Ascent Industries Co. — Q2 2023 Form 10-Q
Business context and period: The filing covers the quarter and six months ended June 30, 2023; comparisons are with the corresponding 2022 periods. Ascent reports Tubular Products and Specialty Chemicals. Munhall galvanized pipe and tube operations were classified as discontinued operations after the Board decided to cease operations around August 31, 2023.
Financial performance
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Continuing-operations net sales | $60.7m | $84.6m | $128.1m | $168.3m |
| Gross profit / margin | $3.2m / 5.3% | $20.2m / 23.9% | $10.4m / 8.1% | $41.6m / 24.7% |
| Operating income (loss) | ($3.8m) | $11.9m | ($5.2m) | $24.8m |
| Continuing-operations net income (loss) | ($3.7m) | $10.8m | ($5.7m) | $20.8m |
| Net income (loss), including discontinued operations | ($14.6m) | $11.1m | ($19.8m) | $21.3m |
| Adjusted EBITDA from continuing operations | ($1.5m) | $14.8m | ($0.2m) | $30.7m |
Management attributed lower sales to shipment-volume declines and lower average selling prices, and sharply lower gross profit to higher raw-material costs. Q2 sales fell 28.3% year over year, reflecting 22.9% lower pounds shipped and a 5.0% decline in average selling prices. SG&A declined, but rose as a share of sales. Interest expense increased to $1.0m in Q2 and $2.2m for the half, mainly due to higher rates.
Cash flow and balance sheet: Continuing-operations operating cash flow was $7.5m for the first half, versus $0.7m in 2022, with working-capital changes—particularly inventory—contributing. Consolidated operating cash flow, including discontinued operations, was $18.1m. Capital expenditures were $1.5m; cash was $0.7m at June 30. Long-term debt was $54.5m, down $17.0m from year-end; the separate insurance-premium note payable was $0.9m. The company reported $45.4m of remaining credit-facility availability and compliance with debt covenants. Operating and finance lease liabilities totaled approximately $33.0m. Current ratio was 4.1 and debt-to-capital was 31%.
Material changes and notable items
- Continuing-operations sales declined 23.9% for the first half. Tubular Products sales fell 25.6% and Specialty Chemicals sales fell 20.5%; both segments reported sharply lower operating results amid weaker shipments and material-cost pressure.
- Munhall discontinued operations generated a Q2 net loss of $10.9m and a first-half net loss of $14.1m. Q2 results included approximately $6.4m of asset impairment charges and $1.4m of increased receivables reserves. Munhall assets held for sale totaled $17.4m at June 30.
- The company repurchased 51,156 shares for approximately $0.5m in the first half; 628,823 shares remained authorized for repurchase.
- Disclosure controls and procedures were not effective at June 30, 2023. Previously reported material weaknesses in internal control over financial reporting remained unremediated; management described ongoing remediation efforts.
Outlook, risks and contingencies
Management cited continued inflationary pressure, higher raw-material costs, customer inventory-reduction measures and reduced demand. It said it was pursuing price increases where appropriate and working-capital efficiencies. Management stated that available liquidity was expected to fund operations, anticipated capital expenditures and debt obligations over the next 12 months and beyond. Capital spending was expected to be as much as $3.8m for the remainder of 2023; no specific earnings or revenue guidance was provided.
Ascent remains obligated for Munhall facility lease costs through 2036 and was pursuing a sublease. A Henkel lawsuit against acquired subsidiary DanChem seeks approximately $3m; the company estimated a reasonably possible loss range of $0–$0.6m. The filing also identifies risks including economic downturns, customer and product demand, competition and pricing, raw-material availability and costs, labor, environmental matters, acquisitions, and debt-covenant compliance. Management reported no material changes to the risk factors in its 2022 Form 10-K.
Important facts for investors to verify
- Whether shipment volumes, pricing and raw-material costs stabilize, and whether margins recover in both continuing segments.
- The final costs and timing of the Munhall exit, asset disposal and any lease sublease; confirm the treatment of discontinued-operation results.
- Liquidity and borrowing-base availability under the credit facility, covenant headroom, and exposure to variable interest rates as the facility approaches its January 2025 maturity.
- Progress in remediating material weaknesses and whether controls operate effectively after implementation and testing.
- Developments in the Henkel litigation and the ultimate loss, if any.