3q 2019 earnings presentation november 1, 2019/media/files/a/advansix-ir/press... · 3q 2019...

3Q 2019 Earnings PresentationNovember 1, 2019

3Q 2019 Earnings Presentation – November 1, 2019

2Forward Looking StatementsThis presentation contains certain statements that may be deemed “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. All statements, other than statements of historical fact, that address activities, events or developments that our management intends, expects, projects, believes or anticipates will or may occur in the future are forward-looking statements. Forward-looking statements may be identified by words like "expect," "anticipate," "estimate," “outlook”, "project," "strategy," "intend," "plan," "target," "goal," "may," "will," "should" and "believe" or other variations or similar terminology. Although we believe forward-looking statements are based upon reasonable assumptions, such statements involve known and unknown risks, uncertainties and other factors, many of which are beyond our control and difficult to predict, which may cause the actual results or performance of the Company to be materially different from any future results or performance expressed or implied by such forward-looking statements. Such risks and uncertainties include, but are not limited to: the impact of scheduled turnarounds and significant unplanned downtime and interruptions of production or logistics operations as a result of mechanical issues or other unanticipated events such as fires, severe weather conditions, and natural disasters; price fluctuations and supply of raw materials; our operations requiring substantial capital; general economic and financial conditions in the U.S. and globally; growth rates and cyclicality of the industries we serve including global changes in supply and demand; risks associated with our indebtedness including with respect to restrictive covenants; failure to develop and commercialize new products or technologies; loss of significant customer relationships; adverse trade and tax policies; extensive environmental, health and safety laws that apply to our operations; hazards associated with chemical manufacturing, storage and transportation; litigation associated with chemical manufacturing and our business operations generally; inability to acquire and integrate businesses, assets, products or technologies; protection of our intellectual property and proprietary information; prolonged work stoppages as a result of labor difficulties; cybersecurity and data privacy incidents; failure to maintain effective internal controls; disruptions in transportation and logistics; our inability to achieve some or all of the anticipated benefits of our spin-off including uncertainty regarding qualification for expected tax treatment; fluctuations in our stock price; and changes in laws or regulations applicable to our business. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this presentation. Such forward-looking statements are not guarantees of future performance, and actual results, developments and business decisions may differ from those envisaged by such forward-looking statements. We identify the principal risks and uncertainties that affect our performance in our filings with the Securities and Exchange Commission, including our Annual Report on Form 10-K for the year ended December 31, 2018.

Non-GAAP Financial MeasuresThis presentation includes certain non‐GAAP financial measures intended to supplement, not to act as substitutes for, comparable GAAP measures.Reconciliations of non‐GAAP financial measures to GAAP financial measures are provided in the appendix of the presentation. Investors are urged to considercarefully the comparable GAAP measures and the reconciliations to those measures provided. Non-GAAP measures in this presentation may be calculated in away that is not comparable to similarly-titled measures reported by other companies.


3Overview

3Q19 Results

Outlook / Other

• Sales $311M, down (16%) including (11%) lower raw material pass-through pricing, (3%) unfavorable market-based pricing, and (2%) lower volume

• Pre-tax Income results reflect net favorable ~$25M YoY impact of planned plant turnarounds

• EPS $0.28, up 56%; Repurchased ~$13M of shares in 3Q19; Lower share count contributed ~$0.02 benefit vs. prior year

• Cash Flow from Operations $33M, down ($17M); Capex $35M, up $16M due to higher planned turnaround maintenance spend and continued investment in high-return growth and cost savings projects

• Targeting strong nylon plant utilization rates despite further global demand softness

• Expect mixed ammonium sulfate fertilizer environment to continue through 2019/2020 planting season

• Expect acetone anti-dumping duties to be finalized by 1Q20

• Capex tracking to ~$150M in 2019, expect $90-$110M in 2020; Expect pre-tax income impact of planned plant turnarounds to be $33-$38M in 2020 (versus ~$35M in 2019)

• Optimizing expected base feedstock and logistics cost increases following Philadelphia Energy Solutions (PES) supplier fire – (~$4M) pre-tax income impact in 3Q19 (expect $4-$6M in 4Q19 and $10-$15M in 2020)


43Q 2019 Financial SummaryExecuting in a More Challenging Macro Environment

$368.7 $310.6 • Sales Down (16%): Volume (2%), Price (14%)– Raw Material Pass Through (11%), Market Pricing (3%)

$20.05.4%

$24.98.0%

• Net ~$25M Favorable YoY Impact of Planned Plant Turnarounds• Market Pricing (~$11M): Challenging Industry Conditions• Volume / Operational Performance / Other (~$5M): Unfavorable

Product Mix, Benefit of New Natural Gas Boilers• PES Supplier Fire / Cumene Impact (~$4M)

$5.5 $7.9 • 3Q19 Effective Tax Rate 16.0% – Additional R&D Tax Credits

$0.18 $0.28 • 3Q19 Share Count 28.6 Million; Lower Share Count Contributed ~$0.02 Benefit vs. Prior Year

$31.3 ($2.0)• Cash Flow From Operations $33M, Down ($17M) vs. Prior Year

– Unfavorable Impact of Changes in Working Capital• Capex $35M, Up $16M vs. Prior Year – Higher Planned

Turnaround Maintenance Capex, High-Return Investments

Comments3Q 2018 3Q 2019($ Millions, Except Per Share Amounts)

Sales

EBITDAMargin %

Net Income

Free Cash Flow

EPS (Diluted)

See Appendix in this presentation for a reconciliation of EBITDA, EBITDA Margin, and Free Cash Flow, which are non-GAAP measures; Free cash flow = net cash provided by operating activities less capital expenditures


5Sequential EBITDA Performance (2Q19 3Q19)AS Seasonality and Challenging Industry Conditions Key Sequential Drivers

$36

$25

2Q19 3Q19

EBITDA ($M) Performance Considerations

Ammonium Sulfate Seasonality• (~$13M) typical seasonal decline and unfavorable product mix with

new season fill in 3Q• Domestic ammonium sulfate prices typically strongest during 2Q

fertilizer application; 3Q characterized by higher export standard sales

Closure of Pottsville Manufacturing• ~$12.6M repositioning charge in 2Q19

Business Performance• (~$6M) market pricing: further nylon demand softness, challenging

acetone industry conditions• (~$4M) cumene supply: impact of PES supplier fire• (~$1M) volume / operational performance / other: fixed cost absorption

and lower yields net of savings from new natural gas boilers

See Appendix in this presentation for a reconciliation of EBITDA which is a non-GAAP measure


6Nylon Industry OutlookBroader Macro Uncertainty, Falling Commodity Input Environment

What We’re Seeing

What We’re Expecting

• Further demand softness in 3Q19

• Industry pricing/spreads near recent 2016 low

• Global caprolactam cost curve flattening on weaker feedstocks

• Year-over-year demand growth deceleration to continue in near term

• Macro uncertainty to drive fluctuations in global operating rates, pricing and spreads

(1) Sources: Tecnon OrbiChem and Wood MackenzieAsia = Caprolactam Asia Import Contract (Taiwan & S. Korea)Global Composite = Weighted Avg Spreads From U.S., Europe, China, Other Asia

BN

Z-C

PL

Spr

ead

($/M

T)

Key Industry Spreads (1)

3Q19 YoY 3Q19 vs. 2Q19

Global Composite BNZ-CPL (26%) (15%)

Asia BNZ-CPL (40%) (25%)

Asia CPL-Resin (15%) 13%

Nylon

CP

L-Resin S

pread ($/MT)0

200

400

600

800

0

400

800

1200

1600

Jan-

18Fe

b-18

Mar

-18

Apr-

18M

ay-1

8Ju

n-18

Jul-1

8A

ug-1

8Se

p-18

Oct

-18

Nov

-18

Dec

-18

Jan-

19Fe

b-19

Mar

-19

Apr-

19M

ay-1

9Ju

n-19

Jul-1

9A

ug-1

9Se

p-19

Global Composite BNZ-CPL SpreadAsia BNZ-CPL SpreadAsia CPL-Resin Spread


7Ammonium Sulfate (AS) Industry OutlookIndustry Dynamics Remain Mixed Into 2020 Planting Season

What We’re Seeing


• Fertilizer industry pricing down YoY and seasonally vs. 2Q19

• Ag fundamentals challenging; USDA crop estimates reaffirm production projections

• Continued demand growth for sulfur nutrition

• Fertilizer demand to strengthen seasonally into Spring

• Increased ammonium sulfate competitive pressure –monitoring North America supply/demand and imports

(1) As reported in Green Markets

Key Industry Prices (1)

Avg

Cor

n B

elt A

S p

rice

(gra

nula

r $/s

ton

N c

onte

nt b

asis

)

3Q19 YoY 3Q19 vs. 2Q19

Corn Belt Granular AS (3%) (5%)

Corn Belt Urea (3%) (10%)

Avg C

orn Belt U

rea price ($/ston N

content basis)

Ammonium Sulfate

500

600

700

800

1000

1200

1400

Jan-

18Fe

b-18

Mar

-18

Apr-

18M

ay-1

8Ju

n-18

Jul-1

8A

ug-1

8Se

p-18

Oct

-18

Nov

-18

Dec

-18

Jan-

19Fe

b-19

Mar

-19

Apr-

19M

ay-1

9Ju

n-19

Jul-1

9A

ug-1

9Se

p-19

Avg Corn Belt AS price (granular $/ston N content basis)Avg Corn Belt Urea price ($/ston N content basis)


8Chemical Intermediates Industry OutlookGlobal Acetone Oversupply Continued in 3Q19

What We’re Seeing


Chemical Intermediates

• Soft phenol and acetone demand globally reflecting weaker downstream end uses

• U.S. acetone imports moderating

• North America acetone inventory levels to stabilize from recent high

• Expect final acetone anti-dumping duty determinations by 1Q20

Key Industry Prices (1)

Cen

ts p

er P

ound

(1) As reported in IHS Markit

3Q19 YoY 3Q19 vs. 2Q19

Acetone, Small/Medium Buyer (40%) 1%

Acetone, Large Buyer (37%) (3%)

Refinery Grade Propylene Costs (47%) (2%)

10

20

30

40

50

60

Jan-

18

Feb-

18

Mar

-18

Apr-

18

May

-18

Jun-

18

Jul-1

8

Aug

-18

Sep-

18

Oct

-18

Nov

-18

Dec

-18

Jan-

19

Feb-

19

Mar

-19

Apr-

19

May

-19

Jun-

19

Jul-1

9

Aug

-19

Sep-

19

Acetone, Small/Medium BuyerAcetone, Large BuyerRefinery Grade Propylene Costs


9Capital ExpendituresExecution of High-Return Growth and Cost Savings Projects in 2019

2018 2019E 2020E

Maintenance HSE Growth/Cost Savings

$109M

~55%

~12%

~33%

~$150M

~55%

~7%

~38% $90-$110M

Growth/Cost Savings

HSE

• Continued focus on risk reduction and improved security

Maintenance

• Maintenance capex up ~$20M in 2019 due to scope and timing of planned plant turnarounds

• Timing of Spring 2020 turnaround accelerates capex to 2019

• Executing against multi-year $150-$200M pipeline of high-return projects; 20%+ IRR target

• Relocation of R&D lab to Chesterfield from Colonial Heights adds ~$15M incremental capex in 2019


104Q19 / 2020 OutlookFocused Cost Management and Capital Discipline in Challenging Macro Environment

• Year-over-year demand growth deceleration expected to continue

• Macro uncertainty to drive fluctuations in global operating rates, pricing and spreads

• Ammonium sulfate fertilizer price/mix expected to improve seasonally from 3Q to 4Q

• Expect mixed ammonium sulfate fertilizer environment to continue through 2019/2020 planting season

• Expect soft phenol and acetone demand globally• Expect continued acetone price/raws pressure

• Expect final acetone anti-dumping duty determinations by 1Q20

• Planned plant turnaround completed on time and on budget (~$25M pre-tax income impact)

• Expect high utilization rates from stable plant operations• Pre-tax income impact of planned plant turnarounds

expected to be $33-$38M (weighted toward 2Q20)

• Expected to be ~$45M• Continued savings from new natural gas boilers

• Expected to be $90-$110M, down ($40M)-($60M) YoY• Benefits expected from natural gas boilers and

caprolactam debottlenecking projects

• Expect $4-$6M unfavorable impact to pre-tax income as a result of PES supplier fire

• Ammonium sulfate pre-buy advances• FY19 tax rate expected to be 24-25%

• Expect $10-$15M unfavorable impact to pre-tax income as a result of PES supplier fire

• Cash pension contributions expected to be $5-$10M• Tax rate expected to be ~25%

Nylon

Ammonium Sulfate

Chemical Intermediates

Capex

Operations

Other

4Q19 2020 Trend

Trend LegendHeadwind Neutral Tailwind


11AdvanSix Strategic PrioritiesWell Positioned for Strong Operational and Financial Performance Over Long Term

Focus Areas For Further Value Creation

1) Safe and Stable Operations

2) Differentiated Product Growth

3) Cash Generation and Deployment

• Averaging 90%+ utilization rates through the cycle

• Less variability in utilization rates drives higher returns

• Represent ~10% of total sales today but growing

• 1.5x – 2x gross margin vs. company average

• Generated >$450M of operating cash flow since spin

• Executing against $150-$200M high-return capex pipeline

• Return cash to shareholders; Disciplined M&A


12

Appendix


13Planned Plant Turnarounds

1Q 2Q 3Q 4Q FY

2017 -- ~$10M ~$4M ~$20M ~$34M

2018 ~$2M ~$10M ~$30M -- ~$42M

2019 -- ~$5M ~$5M ~$25M ~$35M

2020E ~$5M $25-$30M -- ~$3M $33-$38M

Pre-Tax Income Impact by Quarter (1)

• Timing driven by compliance, inspection and sustaining asset base

• Critical to supporting high utilization rates

• Dedicated teams to improve effectiveness

• Staggered across unit operations to maintain output

(1) Primarily reflects the impact of fixed cost absorption, maintenance expense, and the purchase of feedstocks which are normally manufactured by the Company


14

Appendix:Reconciliation of non-GAAP

Measures to GAAP Measures


15Reconciliation Of Net Cash Provided By Operating Activities To Free Cash Flow

(in $ thousands)

The Company believes that this metric is useful to investors and management as a measure to evaluate our ability to generate cash flow from business operations and the impact that this cash flow has on our liquidity.

(1) Free cash flow is a non-GAAP measure defined as Net cash provided by operating activities less Expenditures for property, plant and equipment


16Reconciliation Of Net Income To EBITDA(in $ thousands)

The Company believes the non-GAAP financial measures included in this presentation provide meaningful supplemental information as they are used by the Company’smanagement to evaluate the Company’s operating performance, enhance a reader’s understanding of the financial performance of the Company, and facilitate a bettercomparison among fiscal periods and performance relative to its competitors, as these non-GAAP measures exclude items that are not considered core to the Company’soperations.

(2) EBITDA is a non-GAAP measure defined as Net Income before Interest, Income Taxes, Depreciation and Amortization(3) One-time Pottsville restructuring charges reflect the closure of the Company’s Pottsville, Pennsylvania films plant (4) EBITDA margin is defined as EBITDA divided by Sales


17Reconciliation Of Net Income To EBITDA(in $ thousands)

(5) EBITDA is a non-GAAP measure defined as Net Income before Interest, Income Taxes, Depreciation and Amortization(6) One-time Pottsville restructuring charges reflect the closure of the Company’s Pottsville, Pennsylvania films plant (7) EBITDA margin is defined as EBITDA divided by Sales

The Company believes the non-GAAP financial measures included in this presentation provide meaningful supplemental information as they are used by the Company’smanagement to evaluate the Company’s operating performance, enhance a reader’s understanding of the financial performance of the Company, and facilitate a bettercomparison among fiscal periods and performance relative to its competitors, as these non-GAAP measures exclude items that are not considered core to the Company’soperations.

3q 2019 earnings presentation november 1, 2019/media/files/a/advansix-ir/press... · 3q 2019...

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