Ascent Industries (ACNT) - 2023 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION This section presents the unaudited condensed consolidated financial statements and management's discussion and analysis for Ascent Industries Co. Disclosure Regarding Forward Looking Statements This section outlines the nature of forward-looking statements, cautioning readers about inherent risks and uncertainties that could cause actual results to differ materially from projections - Forward-looking statements are identified by words like 'estimate,' 'project,' 'intend,' 'expect,' 'believe,' and similar expressions, and are subject to risks and uncertainties[7] - Key risk factors include adverse economic conditions (including COVID-19 impact), competitive pressures, product demand, raw material costs and availability, customer financial stability, and regulatory compliance[7] Item 1. Financial Statements This section presents Ascent Industries Co.'s unaudited condensed consolidated financial statements, including balance sheets, income statements, cash flow statements, and statements of shareholders' equity, with detailed notes Condensed Consolidated Balance Sheets This section provides a snapshot of the company's financial position, detailing assets, liabilities, and shareholders' equity at specific points in time Condensed Consolidated Balance Sheet Highlights (in thousands) | Metric | June 30, 2023 | December 31, 2022 | Change | | :-------------------------------- | :------------ | :---------------- | :----- | | Total Assets | $232,422 | $269,043 | $(36,621) | | Total Liabilities | $118,096 | $134,784 | $(16,688) | | Total Shareholders' Equity | $114,326 | $134,259 | $(19,933) | | Cash and Cash Equivalents | $717 | $1,440 | $(723) | | Inventories | $74,300 | $85,572 | $(11,272) | | Assets held for sale | $17,398 | $380 | $17,018 | | Current assets of discontinued operations | $3,441 | $38,120 | $(34,679) | Condensed Consolidated Statements of Income (Loss) This section presents the company's financial performance over specific periods, detailing net sales, gross profit, operating income, and net income (loss) Condensed Consolidated Statements of Income (Loss) Highlights (in thousands, except per share data) | Metric | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :----------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Net Sales | $60,665 | $84,600 | $128,084 | $168,309 | | Gross Profit | $3,225 | $20,184 | $10,367 | $41,643 | | Operating Income (Loss) from Continuing Operations | $(3,752) | $11,905 | $(5,175) | $24,778 | | Net Income (Loss) | $(14,636) | $11,057 | $(19,835) | $21,317 | | Basic EPS (Continuing Operations) | $(0.37) | $1.06 | $(0.56) | $2.04 | | Basic EPS (Discontinued Operations) | $(1.07) | $0.02 | $(1.39) | $0.05 | | Basic EPS (Total) | $(1.44) | $1.08 | $(1.95) | $2.08 | Condensed Consolidated Statements of Cash Flows This section details the cash inflows and outflows from operating, investing, and financing activities, showing changes in cash and cash equivalents Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Metric | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :----------------------------------- | :--------------------------- | :--------------------------- | | Net Cash Provided by Operating Activities | $18,072 | $2,889 | | Net Cash Used in Investing Activities | $(1,625) | $(2,325) | | Net Cash Used in Financing Activities | $(17,171) | $(2,340) | | Decrease in Cash and Cash Equivalents | $(724) | $(1,776) | | Cash and Cash Equivalents at End of Period | $717 | $245 | - Cash paid for interest increased significantly from $699 thousand in H1 2022 to $1,999 thousand in H1 2023[13] - Cash paid for income taxes decreased from $3,874 thousand in H1 2022 to $817 thousand in H1 2023[13] Condensed Consolidated Statements of Shareholders' Equity This section outlines changes in the company's shareholders' equity, including net income (loss), stock-based compensation, and share repurchases Shareholders' Equity Changes (in thousands) | Metric | Balance at Dec 31, 2022 | Net Loss (6M 2023) | Stock-based Compensation (6M 2023) | Repurchase of Common Stock (6M 2023) | Balance at June 30, 2023 | | :-------------------------- | :---------------------- | :------------------- | :----------------------------------- | :----------------------------------- | :----------------------- | | Total Shareholders' Equity | $134,259 | $(19,835) | $406 | $(504) | $114,326 | - The company repurchased 51,156 shares of common stock for $504 thousand during the six months ended June 30, 2023[15] Notes to Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the condensed consolidated financial statements, covering accounting policies and specific line items Note 1: Basis of Presentation This note clarifies that the unaudited interim financial statements adhere to SEC rules and GAAP, emphasizing the use of estimates and reclassifications - Interim financial statements are unaudited and may not be indicative of full-year results, relying on management estimates for various financial items[23][24][25] - The Company adopted ASU 2020-04 "Reference Rate Reform" on March 31, 2023, which did not have a material effect on the financial statements[26] - Certain prior period amounts were reclassified to conform to current presentation, including the reclassification of Palmer business and Munhall operations within the Tubular Products segment to discontinued operations[25] Note 2: Discontinued Operations This note details the decision to cease Munhall operations, including asset impairment charges and the reclassification of its financial results - Ascent Industries Co. decided to permanently cease operations at its Munhall galvanized pipe and tube facility by August 31, 2023, to consolidate manufacturing and improve profitability[27][28] - In Q2 2023, the company incurred $6.4 million in asset impairment charges (inventory and long-lived assets) and $1.4 million in increased accounts receivable reserves related to Munhall[29] Financial Results of Discontinued Operations (Munhall) (in thousands) | Metric | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :----------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Net Sales | $7,629 | $31,602 | $22,663 | $64,112 | | Gross Profit | $(4,716) | $689 | $(7,565) | $1,727 | | Operating Income (Loss) | $(13,840) | $286 | $(18,009) | $630 | | Net Income (Loss) from Discontinued Operations | $(10,888) | $235 | $(14,138) | $488 | Note 3: Revenue Recognition This note explains the company's revenue recognition policies, primarily upon shipment, and disaggregates net sales by product group and timing - Revenue is recognized when control of goods or services transfers to customers, primarily upon shipment, for steel and specialty chemical products[31] Net Sales by Product Group (Continuing Operations, in thousands) | Product Group | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :--------------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Heavy wall seamless carbon steel pipe and tube | $10,299 | $12,094 | $22,686 | $24,498 | | Stainless steel pipe and tube | $29,003 | $43,486 | $60,236 | $86,957 | | Specialty chemicals | $21,363 | $29,020 | $45,112 | $56,741 | | Total Net Sales | $60,665 | $84,600 | $128,084 | $168,309 | Revenue Recognition by Timing (Continuing Operations, in thousands) | Timing | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :----------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Point-in-time | $57,387 | $77,127 | $120,302 | $153,620 | | Over-time | $3,278 | $7,473 | $7,782 | $14,689 | Note 4: Fair Value of Financial Instruments This note defines the fair value hierarchy and discusses non-recurring measurements of long-lived assets, particularly those classified as held for sale - Fair value measurements are categorized into a three-tier hierarchy: Level 1 (quoted prices in active markets), Level 2 (observable inputs other than Level 1), and Level 3 (unobservable inputs)[33][34] - During Q2 2023, Munhall inventory was written down to $16.0 million and certain long-lived assets (including intangibles) to $2.6 million, resulting in $6.4 million in asset impairment charges due to the decision to cease operations[38] Munhall Assets Classified as Held for Sale (in thousands) | Asset Type | June 30, 2023 | December 31, 2022 | | :-------------------------- | :------------ | :---------------- | | Inventory, net | $13,494 | $0 | | Property, plant and equipment, net | $869 | $0 | | Other assets, net | $3,035 | $0 | | Total Assets held for sale | $17,398 | $0 | - All remaining assets classified as held for sale at the Palmer facility were disposed of by June 30, 2023[41] Note 5: Inventories This note details the valuation of inventories at the lower of cost or net realizable value, providing a breakdown of components and changes - Inventories are stated at the lower of cost or net realizable value, using specific identification or weighted average methods[44] Inventory Components (in thousands) | Component | June 30, 2023 | December 31, 2022 | | :------------------ | :------------ | :---------------- | | Raw materials | $47,133 | $49,655 | | Work-in-process | $10,005 | $10,931 | | Finished goods | $21,524 | $28,157 | | Less: inventory reserves | $(4,362) | $(3,171) | | Total Inventories | $74,300 | $85,572 | Note 6: Property, Plant and Equipment This note outlines the composition of property, plant, and equipment from continuing operations and details the depreciation expense incurred Property, Plant and Equipment, Net (in thousands) | Component | June 30, 2023 | December 31, 2022 | | :-------------------------- | :------------ | :---------------- | | Land | $723 | $723 | | Leasehold improvements | $3,651 | $4,114 | | Buildings | $1,534 | $1,534 | | Machinery, fixtures and equipment | $100,670 | $99,786 | | Construction-in-progress | $2,190 | $1,881 | | Less: accumulated depreciation and amortization | $(74,404) | $(70,993) | | Property, plant and equipment, net | $34,364 | $37,045 | Total Depreciation Expense (in thousands) | Period | 2023 | 2022 | | :-------------------------- | :----- | :----- | | Three Months Ended June 30 | $1,632 | $1,621 | | Six Months Ended June 30 | $3,243 | $3,201 | Note 7: Goodwill, Intangible Assets and Deferred Charges This note details the company's goodwill, definite-lived intangible assets, and deferred charges, including their carrying amounts and amortization schedules - Goodwill balance remained at $11.4 million as of June 30, 2023, attributable to the Specialty Chemicals segment[47] Definite-Lived Intangible Assets, Net (in thousands) | Asset Type | Gross Carrying Amount (June 30, 2023) | Accumulated Amortization (June 30, 2023) | Net (June 30, 2023) | | :-------------------------- | :------------------------------------ | :--------------------------------------- | :------------------ | | Customer related | $26,061 | $(17,390) | $8,671 | | Trademarks and trade names | $150 | $(17) | $133 | | Other | $500 | $(56) | $444 | | Total definite-lived intangible assets | $26,711 | $(17,463) | $9,248 | Estimated Amortization Expense for Intangible Assets (in thousands) | Year | Amount | | :--- | :----- | | Remainder of 2023 | $752 | | 2024 | $1,487 | | 2025 | $1,324 | | 2026 | $1,102 | | 2027 | $930 | | Thereafter | $2,867 | Deferred Charges, Net (in thousands) | Component | June 30, 2023 | December 31, 2022 | | :-------------------------- | :------------ | :---------------- | | Deferred charges, gross | $398 | $398 | | Accumulated amortization | $(245) | $(195) | | Deferred charges, net | $153 | $203 | Note 8: Debt This note describes the company's debt obligations, including a note payable and a revolving credit facility, and confirms compliance with covenants - A $0.9 million note payable with a 3.70% interest rate matures on April 1, 2024[51] - The Company has a four-year revolving credit facility with BMO Harris Bank, N.A., with up to $150.0 million borrowing capacity, maturing January 15, 2025[52] Long-Term Debt (in thousands) | Component | June 30, 2023 | December 31, 2022 | | :-------------------------- | :------------ | :---------------- | | Revolving line of credit | $50,770 | $67,442 | | Term loan | $3,750 | $4,107 | | Total long-term debt | $54,520 | $71,549 | | Less: Current portion | $(2,464) | $(2,464) | | Long-term debt, less current portion | $52,056 | $69,085 | - As of June 30, 2023, the weighted average interest rate was 6.90%, and the Company had $45.4 million of remaining available capacity under its credit facility, being in compliance with all financial debt covenants[55] Note 9: Leases This note details the company's operating and finance lease liabilities, primarily for real estate and equipment, including future payments and discount rates - Operating lease liabilities related to the master lease agreement with Store Capital totaled $31.1 million as of June 30, 2023, representing 94% of total lease liabilities[56] Total Lease Cost (in thousands) | Lease Cost Component | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :-------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Operating lease cost | $997 | $1,043 | $1,996 | $2,091 | | Finance lease cost (Amortization) | $86 | $69 | $164 | $136 | | Finance lease cost (Interest) | $24 | $9 | $38 | $18 | | Sublease income | $(91) | $(32) | $(182) | $(65) | | Total lease cost | $1,016 | $1,089 | $2,016 | $2,180 | Present Value of Lease Liabilities (in thousands) | Lease Type | Present Value (June 30, 2023) | | :-------------------------- | :---------------------------- | | Operating leases | $31,431 | | Finance leases | $1,596 | Weighted-Average Lease Terms and Discount Rates | Metric | June 30, 2023 | December 31, 2022 | | :-------------------------- | :------------ | :---------------- | | Operating leases (term) | 13.14 years | 13.61 years | | Finance leases (term) | 5.50 years | 6.06 years | | Operating leases (discount rate) | 8.32 % | 8.31 % | | Finance leases (discount rate) | 5.87 % | 2.32 % | Note 10: Shareholders' Equity This note outlines the company's share repurchase program, detailing shares repurchased and remaining authorization as of the reporting date - The Company's share repurchase program, re-authorized in December 2022, allows for the repurchase of up to 790,383 shares until February 17, 2025[64] Share Repurchase Activity (6 Months Ended June 30, 2023) | Metric | 6 Months Ended June 30, 2023 | | :-------------------------- | :--------------------------- | | Number of shares repurchased | 51,156 | | Average price per share | $9.83 | | Total cost of shares repurchased | $504,151 | - As of June 30, 2023, 628,823 shares remained under the share repurchase authorization[64] Note 11: Earnings Per Share This note provides the computation of basic and diluted earnings per share for both continuing and discontinued operations Earnings (Loss) Per Share (in thousands, except per share data) | Metric | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :----------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Basic EPS (Continuing Operations) | $(0.37) | $1.06 | $(0.56) | $2.04 | | Diluted EPS (Continuing Operations) | $(0.37) | $1.04 | $(0.56) | $2.01 | | Basic EPS (Discontinued Operations) | $(1.07) | $0.02 | $(1.39) | $0.05 | | Diluted EPS (Discontinued Operations) | $(1.07) | $0.02 | $(1.39) | $0.05 | | Basic EPS (Total) | $(1.44) | $1.08 | $(1.95) | $2.08 | | Diluted EPS (Total) | $(1.44) | $1.06 | $(1.95) | $2.05 | - Potentially dilutive shares were excluded from diluted EPS calculations when their inclusion would have an anti-dilutive effect, totaling 0.1 million shares for the three and six months ended June 30, 2023[67] Note 12: Income Taxes This note details the company's effective income tax rate for continuing operations, explaining variances from the U.S. statutory rate Income Tax Provision (Benefit) and Effective Tax Rate (Continuing Operations, in thousands) | Metric | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :-------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Income tax provision (benefit) | $(897) | $699 | $(1,385) | $3,197 | | Effective income tax rate | 19.8 % | 6.4 % | 19.6 % | 13.5 % | - The effective tax rate for H1 2023 (19.6%) was lower than the U.S. statutory rate (21.0%) due to discrete tax charges from stock-based compensation[68] - The effective tax rate for H1 2022 (13.5%) was lower than the U.S. statutory rate (21.0%) due to the release of federal valuation allowances[69] Note 13: Commitments and Contingencies This note discusses the company's involvement in a lawsuit with Henkel US Operations Corporation and other legal proceedings - DanChem (acquired by Ascent in 2021) is facing a lawsuit from Henkel US Operations Corporation, a former customer, alleging defective products and seeking approximately $3 million in damages[70] - The Company estimates a reasonably possible range of loss for the Henkel lawsuit between $0 and $0.6 million[70] - The Company is involved in various other legal proceedings in the normal course of business but does not believe their outcome would have a material adverse effect on its financial condition[71] Note 14: Industry Segments This note provides financial information for the company's two reportable segments: Tubular Products and Specialty Chemicals, detailing net sales and operating income - Ascent Industries Co. has two reportable segments: Tubular Products (stainless steel and seamless carbon pipe and tube) and Specialty Chemicals (specialty chemical production)[73][75] Net Sales by Segment (Continuing Operations, in thousands) | Segment | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :------------------ | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Tubular Products | $39,302 | $55,580 | $82,922 | $111,454 | | Specialty Chemicals | $21,363 | $29,020 | $45,112 | $56,741 | | All Other | $0 | $0 | $50 | $114 | | Total Net Sales | $60,665 | $84,600 | $128,084 | $168,309 | Operating Income (Loss) by Segment (Continuing Operations, in thousands) | Segment | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :------------------ | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Tubular Products | $(105) | $12,992 | $1,560 | $27,120 | | Specialty Chemicals | $(806) | $2,627 | $546 | $5,014 | | All Other | $(74) | $(235) | $(552) | $(317) | | Corporate (Unallocated) | $(2,767) | $(3,479) | $(6,729) | $(7,039) | | Total Operating Income (Loss) | $(3,752) | $11,905 | $(5,175) | $24,778 | - Identifiable assets for Tubular Products decreased from $112.9 million at Dec 31, 2022, to $99.4 million at June 30, 2023, and for Specialty Chemicals from $73.0 million to $67.3 million[77] Note 15: Subsequent Events This note confirms that no subsequent events requiring adjustment or disclosure were identified up to the financial statement issuance date - No subsequent events requiring adjustment or disclosure were identified by the Company up to the financial statement issuance date[78] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial performance, liquidity, and capital resources, including strategic decisions and macroeconomic challenges Executive Overview This section summarizes the strategic decision to cease Munhall operations, highlights market challenges, and details effective working capital management and debt reduction - The Board decided to permanently cease operations at Munhall by August 31, 2023, to consolidate manufacturing and improve profitability[81] - The Company faced difficult end market conditions, including inflationary pressures, increased raw material costs, and reduced customer demand due to inventory management[82] - Despite challenges, the Company managed working capital effectively, generated cash, and reduced debt by $17.0 million in H1 2023, also repurchasing 18,843 shares for $0.2 million[82] - Macroeconomic uncertainties, such as global supply chain constraints, labor shortages, and inflation, continue to impact raw material costs, with the Company implementing price increases and efficiency measures[83] Results of Operations and Non-GAAP Financial Measures This section analyzes consolidated and segment-specific financial performance, including net sales, gross profit, operating income, and non-GAAP measures like EBITDA Consolidated Performance Summary (in thousands) | Metric | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | Change (%) | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | Change (%) | | :----------------------------------- | :--------------------------- | :--------------------------- | :--------- | :--------------------------- | :--------------------------- | :--------- | | Net Sales | $60,665 | $84,600 | (28.3)% | $128,084 | $168,309 | (23.9)% | | Gross Profit | $3,225 | $20,184 | (84.0)% | $10,367 | $41,643 | (75.1)% | | Operating Income (Loss) from Continuing Operations | $(3,752) | $11,905 | (131.5)% | $(5,175) | $24,778 | (120.9)% | - The decrease in net sales was driven by a 22.9% decrease in pounds shipped and a 5.0% decrease in average selling prices for Q2 2023, and a 20.7% decrease in pounds shipped and a 2.5% decrease in average selling prices for H1 2023[84] - Gross profit decline was primarily attributable to continued increasing raw material costs in 2023[85] Tubular Products Segment Performance (in thousands) | Metric | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | Change (%) | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | Change (%) | | :----------------------------------- | :--------------------------- | :--------------------------- | :--------- | :--------------------------- | :--------------------------- | :--------- | | Net Sales | $39,302 | $55,580 | (29.3)% | $82,922 | $111,454 | (25.6)% | | Operating Income (Loss) | $(105) | $12,992 | (100.8)% | $1,560 | $27,120 | (94.2)% | | Adjusted EBITDA | $816 | $14,240 | (94.3)% | $3,450 | $29,653 | (88.4)% | - Tubular Products net sales decrease was driven by a 26.1% decrease in pounds shipped and a 3.4% decrease in average selling prices for Q2 2023[88] Specialty Chemicals Segment Performance (in thousands) | Metric | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | Change (%) | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | Change (%) | | :----------------------------------- | :--------------------------- | :--------------------------- | :--------- | :--------------------------- | :--------------------------- | :--------- | | Net Sales | $21,400 | $29,020 | (26.3)% | $45,100 | $56,741 | (20.5)% | | Operating Income (Loss) | $(806) | $2,627 | (130.7)% | $546 | $5,014 | (89.1)% | | Adjusted EBITDA | $313 | $3,648 | (91.4)% | $2,811 | $7,023 | (60.0)% | - Specialty Chemicals net sales decrease was driven by a 20.2% decrease in pounds shipped and a 3.2% decrease in average selling prices for Q2 2023[90] - Interest expense increased to $1.0 million in Q2 2023 (from $0.4 million in Q2 2022) and to $2.1 million in H1 2023 (from $0.8 million in H1 2022) due to higher interest rates[94] - EBITDA and Adjusted EBITDA are non-GAAP measures used by management to evaluate operating performance, excluding non-cash and other items not indicative of ongoing performance[95][96] Consolidated Adjusted EBITDA (Continuing Operations, in thousands) | Metric | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :-------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | EBITDA | $(1,590) | $14,221 | $(932) | $29,380 | | Adjusted EBITDA | $(1,471) | $14,751 | $(166) | $30,680 | | Adjusted EBITDA % of sales | (2.4)% | 17.4% | (0.1)% | 18.2% | Liquidity and Capital Resources This section discusses the company's liquidity management through operating activities, cash, and credit facilities, detailing cash flow changes and debt levels - As of June 30, 2023, the Company had $0.7 million in cash and cash equivalents and $45.4 million of remaining available capacity on its revolving line of credit[99] Cash Flows from Continuing Operations (in thousands) | Activity | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :----------------------------------- | :--------------------------- | :--------------------------- | | Operating activities | $7,515 | $689 | | Investing activities | $(1,483) | $(1,976) | | Financing activities | $(17,171) | $(1,657) | | Net decrease in cash and cash equivalents | $(11,139) | $(2,944) | - The increase in cash from operating activities was primarily driven by changes in working capital, including a $10.3 million increase from inventories and a $2.0 million increase from accounts receivable in H1 2023[100][101] - Cash used in financing activities increased due to decreased borrowings and increased repayments under the Company's credit facility[103] - Total borrowings outstanding under the credit facility decreased by $17.0 million from December 31, 2022, to $54.5 million at June 30, 2023[105] Material Cash Requirements from Contractual and Other Obligations This section outlines the company's debt and lease obligations, projected capital spending, and confirms the absence of off-balance sheet arrangements - Debt obligations total $54.5 million, with $2.5 million payable within 12 months, including a $0.9 million note payable maturing April 2024[109] - Operating and finance lease obligations total $33.0 million, with $1.4 million payable within 12 months[110] - Capital spending is expected to be up to $3.8 million for the remainder of fiscal 2023[110] - The Company has no off-balance sheet arrangements likely to have a material effect on its financial position[110] Critical Accounting Policies and Estimates This section reviews critical accounting policies and estimates, specifically detailing the policy for assets classified as held for sale - No significant changes to critical accounting policies or estimates since fiscal 2022, except for the detailed policy on 'Assets Held for Sale'[111] - Assets are classified as held for sale when a plan to sell is approved, the asset is available for immediate sale, an active buyer search is initiated, sale is probable within one year, and the asset is actively marketed at a reasonable price[111] - Assets held for sale are measured at the lower of carrying value or fair value less costs to sell, and depreciation/amortization ceases upon designation[112] Item 3. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, Ascent Industries Co. is exempt from providing detailed quantitative and qualitative disclosures about market risk - As a smaller reporting company, Ascent Industries Co. is exempt from providing quantitative and qualitative disclosures about market risk[113] Item 4. Controls and Procedures The company's disclosure controls and procedures were ineffective due to material weaknesses in internal control over financial reporting, with ongoing remediation efforts - The Company's disclosure controls and procedures were not effective as of June 30, 2023, due to previously reported material weaknesses in internal control over financial reporting[115] - Material weaknesses exist in the control environment and control activities areas, indicating a reasonable possibility of material misstatement not being prevented or detected timely[116] - Remediation efforts include hiring accounting, finance, and IT resources, expanding internal control training, realigning management roles, developing enhanced documentation policies, and improving controls over inventory, revenue, accounts receivable, period-end reporting, and general IT[117][118] - Material weaknesses will not be considered fully remediated until all remedial processes are implemented, controls operate effectively for a sufficient period, and management concludes effectiveness through testing[119] - No changes in internal control over financial reporting occurred during the three and six months ended June 30, 2023, other than ongoing remediation efforts[120] PART II. OTHER INFORMATION This section provides additional information not covered in the financial statements, including legal proceedings, risk factors, and equity security sales Item 1. Legal Proceedings The company is involved in various legal actions and claims in the ordinary course of business, with specific details incorporated by reference from Note 13 - The Company is involved in various unresolved legal actions, administrative proceedings, and claims in the ordinary course of business, including product liability, commercial, employment, workers' compensation, and environmental matters[121] - Reserves are recorded when a liability is probable and the amount of loss can be reasonably estimated[121] - Information pertaining to legal proceedings is incorporated by reference from Note 13 to the condensed consolidated financial statements[121] Item 1A. Risk Factors No material changes in risk factors were identified compared to those discussed in the company's Annual Report on Form 10-K for the prior year - No material changes in risk factors were identified compared to the Annual Report on Form 10-K for December 31, 2022[122] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details the company's common stock repurchases under its re-authorized program, including shares purchased and remaining authorization Issuer Purchases of Equity Securities (3 Months Ended June 30, 2023) | Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Programs | Number of Shares that May Yet Be Purchased under the Program | | :-------------------------- | :------------------------------- | :--------------------------- | :------------------------------------------------------------ | :----------------------------------------------------------- | | April 1, 2023 - April 30, 2023 | — | $— | — | 647,666 | | May 1, 2023 - May 31, 2023 | 6,490 | $9.46 | 6,490 | 641,176 | | June 1, 2023 - June 30, 2023 | 12,353 | $9.28 | 12,353 | 628,823 | | As of June 30, 2023 | 18,843 | $9.34 | 18,843 | 628,823 | - The share repurchase program, re-authorized in December 2022, allows for the repurchase of up to 790,383 shares and expires in February 2025[123] Item 3. Defaults Upon Senior Securities The company reported no defaults upon senior securities for the period - No defaults upon senior securities were reported[124] Item 4. Mine Safety Disclosures The company reported no mine safety disclosures for the period - No mine safety disclosures were reported[124] Item 5. Other Information The company reported no other information for the period - No other information was reported[125] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including Rule 13a-14(a)/15d-14(a) Certifications of the CEO and CFO, Certifications Pursuant to 18 U.S.C. Section 1350, and various XBRL-related documents - Exhibits include CEO and CFO certifications (Rule 13a-14(a)/15d-14(a) and 18 U.S.C. Section 1350) and XBRL instance, schema, calculation, label, presentation, and definition linkbase documents[124] - XBRL-related information is furnished, not filed, in accordance with Regulation S-T[124] Signatures This section provides the official signatures of the company's President and CEO and Chief Financial Officer, confirming the report's submission - The report was signed by Christopher G. Hutter, President and Chief Executive Officer, and William S. Steckel, Chief Financial Officer, on August 8, 2023[126]