ASIX - Earnings call transcript Q1 2018

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Operator

Good morning. And welcome to the AdvanSix First Quarter 2018 Earnings Conference Call. All participants will be in listen-only mode [Operator Instructions]. After today’s presentation, there will be an opportunity to ask questions [Operator Instructions]. Please note this event is being recorded. to Investor conference Relations. like Kressel, to now of Director would turn over the Adam I Please ahead. go

Adam Kressel

forward-looking that Thank this you, here our available Debby. Vice and first Note and today. quarter based view webcast, the the press Good forward-looking investors.advansix.com. Erin Web presentation. the can We are President that materially morning. presentation And earnings our on CEO, elements of in statements non-GAAP Preston. that call. ask consider release site included as and statements and earnings welcome and conference we including CFO, differ you at world best way. With business This and any on refer me our them Kane today contain Michael from you President we XXXX are and of Senior and that to our call those actual AdvanSix’s change Those to are of results could see reconciliations, projected, it elements in

addition, annual you quarter our and end in for including product our first identify results filings, that share XX-K. and SEC markets. our affect for our our performance financial In principle on morning, uncertainties we’ll the the This our review and Form outlook XXXX with report risks key we lines

time questions we’ll at your for Finally, leave the end.

CEO, President So call with the that, Erin Kane. and turn to AdvanSix’s over I’ll

Erin Kane

interest your kick-off good Thanks, AdvanSix. to continued for and morning was Adam in and a for everyone. you first us It Thank XXXX. quarter dynamic joining

the in pricing detail flow. higher our Hopewell will disclosed the cash release, benefits As capture you at moment. related navigated weather Mike full in production AdvanSix through especially facility, market free issue results and improve of previously a press our deliver saw Virginia the

EBITDA from unplanned pricing would like and by than interruptions. unfavorable the impacts offset $XX included more declines higher $XXX following. I with the weather related were $XX events, of to roughly was million, million to volume So million which Sales the highlight

the thank work operations These once on We the outcome, also of an navigated possible tremendous free cost to of would continue as expressly year. prior to to safely of of and in our as best we customers our again generated offer operations. weather the organization diligently resulted our million quarter, demonstrate to proposition partnership employees in an who resiliency return roughly during through value the to cash event over flow that the standards I results our advantage. unprecedented $XX million global our and suppliers collaboration the as like quarter, over and increase $XX disruption well the

Although, first these significant underlying consideration our the the financial strong events business a performance represented and remained in outlook intact. quarter,

particularly demand we businesses. market continue to intermediate our pricing, for supply product supported our favorable in environment quarter see based chemical has improved This overall. This and nylon lines and

the side the of quarter. the On we’ve through fertilizer industry seen business, firm pricing seasonally

in in However, wet We’ll weather outlook But general, of has to as regions similar driven we across later in North timing we to and demand share the start the year. fertilizer planning in the a the a a growing season, applications. detailed environment anticipate progress impacting cold more continue through key supply moment. America

and presented This spring prior a made improvement schedule program increased full consideration, importance plant our investments production year, are our intact. plant approach headwind the are versus begun integrity previously would critical Taking site and our We’ve just and year in steady the of to X% we’ve into We’ve we’ve stable off. discipline seen excellence discussing several been of we paying continuation costs related for so safe plant and planned production turnaround, have remains output. quarters excellence maintenance to operational the and the weather performance. Our and and mechanical the our output now.

we reminder, manufacturing to to sites $XX a in total. pretax of to all the continue our million $XX income million expect across impact As

consistent XXXX line in we with historical occurred levels. We’re what with in and

on about key focused application oriented value our operational think upon remain we excellence core the development. As evolution of higher our growth standalone organization, investments, company targeting a with products building on as and we

also shareholders. capital strategy. we’re cost, structure that our continuing at We February all further to and facility for we announced that We’re drive our in optionality to amended flexibility lower our mature capital financial borrowing credit structure an value enable to our and deployment revolver maintaining

second to high the We’re growth this $XX million CapEx benefit toward year of starting will deploying and drive return million of saving XXXX. pipeline that an incremental our half cost in $XX project

these healthy long-term. extend incremental the Further, this investments a have the as release position will we the pipeline projects, that $XX company program. and has in our saw value Board you million authorized Directors over beyond Importantly, which drive above share of and morning, repurchase to

in authorization first continued confidence cash Our reflects repurchase our share generation. flow

of tax plant beyond. reform our we’re With of significant for planned us the position in remainder with All and expect this the turning XXXX coupled further passage of benefits the rates, excited recent about well. prospects we at the

and dynamic continue give a provide sound to the environment, to confidence foundation for market long-term. cost us improvement flexibility advantage the and and Our vertical integration over operational and position perform financial through

Mike to with So turn quarter. I’ll discuss that, the it the to of over details

Michael Preston

million, results. everyone. where by event January driven at due quarter year. last financial I X% unfavorable market-based material from good I’ll costs. Sales Thanks, down lines. the supply in X% favorable that record and conditions down demand pass-through on low temperatures am related overall to X was nylon morning, now cover X%, in of the impact saw chemical We compared in Slide higher impact and $XXX favorable that’s our included Volume weather our Virginia. from in came first to was Pricing X% Erin, X% raw product at the sites and benefit from and favorable industry intermediates pricing and X% by

decreased key pricing. oil the versus to driven feedstock the prior material of pricing, modestly million EBITDA year-over-year. partially and the inputs market-based and $XX weather event, came pass-through both our primarily a million And derivatives raw year, for by offset reminder, in. favorable As benzene increased by propylene of $XX impact as our

of reduced previously million. the pretax and material to one communicated, interruptions impact first XXXX additional decreased Due on a credit in income was our addition of year-over-year the associated quarter of by February. unplanned basis. facility, event, Act. write the XX.X%, tax had weather approximately versus and Jobs The of maintenance amended in benefits costs, in off repair Tax in That absorption, quarter Cuts and reflecting primarily which fees prior we was sales. expenses, driven loss Interest rate with also As effective expense cost to $X.X million the increased net EPS includes year, raw $XX the financing fixed time by the announced impact income the the

benefits with in stock In roughly associated units addition, in quarter divesting restricted drove the X point of tax tax rate. the benefit

benefits RCUs in see for quarters the associated to modest with remaining expect more divesting XXXX. of We

income the continued the Finally, changes flow increase about The deferred that’s lower cash $XX period. partially expenditures, in year-over-year the working lower trend of million of to from free up year by to in cash due prior offset generated flow the We capital favorable taxes. improve. a in net reduction generation and in was and capital primarily million impact approximately quarter, free $XX

back turn lines. Now, to the product discuss call to let our seeing we’re what Erin in of over me each

Erin Kane

caprolactam to films line, benzene depicts sales the includes which Slide contracts in resin the Like and now I’m provides XX% and the our We’ve spread again, to age Korea. rest on with percentage the the page also on and the import represented Europe, China benzene caprolactam demand. and Taiwan Asia of product our weighted caprolactam of caprolactam regions; the the and of right four the first and across composite of a prior discuss Asia, which spread nylon U.S., region’s Mike. each product side and resin based quarter. caprolactam X global presentations, average on price, in caprolactam to Thanks over shown view our reflecting chart a encompasses of South index spread global

across there see planned we’ve outages were supply balanced America the see, and at constraints In of our in unplanned feedstock we and imposed been resulted including Availability industry key a several got tighter environmental to and continued Europe. place, supply and downtime. generally of can you in to which as challenge XXXX, tighter discussed, utilization, As start plant previously also further And conditions have cost globally own, overall. materials North increased remain lower China, this government quarter.

on have balanced So spreads demand despite the we firm supply. nylon market seen continue being structurally Asia, long, held have up and overall turn. pricing caprolactam In to global industry and

benzene sharp you may see swings impacted year the the side. in prior However, hand period year-over-year have on comparatives right spread the

manner the are the with continue In are number particular, we supporting projects have producer various we favorable costs, once to applications we the we across lower see. expected Industry demand affected expect by utilization track global market of supply continue in turnaround some are continue to to near associate against remains schedules region, that current we the timing is and we additions will industry conditions forward nylon globally. China the the spreads. to XX% see potential to continue. marginal As growth of end serve. and to to spreads industry in fluctuated will quarter, a some continue of plant again balanced in industry uncertain There capital look and these turnarounds And quarter. Overall, continue expected nylon it to remain be to levels, the roughly capacity snug, total second while we in steady

slide six. Let’s turn to

sulfur party increase ammonium our quarter. of It’s seasonal of basis, the a pricing Based product right sequentially crops. sulfate And on our as represented whereas saw important part Moving Corn industry plots ammonium pricing we increasing nitrogen sulfate, to urea ammonium sulfate from Belt XX%. retail the reminder, to nearly XXXX. in and which of side X% ammonium industry in fourth ammonium normalize the a The key urea graph their sulfate XX% sulfate sales propositions basis. to data, increase year-over-year as while firming of nitrogen, on We third dispositions nutrition nutrient added on the in XX% on saw granular the prices prices X% a contains early always contains in hand XXXX. quarter value total with yields of

the single-digit on improvement sequential both As industry saw in urea, mid quarter year-over-year a prices basis. with first Corn and Belt

an nutrient nitrogen underlying As other in a intends have influence all to consumption nitrogen by a products. is largest reminder, urea total fertilizer

a pricing. firmer discussed in continuing these of out additions exports policy the has importantly China which As works elsewhere, we’ve change we’ve The exports. utilization, the urea the and most impacting balance has supported impacted U.S. urea supply considerations global nylon the in in result same reduction especially to seen reductions environmental Chinese

These regions. seen America the the to key start due cold we’ve late fertilize in delays is a wet timing impacted North phenomenon XXXX part have to the application. of of season payout weather Another and the early planting in

we positioned move to we’re However, demand, the we’ll execute well planting on as the through the quarter and we balance spring believe season. agile of remain and second

the and we’re we’ll to fall few. supply nutrition. ammonium sustaining fundamentals trade key indicators and including focused Lastly, remains The season, proposition environment ag dynamic crop ahead and sulfate flows, market on launching demand of to a on value our sulfur name global continue stay prices,

to for Let's on Slide an X turn update chemical intermediates.

about which of Our co-products revenue in the from sell. of represented we total XX% chemical diversification sales provides quarter, the intermediates variety our business,

in own will the the and past, represents for dynamics influenced production move in uses phenol of strong Prices and strengthen based roughly of page co-product acetone on and in demand construction, moves half its quarter, prices that acetone. our of data. driving continue the side global In particularly portfolio, which done additional underlying seen the we’ve as propylene third-party for with globally, we’ve grade the also we’ve to refinery end demand on prices. such be rates building in acetone, chemical right-hand As propylene resulting operating supply can intermediate by shown

in phenol end rationalization see U.S. first the still at acetone acetone we pricing. regional imports impacting the are of did quarter, While levels industry we of seeing increased supply

we utilize expect in a chain, to Looking demand each continue robust. we’re With our forward, integration, to flows, we of seeing our favorable. operation end and overall supply expect shift global relatively broader rebound with to and fully trade markets remain market demand acetone remain for where phenol unit vertical

variety a paints a As applications. including and inputs end construction coatings in intermediate materials, our products other used products, consumer industrial for reminder, are as key and and of

the to turn over flow. Mike to cash call Let discuss now me back

Michael Preston

on I’m Slide Thanks now Erin. X.

our have have investments performance that maintained we’ve relatively see, expected earnings, cash chart efficient levers on improving to value we’ve you side the month operations As and to our while improving do performance, and on left quarter a such the flow shows working generation page, And hand steady. the remained the in several basis, cash Improved trailing an shown generation, capital higher from trend as with XX drive through capital can expenditures of and cash product it is previously continue, of XXXX. free also flow mix. first as we also capital

As improve, our deployment strategies our cash capital flow continue continues mature. to generation to

into healthy In developed We savings high opportunities. pipeline investment have growth organically a and of business form of in we’ve prioritized cost has total, CapEx, a and investment return pipeline of the projects XX flexibility the over to focused range. and benefits. buffers potential amongst This asset million with consists of plant on $XXX $XXX improving spend pipeline in other million cost projects savings,

value but of incremental to the we’re there be larger our Not pipeline have evaluating for will significant to plenty engineering these fruition potential had. projects in of are that opportunities more also We generating all where company. is come

mix to As projects we’re in and we’ll $XX XXXX, we so appropriations of we’ve The overall. north are these plan an cost placed high optimize we’ll million, areas capital and $XX approving million as return assets previously, see debottleneck service. CapEx and our in to quality improve incremental position towards additional year our outflows invest discussed XXXX $XX into operations, cash specific million two this of have

As to projects these Erin see mentioned in year. the returns earlier, next half second we’ll of on begin specific

to shared, authorized as to That’s this we to our repurchase company common announce Erin capital Directors step execute as deliver million very addition, XX In shareholders of our excited disciplined stock. Board to approach. value a deployment morning another are we its to up of just that the has

X outlook for to of a Now for XXXX. let’s quick Slide turn recap our

weather we outlook continue to overall. you discussed we we we industry quarter. perspective, the Our impact the the remains shared last a from in generally issue intact through conditions what production the with as from anticipate commercial quarter. progress Operationally, From related first year

income our XXXX, our million impact in of $XX total. relates turnaround manufacturing sites continue to scheduled across it to plant to expect for pre-tax As to million we $XX all

Given the modest pull with forward first that were able fortunate the the the remainder amount circumstances into of we to of the work downtime, unplanned were we of that quarter turnaround a the for year second the thirds third incurred Roughly of the impact two full be the is about of in intact quarter. the in remainder quarter year. schedule XX% to with expected

in million to $XX translates impact the million plant XQ $X first following in to this approximately million from turnaround Now $X impact quarter.

to of forward we As robust we XXXX, look performance. expect the operational rest

of tax to be us focus continues performance for strong And key just flow. cash generation continuing a working discussed, in and impact XXXX. net cash and I Lastly, area to as with ongoing reform income favorable have the capital expectation on

expect of approximately to the full XX% of tax to and the approximately year tax with rate tax continue be following effective expensing cash We full XX%, estimated be CapEx rate to reform. adoption our

of We’re repurchase earnings program. the of authorization also savings pipeline future growth with expanding new our return cost our executing on capital drive our will and projects and high flow, while further that cash deployment CapEx share

and lot we through a of the in beyond. the forward excited about quarter year move overall to the as be and rest So

me turn the to Erin before we let Q&A. move to Now back call

Erin Kane

Great.

to wanted Before the our occurred moving Hopewell take at Facility to just to back address in events the Q&A, mid-March. I opportunity that

you aware, executed are our search warrant March As a on XXth, at Hopewell federal plant. was

to the a by under which day, issued disclosed Hopewell air served emissions, On XXXX Eastern the documents it’s the US previously decree. with District requested of environmental the Company the the same grand Virginia, of Court and jury consent subpoena was facility’s District compliant related

updates have providing further response actions, reason We and determine to still are information reiterate by of our plant, to to expect this would with time. to working at fully and across that production to I these subpoena. to any at our events, continue we in the like do sites continue was plant the are not nature But we cooperate affected we going provide these safely not forward. and While authorities, operate exact

Q&A. to Adam, with move let’s that, So

Adam Kressel

you please can Thanks the Q&A? Erin. for right. line All Debby, open

Operator

We the session Instructions]. will [Operator now begin question-and-answer

Chris Please with question comes from ahead. first CJS. The go Moore

Chris Moore

you Maybe further actually just program? any with share those buyback the comments Hopewell. you you the respect issues need before Do respect begin made on clarity to repurchase, on implementing with just share can just the to

Erin Kane

that commitment use XXbX-X trading to of cash So repurchase the reiterate continue to authorization deliver through believe and including generation, and start value shareholders. at I’d our made and the truly share the confidence that I -- to authorization we flow repurchases to share plan. reflects specific What our just the that maybe will the is our markets, be do would on share other a time-to-time continued

factors, these and on factors. of timing market Of price, number and of course, legal and the the conditions, repurchases including other will size a depend economic considerations

we’re forward, So good to a have and are available think company. look in this we position to lever I and the pleased

Chris Moore

into that balance, So the it second remain half? current nylon QX. are like half second negatively could in What the positively, demand spreads North of the both you come looks attractive as the cards supply and American the wild change

Erin Kane

the to demand at we market, the expect customers still talk the of growing year and least as us Packaging for construction that has look for continue as we to start carpet future well, robust see considerations robust our been continue the we is well, plastics. through builder with we and North American doing engineering continue through When foreseeable there. side, at the is will

happening things some through are there think I So automotive.

trend. do we Although, to continue be that lightweighting believe a positive

did supply have And that market North the the QX into snugness balance. both other saw I Fibrant when side, as in participants consideration has at and that is you of brought challenges. out taken with has capacity of XX% we there exit that of we certainly, the the think look it the America,

of our soundly a to again, doing have expect plants years So number wild support output. continues that we transparently. ability to over been the and that our continued work potentially we But I and be run stably think safely card a at higher that could

we’ll And focused so that’s on. what be

Chris Moore

of favorable Do raw The or that what material you pass-through. that pricing was from see impact X% are up X% and likely front? you seeing continuing was that on

Michael Preston

the of of Chris, materials. contracts It's but demonstrated nice of a in XX% to are really depend are through on factors see as going QX, look and forward. benzene thing see demand form last it QX lot that our caprolactam. nylon raw over overall. it also relates and you of through changes go, price But at propylene based oil we’ve and nice so material to not raw conditions, of pricing, difficult only of that that materials as job and we particularly base, will we industry supply raw you favorable evidence which And shown is only know, pass-through, the year. where market to other a the did A as all that their predict we is again to not the passing going saw in

Chris Moore

growth so next give two engineering. bit would the might projects the about on is out just of those there -- a there what require -- projects of And little that wondered question there’s 'XX I and that Last potentially roughly bigger of some really CapEx, $XX more maybe over 'XX. million a talked glimpse projects you be? types maybe

Erin Kane

at quite buffer. There ranging is improving from inside the that, a ability to range a look our

which commence we’ll our full think event So to we we’ve spectrum here. as the said operational about growth,

looking continue buffers, more those release that to So against rounds. and across projects so caught relates at where cases builds yield, cost how projects our we’re it positive that savings projects direct and at There are continue in a our to production ourselves improved again operations, operating as entitlement oriented benchmark ends all being push of had we the in to in are look number we our great output, as of as direction. material many looking opportunities if up can we new under to we’re through those we which

we’ll So there. a look continue of at that number at there both projects, and are Frankfurt Hopewell to

growth and of As well projects platform. as expansion new oriented

platform. in about two talked EZ-Blox we our [indiscernible] So

the to at So to we’ll look continue expand there. need

we launches projects As progress that continue how we their through other those commercial and we NCI well as build-out. support the to as with have, do

Operator

with Cowen. Please Instructions] question comes ahead. next [Operator Charles go Our from Neivert

Charles Neivert

the one, the issues, anything slowed affected markets. a we Was you weather quarter mentioned quick bit? carpet companies down Just think there in having you little anything few issues. base carpet construction things, from have there weather quarter that of during first saw Was your might numbers lot that a

Erin Kane

QX impact. with certainly is related think compounded weather the I

a were been chain -- robust we’ve in certainly up were to we’re we while the the to puts customers. sales at we again, where markets -- in working But and value the at tile as that to with catch majeure mix. commercial growing our So was And that improving, arena. carpet is keep see Certainly, off that demand up. you be there continue back certainly the working to situation and look impacting through force residential continue builds those fully are nice

Charles Neivert

in about million then part that… of that mentioned mentioned earnings that $X the And was you was forward that because guys terms pull of of the -- I outage. lost Was think of there during the it you million course or of the $XX was maintenance work,

Michael Preston

No, $XX million. separate from actually Charlie, the that’s

So million within costs. -- the $XX to that that’s be XXXX of would related million turnaround $XX

Charles Neivert

It on any going you to going over that ’XX or disruption you was normal if both but you periods? that are going projects the turn, guys it base be Are all are cause they any -- part they the ’XX during of disruption the How not was working ’XX obviously production do it, to so gave. cost and to numbers to they’re just sure be beyond in production. maintenance The wasn’t basically I maintenance numbers ’XX. further and both done trends creating mentioned,

Erin Kane

XXXX they’ll be worked would for alongside not to during Great finance projected on but turnaround they that be question outages. then to available intent adding our and us it’s that will the be schedule those

Charles Neivert

course any I Asia. part late spike early Would was that period a long and the obviously you large But to extremely year, existed and of was the collect any you that gap time of a there large that last able able outage that guys where lived there fairly issues. probably was very guess created last this wasn’t collect year during of that? And capro differential period were benzene, to and of on on I it know in briefly? there between

Erin Kane

think ability I through to that to the the based pricing. capture capture deliver oriented were just event we sales the in are the spot that would we that market quarter is of quarter as limited able that events, pricing Certainly, during that our again, No, able available. navigated in the the to that we market the we force and would in benefit reiterate even But have challenges we’re overall had majeure the capture time. we through pleased was fairly robust performance here to that

Charles Neivert

if would obviously only was a then any $XXX,XXX that given opening of extreme asked I hard gap to a was -- in $XXX,XXX fairly I repeat, there or it ton like be although said, brief. because that

just I make issue. sure want really to So that part wasn’t of the

thanks much. great Okay, very

Operator

would concludes This time, [Operator question-and-answer to questions. session. conference further you no I Erin any over are turn to there for Instructions]. remarks. At this our like back Kane closing Thank the

Erin Kane

morning. Debbie. you, all this thank Thank again interest you your and time for And

and navigate results again resiliency Our the demonstrated our our ability to organization. dynamic of quarter this a environment highlighted

you with foundation a operational position We’ll again a day. years next performance will strong We’ve growth created we’re for to operational commitments We focused have quarter. longer enhancement executing term and Have investments. oriented of on look capabilities for and research to development against, built company great continuous emphasis and strategy financial rigorous on speaking to a excellence, that the that forward come.

Operator

presentation. conference now has Thank attending The concluded. for today's you

may now You disconnect.

AdvanSix (ASIX) 4 May 182018 Q1 Earnings call transcript