Ascent Industries Co.

Good morning, everyone, and thank you for participating in today's conference call to discuss Ascent's financial results for the fourth quarter and full year ended December 31st, 2022. Joining us today are Ascent's Executive Chairman of the Board, Ben Rosenzweig, President and CEO, Chris Hutter, CFO, Erin 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 meeting of the Private Securities Litigation Reform Act of 1995 that provides important cautions regarding forward-looking statements. Cody, please go ahead.

Thanks, Liz. Before we continue, I'd 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 of 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 responsibilities 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 gap-based measurement. Reconciliations can be found in the earnings press release issued earlier today and posted on the Investors section of the company's website at ascentco.com. Please note that this call is available for replay via a webcast link that is also posted on the Investors section of the company's website. Additionally posted on the Investors section of the website is a newly updated investor presentation that we encourage you to view. With that, I'd like to turn the call over to Ascend's Executive Chairman of the Board, Ben Rosenzweig. Ben, over to you.

Thank you, Cody, and good morning, everyone. Before we jump into everything, I'd like to start by putting our financial performance over the last two quarters into the proper context. The reported profitability has come down over the prior year periods, but I think it's important to recognize that the most recent periods have a meaningful amount of noise in them and are not fully representative of our forward-looking earnings potential. As we've discussed, we knew that the fourth quarter was going to be messy due to some of the ongoing effects from previously disclosed material buys and destocking trends within our tubular product segment, along with the overall pricing environment stabilizing from the highs at the start of the year. That said, the bulk of the decline in our financial performance was contained to our facility in Munhall, Pennsylvania, specifically within our galvanized business. As we've discussed in the past, the galvanized business was something we inherited. and did not believe to be a meaningful part of our long-term business plan due to the commodity-like nature of the product, leading to a much more competitive market. As a result of our exit from the galvanized product, which makes up a large percentage of our manufacturing at this site, we've begun to explore strategic alternatives for our facility in Munhall, while simultaneously working late in the fourth quarter and into the first quarter to significantly reduce operations there as we allocate resources towards our more profitable products. Although we knew this would have a detrimental impact to our consolidated financials in the short term, we believe it was necessary to begin moving on from this business and focus on our long-term goals. It's important to note that if you exclude the impact from the Munhall facility, which produced revenue of $16.3 million, a net loss of $8.9 million, and adjusted EBITDA of negative $7.4 million during the quarter, as well as one-time non-cash $1.5 million inventory charge in the quarter, our consolidated results were about a 10.4% adjusted EBITDA margin, which is in line with expectations similar to the third quarter and much more representative of the base earnings of the ongoing business than our consolidated results were for the quarter. All of this is shown on page eight of our updated investor presentation. To expound on this further, since I know our financials can be difficult to discern, I'll give some insight into our historical results, excluding Munhall. For now, this is a hypothetical exercise, is very much unaudited and non-GAAP, et cetera, but we believe provides further context to the earnings power of our business. The ex-Munhall fiscal year 2021 adjusted EBITDA was $35.3 million, and fiscal year 2022 would have been higher, at about $46 million, excluding non-recurring and non-cash charges. The first part of 2022 certainly benefited from very strong pricing, but our view is that something similar to 2021 in the low 30 millions of adjusted EBITDA is not far off from how we view the run rate earnings power of our go-forward assets. Obviously, it will fluctuate from quarter to quarter, with 2023 expected to see a stronger back half of the year than the first half, but we do not believe our base earnings are as volatile as they may appear. Exiting business lines can certainly be messy, but I firmly believe we made the decision that was in the best interest of shareholders and that our ongoing tubular segments will now be able to operate more efficiently and predictably. To my comment about better expectations for 2023, we expect there could still be some minor impacts related to our inventory buys in late 2022 carrying over into the first quarter of the year, along with some costs that we likely won't be able to exclude as we reallocate resources from Munhall to our other sites. However, by the second quarter of 2023, we feel confident in getting back closer to our expected level of earnings, which we believe is north of the 10% or so adjusted EBITDA margin range on a consolidated basis, and being able to sustain and grow that level through the back half of the year, even on a lower revenue base following the exit of our galvanized business. We also remain confident that after a year that included a meaningful investment in working capital, we will resume generating free cash flow in the first quarter of 2023 and going forward. As we continue to evaluate the highest returning uses of our capital, it's become abundantly clear that we need to prioritize assent chemicals within our overall growth roadmap. We found that our specialty chemical segment is, without question, a more attractive engine than the tubular product segment to achieve assent's long-term growth objectives. Focusing more heavily on our chemical segment will allow us to take advantage of longer-term contracts that generate predictable high-margin revenue with less fluctuation from macro pressures outside of our control. We plan to achieve this by leveraging our refreshed brand, capitalizing on an improved sales strategy, and remaining focused on our proactive M&A approach to expand our footprint in production capabilities. Amid the current market landscape, we're continuing to identify promising prospects to expand our specialty chemicals business through strategic M&A. Similar to our DanChem acquisition, we'll maintain a measured approach in assessing potential targets, prioritizing overall fit while being mindful of our underwriting standards. I know we've been speaking about M&A efforts for some time now, but we experienced a disjointed M&A environment throughout 2022 with buyers and sellers having significant differences in expectations for valuation multiples. We stayed on the sidelines last year and were not willing to overpay just for the sake of completing a transaction, knowing well that the landscape would begin to open up as sellers' expectations came back down to earth. As far as other potential uses of capital, We still fundamentally believe that our stock is undervalued and does not reflect the potential future earnings of our platform. As a result, we've been aggressively repurchasing shares within the regulatory framework and will continue to buy back shares at these levels. Although we still have much more work to do and are mindful of the noise in the reported results of the past two quarters, I'm proud of the significant progress we've made since embarking on this journey and remain grateful for the tireless efforts of our teams. With their continued dedication to executing our priorities, I'm confident that we have the right strategy in place to drive value for our shareholders over the long term. 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, over to you.