Ascent Industries Q2 2025 Earnings Call Transcript

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Provided by Quartr
August 6, 2025

Key Takeaways

  • Positive Sentiment: Completed divestiture of all Tubular segment assets to become a pure-play specialty chemical company focused on scalable, durable margin growth.
  • Negative Sentiment: Idle Munhall facility continues to impose a $2.1 million annualized drag on adjusted EBITDA until disposition or restart.
  • Positive Sentiment: Repurchased and retired nearly 6% of outstanding shares, underscoring management’s conviction in the company’s long-term value.
  • Positive Sentiment: Sequential Q2 improvements: revenue rose $0.8 million, gross margin expanded to 26.1% (+888 bps), and adjusted EBITDA loss narrowed despite Munhall costs.
  • Positive Sentiment: Secured $3.1 million of annualized new revenue at a 29% gross margin with 88% from existing customers and increased the sales pipeline by $25 million.
AI Generated. May Contain Errors.
Earnings Conference Call
Ascent Industries Q2 2025
00:00 / 00:00

There are 6 speakers on the call.

Operator

Good afternoon, and welcome to Ascent Industries Second Quarter twenty twenty five Earnings Call. Today's speakers are CEO, Brian Kitchen CFO, Ryan Kevaleskis and the company's outside Investor Relations Adviser, Ralph Esper. We'll begin with prepared remarks followed by Q and A. Before we go further, I would like to turn the call over to Ralph Esper 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. Ralph?

Speaker 1

Thanks, Liz. 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 security 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 of those listening to this call to review the latest 10 Q and 10 ks posted on its website for a summary of these risks and uncertainties. Ascent does not undertake the responsibility to update any forward looking statements.

Speaker 1

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. The reconciliations can be found in the earnings press release issued earlier today and posted on the Investors section of the company's website at www.asenco.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. Now I would like to turn it over to our CEO, Brian Kitchen, to walk you through the results and what's driving continued momentum.

Speaker 1

Brian?

Speaker 2

Thanks, Ralph. Q2 marked a defining milestone in the sense of transformation. With the successful divestitures of both Bristol Metals and American Stainless Tubing, we've now fully exited all operating assets within the Tubular segment. The only remaining drag is our idle Tubular facility in Munhall, Pennsylvania, a $2,100,000 annualized headwind to adjusted EBITDA. We're actively pursuing parallel paths to unlock that trapped cash and close this final chapter.

Speaker 2

Our portfolio is clean. Our focus is singular. Ascent is officially a pure play specialty chemical company, purpose built to scale, generate durable margin, and deliver exceptional customer outcomes. But we didn't just restructure the portfolio. We put it to work.

Speaker 2

This quarter, we repurchased and retired nearly 6% of our outstanding shares. That's not symbolic. It's a statement of conviction. We believe in the long term value of the platform we built, and we're backing it with decisive capital allocation. More importantly, we've delivered sequential improvements in revenue, gross profit, gross margin, and adjusted EBITDA.

Speaker 2

A few highlights. Revenue increased $817,000 sequentially to 18,700,000.0 though fell short of the $21,400,000 prior year comp, largely due to broader market softness. Gross profit rose $1,800,000 from Q1 and $2,100,000 versus the same quarter last year. Gross margin expanded 26.1%, up eight eighty eight basis points sequentially and twelve ninety eight basis points year over year. Adjusted EBITDA increased $131,000 sequentially to a loss of $335,000 in the quarter, but fell short of prior year by $53,000 And we achieved all of this despite absorbing $475,000 of Munhall related costs in the quarter, excluding the asset impairment on the right of use asset on the facility.

Speaker 2

These canes are not episodic. They reflect disciplined execution, strategic focus, and a business model that's working. We're shifting mix to higher margin opportunities, managing cost with purpose, and turning commercial wins into real operating leverage. Our operations team continues to drive momentum. Labor, overhead and production variances improved by more than $1,200,000 year over year, while service levels hit all time highs, despite a more complex and more dynamic product mix.

Speaker 2

In Q2, our team developed process modifications that drove a 5% yield improvement across a targeted product basket, unlocking a $250,000 in annualized gross profit and a meaningful reduction in cycle times. That's continuous improvement in action. Strategic sourcing remains a standout strength, consolidating vendors, qualifying new sources, and continuing to lower raw material costs without sacrificing reliability. As reported last quarter, roughly 95% of our revenue is supported by domestically produced raw materials, dramatically reducing our exposure to tariff volatility. And on the commercial side, momentum continues to build.

Speaker 2

In Q2, we secured over 3,100,000 of annualized new revenue at a 29% gross margin, well above historical averages. These wins spanned oil and gas, HI and I, pulp and paper, and case, all markets where our value proposition continues to resonate. Roughly one third of that growth came from product sales, two thirds came from high quality custom manufacturing engagements. Notably, 88% of those wins were expansion with existing accounts, further proof that our model is earning trust and expanding share of wallet. This is where chemicals as a service comes to life.

Speaker 2

We're not just selling products. We're solving problems. We're creating formulations, offering blending and packaging, managing logistics, ensuring regulatory compliance, and delivering it all with speed and precision. We do this across small and large volume requirements in ways that traditional manufacturers won't and distributors simply can't. It's a hybrid model that fuses custom manufacturing, high service execution, and it's working.

Speaker 2

Underpinned by a $25,000,000 increase in our selling project pipeline, the $3,100,000 of new business won in Q2 is expected to grow significantly into 2026. And with no significant new fixed cost burden, each incremental win translates directly to meaningful profit. That's what makes this model powerful, is that it's scalable. Every customer engagement, every sourcing win, yield improvement, and process improvement builds muscle. The platform that we're building compounds and strengths, and the value that we create for our customers multiplies as we grow.

Speaker 2

Across the moments that matter, we win because we respond faster than traditional manufacturers, especially in the early stages like discovery and development, where our technical bench and speed help customers move from problem to solution. We offer services far beyond what distributors can, spanning the full range of

Speaker 1

the value chain from reaction based product development to logistics to regulatory compliance and reformulation. We lead with service and agility, not line cards.

Speaker 2

We solve problems most platforms aren't built to see, because we design our model around every stage of customer loyalty: discovery, contracting, fulfillment, and lifecycle support. And we do it all while expanding margin and strengthening reliability for our customers, not by chance, but by design, with process automation, dual source qualification, operational excellence built into everything we do. These moments that matter are where loyalty is earned and retained, and Ascend is winning because we've made them our blueprint for scalable, profitable growth. Without question, the strategic recapitalization of SG and A and the operational horsepower behind it has been central to our transformation. Over the past year, we've redirected investment into roles that enable and unlock growth: technical sales, business development, engineering, strategic sourcing, marketing, business operations, and customer care.

Speaker 2

And while the total SG and A has remained effectively flat, the return on that spend has fundamentally changed. These teams are now delivering measurable results, new commercial wins, stronger margins, deeper customer penetration, and all time service levels. And we're just getting started. We're not building a traditional chemicals company. We're building a performance platform engineered to solve the hardest problems across reaction chemistry, formulation, supply chain compliance, and fulfillment.

Speaker 2

From development to delivery, we own the outcome. That's why we're gaining share. That's why margins are expanding. And that's why the best chapters of our story are still ahead. Before I pass it over to Ryan, I want to thank our incredible team at Essence, our superpower, who has continued to demonstrate remarkable grit, hustle, and the drive to win.

Speaker 2

I also want to thank our investors for the trust and confidence that you placed in both Ryan and I, and the team that we've assembled. With that, I'll turn it over to Ryan to provide you a bit more context behind our financial performance. Ryan, over to you.

Speaker 3

Thanks, Brian, and good afternoon, everyone. As Brian laid out, Q2 was a milestone in a sense transformation, and the financials are beginning to reflect the benefits of our disciplined repositioning. Today, I'll walk through our second quarter results and highlight where structural improvements are driving sustainable margin and operating leverage, even in the face of persistent macro headwinds. Revenue from continuing operations was 18,700,000.0 down 13% versus Q2 of last year, but up nearly 5% sequentially from 2025. The year over year decline was primarily volume driven, reflecting softer demand across key end markets, though pricing actions taken over the past several quarters helped partially offset the impact.

Speaker 3

This top line momentum quarter over quarter, albeit measured, is especially notable given the broader macro chemical environment where manufacturing activity has largely languished below expansion territory over the past two years, with only a brief respite in early twenty twenty five when PMI readings edged above 50 in January and February. The sector has since reverted to contraction with July 2025 registering 48. Within that context, our sequential growth signals early traction from our focus on higher value commercial engagements and more resilient end market exposure. Gross profit increased to 4,900,000 with gross margin expanding to 26.1%, up from 17% in Q1 and 13.1% in the prior year period. However, it's important to note that in June we reclassified approximately $1,200,000 of costs from cost of goods sold to SG and A to more accurately reflect the administrative nature of certain Munhall, Palmer and SBT support resources.

Speaker 3

Adjusting for this reclassification, normalized gross margins for Q1 and Q2 in 2025 would have been approximately 2122.4% respectively, still representing strong year to date expansion. This improvement in margin quality is being driven by favorable pricing, continued reductions in raw material input costs through strategic sourcing and operational efficiencies across our sites. Despite a 29.6% year over year decline in volume, driven by both market conditions and our deliberate exit from lower value streams, our pricing actions and cost management efforts are creating real operating leverage. Turning to SG and A, expenses totaled $6,400,000 in Q2, up from $4,600,000 in the prior year period. But this year over year comparison is skewed by two factors.

Speaker 3

First, the $1,200,000 reclassification of support related COGS into SG and A. Second, the reinclusion of remaining ongoing Munhall expenses in continuing operations this year, whereas it was previously captured in discontinued operations. When you remove these combined effects and isolate core SG and A, excluding Munhall, Palmer and SBT related overhead, underlying expenses were actually down approximately $400,000 year over year. That's despite continued investments in commercial, technical and operational talent as well as system and process improvements designed to scale the platform. These margin gains paired with disciplined cost management are beginning to show up in our bottom line.

Speaker 3

Adjusted EBITDA for the quarter was a loss of $300,000 flat to prior year, but again, this includes roughly $475,000 of Munhall related costs now embedded in continuing operations. Adjusting for these legacy site impacts, Q2 adjusted EBITDA would have been approximately positive $181,000 We believe this is a more accurate reflection of the earnings power of our core business and underscores the progress we've made in repositioning the cost structure. All of this progress is underpinned by a balance sheet that remains exceptionally well positioned to support our strategy. We ended Q2 with $60,500,000 in cash, no debt and $13,400,000 of availability under our revolver. We remain disciplined in our capital deployment having repurchased over 644,000 shares in the quarter, nearly 6% of the company at an average price of $12.15 per share, while preserving flexibility for future growth investments or opportunistic M and A.

Speaker 3

To wrap up, revenue improved sequentially despite muted macro conditions and lower volume. Gross margins expanded significantly year to date even after adjusting for accounting reclassifications. Core SG and A is down year over year, reflecting disciplined execution and early operating leverage. Adjusted EBITDA would have been positive excluding legacy site drag and we expect continued improvement going forward. We're confident in the underlying trajectory of the business, and we're committed to sustaining this momentum through thoughtful execution and disciplined capital stewardship.

Speaker 3

With that, I'll turn it back over to the operator for questions. Thanks.

Operator

Thank you, sir. And at this time, we will conduct our question and answer session. Your first question comes from the line of Adam Waldo from Lismore Partners. Please proceed.

Speaker 4

Hi, good day Brian and Ryan. Hope you're well. Thank you for taking my questions.

Speaker 1

Brian,

Speaker 4

we had a chance to meet at an investor conference in Chicago in early June and I appreciate your thoughtful answers to my questions. And I want to follow-up on a couple of things light of this quarter's results release. First, as you think about the 2,030 adjusted EBITDA margin target that you've laid out in your Planet Michael Cap showcase part of the presentation of 15% net of public company overhead, What sort of revenue number are you contemplating there? And can that revenue number be achieved through the excess capacity you have within the existing footprint or would some of that revenue need to be acquired?

Speaker 2

Yeah, no, good question. Appreciate that, Adam. So, outside of our within our existing asset base, we're confident that we can get to, let's say, 120,000,000 to $130,000,000 of top line. And if you recall from the microcap deck, taking that down to gross margins of roughly 30% to 35% with SG and A at that level of nominally 15%, taking it down to adjusted EBITDA targets of about 15%. So we're confident that within the existing asset base, can get to, we can grow into about 120 to 130, depending on mix.

Speaker 4

And so how do you all sort of quantify and think about your near to intermediate term new business pipeline over the next twelve to call it eighteen months?

Speaker 2

Yes, guess could you be more specific?

Speaker 4

Well, I know your business is one in which you sort of combine more of what I'll call spot market opportunities but also some longer term contracted business, right, with larger industrial clients and the like. So how should we think about the amount of organic revenue growth that to which you feel you have line of sight through your new business pipeline as we look out over the next twelve to eighteen months, or is that pretty hard to quantify at this point?

Speaker 2

Yeah. I mean, look, this is something that we work on every day. So one of the data points that I referenced earlier was an increase in our selling project pipeline by about $25,000,000 over the last quarter. And of that $25,000,000, it's spread out across four to five different market segments. It's a mix of both product sales as well as high value custom manufacturing.

Speaker 4

Okay. That's tremendously helpful. Last question, if you'll permit me, Brian. In that investor conference in early June, in response to my question, you talked about an executive management equity compensation plan that was being finalized and and was going to be presented to the board. Has that been presented to the board at this point, for its review and consideration?

Speaker 4

And should we view repurchases of about 600,000 shares during the second quarter as having been done, A, because of the undervaluation of stock, but B, to support that management equity incentive plan for sort of the next level, levels of management below the CEO and the CFO?

Speaker 2

Yeah. I'll answer those questions in reverse. So the share buyback of about 6% of our outstanding shares is not related to any type of equity program for senior leaders within the company. That's just purely based on fact that we believe that this company is undervalued today, and it will be it will only increase in value in the near term. So that's part a.

Speaker 2

Part b, getting back to, you know, getting back to the question again. Look, we have an existing equity program in place. For Ryan and I, we're at the final stages of advancing broader equity program. And with the compensation committee's help, that will be updated and refreshed each year.

Speaker 4

Okay. And in terms of this year's tranche of that, would you expect that to be finalized with the Board Compensation Committee?

Speaker 2

That's already yeah, mean, that's already been settled.

Speaker 4

It's already been set. Okay. This is really for '26. All right. Thank you very much.

Speaker 2

You bet.

Operator

Our next question comes from the line of David Siegfried. Please go ahead.

Speaker 5

Hey, thanks for taking my call. Congratulations on the progress made this past quarter. Thank you. Yes. So I know generally the earnings for a chemical manufacturer are more stable than a tubular and would demand a higher multiple.

Speaker 5

So I don't know if really the rerating has happened yet. What do you see as a catalyst to get get this this higher?

Speaker 2

Yeah. Think it's three things. I think it's growth, growth, and growth. Right? So outside of addressing the the lingering month haul issue, which which we are, Our primary focus after stabilizing and fixing the foundation last year is all about driving both organic and inorganic growth.

Speaker 2

And it's been really encouraging to see just the enormous progress that our team has made over the past, well, several quarters. But what I would say is the momentum that we have seen over the past quarter has just been incredible. So we're very excited about the future, very excited about the work that the team is doing, and we're very excited about our the value proposition that we have that's resonating with our customers.

Speaker 5

Good to hear. And so do you think a return to profitability is in the cards for like we'll say third or fourth quarter? I know earlier in the year we were talking about that second quarter or I mean, I'm sorry, or fourth quarter twenty twenty five.

Speaker 2

I mean, that's certainly what we're running and gunning towards. As Ryan indicated earlier, if you exclude the Munhall aspect, we're we're effectively there. What I would say is the levels of profitability are are cute. We're not satisfied with that. We've got much larger aspirations that we're working towards.

Speaker 5

Got it. So congratulations on making the Russell Index this year. Previous two times that Ascent made the Russell. The previous year was kicked out because of not having market cap meeting of market cap requirements. So you think this year will be different?

Speaker 5

2026, you think that will be different?

Speaker 2

I I I hope with improved stability, that will not be the case, but I can't guarantee that.

Speaker 5

Right. No, I understand. Then we're talking a little bit, the previous caller talking a little bit about the board. Do you think there would be some advantages to having a board of directors that consists of a chemical guy or a few chemical guys? Because after all, it's a chemical company now.

Speaker 2

Yeah. I mean, look, like we've said, over the course of the past year, our board of directors has been incredibly supportive of Ryan and I and the and the team that we've put in place, over the past year and and rolling into this year. Certainly, there's a recognition that we do not have chemical industry representation on our current board and that's being addressed.

Speaker 5

Good. And then, I think that I've been following this story for six, seven years, probably more, and been an investor for that time. So ASTI, the asset was essentially sold for less than what it was paid for years ago. And I would have to say the DanChem purchase was probably an overpay considering it was bought at peak market. Do you think more discipline or do you think it appears that you have more discipline now this time around when it comes to potential purchase or acquisition?

Speaker 2

I mean, that's certainly the plan, David. We've looked at a number of properties. We've gotten into LOIs. We've walked away, because we couldn't align on an appropriate value. So we're not going to get into deal fringe and just do a deal for the sake of doing a deal.

Speaker 2

We want to do the right deal. We want to do the right deal for our shareholders. We wanna start off with something small as we've talked about before. We wanna demonstrate to ourselves and to our shareholders that we can extract the contemplated growth synergies, extract the contemplated cost synergies before we get too far out ahead of ourselves. So I would look for smaller transactions before bigger transactions.

Speaker 5

Got it. Makes sense. And then regarding the buyback, great amount of shares bought back last quarter. Do you see that happening in the future, big tranches like that? Or is this going to be a continuation of depending upon the the order flow, you know, picking up 100,000 shares per quarter if you have that type of volume.

Speaker 2

Yeah. I mean, we're we're look, we're gonna continue to operate within the existing buyback agreement, and we'll continue continue to evaluate opportunities with board. But, you know, as you know, we've we've got a fair amount of of dry powder right now, and we'd like to unleash that with inorganic growth opportunities.

Speaker 5

Got it.

Speaker 2

It's not an or. Alright. Just like we said before, it's not an or. It's an and.

Speaker 5

Right. Sure. Very good. Well, thank you for the time. Appreciate it.

Speaker 2

You bet. Thank you.

Operator

Your next question comes from the line of Adam Waldo with Lismore Partners. Please go ahead. A

Speaker 4

quick follow-up on the other gentleman's line of questioning around the trade offs, implicit trade offs between deploying capital for M and A versus share buybacks. As you all get toward, we'll get in the future towards the end of the time period of achieving, filling the existing capacity footprint and reaching call it 120,000,000 of annualized run rate revenue. How do you think about the M and A multiples as multiple of revenue and pre operating expense synergy EBITDA that you would need to acquire companies to compare favorably with the risk free rate of return available on your stock repurchases?

Speaker 2

Sure. Rod, you want to jump in?

Speaker 3

Yeah. I mean, the way we're looking at M and A today from an inorganic perspective is we believe assets that we'll be looking to acquire will be trading in that six to eight times EBITDA range. So we would like to stay at the lower end of that range when you take into account synergies, just based on where we're trading today and based on the value we can extract organically. So Brian said this is a it's an and discussion. So we'll always look at opportunistically buying back our shares.

Speaker 3

We'll look at M and A and we'll like deals early that trend towards that lower end of that six to eight times range. I don't think we're in a position today to overpay or pay up for anything beyond that. Again, based on where we're at organically, we've got a lot of room to grow there. We'd like to invest back in the business. Where we see opportunities to find assets that can be accretive to growth at the lower end of that multiple range where synergies make sense, and there's a lot of opportunities to either expand geographically, market share wise, what have you, that's where we'll focus.

Speaker 3

And they'll be small out of the gate. We wanna make sure the team continues to focus on organic growth. We have a lot of capacity to fill. We're in no rush to go do a deal. We want to be very, very disciplined.

Speaker 3

Just like David said, there's been deals in the past that we look at and we just want to be very careful with how we look at deals Again, a lot of these deals early are going to be in that lower end of that 60 times, again, closer to six, seven when you pull in synergies. That's really where we focus M and A in the near term.

Speaker 4

Okay, so really helpful to hear the philosophy there and you made reference Ryan to six to eight times post OpEx synergies, I just want to clarify that. And if so, what multiples would that look like pre synergies so that we sort of think about the risk profile of pre synergies multiple, right, versus just buying back your own stock and expanding internally at a lower risk profile than integrating an acquisition and financing it, right?

Speaker 3

Sure, yes, I would not expect and I would not anticipate us paying anything over eight or nine times earnings on a potential asset. I mean, that would be pre synergy. Where we would like to be post synergy is we'll be pulling that down closer to that six to seven times. So that's where we'll focus in the early anything over that, just not in a position right now to overpay for an asset, pay up for an asset. We just have too much idle capacity where we need to go out and make a bet that large based on what we know we can do internally.

Speaker 3

So I would say presynergies, eight to nine times, I would not expect us to do anything more than that. And then post synergies where we'd like to be is in that six percent.

Speaker 4

Very good. Very, very helpful. Thank you so much and best of luck. Thank you.

Operator

And at this time this concludes our question and answer session. I would now like to turn the call back over to Mr. Kitchin for closing remarks.

Speaker 2

Okay. Great. Thank you, Liz. 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 second quarter, third quarter twenty twenty five results. Thanks, have a great afternoon.

Operator

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you all for your participation.

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