ASCENT INDUSTRIES CO

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 $8.8 million related to the write down of inventory to net realizable value and the impairment of long-lived assets as well as $2.8 million in increased reserves on accounts receivable and other current assets at the facility during the year ended December 31, 2023.

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. Munhall results are included within discontinued operations in all periods presented.

Previous wording

On December 22, 2023, the Company and its wholly-owned subsidiary Specialty Pipe & Tube, Inc. (“SPT”) entered into an Asset Purchase Agreement pursuant to which Ascent and SPT sold substantially all of the assets primarily related to SPT to Specialty Pipe & Tube Operations, LLC, a Delaware limited liability company. The consideration for the transaction was approximately $55 million of cash proceeds subject to certain closing adjustments. The transaction closed on December 22, 2023. The sale of SPT is a tremendous value-creating outcome for Ascent shareholders while greatly reducing the complexity associated with our tubular operations and allowing our tubular leadership and operational teams to focus on core competencies that best position the Company for long-term growth. The transaction also provided the Company the ability to significantly reduce its debt, while providing additional available capital to pursue growth opportunities within our focused businesses. The Company recognized a pre-tax gain on the sale of the SPT assets of $26.3 million.

Current wording

On December 22, 2023, the Company and its wholly-owned subsidiary Specialty Pipe & Tube, Inc. (“SPT”) entered into an Asset Purchase Agreement pursuant to which Ascent and SPT sold substantially all of the assets primarily related to SPT to Specialty Pipe & Tube Operations, LLC, a Delaware limited liability company. The consideration for the transaction was approximately $55 million of cash proceeds subject to certain closing adjustments. The transaction closed on December 22, 2023. As result of the sale, SPT results of operations are classified under discontinued operations for all periods presented. Prior to the divestiture, SPT was reported under the Company's Tubular Products segment. The discussion and analysis of our results of operations refers to continuing operations unless noted.

Previous wording

Consolidated net sales for the full-year 2023 decreased $68.8 million, or 26.3%, over the full-year 2022 to $193.2 million. The decrease in net sales was primarily driven by a 8.5% decrease in average price coupled with a 18.7% decrease in pounds shipped.

Current wording

Net sales from continuing operations for the full-year 2024 decreased $15.3 million, or 7.9%, over the full-year 2023 to $177.9 million. The decrease in net sales was primarily driven by an 8.8% decrease in average selling prices coupled with a 0.9% decrease in pounds shipped.

Previous wording

Full-year 2023 consolidated gross profit decreased 96.5% to $1.5 million, or 0.8% of sales, compared to $43.3 million, or 16.5% of sales, in the full-year 2022. The decrease in dollars and percentage of sales for the full-year 2023 were attributable to the decrease in pounds shipped and average selling price.

Current wording

Full-year 2024 gross profit from continuing operations increased 1349.1% to $22.1 million, or 12.4% of sales, compared to $1.5 million, or 0.8% of sales, in the full-year 2023. The increase in dollars and percentage of sales for the full-year 2024 were primarily driven by improved strategic sourcing initiatives and product line management resulting in lower raw material costs.

Previous wording

Consolidated selling, general and administrative expense (SG&A) for the full-year 2023 decreased $0.9 million to $26.7 million compared to $27.6 million for the full-year 2022. SG&A as a percentage of sales was 13.8% of sales for 2023 and 10.6% of sales for 2022. The changes in SG&A expense were primarily driven by:

Current wording

Selling, general and administrative expense (SG&A) from continuing operations for the full-year 2024 decreased $0.1 million to $26.6 million compared to $26.7 million for the full-year 2023. SG&A as a percentage of sales was 14.9% of sales for 2024 and 13.8% of sales for 2023. The changes in SG&A expense were primarily driven by:

Previous wording

•decreases in other expenses primarily driven by decreases in salaries, wages and benefits, share-based compensation, amortization expense, bad debt expense and utilities

Current wording

•decreases in other expenses primarily driven by decreases in share-based compensation expense

Previous wording

•decrease in incentive bonus driven by lower attainment of performance goals in the current year over the prior year;

Current wording

•increases in incentive bonus driven by higher attainment of performance goals in the current year over the prior year;

Previous wording

Net sales for the Specialty Chemicals segment decreased 22.2%, or $23.9 million, to $83.6 million for 2023 compared to $107.5 million in 2022. The decrease in net sales was primarily driven by a 17.3% decrease in pounds shipped and a 4.3% decrease in average selling prices.

Current wording

Net sales for the Specialty Chemicals segment decreased 3.4%, or $2.9 million, to $80.8 million for 2024 compared to $83.6 million in 2023. The decrease in net sales was primarily driven by a 3.4% decrease in pounds shipped and a 2.6% decrease in average selling prices.

Previous wording

SG&A expense increased by $0.1 million, or 1.1%, to $7.0 million in 2023 compared to $6.9 million in 2022. SG&A as a percentage of sales increased to 8.3% in 2023 from 6.4% in 2022. The changes in SG&A expense were primarily driven by increases in salaries, wages and benefits and professional fees partially offset by lower incentive bonus and amortization expense.

Current wording

SG&A expense increased by $2.6 million, or 37.0%, to $9.5 million in 2024 compared to $7.0 million in 2023. SG&A as a percentage of sales increased to 11.8% in 2024 from 8.3% in 2023. The changes in SG&A expense were primarily driven by increases in corporate allocation, incentive bonus expense and professional fees, partially offset by decreases in salaries, wages and benefits and taxes and license fees.

Previous wording

Net sales for the Tubular Products segment totaled $109.5 million for the full year of 2023, a decrease of 28.9% compared to the full-year 2022. The decrease in net sales was primarily driven by a 21.4% decrease in pounds shipped and a 9.2% decrease in average selling price.

Current wording

Net sales for the Tubular Products segment totaled $97.1 million for the full year of 2024, a decrease of 11.3% compared to the full-year 2023. The decrease in net sales was primarily driven by a 16.8% decrease in average selling prices offset by a 5.5% increase in pounds shipped.

Previous wording

SG&A expense decreased $0.6 million, or 7.3%, for the full-year 2023 when compared to 2022. SG&A as a percentage of sales was 6.9% of sales for 2023 and 5.3% of sales for 2022. The changes in SG&A expense were primarily driven by decreases in salaries, wages and benefits and lower travel expense partially offset by increases in taxes and licenses expense.

Current wording

SG&A expense increased $1.2 million, or 16.0%, for the full-year 2024 when compared to 2023. SG&A as a percentage of sales was 9.0% of sales for 2024 and 6.9% of sales for 2023. The changes in SG&A expense were primarily driven by increases in corporate allocation partially offset by decreases in salaries, wages and benefits, taxes and license fees and professional fees.

Previous wording

Corporate expenses decreased $1.1 million to $12.9 million in 2023 down from $13.9 million in 2022. The full-year decrease resulted primarily from decreases in salaries, wages and benefit, stock-based compensation, incentive bonuses due to lower attainment of performance goals, as well as decreases in other corporate overhead. The decreases were partially offset by increases in professional fees related to accounting, tax and other advisory related costs, taxes and licenses and insurance expenses.

Current wording

Corporate expenses decreased $4.1 million to $8.8 million in 2024 down from $12.9 million in 2023. The full-year decrease resulted primarily from allocating corporate expense to locations and decreases in stock compensation expense partially offset by increases in incentive bonus, professional fees, taxes and license expense and insurance expense.

Previous wording

The Company's effective tax rate for 2023 was less than the U.S. statutory rate of 21% primarily driven by tax benefits associated with non-deductible goodwill impairment. The Company's effective tax rate for 2022 was less than the U.S. statutory rate of 21% primarily driven by tax benefits associated with the closure of Palmer and the release of valuation allowances on certain deferred tax assets, partially offset by state taxes.

Current wording

The Company's effective tax rate for 2024 was less than the U.S. statutory rate of 21% primarily due to discrete tax charges associated with recording a valuation allowance on cumulative US Federal and state deferred tax assets. The Company's effective tax rate for 2023 was less than the U.S. statutory rate of 21% primarily driven by tax benefits associated with non-deductible goodwill impairment.

Previous wording

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, earn-out adjustments, retention costs and restructuring and severance costs from net (loss) 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.

Current wording

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 (loss) 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.

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 December 31, 2023, we held $1.9 million of cash and cash equivalents, as well as $61.8 million of remaining available capacity on our revolving line of credit. Our existing cash, cash equivalents, and credit facilities balances may fluctuate during 2024. Cash from operations could also be affected by various risks and uncertainties detailed in Item 1A - Risk Factors of this report. 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 December 31, 2024, we held $16.1 million of cash and cash equivalents, as well as $47.4 million of remaining available capacity on our revolving line of credit. Our existing cash, cash equivalents, and credit facilities balances may fluctuate during 2025. Cash from operations could also be affected by various risks and uncertainties detailed in Item 1A - Risk Factors of this report. 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 increase in cash provided by operating activities for the year ended December 31, 2023 compared to cash used in operating activities in the year ended December 31, 2022 was primarily driven by changes in working capital. 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 year ended December 31, 2023 by approximately $12.2 million compared to a decrease of approximately $13.7 million for 2022, while accounts payable increased operating cash flows by approximately $1.6 million for the year ended December 31, 2023 compared to an decrease of approximately $6.3 million for the year ended December 31, 2022. The increase in operating cash flows from inventory is primarily due to lower inventory turns year over year while the increase in accounts payable is primarily driven by a slight increase in days payables outstanding. Accounts receivable increased operating cash flow by approximately $6.8 million compared to a decrease of $0.3 million driven by lower sales in the current year partially offset by slightly higher days sales outstanding. In addition to the working capital changes, changes in income taxes increased cash flows by approximately $3.1 million compared to cash used in operations of approximately $7.9 million in 2022. This was driven by the receipt of a cash refund from the Company's 2022 tax return.

Current wording

The increase in cash provided by operating activities for the year ended December 31, 2024 compared to cash used in operating activities in the year ended December 31, 2023 was primarily driven by changes in working capital. 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 year ended December 31, 2024 by approximately $11.6 million compared to a decrease of approximately $12.2 million for 2023, while accounts payable decreased operating cash flows by approximately $3.6 million for the year ended December 31, 2024 compared to an increase of approximately $1.6 million for the year ended December 31, 2023. The increase in operating cash flows from inventory is primarily due to lower average inventory and higher inventory turns year over year while the decrease in accounts payable is primarily driven by a decreases in days payables outstanding within our Specialty Chemicals segment. Accounts receivable increased operating cash flow by approximately $2.8 million compared to an increase of $6.8 million driven by lower sales in the current year partially offset by lower days sales outstanding. In addition to the working capital changes, changes in deferred income taxes increased cash flows by approximately $6.2 million compared to cash used in operations of approximately $6.9 million in 2023. This was primarily due to discrete tax charges associated with the recording of a valuation allowance on cumulative U.S. federal and state tax assets in the third quarter of 2024.

Previous wording

Net cash used in financing activities primarily consist of transactions related to our long-term debt. The increase in net cash used in financing activities for the full-year 2023 compared to the full-year 2022 was primarily due to the repayment of the Company's asset backed line of credit and delayed draw term loan in the fourth quarter of 2023 driven by the sale of substantially all of the assets of SPT.

Current wording

Net cash used in financing activities primarily consist of transactions related to our long-term debt. The decrease in net cash used in financing activities for the full-year 2024 compared to the full-year 2023 was primarily due to the repayment of the

Previous wording

As of December 31, 2023, the Company had no borrowings outstanding with its lender due to the repayment of the Company's asset backed line of credit and delayed draw term loan in the fourth quarter of 2023 driven by the sale of substantially all of the assets of SPT. As of December 31, 2023, the Company had $61.8 million of remaining availability under its credit facility.

Current wording

Company's asset backed line of credit and delayed draw term loan in the fourth quarter of 2023 driven by the sale of substantially all of the assets of SPT.

Previous wording

During the fourth quarter of 2023, the Company entered into a Limited Consent, Second Amendment to Credit Agreement and Omnibus Amendment to Loan Documents with BMO Bank N.A. and the other lenders under the Company’s credit facility (the “Credit Facility Amendment”). The Credit Facility Amendment contained a consent for the SPT divestiture, released the lien on the assets of SPT and removed SPT as a loan party. The Credit Facility Amendment also reduced the maximum revolving loan commitment under the credit facility from $105 million to $80 million, and increased the interest rate for the credit facility from SOFR plus an interest rate margin of between 1.60% and 1.70% to SOFR plus an interest rate margin of between 1.85% and 2.10%, depending on average availability under the credit facility and the Company’s consolidated fixed charge coverage ratio. As required by the Credit Facility Amendment, the Company used the proceeds from the SPT divestiture to prepay in full the term loan in the original principal amount of $5 million under the credit facility and used the remaining proceeds to prepay in part the revolving loans under the credit facility.

Current wording

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.

Previous wording

The Facility contains covenants requiring the maintenance of a minimum consolidated fixed charge coverage ratio if excess availability falls below the greater of (i) $7.5 million and (ii) 10% of the revolving credit facility (currently $8.0 million). As of December 31, 2023, the Company was in compliance with all financial debt covenants. See Note 6 in the notes to the consolidated financial statements for additional information on the Company's line of credit.

Current wording

The Facility 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 (currently $9.0 million). As of December 31, 2024, the Company was in compliance with all financial debt covenants.

Previous wording

The share repurchase program allows for repurchase of up to 790,383 shares of the Company's outstanding common stock and expires on February 17, 2025. The shares will be purchased from time to time at prevailing market prices, through open market or privately negotiated transactions, depending on market conditions. Under the program, the purchases will be funded from available working capital, and the repurchased shares will be returned to the status of authorized, but unissued shares of common stock or held in treasury. There is no guarantee as to the exact number of shares that will be repurchased by the Company, and the Company may discontinue purchases at any time that management determines additional purchases are not warranted. As of December 31, 2023, the Company has 536,871 shares of its share repurchase authorization remaining.

Current wording

The Company's previous share repurchase program allowed for repurchase of up to 790,383 shares of the Company's outstanding common stock and expired on February 17, 2025. On February 17, 2025, the Board of Directors authorized a new share repurchase program allowing for repurchase of up to 1.0 million shares of the Company's outstanding common stock over 24 months. The shares will be purchased from time to time at prevailing market prices, through open market or privately negotiated transactions, depending on market conditions. Under the program, the purchases will be funded from available working capital, and the repurchased shares will be returned to the status of authorized, but unissued shares of common stock or held in treasury. There is no guarantee as to the exact number of shares that will be repurchased by the Company, and the Company may discontinue purchases at any time that management determines additional purchases are not warranted. As of December 31, 2024, the Company had 435,608 shares of its previous share repurchase authorization remaining.

Previous wording

•Operating and Finance Leases- The Company enters into various lease agreements for real estate and manufacturing equipment used in the normal course of business. Operating and finance lease obligations were $32.5 million, with $1.4 million payable within 12 months. See Note 7 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 real estate and manufacturing equipment used in the normal course of business. Operating and finance lease obligations were $32.9 million, with $1.8 million payable within 12 months. See Note 7 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 in fiscal 2024 to be as much as $6.5 million.

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 in fiscal 2025 to be as much as $7.6 million.

Previous wording

We record an obsolete inventory reserve for identified aged inventory items with slow or no sales activity for finished goods or slow or no usage for raw materials for a certain period of time. For those inventory items, a reserve is established for a percentage of the inventory cost less any estimated scrap proceed and is based on our current knowledge with respect to inventory levels, sales trends and historical experience. During 2023, our reserve increased approximately $2.8 million to$5.6 million as of December 31, 2023.

Current wording

We record an obsolete inventory reserve for identified aged inventory items with slow or no sales activity for finished goods or slow or no usage for raw materials for a certain period of time. For those inventory items, a reserve is established for a percentage of the inventory cost less any estimated scrap proceeds and is based on our current knowledge with respect to inventory levels, sales trends and historical experience. During 2024, our reserve decreased approximately $0.1 million to$5.5 million as of December 31, 2024.

Previous wording

We also record an inventory reserve for the estimated shrinkage (quantity losses) between physical inventories. This reserve is based upon the most recent physical inventory results. During 2023, the inventory shrink reserve had a $0.4 million increase in response to estimated shrinkage rates based on results from previous physical inventories. Our inventory reserve for estimated shrinkage was $0.5 million as of December 31, 2023.

Current wording

We also record an inventory reserve for the estimated shrinkage (quantity losses) between physical inventories. This reserve is based upon the most recent physical inventory results. During 2024, the inventory shrink reserve had a $0.3 million decrease in response to estimated shrinkage rates based on results from previous physical inventories. Our inventory reserve for estimated shrinkage was $0.3 million as of December 31, 2024.

Previous wording

We assess on a tax jurisdictional basis the likelihood that our deferred tax assets can be recovered. If recovery is not more likely than not (a likelihood of less than 50 percent), the provision for taxes must be increased by recording a reserve in the form of a valuation allowance for the deferred tax assets that are estimated not to ultimately be recoverable. In this process, certain relevant criteria are evaluated including: the amount of income or loss in prior years, the existence of deferred tax liabilities that can be used to absorb deferred tax assets, the taxable income in prior carryback years that can be used to absorb net operating losses and credit carry backs, future expected taxable income and prudent and feasible tax planning strategies. Changes in taxable income, market conditions, tax laws and other factors may change our judgment regarding whether we will be able to realize the deferred tax assets. These changes, if any, may require material adjustments to the net deferred tax assets and an accompanying reduction or increase in income tax expense which will result in a corresponding increase or decrease in net income in the period when such determinations are made. The utilization of certain deferred tax assets is dependent on the amount and timing of taxable income that we will ultimately generate in the future and other factors, such as changes in tax laws.

Current wording

We assess on a tax jurisdictional basis the likelihood that our deferred tax assets can be recovered. If recovery is not expected to exceed a more likely than not (a likelihood of less than 50 percent) threshold, the provision for taxes must be increased by recording a reserve in the form of a valuation allowance for the deferred tax assets that are estimated not to ultimately be recoverable. In this process, certain relevant criteria are evaluated including: the amount of income or loss in prior years, the existence of deferred tax liabilities that can be used to absorb deferred tax assets, the taxable income in prior carryback years that can be used to absorb net operating losses and credit carry backs, future expected taxable income and prudent and feasible tax planning strategies. Changes in taxable income, market conditions, tax laws and other factors may change our judgment regarding whether we will be able to realize the deferred tax assets. These changes, if any, may require material adjustments to the net deferred tax assets and an accompanying reduction or increase in income tax expense which will result in a corresponding increase or decrease in net income in the period when such determinations are made. The utilization of certain deferred tax assets is dependent on the amount and timing of taxable income that we will ultimately generate in the future and other factors, such as changes in tax laws.

Previous wording

We have provided valuation allowances as of December 31, 2023, aggregating to $1.6 million, net of federal benefit, against certain state and local net operating loss carryforwards and other deferred tax assets. As of December 31, 2023, the Company has no liability for unrecognized income tax benefits.

Current wording

We have provided valuation allowances as of December 31, 2024, aggregating to $9.1 million, net of federal benefit, against our federal deferred tax assets as well as certain state and local net operating loss carryforwards and other deferred tax assets. As of December 31, 2024, the Company has no liability for unrecognized income tax benefits.