Q3 2023 Ascent Industries Co Earnings Call
Okay.
Good afternoon, everyone and thank you for participating in today's conference call to discuss our sense financial results for the third quarter ended September 32023, joining us today are <unk> executive Chairman of the Board, Dan Rosensweig, President and CEO, Chris Hunter.
CFO Bill Steckel, and the company's outside Investor Relations advisor Cody Cree following their remarks, we'll open the call for your questions before we go further I would like to turn the call over to Cody Cree as he reads the company's safe Harbor statement within the meaning of the private Securities Litigation Reform Act of nine.
95 that provides important cautions regarding forward looking statements Cody. Please go ahead.
Yeah.
Thanks, Sri 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 and are subject to various risks and uncertainties that could cause actual results to differ materially.
<unk> advises all of those listening to this call to review the latest 10-Q and 10-K posted on its website for a summary of these risks and uncertainties.
<unk> does not undertake the responsibility to update any forward looking statements.
Further the discussion today may include non-GAAP measures and in accordance with regulation G. The company has reconciled these amounts back to the closest GAAP based measurement.
Conciliations can be found in the earnings press release issued earlier today and posted on the investors section of the company's website at our St go Dotcom.
Please note that this call is available for replay via webcast link that is also posted on the investors section of the company's website.
Additionally, an updated presentation is available on the Investor Relations 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 and the board Ben Rosenzweig Bennett.
Yeah.
Thank you Cody and good afternoon, everyone.
After a challenging last few quarters and the closing of our munhall operation officially behind US we began seeing signs of improvement within our operations during the third quarter.
I want to be clear that we still do not view our current level of performance as acceptable and there is much work left to be done, but we are turning the corner.
Persistent volatility in the macro environment still hampered sales volumes across both segments in the third quarter as we continue to see larger scale projects being pushed out or delayed along with several of our end markets experiencing a decline in demand.
The lower sales volumes, we were able to return to positive adjusted EBITDA in the quarter and continued to manage working capital more efficiently.
Brian joins us with a proven track record of taking underperforming businesses and putting them back on the road to growth and profit maximization.
We believe that Brian has the potential to take ascent chemicals to new heights with a durable growth strategy and we are pleased with the actions you've already taken to return this segment to profitable growth.
Within our tubular segment, we continue to streamline and optimize our operations now that we are completely shuttered our munhall facility.
While we do expect some cash and noncash costs within the ranges we laid out last fall. We have worked through the vast majority of the expected costs and look forward to having this completely off our books as we enter 2024.
We continue to believe we have a healthy asset base and strong reputation within the tubular industry that can return to consistent growth and generate the earnings and cash flow to fund future growth opportunities.
Similar to our specialty chemicals segment, our sales are continuing to be impacted by the broader economic slowdown.
While some of our end markets have been more affected than others, particularly those for premium ornamental stainless steel tubing that go into more discretionary purchases.
It is safe to say that we are seeing a heightened level of caution when it comes to spending across many of our distribution customers.
We still believe there is healthy long term demand potential for premium American made tubular products and we're continuing to optimize our operations to be ready for when the pendulum swings back in our favor.
In terms of capital allocation, our biggest priority has been and will continue to be repurchasing shares in the open market.
In fact, we have repurchased nearly 100000 shares in the open market through the first nine months of 2023.
We were able to ramp up our volumes significantly in Q3 with it can be five program in place repurchasing nearly 45000 shares which is almost two five times more than we were able to repurchase last quarter.
Now that we can effectively repurchased stock in the open market nearly every single day, we continue to.
We expect to be as aggressive as possible on this front.
M&A does remain a long term focus for our organization, but we recognize the need to focus on building a more stable foundation prior to layering in larger deals.
We are nowhere near satisfied with how this year has gone, but I do believe that where we sit today and as we work through our budgeting process for 2024, we've made it over the largest of our hurdles and the company is well positioned to be much more focused and efficient.
We continue to appreciate the patience of our shareholders and remained aligned with your interests agile as the largest holders of the company's shares.
We have unquestionably made mistakes, but have learned from them and feel very confident in the team we've assembled to lead this company into 2024.
We look forward to re earning your trust over the coming quarters.
Now I'd like to pass the call over to Chris to provide more details on our operational performance in both segments.
I'll be back to answer any questions during the Q&A portion Chris over to you. Thanks.
Thanks, Pam and thank you all for joining today's call.
Right into our tubular products segment.
We're pleased to be moving forward with our focus being squarely on Bristol tubular products.
Fricking stainless tubing and specialty pipe into now the operations have completely ceased at munhall.
During Q3 Destocking trends within the industry continue to persist as many of our customers remained over inventoried relative to their immediate needs. This.
This is directly correlated with both the prolonged volatility we continue to experience in our broader macroeconomic economy, and our distribution customers uncertainties surrounding near term commodity pricing.
Surcharges continue to work down, especially on a year over year basis, which is not necessarily bad for us long term, but certainly played a role in slowing inventory buys from distributors.
So difficult to predict we'd expect surcharges to come down a bit more throughout the end of the year with larger buyers coming during periods of flattened surcharges.
As we've discussed in the past we've been targeting larger infrastructure projects for this segment provide a healthier margin profile for us. Unfortunately, we have seen many of these orders pushed out one to two quarters, which gets and it would be a drag on our volumes. However, we have a scrappy team that is turning over every stone to drum up demand and we are working hard to optimize <unk>.
<unk> within our control.
Import products continued to impact volumes, specifically on our smaller diameter products. However, we're seeing some signs of stabilization and have begun to began winning that business back to the quality issues of the imported products.
We would expect this to continue to help us.
Some of it still depends on the health of the broader economy, which ultimately impacts the price versus quality decisions of our customers.
Within a STI, we're holding relatively stable, even with a meaningful drop in end market demand for some of the high end consumer products, we supply specifically, the marine market, which is down over 40% year over year as consumers pare back these types of luxury purchases.
Well, we have remained aggressive on pricing and believe we are beginning to take some market share here is we can afford a much more quick turn inventory model and our competitors, which is about highly during times of end market fluctuations.
During the year, we embarked on some products that we believe will drive cost savings and avoidance at all facilities I'm pleased that those efforts accelerated further in Q3 with some vendor consolidation on the procurement side and the use of some of the excess equipment suppliers from the closure of one haul to be used across our remaining sites in place of purchasing new equipment.
These are initiatives that not only our large net individual basis, but can aggregate into the six figures and help us control costs throughout all input pricing environments.
Continuing to have confidence in the long term viability of our tubular products segment.
Worked through down cycles before none of this is new to us, but it's obviously still challenging.
The biggest difference is we no longer produce commodity galvanized product out of a high cost facility like we were dealing with at munhall.
Getting that fixed cost base and further taking advantage of this slowdown to ramp up our operational efficiency creates a much more durable segment that is better positioned for these cycles in the future. We firmly believe we are creating a healthier and more productive tubular segment and we continue to expect earnings improvements to accelerate over the coming quarters.
Turning to our specialty chemicals segment Sun.
<unk> chemicals has experienced general softness across segments. The softness has been compounded further by Destocking of working capital corrections in segments, such as paints and coatings and personal care as well as select in sourcing by customers, who now find themselves with historically low volumes of internal asset utilization.
These expectations, we believe our demand has largely been consistent with the softness of the markets we serve.
We are currently in the process of raising pricing as a result of our cost escalations.
In conjunction with this exercise we are also working to implement strategies that allow us to adjust pricing more efficiently and quickly to broader macro conditions.
Still remain highly confident in this segment and the profitable growth potential we see on the horizon, having Brian at the helm as further solidify my confidence and provided our team with a renewed sense of optimism in the future.
While we do not forecast material near term market recovery. Our team led by Brian has been actively working to diversify the markets and customers that we serve while optimizing our cost basis, and taking actions to extract the appropriate value for our products and services.
At the end of the day, we feel confident that there are multiple things, we can should and will improve upon that will get us back on track next year.
All of this happening as we speak we do believe that all of these efforts will be accretive to our segment level adjusted EBITDA as soon as Q1 of 2024.
As a whole our organization is in a much better position today than it has been over the last several quarters.
We're obviously still a good distance from where we want to be but a roadmap that can get us back. There quickly has been developed and we are making tangible progress towards our long term strategic goals.
Although macro volatility doesn't seem to be letting up in the near future.
We will continue to be hammer away at improving our operations and be sure to capitalize on every growth opportunity that comes our way we have a strong leadership team in place a more efficient operational footprint and teams within each segment working together much more cohesively.
We're firmly committed to delivering the value that all of our stakeholders have come to expect from us.
And we look forward to exceeding those expectations in the future.
Now I would like to turn the call over to our CFO Bill cycle.
Who will provide a detailed overview of our third quarter financial results. Then I'll return to answer any questions. You may have bill the floor is yours.
Thank you, Chris and good afternoon, everyone.
Before I jump into the financials I want to remind everyone that we've categorized the financial results from our munhall facility into discontinued operations given that we permanently ceased operations at the end of August to give a more accurate representation of our performance ex munhall. The results I'll be discussing today are from continuing operations.
And we have adjusted our prior year periods to reflect the results ex munhall to enable more relevant comparisons.
Additionally, I wanted to I want to update you all on the impact of the munhall closure on our financials to date through the third quarter, we have incurred approximately $2 6 million of pretax cash charges and approximately $10 1 million of noncash charges, which remain in line with the original expectations.
With that let's talk about third quarter, continuing operations net sales from continuing operations were <unk>.
$6 1 million compared to $78 2 million in the prior year period.
The decrease was due to lower overall sales volume within both tubular products and specialty chemicals segments.
Gross profit from continuing operations was 6 million or 10 seven.
7% of net sales compared to $14 1 million or 18 point.
Net sales in the third quarter of 2020 to.
The decrease is primarily attributable to the decline in net sales.
Net loss from continuing operations was $12 8 million or 1.1 dollars 26 diluted loss per share compared to net income from continuing operations of $3 1 million or <unk> 30 per diluted share.
In the third quarter of 2022 the decrease.
This is primarily attributable to an 11 $4 million noncash goodwill impairment within the specialty chemicals segment, along with the aforementioned decline in gross profit.
Adjusted EBITDA was <unk> 9 million compared to $8 2 million in the third quarter of 2022.
Adjusted EBITDA margin was one 7% compared to 10, 5% in the prior year period.
Lastly, looking at our liquidity position as of September 32023, total debt was $53 million compared to $71 5 million at December 31, 2022.
As of September 30, we.
We had $41 8 million of borrowing capacity under our revolving credit facility compared to $37 6 million at December 31, 2022.
During the third quarter of 2023, we repurchased 44799 shares at an average cost of $8 87.
For sure for approximately $400000, bringing total year to date purchases for 2023 to nearly 96000 shares.
We currently have 584024 shares.
Remaining under our share repurchase authorization.
With that I'll now turn it back over to the operator for Q&A.
Thank you.
To ask a question. Please press star one on one on your telephone and wait for your name to be announced.
Your question. Please press star one again.
Any moment wildly compile the Q&A roster.
And our first question will come from the line of Vincent Anderson with Stifel. Your line is open.
Hi, Yes, good afternoon, gentlemen, Hey, Vince.
Okay.
So just starting off.
I was hoping you could discuss if they're already specific drivers of the goodwill impairment.
Maybe specifically if that was the philosophy of a single customer or just more normal review of the recent operating environment.
Yes, it's pretty much related to where the Danville operation.
And net.
Not necessarily the loss of a customer, but the normalization of the customers go forward estimated annual volume.
Okay.
And then sticking to a high level.
I know guidance is not on the table, but just looking at your overall level of profitability.
How much leverage do you think you have in hand, right now from self help over the next few quarters, if we were to assume.
No real help in the overall demand environment.
I'd say a lot Vince I mean, we feel we feel pretty good that we can.
Get back to where we were before on the chemical side.
Within the next few quarters without necessarily feeling like theres going to be a boisterous market environment now, obviously I'll caveat that with I know, it's pretty bad out there on the Chem side, and we would hope that it doesn't get worse, but there are a lot of things under our control that can get us back to where we were before which if you recall is still not where we.
We think we need to be so if you were to kind of make that bridge from that mid single digit EBITDA margin on the Chem side back to where we were in the in that call it 10%.
<unk> range is within our control and then that bridge up too.
Much higher mid teens, or so we think hopefully there'll be a little bit of a.
The normalization in the market.
Some of these.
Headwinds will abate, but there is a lot within our control.
Okay excellent.
And then I've got a few I assume that's okay, I'm just going to keep going.
But can you just maybe discuss at a high note.
Not to speak for Brian too soon but at a high level and your chemicals portfolio.
How you're thinking about securing new business for volumes lost during this destocking period versus trying to keep the door open for existing relationships.
I don't want to say accounting on the assumption that next year's better, but how aggressive are you right now in getting things filled versus.
May be managing more of the cost side and just how you go about securing.
No that's a great question.
Yes, we're doing both I mean, we're extremely aggressive on the customer side, and it's somewhat difficult or noisy in the numbers, but we have facilities, obviously, our chemical business of three facilities. We have certain facilities that are over performing and certain facilities that are underperforming. So this is I would.
Say its more limited to one facility the operational struggles right now of which we're addressing and have some.
Wait at the end of the tunnel on it but there's also a lot of good things and some very good wins, we've had within other parts of the chemical business that we're extremely excited about.
So effort discussing with Bryan this is very optimistic about 2024.
Okay.
Good to hear and that probably answers my next question, but maybe more specifically you have some larger customers on the chemical side and areas that used to be more predictable revenue streams like agriculture and parts of personal care I am curious if they've started to offer you guys any kind of color.
On their planning into next year or if it's too early to even.
Be counting on those conversations having any way.
Yes, I mean, we're having them, but I think it's there they have cloudiness in their forecast also so we're getting I would say the band of rainy the range band, we have is much wider than normal with the customer volume expectations.
It would be the personal care side and.
Or even just steel oil and gas or our case.
<unk>.
Historically, we would have here as are our standard deviation of <unk>.
Volume there'll be $1 million million half pounds now it's.
500000 policy 2 million pounds.
<unk>.
We're having those discussions.
During the best we can to also backfill additional demand with other customers.
Okay, Alright excellent.
And then.
No.
Brian came in with a lot of experience and we've talked a bit about the commercial side already obviously, but curious if you shared any initial thoughts.
On your procurement and inventory management side of things and just if you've had a chance to do like a proper postmortem on how the business was managed through the last couple of years.
That front.
The high level view as he has and we've already recognized opportunity and we have a team being put in place Bryan Bryan.
Brian is a very aggressive hard working person that has deep connections within the chemical business and he has already identified a few people that he has brought onboard with him and we continued.
To upgrade the talent really on a weekly basis. So.
We're feeling really good we had a meeting last week with Brian and.
I think.
Dan and myself Bill and the entire board are very optimistic about what is going to deliver.
Great.
And then so to move to tubular for just a minute Chris I know you hate to look like Youre hiding behind the macro environment when the business isn't operating as long as you want it to so if I can pose this is a hypothetical instead.
If the tubular business was already where you wanted it to be coming into the year that we've had in 2023 looking.
Looking at the environment right now what parts of the portfolio, whether it's the sales channels.
Or just specific products would you really be leaning on in this environment to support your through cycle margins and which parts would you have to just kind of set expectations lower and focus on costs.
Yes.
I will fall on the sword here I mean, there's tremendous opportunity in tubular you've got and you have to look at each business unit, specifically specialty pipe and tube, they're killing it they're doing a great job they've got demand and there is tremendous opportunity in growing that business.
The oil and gas market, which is one of the larger markets in Texas.
Bristol is.
We definitely we missed was missed the mark.
There is huge demand for our large diameter pipe that goes into infrastructure applications.
And.
Just didn't deliver on the sales forecast so now there.
There is a lot of things going on behind the scenes on improving the team there and getting that dialed in but.
I mean, that's a very good business when it's operating the way should operate just not operating the way it needs to.
So we have work to do there absolutely.
Alright, that's fair enough.
Do you have I mean, I assume it's constant.
Review from your perspective, but are you still looking for any key leaders in the steel business or do you feel pretty good already.
Yes, I mean, I think we're always looking for the right talent leaders and we're always.
Discussing how we grow the business and who we have run the business. So.
Now, we're always looking for the right opportunity.
Okay, all right excellent well.
Thanks, a lot that's all for me thanks.
Thanks Vince.
Thank you as a reminder, if you would like to ask a question. Please press star one wind.
Im showing no further questions in the queue at this time I would now like to turn the call back over to Chris <unk> for any closing remarks. Thank you Sherry, we'd like to thank everyone for listening to today's call and we look forward to speaking with you again on our fourth quarter and full year results.
For 2023.
This concludes today's program. Thank you for participating you may now disconnect.
Okay.
[music].
Okay.
[music].
Okay.