Q3 2024 Ascent Industries Co Earnings Call
and the other one.
Speaker Change: Good afternoon, everyone, and thank you for participating in today's conference call to discuss Assent's financial results for the third quarter ended September 30th, 2024.
Speaker Change: Joining us today are Ascent's executive chairman of the board, Ben Rosenzweig, CEO Brian Kitchen, CFO Ryan Kavalauskas, and the company's outside investor relations advisor, Cody Cree.
Speaker Change: Following their remarks, we'll open the call up for your questions.
Speaker Change: Before we go further, I would like to turn the call over to Cody Cree as he reads the company's safe harbor statements within the meaning of the Private Securities Litigation Reform Act of 1995 that provides important cautions regarding forward-looking statements. Cody, please go ahead.
Cody Cree: 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. ASCENT 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.
Cody Cree: Assent does not undertake the responsibility to update any forward-looking statements.
Cody Cree: Further, the discussion today may include non-gap 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 asenco.com.
Speaker Change: Please note that this call is available for replay via a webcast link that is also posted on the investors section of the company's website. With that, I'd like to turn the call over to Ascent's Executive Chairman of the Board, Ben Rosenzweig. Ben, over to you.
Thank you, Cody, and good afternoon, everyone.
Ben Rosenzweig: I'm pleased to be reporting our third straight quarter of successive improvement in our financial results as we're seeing our stabilization efforts take hold across the organization.
Ben Rosenzweig: Brian and Ryan have certainly exceeded the expectations that I had, along with the rest of the board, when we initially embarked on this journey with them less than a year ago.
Ben Rosenzweig: and they've done so against a macro backdrop that has not done us any favors.
Ben Rosenzweig: Despite this, they've dug in their heels, quickly identified areas of improvement within both segments and at the corporate level, and then implemented immediate plans of action that have led to the improved results you're seeing today.
Ben Rosenzweig: Most importantly, they've cost-effectively built a focused team by blending new and existing operators to seamlessly execute on our near-term goals.
Ben Rosenzweig: We're still just getting started and have a lot of work to do to reinvigorate revenue growth But I did want to recognize all the hard work Brian Ryan and the rest of their team have put in to get us on the right track
Ben Rosenzweig: In the third quarter, we continued to see soft demand throughout the quarter, resulting in a decline in volumes across both segments.
Ben Rosenzweig: All the financial improvements have come through internal self-help initiatives, which we continue to expect for the remainder of the year.
Ben Rosenzweig: Overall, our plan for both segments remains the same. We'll continue to optimize operations
Ben Rosenzweig: drive efficiencies and increase margins within the tubular product segment while planning and investing for growth in the specialty chemical segment.
Ben Rosenzweig: Without question, the team has unlocked meaningful cost reductions and operational efficiencies this year, but this is just the beginning of their continuous improvement journey.
Ben Rosenzweig: The team is laser focused on capturing every dollar possible to reinvest for growth.
Ben Rosenzweig: Looking at our capital allocation priorities, they continue to remain the same from what we've discussed throughout the year. We've got a strong liquidity position with over 8 million in cash on the balance sheet and just closed on an extension to our revolving credit facility that continues to provide ample availability for growth.
Ben Rosenzweig: As we become more and more comfortable with the stabilization efforts taking hold, we plan on ramping up our efforts to deploy capital to high conviction and accretive areas while maintaining the operational discipline that Brian and Ryan have instilled.
Ben Rosenzweig: We also continue to repurchase shares on the open market within the confines of our limitations and remain committed to evaluating all avenues to do so as long as our stock trades below our expectation of the company's intrinsic value.
Ben Rosenzweig: Last quarter I spoke to our efforts to restore credibility within the market and I believe we're continuing to make positive progress on that front with every quarter of improving results. We attended the Gateway Conference in September and had a full slate of meetings with good interest coming out of the event.
Ben Rosenzweig: We look forward to remaining active on the investor relations front as we have more exciting growth initiatives to talk about.
Ben Rosenzweig: Overall, I'm pleased we're moving down the right path and have the utmost conviction in our ability to drive significant shareholder value in the quarters and years to come. With that, I'd like to pass the call over to Brian to provide details on our operations across both segments. I'll be available later on to answer any questions. Brian, over to you.
Brian: Thanks Ben and thank you all for joining us this afternoon. I continue to be optimistic about the progress that we're making as an organization with another quarter of earnings growth and margin expansion through aggressive self-help.
Brian: Without question the renewal and purposeful recapitalization of talent has been an accelerator for us.
Brian: This team was purpose-built and our ability to drive continuous improvement in the face of ongoing market headwinds attest to that.
Brian: We are just getting started and we remain confident in our plan. Momentum is building.
Speaker Change: Although it feels like years ago in the news cycle, I wanted to touch base on the impact of Hurricane Helen.
Speaker Change: Ascent has assets in South Carolina, North Carolina, and Tennessee, areas which were directly in the path of the hurricane and experienced devastating destruction.
Speaker Change: Ascent rallied around our employees in the communities in which we operate to provide support.
Speaker Change: whether it was increased flexibility for our employees or the donation of goods into our communities.
Speaker Change: From a business perspective, I'm pleased to share that our operations team implemented appropriate risk mitigation measures and despite some minimal downtime, we did not miss a beat in terms of meeting our customers' expectations.
Speaker Change: I am proud of how our company overcame the challenge, but I am more pleased with how our employees have come together within their communities to make a real difference.
Speaker Change: With that, let's dive into our segment-specific commentary, starting with tubular products.
Speaker Change: we are laser focused in on maximizing the value of our current assets across the segment.
and we continue to execute accordingly.
Speaker Change: In fact, despite reduced demand, this segment outperformed its prior seven quarters.
Speaker Change: The actions taken to date have proven that this segment can be operated profitably, even in the face of challenging market headwinds.
Speaker Change: We are focused on sustaining the gains and driving continuous improvement, positioning the segment to generate strong returns when market demand shifts back to pre-COVID levels.
Speaker Change: I am proud of the progress that we've made towards maximizing the value of our tubular asset base.
Now let's shift our focus to specialty chemicals.
Speaker Change: Despite soft market conditions our team continues to make meaningful strides in this segment.
Speaker Change: Like our successes in Tubular, we pushed past market headwinds to match Q2 earnings for the segment with 25% less volume.
Speaker Change: through our new business development activities and our continued efforts to drive sustainable improvements in cost.
Speaker Change: product mix, and pricing, we are beginning to unlock the true value of our products, services, and capabilities, driving a 67% year-over-year improvement in gross margins.
Speaker Change: With compelling reference points, our selling project pipeline continues to grow, and we are just beginning to see the impacts of our efforts in our mix.
and pricing and resultant margins across the segment.
Speaker Change: In Q3, the specialty chemical segment delivered a 30% gain in average sales price versus Q2 and a 27% gain versus Q3 of 2023.
Speaker Change: We remain highly focused in on unlocking the long-term value of our existing asset base within the specialty chemical segment.
Our plan to stabilize this segment is ahead of schedule.
Speaker Change: and the right people are in place which will allow us to begin looking beyond organic growth in the near term.
Speaker Change: Overall, we've made significant strides both operationally and financially across the entire organization in a very tough macro environment.
Speaker Change: I do want to thank our entire team at ASCENT who have demonstrated incredible agility.
Speaker Change: resilience, and the desire to win as we have worked together to purposely eliminate all barriers to progress at an accelerated pace.
Speaker Change: We have returned to consistently generating positive adjusted EBITDA, we remain debt-free, and we continue to grow our cash balance.
Speaker Change: We believe this is a foundation for success as momentum continues to build, and we remain very optimistic about the future.
Speaker Change: I'd like to now turn it over to our CFO Ryan Kavalauskas to walk us through our third quarter financial results in more detail.
Ryan, the floor is yours.
Thank you, Brian, and good afternoon, everyone.
Jumping right into our third quarter financial results.
Speaker Change: Net sales from continuing operations were $42.9 million compared to $46.7 million in the prior year period.
Speaker Change: The decline was primarily attributable to lower volumes across both segments.
Speaker Change: as well as lower pricing within Tubular Products as we work to unlock growth capital through a backlog of low-priced, aged inventory.
Speaker Change: This was partially offset by favorable pricing and product mix within the specialty chemicals segment.
Speaker Change: Gross profit from continuing operations increased 117% to $6.5 million, compared to $3 million in the third quarter of 2023.
Speaker Change: while gross margin increased significantly to 15.1% compared to 6.4% in the prior year period.
Speaker Change: This increase was a direct result of our relentless focus on efficiency from product line management to a strategic approach to sourcing.
Speaker Change: Net loss from continuing operations in the third quarter improved to $7 million, or $0.69 diluted loss per share, compared to a net loss from continuing operations of $14.7 million.
Speaker Change: for $1.45 diluted loss per share for the third quarter of 2023.
Speaker Change: It is important to note that during the quarter, we took a $6.2 million tax charge related to evaluation allowance against our deferred tax assets.
Speaker Change: This is a one-time, non-cash charge and does not affect our overall operating profit as our income from continuing operations before taxes was a half a million dollars.
or $500,000.
Speaker Change: Outside of the one-time impact, the year-over-year improvement was primarily attributable to the aforementioned increase in gross profit and a year-over-year decrease in interest expense.
due to having much lower outstanding debt.
Speaker Change: Adjusted EBITDA in the third quarter increased significantly to $2.5 million compared to negative $1.5 million in the same period last year.
Speaker Change: while adjusted even of margin improved to 5.7% compared to negative 3.2% in the same period last year.
Speaker Change: The improvement was primarily a result of the aforementioned cost optimization and profitability improvement initiatives we've implemented.
Lastly...
Speaker Change: Looking at our liquidity position as of September 30, 2024, we remained debt-free with $8.5 million of cash on the balance sheet and access to $57.5 million in borrowing availability under our current revolving credit facility, which we extended through 2027.
Speaker Change: We will continue to diligently allocate capital to drive organic and inorganic growth in the near future.
Speaker Change: During the third quarter of 2024, we repurchased a total of 42,623 shares for approximately $0.4 million through our Share Repurchase Program.
Speaker Change: With that, I'll now turn it back over to the operator for Q&A.
Speaker Change: Thank you sir. Ladies and gentlemen, if you have a question or comment at this time, please press star 1 1 on your telephone keypad. If your question has been answered or you wish to remove yourself from the queue, simply press star 1 1 again.
Speaker Change: Again, if you have a question or comment at this time, please press star 1 1 on your telephone keypad.
Please stand by while we compile the Q&A roster.
Speaker Change: Our first question or comment comes from the line of David Siegfried, front.
Your line is open.
Hey guys, thanks for taking my call.
Speaker Change: Congratulations on the adjusted EBITDA, the margin improvement and the 8.5 million cash that was really positive and also the operational efficiency is really nice to see.
Just a question.
Speaker Change: On tubular. So it seems like, you know, the trough, like with infrastructure projects and
and industrial, you know, has.
Speaker Change: It's been two plus years and it seems like some of the industrial companies are calling a bottom. Do you see that as us getting close to that?
and Tubular.
Speaker Change: Hey David, this is Brian. So I would say we're cautiously optimistic, right? We're starting to see an increase in inbound quotation opportunities across several different markets.
Speaker Change: So I would say, you know, we'll touch base on this again in the next quarter, but all indications are improving.
Speaker Change: I would say we will touch base on this again in the next quarter, but all indications are improving.
Speaker Change: Okay.
Speaker Change: Okay. The $5 million increased cash on the books now from the previous quarter, was that just from monetizing those assets from Munhall?
Speaker Change: The $5 million increased cash on the books now.
Speaker Change: From from the previous quarter was that just from asset monetizing those assets from Montreal.
Speaker Change: Or is that also just operational cash flow.
We'll write that off with just operational cash flow.
Speaker Change: It's a little bit about the predominant predominant building cash is largely from operational efficiencies.
Speaker Change: Monetizing slow moving inventory.
Speaker Change: A big piece of it as kind of the cash build this year and from a portion of it related to the Montreal asset sales. So.
Speaker Change: It's a mix of kind of three of those factors.
Speaker Change: Got it do you anticipate.
Speaker Change: More of that happening in the near future and are there more assets to be sold that can be monetized, our munhall or other places.
Speaker Change: I think from a pure asset perspective, that's not really our main focus we will continue to right size, our inventory monetize trapped cash in that perspective.
Speaker Change: But I think that's largely where we will focus on generating cash outside of just normal sales.
Speaker Change: Okay.
Speaker Change: What do you anticipate happening first at a sale of one or both of the tubular businesses or purchase of the chemical business.
Speaker Change: Stay tuned.
Speaker Change: Hey, Terry.
Speaker Change: Hey, Jim.
So Brian and Brian So your.
Speaker Change: Stablish.
Speaker Change: Record.
Speaker Change: Our public record it clear out of turning around a chemical company.
Speaker Change: And there's been some nice progress here with the sand chemicals.
Speaker Change: Do you do.
Speaker Change: Obviously, the focus is going to be with chemicals.
Speaker Change: Yeah.
Speaker Change: Movement. We saw this quarter was that just strictly self help with that also some of those contracts from Q1 that were starting to take root as far as margins, though.
Speaker Change: Yes, I think it's a combination thereof, right. So we started off aggressively looking for cost reduction across the entire enterprise I think we've been.
David Siegfried: Pretty successful in extracting that and doing that in a sustainable way additives to that though we have been improving our overall book of business or the quality of the book of business that we do have so it's really all of the above David.
Speaker Change: Okay.
David Siegfried: I saw an article in July.
David Siegfried: Said M&A in the specialty chemical space has been robust.
David Siegfried: <unk> firm, which was completing.
Multiple deals during the year.
Speaker Change: Do you see that.
Speaker Change: From your perspective is there robust M&A environment for specialty chemicals, how is the pricing.
Speaker Change: Yes, I think as we indicated last quarter, where we've just started to kind of correct that door open and we're starting to get additional looks or get new looks at opportunities.
Speaker Change: It's too early to tell in terms of pricing, but what I will say is the activity level is picking up.
Speaker Change: Okay.
Speaker Change: Would you ever look at distressed assets.
Thank you.
Speaker Change: Turned around other companies.
Speaker Change: That that you could bolt on turnaround as well chemical.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: I saw an article in August that it mentioned that the department of defense awarded the contract to seven vendors develop domestic capabilities to manufacture critical chemicals.
Speaker Change: So.
Speaker Change: It wasn't it.
Speaker Change: One of those vendors is that something that you could ever become a part of.
Speaker Change: To play to our customers desire to have a manufacturing footprint that's domestic.
Speaker Change: Yes. It is I think that there is there is there is an influx of.
Speaker Change: On shoring opportunities that are beginning to emerge and I think after this most recent election cycle I think we're going to see more and more of those opportunities.
Speaker Change: Got it okay.
Speaker Change:
Speaker Change: So no I, obviously I know you don't give guidance, but are there targets.
Speaker Change: Like Mark.
Speaker Change: Margin targets that you could provide or tied to cash flow guidance.
Speaker Change: Two.
Speaker Change: The company.
Speaker Change: We could look forward into 2025.
Speaker Change: Yes look I think we're in the process of kind of pulling together our budget for 2025, obviously, we are continuing to build cash.
Speaker Change: We've got incremental quarter on quarter growth is certainly in our plans that we don't plan to deviate from that.
Speaker Change: So again, we've made very good progress I believe in and stabilizing in the enterprise. We're not done there is no ticker tape parade, we're really just getting started so I would look for continuous improvement moving forward.
Speaker Change: Okay, good to hear and then.
Speaker Change: The new credit agreement that's in place now do you think that could be.
Speaker Change: A precursor to perhaps a larger buyback I mean after all of the markets at all time highs.
Speaker Change: The Russell 2000 is that a three year high.
Speaker Change: Do you think now that operationally you feel better about where were at you think now's the time too.
You know if the hammer and put the med.
Speaker Change: Metal to the pedals sort to speak.
Speaker Change: Our pedal to the metal with reference to larger buybacks.
Speaker Change: I'd say, it's possible David for sure that that was something that we really were targeting getting done as we evaluate everything that's out there I think <unk> also seen a little bit more liquidity in our stock over the last one to two months.
Speaker Change: And obviously, we feel like the stock is undervalued. So we have been buying back stock.
Speaker Change: Our technically constrained by some of the.
Speaker Change: The market limitations that are easing a little bit with the additional liquidity. So yeah. I mean, I think that that gives us the ability to have more options available to us.
Speaker Change: Got it.
Speaker Change: Okay well.
Speaker Change: Thank you for the time and I appreciate that and look forward to future quarters.
David Siegfried: I appreciate it David.
Speaker Change: Thank you.
Speaker Change: Once again, ladies and gentlemen, if you have a question or comment at this time. Please press star one on your telephone keypad.
Speaker Change: I'm showing no additional questioners in the queue at this time I would like to turn the conference back over to Mr. Kitchen for any closing remarks.
Speaker Change: Thank you Howard wed like to again, thank everyone for listening to today's call and we look forward to speaking with all of you again, when we report our fourth quarter and full year 2024 results.
Speaker Change: Thanks, and have a safe evening ladies.
Speaker Change: Ladies and gentlemen, this does conclude today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation have a good day.
Speaker Change: Okay.
Speaker Change: Okay.
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Speaker Change: Okay.
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