(ACNT)
Q4 2024 Earnings-Transcript
Ascent Industries Co. misses on earnings expectations. Reported EPS is $-0.09935 EPS, expectations were $0.03.
Operator: Good afternoon, everyone, and thank you for participating in today’s conference call to discuss Ascent Industries Co.’s financial results for the fourth quarter and full year ended December 31, 2024. Joining us today are Ascent’s Executive Chairman of the Board, Ben Rosenzweig, CEO Bryan Kitchen, CFO Ryan Kavalauskas, and the company’s outside investor relations adviser, Cody Cree. Following the remarks, we will 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 1995. That provides important cautions regarding forward-looking statements. Cody, please go ahead.
Cody Cree: Thanks, Gigi. Before we continue, I would 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. Ascent Industries Co. advises all 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. Ascent Industries Co. does not undertake the responsibility to update any forward-looking statements. Further, the discussion today may include non-GAAP measures. In accordance with Regulation G, the company has reconciled these amounts back to the closest GAAP-based measurement.
Reconciliations can be found in the earnings press release issued earlier today and posted on the Investors section of the company’s website at ascentco.com. 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. With that, I would like to turn the call over to Ascent’s Executive Chairman of the Board, Ben Rosenzweig. Ben, over to you.
Ben Rosenzweig: Thank you, Cody, and good afternoon, everyone. As we have wrapped up 2024 and are moving into 2025, I’m very pleased with the current direction of the company. Bryan Kitchen and Ryan Kavalauskas have exceeded the expectations our board had set for 2024, and we believe the team that they have assembled is capable of executing on the growth plan we are collectively targeting. This quarter was another positive step in the right direction as we reported our fourth straight quarter of successive improvements in our financial and operational results. The stabilization and optimization efforts we implemented throughout the year continue to take hold and drive expansion to our margins and the bottom line. I’ll let Bryan dive into each segment’s details shortly, but we plan to continue maximizing the value of our assets across the tubular product segment while investing in and delivering profitable growth in the specialty chemicals segment.
We feel confident that we have a strong foundation in place, so we are laser-focused on driving growth while maintaining operational excellence. Looking at our capital allocation priorities, they continue to remain the same from what we discussed throughout much of last year. We have a strong liquidity position, with over $16 million in cash on the balance sheet, and more than $47 million available on our revolving credit facility. We also continue to repurchase shares in the open market and will continue to scrutinize our buyback efforts to evaluate moving forward in larger quantities as the share price remains below our estimates of intrinsic value. As part of our commitment to this capital allocation priority, we recently announced an expanded and extended authorization for our stock repurchase program, allowing us to acquire up to an additional one million shares or approximately 10% of the common stock outstanding over the next 24 months.
As Bryan Kitchen and Ryan Kavalauskas have fully gotten their arms around our businesses while restoring credibility internally and externally, it’s no longer necessary for me to deliver prepared remarks on our quarterly conference calls going forward. I’ll still make myself available to stakeholders as needed, but I don’t plan on going anywhere anytime soon. Overall, I’m proud of what we accomplished in 2024 as we turned around our businesses and laid the foundation for future growth. There still is a tremendous amount of work to be done in order to reach our value creation goals, and we’re on a mission to consistently deliver predictable and profitable growth. We appreciate the continued support from all of our stakeholders and look forward to executing our strategic initiatives in 2025.
With that, I’d like to pass the call over to Bryan Kitchen to provide details on our operations across both segments. I’ll be available later on to answer any questions. Bryan, over to you.
Bryan Kitchen: Thanks, Ben, and thank you all for joining us this afternoon. During our first earnings call a year ago, I shared that our primary objective for 2024 was to stabilize the enterprise. I’m proud to report that despite persistent market headwinds and the discovery of deep foundational challenges with the existing book of business and core capabilities, not only did we stabilize the business, but we also drove transformational improvements along the way. Without question, the refresh of talent and purposeful recapitalization of the SG&A has been and will continue to be pivotal to our accelerated improvements and transformation. So let’s talk about where we ended the year. Ascent Industries Co. closed the year with four consecutive quarters of EBITDA improvement, achieving a $19.9 million or 125% year-over-year increase in adjusted EBITDA while liberating a significant amount of trapped cash.
Our efforts to standardize, simplify, and optimize everything we do across segments and functions resulted in a $20.5 million or 1,349% increase in year-over-year gross profit. A strong result considering our top-line compression of $15.3 million or 7.9%. Throughout this process, we strengthened our balance sheet by generating nearly $15 million in free cash flow throughout the year and remained debt-free, positioning us well to invest in both organic and inorganic high-growth potential initiatives. Momentum is building as we have good things happening across both segments. Let’s jump in, starting with tubular products. As discussed in prior calls, we remain fully dedicated to maximizing the value of our existing assets in this segment while driving improved results.
Despite a year-over-year sales decline of $12.4 million, we boosted our segment-level gross profit by approximately $15 million. This achievement was primarily driven by the sustained benefits of aggressive cost management and product line optimization initiatives previously highlighted in our earnings calls. Pragmatic optimism is a good descriptor of how we are viewing 2025 in the tubular segment. Market dynamics are beginning to improve. Domestic investments in energy, energy storage, and core infrastructure sectors are beginning to translate into increased demand. In fact, our order backlog is now stronger than it has been in four years. That said, we have yet to see a material increase in mill lead times, which is generally a strong indicator of overall demand.
Again, pragmatic optimism. We will continue to execute aggressive self-help within this segment and across the entire enterprise. Now let’s shift our focus to specialty chemicals. Even with the challenging demand environment, our team continues to make significant steps forward. Ascent Industries Co. produced our highest quarterly adjusted EBITDA figure for this segment since the second quarter of 2022, despite moderate top-line compression. This was primarily driven by the 14% increase in gross margin, which reflects our commitment to upgrading the quality of our business, extracting the appropriate value for our goods and services, and aggressively managing cost. With this segment now fully operationally stabilized, we are focused on aggressively pursuing organic growth within our existing product portfolio and underutilized capabilities.
When looking at the market only through the lens of the products that we actively produce and sell today, such as surfactants, deformers, plane returns, and other intermediates, our total addressable market is over $9 billion. To be clear, that $9 billion is just related to branded products that we produce today, a small portion of the broader specialty chemicals market. The breadth of our capabilities underpins our agility and approach to chemistry by design. We will be laser-focused on the areas where our capabilities, our competencies, and our competitive edge position us to succeed in the near term. Mainly, HINI personal care, and energy. Our branded product sales will continue to be a cornerstone of our organic growth strategy as they offer faster cycle time than custom manufacturing, along with more predictable and ratable demand and improved margins.
In 2024, we recorded a double-digit year-over-year increase in branded product sales, driven primarily by our efforts in oil and gas. A testament to our focused strategy and targeted resource allocation. Building on our success in the oil and gas market, we recently launched our branded product portfolio for the HINI market, which are household, industrial, and cleaning ingredients geared towards a total addressable market worth of $2.5 billion. The new portfolio includes bio-based surfactants and specialty additives that address the industry’s growing demand for effective and environmentally friendly cleaning technology. This is a major milestone in our efforts to develop high-performing sustainable solutions. We have the necessary portfolio, the core competencies, and the capacity to profitably participate in this expanding market.
And we are very optimistic about the growth potential in this evolving space. Overall, we remain very confident in our segment’s potential for long-term organic growth. And we will continue investing in high-potential strategic initiatives to capture market share. From an inorganic growth standpoint, we remain active, but selective and disciplined in our approach. We look for good businesses that we can make great. It’s not only about size, but about the outcomes, strategically and operationally. Our growth with M&A is simple: to align every move with our mission and ensure it has maximum impact for our shareholders. Throughout 2024, Ryan and I spent much of our time putting the right team in place while driving foundational improvements needed for long-term success.
Moving forward, more of our time will be purposely allocated to investor relations with a laser focus on expanding our investor base, driving increased liquidity, and shareholder value. Expect to hear more and see more from Ascent Industries Co. in 2025, starting with a new IR deck within the next quarter. A deck that we believe will invite new conversations and spark increased interest in our company, our story, and our plans to unleash the fullest value potential for our shareholders. Finally, I would like to mention that our investors will be able to engage Ryan and me at the Planet Microcap Conference next month and the Oppenheimer Industrial Growth Conference in May. And we are actively exploring additional opportunities to further engage and energize the market.
Before I pass it off to Ryan, I want to thank our shareholders for their patience, their confidence, and the trust that they have placed in us over the past year. I would also like to thank the entire team at Ascent Industries Co. who have demonstrated incredible grit, hustle, and the drive to win. We have returned to consistently generating positive adjusted EBITDA, we remain debt-free, and we continue to grow our cash balance. With this strong foundation and the right people in place, we are optimistic about the future of Ascent Industries Co. and its ability to create durable shareholder value. I’ll now turn it over to our CFO, Ryan Kavalauskas, to walk us through our fourth quarter and full-year financial results in more detail. Ryan, the floor is yours.
Ryan Kavalauskas: Thank you, Bryan, and good afternoon, everyone. Jumping right into our financial results, let’s start with the fourth quarter. Net sales from continuing operations were $40.7 million compared to $41.2 million in the fourth quarter of 2023. Looking at the dynamics driving the slight decline, we had lower volume but higher pricing within specialty chemicals as we continue the mix shift to our higher-margin branded products. On the tubular side, we saw higher volume as we continue to work through older, stagnant inventory, which resulted in lower pricing but has positively contributed to cash flow generation as we unlock trapped cash in the segment. Gross profit from continuing operations increased 448% to $7.3 million or 17.9% of net sales, compared to a $2.1 million loss or negative 5.2% of net sales in the fourth quarter of 2023.
The increase was primarily driven by continued cost management, improved strategic sourcing, and product line optimization. Net income from continuing operations improved to $0.1 million or $0.01 diluted earnings per share compared to a net loss from continuing operations of $7.5 million or $0.73 diluted loss per share in the fourth quarter of 2023. 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. Adjusted EBITDA increased notably to $2.6 million compared to negative $5.9 million in the fourth quarter of 2023, with adjusted EBITDA margin increasing significantly to 6.3% compared to negative 14.4% in the prior year period.
The improvement was primarily a result of the aforementioned cost and product mix optimization initiatives. Now turning to our full-year 2024 results. Net sales from continuing operations were $177.9 million compared to $193.2 million in 2023. The decrease was primarily attributable to soft demand dynamics and purposeful product line modification, leading to a decline in volume across both segments, partially offset by increased pricing within the specialty chemicals segment throughout the year. Gross profit from continuing operations increased significantly to $22.1 million or 12.4% of net sales compared to $1.5 million or 0.8% of net sales in 2023. The increase in gross profit was primarily driven by cost reduction measures for labor and materials combined with product line optimization, which we implemented throughout 2024.
Net loss from continuing operations was $11.2 million or $1.11 diluted loss per share, compared to a net loss from continuing operations of $34.2 million or $3.37 diluted loss per share in 2023. As a reminder, we did have a $6.2 million tax charge related to a valuation allowance against our deferred tax assets in the third quarter of 2024. This is a one-time non-cash charge that did not affect our overall operating profit that quarter, but it did negatively impact our reported bottom line for the year. Adjusted EBITDA was $4 million compared to negative $15.9 million in 2023. Adjusted EBITDA as a percentage of net sales was 2.3% compared to negative 8.2% in the prior year. The increase is primarily attributable to continued gains in operational efficiencies and the aforementioned cost and product mix optimization initiatives.
Lastly, looking at our liquidity position as of December 31, 2024, we remain debt-free with $16 million of cash on the balance sheet and access to $47.4 million in borrowing availability under our current revolving credit facility. We remain confident in our liquidity position to deploy capital and drive both organic and inorganic growth in the near future. During the year, we repurchased a total of 101,263 shares for approximately $1 million through our share repurchase program. With that, I’ll now turn it back over to the operator for Q&A.
Operator: Thank you, sir. As a reminder, to ask a question, please press. Our first question comes from the line of David Siegfried. Hey, guys. Congratulations on a nice quarter.
Bryan Kitchen: Thank you.
David Siegfried: Yeah. So just a couple of questions. So, you know, obviously, we all see the strengthening balance sheet, new product development, better margins, gross profit. But where do you see with the top-line growth? Do you really see that starting maybe as early as Q1 of 2025?
Bryan Kitchen: Hey, David. It’s Bryan. Appreciate the question. In terms of top-line growth, I would say that’s really more of a second-half opportunity. The markets have not come back yet. We really reset the base in both tubular and chemicals inside of the second half of last year. I don’t think that we’re expecting anything material to change in the first half of 2025. Any uptick that we see is not going to be because the markets are helping us out. It’s because we’re grabbing share.
David Siegfried: Got it. But even with that lower revenue base, we still could be putting out similar gross profit or similar margin profile?
Bryan Kitchen: Yeah. I mean, we’ve been incredibly successful in driving aggressive cost reduction that we’ve demonstrated our ability to sustain those gains. So yeah, that along with the pricing actions and the portfolio actions from a product mix optimization perspective, we’re heading in the right direction.
David Siegfried: Yeah, for sure. Good. So, you know, the cash grew considerably from Q3 to Q4, up $7.5 million. So could you talk a little bit about what contributed to that growth in cash?
Ryan Kavalauskas: Sure. Right. One second. Yeah. We continue to optimize our idle and stagnant inventory. That was the largest driver of cash, and then we continue to do that in Q4. So that was far and away the largest increase. Efforts on collections, inventory management, and payables management also helped shore up our cash conversion cycle, which pulled almost two weeks of cash back into the year. So those two items combined just continue to kind of turn that cycle a little faster and generate a little bit more cash every quarter.
David Siegfried: Okay. Good. A question on the underutilized assets here. I noticed in the 10-Q from the third quarter, at the 20,000 feet in Cleveland, Tennessee, plant had been leased to a third party. And I know that Palmer has had a sublease in the past. And on haul, I think we were looking for a sublease there. So is there any updates you can give on any of those properties?
Bryan Kitchen: Yes. Yeah. So our third party or so in Tennessee, specific to our chemicals facility, we had a smaller little warehouse that I believe in the second quarter, perhaps it was early to third quarter. We managed to broker the sale of that warehouse through our leasing provider. So that’s done and passed us. Yes. We have an active sublease with Palmer, so pivoting to the real opportunity or challenge is the month off-site. We’re actively working to find a forever home for that asset.
David Siegfried: Got it. Okay. Now last month, there was the launch of the Ingredion cleaning portfolio, which was nice to see. But now you mentioned today that that market is $2.5 billion. So, I mean, how is that being accepted by the marketplace and by potential customers?
Bryan Kitchen: No. I mean, that’s a good question. So last month, we launched the portfolio, and we actually had a little party, if you will, at a cleaning conference down in Florida where we launched the brand new portfolio. And to no surprise, not that many potential customers even knew who we were and that we even participated in the space. So I would say it’s early. The reception was really, really good. The team walked away with a number of net new opportunities that they’re actively pursuing, and hopefully, we can convert those from opportunities to actual sales in the near term.
David Siegfried: Okay. Now, you know, I know the team has spent some time trying to really make work on their sourcing, domestic sourcing of critical ingredients and a supply chain that’s secure, that’s domestic. So you think what you’ve been accomplishing is positioning the company to have a competitive advantage in this area?
Bryan Kitchen: Yeah. So two things, David. Number one, from a raw material sourcing standpoint for Ascent Industries Co., our exposure is very, very minimal. So I want to make sure that our shareholders understand that. Our team has done a really good job making sure that we’re not reliant on offshore sources of raw materials that may or may not be subject to future tariffs and or future supply chain disruptions. On the other side of the coin, what I would say is, yeah, there’s a tremendous opportunity to capitalize on the domestic manufacturing renaissance. A number of current and prospective customers are talking about their strategic initiatives to bring sourcing back onshore, along with optimizing their supply chains. Now we all know that those types of changes don’t happen overnight. It takes time to implement those, but we’re starting to get some pretty interesting net new opportunities as a result of that.
David Siegfried: Yeah. Good. Good to hear. Now in chemicals, I mean, the margins were excellent. I mean, just outstanding. And obviously, because of your mix to branded sales. But so is there a chance that there could even be more margin improvement in chemicals or at the very least just sustaining these margins?
Bryan Kitchen: Yeah. Look, I think that there can be ongoing margin improvement as we continue to increase our sales of the branded product portfolio. We did go out last year with some very targeted price increases. We were successful in achieving those increases. I don’t anticipate much more of that in 2025. We’ll see what the raw material market does.
David Siegfried: Okay. A question about the share repurchase. Now, you know, it shows increased confidence in business, stock undervalued. I noticed in 2022, I think the buyback averaged maybe 18,000 shares a month. 2023, 12,000 shares a month. 2024, 8,000 shares a month was bought back. That’s when we had no debt. So without sounding skeptical, is this really doable in order to buy back a million shares over two years, that’s 40,000 shares a month at least that you’d have to buy back. So is that doable even based upon what I’ve seen the last two and a half years, I wonder, you know.
Bryan Kitchen: Allstate’s saying is that, you know, it gives us some parameters of what we’re gonna try to do. So we have the ability to purchase shares up to that amount. It’s not necessarily drawing a line in the sand saying we’re gonna do, you know, a certain portion over a certain time duration. So I think it’s good corporate hygiene for a company to have that in place to give us the optionality to be able to do it if we’re able to, if we can capitalize on the share prices. And so it just depends on things like, you know, volume. It also depends on, you know, when we’re able to buy back shares. Right? So there are certain times of the year we’re precluded from buying back shares. It’s not necessarily directly comparable from year to year. But, you know, as long as we believe that it’s a good use of our capital to be buying back our own shares, we’re gonna find a way to do it.
David Siegfried: Yeah. Okay. Good. And then one last question. You know, guys, you’ve been leading the company for over a year now. And based upon where the company was a year ago till today, I mean, obviously, good job. But where do you see it a year from now?
Bryan Kitchen: Where do we see it a year from now? We’re, David, we’re pivoting to growth. Both organically and inorganically. We have underutilized assets that need to be filled up with high-quality, high-value applications, and we’re in the process of doing it.
David Siegfried: Okay. Good. Well, you know, thank you for the time. I appreciate it.
Bryan Kitchen: Appreciate you, David. Thank you.
Operator: Thank you. At this time, this concludes our question and answer session. I would now like to turn the call back over to Mr. Kitchen for closing remarks.
Bryan Kitchen: Thank you, Gigi. We’d like to thank everyone for listening to today’s call, and we look forward to speaking with you again when we report out our first quarter 2025 results.
Operator: Ladies and gentlemen, this does conclude today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.