Good day, and thank you for standing by. Welcome to the Ascent Industries Co.'s 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 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 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 segment 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…

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 as 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, SG&A was up $3.2 million, largely driven by $2.1 million related to legacy Munhall and 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.

Bryan and Ryan, I hope you can hear me okay?

Yes.

We can.

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 softness or did that develop really late in the quarter? And how is the macro environment as we sit here 2 months into the first quarter? Obviously, some geopolitical developments the last few days. But before that, were you seeing an improving macro environment?

Yes, Adam, 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 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, well, 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. 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 set 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 lower 30s range.

Okay. And the new business you're bringing on more recently is at 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 -- 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 win that 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 spitball a number. But I did want to go back, Gregg, to your prior question around the $7.1 million versus the $10 million trying to reconcile that. Of the $9.4 million that we referenced, that is predicated on us actually receiving firm purchase order for a 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, and you did that 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 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 function, Gregg, 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 paved over with asphalt. Well, the team in Virginia found 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 material adds 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 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 one-time items, some building of stock, some customers there, wherein we control the raw material spend. So you see raw material costs come up, the margins are effectively 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 out and 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 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 margins 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 and, 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 a -- 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, predominantly 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 inspect, 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 positioned 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 in 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 if we need to.

[Operator Instructions] Our next question comes from [ Howard Ruth with Fairhope 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 onetime, if it wasn't for the one-time 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 aren't. When we look at comps year-over-year, there were some tailwinds in '24 that we didn't get 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 Q4. 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. So 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're 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 to get 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 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.