Ascent Industries Co. — FY2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023; the filing also reports fourth-quarter results. Ascent produces stainless steel pipe and tube and specialty chemicals. Results reflect continuing operations unless otherwise noted; Munhall and Specialty Pipe & Tube (SPT) are presented as discontinued operations.
Financial performance
| Metric | FY2023 | FY2022 |
|---|---|---|
| Continuing-operations net sales | $193.2 million | $262.0 million |
| Gross profit / margin | $1.5 million / 0.8% | $43.3 million / 16.5% |
| Operating income (loss), continuing operations | $(37.4) million | $14.5 million |
| Net income (loss), continuing operations | $(34.2) million | $17.6 million |
| Net income (loss), including discontinued operations | $(26.6) million | $22.1 million |
| Diluted EPS, continuing operations | $(3.37) | $1.69 |
| Operating cash flow, continuing operations | $6.6 million | $(5.3) million |
Sales fell 26.3%, reflecting an 18.7% decline in pounds shipped and an 8.5% decline in average selling price. Gross profit fell 96.5%. Interest expense increased to $4.2 million from $2.7 million, primarily due to higher rates.
Segments: Tubular Products sales were $109.5 million, down 28.9%, with an operating loss of $11.2 million versus income of $22.2 million. Specialty Chemicals sales were $83.6 million, down 22.2%, with an operating loss of $12.6 million versus income of $7.0 million; this included an $11.4 million goodwill impairment. Specialty Chemicals adjusted EBITDA was $3.4 million, down from $11.8 million.
Fourth quarter: Sales were $41.2 million and gross loss was $2.1 million. Continuing-operations loss was $7.5 million. Net income was $11.1 million, largely reflecting $18.7 million of after-tax discontinued-operations income that included the SPT sale gain.
Liquidity, debt and capital
- Cash and cash equivalents were $1.9 million at year-end; $61.8 million remained available under the revolving credit facility.
- No lender borrowings remained at December 31, 2023, following debt repayments funded primarily by SPT sale proceeds. A $0.4 million insurance-premium note payable remained outstanding.
- Current ratio was 3.7, compared with 4.6 in 2022. Debt-to-capital was 0% at year-end, versus 49% in 2022.
- Continuing-operations capital expenditures were $2.9 million. Management expects 2024 capital spending of up to $6.5 million.
- Operating and finance lease obligations totaled $32.5 million, including $1.4 million due within 12 months. No dividends were paid in 2023 or 2022. The company repurchased 143,108 shares for approximately $1.3 million in 2023.
Material changes, outlook and risks
- SPT was sold on December 22, 2023 for approximately $55 million cash, subject to closing adjustments; the company recorded a $26.3 million pre-tax gain and used proceeds to repay debt. Transition services and employee leasing arrangements continue for agreed transition periods.
- Munhall operations ceased August 31, 2023. The company recorded $8.8 million in asset impairment charges and increased facility-related reserves. It remains obligated for the facility lease through 2036 and is pursuing a sublease.
- Specialty Chemicals goodwill was fully impaired, reducing year-end goodwill to zero. The impairment followed operating losses, weaker sales versus forecast, and broader macroeconomic and industry pressures.
- Management cited inflation in labor, raw materials and freight, customer inventory reductions, and lower demand as factors weighing on 2023 results. It warned that continued inflation and demand pressures could affect 2024 revenue, margins and net income. No specific revenue or earnings guidance is provided.
- Year-end backlogs declined: Tubular Products, $22.5 million versus $34.4 million; Specialty Chemicals, $5.0 million versus $10.4 million. The company cautions backlog may not predict actual sales.
- Customer concentration is material: one customer represented 24% of Specialty Chemicals segment revenue in 2023; the top customer represented 17% of Tubular Products revenue. Union agreements covering 214 employees, about 41% of staff, expire at various dates in 2024.
- The company accrued $1.0 million for a contract lawsuit in which it believes a material loss may occur. It also faces environmental, supplier, commodity-price, competition, facility and labor risks.
Controls and audit matters
The financial statements received an unqualified audit opinion, but management and the auditor concluded that internal control over financial reporting was ineffective at year-end. Material weaknesses remain in IT general controls, inventory, revenue and receivables, period-end reporting and complex accounting. Three previously reported weaknesses were remediated; management is developing remediation plans for the remaining weaknesses. The auditor identified Specialty Chemicals goodwill impairment as a critical audit matter.
Key facts for investors to verify
- Whether 2024 demand, selling prices, shipment volumes and gross margins stabilize or continue to weaken.
- Progress and costs of internal-control remediation, particularly IT, inventory and revenue controls.
- Actual cash availability under the borrowing base, covenant headroom and ability to manage lease commitments after the SPT divestiture.
- Completion and economics of the Munhall exit, including subleasing or other resolution of the lease obligation through 2036.
- Retention of major customers and suppliers, 2024 labor negotiations, and the outcome of the accrued lawsuit.