ASCENT INDUSTRIES CO. Q3 FY2024 earnings call

Ben Rosenzweig noted third straight quarter of improved financial results, stabilization efforts, cost-effective team building, and capital allocation priorities. Bryan Kitchen discussed momentum, impact of Hurricane Helene (assets affected but operations mitigated risks), progress in Tubular Products (maximizing asset value, outperformed prior seven quarters), progress in Specialty Chemicals (matching Q2 earnings with less volume, gross margin improvement), and impact of talent renewal. Ryan Kavalauskas walked through Q3 financial results, including net sales, gross profit, net loss, adjusted EBITDA, liquidity position ($8.5 million cash, $57.5 million borrowing availability), and share repurchase.

Tubular Products: Despite reduced demand, the segment outperformed its prior seven quarters. Specialty Chemicals: Despite soft market conditions, the team matched Q2 earnings with 25% less volume. It had a 30% gain in average sales price versus Q2 and a 27% gain versus Q3 of 2023, with a 67% year-over-year improvement in gross margin. Net sales from continuing operations were $42.9 million in Q3 2024 compared to $46.7 million in the prior year period. Gross profit from continuing operations increased to $6.5 million from $3 million in the same period last year, with gross margin rising to 15.1% from 6.4%.

Bryan Kitchen was cautiously optimistic about Tubular, seeing increasing inbound quotation opportunities. Ryan Kavalauskas stated they will continue to allocate capital to drive organic and inorganic growth. Bryan Kitchen mentioned pulling together the 2025 budget and expecting continuous improvement moving forward.

Ascent had assets in South Carolina, North Carolina, and Tennessee directly in the path of Hurricane Helene, but operations team implemented risk mitigation measures. Macro market conditions causing soft demand across segments.

Q: Hey, guys. Thanks for taking my call. Congratulations on the adjusted EBITDA, the margin improvement, and the $8.5 million in cash that was really positive. And also, the operational efficiencies really nice to see. Just a question on Tubular, so it seems like the trough like with infrastructure projects and industrial has 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 in Tubular?

A: Hey, David, it's Bryan. So I would say, we're cautiously optimistic, right? We're starting to see an increase in inbound quotation opportunities, across several different markets. So I would say, we'll touch base on this again in the next quarter but all indications are improving.

Q: The $5 million increased cash on the books now from the previous quarter. Was that just from monetizing those assets from Munhall? Or is that just operational cash flow?

A: It's a little bit of both. So the predominant build in cash is largely from operational efficiencies. Monetizing slow-moving inventory has been a big piece of kind of the cash build this year and then a portion of it related to the Munhall asset sales. So it's a mix of kind of three of those factors.

Q: Got it. Do you anticipate more of that happening in the near future? And are there more assets to be sold that can be monetized from Munhall or other places?

A: I think from a pure asset perspective that's not really our main focus. We will continue to rightsize our inventory monetize trap cash from that perspective. But I think that's largely where we'll focus on generating cash outside of just normal sales.

Q: Okay. What do you anticipate happening first a sale of one or both the tubular businesses or a purchase of the chemical business?

A: Stay tuned.

Q: So Bryan and Ryan so you established a record a public record at Clarion [ph] of turning around a chemical company and there's been some nice progress here with Ascent Chemicals. Do you -- obviously the focus is going to be with chemicals. Is some of the improvement we saw this quarter was it just strictly self-help? Was that also some of those contracts from Q1 that were starting to take root as far as margins go?

A: 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 pretty successful in extracting that and doing that in a sustainable way. Additive 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.

Q: I saw an article in July that said M&A in the specialty chemical space has been robust. And I mentioned a PE firm which was completing multiple deals during the year. Do you see that from your perspective is there a robust M&A environment for specialty chemicals? How is the pricing?

A: Yes. I think as we indicated last quarter we've just started to kind of crack that door open. We're starting to get additional looks or get new looks at opportunities. I think it's too early to tell in terms of pricing. But what I will say is the activity level is picking up.

Q: Okay. And would you ever look at distressed assets since you've turned around other companies that you could bolt on and turn around as well chemical?

A: Yes.

Q: Okay. I saw an article in August that it mentioned that the Department of Defense awarded a contract to seven vendors to develop domestic capabilities to manufacture critical chemicals. So Ascent wasn't one of those vendors. But is that something that you could ever become a part of to play to the customer's desire to have a manufacturing footprint that's domestic?

A: Yes, it is. I think that there's an influx of onshoring 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.

Q: Obviously, I know we don't give guidance, but are there targets, like margin targets that you could provide or maybe cash flow guidance as to the company that we could look forward in 2025?

A: Yes. Look I think we're in the process of kind of pulling together our budget for 2025. Obviously ,we're continuing to build cash. We've got incremental quarter-on-quarter growth is certainly in our plans and we don't plan to deviate from that. So, again, we're -- we've made very good progress I believe in stabilizing the enterprise. We're not done. There's no tick or tape parade. We're really just getting started. So, I would look for continuous improvement moving forward.

Q: Okay, good to hear. And then the new credit agreement that's in place now, do you think that could be a precursor to perhaps a larger buyback? I mean after all the market is at all-time highs and the Russell 2000 is at a three-year high. Do you think now that operationally you feel better about where we're at? Do you think now is the time to hit the hammer and put the metal to the pedal so to speak or pedal to the metal with reference to larger buybacks?

A: 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 you've also seen a little bit more liquidity in our stock over the last one to two months. And obviously we feel like the stock is undervalued. So, we have been buying back stock. We are technically constrained by some of the market limitations that are easing a little bit with the additional liquidity. So, yes, I mean I think that that gives us the ability to have more options available to us.