new 2q 2020 earnings presentation/media/files/a/advansix... · 2020. 7. 31. · 3 2q 2020 earnings...

2Q 2020 Earnings PresentationJuly 31, 2020

2Q 2020 Earnings Presentation – July 31, 20202

This 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: general economic and financial conditions in the U.S. and globally, including the impact of the coronavirus (COVID-19) pandemic and any resurgences; the scope and duration of the pandemic and pace of recovery; the timing of the development and distribution of an effective vaccine or treatment for COVID-19; governmental, business and individuals’ actions in response to the pandemic, including our business continuity and cash optimization plans that have and may be implemented; the impact of social and economic restrictions and other containment measures taken to combat virus transmission; the effect on our customers’ demand for our products and our suppliers’ ability to manufacture and deliver our raw materials, including implications of reduced refinery utilization in the U.S.; our ability to sell and provide our goods and services, including as a result of travel and other COVID-19-related restrictions; the ability of our customers to pay for our products; and any closures of our and our customers’ offices and facilities; risk associated with employees working remotely or operating with a reduced workforce; risks associated with our indebtedness including compliance with financial and restrictive covenants, and our ability to access capital on reasonable terms, at a reasonable cost or at all due to economic conditions resulting from COVID-19 or otherwise; 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, natural disasters and pandemics including the coronavirus; price fluctuations, cost increases and supply of raw materials; our operations and growth projects requiring substantial capital; growth rates and cyclicality of the industries we serve including global changes in supply and demand; 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 or otherwise; 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 (SEC), including the risk factors in Part 1, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2019, as updated in subsequent reports filed with the SEC.

Non-GAAP Financial Measures This 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 this presentation, except with respect to forward-looking non-GAAP measures, where suchreconciliation is not available without unreasonable effort. Investors are urged to consider carefully the comparable GAAP measures and the reconciliations to those measuresprovided. Non-GAAP measures in this presentation may be calculated in a way that is not comparable to similarly-titled measures reported by other companies.

Forward Looking Statements


• 2Q20 Results Reflect Strength of Vertical Integration and Low-Cost Position

• Mitigating COVID-19 Impacts– Health and Safety of Our Employees is Top Priority– Maintaining Operations and Adjusting Output to Changes in Mix and Demand– Disciplined Cost Management and Reduced Capital Expenditures– Focusing on Flawless Execution of 3Q20 Planned Plant Turnaround

• Near-Term Industry Expectations:– Challenging Nylon Demand Environment Expected to Continue; Optimizing Mix Across End Uses, Applications and Geographies– Typical Ammonium Sulfate Seasonality Expected to Drive 3Q20 Sequential Domestic Pricing Decline and Higher Export Mix– Expect Favorable Acetone Industry Supply and Demand Balance to Continue

• Remain Confident in Financial Position– As of 2Q20, ~$73M of Cash on Hand With ~$36M of Additional Capacity Available Under Revolving Credit Facility– Expect Positive Free Cash Flow in 2020

OverviewFocus on Safe, Stable and Sustainable Operations

See Appendix in this presentation for a discussion of Free Cash Flow, which is a non-GAAP measure


2Q 2020 Financial SummaryResults Reflect Vertical Integration and Global Low-Cost Position

$345.2 $233.0 • Sales Down (33%): Volume (19%), Price (14%)– Market Pricing (3%), Raw Material Pass Through (11%)

$35.910.4%

$30.713.2%

• Unfavorable Impact of Lower Volume and Market Pricing• Favorable Impact of Lower Raws (Natural Gas and Sulfur),

Productivity from Nat Gas Boilers and Cost Management• 2Q19 Includes ($12.6M) Pottsville Restructuring Charge

$15.3 $11.4• 2Q20 Effective Tax Rate 16.6% vs. 25.6% in 2Q19 Driven by the

Impact of Changes in Geographical Sales Mix on State Tax and Additional Research Tax Credits

$0.53 $0.41 • 2Q20 Share Count 28.1 Million vs. 29.1 Million in 2Q19

($6.4) ($8.7) • Cash Flow From Operations $9M, Down ($16M) vs. Prior Year• Capex $18M, Down ($14M) vs. Prior Year

Comments2Q 2019 2Q 2020($ Millions, Except Per Share Amounts)

Sales

EBITDAMargin %

Net Income

Free Cash Flow

Diluted EPS

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


2Q 2020 EBITDA BridgeProductivity Actions and Lower Raws Partially Mitigating Market Pricing and Volume Headwinds

$36$31

$4

$19

$2$4

$11

$13

2Q19 Price - Raws Spread Volume/Other Planned PlantTurnaround

PES SupplierShutdown

Productivity/CostSavings

2Q19 PottsvilleRestructuring Charge

2Q20

($M)

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

• Raws ~$8M (lower natural gas and sulfur)

• Market Pricing (~$12M)

• Lower sales volume

• Prior year impacts of insurance proceeds and phenol force majeure offset

‒ CPL/Nylon

‒ Ammonium Sulfate

‒ Acetone

‒ Other Intermediates

• Benefits of nat gas boilers

• SG&A, other indirect spend

• Plant productivity

Targeting $15-$20M reduction YoY for full year

2020 in addition to the benefits of natural gas

boilers


0

200

400

600

800

0

400

800

1200

1600

Jan-

19

Feb-

19

Mar

-19

Apr

-19

May

-19

Jun-

19

Jul-1

9

Aug

-19

Sep-

19

Oct

-19

Nov

-19

Dec

-19

Jan-

20

Feb-

20

Mar

-20

Apr

-20

May

-20

Jun-

20

Global Composite BNZ-CPL Spread (Left Axis)

Asia BNZ-CPL Spread (Left Axis)

Asia CPL-Resin Spread (Right Axis)

Industry Pricing And Spreads

Sources: Tecnon Orbichem, Wood Mackenzie, Green Markets, IHS Markit

($/MT) (cents per pound)

2Q20 YOY 2Q20 vs. 1Q20Global Composite (26%) 4%Asia BNZ-CPL (42%) (1%)Asia CPL-Resin 26% (21%)

2Q20 YOY 2Q20 vs. 1Q20

Corn Belt Granular AS (6%) 1%

Corn Belt Urea (14%) 2%

Nylon

2Q20 YOY 2Q20 vs. 1Q20Acetone, Sm/Med Buyer 52% 34%Acetone, Large Buyer (22%) (9%)RGP Costs (53%) (31%)

Ammonium Sulfate Chemical Intermediates

0

10

20

30

40

50

60

Jan-

19

Feb-

19

Mar

-19

Apr

-19

May

-19

Jun-

19

Jul-1

9

Aug

-19

Sep-

19

Oct

-19

Nov

-19

Dec

-19

Jan-

20

Feb-

20

Mar

-20

Apr

-20

May

-20

Jun-

20

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

300

400

500

600

700

800

900

600

800

1000

1200

1400

1600

1800

Jan-

19Fe

b-19

Mar

-19

Apr

-19

May

-19

Jun-

19Ju

l-19

Aug

-19

Sep-

19O

ct-1

9N

ov-1

9D

ec-1

9Ja

n-20

Feb-

20M

ar-2

0A

pr-2

0M

ay-2

0Ju

n-20

Avg Corn Belt AS price (granular $/ston N content basis) - Left Axis

Avg Corn Belt Urea price ($/ston N content basis) - Right Axis

Challenging End Market Conditions Strong Demand, Lower Energy Environment Improved Supply and Demand Balance


Industry Considerations Entering 2H20Diverse Product Portfolio Supporting Overall Performance

• Carpet demand weak – residential consumer preferences/housing pace of recovery, commercial construction soft

• Sluggish auto demand globally impacts engineered plastics – Asia recovering faster than U.S./Europe

• China increasing operating rates on gradual demand improvement; Textiles export demand remains weak

• Food packaging demand for nylon robust

Nylon Ammonium Sulfate Chemical Intermediates

Granular

StandardGranular

Standard

Mid Grade

• Typical ammonium sulfate seasonality expected to drive 3Q20 sequential domestic pricing decline and higher export mix

• Lower energy environment impacting nitrogen pricing

• Sulfur demand remains robust; Monitoring potential reduction in nitrogen planted acres

• Acetone imports into U.S. remain low following final, affirmative anti-dumping duties

• North America and Europe industry turnarounds scheduled in 2H20

• Acetone demand into IPA, MMA and other solvents remains healthy

• Soft building & construction trends and sluggish auto demand globally

AdvanSix Domestic Sales Mix

AdvanSix Export Sales Mix

Acetone Industry North America Demand

AdvanSix Acetone Global Sales Mix

BPA

SolventsMMA

IPA / Other IPA /

Other

SolventsMMA

Nylon Industry North America Demand

AdvanSix Nylon Global Sales Mix

CarpetEngineered

Plastics

PackagingIndustrial

Carpet

Engineered Plastics

Packaging

Industrial

*Industry Demand Represents 2019 (Sources: Wood Mackenzie, IHS Markit, AdvanSix Management); AdvanSix Sales Mix Represents 2020E Sales

Export CPL


2020 OutlookMitigating COVID-19 Risks; Focused Cost Management and Capital Discipline

• Challenging demand environment expected to continue• Optimizing mix across end uses, applications and geographies

• Residential / Non-Res construction• Auto demand recovery• Asia supply/demand – textile

• Typical ammonium sulfate seasonality expected to drive 3Q20 sequential domestic pricing decline and higher export mix ($10-$15M pre-tax income impact)

• Energy environment• North America AS supply increases• Crop prices, expected planted acres

• Expect favorable acetone industry supply and demand balance to continue• Phenol and alpha-methylstyrene demand expected to be soft near-term

• Construction, auto and solvents demand

• Benzene/Propylene input costs

• Adjusting production output to changes in mix and demand as a result of COVID-19• Pre-tax income impact of planned plant turnarounds expected to be ~$32M in 2020 vs.

~$35M in 2019 and ~$42M in 2018• Business continuity plans

• Capex expected to be ~$85M in 2020 (down ~$65M vs. 2019)• Expect positive Free Cash Flow in 2020 on significantly lower capex run rate,

working capital improvement and cash tax benefits• $15-$20M full-year cost reduction expected (~$12M savings through 1H20)• Anticipate CARES Act benefits: ~$12M cash tax savings in 2020, ~$6M deferral of

social security taxes (50% payable by end of 2021, 50% payable by end of 2022)

• Capex: compliance requirements / asset reliability

• Impact / timing of Federal Government stimulus

Nylon

Ammonium Sulfate

Chemical Intermediates

Cash

Operations

2020 Outlook Considerations Impacting Outlook

See Appendix in this presentation for a discussion of Free Cash Flow, which is a non-GAAP measure


APPENDIX


Ammonium Sulfate Seasonality

Source: Green Markets; Cornbelt Ammonium Sulfate prices (4Q 2009 – 2Q 2020)

Typically See Seasonal Decline 2Q to 3Q

• New North America fertilizer season commencing 3Q

• Pricing typically declines with new season fill in 3Q and strengthens into Spring planting season

• Domestic ammonium sulfate prices typically strongest during 2Q fertilizer application

• ASIX overall volume relatively steady on a quarterly basis

– Expect higher export volume 2H vs. 1H– Expect $10-$15M pre-tax income

impact in 3Q vs. 2Q

Cornbelt AS Price(Avg sequential price change 2010-2020)

7%

3%

-11%

5%

-15%

-10%

-5%

0%

5%

10%

1Q vs. 4Q 2Q vs. 1Q 3Q vs. 2Q 4Q vs. 3Q


Planned Plant Turnarounds

1Q 2Q 3Q 4Q FY

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

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

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

2020E ~$2M ~$7M ~$20M ~$3M ~$32M

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


APPENDIXReconciliation of Non-GAAP Measures to GAAP Measures


Reconciliation 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.

The Company also provides forward-looking information regarding free cash flow. Reconciliation of free cash flow outlook for fiscal 2020 to the most directly comparable GAAP measure is not available without unreasonable efforts because the Company cannot predict with reasonable certainty all of the components required to provide such reconciliation which can be dependent on future events which may not be reliably predicted and which could be material to reported results.

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

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


(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’s management to evaluate theCompany’s operating performance, enhance a reader’s understanding of the financial performance of the Company, and facilitate a better comparison among fiscal periods and performance relative to itscompetitors, as these non-GAAP measures exclude items that are not considered core to the Company’s operations.

(2) EBITDA is a non-GAAP measure defined as Net Income before Interest, Income Taxes, Depreciation and Amortization(3) Prior year 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

Reconciliation Of Net Income To EBITDA

new 2q 2020 earnings presentation/media/files/a/advansix... · 2020. 7. 31. · 3 2q 2020 earnings...

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