AdvanSix Q2 2025 Earnings Call Transcript

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Provided by Quartr
August 1, 2025

Key Takeaways

  • Neutral Sentiment: Overall sales decreased 10% year-over-year to $410 million, with adjusted EBITDA of $56 million (13.6% margin) and negative free cash flow of $7 million, though management expects H2 improvement.
  • Positive Sentiment: Plant nutrients business saw a 7% increase in domestic granular sales volume and strong pricing, driving sequential earnings improvement and a robust fall fill order book.
  • Negative Sentiment: Margins were pressured by higher natural gas and sulfur costs, and a $10 million year-over-year contraction in pricing over raw material costs weighed on profitability.
  • Positive Sentiment: AdvanSix claimed $8 million in 45Q carbon capture tax credits in Q2 (totaling $20 million to date) and anticipates an additional $80 million–$100 million, significantly enhancing future cash flow.
  • Neutral Sentiment: The company is completing an ERP upgrade, reducing 2025 CapEx to $135 million–$145 million, and emphasizing disciplined cost, cash, and capital management to support long-term growth.
AI Generated. May Contain Errors.
Earnings Conference Call
AdvanSix Q2 2025
00:00 / 00:00

There are 5 speakers on the call.

Operator

Good morning, and welcome to the ADVANCE6 Second Quarter twenty twenty five Earnings Conference Call. All participants will be in listen only mode. Please note this event is being recorded. I would now like to turn the conference over to Adam Kressel, Vice President of Investor Relations and Treasurer. Please go ahead.

Speaker 1

Thank you, Wyatt. Good morning, and welcome to Advance six's second quarter twenty twenty five earnings conference call. With me here today are President and CEO, Aaron Kane and Interim CFO, Chris Graham. This call and webcast, including any non GAAP reconciliations, are available on our website at investors.advansix.com. Note that elements of this presentation contain forward looking statements that are based on our best view of the world and of our business as we see it today.

Speaker 1

Those elements can change and the actual results could differ materially from those projected and we ask that you consider them in that light. We refer you to the forward looking statements included in our press release and earnings presentation. In addition, we identify the principal risks and uncertainties that affect our performance in our SEC filings, including our annual report on Form 10 ks as further updated in subsequent filings with the SEC. This morning, we will review our financial results for the second quarter twenty twenty five and share our outlook for our key product lines and end markets. Finally, we'll leave time for your questions at the end.

Speaker 1

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

Speaker 2

Thanks, Adam, and good morning, everyone. We appreciate you joining us here today for our quarterly call. As you saw in our press release, AdvanSix delivered resilient earnings with strong sequential improvement in the second quarter while continuing to execute key growth and enterprise initiatives in support of long term sustainable performance. Our second quarter results reflect our collective organization's execution and the advantages of our business model and diverse product portfolio amid an evolving macro environment. While we faced an earlier end to the spring domestic application season, earnings and cash flow improved sequentially from the first quarter driven by strong volume and pricing performance from our plant nutrients business.

Speaker 2

End market demand across the rest of our portfolio remains softer overall and we continue to navigate margin impact driven by higher raw material prices, namely natural gas and sulfur. Supported by our healthy balance sheet, we have supplemented our commercial and operational performance with investment in growth and enterprise initiatives to sustainably improve through cycle profitability. We continue to focus on making the necessary investments at the right time to support our long term performance. Our planned investment to upgrade our enterprise resource planning system is nearing completion, which will help streamline key processes across the organization while enhancing management tools and data analytics. We've also reduced our CapEx forecast for this year to a range of 135,000,000 to $145,000,000 reflecting the planned progression of our sustained growth program, refined execution timing to address critical enterprise risk mitigation, intention prioritization in our base CapEx.

Speaker 2

As you may have seen, we released our 2024 sustainability report, which highlights the terrific work happening around the organization integrated with our overall strategic priorities. More recently, we were awarded a 2025 gold rating for corporate social responsibility from EcoVadis with our score placing us in the top 3% of all companies assessed. We also continue to progress on 45Q carbon capture tax credits with another $8,000,000 claimed in the second quarter, bringing our total to nearly $20,000,000 for the 2018 through 2020 tax periods. This continues to represent a significant value driver for our company and stakeholders. As we move through the remainder of 2025 and navigate a dynamic environment, we are well positioned to support our strategic growth priorities as a U.

Speaker 2

S.-based manufacturer aligned to domestic supply chains and energy markets as well as a diverse set of end market applications. Lastly, we're happy to have Chris Graham on the call with us here today. Effective July 9, Chris stepped in to serve as our Interim CFO until a permanent successor is named. He has tremendous leadership and financial experience serving as our Controller since 2016 and more recently as the Vice President of Strategic Financial Planning and Analysis. Prior to joining AdvanSix, Chris spent nearly twenty years at Honeywell in various finance leadership positions, including as Controller of the Aerospace Division and earlier in his tenure as CFO of the Resins and Chemicals business that ultimately became AdvanSix.

Speaker 2

Let me now turn the call over to Chris to walk through the financials.

Speaker 3

Thanks, Erin, and good morning, everyone. I'm excited to be joining my first earnings call and look forward to engaging with the investor community. Let's take a look at Slide four, where I'll highlight the key items of the second quarter twenty twenty five financials. Sales of $410,000,000 in the quarter decreased approximately 10% versus the prior year. Sales volume was approximately 8% of that change, primarily driven by softer demand in key nylon end markets, including engineered plastics applications serving the auto sector.

Speaker 3

Raw material pass through pricing was down 5% following a cost decrease in benzene, which is a major input to cumene, our largest raw material and key feedstock to our products. Market based pricing was favorable by 3% driven by continued strength in plant nutrients, reflecting favorable North American ammonium sulfate supply and demand conditions. Adjusted EBITDA was $56,000,000 and adjusted EBITDA margin was 13.6%. I'll walk through the year over year variations on the next slide. Adjusted earnings per share was 1.24 and our effective tax rate was 0.9% compared to 25.2% in the second quarter of twenty twenty four, primarily driven by $8,000,000 of 45Q tax credits claimed for the 2020 period.

Speaker 3

Cash flow from operations of $21,000,000 decreased $29,000,000 versus the prior year, primarily due to lower net income, 45Q tax credit cash timing and the unwinding of prior year ammonium sulfate pre buy cash advances. Capital expenditures of $28,000,000 in the quarter decreased $5,000,000 versus the prior year. This yielded a negative $7,000,000 of free cash flow in the quarter. We expect free cash flow generation to strengthen in the second half and are targeting a positive full year free cash flow. Now let's turn to Slide five.

Speaker 3

Here we highlight the key drivers of our second quarter adjusted EBITDA performance compared with the prior period. Pricing over raw materials was unfavorable by $10,000,000 Tracking our key variable margin drivers, we saw a year over year contraction in acetone margins over rising propylene costs in the second quarter as we anticipated. In Plant Nutrients, while there was a strong domestic planting season supported by higher ammonium sulfate pricing and revenue year over year, margins were impacted by higher raw material costs both in sulfur and natural gas. Lastly, we saw a modest margin increase in our nylon and caprolactam portfolio over declining benzene costs. Sales volume was unfavorable about $5,000,000 year over year, primarily reflecting a reduction in caprolactam and nylon volume.

Speaker 3

Plant costs and other items were a $7,000,000 headwind with increased utility costs in part due to higher natural gas prices and the timing of planned turnarounds year over year. Let's turn to Slide six. Through the enactment of the One Big Beautiful Bill Act, we anticipate taking advantage of notable tax benefits, including a meaningful reduction in our cash tax rate, driven by 100% bonus depreciation and changes to research and development expensing. We also note that the act continues include 45Q tax credits that we discussed during our February call, which will enhance both earnings and cash flow for our business. As a reminder, 45Q credit for carbon capture and utilization became eligible as of February 2018 when the tax code changed and applies over a twelve year period.

Speaker 3

Our approved 2018 life cycle assessment or LCA of greenhouse gas emissions allow a federal tax credit based on the amount of CO2 captured and utilized that would otherwise been emitted into the atmosphere. Approved assessments are valid for three years of claim deductions and we plan to file our 2021 LCA soon. These credits reduce our effective tax rate and are calculated based on the amount of CO2 captured and utilized each year. To date, based upon our approved 2018 LCA, we've claimed approximately $20,000,000 in credits for the 2018 through 2020 tax years and continue to pursue these credits for subsequent periods. The 45Q credits represent a significant value driver for our business through an EPS benefit and lower tax obligations improving our free cash flow.

Speaker 3

We anticipate an estimated incremental 80,000,000 to $100,000,000 of potential opportunity remaining ahead of us for future periods. Now let me turn the call back to Erin.

Speaker 2

Thanks, Chris. I'm now on Slide seven to discuss each of our key product lines, starting with our Plant Nutrients business. While we did have an earlier end to the season, favorable ammonium sulfate supply and demand conditions in North America supported higher pricing and increased sales volume for the total fertilizer year. As a reminder, the North American fertilizer year typically runs from July when the value chain begins restocking through June of the following year when application is largely complete. As a result, it's important to view performance through this lens versus a calendar year.

Speaker 2

In the past fertilizer year, we delivered a 7% increase in domestic granular sales volume, which was enhanced by the progression of our sustained growth program. We continue to anticipate production capability by the 2025 to reach a milestone of 72% granular conversion, up from roughly 70% at the 2024. Moving into the new season fill, prices reset each year. We have entered the 2025 at higher ammonium sulfate pricing levels compared to last year. There continues to be a robust acceptance of the sulfur value proposition amid underlying increases in global nitrogen pricing, primarily driven by supply side impacts.

Speaker 2

While market oriented prices must contend with rising raw material prices, we've seen strong uptake in our field program. And given current corn futures, this is a positive reinforcement that the value chain believes in software to improve economics for the same acreage. While we navigate typical seasonal pricing considerations and what many consider a mix set of broader ag fundamentals, we know that farmers need yield to support their profitability. Overall, we remain excited about the growth prospects for this business and leveraging our expertise as a leader in this space. Let's turn to Slide eight.

Speaker 2

For nylon, we continue to focus on optimizing performance in the current environment. While our caprolactam and resin margins over benzene once again expanded year over year in the second quarter, we are seemingly operating in a lower for longer macro environment. We're continuing to leverage our position to navigate this extended downturn with global oversupply conditions holding industry pricing steady amid declining input costs. Here in North America, demand has been mixed. Year to date, we've seen moderated fiber and filament demand into building construction applications.

Speaker 2

Packaging has been generally resilient with end market trends stable in meat and cheese packaging. The area that has seen the most headwind has been in engineering plastics with a drawdown in auto inventories alongside uncertain tariff and trade policy impacting demand. Outside of The U. S, operating rates in China have moderated from earlier in the year as oversupply persists relative to soft demand in the region. As a result, trade flows out of China primarily to Southeast Asia and Europe have continued to limit pricing improvement globally.

Speaker 2

Overall, our efforts are centered around controllable levers to drive performance. This includes focusing on optimizing our fixed cost structure, while upgrading sales volume mix and production output in the most profitable areas of the business. Let's turn to Slide nine. Moving to chemical intermediates. Industry realized acetone prices over refinery grade propylene costs declined year over year in the second quarter amid higher input costs.

Speaker 2

As you can see from the table on the right side of the page, although spreads are off to twenty twenty four multi year highs, margins remain healthy and in line with cycle averages. Phenol operating rates continue to remain lower globally on weaker end market demand, helping to support a more balanced acetone supply and demand dynamic. Into the third quarter, acetone demand is expected to modestly improve sequentially and we continue to see moderation of propylene costs from the first half twenty twenty five highs. Acetone and phenol represent approximately 60% of our chemical intermediate sales with acetone making up a majority of that. As a reminder, approximately 80% of our produced phenol is consumed by our downstream Hopewell operations.

Speaker 2

For us, acetone is a key product line with a perform and optimize strategy to meet customer needs while driving favorable sales and profitability mix. For the remaining 40% of our chemical intermediates portfolio, our key strategic focus is around placing our various chemistry platforms into select high value applications in support of longer term growth and profitability. While demand across this portion of intermediates continues to remain mixed into ag chemicals, electronics and European paints and coatings to name a few, we did see steady revenues and margins in the second quarter year over year. Let's wrap up on Slide 10 before moving to Q and A. As we shared previously, our business is aligned to domestic agriculture, manufacturing supply chains and energy markets and to serve the diverse set of end market applications.

Speaker 2

2025 has been a dynamic year thus far, but we remain well positioned as an American manufacturer of essential chemistries. We have been operating with structural tariffs in place globally across our value chains for quite some time. We are adept at navigating an environment like this. We are largely insulated from first order impacts of reciprocal tariffs with nearly 90% of our sales in The U. S.

Speaker 2

And our key product lines in a net import industry position. In times of uncertainty, we're keenly focused on delivering on controllable levers. This includes taking a measured and disciplined approach to cost and cash management, including tension prioritization of our base capital investments and optimizing mix and production output for the most profitable parts of our business. We remain confident in the growth prospects for AdvanSix and are committed to delivering long term value to our shareholders. With that, Adam, let's move to Q and A.

Speaker 1

Thanks, Erin. Wyatt, can you please open the line for questions?

Operator

Thank you. We will now begin the question and answer session. Our first question will come from David Silver with Freedom Capital. Please go ahead.

Speaker 4

Hi, good morning. Am I coming through clearly, please?

Speaker 2

Yes. Can hear Yes.

Speaker 4

Sorry, my phone is a little dodgy here. Okay. Thank you very much. Several questions. I think the first one would be on the ammonium sulfate business.

Speaker 4

And I was wondering if you could maybe give us a little bit of a look ahead maybe on how the fall fill program is shaping up and maybe overall how you're looking at the next planning cycle? And then separately, there has been some variation in the pricing relationship between ammonium sulfate at least on the list price basis and urea and some other nitrogen products. Could you maybe just touch on how you see that pricing relationship performing, I guess, as the next several months play out? Thank you.

Speaker 2

Yes. Thanks for that. And first, I may start off by just reiterating that we're coming off a strong fertilizer year and where we saw higher pricing continuing to drive our sales increase 7% in the fertilizer year with our domestic granular AS sales volume, again continuing to be supported by the benefits of the sustained growth program and the favorable North American supply and demand conditions. As we roll forward here into the next year, we started and have built up a robust order book rate supporting a strong anticipated fall filled program. Again, here, again, just a compliment to the work done by our team as growers continue to recognize the sulfur value proposition.

Speaker 2

Every year we're continuing to see more and more interest in field programs, particularly as players down the value chain are focused on ensuring supply, which is supporting the pricing consideration. When you think about the premiums, when you look long range and long term premiums really ammonium sulfate to urea have been in about the 75% range. We're expecting similar numbers this year. I would note though David that when you think about a 75% premium on a let's call it a 500 type urea number that's a much higher sulfur value than a 75% premium let's say at a 300 as an example. So we're still selling the sulfur value at a very good price, which is what we're really focused on.

Speaker 2

And so as we achieve these robust premiums, it's clear that growers right, are seeing that value willingness to pay. And then obviously, that supply demand will always play a factor. So each year we're seeing perhaps that we may be decoupling a bit from Nitrin based on that growing sulfur value proposition. I would say we're cognizant of the broader environment. We see that corn prices have come down relative to nitrogen costs and that relationship is a bit low.

Speaker 2

So we recognize farmer economics are a bit more challenging. But again, with the signs of the overall good fill program in 2025, we're seeing that strong uptake on our demand, which is a positive reinforcement that the value chain does believe in sulfur as a key nutrient to improve economics for the same acreage. So we'll a lot more to go, but things are looking in the right direction.

Speaker 4

Okay, great. Thank you for that. Next question I think would just be more on the chemical industry environment that you're operating in right now. So I guess we're most of the way through the current earnings season and a number of major chemical companies have reported what I would say were very weak results. Your results may be there are some puts and takes there, but you're probably not as bad as some that have reported in recent days.

Speaker 4

Maybe if you could just focusing on maybe the more petrochemical oriented products and markets that you're dealing with. Given the tariff uncertainties and some weak regional economies here, I mean, do you view the stability, I guess, or the predictability of AdvanSix's profitability, I guess, or market opportunities, let's say over the medium term, let's say through the next couple two, three quarters? Thank you.

Speaker 2

Do recognize that the environment in which we're operating in has been dynamic, right, in a number of value chains, number of end applications. But we remain cautiously optimistic given the diversified nature of our portfolio and I think that came through in the Q2 results, right, and coupled with our integrated business model. It also includes our formula and index based pricing mechanisms that continue to support pricing and value across various parts of the business. Relative to the broader uncertainty, relative to others, we have the strength of being a U. S.-based manufacturer.

Speaker 2

All of our assets are here. 90% of our sales are staying within The U. S. And certainly we're procuring most materials from The U. 90% of all of our supplier spend is procured domestically.

Speaker 2

So we get the opportunity set relative to good value in end markets in this region. And as we've shared before, relatively insulated from first order impacts to tariffs. We do have the downstream uncertainty, if you will, that's probably predominantly what we see in nylon. The price overall spreads have increased. We're pleased to see that pricing has held right in this environment.

Speaker 2

So that's allowed us to see that expansion and particularly with benzene. And it really does focus on the stability driving the opportunity sets into those end markets we are can get a differentiated price and hold that stability. On acetone, phenol is mostly impacted given the environment down into building construction. As we shared that creates a bit of a natural hedge for us because 80% of our phenol is consumed internally. So globally that is keeping acetone relatively balanced in the near term.

Speaker 2

Here again pricing holding, we have a portfolio that is well balanced between small, medium and large buyer customers. So it's affording us flexibility to move where the value is in the market. We did have to contend with a spike in propylene costs earlier this year. Those have stabilized and moderated. So I think that the diversity, the regional footprint and just our flexibility, we've long said that we can navigate through a number of macro environments and I think the goal here is to continue to put those proof points on the board.

Speaker 4

Okay, great. Thank you for that. Maybe if I could just follow-up. I mean, did start off your previous answer with the idea of operate a highly vertically integrated production chain and this was a quarter where you I think you cited nylon sales down around 10%, but the ammonium sulfate volumes I'm sorry, nylon volumes down about 10% and ammonium sulfate volumes up I think 7%. And you've added on with comments about acetone, which I appreciate.

Speaker 4

But looking ahead, I mean, can get a little tricky at different under different market environments to confidently, I guess, place all of your products, including those that might be experiencing weaker demand. So again, as you maybe as you look forward, maybe thinking about nylon in particular, I mean, confident are you or what strategies are you looking at to kind of make sure that you can maintain those high utilization rates that give you pretty nice cost advantages and you're able to place all of your co produced products into reasonable markets. Hope that made sense, sorry.

Speaker 2

No, believe I know where you're heading and trying to tease out here. And yes, we do have an integrated value chain. That integrated value chain brings strength to create our global cost advantage in the monomer for Nylon six, right. So that does afford us, as we shared in the past, be able to run higher utilization rates than others, which then as you say then support the further strength of the business model around the diversification of the end market applications that we reach with our diversified chemistries and the other product lines. When we think about that and oftentimes we drive to meet demand where it fits, I would say in nylon right now as we think about the geographic mix, we're being more selective in our export business.

Speaker 2

In past years more volume might have been better, but when you look at really where the global clearing prices below cash costs for a number of players, Europe is struggling. I think operating rates there are well 60% or less. We're going to really maintain some discipline as we navigate these current dynamics. On the flip side, through these cycles, it's important we've been working to create more degrees of freedom for ourselves. And we learn that through each cycle, we create levers for ourselves.

Speaker 2

And one of the things that we've mentioned in sustain is investing in the capabilities around some synthetic production of AS as well as part of that roadmap to allow us again, how do you navigate through these times, create more flexibility across the asset base and perhaps we've had in the past that allows us to take advantage of the various market opportunities as we go. So even in a challenge global nylon environment, we still see North America here is stable. So that's affording our utilization rates. And then coupled with the technology and operational levers that we've created for ourselves, give us the agility that we're demonstrating here and we'll continue to seek more of that as we go forward to ensure that we can drive performance in our other product lines and not just be held solely to what we can can what we produce there.

Speaker 4

Okay, great. Thank you. Maybe my last one here would be a cash flow oriented question. And I was hoping you could just build on the comments you've made in your prepared remarks. But Chris, as I look at the first half cash flow statement, I mean, there were some sources, I guess, of the reduced operating cash flow totals year to date.

Speaker 4

And I was just hoping you could comment on some of the levers or some of the bigger items where you either expect a meaningful pickup in improvement in cash flow through the balance of the year or maybe where your incremental flexibility might be to kind of some levers you might have to support free cash flow generation even in a less than robust environment? And then secondly, I was hoping you did provide some big picture numbers on the carbon tax credit opportunity, which was great. But I was just wondering if you might be able to comment on the expected timing of when those cash flows might be received. So for instance, you've claimed, believe, $20,000,000 thus far. I'm guessing there hasn't been much received there.

Speaker 4

But when should we expect meaningful cash to be received from the carbon tax credit program? Thank you.

Speaker 3

Yes. Thanks David for the question there. As we have shared our expected second half cash flow performance is expected to be sequentially better. Would point to probably two larger levers that we're tracking as we move into the second half. 45Q is one of those levers.

Speaker 3

So just as a little bit of background into the collective processes, we've been working with the Department of Energy and the IRS and we've got the 2018 LCA approved, which does cover the 2018 through twenty twenty years. Based on that approval, we've gone and filed amended returns to claim that credit. Those amended returns automatically trigger an audit and we need to work with the IRS through that audit. Once the audit is complete, we would expect to receive a refund on those credits And we believe that these will happen in the current calendar year. So that's one item.

Speaker 3

I think our second probably significant item that we would point out to help understand our position on why we believe second half cash flow is going to be better is I would point out our ammonium sulfate pre buy program, which by design is a headwind on cash in the first half. I would expect us to continue this program, and so we would see a positive cash flow in Q4 of this year and that would be consistent with our regular practice sort of year over year. Couple other things maybe to point out relative to cash flow. We are trying to be very thoughtful about CapEx spend. Obviously, we continue to give priority to sustain and other sort of growth programs, but we are being much more thoughtful about how we deploy sort of the base CapEx in the current environment.

Speaker 3

I would point out our healthy balance sheet position with our debt levels at the lower end of our target range and well as well would point out our trailing twelve month free cash flow position and performance as an indicator of how we typically perform in a second half environment. So hopefully that gives you some context and some thoughts there around why we believe it's going to be sequentially better and appreciate the question David.

Speaker 4

So just to clarify, you're one of the rare taxpayers that's actually looking forward to an IRS audit this year. Is that right?

Speaker 3

Yes. I don't think we're the rare, but yes, we were certainly one of them. And once again, you claim those sort of credits on an amended return, it automatically gets triggered for an audit.

Speaker 4

Okay, very good. That's all I have. Thank you very much for all the detail. Appreciate it.

Speaker 2

Great. Thanks, David. We look forward to working with you at Freedom Capital.

Speaker 4

Very good. Yes, same here. Thank you.

Operator

With no further questions, this will conclude our question and answer session. I would like to turn the conference back over to Erin Kane for any closing remarks.

Speaker 2

Thank you all again for your time and interest this morning. We hope this call and discussion have clarified the key considerations that supported our second quarter performance and outlook across our key end markets. The strength of our business model and our position as a diversified chemistry company will serve us well and we continue to expect performance this year to demonstrate our resilience. We are confident in our strategic vision to support safe, stable and sustainable operations, improve through cycle profitability and total shareholder returns. With that, we look forward to speaking with you again next quarter.

Speaker 2

Stay safe and be well.

Operator

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

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