Synalloy Corporation Stock

Good day, and thank you for standing by. Welcome to Ascent Industry Co's Second Quarter 2026 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today; Vice President of Finance, Kenny Herring. Please go ahead.

Thanks, Bonnie, and good afternoon, everyone.

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 of those listening to the call today 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 Investors section of the company's website at ascent.com. Please note that this call is available for replay via webcast point that is also posted on the Investors section of the company's website.

With that, I'd like to turn the call over to Bryan Kitchen, Ascents' CEO, to discuss second quarter results.

Thanks, Kenny, and good afternoon, everyone. We are pleased with the progress we saw in the second quarter, not because of any single performance metric but because the improvement was broad-based. Ryan will divest the financial results in greater detail, but the headlines are straightforward. Sequentially and on a year-over-year basis, volume average selling price, revenue, gross profit and adjusted EBITDA all improved. On a trailing 12-month basis, the company saw record highs for volume, net sales, gross profit and adjusted EBITDA from continuing operations. To us, that's meaningful evidence that the strategy that we've been executing over the past 2 years is working.

Excluding the sales from the Midwest Graphic Sales' acquisition during the quarter, the legacy business delivered approximately 28% growth versus the prior year, substantially outpacing the broader specialty chemicals market. On that same basis, June was our strongest chemical sales month since March of 2023, and Q2 was our strongest sales quarter since the third quarter of 2022. Including the acquisition, net sales increased 37% versus the prior year, building on the strong momentum already established within the legacy business. Effectively, these results demonstrate that we're building a better business, not just a bigger one.

To us, a higher-quality business generates more recurring product revenue, earns higher margins, produces more predictable cash flows, requires less capital to grow and deliver stronger returns on invested capital. We believe we're making measurable progress on each of those dimensions. Our disciplined execution is making Ascent a stronger company, one that's increasingly capable of performing well through the cycle, but we still have work to do.

Portions of our legacy custom manufacturing portfolio continued to exhibit the same seasonality and normal program turnover that we've historically affected the fourth and first quarter performance. And while we're making good strides in growing our way out of it, we expect those dynamics to remain a near-term characteristics of the business. What's encouraging is that the improvements that we're making are becoming increasingly visible across the business, and it starts with our commercial preference.

During the quarter, we converted 17 commercial opportunities across 13 customers and to approximately $5.8 million of annualized revenue, achieving a 26% conversion rate well above the specialty chemicals industry benchmark of 10% to 15%. Just as importantly, we're winning better business. This quarter, 44% of our commercial wins came from core technologies, products that improve our customers' products and processes. That's another meaningful step toward building a higher quality business that we've been describing over the past 2 years, one with more predictable demand, greater ratability and stronger margins. And we're also creating more value with the customers that we already serve.

Approximately 73% of the project wins came from existing customers, reinforcing that we're expanding our share of wallet by solving more technical challenges and becoming a more strategic partner. That deeper engagement extends well beyond the individual projects.

During the quarter, we hosted 15 current and prospective customers across our manufacturing sites, giving them direct exposure to our technical capabilities, our manufacturing platform, our innovation process and our incredible team. Those engagements are strengthening customer relationships, accelerating commercial opportunities and reinforcing our position as a strategic partner.

Looking ahead, our active selling project pipeline reached a record $140 million, up approximately 33% sequentially. That increase was supported by the addition of Midwest Graphics Sales commercial pipeline following the acquisition, while also reflecting continued momentum across our legacy business. These results didn't happen by accident. This is a product of a commercial engine that [ wins ] better business and an operating model that steadily improves the business over time. Winning new business is important, converting that business in profitable, repeatable earnings is ultimately what creates shareholder value. That's where the commercial execution and operational excellence come together.

The second quarter provided several good examples. Approximately 65% of our raw material spend is petroleum-based. During the quarter, our industry experienced a meaningful inflationary pressure following the heightened geopolitical tensions in the Middle East, affecting both raw materials and freight costs. Despite that volatility, our strategic sourcing and commercial teams operated as one, working to secure critical supply continuity for our customers while implementing price increases in real time where contractual mechanisms allow. Those actions protect the customers' supply while preserving the economics of the business. That same operating discipline that helps us navigate that volatility is also driving continuous improvement across our manufacturing network.

Last quarter, we announced a platform-wide optimization initiative expected to generate approximately $3 million to $5 million of annualized gross profit improvement at run rate. Today, we remain on track. We expect these improvements to be fully institutionalized across the platform by the end of 2026, with the earnings benefits continuing to build as these actions are implemented, embedded in the business and leverage across our growing platform.

One recent example, illustrates how a relatively small improvement can create meaningful financial value. During the quarter, our process engineering team developed and implemented OE-driven debottlenecking initiative that increased the effective capacity of a key reaction asset, unlocking more than 500,000 pounds of incremental annual capacity. As utilization continues to improve across our assets, these types of incremental improvements become increasingly valuable because they allow us to support profitable growth with limited future capital investments. Now viewed in isolation, many of these improvements may appear [indiscernible], but collectively, they compound over time, steadily increasing the quality, the resilience and earnings power of the business.

Everything I've discussed thus far focused on how we're improving Ascent's existing business. But what's particularly encouraging is that we're now beginning to leverage those same commercial capabilities, the operational discipline in the manufacturing platform to create value beyond our legacy operations. The Midwest acquisition is the first demonstration of that. Since we closed the acquisition on May 4, Midwest has validated the core elements of the investment thesis that we outlined when we announced the transaction. Immediate earnings accretion, disciplined integration and the ability to create new growth opportunities by combining the strengths of both organizations. We retained key customers while maintaining exceptional service levels throughout the integration. In fact, Midwest secured its first new customers since joining Ascent, while simultaneously executing broad-based pricing actions across the portfolio.

Back-office integration was completed a full quarter ahead of our original commitment. Cost synergy initiatives remain on schedule, and the transition of manufacturing into the Ascent network continues to progress as planned. Beyond the integration, we're already creating opportunities that neither company could have pursued and more importantly, one independently. By combining Midwest deep applications expertise with Ascent's manufacturing platform commercial capabilities and operational discipline, we recently secured a significant field trial program with a very large prospective customer. And while it's still early, we're encouraged by the initial results. More importantly, it demonstrates how combining Midwest application expertise with Ascent's commercial, operational and manufacturing at differentiated solutions and unlock opportunities that were beyond the reach of either company on a stand-alone basis.

What gives us confidence in the long-term opportunity isn't simply that Midwest is a high-quality business. It's how quickly it's benefiting from the operating model that we spent past 2 years building. We believe that capability will become an increasingly important competitive advantage as we continue to deploy capital in a disciplined manner.

Before I turn it over to Ryan, I'd like to leave you with one final thought. Our strategy hasn't changed. For the past 2 years, we've remained focused on improving the quality of our business through a stronger commercial capabilities, greater operational discipline and disciplined capital allocation. And together, our results through the second quarter of 2026 reinforce that we're on the right path. The breadth of the progress that we've delivered sequentially, year-over-year and across our trailing 12-month performance demonstrates that the operating model that we've built over the past 2 years is translating into measurable financial results. Ultimately, our objective is straightforward. Create a company capable of delivering more consistent growth, higher returns on invested capital and greater long-term value for our shareholders. And while there's still significant work ahead, we believe this quarter reinforces a simple but important point. We're not waiting for the market to improve our business. We're improving our business regardless of the market. That's with disciplined execution, continuous improvement and thoughtful capital allocation are designed to do.

None of that would be possible without the dedication of our employees, the trust our customers and the confidence of our shareholders. To each of you, thank you for your continued support. And with that, I'll turn it over to Ryan to review our financial results and capital allocation in more detail. Ryan, over to you.

Thanks, Bryan. The second quarter reflects meaningful progress in the direction we have been working toward. Revenue grew strongly and business returned to positive adjusted EBITDA and Midwest began contributing immediately. Those results are encouraging, but they also underscore the next phase of our work, ensuring that growth translates more consistently into gross margin, cash generation and returns. I'll provide additional context on where that conversion stands today, the actions underway to improve it and how those priorities are guiding our capital allocation.

Starting with the top line. Second quarter net sales were $25.7 million an increase of $7 million or 37.6% compared with the prior year period. Pound shipped increased 15.2% and average selling price increased approximately 23% while Midwest contributed $1.9 million of sales following the May 4 acquisition. Excluding Midwest, our legacy business still grew approximately 28% year-over-year, but a strong growth in the specialty chemicals market that remains soft. Before turning to gross margin, I'll briefly cover the remainder of the income statement.

SG&A was $5.5 million in the quarter, down approximately $900,000 from the prior year and improving to 21.5% of sales from [ 35.5% ]. The year-over-year reduction included lower incentive compensation and professional fees partially offset by investments in salaries, wages and benefits and the addition of Midwest. Over the longer term, our objective is to bring SG&A toward approximately 15% of revenue on a run rate basis. We have increasing confidence in the target as we continue to optimize our corporate functions, [indiscernible] repeatable processes and standardize how we operate across the portfolio. Reaching that level require both continued cost discipline and growth across the platform, but we believe the operating model we are putting in place can support meaningful additional leverage as the business scales.

Adjusted EBITDA from continuing operations was $1.5 million or 5.7% of sales compared with a loss of approximately $300,000 in the prior year quarter. The improvement reflects higher gross profit and materially lower corporate cost. While this is an important step forward, the earnings contribution from the growth we have won remains below our expectations, which brings me to profitability.

Gross profit increased 14% to $5.5 million from $4.9 million in the prior year quarter. Gross margin, however, declined 21.6% from 26.1%. On a year-to-date basis, gross profit increased 5% to $8.4 million, while gross margin declined 320 basis points to 18.5% from 21.7%. The year-to-date margin decline reflects pressure in both material cost and conversion costs. Material costs increased by approximately 127 basis points as a percentage of sales, driven in-part by inflation in petroleum-based raw materials and freight, while other cost of goods sold increased by approximately 193 basis points. We have taken pricing and sourcing actions to offset those pressures but there's typically a timing gap between those actions. Typically, the timing that before those actions are fully reflected in reporting [indiscernible] results.

The conversion cost pressure also reflects where Ascent is in its development. As we scale newer expanding programs require incremental inventory, production planning, labor, cost [indiscernible] support and network coordination before they reach steady-state efficiency. At our current scale, changes in mix, production timing and asset utilization can therefore have a more visible impact on quarterly margins than they would in a larger, more mature platform. The result is that the revenue growth we have generated is not yet carrying through the gross profit at the level we expect. That is the opportunity in front of us, improving sourcing, pricing realization, throughput, [indiscernible] plan planning and network utilization, so the growth already in the business converts more consistently into margin and cash flow.

Midwest is a positive early example of that model in practice. The business entered the portfolio with a gross margin of approximately 26% and was accretive to the quarter, while also adding a greater mix of product revenue, technical capability and customer access. Its contribution reinforces the type of higher quality earnings profile we are working to build across the broader platform. The near-term focus is therefore execution, allowing recently won business to mature, tightening production and labor planning and improving absorptions utilization builds. We expect those actions, together with the pricing and sourcing initiatives already underway, to reduce the temporary inefficiencies associated with growth and improve the consistency of margin performance over time.

We view working capital in the same way, extending appropriate terms, curing the right raw materials and positioning inventory to support a customer launch can be productive uses of capital when they help us win and retain attractive business. The growth alone is not sufficient. Those investments must be accompanied by disciplined pricing, reliable collection, optimize inventory, efficient production and margins that support an acceptable return on the capital employed. We are, therefore, managing margin and working capital as one operating objective, not a separate finance exercises. We will continue to support growth. We will be increasingly selective about where we deploy working capital and will not accept structurally weak margins [indiscernible] to add revenue.

The optimization work [indiscernible] is intended to improve annual gross profit by approximately $3 million to $5 million through sourcing, manufacturing improvements and better use of the network. We are seeing tangible progress, including improved capacity at reaction assets, lower corporate costs and the early integration benefits from West. At the same time, the current margin profile makes clear that the work is not complete. Our near-term financial priority is to translate the revenue base we have built into higher gross margin and more consistent cash generation.

As we look to the balance of the year, investors should expect a moderate contraction in gross margin in the fourth quarter from the stronger second and third quarter periods. That is consistent with the seasonal pattern we experienced in 2025 and with the normal program timing and turnover and portions of our custom manufacturing portfolio. We are not viewing that expected movement as a change in trajectory. Ascent is not yet a fully scaled platform, and quarterly results can move meaningfully based on mix, production timing and customer schedules. For that reason, we believe the trailing 12-month view provides the clearest measure of whether this business is progressing through the quarterly noise. On that basis, the direction of the business continues to point upward.

Turning to cash. We ended June with $28.1 million of cash and cash equivalents and no borrowings under our revolving credit facility. We have an additional $17.9 million of revolver availability, resulting in approximately $46 million of total liquidity. Cash declined by approximately $29.5 million from year end. The principle uses were clear and deliberate, approximately $14.6 million for the Midwest acquisition, $6.9 million for share repurchases and $1.2 million for capital expenditures. Operating activities used $7.7 million of cash during the first half, driven primarily by working capital. Accounts receivable used approximately $6.5 million of cash, reflecting higher receivables to sales growth. The $800,000 escrow related to the sale of American Stainless [indiscernible] has already been received and is additive to the quarter end cash balance I referenced, while the remaining $4.5 million associated with the Bristol Metals transaction is expected to be released in October 2026.

Beyond receivables and the timing of those escrow proceeds inventory used approximately $1.1 million, while accounts payable provided approximately $2.6 million of cash. Overall, operating working capital absorbed approximately $7.6 million in the first half. Separately, the timing of the escrow proceeds reduced reported cash at quarter end, but those amounts represent contractually deferred divestiture proceeds rather than underlying operating cash consumption.

Our cash conversion cycle increased to 75 days, up 12 days from the prior year. Days sales outstanding increased to 66 days. Days inventory outstanding increased to 47 days and days payable outstanding declined to 37 days. Some of that reflects the timing and support [indiscernible] to the growth we have won, but the current level is higher than we want and is not a permanent requirement of the business. We are targeting an initial 5-day improvement in the cash conversion cycle with the greatest opportunities in inventory discipline and vendor terms, while continuing to improve collections without undermining strategically important customer relationships.

At our current scale, we estimate that each 5-day improvement could [ lead to ] approximately $1 million to $1.5 million cash, depending on the mix of working capital improvements. Our objective is to bring the cycle towards 70 days and then continued to improve as the new revenue base matures. The opportunity is also an important context for how investors should view our first half cash use, relative to the run rate we anticipate going forward. Excluding the acquisition and share repurchases, the business used approximately $9 million of free cash flow in the first half, of which approximately $7.6 million is working capital. Before working capital changes, the business was near cash breakeven. As we restore margin, normalized working capital and sequence capital deployment against our priorities, we expect the cash use run rate to decline materially from the first half.

Looking ahead, before considering any additional discretionary capital deployment, we expect cash to recover into the mid-$30 million range as operating cash use moderates and the 2 escrow amounts are received. With borrowing capacity expected to remain in the high-teens that would result in an anticipated total liquidity in the low to mid-$50 million range. We would then evaluate acquisitions and share repurchases within the capital allocation framework and in light of liquidity, working capital needs and expected returns. That leads directly to our capital allocation framework.

We are managing capital across five priorities in order: liquidity, working capital, internal investment, strategic M&A and share repurchases. The order matters. First, we will protect liquidity and maintain sufficient flexibility to operate through normal volatility. Second, we will fund working capital where it supports attractive durable growth, the whole [indiscernible] organization accountable for cash conversion and margin. Third, we will invest internally in safety, maintenance, technology and high-return projects that improve productivity, capacity and gross profit. Fourth, we will preserve strategic optionality for acquisitions that improve the quality of the portfolio. Midwest is a good example. It added higher-margin product revenue technical application capabilities and customer access and it was immediately accretive to adjusted EBITDA. We remain disciplined and prioritize existing earnings quality over speculative synergy assumptions.

Fifth, we will repurchase shares opportunistically, when the expected return is compelling relative to other uses of capital and when liquidity, working capital and operating investments are appropriately funded. During the second quarter, we repurchased approximately 210,000 shares or $2.9 million at an average price of $13.80 per share. For the first half, we repurchased approximately 506,000 shares for $6.9 million, and we had approximately 1.5 million shares remaining under the authorization at quarter end. In the near term, the highest return use of capital is improving cash conversion and restoring gross margin. That does not mean stepping back from growth. It simply means making the growth we have already won, more efficient, more profitable and less cash intensive while deploying capital in order we have outlined. We believe that discipline will produce a substantially lower cash use run rate and allow the upward trajectory of the business to become more visible over time.

With that, I'll turn it back to the operator for questions.

[Operator Instructions]. I'm showing no questions at this time. I would now like to turn it back to President and CEO, Bryan Kitchen.

Okay. Thank you, Bonnie. We'd like to thank everyone for listening to today's call, and we look forward to speaking with you again when we report our third quarter 2026 results. Thank you and be safe.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.

Hello, and welcome to the Ascent Industries Co.'s First Quarter 2026 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the conference over to Kenny Herring, Vice President of Finance. Please go ahead.

Thank you, Haley, and good afternoon, everyone. 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 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 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 Investors 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 Investors section of the company's website.

With that, I'll turn the call over to Brian.

Thanks, Ken, and good afternoon, everyone. We've got a lot to cover today, so let's jump in. In the first quarter, we saw a meaningful number of projects won in 2025, convert into real measurable revenue and that conversion is now showing up in the numbers. We delivered net sales of $19.4 million, nearly double-digit growth versus the prior year and 3.5% increase sequentially.

In a market that remains flat uneven, this is not a market-driven outcome. It reflects the conversion of prior wins into revenue and continued execution across the business. That momentum throughout the quarter and culminated into March, where we delivered our strongest monthly sales performance since March of 2023, a clear signal that what we are building is working and accelerating.

During the quarter, we converted 31 projects across 27 customers with conversion rate improving to 22% and an average sales cycle of approximately 3.5 months. These are not early-stage opportunities. These are committed programs backed by purchase orders received, shipped and invoiced in Q1. Already in production and generating revenue, representing approximately $7.6 million of annualized revenue. This is not pipeline becoming potential. This is pipeline becoming revenue.

This is exactly how we -- how the model is designed to work. We build pipeline, we convert it with speed, and we scale it across the platform. And we've done this before. What's different now is the scale, and we're seeing that scale translate directly into revenue. From a mix standpoint, 58% of our pipeline wins came from product sales and 42% from custom manufacturing, reflecting how the team is intentionally shaping new business towards our core technologies and highly customized performance-driven solutions.

The broader pipeline continues to build our pipeline in Q1 increased 34% as compared to the end of 2025. So we're delivering growth today through committed programs already in execution, while simultaneously building a larger pipeline that positions us for continued acceleration. We're not lowering our standards to grow. We are scaling the right work. This is high-quality, margin accretive growth that we expect to convert into earnings as it is optimized across our platform. As we translate that growth into earnings, it's important to understand how we are choosing to win and how that shows up in the margin profile in the quarter.

In the first quarter, gross margin was down approximately 270 basis points versus the prior year. Let me be clear on what that is and what that is not. This is not a structural change in the business, and it's not a breakdown in operating discipline. It does not reflect the underlying earnings power of the platform. Material margins improved by approximately 200 basis points versus our 2025 average and 300 basis points sequentially. And we have not seen a structural change in our labor and overhead cost base.

What you're seeing as a result of how we've chosen to use the flexibility of our multi-asset platform to move quickly, winning and onboarding new business across our platform and then optimizing how that work is sourced, routed and produced. And that sequencing matters. In many cases, we're not initially running that work in its optimal state. We're prioritizing speed to secure the business, leveraging available capacity and subscale production where necessary, knowing we will optimize from there.

The result is exactly what you see in the numbers under optimized sourcing, subscale production runs and variability in cost absorption, which shows up in gross margin in the near term. But importantly, the path forward is clear and already in motion. We've executed this playbook before and we've proven a track record of improving sourcing, simplifying operations and expanding margins over time. What you're seeing in this quarter, it's not a change in the model. It's the early stage of that same model being applied to a much larger and faster growing base of business. We have visibility. And so where the inefficiencies exist, and the flexibility to fix them across our asset base.

And we're actively realigning the sourcing and scaling of production and matching the right work to the right assets across our network. That work is already underway, and we expect margin improvements to begin flowing through as we move throughout the year. As we look forward, we're focused on both winning volume and maximizing value, driving growth while improving how that growth translates to earnings.

This is not a stand-alone initiative. It's embedded into how we operate. We are systematically optimizing our workflows through our network, allotting volumes and sourcing and production to drive better outcomes. At the same time, we're maintaining a relentless focus on cost control, driving accountability across sourcing and production and overhead to ensure that as we scale, more of that growth converts to earnings. Because we've identified where these efficiencies exist and how to fix them, we have a very clear and actionable path to more than $3 million to $5 million of incremental run rate gross profit improvement with the majority of that expected to be realized by the fourth quarter of 2026. This isn't a target. It is the output of specific actions already underway.

And importantly, this is where our confidence comes from. We're not relying on external conditions or assumptions. We're executing a set of actions that we have implemented successfully across the business over the past 2 years. We know how this plays out. This will require targeted time-bound investment in the near term. We expect returns in excess of 100% of invested capital. reflecting the fact that these investments are focused on optimizing existing volume and infrastructure, not building from scratch. When you improve how the business -- how you run the business you already have, the incremental returns are significant. The outcome is straightforward, stronger margins, more consistent performance and more durable earnings profile.

Alongside of that growth, we maintained discipline on pricing. We demonstrated the ability to pass through raw material inflation, particularly important given that approximately 65% of our inputs are petroleum-based. We acted early and with intent, while not always the first to move, we are a disciplined fast follower, acting quickly with the benefit of real market visibility. Our objective is clear: fully recover cost input pressure while ensuring continuity of supply. This is about reliability and trust in delivering in the moments that matter for our customers.

And finally, subsequent to the quarter end, we announced the acquisition of Midwest Graphics Sales and Sigma Coatings. This is not just another transaction. It's a clear signal of how we intend to build this business moving forward. We said we would be disciplined. We said we would focus on high-value formulation-driven product lines. And we said that we would allocate capital where we have a clear right to win, and this transaction delivers on all three.

Midwest is a specialty formulator built on highly customized, application-specific coatings serving packaging, food service and other consumer applications. Markets where performance, durability and high switching costs. What makes us compelling is not just what the business is today, but what it becomes inside of a sense. On day 1, we're acquiring a durable embedded earnings stream supported by long-standing customer relationships and a strong margin profile.

But importantly, we're unlocking a platform for acceleration. We expand our formulation capabilities. We deepen our position in key markets, and we gain access to new customer base, creating a clean cross-selling opportunity across more than 60 active customers. We are not buying capacity, we're buying demand that can be integrated into our capacity. Demand that's customized, embedded and scalable across our asset base. As we integrate the business, we expect to transition production into our network over time.

Importantly, the product mix aligns squarely within our existing capabilities, enabling us to in-source this work with little to no incremental capital investment. This is a critical advantage of our platform. It allows us to capture the benefits of scale of sourcing and asset utilization without the need for meaningful new infrastructure, enhancing returns and accelerating the realization of synergies.

We will apply our proven playbook, one that's already delivered measurable improvements across our platform, giving us the confidence in our ability to enhance margins and accelerate growth in this business. We know how to do this. And importantly, this transaction is supported by the existing earnings quality with upside driven by execution, not required to justify the investment. We didn't buy potential. We bought a business that's already performing.

So before I turn it over to Ryan, let me leave you with this. We are not waiting for the market to improve. We're executing. We're winning the right business, we're onboarding it with speed and optimizing it with discipline. We're unlocking margin with clear line of sight to improvement that is well within our control. And at the same time, we're taking share. We're converting pipeline into real revenue and allocating capital to increase the quality and duality of our earnings.

And we're doing that while maintaining our relentless focus on cost control. Ensuring that as we scale, more of that growth translates into earnings. This is not a new model. We're scaling a system that we've already built, tested and proven. And as we continue to scale and optimize and deploy capital with discipline, that will translate to stronger margins, more consistent performance and a more durable earnings profile.

And that's exactly what we're building. So I'll turn it over to Ryan to walk through the financials and capital allocation in more detail. Ryan, over to you.

Thanks, Brian, and good afternoon, everyone. I'll build on Brian's comments by focusing on four areas: revenue quality, gross margin, cash usage in the quarter and capital allocation.

Starting with the top line. Net sales were $19.4 million in the first quarter, up 8.9% versus the prior year. That growth was supported by both volume and price, with pounds shipped up 7.6% and average selling prices up 5.2%. In a soft and uncertain industry environment that is an important signal. Our growth is not market-dependent. It is execution led. We are winning business, expanding customer relationships and converting pipeline into revenue. That is the most important first step.

In this environment, winning and holding the right business comes first. Optimization follows. And as Brian said, we have a high degree of confidence in our team's ability to do that. That said, the key question in the quarter is not revenue growth. It is gross margin. But before getting there, I'll briefly walk through the rest of the P&L.

SG&A was $5 million in the quarter, up approximately $300,000 year-over-year, but lower as a percentage of sales at 26.4% compared to 27.3% last year. The increase was primarily driven by salaries, wages and benefits, rent expense and stock comp. Partially offset by lower incentive bonus expense. Importantly, we view part of the spend as investments in the commercial and technical capability required to support the type of business we are winning. These are not transactional sales cycles. They require responsiveness, formulation knowledge, regulatory awareness, production coordination and a willingness to work alongside customers to solve complex problems not simply ship product.

That is why we continue to build the technical bench and customer support model needed to pursue higher value opportunities and deepen long-term partnerships. We also recognize that our current SG&A structure is heavy relative to the size of the business today. That is intention, but it has to translate into growth in earning leverage. We have built the organization to support a materially larger specialties chemicals platform.

Roughly 50% to 65% revenue growth from the '25 baseline without requiring the same level of incremental overhead as the business scales. Our objectives are clear as we invest in this area. Support growth with best-in-class service and technical execution while ensuring that each dollar of revenue growth carries more efficiently through to earnings over time.

Further down the P&L, other income was favorable in the quarter, driven primarily by interest income from our cash balance and sublease income. We had no debt outstanding on the revolver at quarter end, so the balance sheet continued to contribute positively below the operating line rather than creating a financing drag.

Net loss from continuing operations was $2 million, and adjusted EBITDA was a loss of approximately $1 million. Those results are not where we expect the business to be over time, but they also reflect a quarter where reported earnings lagged the commercial progress and operational work already underway.

Now turning to gross profit and margin. Gross profit was $2.8 million or 14.5% of sales compared to $3.1 million or 17.2% of sales in the prior year quarter. In dollar terms, gross profit declined by approximately $257,000 year-over-year despite the higher revenue base. That is not the margin profile we expect from this business, and we are treating it with the level of focus it deserves.

As Brian said, the margin compression in Q1 was not driven by a loss of pricing discipline for its deterioration in the customer book. In fact, the clearest evidence is in material economics. Standard material cost was approximately $0.61 per pound in Q1 compared to approximately $0.71 per pound in Q4 and approximately $0.66 per pound for full year 2025. The material side of the business was not the source of the compression. Sourcing actions and cost discipline helped protect contribution dollars even as volumes increased.

The pressure was concentrated in nonmaterial COGS, timing, absorption, routing, labor efficiency, overhead recovery, utilities, freight and other plant level costs that show up in new or growing programs move through the system before sourcing, production cadence, inventory positioning and plant loading are fully optimized. Utilities were a real example of that pressure in the quarter.

January and February utility costs ran materially above the Q4 monthly run rate, creating roughly 150 to 175 basis point headwind to Q1 gross margin before considering any offsetting actions. But the larger point is that these presses were concentrated in controllable conversion costs, not in raw material economics or broad pricing deterioration.

Deferred manufacturing variance is also a meaningful timing headwind. As Q1 shipments increased and inventory declined, manufacturing costs previously embedded in inventory flowed through cost of sales. That effect alone represented approximately $600,000 or roughly 290 basis points of Q1 sales. And the sequential swing versus Q4 was approximately $900,000 to $1 million. That is exactly why we view the quarter as a timing and absorption issue.

The cost was created as programs are being ramped and inventory was being built, then recognizes that inventory converted to revenue. The key distinction is that pressure is operational, not structural. We want attractive business quickly, and now the work is to optimize that volume through better sourcing, routing, campaign planning, inventory positioning, production loading and absorption.

In this market, winning and holding the right business comes first. Optimization follows what the volume is inside the platform. That creates near-term margin noise, but it also gives us control over the levers that drive durable improvement. We are not satisfied with Q1 margin, but we do view it as the -- we do not view it as a new baseline. The business is winning, material economics remain intact and corrective actions are underway. As they take hold, we expect captured volume become more efficient, repeatable and profitable.

Turning to cash. We ended the quarter with $47.8 million of cash and no debt outstanding under our credit facility. That compares to $57.6 million of cash at year-end. The cash balance declined by approximately $9.8 million during the quarter. The movement deserves a direct explanation. The largest use of cash was capital allocation. We repurchased approximately 296,000 shares during the quarter for $3.9 million at an average price of $12.92 per share. While we do not evaluate buybacks based on short-term stock movements, the discipline of that deployment is already evident.

Compared to the May 5 closing price of $14.94, those repurchases were made at an approximately 16% discount, representing roughly $600,000 of implied value creation in less than 2 months. More importantly, we believe those shares were repurchased at prices well below our view of long-term intrinsic value and not at the expense of operational flexibility as we ended the quarter with nearly $48 million of cash, no revolver debt and $14.2 million of remaining availability under our credit facility.

Looking beyond the quarter, since January 1, 2025, we have repurchased approximately 1.18 million shares for roughly $14.9 million at a weighted average price of approximately $12.61 per share. That represents roughly 11% to 12% of the beginning 2025 share base repurchased on a gross basis. While we are rebuilding the operating platform, we have also been materially reducing the share count at prices we believe are attractive relative to the long-term value of the business.

The second major use of cash was investment in the business and our people. We paid approximately $2.2 million of incentive compensation during the quarter, reflecting the work completed in 2025 to reposition Ascent into a pure-play specialty chemicals platform. We fully understand that compensation will be scrutinized in a quarter with negative adjusted EBITDA and margin pressure. We do as well. But we also believe retaining, aligning and rewarding the team that executed the divestitures, simplified the company, stabilize the platform and are now driving the commercial and operational reset is a rational investment in the durability of the business.

The third major use of cash is working capital. Net working capital consumed approximately $3.2 million of cash in the quarter. That was driven primarily by higher receivables as revenue increased, timing of customer collections and vendor payments and the normalization of accruals after year-end. Inventory was actually a source of cash in the quarter, improving by approximately $1.3 million, which is an important point. We are not simply building inventory without discipline. We are funding the working capital required to support new and growing programs while continuing to manage inventory tightly.

So when you look at the roughly $10 million decline in cash, we would frame it this way. Approximately $3.9 million went to repurchasing shares and what we believe were attractive prices. Approximately $2.2 million went to incentive compensation tied to the transformational work completed last year, approximately $3.2 million went to net working capital, much of it connected to supporting the revenue growth and timing dynamics of the quarter and approximately $400,000 went to capital expenditures.

This is not a recurring operating cash burn profile we are comfortable with or expect to normalize. It is a quarter in which cash was used to support three deliberate priorities: return capital when the valuation is compelling, invest in the team responsible for execution and fund the working capital needed to convert pipeline into revenue and optimize the business we have already won. This also ties directly to our acquisition strategy.

The Midwest acquisition is consistent with the same capital allocation framework. This is a relationship-driven transaction developed through the kind of industry knowledge, technical familiarity and long-term commercial connectivity that we believe are critical in disciplined small-cap industrial acquisitions. We are not pursuing scale for the sake of scale. We are not buying capacity to fill plants. We are prioritizing higher-quality product revenue, customer intimacy, technical application know-how and opportunities where Ascent's platform can improve sourcing, commercial reach and operating support. The underwriting reflects that discipline.

We are acquiring a business with existing earnings quality, a purchase price supported by current cash flow rather than speculative pipeline assumption and a pre-synergy gross margin profile of roughly 25% even before purchase accounting adjustments and the benefit of Ascent-led sourcing cost and commercial initiatives. This is not a transaction that requires us to manufacture the thesis after closing. The business already has the margin structure, customer relationships and product orientation we want more of the new portfolio.

Importantly, we expect Midwest to be immediately accretive to annual adjusted EBITDA with upside as we execute on identified costs, sourcing and commercial opportunities. That expected contribution is not dependent on aggressive market recovery assumptions. It is supported by existing earnings quality and the ability to bring a more complete operating platform around a high-quality product business.

Our capital allocation priorities remain straightforward: protect the balance sheet, fund the operating improvements required to expand gross margin, invest behind our return organic growth, pursue disciplined acquisitions where the underwriting is supported by existing earnings quality and repurchase shares when the risk-adjusted return is compelling relative to other uses of capital.

Q1 was not a clean quarter from a margin standpoint, but it was a quarter in which the business grew. The balance sheet remains strong and capital was deployed towards assets we understand, our shares, our people, our working capital engine and a higher quality product portfolio.

[Operator Instructions] Our next question comes from [ Howard Ruth with Fairhope Capital. ]

Can you give us some details on the Midwest acquisition? I mean the only thing I see is it $14 million in cash. But what can you tell us about the revenue that you're acquiring the assets and what you expect going forward from that business?

Yes, sure, Howard. Thanks for the question. So let's just start off from a revenue perspective. On an unaudited basis, 2025 revenue was roughly $10.8 million. Adjusted EBITDA came in just north of $2 million, adjusted EBITDA margins in that 19% to 20% range.

So that's like 7x EBITDA is kind of in the middle of your acquisition kind of parameters going forward?

It's on the volume of business.

Yes. Okay. And do you consider -- you believe that will be immediately accretive to you? Will that revenue hit kind of quarterly starting in the second quarter?

Yes.

Okay. So then on margins, I get kind of what you're saying here. The kind of surprised me because I think in the last call, we were looking at maybe 20%. But given where your business is, small numbers can make a big difference on the percentages. What do you look going forward from that 14.5% Will we bounce back toward 20% in Q2 and up from there toward that 30% goal? Or is it going to take a quarter or 2 to get on that trajectory?

I think it's going to take a quarter or 2. I mean, as we progress through the year, we expect to be back into those low 20s. So again, we -- the focus was on winning business quickly. In some cases, that's not optimized. We are out of the gate as we learn kind of how to efficiently make the products, where to efficiently make those products. So we expect that the margins to normalize throughout the year. And as a full year basis, we expect those to be in that low 20s together.

Is there any change on your goal of this being a 30% gross margin business overall?

Not at all.

Okay. And then the pipeline conversion, last quarter, it was 31 projects, I think, about -- I guess this one is 31 projects, $7.6 million in annualized revenue. Last quarter, Q4 was a little bit more, 38 projects, $9.4 million. Is that -- is there a seasonality to your project conversion in Q4 being a little higher than Q1? Or is there any seasonality in that pipeline?

Yes. No, it was just how the projects came in inside of Q1. We saw a healthy influx, right, from a project count perspective, it was a little bit different. But the overall value of the pipeline increased exponentially, close to $24 million, $25 million from last quarter to this quarter. So we're -- we continue to be really pleased with how that pipeline continues to take shape. And I would say we're also pleased with the quality of projects that continue to come into the pipeline.

Great. And then Q4, you said the margins on that pipeline was around 40% coming in. I don't think you said anything about that here for Q1. What do you have on the margins of the business you brought in, in Q1?

Yes. I think these are some larger scale wins, Howard. I believe they were in that 25-ish percent range, Ryan? Correct me if I'm wrong.

Okay. Well, great. Well, congrats on the continued progress. I know this has been a tough slog going forward, but it seems like you're really getting things in place and look forward to a good kind of 2026 for you.

I appreciate that, Howard. I mean it's really good to see the momentum take shape and not just feel it, right, based on commitments, but to begin to see it roll through the income statement. Now yes, we're getting the top line, but we've got to work on improving that margin profile. And I assure you, the team has rallied around that, working to, as Ryan was talking about earlier, optimize the production scheduling and the sequencing and how we're allocating that out across our three manufacturing assets.

[Operator Instructions] Our next question comes from the line of [ David Siefried ].

Yes. So a question. So you spent $13 million on the Midwest acquisition, $47 million in cash end of Q1, subtract out that Midwest acquisition. But now were you supposed to get a release of like $5.5 million from escrow and from past divestitures? I when is that going to be released?

In July.

You said in July?

Correct.

Okay. All right. Good. And then -- so now you've been with the company.

David, there's actually 2 tranches of that. So the larger portion, about $5 million will be released in July and then a separate tranche will be released in October.

Okay. Good. And then you've been with the company now for a long -- for a while, a couple of years. You've streamlined the business. You have a very good handle on what's happening. Do you think at some point soon, you'll be able to give us like revenue targets, profitability targets for the business?

Not inside of 2026, David. There's still so many moving parts, as you've heard on the call today. So as we're out growing and building new platforms and winning new business and seeing how that phasing works, there's still quite a bit of lumpiness. So what we don't want to do is get into a habit of providing unrealistic or incorrectly phased assumptions to our shareholders. So we'll work this year on continuing to stabilize the business continue to build that momentum. Minimize some of the lumpiness we've historically seen, right, from a quarter-on-quarter basis and then reevaluate as we get towards the tail end of this year.

Yes. Okay. Do you think you'll be in line for any tariff refunds?

No, no, nothing material, right? Because the vast majority of our raw material inputs, David, are sourced domestically.

Got it. So you picked up 60 customers with the Midwest purchase. And then as capacity is filled in Midwest, if there's a need for more product, that can just be put into our existing footprint, correct?

Yes. I mean, look, ultimately, our plan is to transition from their current manufacturing facility into our manufacturing facility. What I would say is there's plenty of headspace to tack on large new pieces of business based on our underutilized process centers that we have.

And again, the good thing is it's not just one plant. We have similar capabilities across the network. So we're super excited about the acquisition. It's everything that we set out for, right? It's -- we're not buying an asset with -- that's going to compound our problem statement that we've historically had from a utilization standpoint.

We're bring a product line that we can then integrate into our assets and equally as important, I mean, really sticky customized products that are developed for customer-specific problems. So exactly the types of sales that you've heard us talk about and get excited about over the past year with our solutions that we've developed in the oil and gas space just as an example.

Yes. Excellent use of capital with the buyback and the investment into the team, the management team. I think that's money well spent. Who knows where the stock goes from here. But at some point, when you start showing a bottom line profit, it's going to be materially higher. So are you going to change your metrics as far as how much shares can be bought at these levels, even though it's higher than what you bought in Q1, but still cheap compared to where it's going to be in a year?

Yes. I mean we're going to continue to leave that optionality. I think where the stock moved in early Q1 gave us a great opportunity compared to where we believe the intrinsic value of the stock really should be. So we'll continue to monitor it. If the stock stays compressed and below where we believe it should be, we'll be opportunistic in buying it back.

But again, we're being -- we like the optionality we have with our balance sheet right now, and we'll protect it first. We'll invest in the business to grow as kind of a first priority, and we'll always leave that last piece available to us to go out and repurchase shares where we can.

Yes. Okay. And then one last question. I think in December, you rolled out the digital first market strategies. How is that -- how was the follow-through on that in Q1 with website traffic and any leads that got generated and that type of thing?

Yes. Sorry about that. No, I was going to say, David, I can respond directly to that. Somehow I got tagged on to all of the inquiries that come in through our website, which is very, very interesting, but it doesn't do my inbox any favors. We're seeing an enormous amount of traffic come in. And what's really encouraging is not just the volume of traffic, but the quality of earnings.

In some cases, it's net new customers that we've never worked with that are asking for samples that they want to try a Dufomer in one of their paint formulations as an example. In other instances, there are customers out there looking for new surfactant supplier. So we're very encouraged. I would say that there's just been continued tailwinds from Q4 when we've launched that into Q1 and now Q2.

At this time, I'm showing no further questions in the queue. I would now like to hand it back over to Brian for closing remarks.

Okay. Great. Thank you, Haley. We'd like to thank everyone for listening to today's call, and we look forward to speaking with you again when we report our second quarter 2026 results.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.

Good day, and thank you for standing by. Welcome to the Ascent Industries Co. Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions].

I would now like to hand the conference over to your speaker today, Bryan Kitchen.

Thanks, Josh, and good afternoon, everyone. 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 listings 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 Investors section of the company's website at www.ascentco.com.

Please note that this call is available for replay via our webcast link that is also posted on the Investors section of the company's website.

Now with that, let's talk about the business. We exited 2025 as a pure-play specialty chemical company and a structurally stronger business. Gross margin expanded nearly 1,000 basis points. Gross profit increased 61%. Adjusted EBITDA improved by more than $4 million year-over-year despite operating on approximately 7% lower revenue. And we delivered these results while fully exiting our legacy Tubular signal that is not cyclical recovery that is structural improvement.

The business we are building has a higher earnings power and we are still in the early stages of unlocking it. Fourth quarter results reflected continued end market softness and unfavorable mix, which pressured absorption and led to sequential moderation in margin and adjusted EBITDA. While the quarter did not extend the momentum of Q2 and Q3, it does not alter the trajectory of our business.

Importantly, we did not chase volume to protect optics. We protected margin integrity. We are reshaping our book of business towards higher margin, lower volatility revenue. That transition can create short-term variability, but the earnings foundation today is materially stronger and more durable than what it was 12 months ago.

Against that backdrop, the fourth quarter was defined by several tangible advances that reinforce our structural progress. We permanently exited them on haul, eliminating a legacy drag that will contribute approximately $2.1 million of run rate improvement in 2026. We secured a significant new commercial program expected to generate more than $70 million of incremental annualized revenue that will improve operating leverage across 2 of our manufacturing sites.

Our pipeline conversion reached 25% in Q4. we won 38 projects across 23 customers with an average sales cycle of 2.9 months. These wins generated commitments of $9.4 million of annualized revenue. Approximately $7.1 million came from new customer program and 2.3% came from additional wins, carrying margins in excess of 40%. The majority of these wins came from existing customers, reinforcing strong runway with shareable wallet expansion.

Product sales represented 47% of the wins with custom manufacturing contributing the balance. In the fourth quarter, we added a record $43.4 million of new selling projects and some setted $40.8 million. Of the projects that we removed, some reflected continued demand softness while others were opportunities we chose not to pursue because they did not meet our return thresholds.

Finally, in December, we modernized the demand engine. Website traffic increased 218% and contact submissions rose 122% within the weeks of repositioning our digital strategy. These advances were achieved while we're moving more than $5 million of labor, overhead and other costs as compared to 2024, more than offsetting targeted reinvestment.

We are strengthening the business while lowering the structural cost base. What underpins this progress and gives the durability is a deliberate upgrade of our operating platform across marketing, sales, R&D and operations. These are not defensive moves. They were intentional investments in people, processes, tools and capabilities designed to improve coordination, discipline and earnings quality.

In marketing, we built a scaled measurable demand engine that did not exist 2 years ago. This function is tightly integrated with both sales and R&D, considerating qualified opportunities and strengthening our authority in priority chemistries and markets.

In 2025, marketing delivered a return on investment well in excess of 100% across trade shows, digital demand and inside sales campaigns and that engine is translating into commercial momentum. In sales resources are directed towards customers and programs that need to find return thresholds and generate durable earnings. We are not managing for pipeline optics. We are managing for margin, cash generation and long-term retention.

Through structured account planning and executive engagement, we are embedding our solutions into customer formulations and validated workflows, increasing defensibility as integration deepens. R&D has become a growth catalyst. Approximately 95% of our fourth quarter wins were driven by or enabled by R&D efforts including formulation development, process optimization, scale-up support and that gap is elevating conversion quality, strengthening our margins and shortening our sales cycle times.

In operations, we prioritize leverage over expansion. Rather than adding fixed costs, we revitalized existing assets and debottleneck capacity, guided by a disciplined return on investment mindset, we deployed approximately $435,000 to bring idle equipment back online, capability that would have required more than $3.7 million of new investment. This improves asset utilization and expand capability without increasing structural overhead.

What gives us confidence in this next phase is the operating discipline now embedded across the organization. Quality, service reliability across our asset base have never been stronger. Teams are increasing uptime, driving out waste and executing with appropriate urgency. And that execution is the backbone of our margin expansion story. It enables us to grow efficiently, protect profitability and deliver for customers in any environment.

Every investment we make and people, processes or technology is deliberate and return driven and we are doing this from a position of financial strength. We ended the year with significant liquidity, no debt and a clean balance sheet, and that's after buying back approximately 7% of our outstanding shares.

Our strong balance sheet gives us resilience and soft demand environment and flexibility to continue investing in high-return opportunities. Stepping back, as I reflect on 2025, I'm proud of what the team has delivered. We improved margins and earnings in a difficult market, while reshaping the portfolio and reinforcing the foundation of the business. And that doesn't happen by accident. It reflects ownership, accountability and disciplined execution across the organization.

As we look ahead, our priorities are clear: keeping customer partnerships through innovation, reliability and speed, fill available capacity with high-margin organic growth. and preserve balance sheet strength and allocate capital with discipline. We are not waiting on the market to recover. The market didn't do it to us and the market is not going to fix it for us. We are building a stronger company regardless of the cycle and positioning it to compound.

Our company looks very different today than when we began this journey 2 short years ago. It is stronger, more disciplined and built for durability. So the entire Ascent team, thank you. You are our unfair advantage.

And with that, I'll turn it over to Ryan to walk through the financials in more detail. Ryan?

Thanks, Bryan, and good afternoon, everyone. Starting with net revenue. The key takeaway for the quarter is that we delivered year-over-year growth despite an uneven demand environment. Net sales increased 4%, supported by a 6% lift in shipments at several higher throughput programs ramped. As expected, that benefit came with a mix shift. Incremental pounds skewed toward lower priced, lower margin wins, which compressed spreads on a consolidated basis.

Turning to the full year. Net sales declined 7.2% and as a 17.7% contraction in demand more than offset 10.9% in pricing action. In that context, we remain disciplined on value and continue to sharpen mix and execution, positioning the book to participate as volumes normalize. From a profitability standpoint in the quarter, while mix in the broader cycle remained uneven, gross profit was essentially flat year-over-year, down less than $50,000, and gross margin declined by approximately 90 basis points.

Holding margin movement to that level, given the spread compression and demand variability is a solid outcome. And it reinforces that we're scaling throughput without compromising the earnings profile we're building. Stepping back to the full year, gross profit increased by $6.5 million and gross margin expanded by nearly 1,000 basis points driven by a 2.5% improvement in material profit as our sourcing initiatives product line management and operating execution took hold across the portfolio.

Moving to SG&A. Expenses were $6.5 million compared to $5.4 million in the prior year period. The year-over-year comparison is influenced by merit accrual reversals in the fourth quarter of 2024, along with an unfavorable impact from litigation settlement expenses in the current period.

On a full year basis, was up $3.2 million, largely driven by $2.1 million related to legacy Mono-palmer activity that was reclassed SG&A in the second quarter as well as stock compensation and incentive payouts, partially offset by reductions in professional fees.

Adjusted EBITDA for the quarter was a loss of $1.1 million, a decrease of roughly $600,000 year-over-year. Full year EBITDA was a loss of $570,000, an improvement of $4.1 million year-over-year.

Turning to the balance sheet. We ended the quarter with $57.6 million of cash, no debt and $11.4 million of incremental availability under our revolver. We finished the year with significant liquidity and a clean balance sheet, which gives us flexibility and staying power as we move through this part of the cycle. And with the cash conversion cycle down to 61 days, we're demonstrating tighter working capital discipline, building confidence that the business is getting more resilient even as demand softens.

With that, I'll turn it back to the operator for questions.

[Operator Instructions]. And our first question comes from Adam Waldo with Managing Member, Lismore Partners, LLC.

Okay. So I wanted to dig in a little bit more on the cadence of the quarter by month as you released your third quarter results Were you starting to see some of the soft inserted that developed really late in the quarter? And how is the macro environment as we sit here 2 months into the into the first quarter. Obviously, some geopolitical developments in the last few days. But before that, were you seeing an improving macro environment?

Yes, I really appreciate the question. So related to the demand build inside of 2025, what we're dealing with is still some inherent seasonality challenges with the legacy book of business, really strong Q2, really strong Q3 and a little bit of softness in Q4 and Q1. So as I mentioned in the script, one of the things that we're working on is building a more stable, ratable book of business throughout the year. so we can minimize the impact of some of the seasonality of volatility that we have.

Related to the most recent conflict that emerged over the weekend, what I'd say is, look, with the cost of petroleum input raw material costs will go up, will likely go up. And if and when, when they do, we already have demonstrated the ability to pass along those raw material increases to customers. So we're pretty well protected on that.

That's very helpful. Now as we're sort of building up our outlook for 2026, just directionally? I know you don't give specific forward guidance. But you issued a press release on December 1 about the sizable new win -- client win of over $10 million in annualized revenue, which portended mid-teens or better revenue growth in 2026 if the existing same client revenues would be flattish year-over-year in '26 relative to '25. Is are you still comfortable that the company, based on that win and the existing new business pipeline and backlog can deliver double-digit revenue growth for 2026?

That's certainly the plan, yes. that piece of new business that we won has started. It's beginning to scale. And I think we're on track for getting that to full run rate early Q2.

Okay. And last question, are we feeling pretty good about the ability to deliver a consolidated gross margin that's sort of above the -- at or above the low 30s or better level to which Ryan had so the company kind of on a steady-state basis is aspiring on a consolidated basis. Now pro forma for the tubular divestitures and having moved the Munhall facility off the books.

Yes, I'll start and Ryan, you can jump in. I mean, certainly, that's what we're running on guiding towards what we said from day 1 is we were targeting margins in that 30% to 35% range that flow through to SG&A at 15%. Obviously, we need to grow into that SG&A and then flow through all the way down to 15% EBITDA margins that wasn't an immediate target. That was, hey, we're going to fulfill that this month or this quarter or even this year, that was more of a long-term target.

But you could do a quick look back and look at our performance in Q2 and Q3, and what we delivered was squarely in the upper 20s to the lower 30s range.

Okay. And the new business you're bringing on more recently is it higher gross margins. So is it reasonably conservative, but plausible to expect to consolidate gross margin for 2026 in at least that high 20s to low 30s range that you articulated, Bryan?

Yes, I think so. I mean, look, it's really -- there's always going to be puts and takes along the way. We'll see how the year shapes. But certainly, the mid-20s to lower 30s is still our target.

Our next question comes from Gregory Kitt with Pinnacle.

First, congratulations on a good year in which you had to accomplish a lot with divestitures in managing the portfolio. And through that, you were still continuing to win new business. I've read your comment that you're exiting with a clean and focused platform focused on are capable of delivering higher quality earnings and operating leverage.

If I could kind of break it down into revenue margins and operating leverage kind of piggyback on some of Adam's questions, on revenue, just to make sure that I understood, did you say that you won $9.4 million of business in the quarter? And then how do I reconcile that with the December 1 announcement of that $10 million plus that you announced. I was a little confused.

Yes, that's right. So what we flashed was $9.4 million of wins in the fourth quarter, of which I believe it was $7.1 million of that was attributed to that new customer program. $2.3 million or the balance of that came from additional new customer wins outside of the programmatic window we announced.

Okay. And so that $7.1 million, there was an opportunity, there's an opportunity for that to continue to grow to reach that $10 million potential.

Absolutely. Yes.

Okay. Okay. Great. And so is there some way to think about you had talked about somewhere in the range of a combined $30 million of wins, a little north of $30 million of wins over the course of '25. Is there any way to think about how much, if any, of that contributed to results last year?

It's a good question. Let me take an action, and I'll follow up with you on that on our follow-up call. I don't want to spit all a number. But I did want to go back, Greg, to your prior question around the $7.1 million versus the $10 million trying to reconcile that. Of the $9 million million that we referenced, that is predicated on us actually receiving for a purchase order or for shipment. So part of that $10 million, we've shipped out a number of SKUs, but we haven't shipped out all of them. And because of that, there's going to be some bleed over into the first quarter.

Okay. Okay. That's great. Yes. I think the big thing for me is not to say that you were distracted, but you did have other operational focuses with the divestitures that you don't have anymore. And so I think I look at the platform and say, hey, you can just focus on winning business and something that you said in your prepared remarks, it was interesting was that you invested some amount of dollars to effectively expand your capacity in EBITDA in a cost-effective manner rather than having to buy new equipment.

What are you looking at? Or maybe walk us through that decision because you've talked about how your assets are relatively underutilized just that decision-making process in investing in to effectively expand your capacity now, what's giving you that confidence to do that?

Yes. So just to be clear, what I said was to expand our capability, not our capacity. So this isn't a faring rig of adding additional reactors to the mix because as you know, we have a fair amount already that are grossly underutilized. So what this really refers to is putting old storage tanks back into commission to support new business that we have won.

Another example is in Virginia, we had rail capability going inbound into our multipurpose plant that at some point in time, had been [indiscernible] with asphalt. Well, the team in Virginia done a really creative way in partnership with the local railroads to get that back in service for nominally $20,000, right? So that's just another example. But these are not materialize where we're going out and adding net new capacity, it's all about capabilities to support existing and new business.

Okay. Great. On the gross margin side, I would guess that that was the only piece where I said, I can't wait to learn more because I think you'd had great linear progress in Q2 and Q3 of last year. And this is a -- it's going to be revenue based, you're absorbing fixed overhead. And so I expected margins to be down this quarter. Can you give us any sort of way to think about gross margins going forward? Did anything this quarter make you -- I heard what you said to Adam, but did anything you saw in the fourth quarter make you revisit your margin targets and say, "Hey, this might take a little bit longer than we thought or might be more challenging than we thought.

No, I'll let Ryan jump in on that, Ryan?

Yes. I mean nothing in the quarter. I mean we have some inventory adjustments and accruals and things like that. So there was a handful of onetime items building of stock some customers there, where we control the raw material spend. So you see raw material costs come up, the margins are actively the same. But those types of things came through in the fourth quarter.

Nothing that we saw, in my opinion, is structural. It's more just timing and predominantly just mix. Some of our newer customers, we've gone on win we were aware that there was a volume aspect that we were willing to trade for margin.

We won't always do that, but in the scenarios where our plants are still grossly underutilized. These are deals that's come few and far between in this kind of macro environment where you can go out and find large chunks of volume we are willing to kind of move, so we took those -- we took on that business, and we did see some of that mix effects, which did compress March in the quarter, but nothing that happened in this quarter, would make me think that our targets of plus 30% are unachievable.

We'll still continue to march that way. But sometimes the quarters will get choppy and the mix will throw that off in kind of take away that kind of linear progression you saw where we were kind of ramping up margins every quarter. So we should get back to that mid-20s, low 20s here for the first half and hopefully start to ramp back up as capacity increases and utilization increases or capacity utilization increases.

Two more for me, quick ones. On SG&A. Is there any way to think about that litigation settlement, how material that could have been in the quarter?

It's about $200,000, a little over $200,000. So that was a legacy issue we've been working on. We finally got it wrapped up. It was it's a good win for us in the end of where we thought it could be at. So call it, $200,000, a little over that.

And then you announced you and the Board announced that share repurchase authorization back in November. Not a ton of traction in the fourth quarter. Can you help us think about capital allocation? I'm assuming you're still continuing to look at potential acquisitions and how you weigh that versus share repurchases?

Yes. I mean for the first thing we focused on is reinvestments in the assets. As Bryan mentioned, some of that can be capacity capability enhancements, process improvements, first time in spec, things like that, we're able to streamline and be more efficient. So we'll always allocate dollars to that first.

When we looked at share buybacks, the stock was trading sub-15%, we thought there was a really good opportunity from where we felt we could be in a few years and then the stock did run a little bit up. So it kind of came out of our buy box for a little bit. So we'll still have that in our quiver, but it was much more attractive in the places where we were quite a bit more active. So we'll continue to look at that, be opportunistic where we can in buybacks. We've in ourselves to do that.

And then M&A is always there. Right now, there is so much capacity not only within our own assets, but within the broader industry as a whole and specifically in North America. So we haven't seen anything attractive to this point. We're continuing to be open and looking, but again, our first, second and third focus is filling up our own assets.

We're hesitant and we'll be cautious when we see assets come along that looks similar in utilization to our own. We don't need that added problem. So we'll continue to kind of look at things that way and that priority order, invest in our assets and people first, opportunistically buy shares where we can and where the price looks right. And then if an attractive asset comes along or a product portfolio comes along, we're in a position to make that move quickly.

[Operator Instructions] Our next question comes from Howard Root with Fare Hope Capital.

A little follow-up on the gross profit. I mean, I was kind of surprised going from 29% in Q3 down to 18% in Q4. Is that -- was any of that related to new contracts you took on? Or is it -- you just talked about one time, it wasn't for the onetime expenses you had, would that have been closer to the 23% you had for the year? Or how much of that can we look at as onetime, 1 quarter? Or how much of that might be continuing into 2026.

I'd say about, call it, a little over $0.5 million was kind of what I would consider onetime. Are they normal course of business things like inventory accruals and things like that, yes, but they were things that were headwinds and normally they are. When we look at comps year-over-year, there were some tailwinds in '24 that we did in '25.

So I think if you stripped all that out, we would probably have spent somewhere in that low 20% margin. So definitely a compression compared to Q3. And again, some of that's just mix-driven, right, where we have these kind of higher volume, lower mix customers, that mix just shifted a little bit for us in you compound that with some of the things we did to clean up the inventory and things like that, and that's what pulled things back.

So again, these aren't structural margin compression we're seeing these are more just timing and mix related. -- we should get back into that 20% going forward and then start to get to get back on that ramp closer to 30% is where we hope to be long term.

Okay. Great. And then just a general question on the M&A environment. What are you seeing out there in terms of the size of targets and valuation and kind of also your appetite for it as you another quarter in. Do you see that it's something you want to do this year, you would do for the exact right thing or are things getting into the right price range for you to do something now.

Yes. Look, I would say that we're always in the hunt, but it's got to be the right opportunities. So as Ryan mentioned, the last thing that we want to do is go out and buy another, let's say, a distressed asset that has relatively low utilization when all that would do is effectively compound our existing problem statement. So what we really like is a product line or product lines that we could acquire and then integrate into our manufacturing base that utilization up and get that dual bump. We haven't found that right opportunity just yet. We're not running away from M&A, but we -- we certainly don't have any dollars burning a hole in our pocket, Howard.

Great. All right. And thanks, again, for all the hard work last year getting this set on the right path forward. So I look forward to a great 2026 for you guys.

Thank you. I would now like to turn the call back over to Bryan Kitchen for any closing remarks.

Okay. Josh, we'd like to thank everyone for listening to today's call, and we look forward to speaking with you all again when we report our first quarter 2026 results.

Thanks very much, and have a great day.

Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.

Good day, and welcome to the iAccess Alpha Virtual Best Ideas Winter Investment Conference 2025. The next presenting company is Ascent Industries.

[Operator Instructions]

I'd now like to turn the floor over to today's host, Bryan Kitchen, CEO of Ascent Industries. Bryan, the floor is yours.

Okay. Great. Thank you very much, and thanks everyone for joining. Good morning, good afternoon. Let's go ahead and jump right in. As she mentioned, Bryan Kitchen, President and CEO of the Ascent Industries Company. The slide that you should see in front of you is Slide #3. So before we just jump in, Ryan Kavalauskas, our CFO, and I have been together for a number of years, about 10, to be precise. So -- and we work together at an array of different companies. Prior to joining Ascent, we worked at another turnaround, a smaller specialty chemical company, called Clearon located in Charleston, West Virginia. This context is important because at the time we joined that company, we were losing about $8 million a year of adjusted EBITDA and at the time of sale, roughly 4, 4.5 years later, we were delivering roughly $36 million of adjusted EBITDA on a trailing 12 basis.

So obviously, through that process, we learned a lot. We always said if we had the opportunity to do it all over again, we would learn from our prior lessons and here we are today. So Ryan and I are together, we put the band back together. We've got a lot of great people that we've worked with in the past, which have been absolutely core to the results that we've been able to deliver in such a short period of time.

So for those of you that aren't familiar with Ascent, we're a 75-year-old company, publicly traded, obviously. We started off as a specialty chemical company back in 1945 at about 20 or so years into that journey. The decision was taken to diversify the company. We got into stainless steel, tubular production. It sounds a little bit strange, and I agree with you, it is. There were absolutely no synergies between those businesses.

But for decades, literally, the company operated to a very different segments up until very recently. Ryan and I joined the company back late 2023, early 2024, moved into our current roles, early 2024 as CEO and CFO. When we moved into our current roles, we tapped a lot of people that we work with in the past from Clearon, from Dow, from Advancion and others, basically built out the management team and gave them the keys to do what they do best and deliver extraordinary results in a very short period of time. And that's what we've been focusing on ever since.

Earlier this year, we did execute our portfolio optimization strategy. We sold off 2 of our operating Tubular assets and then more recently, within the past month or so, we jettisoned the last holding that we had in the segment.

So today, we stand as a pure-play specialty chemical company. We have roughly 200 employees, over 170 customers. We have 3 manufacturing assets, one in Virginia, one in Tennessee and one in South Carolina. Roughly 95% of our sales are supported with domestically sourced raw materials. So we're not subjected to the tariffs. And our top line last year was nominally $80 million of sales.

So just talk for a minute about some of the highlights since the new management team was installed back early 2024. So pretty significant turnaround and gross profit, roughly 171% or $11 million improvement on a trailing 12 basis significant improvement in adjusted EBITDA. We did generate roughly $54 million of proceeds of the sale of our Tubular assets, that's pre-net working capital true-up of ASTI. We've also generated or saved about $2.1 million of annualized costs through transacting our idle Munhall facility. That was a part of the Tubular segment. So as we roll into 2026, that $2.1 million, we'll no longer -- we will no longer be hit with that.

In terms of outstanding shares, we've been very aggressive in buying back our shares. This year, we have retired about -- or bought back about 7.2% of our outstanding shares or 726,000. And more recently, with our organic growth mandate, we have won a $10 million piece of net new business that will go into full run rate effect in the first quarter of 2026. So got a lot of really strong momentum building up across the enterprise. We've been incredibly aggressive at tackling our costs. We've been incredibly aggressive at managing the quality of business that we have rolling through our assets. And obviously, that's -- we're starting to see that roll through our gross margin and our overall adjusted EBITDA for the business.

Okay. It's a little bit on who we are, what we do and how we operate. So we are a pure-play specialty chemical -- specialty chemicals company. What do we do? We manufacture and sell key raw materials that go into an array of different market applications. I'll touch more on that here in a couple of minutes. But we sell raw materials -- we manufacture and sell raw materials. But then we also operate custom manufacturing as well. And what we like to do is really come alongside of our customers and meet them where they are and provide services that help support their strategic objectives. In some instances, customers need help developing a specific formulation.

In other cases, they might need supply chain solutions. But what we like to do is come alongside of them and meet them in those moments that matter most of them whether that's from an R&D perspective or whether that's from a commercial and contracting or innovative supply capabilities. But we fully found a very interesting niche in doing that what we found specifically over the past 1 year, 1.5 years is really partnering with the small to midsized manufacturers that may have been buying raw materials from larger chemical providers.

And when that happens, in many instances, those larger chemical manufacturers are really not going to be great innovation partners, especially for the small to midsized guys. Whereas we're a batch manufacturer, we have the ability to kind of lean in and tailor customized solutions -- customized technical solutions for our customer needs and to scale that from really, really small quantities, 500 gallons all the way up to millions of pounds and do that cost effectively. And when we do that, we find that, that business is generally stickier, it's generally more ratable, generally more predictable and generally more margin accretive.

When take a look at the array of services that we provide versus kind of the competitive landscape, what you'll see is we're effectively operating as number one, a chemical manufacturer but we also have capabilities to deliver custom tailored solutions as well as being kind of that distribution arm for again smaller to midsize customers as well. We really found out to be a sweet spot. Like I said earlier, how do we -- when we connect with our customers in the way that they want, when and where and how they choose. And that message is resonating and it's resonating incredibly well when you consider kind of how our overall selling project pipeline has taken shape specifically over the past year.

So where do we participate? Like I mentioned earlier, we delivered tailored specialty chemical solutions in a wide array of high-value segments. So we participate in life sciences. We participate specifically in personal care. We participate specifically in agriculture and HI&I. But then we also participate in array of other performance material markets. So oil and gas, water treatment, CASE, which is coatings, adhesives, sealants, elastomers, pulp and paper and many others. But really where we're focused in is HI&I, oil and gas, water treatment, CASE or kind of our areas of focus when you think about it from an SG&A allocation perspective.

We have an asset base, right? So this is a little bit of good news, bad news right? So the bad news is we have an excess amount of available capacity. So we're underutilized, and we have the resultant absorption. The good news is, right, from an investment standpoint, is we're grossly underutilized and in order for us to crank out more volume, we don't require a significant amount of capital. So today, our utilization is a little south of 50% and what you see on the right-hand side of the slide is our ongoing year-on-year capital requirements is pretty low, right?

So anywhere from $1 million to $3 million. And that's not because we're running the plant with duct tape or popsicle sticks. That's what's required to run our plants safely and reliably, and we will not compromise on either of those. So tons of organic growth way inside of the existing asset base without significant ongoing capital requirements.

Well, we've been working on over the past 1 to 2 years is filling the plant with higher margin business that's generally more ratable and generally more predictable. Back in 2023, when we joined the company, roughly 90% of our sales was toll manufacturing, 10% of it was selling products. One of the things that I liked when I did my diligence before joining the company is not only do we have well-cared for, well-maintained assets, but we also had IP or products effectively sitting up on the shelf that we weren't doing anything with them.

So one of the first things that we did was really rallied around the products that we have on the shelves and work to monetize those and take those out to market and sell more of those. And what you see in the middle of the -- the middle of the slide here is, last year, we shifted that mix from 90%, custom manufacturing 10% product sales to roughly 75% of custom manufacturing, 25% of product sales in 2024. And you've seen the results and improvements in our gross margin profile, not just because of that, but in part because of that very purposeful shift that we have been driving.

And you can see year-to-date that shift that we implemented last year is holding pretty strong. Really good improvements in overall gross margin from continuing operations over the past several quarters. So growth, right? So we've got grossly underutilized assets without significant capital, reinvestment exposure, what are we doing to make the plants shake safely and drive significant growth.

So Q1 to Q3, just a couple of statistics. We've executed. We've won 73 selling projects, the average cycle time was roughly 3 months. The sales cycle is a little bit longer, right, in the specialty chemicals arena can range from anywhere from 3 months to 12 months depending on the complexity, depending on the product, depending on the application, depending on the customer qualification requirements.

But up until through Q3, our sales cycle has been actually pretty low at roughly 3 months. Our conversion rate again, year-to-date has been roughly 16%. We've seen some improvements in that over the past quarters, but we're continuing to work on improving that overall conversion rate. And when you look at our Q1 through Q3 wins by business model, roughly 65% of the wins were for custom manufacturing, 35% were from product sales. So compare and contrast that with what you saw in the previous slide, we're actually shifting more room mix over to product sales from a pipeline perspective.

Where are we winning? So year-to-date, 77% of our wins from a top line perspective have come through existing customers. So we're being successful in expanding our share of wallet. Similarly, though, we've been very successful in winning business with new customers, customers that we haven't worked with in the recent past. And you can see between them, very good, solid EBITDA margin profiles for those pieces of business that we have been winning. And you can see at the bottom there, for us, obviously, the scale, not only to scale, but scale and the quality of our selling project pipeline is absolutely critical to driving very, very aggressive organic growth inside of the existing assets.

So what we like to see is a continued build of that. You can see from Q1 to Q2, a significant increase of roughly 45% from Q2 to Q3, roughly 26% build. And this is net of anything -- any projects that we have won or projects that have been terminated. This is actual kind of quarter-on-quarter build of the overall pipeline. So the size and the scale is growing.

And before I pivot off of this real quick, one thing I'd like for everybody to understand in order for something to make its way into our selling project pipeline, a few things need to happen: Number one, we need to verify the way you [ think about it ]: a, have we made this product before? And if it has, obviously, it goes into the pipeline; b, we need to know that we have the technical capabilities to actually manufacture the product inside of our asset base, but underpinning all of that is an expressed customer need. So the scale, the build of our pipeline is not underpinned by any 1 salesperson that has a twinkle in their eye that says, well, the market size is $1 billion, and I think I can get 80% of it. That doesn't make its way into the pipeline.

The only thing that makes its way into the pipeline are projects that are sponsored that are underwritten by specific customers who have expressed customer needs. So this has been and will continue to be a core part of our growth story moving forward.

So path for 2026 to 2030. For us, it's all about durable earnings growth. So couple of things. So where are we going? What we're building to is an enterprise that has a gross margin profile of nominally 35%, an enterprise that has an SG&A profile of nominally 15% and then flow through to EBITDA in that kind of 15% to 20% EBITDA margin range. And we're -- look, we're on our way. So 2023, 2024 was all about kind of stabilizing and fixing the foundation.

We drove a lot of improvements during that time period with an aggressive focus on optimizing our costs and getting the right people on the bus. This year, it was all about portfolio optimization that we've been very successful in executing all aspects of that. We've built up our cash reserves. We've got nominally $60 million worth of cash, [ parked ] rates to support organic growth objectives, inorganic growth objectives as well as shareholder-friendly share repurchases. But for us, it's all about driving this organic growth to maximize our operating leverage and turn this company into an incredibly profitable, well-run specialty chemicals, enterprise.

I think I jump the gun a little bit on capital. So we have 0 debt, just to be clear, right, 0 debt, we've got $58 million worth of cash. We've got debt capacity of nominally $30 million so overall capacity to invest is roughly $88 million, and that's after -- just to declare, that's after repurchasing roughly 7.2% of our outstanding shares through the third quarter of this year. So as I mentioned earlier, we've got capacity to invest what I'd really like and what we're driving towards is getting high return on invested capital projects brought to the table where we can invest internally, right? Because generally, the return should be higher and the risk profile should be lower. So we're constantly beating the drum on that.

But additive to that, right, M&A has been and will continue to be a part of our overall capital allocation strategy. We have been under LOI on a couple of occasions, one more recently back in the third quarter. And I think the key thing that I would say on that is, yes, we're in market, but we're not going to do transactions just to get bigger, right? This is about improving the overall quality of the enterprise. So where we cannot find a property or come to terms that delivers the appropriate return, we will walk. And we have a proven track record of doing that. And then third, we're going to continue to be active in repurchasing shares, right? This is -- for us, this is an and, it's not an or. We don't need to make trade-offs.

So long and short of it, a really strong foundation, we spent a lot of time over the past 1.5 years to 2 years kind of fixing foundations, stabilizing, really turning the growth engine on. It's great to now see some of these strategic organic growth objectives really beginning to translate into wins and setting us up very, very nicely as we roll into 2026. Strong cash position, very disciplined approach. I want to make sure that we do right by our shareholders.

So why invest in Ascent? We're clean, right? The portfolio is optimized. We're no longer a confused 2-segment company that have absolutely no synergies between them. We're stabilized. We are growth ready. We've got capacity, growth capacity in place that does not require a significant year-on-year reinvestments. We do have near-term upside just through our organic growth strategy and the successes that we're beginning to mount, strong balance sheet, and we're under-covered and from our perspective, we're undervalued today. So we've got a team of just incredible people that have done an absolutely brilliant job over the past 1.5 years to 2 years to set us up for what's going to be a really fun and exciting 2026 to 2030 horizon.

And with that, I'm going to take a drink of coffee and open it up for any questions that you might have. Operator, am I still live?

Yes, you are. If you want to have a look at the Q&A tab on your webcast.

Yes, I just want to make sure that I was still -- that I wasn't on mute. So yes, we'll start smashing through some of these questions. So first question is, "how should we think about 2026 revenue growth between proprietary products and custom manufacturing?"

I think that the slide that I shared a few minutes ago, is a pretty good indicator of what you should expect as we roll into 2026. So what I flash was roughly a 65-35 split. The 65% custom manufacturing, 35% product sales on the selling project pipelines that we have pulled down today. And I think that's pretty representative of what you should expect to see as we roll into 2026. What are we seeing as the strongest near-term demand across HI&I, oil and gas, water treatment and CASE.

What I would say is from a size and scale of kind of discrete projects, we're seeing a lot in the oil and gas space, we're seeing a lot in the CASE space that are of significant size and scale and consequence. That's not to diminish the volume that the sheer number of projects we're seeing in the other segments like HI&I and water treatment and even Ag. So just a lot of really good activity. We've got really good diversity in the markets that we participate in. We're not going to run away from that, but we are getting hyper focused in from a resource allocation perspective.

"Are you seeing any easing in raw material costs or is pricing relatively stable across the key inputs?" Yes, I mean, there been like -- there's been some volatility throughout the year on key raw materials, but our agreements that we have with customers are structured in a way where we're able to pass along those increases when and where they do come through. One of the first hires that we made when I joined the company was bringing on strategic sourcing resources, and they've done not just a brilliant job in reducing our overall cost, but they've done a really good job of working alongside of R&D and manufacturing and qualifying secondary sources to mitigate supply risk as well as to mitigate exposure from tariffs. Today, we're 95% supported with -- 95% of revenue is supported with domestically sourced raw materials, we did ourselves a lot of favors by executing on that over the past year and getting that in place.

Okay. "The new $10 million piece of business, what kind of gross margins can that generate?" What I would say it's accretive to gross margin profile that we've had over the past trailing 12 months. I'm not going to get into specificity on that particular piece of business.

"Can you comment on the competitive environment on whether customers are looking for re-shoring or near-shoring alternatives?" Yes, in fact -- so again, this is good news, bad news, right. From a tariff situation standpoint, it's actually more good news for us because we have received a lot of -- or some inquiries from customers that have global supply chains and looking to kind of reshore those here into the U.S., where the vast majority of their demand is located. We've picked up -- we've been successful in picking up projects, a couple of projects from customers in Japan and in Europe and in Canada.

So we're going to continue to beat that drum. One of the cool things about our company, I'm not sure that I mentioned this earlier, we have 3 manufacturing assets in the Southeast. But we have some built-in redundancy across those assets.

So as prospective customers are engaged, not only are they surprised to learn that we're a domestic manufacturer, but they're even more surprised to hear that we have 3 domestic manufacturing assets and we have built-in redundancy just from a risk mitigation standpoint. So the value proposition is resonating incredibly well with prospective and current customers.

"Are we seeing any tariff impact on raw materials or customer demand? And how should we think about that heading into toward 2026?" I kind of touched on this earlier. No, we're not seeing an adverse impact on tariff impacts, but I would say, again, it's been more favorable to us as we get more looks at new opportunities related to restoring than anything else.

I think that exhausted the questions. So let's -- look, if you have questions, please don't hesitate to populate them in the box here, and I'll do my best to answer them.

While we're waiting on a couple of more questions to come through again, we're -- we're very excited about the road ahead. I'm incredibly proud of the team that we put in place and the work that they've done to get us to this point. From a cost standpoint, our costs are well under control. That's not to say that we're not laser focused on continuous improvement because we are. But I think we've set the table from a cost perspective as we roll into 2026. And for us, it's organic growth, organic growth and organic growth, it is getting incredibly aggressive and unleashing the sales and marketing team that we put in place a year, 1.5 years ago to do what they do best.

It looks like there's some more questions that came in here. "Can you expand on the utilization levels across Virginia, Tennessee and South Carolina sites and how much operating leverage remains?" What I would say is significant operating leverage, that 50% range that I mentioned earlier, that's on the high side or very conservative. So our utilization is actually a bit lower from a leverage standpoint, from a priority perspective, and we get the biggest bang for our buck by [ jamming ] more volume through the Virginia facility, just based on the overall cost basis and the overall absorption that we have today. So that's where we've got a lot of resources focused, but similarly, what's Tennessee, South Carolina gross underutilization and tons of runway for organic growth.

"What's the updated timeline for monetizing the Munhall asset and eliminating the $2.1 million drag?" That is done and I apologize if that wasn't clear earlier. That catalyst is done and behind us. That was transacted within the past 30 days or so. There was a press release that was issued on that. So as we roll into 2026, we will no longer have that $2.1 million annual direct.

Quickly. "Can the pipeline of new customers convert to recurring revenue under its Chemicals as a Service model?" I mean that really depends on the specific opportunity and the result and cycle time. But like I mentioned earlier, the sales cycle time could range anywhere from 3 months to 12 months, depending on the product to customer, the application, the qualification requirements and the like. But what I would say, underpinning all of that is, generally speaking, on a custom manufacturing type of opportunities.

Once they're integrated into the asset base, those opportunities generally become pretty sticky because there's just a lot of work that goes into bringing volume in and there's an equally -- there's an equal amount of activity that's required to take volume out. So we've had a number of customers in our portfolio have been with us literally for over 4 decades, and we intend to keep it that way.

"Are all of the other side or -- all of the other side of the business gone?" So that's related to Tubular, yes. The Tubular segment is officially gone. We have no Tubular assets, we have no Tubular sales, we have no tubular drag. What we have today is a pure-play specialty chemical company that is void of any other nonchemical segment distractions.

I think we've got one more here. "what is a public company that I aspire to be?" I mean, look, there's a lot of great public companies out there. I like them for different reasons. You take a look at companies like a Hawkins, really admire the service model that they have built up over time, underpinned by core manufacturing assets. You've got other great companies like the Stepans of the world, the Dows of the world from an operational excellence perspective.

It's a difficult question. We can give warrants to that one-on-one. So I give you some more color. But lot of great companies, but we're seeking to be best. We've done ourselves a lot of favors over the past year. We're set up nicely for the next -- 2026 to 2030. It's an exciting place to be. We've got a lot of great employees and customers are really leaning into the changes that we've made.

So with that, operator, I think we're out of time.

Thank you very much. That does conclude Ascent Industries presentation. You may now disconnect. Please consult the conference agenda for the next presenting company.

Good afternoon, and welcome to Ascent Industries Q3 2025 Earnings Call. Today's speakers are CEO, Bryan Kitchen; CFO, Ryan Kavalauskas; and the company's outside Investor Relations adviser, Ralf Esper. We will begin with prepared remarks followed by Q&A. Before we go further, I would like to turn the call over to Ralf Esper 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. Ralf?

Thanks, Dana. 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 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 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 Investors 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 Investors section of the company's website.

Now I'd like to turn the call over to our CEO, Bryan Kitchen, to walk you through the third quarter results. Bryan?

Thanks, Ralf. Q3 was a breakout quarter for Ascent, the strongest earnings performance we've delivered since 2022 and our first full quarter operating as a pure-play specialty chemical company. Revenue grew 6% sequentially to $19.7 million. Gross profit rose 20% to $5.8 million, lifting margins 400 basis points to 30%.

Adjusted EBITDA improved by more than $1.7 million quarter-over-quarter, swinging from a modest loss to a 7% positive margin. As a subsequent event to this quarter, these gains aren't episodic. They're structural. They reflect disciplined execution, strategic focus and a business model that's working. Over the past 6 quarters, we've tightened cost structures, optimized mix and built price and margin discipline across every part of our organization.

Those moves are now showing up directly in profitability with gross margin improvement tracking ahead of plan. As I've said before, the market didn't do it to us, and it's not going to fix our performance for us. We own our outcomes. Every game we deliver comes from relentless self-help and execution, and that's what's driving the structural earnings power of this platform.

We've strengthened the foundation this quarter with successful implementation of our new ERP system on time, on budget and without disruption. It delivers a single source of truth and the visibility to manage growth at speed. Our team turned what's often an enterprise crippling endeavor into an enabler of scale, control and customer responsiveness.

Simply put, Ascent has moved well past stabilization to acceleration. Our commercial engine is gaining speed, customer relationships are deepening, and our pipeline is converting at exceptional [Audio Gap] levels.

This is the inflection point where stabilization meets commercial momentum and where we begin to unleash our fullest earnings growth potential.

In Q3, we welcomed 10 customers across our sites for audits, trials and joint development workshops. That kind of engagement doesn't happen by chance. It's a direct reflection of trust and the capability that we've been building. When customers visit, they meet our operators, our engineers, our chemists, our quality professionals and service teams that drive our success, and they see firsthand what makes Ascent different.

This is our Chemicals as a Service model in action, agile, customer [Audio Gap] customer-centric and outcome-driven. We meet customers where they are, helping them solve real-world problems faster with less friction and more flexibility. And that approach is translating to results. Last quarter, I shared that we added roughly $25 million of new projects in Q2.

By the end of Q3, nearly half or 49% had converted into customer commitments. That's an incredible success rate and a clear validation of our model and our execution. About 65% of those commitments were related to custom manufacturing opportunities and 35% were product sales, long-term, high-value relationships in key segments like case, infrastructure and water treatment.

They represent repeat, trust-based partnerships that deepen our customer relevance and extend the durability of our growth. Of course, the CEO wants all of those commitments to turn into purchase orders and shipments tomorrow morning. And yes, our sales and operations team get more than a few calls from me checking in on exactly that. but we know that implementation timelines vary.

We know that customers are qualifying new technologies. They're rewiring their supply chains, and they're working down inventory. What matters is the direction is unmistakable. The commercial flywheel is turning and the earnings leverage is building. And that momentum continues to grow.

In Q3, we added another $18.2 million of selling projects into our pipeline, extending a robust base that will fuel growth well into 2026. Over the past 6 quarters, Ryan and I have emphasized the strategic recapitalization of SG&A, rebuilding the commercial and technical engine that drives our growth. Those deliberate investments in sales, marketing and revenue operations have reshaped our go-to-market capability and are directly reflected in the record pipeline activity and customer engagement that we're seeing today.

Now we're extending that focus to R&D, making targeted investments in people and capabilities that accelerate product and process development, shorten scale-up cycles and strengthen our technical differentiation. These investments are already delivering results through new chemistries, improved manufacturability and deeper integration with our customers' innovation pipelines.

What gives us confidence in this next phase is the strength of our operating platform. Our quality and service have never been stronger. Across every site, teams are debottlenecking processes, boosting reliability and grinding out waste with incredible urgency. That discipline is the backbone of our margin expansion story, and it allows us to grow efficiently, protect profitability and deliver for customers in any environment. Every investment we make, whether in people, processes or technology is deliberate and return-driven.

Self-help at Ascent means disciplined capital use, sharper execution and improvements that compound into lasting earnings power. Our priorities are clear: drive organic growth by filling our available capacity with high-margin opportunities; deepen customer partnerships through innovation, reliability and speed and maintain balance sheet strength and disciplined capital allocation to accelerate earnings growth.

We're not waiting for the market to recover. We're creating our own. Ascent is stronger, faster and laser-focused, and we're building a company to perform in any environment. Our culture is turning execution into endurance and endurance into compounding value. The numbers tell the story, but our people write it.

To the entire team at Ascent, grit, hustle and ownership are what make this possible. You are our unfair advantage. Our foundation is solid. The distractions are nearly gone, and the flywheel momentum is accelerating. And the best part is, we're just getting started.

With that, I'll turn it over to Ryan to walk through our financial results in more detail. Ryan?

Thanks, Bryan, and good afternoon, everyone. I'll start by echoing Bryan's earlier comments. From an operational perspective, the transition to a pure-play specialty chemical platform is complete. We're now zeroed in on structural margin improvement, capacity and throughput lift and durable growth in target segments. Let me walk through the quarter and how that translated to our results.

Revenue from continuing operations was $19.7 million, down 6% versus the third quarter of last year, but importantly, up nearly 6% sequentially from Q2. The modest contraction in revenue was driven primarily by a low single-digit percentage decline in volume, which created the bulk of the shortfall. Pricing was a partial tailwind, reflecting selective increases and product mix contributed incrementally positive gains as higher-value programs continue to scale, though not yet at the level needed to fully offset the volume impact.

In other words, while demand softness weighed on shipped pounds, pricing discipline and ongoing portfolio upgrading helped cushion the impact, reinforcing that the earnings profile of the business continues to strengthen even in a softer volume environment. The evidence of that stronger earnings profile can be seen in gross profit increasing to $5.8 million with gross margins expanding to 29.7%, up from 26.1% in Q2 and just 14.4% in the prior year period.

For those tracking our progression, Q1 gross margin was 17.2%, Q2 was 26.1% and Q3 is now 29.7%. We have said publicly that 30% was our gross margin target. As utilization improves across our network and we layer operating leverage rebuilt earnings base, we now believe meaningful upside above 30% is achievable on a sustained basis with the right execution.

Moving to SG&A. Expenses were $6.3 million compared to $5 million in the prior year period. About $0.5 million of the current quarter's SG&A was tied to residual divestiture and legacy segment activity, partially offset by other income. As Bryan alluded to, we view the modest increase as part of the foundational investments we've been talking about each quarter that ultimately scales and drives growth.

With that foundation beginning to produce results, you are beginning to see the earnings power of the business more clearly. Adjusted EBITDA for the quarter was $1.4 million, an increase of $2.1 million year-over-year. Excluding the legacy divestiture noise, adjusted EBITDA would have been $1.6 million.

Turning to the balance sheet. We ended the quarter with $58 million of cash, no debt and $13.7 million of incremental availability under our revolver. That is a position of strength and one we intend to preserve. M&A still remains part of our long-term capital allocation strategy. But as we've evaluated what's in market today compared to returns on internal growth, we've been very comfortable being patient.

We said before, and I'll say it again, we won't deploy capital simply for the sake of activity. Our capital priorities remain clear and consistent: protect the balance sheet, prioritize free cash flow and deploy only when the returns are undeniable. When the right opportunity comes, whether internal or external, it will compound value over years, not just quarters.

The work of the past 18 months, stabilizing operations, rebuilding talent, exiting distractions, sharpening commercial focus doesn't always show up in a single quarter, but it shows up in trajectory. 3 straight quarters of margin expansion, stronger commercial wins, all with meaningful capital and capacity still ahead of us. That's why we're confident in where the business is heading.

With that, I'll turn it back over to the operator for questions. Thank you.

[Operator Instructions] Our first question comes from the line of Gregg Kitt with Pinnacle Fund.

Bryan and Ryan, congratulations on a great quarter. Can you help me make sure I understood correctly? You said that you added $25 million of new projects in Q2 and that 49% converted into customer commitments. So does that mean that you won approximately $12.5 million of new business in Q3?

That's correct. So that $25 million was in reference to the pipeline that was built up in Q2 -- in Q3, we won roughly half of that business opportunity. So as I mentioned earlier, from a phasing standpoint, that will be feathered in over time. We're looking forward to that hitting kind of full run rate clip as we get into 2026.

And when I think about that win rate or that conversion rate, I think in the past on the Q2 call, you talked about 14% being more like industry average. You had 18% in Q2. So you're betting above average in Q2 and obviously, 49% is excellent. Is there some reason why your conversion rate or your win rate was so high in Q3? Can you give me some color?

I mean I really think it gets back to the health of the projects that are making their way into the selling project pipeline. So kind of rules of engagement, right? Nothing goes into our pipeline that we can't make, right? So either we've made the product before or we know that we have the capabilities to manufacture it. Underpinning both of those things, though, is a specific customer need.

So in other words, there's an expressed requirement from a customer that is driving us to pursue that particular activity. So I think those things, along with just improved execution is really the reason why we were pretty successful in the third quarter. So proud of what the team has done in Q3 and looking forward to continuing to inch that up over time.

Is there a way to think about how much of that business is from existing customers versus new? I think the prior couple of quarters, you tried to help give some color around that.

Yes. It was in the last quarter, so that was about 50-50, 50% custom manufacturing -- sorry, 50% existing customers, 50% new customers.

For Q3?

Yes, for the Q3 wins. That's right.

Our next question comes from Eric McCarthy with InLight Capital.

Bryan, Ryan, great quarter. It's really good to see the progress that you have made in such a short while. As I'm looking through the new business that you've added to the funnel and then converted to revenue, what are some of the end-user markets that are really driving some of the new business?

Yes. I think in this last quarter, if you think about it in the context of that $12.5 million of new business that we were awarded, certainly, case, so coatings, adhesives, sealants, elastomers, water treatment and other infrastructure-related applications. That was kind of the core. Certainly, we gained in other areas like oil and gas, but those 3 are really the driving force behind our wins in the last quarter.

And then more on the big picture business side. When I look at the structure of the Board, many of the directors are more tied to the legacy business lines and some have even been actively selling the stock. What are the organization's plans to maybe align the Board more with the future strategy and what we have in place now and maybe even getting someone like yourself on the Board?

Yes. Look, I appreciate the question. I think a similar question was thrown over the fence in our last earnings call. I mean, look, our Board has been incredibly supportive of Ryan and I. When we came in the door last year, they have done exactly what they committed to do. So for that, we're certainly grateful.

But you're right. I mean, as we kind of look forward to the evolution of the business and where we're going as a company, no longer do we have tubular assets, we're a pure-play specialty chemical company. And the Board is actually in the process of reimagining what that future forward complement needs to look like moving forward. They've been kind enough to solicit my input and the input of others. So we're making progress. I think we'll have some information to share in the coming quarters. And yes, that's the short story.

Okay. That's great news. I guess in that same vein, is there anything about what you're seeing in the landscape, both operationally and from a corporate perspective that is front of mind for you is giving me any concern that keeps you up at night?

What keeps me up at night. Ryan, I'll let you jump in on this one as well. I mean I think for me, it's all about retention, right? So you know, right, transformations aren't easy. Done the right way, they're just world-class hard, a lot of tough decisions, a lot of late nights, crazy pace. So for me, it's just making sure that we do everything in our power to retain the talent that has gotten us to this point, and that's going to take us that next phase in our transformational journey. So that's what keeps me up at night. Ryan?

Yes. I think as we move into this next phase of growth and we're moving through and past the stabilization phase, it's how do we scale and how do we make those investments appropriately. How do we do that without diluting margins? I think that is really the next phase and challenge for us is how do we continue to make these gains, win new business and scale the organization after we've kind of rightsized the cost structures in a lot of different places, challenged the team, stretch the team as much as we can.

So that is really the focus. I think that is really our big challenge coming up is can we operationally execute in pace with the commercial team as they bring these wins. And I think we're doing a good job today, and we've got to keep going. And I think that's really our focus and really what I think if you had to say what keeps me up is how do we do that and how do we do that appropriately in the next few quarters.

Our next question comes from the line of Adam Waldo of Lismore Partners LLC.

I hope you can hear me okay.

We can.

Great. Well, solid quarter, and I wanted to probe and expand on Ryan's prepared remarks, comment a little bit about gross margin. I think, Ryan, you articulated that you felt comfortable with the ability to sustain a 30% gross profit margin going forward on a pure-play business now that you reached that stage of corporate development. Is it fair to say that there may be some additional headroom beyond that on an intermediate-term basis just to the extent that you're comfortable commenting on that?

I do. I don't think we're going to see kind of the rapid expansion of gross margins we saw this year. We did a lot of work of purposely repositioning the product portfolio and really attacking costs. So I think for us, we got a lot of those gains early on. Here, I'd expect basis point improvements going forward. As I just alluded to Eric, we have to grow appropriately.

And I think as we scale and find where the pain points are, we are going to have to invest in people, both at the operational level and in the back-office level. So I expect there to be some margin expansion, especially with layering on volumes onto this optimized base that we have. So we should see some operational leverage pull through.

But again, I don't think it's going to be this 300, 400 basis point increase every quarter, but I do expect some nominal increases as we keep going. So how far up that can go remains to be seen, but we do -- we have a tremendous amount of capacity. We have a lot of room to pull on that operating leverage. And I think if we are mindful of where we make those investments and how we scale, I think I expect to see nominal increases in gross margin throughout the next few quarters.

Okay. So 30% plus gross margin in the coming 1 to 2 years, modest sequential improvement [Technical Difficulty] modest headroom. [Technical Difficulty] adjusted EBITDA margin 15%, you're already at 7% this quarter. At what level of adjusted EBITDA margin do you need to be to achieve sustainable positive operating cash flow in the business?

Yes. I mean we're almost there. So if you kind of pull out some of the legacy Munhall activity and formerly -- former steel assets and you look at just our Chemical segment with corporate layered on, we're right there today. So I feel comfortable that if we can get up to 10%, that should be where we need to be to sustain kind of positive cash flow going forward.

Like I said, we're effectively there today. So we just need to keep this kind of improvement going, be mindful of how we're investing in SG&A. But that high single digits, low, low teens is where we effectively are. And I think if we can kind of just keep continuing to not only build off this base, we should see cash flow generating.

Okay. one more, if you permit me. On the Munhall divestiture, and I apologize, I got on the call late. Did you make any prepared remarks, comments as to the update on your hope for timing on closing that wind down?

No, I didn't offer any prepared remarks on that. But what I will say is we are efforting to getting this completely off of our books by the close of this year. We're making good progress. We're not over the finish line yet. But I would look for 2026 to be a clean sheet of paper.

Fabulous. Okay. Last question, if you permit me. [Technical Difficulty] Maintenance CapEx in the business at your current unused capacity. How do you think about the IRRs from share repurchase as you get over that 10% adjusted EBITDA [Technical Difficulty] based on multiples you're seeing in the market right now before any potential [indiscernible] synergies or revenue synergies?

Adam, I hate to bring it to you, but we could not hear hardly anything that you just said that you...

We're having a hard time hearing you. Yes, I apologize. Do you want to try calling back in or...

If you can't hear me now, I'll call back in. I apologize.

[Operator Instructions] Our next question comes from Gregg Kitt of Pinnacle Funds.

One of the other more encouraging statements that I heard you say, Ryan, was that you're very comfortable being patient on acquisitions right now. And it sounds like in part, that's because you're winning business organically and maybe that's at a rate more than what you previously thought.

I think when I talked to both of you earlier this year, my thought was that maybe you'd go look at acquiring some proprietary products like a portfolio that could help accelerate your ramp to that $120 million to $130 million of revenue. It seems like you're winning business organically at a rate where maybe that you don't need to do that. Could you give just a little bit of color around how you're thinking about product -- proprietary product portfolio acquisitions relative to your organic growth?

Yes, sure. Great. Can you hear me okay?

I can hear you just fine. Can you hear me?

Yes, I can. Yes. Just from -- look, from an M&A perspective, we're certainly active. We're just not -- we're not in a rush to do a bad deal. We were actually under an LOI in Q3. Obviously, that didn't move through, but that just goes back to our patience and how we're going to be good stewards of the capital that we do have.

From a product perspective, certainly, we're very interested in acquiring product lines that could then be integrated in within our existing underutilized asset base. Obviously, that's a little bit more difficult to find, but we are efforting that.

And so because you have this opportunity to be patient on acquisitions, you have a bunch of cash, which is generating interest income in the meantime. I think maybe to piggyback on some of Adam's question, how do you think about your current balance sheet repurchase activity? And how do you evaluate -- I think you said what's an IRR on your -- a repurchase versus some other use?

Yes. I mean what we like is we have the optionality right now. And I think that's a unique position for a lot of people in our industry who are just trying to kind of get by every quarter. So we look at it all holistically, we have been more successful at a faster rate in organic growth. We have a tremendous amount of upside within our own assets.

So ideally, that is the safest, lowest risk return if we can find ways to allocate capital internally to growth CapEx, for example, operationally to support growth. That will be our first and foremost point of allocating capital.

Like Bryan said, we've been looking at M&A. We've been looking at inorganic growth. But frankly, there's just not been a lot of assets out there that we feel are worth the distraction and that would generate the returns on a risk-adjusted basis to equal what we can do organically. And then we've always had the option to buy back stock. If the stock continues to stay at this level, we'll continue to be active in the market. We are buying back shares daily. It's a small amount. We took quite a bit of shares out of the float earlier this year.

So we kind of just look at it holistically, and we're always keeping our ear to the ground on what's out there from an M&A perspective. But with the amount of idle capacity we have today, it doesn't make a lot of sense for us to go buy capacity, right? We have to fill our own plants. If we can find a product line that we can slot in, if we can find a new vertical to go into that's outside of the core ones that we participate in today, we'll look at that.

So we do have some IRR benchmarks internally depending on where that investment goes, but we like the optionality point as we continue to kind of evolve and see where this business is taking us and see where we're successful, I think that's where we're going to be able to allocate capital and drive again, like organic first, and then we'll look at the other options.

One last question for me. Can you talk about some of the targeted R&D investments that you're making? How quickly can those turn into -- are those new products? You have the capability to manufacture it in your existing equipment and you're looking at how can you develop a new product? Or if you could flesh that out, that would be great.

Yes. I mean I think first and foremost, it was the -- was hiring Prashanth, our new R&D leader. Prashanth's an industry expert, came to us by way of Olin and prior to that, DuPont. So within literally weeks, Prashanth was helping us crack the code on some product development challenges that we have had. He's leaned in.

He's helped us resolve some process R&D-related challenges, so improving the manufacturability of products that we've developed in the lab and helping them scale up more efficiently and effectively in the plants. So he's already making a huge difference.

Obviously, from a capability standpoint, we have lab capabilities today. There's probably some targeted investments that we'll be looking at making in 2026 to close a couple of capability gaps that we have from a lab equipment perspective. But really just really pleased with how Prashanth has leaned in and the impact he has made in such a short period of time.

Our next question comes from the line of Adam Waldo of Lismore Partners LLC.

Apologies for the earlier connectivity issues. I hope you can hear me okay now.

Yes.

Great. Okay. All right. So at the kind of 30% gross margin and with some headroom above that going forward over the next couple of years, what kind of variable contribution margins do you think you'll be able to achieve at the adjusted EBITDA margin line as you bring on -- continue to bring on strong levels of new volume? And then related to that, what do you think your current system-wide capacity utilization is presently?

I'll speak to the incremental margin. So not to be kind of difficult here, but it's really the way our assets are set up, it's not a straightforward calculation where 1 pound equals x margin or incremental margin. So it's really dependent on the customer, the engagement, the product mix and where we make that product, right? So we have 3 plants today, depending on what it is and where it is, that's how we're able to kind of define that incremental margin pickup.

So where we're at today, the business we're bringing in today, again, I think it's going to -- you're going to see incremental margin improvement on top of this going forward. So it's really difficult to say 5 million pounds a week million of margin. It's just really dependent on how this mix plays out, where we determine that it's the best place to fit those products into our current assets.

So I would say incremental margin improvements as we keep going. Again, I don't expect tremendous pickups every quarter here just despite the volume growth. So that's kind of how I view the incremental margin gains. Bryan can speak to capacity.

Yes. Just to add a little bit more color on that, Adam. I mean, so from a manufacturing process, some of the products that we make have a 6-hour cycle time. Some of the products that we manufacture have like a 48-hour cycle time. So obviously, the cost is very, very different from product to product from manufacturing-to-manufacturing locations. So we're not trying to be difficult, but that descriptor, it depends, it really does depend.

From a utilization standpoint today, we're right around 50% utilized. So tons of runway for organic growth inside of the existing asset base with minimal capital requirements. I mean if you do a look back over the past 3 to 5 years, our average CapEx spend has been in that, call it, $3 million a year range.

Moving forward, there's nothing standing in our way from being able to deliver $120 million to $130 million of top line through our existing asset base without additional material capital required. So tons of runway for organic growth, super excited about the momentum that's being built up from a commercial standpoint. We want to see those wins start hitting the income statement sooner than later. But the momentum is real and it's building.

This concludes our question-and-answer session. I would now like to turn the call back over to Mr. Kitchen for closing remarks.

Okay. Great. Thank you, Dana. We'd like to thank everyone for listening to today's call, and we look forward to speaking with you again when we report our second quarter -- our third quarter, fourth quarter 2025 results. We'll get that right next time. Thanks a lot, everyone, and have a great evening.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

Good day, everyone, and welcome to the iAccess Alpha Virtual Best Ideas Fall Investment Conference 2025. The next presenting company is Ascent Industries. [Operator Instructions].

I'd now like to turn the floor over to today's host, Bryan Kitchen, President and CEO of Ascent Industries. Sir, the floor is yours.

Okay. Great. Thanks, everyone. Thanks for joining in and the slides just disappeared, [ Mackenzie ]. Operator, can you help me out here?

Absolutely, I'm reaching out to [ Mackenzie ] now.

Okay. Sorry about that, everyone. So yes, good morning, good afternoon. Bryan Kitchen, President and CEO of Ascent, I've got a lot of material to cover with you today, but I want to make sure that we reserve enough time for your questions. So let's just go ahead and jump right in.

I joined the company back in the fourth quarter of 2023 with the mandate to build out and grow the Specialty Chemicals segment within Ascent Industries company at the time. We had 2 different operating segments, Specialty Chemicals and stainless steel tubular assets.

A few short months into that journey, I got a call from the Chairman of the Board who said, just kidding, could you please take over the whole company? And I was pleased to take on those additional responsibilities back, I believe, in February of 2024.

Since that point in time, we've been putting the band back together, if you will. The reason why this is important is because it's been absolutely core to the transformational journey that we've been on and it's enabled just an accelerated turnaround across the enterprise. Ryan Kavalauskas and I have worked together now for over 10 years, has a couple of different stops along the way.

Prior to joining Ascent, we worked for a small specialty chemical company in Charleston, West Virginia. At the time we joined that company, the company was losing about $8 million a year of adjusted EBITDA. Fast-forward 4, 4.5 years later, at the time of sale, the company was doing roughly $36 million of adjusted EBITDA on a trailing 12 basis.

So that's really where we cut our teeth from a turnaround standpoint, learned a lot along the way, and we always said if we had the opportunity to do it all over again, we would apply those learnings moving forward. And that's effectively what we've been doing.

So back early 2024, we did start putting the band back together. We have a number of people on the management team that we've worked with in the past that were core to the turnaround transformation at Clearon and other companies that we've worked out along the way. And as you can see from the slide here, we did deliver transformational improvements inside of 2024 roughly a $20 million turnaround in adjusted EBITDA, significant improvements in gross margin, and we generated a lot of cash from continuing operations.

So last year was all about stabilization. It was all about fixing the foundation. And then as we roll into 2025, this is really where we began to optimize the portfolio. So earlier this year, we set out on that journey or actually late last year, we set out on the journey to optimize the portfolio and really transform Ascent into a pure-play specialty chemical company.

Back in April, early April, we transacted on the sale of one of our seamless steel holdings, followed up by another transaction in July, where we sold the last remaining operational asset that we have in the portfolio. And now today, we are, in fact, a pure-play specialty chemical company. We started off 75 years ago as a pure-play specialty chemical company. We got a little bit lost along the way, but we're back. We're focused and we're super excited about the path forward.

So in our strategy and business model, our operating model is all structured around Chemicals-as-a-Service. And really, this is where we meet our customers where they are with the markets that they participate and the products that they need, the services that they need. We come alongside of them and support them in their growth journey.

All across the moments that matter, areas like discovery or development, commercial and contracting manufacturing fulfillment and life cycle support. And I'll get into some more of those examples here in a little bit, but we're not just a specialty chemical manufacturer. We're truly a service provider. We come alongside of customers when they have technical challenges. We help them solve their technical challenges. And as a result of that, we're rewarded with very sticky margin accretive business moving forward. And we do the same thing for supply chain services, regulatory support and the like.

So when you take a look at Ascent and how we differ from other classical chemical manufacturers or other classical toll manufacturers or other classical custom-made manufacturers really offer a broad suite of solutions across the entire spectrum. In many instances, classical distribution, well, they're not making product, they're typically warehousing it and they're handling logistics and maybe some aspects around regulatory support, but we go much deeper than that.

So when and where small to midsized customers need formulation support, we can do that. When and where small, mid, larger-size customers need small quantities, 500 pounds up to millions of pounds, we have those installed capabilities, and we're pleased to do that. Whereas other larger chemical manufacturers, they're really about continuous operations, maximizing the throughput, getting the absolute lowest cost, and it's all about the pounds, for us, it's all about the value.

And we deliver that in differentiated business model. So in some instances, we sell products that solve our customers' problems. In other instances, we provide toll manufacturing services or custom manufacturing services. And then in some instances, we actually buy, build and operate dedicated manufacturing facilities to support customer specific requirements.

So we've been around for a long time since 1945. We've got about 200 employees, 3 domestic manufacturing assets structured around the Southeast corridor. 1 in Virginia, 1 in Tennessee, 1 in South Carolina and then 5 manufacturing plants across those 3 assets. Our top line is right around $80 million. We have ample runway for growth, and I'll unpack that here for you in a few minutes.

So where do we participate? We participate in array of high-value markets. So areas like HI&I or personal care and agriculture, but also other performance materials related segments, things like oil and gas and water treatment and coatings, adhesives, sealants, elastomers and other applications. So we're really laser-focused on 4 primary markets, oil and gas, coatings, water treatment and HI&I. That doesn't mean that we run away from other markets and opportunities, that just informs where we preferentially allocate our resources moving forward.

When you take a look back at one of the things we did from a market sell standpoint early last year, one of the encouraging things when we came to Ascent, we saw a company that had really good bonds. We also saw a company that had a pretty interesting product portfolio, of products that were effectively up on a shelf that were not being monetized and marketed. So that was one of the first things we did from a commercial standpoint last year. We really breathed a little bit of life back into that portfolio started taking that out to market while we were lifting and improving the quality of our custom manufacturing business. And you can see that's had a very real material impact to the quality of our business.

So we drove a pretty significant increase in our product sales last year. You can see the results an increase from a pricing standpoint and then followed by gross margin. So look, we love product sales. Generally, it's more ratable. Generally, it's more predictable and generally comes at a margin premium, but also, right, but also custom manufacturing is a very important role to play in our portfolio, and it will continue to do so moving forward. Again, for us, it's all about the quality of that business, and that's what we've been working feverishly on improving over the past 18 months or so.

When you take a look at our asset base, it's good news, bad news, right? Bad news is we're grossly underutilized from an absorption standpoint, good news is we're grossly underutilized. We have tons of runway for additional growth. Today, a rough swag is, we're about 50% utilized across our 3 manufacturing assets, so that presents an opportunity for upside.

And the other good news is our ongoing CapEx requirements are minimal, right? You can see here over on the right-hand side, $1 million to $2 million a year is generally what we average to keep our plants safe to keep our plants compliant and to maintain operational liability for our customers. So today, we're roughly $80 million of sales. We have runway to punch that north of $120 million in the near term, and we can do that with very minimal capital requirements.

So we are in an inflection point, right? So all of the strong work done last year and the turnaround or the transformation last year didn't stop in 2024. As we rolled into 2025, while we were working on optimizing the portfolio and becoming a pure-play specialty chemical company, we continue to drive very impactful improvements in our costs. Not just our materials, but also labor and overhead.

And you can see we drove roughly a 24% reduction in COGS in the first half of this year versus the first half of last year. You can see we also drove a pretty significant improvement in overall adjusted EBITDA. We generated roughly $56 million of proceeds from the sale of Bristol and ASTI pre-networking capital true-up. And we're beginning to put those reserves into play here, and I'll touch on that here in a couple of minutes. And we continue to be really good stewards of working capital as well. Cash management has become very near and dear to our heart, specifically the company that we are previously, and we've carried that mindset moving forward to Ascent.

From a growth in catalyst perspective, we've got a lot going on. So I mentioned earlier that we successfully divested our last 2 operational, last 2 operational facilities in the stainless steel segment earlier this year. We do have one last remaining holding on the balance sheet and that's a facility that's basically empty in Munhall, Pennsylvania. We've had -- this facility was shut down back in August of 2023. Last year, we announced the sale of all of the equipment that was in that facility for roughly $2.8 million of proceeds. However, we still have the rents, the utilities, the insurance, et cetera, that we have been paying for.

So we've been working to, again, take care of this and move this off of our books. We're optimistic that, that will be complete by the end of the year. And as you can see on the slide, that translates to about a $2.1 million annualized EBITDA uplift along with cash, which we're super excited about. So stay tuned on that, more to come, but again, cautiously optimistic that we will have that transacted by the close of this year.

So organic growth, near and dear to our heart, right? Last year, again, it was all about fixing the foundation, stabilizing as we rolled into 2025. It was all about optimizing our portfolio and beginning to at least the organic growth engine. And I'm pleased with the pipeline of activity that we have been able to build up in a relatively short period of time.

So just for context, at the end of the first quarter of 2025, we had roughly $45 million of active selling projects. And what I mean by selling projects, these are opportunities that are brought to us by existing or prospective customers where there's a need that they have. And in order to make its way into the pipeline, we validate that either, a, we have made these products in the past, or b, we have the capabilities to manufacture this product. So they're very real opportunities.

So end of Q1, $45 million pipeline, end of Q2, we added on top of that another $25 million of selling projects. So the pipeline volume continues to expand, the quality of that pipeline continues to improve. And now it's incumbent on us to get those selling projects from a project stage to actually executed and rolling through the income statement.

You can see in the first half of this year, the wins that we were able to bank, roughly 77% of them came from existing customers. 23% came from new customer acquisition. You can see the financial profile on those pieces of business that we were able to land in the first half of this year. So again, growth never happens as quickly as we would like. And when you consider the long sales cycle that we do have, this is why it's critical for us to maintain a very strong selling project pipeline and to move those projects through the process at an accelerated velocity as quickly as possible.

In the first half, right, that sales cycle time was roughly 2.7 months. And I would say that's not typical. Usually, it's a little bit longer anywhere from 3 months up to 12 months depending on the complexity of the products that we're manufacturing because it's not just about our ability to manufacture product in specification. It's all about qualifying our products and our customers' products and processes and then in some instances, in their downstream customers' products and processes as well. So we're very aware of that extended time line, and we do everything we can to pull on the levers to help accelerate these projects through the pipeline.

I am pleased with our conversion rate. It's a little bit higher than industry standard. We're roughly about 18% in the first half of this year. Generally speaking, industry standard is more in that kind of 14% range. So our organic pipeline is building. We're moving these projects through, and I'm very optimistic that as we roll into 2025, these projects are going to translate to very real and material growth for us.

So a simple and clear EBITDA driver. So the very simple way to kind of look at our longer-term aspiration is to think about gross margins in the range of about 35%. Think SG&A in the 15% range and then the EBITDA in the 15% range as well. When you look at pure competitors out in the market, those ranges are equivocal in market, we're not planning on a unicorn situation here. It's absolutely doable. It's within our control. We simply need to execute.

So 2023, 2024, we drove some pretty nice improvements from an EBITDA standpoint. We have tremendous, as I mentioned earlier, tremendous runway for organic growth inside of our existing asset base. And now with the additional firepower we have, we have the ability to pull on inorganic growth as well. For us, it's not just about organic growth. It's not an or, it's an and. It's organic growth and very purposeful inorganic growth. We're going to be disciplined buyers. We're not going to go out and acquire something just for the sake of increasing our top line.

For context, late last year, we actually had an active LOI. We got into diligence, and it was a small transaction, less than $5 million. And as we got into that, we saw some things we didn't like and we attempted to re-trade a deal. And ultimately, we couldn't come to terms. And we walk, and that's okay. We're not going to do deals just for the sake of doing deals.

So again, 35% gross margin, 15% SG&A. Our SG&A today is higher than that. Obviously, we need to grow into that SG&A. We've got a relatively low book of business today. So we need to expand that top line very meaningfully with good quality business, and we'll grow into that SG&A and get it into kind of that 15% range.

And as I mentioned earlier, with the sale of the Bristol and the ASTI stainless steel tubular assets, we do have a fair amount of cash on hand. We have 0 debt. We have roughly at the close of the quarter, $60 million of cash. We have $30 million of debt capacity. So $90 million of capacity to invest, what are we looking for in M&A transactions. Look, we're going to keep it small right out of the gate and kind of scale from there because, a, we want to demonstrate to ourselves that we can extract the contemplated growth synergies and cost synergies and then also demonstrate that to our shareholders as well. And then we'll, like I said, we'll scale from there. We also repurchased and retired roughly 6% of our outstanding shares in the second quarter of 2025. So again, it's not about or, it's about and for us, and we continue to execute that strategy.

And with that, I'm happy to take any questions that you might have, but I want to be mindful that our time is limited, I want to make sure that we allocate sufficient time for your questions.

Okay. So I've got a question. Is it true that an employee of the company owns over 2 million shares of stock. No, that is not true.

With your specialty chemical focus now fully in place where the key drivers that will take you from $80 million to $120 million to $130 million within the existing asset base. It's a great question. So again, going back to our market focus. When you take a look at the U.S. specialty chemical market, it's an enormous market, $220 billion. When you look at it through the lens of just the products that we manufacture, not the capabilities that we have, but just the products that we manufacture, it's roughly $9 billion market. You take a look at our top line of $80 million, and you quickly realize that we have plenty of room to grow around the fringes.

So that $9 billion, what's that makeup look like? So it's roughly 30% that's in the coating space, 30-ish percent of that's in the HI&I space, another 20% or so, 20% to 30$ is in oil and gas and the balance is spread out across a number of other miscellaneous segments. So when you look at our participation strategy in those 4 key pillars that I mentioned earlier, that ties in very well with where the market opportunity is for us to participate again just through the lens of our existing products that we have in the portfolio.

So we what are we doing about it? We're resourcing appropriately for that. We have laser focus in on those segments, and that's where we're beginning to drive -- to drive growth and get just some really strong quality selling projects built up in the pipeline. Again, this is not contingent on, if I only had a new set of equipment we could then deliver X, Y and Z. So we have the capabilities inside of the existing asset base to get us to that $120 million to $130 million.

Next question is, is the current pricing environment for -- in the current pricing environment for Specialty Chemicals, how much pricing power do you have? Are you seeing competitive pressure from larger peers? So it's interesting, one of the levers that we pulled on, one of the many levers that we pulled on last year was just that was price, and it was to extract the appropriate value for the goods and the services that we were providing. And we were very successful in doing that.

And in fact, in some instances, the quality of business that we had in prior years was not awesome, and it was actually dilutive to overall EBITDA. And where we couldn't raise price, we simply walked away. And you've seen the favorable impact that has had on our gross margins and EBITDA over time. So we've been successful in passing along price certainly, we're conscious of the competitive pressures. We know we have to be market competitive and we're executing against that.

What I would say, stacking us up versus our larger peers, it's interesting because, again, our larger peers, many of them are operating continuous manufacturing plants. It's all about the pounds, it's all about the lowest cost. But what that doesn't allow them to do is come alongside of their customers and help them solve problems. So when our phones ring, we hear from the small customer, mid-sized customer, even a large customer says, I need help, that's really a queue for us to come alongside of them and help solve their problems because when we do that, we find that generally, it's a more margin accretive opportunity for us, and it's generally going to be a stickier relationship down the road because we solve an unmet need.

Looking ahead, what milestones should investors track over the next 12 to 18 months to get progress towards your long-term 15% EBITDA margin target. So certainly, a transaction around Munhall would be one. Number two would be growth, growth and growth from an organic standpoint. So as we roll into 2026 look for upward momentum in our sales. And then number three, I would look for inorganic growth opportunities to emerge as well.

How much of the gross margin improvement is due to a mix shift to proprietary products versus better capacity utilization? What was the low point of capacity utilization and where are you at now? What I would say is where we're at now, and I'll take this in reverse. Where we're at now is really the low point. Our utilization was a little bit higher back in the COVID days, but I think everybody's utilization was a little bit higher during the COVID days. We're basically at a new floor at this stage, and that's okay because we've demonstrated our ability to deliver a much better result for our shareholders even in the face of lower utilization.

So what's driven that gross margin improvement? Yes, it was a shift to proprietary products. That was one component. Number two, pricing was certainly another big lever. And number three, incredible cost management, both from a labor, from an overhead perspective and from a materials perspective.

When you look at the improvements that we drove last year on labor and overhead combined, it was roughly a 20% improvement versus prior year. When you look at our materials improvement that we delivered last year versus prior year was also roughly a 20% improvement. So the folks we brought in, as I mentioned, we put the band back together, the folks that we brought in, they know the drill. We give them the keys. We let them do what they do best. And they really came off the bench last year's swing. We're starting to have some fun.

Will most of the new business come from existing customers or new customers, how do you engage with new customers? How many salespeople do you have? So the answer to the first question, is it coming from existing customers or new customers? The answer is yes. Yes, both. So as I mentioned earlier, our first half project wins that we bank, roughly 75% of them were with existing customers, 25% of them are with new customers. We still have enormous runway to grow share of wallet with our existing customer base. So we're going to continue to effort that.

And we have enormous runway for growth with new customers. So one of the investments, one of the very purposeful investments we made last year recapitalizing SG&A., it was building up just core functions that we're missing things like marketing, right? So you've seen us go out to market with branded product portfolio, proprietary products that are engineered towards oil and gas or engineered towards HI&I or coatings, adhesives, sealants elastomer. So we're doing a much better job in our go-to-market strategy and how we engage with customers.

And that's -- we're seeing a lot of inquiries through -- just through general outreach to our inside sales organization. We're seeing a lot of new inquiries come through from the digital domain which has been really cool to see and then also through trade shows. So we're getting our name out there. We're getting looks that we have never gotten before in some very exciting place for us to be.

I think I've exhausted all of our questions. Are there any other questions? Well, it looks like we're -- we've got about a minute left here.

Okay. With that, I appreciate everyone's time. Obviously, done a lot of great work over the past 18 months or so. Stabilization, fixed the foundation. We've got the right people on the bus. We've given them the keys. They're delivering incredible results. We've executed our portfolio optimization strategy. We're at the final innings of that here with the Munhall property. And then it's all about growth, growth, growth and growth, both organic and inorganic.

So I appreciate everybody's time, and look forward to catching up in the one-on-ones.

Thank you. That concludes Ascent Industries presentation. You may now disconnect. Please consult the conference agenda for the next presenting company.