Ascent Industries Co.: Form 10-Q for the period ended Mar 31, 2025

This discussion and analysis summarizes the significant factors affecting our consolidated operating results, liquidity, and capital resources during the three months ended March 31, 2025 and 2024, respectively. We intend for this discussion to provide the reader with information that will assist in understanding our financial statements, the changes in certain key items in those financial statements from year to year, and the primary factors that accounted for those changes, as well as how certain accounting principles affect our financial statements. This discussion and analysis should be read in conjunction with the consolidated financial statements and notes to the consolidated financial statements that are included in our Annual Report on Form 10-K for the year ended December 31, 2024 (the Annual Report), as well as the condensed consolidated financial statements (unaudited) and notes to the condensed consolidated financial statements (unaudited) contained in this report. Unless otherwise specified, all comparisons made are to the corresponding period of 2024. This discussion and analysis is presented in five sections:

• Executive Overview
• Results of Operations and Non-GAAP Financial Measures
• Liquidity and Capital Resources
• Material Cash Requirements from Contractual and Other Obligations
• Critical Accounting Policies and Estimates

Executive Overview

Ascent Industries Co. is a diverse industrials company focused on the production of specialty chemicals and industrial tubular products. Ascent Industries Co. was incorporated in 1958 as the successor to a chemical manufacturing business founded in 1945 known as Blackman Uhler Industries Inc.

The Company's business is divided into two reportable operating segments, Specialty Chemicals and Tubular Products. The Specialty Chemicals segment produces specialty products for the pulp and paper, coatings, adhesives, sealants and elastomers (CASE), textile, automotive, household, industrial and institutional ("HII"), agricultural, water and waste-water treatment, construction, oil and gas and other industries. The Tubular Products segment serves markets through tube production and customers in the appliance, architectural, automotive and commercial transportation, brewery, furniture, food processing, HVAC, marine, medical, oil and gas and other industries.

Divestiture of Bristol Metals, LLC..

On March 12, 2025, Ascent and its wholly-owned subsidiaries Synalloy Metals, Inc. ("Synalloy Metals") and BRISMET, entered into an Asset Purchase Agreement (the “Purchase Agreement”) pursuant to which they sold substantially all of the assets related to BRISMET to Bristol Pipe and Tube, Inc., a Delaware corporation and wholly-owned subsidiary of Ta Chen International, Inc. On April 4, 2025, the Company and Purchaser completed the transaction contemplated by the Purchase Agreement. The consideration for the transaction was approximately $45 million of cash proceeds subject to certain closing adjustments. Prior to the divestiture, Bristol Metals was reported under the Company's Tubular Products segment. The discussion and analysis of our results of operations refers to continuing operations unless noted.

Macroeconomic Events

We continue to monitor macroeconomic trends and uncertainties such as key material inflation, the effects of recently implemented tariffs, and the potential imposition of modified or additional tariffs, which may have adverse effects on net sales and profitability. As a result of the recent tariffs announced by the U.S. presidential administration and potential tariff modifications or the imposition of tariffs or export controls by other countries, we have worked with our suppliers to mitigate supply chain challenges, cost volatility, and consumer and economic uncertainty due to rapid changes in global trade policies. Much of our raw material used in production is domestically sourced and while we do not expect these factors to result in a material negative effect on our net sales or profitability for the remainder of fiscal year 2025, we are continuing to evaluate these factors and their potential effects as well as our ability to potentially offset all or a portion of cost increases through pricing actions and additional cost savings efforts. Economic pressures on customers and consumers, including the challenges of high inflation and the effects of increased tariffs, may negatively affect our net sales and profitability in the future.

Results of Operations

Consolidated Performance Summary

Consolidated net sales for the first quarter of 2025 were $24.7 million, a decrease of $3.2 million, or 11.5%, compared to net sales for the first quarter of 2024. The decrease in net sales was primarily driven by a 22.8% decrease in pounds shipped partially offset by a 13.5% increase in average selling prices.

For the first quarter of 2025, consolidated gross profit increased 105.5% to $4.8 million, or 19.3% of sales, compared to $2.3 million, or 8.3% of sales in the first quarter of 2024. The increase was primarily attributable to continued sourcing improvements resulting in lower raw material costs as well as reductions in other production related costs.

Consolidated selling, general, and administrative expense (SG&A) for the first quarter of 2025 decreased $1.1 million to $5.6 million, or 22.5% of sales, compared to $6.7 million, or 23.9% of sales in the first quarter of 2024. The decrease in SG&A expense for the first quarter of 2025 was primarily driven by decreases in professional fees and bad debt expense, partially offset by increases in salaries, wages and benefits.

Consolidated operating loss in the first quarter of 2025 totaled $1.0 million compared to operating loss of $4.3 million in the first quarter of 2024. The operating loss decrease in the first quarter of 2025 was primarily driven by the aforementioned increase in gross profit and decreases in SG&A expense.

Specialty Chemicals

Net sales in the first quarter of 2025 totaled $17.8 million, representing a $2.5 million, or 12.1%, decrease from the first quarter of 2024. The decrease was driven by a 24.8% decrease in pounds shipped partially offset by a 15.0% increase in average selling price.

Gross profit for the first quarter of 2025 increased to $3.7 million, or 21.0% of sales, compared to $1.6 million, or 7.6% of sales in the first quarter of 2024. The increase was primarily attributable to higher selling prices and the reductions in production related costs.

SG&A expense for the first quarter of 2025 decreased to $2.9 million, or 16.3% of sales, compared to $3.0 million, or 14.7% of sales in the first quarter of 2024. The slight decrease in dollars was driven by decreases in salaries, wages and benefits, incentive bonus, professional fees and bad debt expense, offset by increases in corporate expense allocation.

Operating income increased to $0.8 million for the first quarter of 2025 compared to operating loss of $1.4 million for the first quarter of 2024. The current year increase in operating income was primarily driven by the aforementioned increase in gross profit and decreases in SG&A expense.

Tubular Products

Net sales in the first quarter of 2025 totaled $6.9 million, a decrease of $0.8 million, or 9.9%, from the first quarter of 2024. The decrease was primarily driven by a 5.9% decrease in pounds shipped and a 3.9% decrease in average selling prices.

For the first quarter of 2025, gross profit increased 81.9% to $1.7 million, or 24.8% of sales, compared to a gross profit of $0.9 million, or 12.3% of sales in the first quarter of 2024. The increase was primarily attributable to continued sourcing improvements resulting in lower raw material costs as well as reductions in shipping and other production related costs.

SG&A expense for the first quarter of 2025 decreased to $0.7 million, or 10.2% of sales, compared to $1.0 million, or 13.0% of sales, in the first quarter of 2024. The changes in SG&A were primarily driven by decreases in salaries, wages and benefits, bad debt expense, amortization expense and corporate allocation expense.

Operating income increased to $1.0 million for the first quarter of 2025 compared to an operating loss of $0.1 million for the first quarter of 2024. The current year increase in operating income was primarily driven by aforementioned increase in gross profit and decreases in SG&A expense.

Corporate & Other Items

Unallocated corporate and other expenses for the first quarter of 2025 decreased $0.2 million, or 7.1%, to $2.6 million, or 10.7% of sales, compared to $2.9 million, or 10.2% of sales, in the prior year. The first quarter of 2025 decrease in dollars was primarily driven by increases in corporate allocation expense and decreases in professional fees partially offset by increases in salaries, wages and benefits and incentive bonus.

Interest expense was $0.1 million for the first quarter of 2025 and 2024 as the Company had no debt outstanding in either period.

The effective tax rate for continuing operations was 0.04% for the three months ended March 31, 2025. The March 31, 2025 effective tax rate was lower than the U.S. statutory rate of 21.0% primarily due to the valuation allowance and federal and U.S. state deferred tax assets.

Non-GAAP Financial Measures

To supplement our consolidated financial statements, which are prepared and presented in accordance with accounting principles generally accepted in the United States ("GAAP"), we use the following non-GAAP financial measures: EBITDA and Adjusted EBITDA. Management believes that these non-GAAP measures are useful because they are key measures used by our management team to evaluate our operating performance, generate future operating plans and make strategic decisions as well as allow readers to compare the financial results between periods. Non-GAAP measures should not be considered as an alternative to any measure of performance or financial condition as promulgated under GAAP, and investors should consider the Company's performance and financial condition as reported under GAAP and all other relevant information when assessing the performance or financial condition of the Company. Non-GAAP measures have limitations as analytical tools, and investors should not consider them in isolation or as a substitute for analysis of the Company's results or financial condition as reported under GAAP.

EBITDA and Adjusted EBITDA

We define "EBITDA" as earnings before interest, income taxes, depreciation and amortization. We define "Adjusted EBITDA" as EBITDA further adjusted for the impact of non-cash and other items we do not consider in our evaluation of ongoing performance. These items include: goodwill impairment, asset impairment, gain on lease modification, stock-based compensation, non-cash lease cost, acquisition costs and other fees, shelf registration costs, loss on extinguishment of debt, retention costs and restructuring and severance costs from net income. We caution investors that amounts presented in accordance with our definitions of EBITDA and Adjusted EBITDA may not be comparable to similar measures disclosed by other companies because not all companies calculate EBITDA and Adjusted EBITDA in the same manner. We present EBITDA and Adjusted EBITDA because we consider them to be important supplemental measures of our performance and investors' understanding of our performance is enhanced by including these non-GAAP financial measures as a reasonable basis for comparing our ongoing results of operations.

Consolidated EBITDA and Adjusted EBITDA from continuing operations are as follows:

($ in thousands)

20

Specialty Chemicals EBITDA and Adjusted EBITDA are as follows:

($ in thousands)

Tubular Products EBITDA and Adjusted EBITDA from continuing operations are as follows:

($ in thousands)

Liquidity and Capital Resources

We closely manage our liquidity and capital resources. Our liquidity requirements depend on key variables, including level of investment required to support our business strategies, the performance of our business, capital expenditures, credit facilities and working capital management. Capital expenditures and share repurchases are a component of our cash flow and capital management strategy which we can adjust in response to economic and other changes in our business environment. We have a disciplined approach to capital allocation focusing on priorities that support our business and growth.

Sources of Liquidity

Funds generated by operating activities supplemented by our available cash and cash equivalents and our credit facilities are our most significant sources of liquidity. As of March 31, 2025, we held $14.3 million of cash and cash equivalents, as well as $53.3 million of remaining available capacity on our revolving line of credit. We believe our sources of liquidity will be sufficient to fund operations and anticipated capital expenditures as well as repay our debt obligations as they become due over the next 12 months and beyond.

Cash Flows

Cash flows from continuing operations were as follows:

(in thousands)

Operating Activities

The increase in cash used in operating activities for the three months ended March 31, 2025, compared to cash provided by operating activities in the three months ended March 31, 2024, was primarily driven by changes in working capital partially offset by decreases in net loss year over year. Changes in working capital can vary significantly depending on factors such as the timing of inventory production and purchases, customer payments of accounts receivable and payments to vendors in the regular course of business. Inventory decreased operating cash flows for the first three months of 2025 by $1.2 million compared to an increase of $3.8 million for the first three months of 2024, while accounts payable increased operating cash flows by $1.5 million for the first three months of 2025, compared to $1.2 million in the first three months of 2024. The changes in inventory and accounts payable is primarily driven by higher inventory purchases to match inventory levels with sales, higher inventory turns year-over-year and decreases in days payables outstanding. Accounts receivable decreased operating cash flows by $2.4 million in the first three months of 2025 compared to a $2.0 million decrease in the first three months of 2024. The decrease in cash generated by accounts receivable is primarily driven by lower sales partially offset by an slight decrease in days sales outstanding compared to the first three months of 2024.

Investing Activities

Net cash used in investing activities primarily consists of transactions related to capital expenditures. The increase in cash used in investing activities for the three months ended March 31, 2025 compared to the cash used in investing activities for the three months ended March 31, 2024 was primarily due to increases in capital expenditures in the current year compared to the prior year.

Financing Activities

Net cash used in financing activities primarily consists of transactions related to our credit facilities and share repurchases. The increase in cash used in financing activities for the three months ended March 31, 2025 compared to cash used in financing activities for the three months ended March 31, 2024 was primarily due to increased repurchases of common stock. The Company had no debt outstanding as of March 31, 2025 and December 31, 2024.

Short-term Debt

The Company has a note payable in the amount of $0.9 million with an annual interest rate of 3.70% maturing April 1, 2025, associated with the financing of the Company's insurance premium in 2024. As of March 31, 2025, the outstanding balance was $0.1 million.

Credit Facilities

On November 6, 2024, Ascent entered into a Limited Consent, Third Amendment to Credit Agreement to Loan Documents with BMO Bank N.A. under Ascent’s credit facility (the “Credit Facility Amendment”). The Credit Facility Amendment reduced the maximum revolving loan commitment under the credit facility from $80 million to $60 million and extended the term of the credit facility through December 31, 2027. The Credit Facility Amendment also increased the interest rate for the credit facility from SOFR plus an interest rate margin of between 1.85% and 2.10% to SOFR plus an interest rate margin of between 1.85% and 2.35%, depending on average availability under the credit facility and Ascent’s consolidated fixed charge coverage ratio. The Company had no debt outstanding under its credit facilities as of March 31, 2025 and December 31, 2024.

The Credit Facility Amendment contains covenants requiring the maintenance of a minimum consolidated fixed charge coverage ratio if excess availability falls below the greater of (i) $6.0 million and (ii) 15% of the revolving credit facility. The borrowing capacity under the amended credit facility totals $60.0 million consisting of a $60.0 million revolving line of credit which includes a $7.6 million machinery and equipment sub-limit. As of March 31, 2025, the Company was in compliance with all financial debt covenants. See Note 8 in the notes to the unaudited condensed consolidated financial statements for additional information on the Company's line of credit and Note 15 for the debt amendment that occurred subsequent to the first quarter.

Share Repurchases and Dividends

We have a share repurchase program, authorized by the Company's Board of Directors, that is executed through purchases made from time to time at prevailing market prices, through open market or privately negotiated transactions, depending on market conditions. Shares repurchased are returned to status of authorized, but unissued shares of common stock or held in treasury. As of March 31, 2025, the Company has 983,923 shares of its share repurchase authorization remaining.

Shares repurchased for the three months ended March 31, 2025 and 2024 were as follows:

At the end of each fiscal year the Board of Directors reviews the financial performance and capital needed to support future growth to determine the amount of cash dividend, if any, which is appropriate. In 2024, no dividends were declared or paid by the Company.

Other Financial Measures

Below are additional financial measures that we believe are important in understanding the Company's liquidity position from year to year. The metrics are defined as:

Liquidity Measure:

• Current ratio = current assets divided by current liabilities. The current ratio will be determined by the Company using generally accepted accounting principles, consistently applied.

Profitability Ratio:

• Return on average equity ("ROAE") = net income divided by the trailing 12-month average of equity. The ROAE will be determined by the Company using generally accepted accounting principles, consistently applied.

Results of these additional measures are as follows:

Material Cash Requirements from Contractual and Other Obligations

As of March 31, 2025, our material cash requirements for our known contractual and other obligations were as follows:

• Operating and Finance Leases - The Company enters into various lease agreements for the real estate and manufacturing equipment used in the normal course of business. Operating and finance lease obligations were $32.5 million, with $1.9 million payable within 12 months. See Note 9 for further detail of our lease obligations and the timing of expected future payments.

The Company has no off-balance sheet arrangements that are reasonably likely to have a material current or future effect on the Company's financial position, revenues, results of operations, liquidity, or capital expenditures. We expect capital spending to be as much as $2.0 million for the remainder of fiscal 2025.

Critical Accounting Policies and Estimates

We describe our significant accounting policies in Note 1, Summary of Significant Accounting Policies, in the notes to the consolidated financial statements presented in the Annual Report on Form 10-K for the year ended December 31, 2024. We discuss our critical accounting estimates in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, in the Annual Report on Form 10-K for the year ended December 31, 2024. There have been no significant changes in our significant accounting policies or critical accounting estimates since the end of fiscal 2024.

We are a smaller reporting company as defined in Rule 12b-2 of the Exchange Act; therefore, we are not required to provide the information required by this Item.

Evaluation of Disclosure Controls and Procedures

The term “disclosure controls and procedures” is defined in Rule 13a-15(e) of the Exchange Act as “controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act are recorded, processed, summarized and reported, within the time periods specified in the SEC rules and forms.” The Company’s disclosure controls and procedures are designed to ensure that material information relating to the Company and its consolidated subsidiaries is accumulated and communicated to its management, including its Chief Executive Officer and its Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures. The Company’s management, with the participation of its Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of the Company’s disclosure controls and procedures as of March 31, 2025. Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were not effective as of March 31, 2025, because of the previously reported material weaknesses in internal control over financial reporting, as described below.

Previously Reported Material Weaknesses in Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15f-15(f). As reported in our 2024 Form 10-K, based upon the ongoing ineffectiveness of our IT general controls, we did not maintain effective internal control over financial reporting as of December 31, 2024 as a result of material weaknesses in the control environment. A material weakness (as defined in Rule 12b-2 under the Exchange Act) is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. Refer to our 2024 Form 10-K for a description of our material weaknesses.

Ongoing Remediation Efforts to Address Material Weaknesses

Our Board of Directors and management are committed to the continued implementation of remediation efforts to address the material weaknesses. The material weaknesses were first identified in 2021 and 2022 and while the Company has significantly improved its internal control over financial reporting, the material weaknesses remain un-remediated as of March 31, 2025 due to the continued IT general control ineffectiveness. During the three months ended March 31, 2025, management, with oversight from the Company's Audit Committee, continued executing a detailed plan for remediation which includes:

• Enhancing corporate oversight over process-level controls and structures to ensure that there is appropriate assignment of authority, responsibility and accountability as well as maintaining a sufficient number of qualified resources in key personnel areas over the performance and maintenance of the Company's control environment.
• Engaging an external advisor to assist with enhancing, designing, and implementing general information technology controls, including user access provisioning, cyber-security, and segregation of duties.
• Formalizing information technology policies and procedures to ensure that they are current and comprehensive and support the timely execution of information technology processes and control procedures.
• Enhancing review controls for inventory, revenue accounting, financial close processes and complex accounting to ensure accurate reporting and timely disclosures and ensuring evidence is appropriately retained.
• Improving and maintaining effective controls for communicating and sharing information between the operations, accounting, information technology, sales, finance and legal departments to ensure that the accounting department is

consistently provided with complete and adequate support, documentation and information, and that matters are resolved in a timely and effective manner.

The Audit Committee of the Board of Directors is monitoring management's ongoing remediation efforts. With the Audit Committee's oversight, management has dedicated significant resources and efforts to improve our internal control environment to remedy the identified material weaknesses. As we continue to evaluate and implement improvements to our internal control over financial reporting, our management may decide to take additional measures to address our control deficiencies or to modify the remediation efforts undertaken. Because the reliability of the internal control process requires repeatable execution, our material weaknesses cannot be considered fully remediated until all remedial processes and procedures (including additional remediation efforts identified by our senior management as necessary) have been implemented, each applicable control has operated for a sufficient period of time and management has concluded, through testing, that the controls are operating effectively. Until all identified material weaknesses are remediated, we will not be able to assert that our internal controls are effective.

Changes in Internal Control over Financial Reporting

Other than the ongoing remediation efforts described above, there have been no changes in the Company’s internal control over financial reporting during the three months ended March 31, 2025 that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.

There were no material changes in our assessment of risk factors as discussed in Part I, Item 1A in the Company's Annual Report on Form 10-K for the year ended December 31, 2024.