Ascent Industries Co. Common Stock 2026 Q2 Earnings Call

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 posts on its website for 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 investor 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 investor section of the company's website. I'd like to turn the call over to Brian Kitchen, Ascent CEO, to discuss second quarter results.

Thanks, Kenny. 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 discuss the financial results in greater detail. The headlines are straightforward. Sequentially, 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 two 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. 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. Collectively, 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 delivers 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. We still have work to do.

Portions of our legacy custom manufacturing portfolio continue to exhibit the same seasonality and normal program turnover that we've historically affected the fourth and first quarter performance. While we're making good strides in growing our way out of it, we expect those dynamics to remain a near-term characteristic of the business. What's encouraging is that the improvements that we're making are becoming increasingly visible across the business. It starts with our commercial performance. During the quarter, we converted 17 commercial opportunities across 13 customers into approximately $5.8 million of annualized revenue, achieving a 26% conversion rate, well above the specialty chemicals industry benchmark of 10%-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 two years. One with more predictable demand, greater ratability, and stronger margins. 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 Graphic Sales commercial pipeline following the acquisition, while also reflecting continued momentum across our legacy business. These results didn't happen by accident. They're the 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 into 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 protected customer supply while preserving the economics of the business. That same operating discipline that helped 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-$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 leveraged 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 an 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 investment. Viewed in isolation, many of these improvements may appear modest. Collectively, they compound over time, steadily increasing the quality, the resilience, and earnings power of the business. 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 the fourth, 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've retained key customers while maintaining exceptional service levels throughout the integration. Midwest secured its first new customer since joining us in, 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's deep applications expertise with Ascent's manufacturing platform, commercial capabilities, and operational discipline, we've recently secured a significant field trial program with a very large prospective customer. 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 capabilities creates differentiated solutions and unlocks opportunities that were beyond the reach of either company on a standalone 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've spent the past two 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 two years, we've remained focused on improving the quality of our business through stronger commercial capabilities, greater operational discipline, and disciplined capital allocation.

Taken 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 two 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. 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 what 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 of our customers, and the confidence of our shareholders. To each of you, thank you for your continued support. 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, Brian.