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…

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…

[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.