Ascent Sees Growth and Operational Efficiency Gains in Q2 2024
Ascent (Ticker: ASC) reported its financial results for the second quarter of 2024, highlighting the strongest quarter of consolidated adjusted EBITDA since Q4 2022. The company experienced a surge in volume and an increase in gross profit in its Tubular Products and Specialty Chemicals segments.
Despite a challenging market with soft demand, Ascent has been proactive in implementing cost-cutting measures and operational efficiencies. Focusing on optimizing its product mix, the company is also strategically planning for future growth through capital allocation and share repurchases. Ascent anticipates a gradual improvement in demand throughout the year, setting the stage for more robust growth opportunities in 2025 and beyond.
Key Takeaways
- Ascent's Q2 2024 consolidated adjusted EBITDA is the best since Q4 2022.
- Net sales of $50.2 million, a slight decrease due to lower pricing.
- Gross profit improved to $5.9 million with a significant gross margin increase to 11.7%.
- Net loss from continuing operations reduced to $0.2 million.
- Adjusted EBITDA increased to $2.1 million with an improved margin of 4.2%.
- No outstanding debt under the revolving credit facility and access to $62.7 million for growth.
- Repurchased 15,233 shares for approximately $156,000.
- Management is optimistic, focusing on reinvestment, inorganic growth, and cost management.
Company Outlook
- Expected demand improvement throughout the year with substantial growth opportunities in 2025.
- Building traction in branded product sales and chemicals, with further progress expected in Q3.
Bearish Highlights
- Net sales from continuing operations saw a slight decline due to decreased pricing.
- The market is currently experiencing soft demand.
Bullish Highlights
- Volume increase due to clearance of lower-priced inventory.
- Strategic sourcing initiatives and cost improvements led to a significant increase in gross margin.
Misses
- Despite improved financial results, net sales decreased slightly from the previous year.
Q&A Highlights
- Completed a $2.8 million asset sale for Munhall.
- Management strategically looking at reinvestments and potential accretive margin-building capital investments.
- Positive cash building on the balance sheet and evaluating how best to utilize it.
- Strong liquidity position and optimism about future prospects and potential to unlock more value from the existing asset base.
Full Transcript – Ascent Industries Co (ACNT) Q2 2024
Operator: Good afternoon, everyone, and thank you for participating in today's conference call to discuss Ascent's Financial Results for the Second Quarter ending June 30, 2024. Joining us today are Ascent's Executive Chairman of the Board, Ben Rosenzweig, CEO, Brian Kitchen, CFO, Brian Kavaloskis, and the company's Outside Investor Relations Advisor, Cody Cree. Following their remarks, we'll open the call for your questions.
Cody Cree: Thanks, Cherie. 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. Ascent advises all listening to this call to review the latest 10Q and 10K for a summary of these risks and uncertainties. Ascent does not undertake the responsibility to update any forward-looking statements. Further, the discussion today may include non-GAAP measures, reconciled back to the closest GAAP-based measurement. Reconciliations can be found in the earnings press release issued earlier. With that, I'd like to turn the call over to Ascent's Executive Chairman of the Board, Ben Rosenzweig.
Ben Rosenzweig: Thank you, Cody, and good afternoon, everyone. We're pleased to report improved financial results for the second quarter as our stabilization efforts are beginning to bear fruit. Though the broader demand environment remains soft, volume picked up across both segments due to churning through slow-moving inventory as we shift towards more profitable product lines. We expect demand to slowly improve through the remainder of the year, with more substantial growth opportunities in 2025 and beyond. We're focusing on near-term initiatives to cut costs, drive operational efficiencies, and optimize our product mix. Bryan will provide details on each segment, but we're on the right track towards executing our long-term vision.
We're confident that the Specialty Chemicals segment, led by Bryan and Ryan's team, can deliver more profitable and predictable revenue streams, resulting in better value for shareholders over the long term. As for our capital allocation priorities, we're comfortable with our current liquidity position, which allows flexibility to deploy capital to high conviction areas. We continue share repurchases and remain committed to exploring further opportunities as long as our stock trades below our expectation of intrinsic value. It's been our mission to restore credibility with the market, and we’re making progress. We expect financial improvements in the back half of the year from internal initiatives, not necessarily from an uptick in demand. We look forward to continued momentum in forthcoming quarters and years. Now, I'll pass the call over to Bryan for operational details. Bryan, over to you.
Bryan Kitchen: Thanks, Ben. During our Q1 2024 earnings call, I mentioned momentum was building across the enterprise, positioning us for a recovery in the back half of the year. Despite market-driven and cleanup-related headwinds, we delivered the best quarter of consolidated adjusted EBITDA since Q4 2022. Despite soft market demand, our material volume gains in Q2 were due to monetizing slow-moving inventory, which offset unprofitable business deselection. Our team reduced material costs by nearly $4 million and labor and overhead by nearly $3 million compared to last year. This strategic focus put us on the right track to create durable value for shareholders.
For Tubular Products, demand remains soft due to high financing costs and tight working capital management. However, we saw an 18% volume growth offset by unfavorable pricing. We improved gross profit by 311% compared to last year and achieved the highest quarterly adjusted EBITDA since Q4 2022. Post-quarter, we monetized certain Munhall assets, generating $2.8 million in cash proceeds. We continue to optimize our entire cost structure, focusing on maximizing the value of our current asset base.
In Specialty Chemicals, market demand remained soft, but we saw a 20% year-over-year volume gain. We are accelerating sales of our existing product line while exploring new product development opportunities. Our R&D team was highly active in Q2, developing a record number of new formulations for customer qualification. Our team’s strategic focus on self-improvement has led to significant gains in material costs, labor, and overhead, improving segment gross profit by 466% compared to last year. We're building momentum for profitable, organic, and inorganic growth. I remain optimistic about Ascent's future. Now, I'll turn it over to our CFO, Ryan Kavalauskas, for detailed financial results. Ryan, over to you.
Ryan Kavalauskas: Thank you, Bryan. Net sales from continuing operations were $50.2 million compared to $50.4 million last year, primarily due to lower pricing. This was offset by volume upticks from liquidating slow-moving inventory. Gross profit from continuing operations increased to $5.9 million from negative $0.8 million last year, with gross margin rising to 11.7% due to strategic sourcing initiatives. Net loss from continuing operations improved to $0.2 million or $0.02 diluted loss per share, from $6.1 million or $0.60 loss per share last year, driven by higher gross profit and lower interest expenses. Adjusted EBITDA increased to $2.1 million from negative $4.8 million last year, with a 4.2% margin improvement. As of June 30, 2024, we had no outstanding debt and $62.7 million in liquidity for future growth. We also repurchased 15,233 shares for approximately $156,000. Now, back to the operator for Q&A.
Unidentified Analyst: Hey, congratulations on the momentum. How do you see margin improvement going forward?
Bryan Kitchen: Yes, we expect margin improvement to continue as we optimize our product portfolio and cost structure.
Unidentified Analyst: How's the performance of branded product sales and chemicals?
Bryan Kitchen: It’s improving. New business wins are gaining traction, and we're heading in the right direction.
Unidentified Analyst: Are the new wins from increased demand or a more effective sales team?
Bryan Kitchen: These are net new opportunities, showing month-on-month growth without prior pipeline inclusion.
Unidentified Analyst: Do you plan to let cash build before deciding how to use it?
Ryan Kavalauskas: We're strategically considering re-investments and capital opportunities, letting cash build as we focus on costs.
Ben Rosenzweig: Exactly. We feel good about our liquidity and are cautious with capital deployment.
Unidentified Analyst: Are you more optimistic about the potential of the company now?
Bryan Kitchen: Yes, I'm very bullish. We’re unlocking more efficiencies and the potential within our existing asset base.
Ryan Kavalauskas: Agreed. There's more efficiency and margin to extract than initially thought.
Unidentified Analyst: Thank you for the input and keep up the good work.
Bryan Kitchen: Thanks, David.
Operator: This concludes our Q&A session. I'll turn it back to Mr. Kitchen for closing remarks.
Bryan Kitchen: Thanks, Cherie. Thank you, everyone, and we look forward to discussing our Q3 2024 results. Have a great afternoon.
Operator: This concludes today’s program. Thank you.
