Ashland(ASH) - 2025 Q3 - Quarterly Report

PART I - FINANCIAL INFORMATION Item 1. Financial Statements The financial statements for Q2 2025 reveal a $742 million net loss, primarily due to a $706 million goodwill impairment, with sales declining 15% to $463 million and total assets decreasing from $5.6 billion to $4.6 billion | Financial Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :--- | :--- | :--- | | Sales | $463 million | $544 million | | Gross Profit | $132 million | $186 million | | Operating Loss | $(708) million | $(61) million | | Net Loss | $(742) million | $6 million (Net Income) | | Diluted Loss Per Share | $(16.21) | $0.12 (Diluted EPS) | | Balance Sheet Item | June 30, 2025 | September 30, 2024 | | :--- | :--- | :--- | | Total Current Assets | $1,124 million | $1,195 million | | Goodwill | $705 million | $1,381 million | | Total Assets | $4,621 million | $5,645 million | | Long-term Debt | $1,382 million | $1,349 million | | Total Stockholders' Equity | $1,889 million | $2,868 million | | Cash Flow Item | Nine Months Ended June 30, 2025 | Nine Months Ended June 30, 2024 | | :--- | :--- | :--- | | Cash from Operating Activities | $94 million | $382 million | | Cash from Investing Activities | $0 million | $(54) million | | Cash from Financing Activities | $(161) million | $(310) million | | Decrease in Cash | $(93) million | $(18) million | Note B – Divestitures The company completed the Avoca business sale in Q2 2025, incurring an impairment charge, following a similar divestiture of the Nutraceuticals business in the prior fiscal year - Completed the sale of the Avoca business in Q2 2025, recording an impairment charge of $183 million for the nine months ended June 30, 2025[20][22] - In the prior year, the sale of the Nutraceuticals business resulted in a $99 million impairment charge for the three and nine months ended June 30, 2024[23][25] Note D – Restructuring Activities Ashland initiated a new restructuring plan in fiscal 2025 to mitigate divestiture impacts and optimize manufacturing, resulting in accelerated depreciation charges - A new restructuring plan was initiated in fiscal 2025 to offset the impact of the Nutraceuticals sale and other portfolio actions[33] Accelerated Depreciation Expense | Period | Accelerated Depreciation Expense | | :--- | :--- | | Three months ended June 30, 2025 | $27 million | | Nine months ended June 30, 2025 | $40 million | Note G – Goodwill and Other Intangible Assets A $706 million goodwill impairment was recorded in Q3 2025, impacting Life Sciences and Specialty Additives, driven by stock price decline and a weakening macroeconomic environment - Triggering events, including a decline in stock price and slowing growth, led to a quantitative goodwill impairment assessment during Q3 2025[55] Goodwill Impairment Charge | Reporting Unit | Goodwill Impairment Charge | | :--- | :--- | | Life Sciences | $375 million | | Specialty Additives | $331 million | | Total | $706 million | - The goodwill impairment charges are non-deductible for tax purposes[57] Note H – Debt and Other Financing Activities As of June 30, 2025, total long-term debt was $1.38 billion, with $596 million available under the revolving credit facility, and the company complied with all debt covenants - Total long-term debt (less issuance costs) was $1,382 million at June 30, 2025[69] - Available borrowing capacity under the 2022 Credit Agreement was $596 million as of June 30, 2025[77] Debt Covenant Compliance | Debt Covenant | Requirement | Actual (June 30, 2025) | | :--- | :--- | :--- | | Max. Net Leverage Ratio | 4.0 | 2.9 | | Min. Interest Coverage Ratio | 3.0 | 6.5 | Note L – Litigation, Claims and Contingencies As of June 30, 2025, the company held $450 million in asbestos reserves and $242 million for environmental remediation Reserves | Reserve Type | Amount (June 30, 2025) | | :--- | :--- | | Ashland Asbestos Reserve | $265 million | | Hercules Asbestos Reserve | $185 million | | Environmental Remediation Reserve | $242 million | - The company estimates that the upper range of reasonably possible future costs for environmental remediation could be as high as approximately $510 million[124] Note N – Equity Items Ashland repurchased $100 million of common stock, with $520 million remaining under its $1 billion program, and increased its quarterly dividend by 2% to $0.415 per share - $520 million remained available for repurchase under the 2023 Stock Repurchase Program as of June 30, 2025[128] - For the nine months ended June 30, 2025, the company repurchased 1.5 million shares for an aggregate price of $100 million[129] - The quarterly cash dividend was increased by 2% to $0.415 per share, paid in Q3 2025[130] Note Q – Reportable Segment Information Q3 2025 segment performance was severely impacted by goodwill impairments in Life Sciences and Specialty Additives, resulting in operating losses and sales declines across all segments Segment Performance | Segment | Sales (Q3 2025) | Sales (Q3 2024) | Operating Income (Loss) (Q3 2025) | | :--- | :--- | :--- | :--- | | Life Sciences | $162M | $195M | $(343)M | | Personal Care | $147M | $175M | $25M | | Specialty Additives | $131M | $150M | $(345)M | | Intermediates | $33M | $36M | $4M | - The operating loss in Life Sciences includes a $375 million goodwill impairment[152] - The operating loss in Specialty Additives includes a $331 million goodwill impairment[152] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Q3 2025 sales declined 15% due to divestitures and lower volumes, with a significant net loss driven by a $706 million goodwill impairment, while the full-year 2025 outlook projects sales of $1.825-$1.850 billion and Adjusted EBITDA of $400-$410 million - The company recorded a total non-cash goodwill impairment charge of $706 million ($375 million for Life Sciences and $331 million for Specialty Additives) in Q3 2025 due to a decline in stock price and a weakening macroeconomic environment[173] Drivers of Sales Change (Q3 2025 vs Q3 2024) | Driver of Sales Change | Impact (in millions) | | :--- | :--- | | Divestitures | $(42) | | Volume | $(35) | | Price/mix | $(11) | | Foreign currency exchange | $7 | | Total Change | $(81) | - Updated full-year fiscal 2025 outlook: Sales of approximately $1.825 billion to $1.850 billion and Adjusted EBITDA in the range of $400 million to $410 million[318] Results of Operations – Reportable Segment Review Q3 2025 sales declined across all segments, with Life Sciences down 17% and Personal Care down 16% due to divestitures and lower volumes, while Adjusted EBITDA decreased for most segments Segment Performance (Q3'25 vs Q3'24) | Segment | Sales Change (Q3'25 vs Q3'24) | Adjusted EBITDA (Q3'25) | Adjusted EBITDA (Q3'24) | | :--- | :--- | :--- | :--- | | Life Sciences | -17% | $54M | $59M | | Personal Care | -16% | $41M | $51M | | Specialty Additives | -13% | $26M | $38M | | Intermediates | -8% | $7M | $9M | Financial Position As of June 30, 2025, the company maintained $803 million in available liquidity, with ongoing Free Cash Flow at $75 million, a decrease from the prior year, and total debt at $1.38 billion Cash Flow Metrics | Liquidity Metric | Nine Months Ended June 30, 2025 | Nine Months Ended June 30, 2024 | | :--- | :--- | :--- | | Free Cash Flow | $30 million | $283 million | | Ongoing Free Cash Flow | $75 million | $182 million | - Total available liquidity, including cash and the revolving credit facility, was $803 million at June 30, 2025[293] - Debt as a percent of capital employed increased to 42% at June 30, 2025, from 32% at September 30, 2024[295] Outlook Ashland updated its full-year fiscal 2025 outlook, projecting sales of $1.825-$1.850 billion and Adjusted EBITDA of $400-$410 million, reflecting a subdued macroeconomic environment - The company updated its full-year fiscal 2025 outlook due to a subdued macroeconomic environment and cautious customer channels[314] FY2025 Outlook | FY2025 Outlook | Range | | :--- | :--- | | Sales | $1.825 billion - $1.850 billion | | Adjusted EBITDA | $400 million - $410 million | - The company's $30 million restructuring program is expected to generate approximately $7.5 million in savings in the fourth quarter[317] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2025, with no significant changes to internal control over financial reporting during the quarter - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of June 30, 2025[321] - There were no significant changes in internal control over financial reporting during the nine months ended June 30, 2025[322] PART II – OTHER INFORMATION Item 1. Legal Proceedings The company faces material legal proceedings, primarily asbestos litigation and environmental matters, stemming from historical operations of Ashland and Hercules - Ashland is subject to liabilities from personal injury claims caused by asbestos exposure, primarily from indemnification obligations for the sale of Riley Stoker Corporation and the acquisition of Hercules LLC[325][326] - The company has been identified as a "potentially responsible party" (PRP) at 53 environmental cleanup sites under CERCLA and similar state laws as of June 30, 2025[328] Item 1A. Risk Factors No material changes were reported to the risk factors previously disclosed in the Annual Report on Form 10-K for the fiscal year ended September 30, 2024 - No material changes from the risk factors disclosed in the Annual Report on Form 10-K for the fiscal year ended September 30, 2024[332] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Ashland did not repurchase common stock in Q3 2025, with $520 million remaining available under its $1 billion share repurchase program - No shares were repurchased during the three months ended June 30, 2025[333] - As of June 30, 2025, $520 million remained available for repurchase under the 2023 Stock Repurchase Program[333]