Ascent Industries Co.

Good afternoon, everyone, and thank you for participating in today's conference call to discuss Ascent's financial results for the third quarter ended September 30th, 2022. Joining us today are Ascent's executive chairman of the board, Ben Rosenzweig, president and CEO, Chris Hutter, CFO, Aaron Tam, and the company's outside investor relations advisor, Cody Cree. Following their remarks, we'll open the call for your questions. Before we go further, I would like to turn the call over to Cody Cree 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. Cody, please go ahead.

Thanks, Andrew. 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 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 those listening to this call to review the latest 10-Q and 10-K posted on its website 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. 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 investor section of the company's website at AscentCo.com. Please note that this call is available for replay via webcast link that is also posted on the investor section of the company's website. With that, I'd like to turn the call over to Ascent Executive Chairman of the Board, Ben Rosenzweig. Ben, over to you.

Thank you, Cody, and good afternoon, everyone. Now, much of the third quarter saw a higher-priced environment compared to 2021. Pricing for stainless steel began to stabilize mid-quarter, while galvanized pricing has come down at a much faster rate. But with demand remaining consistent and a healthy backlog of work, we were able to deliver our sixth consecutive quarter of year-over-year revenue growth. Looking ahead, we do see the pricing environment continuing to normalize through the end of the year and into 2023, but we expect demand to remain stable across both of our segments. I'd like to remind everyone that we also have several ongoing initiatives aimed at improving our overall operational efficiency and the profitability of our platform, some of which accelerated in Q3, impacting our throughput and are reflected in our Q3 adjusted EBITDA. In our tubular segment, we had some missteps during the quarter, but I'm confident we'll have these mostly work through the impacts of our system as we enter 2023. Specifically, in early Q3, we began building high-priced premium inventory as part of a specific high-margin order for a current customer. With the influx of lower-cost import products accelerating into the market over that same time, we unfortunately did not win that order. Separately, though related, the prevalence of imports coincided with some destocking in our distribution channel which temporarily impacted overall demand. This confluence of events led to our inability to quickly fill our newly opened capacity with business that compared to our expected margins on the lost order, resulting in much lower absorption of our fixed costs than our recent track record and capabilities would imply. At the same time, we also had some planned operating expenses and decided to allocate additional resources to execute various operational initiatives that are part of our continuous improvement roadmap. These expenses, which we expect will benefit our earnings power in the long term, had a further negative impact on our results. I want to be perfectly clear that the degradation in our bottom line this quarter was meaningfully related to discrete lost orders, our missteps in quickly adapting to fill the unexpected open capacity, and what we believe to be transitory supply-demand imbalances, rather than the result of a negative trend in overall demand. While we do expect these impacts, both on the revenue and cost side, to continue into the fourth quarter, we believe our bottom line will return to more normalized run rates beginning in 2023. Switching gears to our inorganic growth initiatives, we're making notable progress identifying several attractive acquisition opportunities that we believe will make an instant impact to our platform. As the state of the market has affected some of the buyer demand for our target companies, we're hopeful that their valuation expectations will reset a bit. and we're already seeing some evidence of this. As a reminder, we've been looking at opportunities around the $5 to $30 million of EBITDA range, companies that have existing synergies with our production capabilities, and organizations with expertise and talent that we would expect to improve our platform. While we are keeping our eyes open across both segments, we're putting the majority of our efforts toward acquisitions that fit within our chemical segment. Our chemical segment wins business through a very technical sale, providing an inherently stickier customer set. This business also generates excellent free cash flow conversion and has high returns on invested capital. Through both organic and acquisitive growth, we see a pathway to expanding our chemical segments EBITDA contribution closer to a 50-50 split with the tubular segment within the next two years. That being said, we'll remain disciplined on identifying the right long-term fit for acquisitions instead of solely focusing on getting a good deal. We have a strong relationship with our lender, and at only 1.4 times LCM leverage, possess ample debt capacity to execute on accretive transactions. With the success of our acquisition of DanChem, where we were able to instantly add differentiated reactor capacity and leverage John Zupo's team and expertise, we've set a high bar for ourselves. But based on what we've seen so far, we're confident there are more opportunities like DanChem out there. Though inorganic growth is critical to our value creation strategy, there aren't many opportunities we can pursue that are more prudent uses of capital than continuing to repurchase our own stock at recent trading levels. As I stated in our last call, we planned on taking advantage of our existing share repurchase program and bought over 30,000 shares in the open market in the third quarter of 2022. At current levels, we expect to remain highly opportunistic with our repurchase program. We believe our share price is well below industry trading multiples of our normalized earnings power, as well as the private market value of our assets and future cash flows. Our balance sheet remains strong, and we intend to continue to invest in growth and create value through prudent capital allocation. To wrap up, we expect to generate midterm value through the following focal areas. First, execute on a refined commercial sales strategy, leveraging our refreshed, unified brand platform. Second, drive automation projects to achieve efficiency and incremental margins. And third, progress highly complementary acquisition opportunities that will further expand our footprint and production capacity to better service our customers. This will obviously be coupled with continued operational execution and prudent expense management. While our success won't proceed in a linear fashion, we've achieved significant milestones over the past few quarters, and I'm proud of what our team has accomplished so far. As always, I'd like to thank them for their hard work and dedication to helping us transform Ascent into a leading provider of tubular products and chemicals. I'm confident that our team will adapt to changing market conditions, execute on our priorities, and drive significant value for our shareholders. Now, I'd like to pass the call over to Chris to provide in-depth details on our operations across both segments, but I'll be available later on to answer any questions. Chris?