Release Date: August 06, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Ascent Industries Co (ACNT, Financial) reported improved financial results for the second quarter, indicating stabilization efforts are beginning to bear fruit.
- The company achieved the best quarter of consolidated adjusted EBITDA since Q4 2022 without tapping into its revolving credit facility.
- Significant cost reductions were achieved, including a 28% reduction in material costs and a 30% reduction in labor and overhead compared to the same quarter prior year.
- Gross profit from continuing operations increased to $5.9 million from negative $0.8 million in Q2 2023, with gross margin improving to 11.7% from negative 1.5%.
- The company has ample liquidity with no outstanding debt under its revolving credit facility, providing access to $62.7 million for future growth opportunities.
Negative Points
- The broader demand environment remained soft, impacting overall sales performance.
- Material volume gains were largely attributed to monetizing slow-moving inventory rather than organic growth.
- Unfavorable pricing, driven by fulfilling a low-priced order backlog and depressed nickel pricing, offset strong quarter-on-quarter volume growth in the Tubular segment.
- Despite improvements, the company still faces ongoing market headwinds and unfavorable mix impacts.
- The Specialty Chemicals segment also experienced soft market demand, with material year-over-year volume gains primarily due to efforts to monetize slow-moving inventory.
Q & A Highlights
Q: With the labor and material costs that have been taken out of both businesses, is it safe to assume that there will be margin improvement, sequentially going forward?
A: Yes, absolutely. We will see that margin improvement carry through. We're continuing to evaluate our product portfolio and mix, and we are looking for ways to further optimize costs. (J. Bryan Kitchen, CEO)
Q: How has the cadence of the branded product sales in chemicals been going lately?
A: We are building meaningful traction and getting closer to run rate volumes on initial opportunities. Based on the activity in the second quarter from an R&D perspective, we are heading in the right direction. (J. Bryan Kitchen, CEO)
Q: The $10 million in new wins in the first quarter and the activity in the second quarter, is that increased demand or a more effective sales team?
A: Those were net new selling opportunities that were not in the pipeline prior to Q2. They continue to build month-on-month, reaching full run rate volume and EBITDA in Q3. This progress is driven by a hyper-focused and incredible team. (J. Bryan Kitchen, CEO)
Q: With the $2.8 million asset sale for Munhall and the $3.6 million in cash as of June 30, is the plan to collect cash until it's determined how to use it?
A: We are strategically looking at reinvestments and accretive margin-building capital investments. Currently, there is no specific allocation for the capital, but we are focused on costs and building cash. (Ryan Kavalauskas, CFO)
Q: Given the cash on the balance sheet, what is the approach to capital allocation?
A: We feel very good about our liquidity position. Just because there is excess cash doesn't mean we will change our mentality. We will ensure everything meets our thresholds while building cash and creating enterprise value. (Benjamin Rosenzweig, Executive Chairman)
Q: After six months with the management team, do you see more potential in the company than initially perceived?
A: Yes, we are incredibly bullish about the prospects. We are just beginning to unlock the capabilities of our foundational assets. There is a lot more we can do within our existing asset base. (J. Bryan Kitchen, CEO and Ryan Kavalauskas, CFO)
Q: What are the main drivers for the improved profitability in Q2?
A: The improvement was driven by aggressive self-help initiatives, including a 28% reduction in material costs and a 30% reduction in labor and overhead compared to the same quarter last year. (J. Bryan Kitchen, CEO)
Q: How is the Specialty Chemicals segment performing?
A: Despite soft market demand, we achieved material year-over-year volume gains of 20% in Q2. We are focused on accelerating sales of existing products and exploring new product development opportunities. (J. Bryan Kitchen, CEO)
Q: What are the future growth opportunities for Ascent Industries?
A: We are positioning the business for profitable organic and inorganic growth. We are laying a solid foundation for durable earnings growth by standardizing, simplifying, and optimizing all that we do. (J. Bryan Kitchen, CEO)
Q: What is the current liquidity position of the company?
A: As of June 30, 2024, we have no outstanding debt under our revolving credit facility, providing us access to $62.7 million in availability for future growth. (Ryan Kavalauskas, CFO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
