ASCENT INDUSTRIES CO

Previous wording

This discussion and analysis summarizes the significant factors affecting our consolidated operating results, liquidity, and capital resources during the three months ended March 31, 2024 and 2023, 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, 2023 (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 2023. This discussion and analysis is presented in five sections:

Current wording

This discussion and analysis summarizes the significant factors affecting our consolidated operating results, liquidity, and capital resources during the three and six months ended June 30, 2024 and 2023, 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, 2023 (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 2023. This discussion and analysis is presented in five sections:

Previous wording

During the second quarter of 2023, the Board of Directors of the Company made the decision to permanently cease operations at Munhall effective on or around August 31, 2023. This strategic decision is part of the Company’s ongoing efforts to consolidate manufacturing to drive an increased focus on its core operations and to improve profitability while driving operational efficiencies. As a result of this decision, the Company incurred asset impairment charges of $1.1 million related to the write down of remaining long-lived assets at the facility during the three months ended March 31, 2024. Munhall results have been reclassified from the Tubular Products segment and as discontinued operations in all periods presented.

Current wording

During the second quarter of 2023, the Board of Directors of the Company made the decision to permanently cease operations at Munhall effective on or around August 31, 2023. This strategic decision is part of the Company’s ongoing efforts to consolidate manufacturing to drive an increased focus on its core operations and to improve profitability while driving operational efficiencies. As a result of this decision, the Company incurred asset impairment charges of $1.1 million related to the write down of remaining long-lived assets at the facility during the six months ended June 30, 2024. Munhall results are included within discontinued operations in all periods presented.

Previous wording

We continued to experience challenges related to ongoing economic factors driving volatility in global markets. Macroeconomic and inflationary pressures have negatively impacted our revenue, operating margins and net income in 2023 and 2024 to date, including increased pricing pressures within both segments of our business as well as increased costs of labor and overhead. We also continue to experience reduced demand from inventory management measures being pursued by our customers driving reductions in volume. The ongoing factors driving volatility in global markets that could impact our business' earnings and cash flows include, but are not limited to, the misalignment of supply and demand for labor, energy, raw materials and other inputs, the inflation of (or unavailability of) raw material inputs and transportation and logistics services, currency fluctuations, rising interest rates and extreme weather, the purchasing of commodities and relative commodity prices. The Company continues efforts to offset these inflationary pressures and continues to take action to improve working capital and evaluate other opportunities to maintain and improve financial performance in the short and long term, however, if these inflationary and demand pressures continue, our revenue, gross and operating margins and net income will continued to be impacted in 2024.

Current wording

Macroeconomic and inflationary pressures have negatively impacted our revenue, operating margins and net income in 2023 and 2024 to date, including increased pricing pressures within both segments of our business. During the quarter we began to see demand recover across both segments and stabilization initiatives centered around pricing and product mix optimization, strategic sourcing, labor and overhead improvements and working capital continued to be implemented. The ongoing factors driving volatility in global markets that could impact our business' earnings and cash flows include, but are not limited to, the misalignment of supply and demand for labor, energy, raw materials and other inputs, the inflation of (or unavailability of) raw material inputs and transportation and logistics services, currency fluctuations, rising interest rates and extreme weather, the purchasing of commodities and relative commodity prices. The Company continues efforts to offset these inflationary pressures and continues to implement initiatives to improve working capital and evaluate other opportunities to maintain and improve financial performance in the short and long term, however, if these inflationary and demand pressures continue, our revenue, gross and operating margins and net income will continued to be impacted in 2024.

Previous wording

Consolidated net sales for the first quarter of 2024 were $44.1 million, a decrease of$10.8 million, or 19.6%, compared to net sales for the first quarter of 2023. The decrease in net sales was primarily driven by a 15.3% decrease in average selling prices and a 7.7% decrease in pounds shipped.

Current wording

Consolidated net sales for the second quarter of 2024 were $50.2 million, a decrease of$0.2 million, or 0.3%, compared to net sales for the second quarter of 2023. The decrease in net sales was primarily driven by a 19.1% decrease in average selling prices partially offset by a 19.9% increase in pounds shipped.

Previous wording

Consolidated selling, general, and administrative expense (SG&A) for the first quarter of 2024 increased $0.2 million to $7.8 million, or 17.6% of sales, compared to $7.6 million, or 13.8% of sales in the first quarter of 2023. The increase in SG&A expense for the first quarter of 2024 was primarily driven by increases in professional fees and bad debt expense, partially offset by decreases in salaries, wages and benefits, gains on the sale of assets and stock compensation expense.

Current wording

Consolidated selling, general, and administrative expense (SG&A) for the first six months of 2024 increased $0.1 million to $13.8 million, or 14.7% of sales, compared to $13.7 million, or 13.1% of sales in the first six months of 2023. The increase in SG&A expense for the first six months of 2024 was primarily driven by increases in incentive bonus expense, professional fees and insurance expense partially offset by decreases in salaries, wages and benefits and the change in gain on sale of assets.

Previous wording

Consolidated operating loss in the first quarter of 2024 totaled $5.3 million compared to operating loss of $6.4 million in the first quarter of 2023. The operating loss decrease in the first quarter of 2024 was primarily driven by the aforementioned increase in gross profit partially offset by increases in SG&A costs.

Current wording

Consolidated operating loss in the second quarter of 2024 totaled $0.3 million compared to operating loss of $6.9 million in the second quarter of 2023. Consolidated operating loss in the first six months of 2024 totaled $5.5 million compared to operating loss of $13.3 million in the first six months of 2023. The operating loss decrease in the second quarter and first six months of 2024 was primarily driven by the aforementioned increase in gross profit.

Previous wording

SG&A expense for the first quarter of 2024 increasedto $3.0 million, or 14.7% of sales, compared to $1.8 million, or 7.4% of sales in the first quarter of 2023. The increase was primarily driven by increases in corporate expense allocation, incentive bonus, professional fees and bad debt expense.

Current wording

SG&A expense for the first six months of 2024 increasedto $5.5 million, or 13.1% of sales, compared to $3.3 million, or 7.3% of sales in the first six months of 2023. The increase was primarily driven by increases in corporate expense allocation, incentive bonus expense and professional fees.

Previous wording

Operating loss increased to $1.4 million for the first quarter of 2024 compared to operating income of $1.4 million for the first quarter of 2023. The current year increase in operating loss was primarily driven by the aforementioned reduction in net sales coupled with increases in SG&A expenses.

Current wording

Operating loss increased to $1.0 million for the first six months of 2024 compared to operating income of $0.5 million for the first six months of 2023. The current year increase in operating loss was primarily driven by the aforementioned increase in SG&A expenses partially offset by increases in gross profit.

Previous wording

For the first quarter of 2024, gross profit increased 184.3% to $1.1 million, or 4.8% of sales, compared to a gross loss of $1.4 million, or (4.4)% of sales in the first quarter of 2023. The increase was primarily attributable to improved sourcing measures resulting in lower raw material costs as well as reductions in shipping and other production related costs.

Current wording

For the second quarter of 2024, gross profit increased 311.3% to $3.0 million, or 10.6% of sales, compared to a gross loss of $1.4 million, or (5.0)% of sales in the second quarter of 2023. For the first six months of 2024, gross profit increased 249.8% to $4.2 million, or 8.0% of sales, compared to a gross loss of $2.8 million, or (4.7)% of sales in the first six months of 2023. The increase for the second quarter and first six months of 2024 was primarily attributable to strategic sourcing measures resulting in lower raw material costs as well as labor and overhead improvements.

Previous wording

SG&A expense for the first quarter of 2024 increased to $2.6 million, or 11.1% of sales, compared to $1.9 million, or 6.2% of sales, in the first quarter of 2023. The changes in SG&A were primarily driven by increases in corporate expense allocation partially offset by reductions in incentive bonus expense.

Current wording

SG&A expense for the second quarter of 2024 increased to $2.1 million, or 7.5% of sales, compared to $1.9 million, or 6.4% of sales, in the second quarter of 2023. SG&A expense for the first six months of 2024 increased to $4.8 million, or 9.1% of sales, compared to $3.8 million, or 6.3% of sales, in the first six months of 2023. The changes in SG&A were primarily driven by increases in corporate expense allocation partially offset by reductions in salaries, wages and benefits and taxes and licenses.

Previous wording

Operating loss decreased to $1.5 million for the first quarter of 2024 compared to an operating loss of $3.3 million for the first quarter of 2023. The current year decrease in operating loss was primarily driven by aforementioned increase in gross profit partially offset by increases in SG&A expense.

Current wording

Operating loss decreased to $0.6 million for the first six months of 2024 compared to an operating loss of $6.6 million for the first six months of 2023. The current year decrease in operating loss was primarily driven by aforementioned increase in gross profit partially offset by increases in SG&A expense.

Previous wording

Unallocated corporate and other expenses for the first quarter of 2024 decreased $1.9 million, or 45.4%, to $2.3 million, or 5.2% of sales, compared to $4.2 million, or 7.7% of sales, in the prior year. The first quarter of 2024 decrease was primarily driven by increases in corporate allocation expenses, decreases in salaries, wages and benefits and stock compensation expense partially offset by increases in professional fees, taxes and licenses and insurance expense.

Current wording

Unallocated corporate and other expenses for the second quarter of 2024 decreased $1.3 million, or 45.4%, to $1.5 million, or 3.1% of sales, compared to $2.8 million, or 5.6% of sales, in the prior year. The second quarter of 2024 decrease was primarily driven by increases in corporate allocation expenses partially offset by increases in incentive bonus expense, taxes and licenses and insurance expense.

Previous wording

Interest expense for the first quarter of 2024 decreased to $0.1 million, from $1.1 million for the first quarter of 2023. The decrease is primarily related to lower outstanding debt in the current year compared to the prior year.

Current wording

Interest expense for the second quarter of 2024 decreased to $0.1 million, from $1.0 million for the second quarter of 2023. Interest expense for the first six months of 2024 decreased to $0.2 million, from $2.2 million for the first six months of 2023. The decrease is primarily related to lower outstanding debt in the current year compared to the prior year.

Previous wording

The effective tax rate for continuing operations was 22.3% for the three months ended March 31, 2024. The March 31, 2024 effective tax rate was lower than the U.S. statutory rate of 21.0% primarily due to the amount of state tax expense relative to pretax losses.

Current wording

The effective tax rate for continuing operations was 18.0% and 22.0% for the three and six months ended June 30, 2024. The June 30, 2024 effective tax rate was higher than the U.S. statutory rate of 21.0% primarily due to the amount of state tax benefit relative to pretax losses.

Previous wording

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, 2024, we held $1.3 million of cash and cash equivalents, as well as $63.6 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.

Current wording

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 June 30, 2024, we held $3.6 million of cash and cash equivalents, as well as $62.7 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.

Previous wording

The decrease in cash provided by operating activities for the three months ended March 31, 2024, compared to cash provided by operating activities in the three months ended March 31, 2023, 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 increased operating cash flows for the first three months of 2024 by $1.2 million compared to an increase of $9.5 million for the first three months of 2023, while accounts payable increased operating cash flows by $4.0 million for the first three months of 2024, compared to $6.8 million in the first three months of 2023. The changes in inventory and accounts payable is primarily driven by lower inventory purchases to match inventory levels with sales, slightly lower inventory turns year-over-year and increases in days payables outstanding. Accounts receivable decreased operating cash flows by $1.9 million in the first three months of 2024 compared to a $1.1 million decrease in the first three months of 2023. The decrease in cash generated by accounts receivable is primarily driven by an increase in days sales outstanding compared to the first three months of 2023.

Current wording

The decrease in cash provided by operating activities for the six months ended June 30, 2024, compared to cash provided by operating activities in the six months ended June 30, 2023, was primarily driven by changes in working capital partially offset by decreases in net losses 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 increased operating cash flows for the first six months of 2024 by $5.5 million compared to an increase of $16.1 million for the first six months of 2023, while accounts payable increased operating cash flows by $0.2 million for the first six months of 2024, compared to $4.8 million in the first six months of 2023. The changes in inventory and accounts payable is primarily driven by lower inventory purchases to match inventory levels with sales, lower inventory turns year-over-year and increases in days payables outstanding. Accounts receivable decreased operating cash flows by $3.8 million in the first six months of 2024 compared to a $2.3 million increase in the first six months of 2023. The decrease in cash generated by accounts receivable is primarily driven by decrease in sales and flat days sales outstanding compared to the first six months of 2023

Previous wording

Net cash used in investing activities primarily consists of transactions related to capital expenditures. The decrease in cash used in investing activities for the three months ended March 31, 2024 compared to the cash used in investing activities for the three months ended March 31, 2023 was primarily due to decreases in capital expenditures in the current year compared to the prior year.

Current wording

Net cash used in investing activities primarily consists of transactions related to capital expenditures. The decrease in cash used in investing activities for the six months ended June 30, 2024 compared to the cash used in investing activities for the six months ended June 30, 2023 was primarily due to decreases in capital expenditures in the current year compared to the prior year.

Previous wording

Net cash used in financing activities primarily consists of transactions related to our long-term debt. The decrease in cash used in financing activities for the three months ended March 31, 2024 compared to cash used in financing activities for the three months ended March 31, 2023 was primarily due to decreased total borrowings and repayments under the Company's credit facility compared to the prior year. The Company had no debt outstanding as of March 31, 2024 and December 31, 2023.

Current wording

Net cash used in financing activities primarily consists of transactions related to our long-term debt. The increase in cash provided by financing activities for the six months ended June 30, 2024 compared to cash used in financing activities for the six months ended June 30, 2023 was primarily due to decreased total borrowings and repayments under the Company's credit facility compared to the prior year. The Company had no debt outstanding as of June 30, 2024 and December 31, 2023.

Previous wording

The Company has a note payable in the amount of $0.9 million with an annual interest rate of 3.70% maturing April 1, 2024, associated with the financing of the Company's insurance premium in 2023. As of March 31, 2024, the outstanding balance was $0.1 million.

Current wording

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 June 30, 2024, the outstanding balance was $0.9 million.

Previous wording

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, 2024, the Company has 520,541 shares of its share repurchase authorization remaining.

Current wording

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 June 30, 2024, the Company has 505,308 shares of its share repurchase authorization remaining.

Previous wording

Shares repurchased for the three months ended March 31, 2024 and 2023 were as follows:

Current wording

Shares repurchased for the three and six months ended June 30, 2024 and 2023 were as follows:

Previous wording

•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 $32.1 million, with $1.5 million payable within 12 months. See Note 9 for further detail of our lease obligations and the timing of expected future payments.

Current wording

•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 $31.8 million, with $1.5 million payable within 12 months. See Note 9 for further detail of our lease obligations and the timing of expected future payments.

Previous wording

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 $6.2 million for the remainder of fiscal 2024.

Current wording

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 $4.8 million for the remainder of fiscal 2024.