authorization.
With that I'll now turn it back over to the operator for Q&A.
Thank you if you'd like to ask a question. Please press star one one.
If your question has been answered and you'd like to remove yourself from the queue. Please press star one one again.
Our first question comes from Vincent Anderson with Stifel. Your line is open.
Yeah. Thanks, good evening guys.
So just thinking through the chemicals business I mean everywhere else in the industry. We've seen a lot of pressure specifically on egg and personal care purely from Destocking. Just wondering if you saw something similar this quarter and if not you know was there something specific to your positioning that inflated you or you know it could it be.
Earlier in your customers lead times that this is going to be mindful of heading until the next order cycle for those products.
<unk> Yeah. This is Chris Sarah the the primary issue on the chemical side is more so related to a site specific customer that was making a product that's.
Significantly having volume impacts that's more on the personal care side. So we're working through that on refilling that volume, but it's it's really.
Two of our sites are performing above expectations, one of the sites are as as being the anchor right now.
Okay, Alright that that's helpful and makes sense.
It actually you're already addressing my next question to some degree, but when you have an asset that large that is really tied to specific customer by and large you know.
Maybe just walk us through how you adjust your planning when you lose demand that suddenly and particularly this early in the year from a planning perspective yeah.
Yeah, no. It's it's really more of a commercial effort and getting turning over more stones I mean, the the equipment is a state of the art. It's a it's a great. This is specifically related to one of our dedicated customers and working through the process with this customer on okay, well, if you're not going to use all of the volume of that plant.
What what are our abilities to backfill that with other customers products. So it's.
A little bit of a contract negotiation Bud as we're coming to the tail end of that you know we feel like we'll be able to make headway and discuss openly us using that volume for all of our customers.
Okay excellent that's helpful.
And then yeah. This is probably a little bit more of a longer term view and feel we we're sorry to see John go but when you think about a replacement for him are you approaching that from half a traditional recruitment effort something you Wanna get filled immediately or is that a job opening that potentially you could take your time on an address via M&A.
Well, yes, and no I mean, we're we are actively searching for an individual we have a very capable interim person that's leading the charge there <unk>.
And he is doing a great job and is uncovering things that are are immediately accretive to the business.
But no. We we have strong views of of war, where we want to see our especially chemical segment grow too and we think no. We're not gonna wait for an acquisition to bring someone and we need to recharge the energy sooner versus later.
Okay.
And then you know you've managed inventory really pretty well given the volume headwinds are you comfortable where you are now with your current raw material inventory on a mark to market basis or is there going to be some residual impact margins through the balance of the year as you continue to turn that over.
We talking which segment.
Either.
I would say are <unk> I don't see any for see any issues on the on the chemical side on the tubular side, we mostly burn through and that's what you're seeing negatively impact the margins all of the product that was brought in last year for that large customer we've talked about on prior earnings calls mmm likely brought in at the highest prices of all time in terms of nickel surcharges.
As well as raw material price <unk>.
And as we're burning through that we burn through the majority of that material.
Through the first half of this year, there's a little bit of hangover to burn through in Q3, but that's we were.
Are working capital position was Jose <unk> optimal last year.
And we also didn't forecast the loss of that customer where the surcharge falling as fast as it did.
Sure, Okay, and if I could just just a couple more quick ones on the steel fraud, maybe you can talk about this maybe you can but when you think about the impact of imports, particularly in this demand environment. Yeah. The burden of a trade case would probably be a bit large for sent to go out alone but are you you're aware.
Or have any efforts or general industry.
Discontent and potential plans to address these imports that you might be able to throw your support and for yeah. I mean, we're actively engaged in the committee for piping tube imports, which is effectively a collaboration of domestic pipe in two producers.
And we're looking at various countries that I would argue are dumping material and do North America and weighing her options, but to your point to go to trade case alone is expensive and no they're they're actually actively.
Surveying, which groups would Wanna pursue trade cases as of as a team. So now we've we've done that in the past and continue to explore all options, but alternatively, I think we need to be a little more creative.
And you know there may be a chance, where we're an importer of record where we can important distributed a lower price and we can produce a four on some of the smaller O D stuff.
We're really understanding our value proposition today, you know more so than in prior years and I think he.
Hey imports could be an opportunity also if if we look at it through a different lens.
It's it's an interesting thought I'll probably need to think about that can come back to it I think for now my last one would just be on on Munhall and you gave some ranges for the charges and and maybe this question relates to where you fall in those ranges over the balance of the year, but you know how are you thinking about residual value.
On that facility at this point, whether shifting operations or assets to defer future Capex outright sale, just kind of walk me through that and how that might kind of lead you to <unk> cost guidance versus the other the other end.
I would say, we're exploring all options and you know our goal is to minimize the the impact of the business maximize the return we can get out of the residual value of the asset so <unk>.
We're actually having conversations with I would say all of the above is.
From from equipment to moving equipment to look waiting equipment to sub leasing the facility to joint venturing something potentially you know, there's a lot of things in queue.
It is discontinued option you know we need to make sure that we have a an exit there that maximises value.
Sure So probably fair to assume that the high end of the cost would be if you reclaim the least amount of residual value out of this and had to just kind of you know.
Work through the facility.
Yeah kind of keeping it around a bit longer than you wanted things like that.
Yeah, I mean, we obviously you know it's it's been an anchor since the day. It was acquired so we're we're trying to cut the anchor gotcha.
Gotcha Fair enough Alright, that's all from me, Thanks, and best of luck on the rest of the the rest of the third quarter. Okay. Thanks Man.
As a reminder to ask a question. Please press star one one.
Our next question comes from David Sacred Your line is open.
Hey, good afternoon, thanks for taking my call.
Just a question just a question what obstacles.
Kept the company from buying back.
More shares than it did in the second quarter is anything you could talk about.
Yeah. So if you recall we were.
<unk> later filing or you know.
10-K in the first quarter, it would like and even though the late filing the 10-K.
I didn't necessarily move into the second quarter that was a late first quarter event, but it did prevent us from getting are can be five in place in the open window.
That we would have liked to have done and so that's why we weren't able to utilize the entirety of the second quarter to buy back stock, but once we put that tend to be five in place in the window open posted a Q1 results, which was the middle of the second quarter.
We were able to buy back shares everyday so so long as we continue to get our filings out on time, you will get the Tenby fives in place in the open like a purchases prepared I don't see an issue and continuing to be in the market every day from a legal mechanics standpoint.
Okay I've got it. Thanks, so good to see the debt pay down this quarter, how much lower do you think he can get that in 2023 this year.
What about specific guidance on that but we do think we can still continue to make some headway there.
Okay.
How's the internal controls progressing.
Oh, a whole lot better now than it was with our prior on it or.
So I I think this is a very smooth quarter from our perspective, you know there's never gonna be perfect, but we feel like the processes and communications are in place now that enable us to be a lot more productive with our time.
The.
The ability to to get the filings out new processed you don't have the feedback that we need in order to make sure that we're going through in a more systematic way everything it needs to be done.
With the tubular being restructured and I would say earnings becoming more predictable here in the future with tubular.
Being a little more stable.
Do you see a point, where the company can begin to offer guidance.
Because there'll be less volatility in earnings.
It's possible I mean, I think our guidance for the near term is going to be more directional and with a specific number most of it is not so much a function of the.
Of the industry right of the of the type of business brain I've I think a lot of it has a bunch of the size as well. So it's very difficult for businesses of the size you know kind of stopped billion or so to give very specific quarterly or yearly guidance, but what we'll do our best to help investors better understand where we're thinking of blue.
What are our views on the future or.
Alright, it did seem like we hit an inflection point in second quarter, where there'll be should be improvement it back half and you're not prepared comments, yeah I think that.
So you know the.
The team has been fairly vocal over the years about the need to grow the chemical business.
And I.
I know <unk> would hope to consolidate chemical manufacturing so when you advertise your intend to buy.
Sellers know that you need to buy something to grow.
Artificially keep the asking price high.
No I don't think so I think it's more of a supply demand issue.
Right. So it's just you know.
We've clearly shown a willingness to walk away from deals that don't make economic sense. So I think there's just a number where ideal lives with for both the buyer and seller and ultimately where we'd consider transacting.
Yeah.
Okay I wanted to ask questions. So you know it's it's no.
<unk> no secrets bin.
About three quarters right and.
The management turnover customer destocking.
Maybe maybe a sent his lesson.
Credibility, maybe with Wall Street, I don't know, but.
What would you say K individuals investors, who are watching this story on the sidelines.
They've seen all the stock volatility, but what did you say to those guys who are waiting on the sidelines.
I think it's clear that we need to execute better right. So and we we we manage the business right now for our current shareholders of which we are the largest one and so we have a responsibility to them to improve our execution and you know hopefully reward their investment in their patients and so for people who.
On the sidelines you know that's.
That's their job to determine the risk reward.
<unk> three batsmen somebody this compares.
To the other things they can do with a capital, but obviously at these share prices in our view of the future the potential of the business, what's already in motion and what we see happening you know at the company that hopefully will manifest itself on the results within a very compelling investment and we're going to put our capital as well as the company's capital into the stock at these prices.
Yep.
Good well thanks for the time I appreciate the feedback and.
And thank you <unk>.
You have a good day.
Okay.
Thank you there are no further questions I'd like to turn the call back over to Chris header for any <unk>.
Thank you Michelle 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 third quarter 20th twenty-three results.
Thank you for your participation does that conclude the program and you may now disconnect everyone have a great day.
Mmm.
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