3Q 2018 Earnings Presentation November 2, 2018/media/Files/A/AdvanSix...3Q 2018 Earnings...

3Q 2018 Earnings PresentationNovember 2, 2018

3Q 2018 Earnings Presentation – November 2, 2018

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, 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; growth rates and cyclicality of the industries we serve; 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; 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, store 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; our inability to achieve some or all of the anticipated benefits of the spin-off from Honeywell including uncertainty regarding qualification for expected tax treatment and indebtedness incurred in connection with the spin-off; fluctuations in our stock price; and tax reform or other 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, 2017 and our subsequent Quarterly Reports on Form 10-Q.

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

• 3Q18 results: Sales $369M, up ~1%; EPS $0.18; Planned plant turnaround ~$30M pre-tax income impact, lower plant utilization rates

• 3Q18 tax rate 4.0% – filing of 2017 tax return

• Cash flow generation continues to improve: 3Q18 Cash flow from operations $51M, up 34%; 3Q18 YTD Cash flow from operations $128M, up 30%

• Repurchased $25.6M of shares through October 26th ($2.7M in 2Q, $16.9M in 3Q, $6.0M in October)

• Current favorable nylon industry conditions expected to continue; Expect improved nitrogen fertilizer environment through 2018/2019 planting season

• Continued acetone price/raws pressure – oversupply of acetone globally, propylene input costs

• FY18 Capex tracking to ~$110M; FY19 Capex: expect continued acceleration of high-return growth and cost savings projects

• FY19 pre-tax income impact of planned plant turnarounds expected to be $35-$40M


43Q 2018 Financial SummaryStrong Cash Flow While Managing Through Planned Plant Turnaround

$366.7 $368.7 • Sales Up ~1%: Volume (10%), Price +10%– Raw Material Pass Through +10%, Market Pricing ~Flat

$50.313.7%

$20.05.4%

• 3Q18 Planned Plant Turnaround ~$30M (vs. ~$4M in 3Q17)• Lower Production Output• Higher Raw Material Pass Through Impacts Margin %

$21.3 $5.5 • Tax Rate 4.0% – Filing of 2017 Tax Return• Interest Expense Down ($0.7M)

$0.68 $0.18 • 3Q18 Share Count 31.0 Million

$18.3 $31.3 • Cash Flow From Operations $51M, Up $13M vs. Prior Year• Capex $19M, ~Flat vs. Prior Year

Comments3Q 2017 3Q 2018($ 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 (2Q18 3Q18)Planned Plant Turnaround and Ammonium Sulfate Seasonality Key Sequential Drivers

$53

$20

2Q18 3Q18

EBITDA ($M) Performance Considerations

Planned Plant Turnaround• ~$30M in 3Q18 vs. ~$10M in 2Q18• 3Q18 ammonia plant turnaround completed three days

earlier than expected

Ammonium Sulfate Seasonality• Typical seasonal decline with new season fill in 3Q• Domestic ammonium sulfate prices typically strongest

during 2Q fertilizer application; 3Q characterized by higher export standard sales

Business Performance• Operational: Lower production output pre- and post-

turnaround; Modest impact from hurricanes• Industry: Challenging acetone supply/demand dynamics,

continued favorable nylon industry conditions

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


6Nylon Industry OutlookIndustry Operating Around Marginal Producer Economics

What We’re Seeing

What We’re Expecting

• North America supply/demand generally in balance

• Environmental policy and feedstock constraints driving China dynamics

• Continued dynamic China supply environment

• Regional supply/demand conditions to support margin over raws

(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

Spr

ead

($/M

T)

Key Industry Spreads (1)

3Q18 YoY 3Q18 vs. 2Q18

Global Composite BNZ-CPL 14% 0%

Asia BNZ-CPL 39% 0%

Asia CPL-Resin (3%) 3%

0

400

800

1200

1600

Jan-

17

Feb-

17

Mar

-17

Apr-

17

May

-17

Jun-

17

Jul-1

7

Aug

-17

Sep-

17

Oct

-17

Nov

-17

Dec

-17

Jan-

18

Feb-

18

Mar

-18

Apr-

18

May

-18

Jun-

18

Jul-1

8

Aug

-18

Sep-

18

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

Nylon


7Ammonium Sulfate (AS) Industry OutlookImproved Industry Dynamics as New ’18/’19 Season Begins

What We’re Seeing


• AS price movement modest relative to recent nitrogen pricing

• Firm global urea pricing supported by China utilization and higher energy costs

• Sulfur input costs up significantly

• Fertilizer pricing to strengthen seasonally into Spring

• Nitrogen acres expected to increase

• Continued demand growth for sulfur nutrition

(1) As reported in Blue, Johnson

Key Industry Prices (1)

Avg

Cor

n B

elt A

S p

rice

(gra

nula

r $/s

ton

N c

onte

nt b

asis

)

3Q18 YoY 3Q18 vs. 2Q18

Corn Belt Granular AS 14% 0%

Corn Belt Urea 28% 11%

Avg C

orn Belt U

rea price ($/ston N

content basis)

400

500

600

700

800

800

1000

1200

1400

Jan-

17Fe

b-17

Mar

-17

Apr-

17M

ay-1

7Ju

n-17

Jul-1

7A

ug-1

7Se

p-17

Oct

-17

Nov

-17

Dec

-17

Jan-

18Fe

b-18

Mar

-18

Apr-

18M

ay-1

8Ju

n-18

Jul-1

8A

ug-1

8Se

p-18

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

Ammonium Sulfate


8Chemical Intermediates Industry OutlookAcetone Oversupply Pressuring Price/Raws Spread

What We’re Seeing


Chemical Intermediates

• Acetone imports in U.S. pressuring regional pricing –industry oversupply continues

• Rising refinery grade propylene (RGP) input costs

• 4Q18 downstream methyl methacrylate (MMA) industry plant turnarounds to support lengthening acetone supply

• Continued healthy demand for Phenol and other Intermediates

Key Industry Prices (1)

Cen

ts p

er P

ound

(1) As reported in IHS Markit

3Q18 YoY 3Q18 vs. 2Q18

Acetone, Small/Medium Buyer 0% 6%

Acetone, Large Buyer 23% 10%

Refinery Grade Propylene Costs 59% 19%

~9c/lb~14c/lb

~15 c/lb

10

20

30

40

50

60

70

Jan-17 May-17 Sep-17 Jan-18 May-18 Sep-18Acetone, Small/Medium BuyerAcetone, Large BuyerRefinery Grade Propylene Costs


9Operational ConsiderationsCapex Driving Higher Returns; Quarterly Linearity of Planned Turnarounds

• 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

Capital Expenditures Planned Plant Turnarounds

1Q 2Q 3Q 4Q FY

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

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

2019E -- ~$5M ~$5M $25-$30M $35-$40M

Pre-Tax Income Impact by Quarter (1)

2018E

~$110M

~55%

~13%

~32%

Maintenance

HSE

Growth/Cost Savings

• Growth/Cost Savings: executing against multi-year $150-$200M pipeline of high-return projects; 20%+ IRR target

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

• Proactive maintenance capex supports safe and stable operations

Expect continued acceleration of high-

return growth and cost savings projects

in 2019

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


10Cash Flow And Capital DeploymentMaturing Deployment Strategies

• Internal reinvestment remains top priority• Base capex to support safe and stable operations• Executing against multi-year $150-$200M pipeline of

high-return growth and cost savings projects

Trailing 12-Month Cash Flow($ Millions)

Capital Deployment Framework

50

70

90

110

130

150

170

1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18

Operating Cash Flow Capex

Capex

Return Excess Cash to

Shareholders

Disciplined M&A

Framework

• Share repurchase: $75M authorization in place (May 2018)– Repurchased ~2% of outstanding shares through late October

• Building pipeline across all product lines• Rationale to build on competitive advantage and core

capabilities:– Value chain integration

– Enhancement in size, free cash flow profile and margin stability

– End market, portfolio, geographical diversification


114Q18 / 2019 OutlookSeveral Tailwinds Expected in 2019, Acetone Industry Softness Persists

• North America supply/demand to remain in balance• Continued dynamic China supply environment into

Winter months

• Current favorable industry conditions expected to continue

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

• Expecting improved nitrogen fertilizer environment to continue through 2018/2019 planting season

• Expect continued acetone price/raws pressure • Acetone supply to remain long globally further pressuring industry spreads

• Plants anticipated to run at planned rates• No planned plant turnarounds

• Expecting continued high utilization rates• Pre-tax income impact of planned plant turnarounds

expected to be $35-$40M

• Expected to be ~$40M• Expected to increase driven by high-return growth

and cost savings project pipeline• R&D relocation adds incremental ~$15M in 2019

• Ammonium sulfate pre-buy advances• Tax rate expected to be ~25%

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

Nylon

Ammonium Sulfate

Chemical Intermediates

Capex

Operations

Other

4Q18 2019 Trend

Stable

+

+-


12

Appendix:Reconciliation of non-GAAP

Measures to GAAP Measures


13Reconciliation 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


14Reconciliation Of Net Income To EBITDA

(in $ thousands)

The Company believes these non-GAAP financial measures 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 andperformance relative to its competitors, 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) EBITDA margin is defined as EBITDA divided by Sales


15Reconciliation Of Net Income To EBITDA

(in $ thousands)

The Company believes these non-GAAP financial measures 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 andperformance relative to its competitors, as these non-GAAP measures exclude items that are not considered core to the Company’s operations.

(4) EBITDA is a non-GAAP measure defined as Net Income before Interest, Income Taxes, Depreciation and Amortization(5) EBITDA margin is defined as EBITDA divided by Sales

3Q 2018 Earnings Presentation November 2, 2018/media/Files/A/AdvanSix...3Q 2018 Earnings...

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