Q4 2020 AdvanSix Inc Earnings Call
[music].
Good morning, and welcome to the advance ex fourth quarter 2020 earnings Conference call all participants will be in listen only mode.
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After todays presentation, there will be an opportunity to ask questions.
<unk>, who ask a question you May press Star then one on your telephone keypad.
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Please note this event is being recorded.
I would now like to turn the conference over to Adam Crystle Director of Investor Relations. Please go ahead.
Thank you Chad good morning, and welcome to advanced <unk> fourth quarter 2020 earnings Conference call with me here today on our President and CEO, Erin Kane and senior Vice President and CFO, Michael precedent on this call and webcast, including any non-GAAP reconciliations are available on our website at investors.
Scott advance ex Dot 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 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.
There has been 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-K as further updated in subsequent filings with the SEC.
This morning, we will review our financial results for the fourth quarter and full year of 2020.
State for our outlook for our key product lines and end markets. Finally, we'll leave time for your questions at the end so with that I'll turn the call over to advanced <unk> as President and CEO Erin Kane.
Thanks, Adam and good morning, everyone. Thank you for joining us and for your continued interest in advance ex.
I hope that everyone listening today as well as their families.
And share coworkers are remaining healthy and staying safe.
As you saw on our press release advance ex delivered a terrific 2020 with another strong quarter to finish the year.
For the many challenges brought on by the external environment last year, our organization demonstrated resilience perseverance and strength of execution as.
Families incurred on our commitments.
Having positive sales volume growth generating higher margins and earnings and delivering positive and robust free cash flow, while also reducing leverage.
We maintained continuous operations across our facilities, including the execution of a large planned plant turnaround and successful.
Implementation of health and safety protocols in the wake of the COVID-19 pandemic to protect our employees contractors assets and other key stakeholders.
We mitigated the impacts of COVID-19 through proactive cost and productivity initiatives and ensured we remain in lockstep with changes in customer demand.
We delivered our supply chain, while continuing to invest for growth and improving the underlying earnings power of the business.
Our ability to withstand and overcome these challenges demonstrates the resilience and strength of our business model and portfolio diversity as well.
The importance of our sustained efforts in building the foundation.
<unk> for long term performance and shareholder return.
Couldn't be prouder of our team.
Mike will detail our financials in a moment, but as you can see on the left side on slide three we've highlighted year over year variances for some key metrics in both the fourth quarter and full year.
I won't mention them, all but you can see the significant improvement.
<unk> and performance, particularly our ability to generate an 11% increase in net income and $59 million improvement in free cash flow for the full year.
Our fourth quarter 2020, EBITDA was the highest we've seen since the second quarter of 2018.
As we look forward, we do recognize we continue to navigate.
Environment.
That said, we expect near term improvement in nylon demand increased ammonium sulfate fertilizer demand through the upcoming planting season, and favorable acetone industry supply and demand balance to continue while also benefiting from our ongoing investments for differentiated product growth.
With our focus.
On the rigor around operational excellence, we are targeting a record year of production I'll put it in 'twenty and 'twenty, one supporting higher earnings and robust cash flow, while making continued progress on our sustainability initiatives.
We have a lot of excitement around our organization and the opportunities that lie ahead.
Our strategic priorities remain consistent as we said.
Covid continued operational excellence and improving through cycle profitability and.
Enhancing our portfolio resiliency through differentiated product growth and mix optimization and being strong and disciplined stewards of capital.
Many have been waiting to look back on 'twenty and 'twenty with hindsight.
We are taking those lessons learned on momentum we built.
Apart from into 'twenty, 'twenty, one and remain confident in our ability to deliver long term shareholder value.
With that I'll turn it over to Mike to discuss the details of the quarter. Okay. Great. Thanks, Erin and good morning, everyone from now on slide for World I'll review of the fourth quarter financial results.
Overall, we executed once again very.
On a dynamic environment highlighted by volume growth margin expansion and strong cash generation.
Sales totaled 340 million, that's up about 4% compared to last year sales volume in the quarter increased roughly 8% versus the prior year, primarily due to higher production output and improved end market demand overall.
Well pricing overall was down approximately 4% due to lower raw material pass through pricing, which was unfavorable by about 4%.
Market based pricing was favorable by just under 1%, reflecting improved industry dynamics in chemical intermediates, particularly acetone.
This was partially offset.
Overall, lagging regional and market conditions in our nylon and caprolactam product lines.
Notably this quarter was the first time, we've seen market pricing turned positive since the first quarter of 2019.
EBITDA was $48 million in the quarter of about $36 million versus the prior year on.
Walk through the key year over year variances on.
<unk> bylaws.
Earnings per share of <unk> 94 cents increased $1 two per share versus the prior year.
In the quarter, we saw a lower effective tax rate compared to last year, primarily driven by an approximately $3 8 million dollar energy tax credit associated with our natural gas boiler investments.
And.
The next day cash flow from operations reached $48 million in the quarter, that's up about $28 million compared to last year, primarily due to higher net income cash.
Capex of $15 million was favorable by roughly $29 million year over year with a normalized level of capital spend as expected.
Importantly, we generated positive free cash.
Lastly, the full year as we anticipated a testament to the collective organization executing in a challenging environment I would also point out that the expected approximately $12 million cash tax refund related to the cares Act remains outstanding that is now anticipated to be received in the first half of 2021.
Turn to slide five.
Here, we highlight a few of the key drivers of our fourth quarter EBITDA performance year over year.
Pricing over raw materials was roughly a $3 million tailwind year over year tracking our key variable margin drivers performance in chemical intermediates reflected a continued favorable supply and demand environment for acetone over propylene spreads from.
Ammonium.
Cash flow fade on a net price over natural gas and sulfur basis, and caprolactam and nylon over benzene were both down year over year.
The impact of planned plant turnarounds to pre tax income was only 2 million on the fourth quarter of 2020 versus approximately $25 million in the fourth quarter of 2019 represents.
Sulfur and approximately $23 million decrease year over year as you may recall, we completed a larger hopewell planned turnaround in the fourth quarter of 2019, including our sulfuric acid plant.
For the full year 2020, the total pretax income impact of turnarounds was approximately $31 million compared to 35 million.
Presenting 2019, as we drive further efficiencies on our turnaround processes and execution.
Our realigned <unk> supply chain and logistics productivity represented an approximately $4 million favorable impact on quarter as we continued to reduce incremental cuming sourcing costs through supply chain planning optimization and.
Efficiencies following the 2019 shutdown of <unk> supplier Philadelphia Energy solutions.
Lastly plant productivity higher volume and other items were approximately 5 million favorable in the quarter.
Now, let's turn to the next slide.
We have summarized our full year 2020 financial results on slide six.
On other we're very proud of what we delivered in 2020 in a challenging macro environment.
We'll not go through all the detail on the slide but some of the key highlights include first growth in sales volume. Despite the ongoing impacts of COVID-19.
Higher earnings driven by strong productivity and cost management, and the favorable impact of lower raw materials.
Material costs more than offsetting lower market pricing and an unfavorable mix impact for the full year. We saw on approximately $26 million cost reduction as we took a proactive approach to mitigate the impacts of COVID-19 on our business.
And as we have disclosed previously we estimate roughly half for the full year cost savings are more temporary in nature with.
With the remainder of more permanent.
Third tax planning initiatives that resulted in a lower effective tax rate and lastly, higher free cash flow supported by an approximately $67 million reduction in capital expenditures.
Now, let's turn to slide seven to further discuss our cash flow and leverage exiting the year.
On the left side of the page we've highlighted the drivers of the robust $32 million of free cash flow in the fourth quarter supported by net income and lower capital spend rates.
As anticipated free cash flow was positive for the full year in the quarter, we saw working capital roughly neutral as ammonium sulfate pre buy cash advances largely.
Other increases, including higher accounts receivable due to the due to sharply higher sales in the fourth quarter compared to the third quarter.
As we previewed our Capex run rate has come down to more normalized run rates. Following the completion of several larger high return growth and cost savings investments and as we continue to drive disciplined on our capital.
<unk> processes.
On the right side of the page we have once again shown on our leverage ratios or net debt over trailing 12 months adjusted EBITDA going back to the end of 2018, both net debt and adjusted EBITDA calculated in accordance with the terms of our revolving credit facility as.
As planned our leverage was reduced in the fourth.
Quarter of 2020 supported by continued robust cash generation the normalization of the planned plant turnaround impact on our trailing 12 months of EBITDA as well as debt pay down we exited the year at a leverage ratio of two times, which is comfortably within our target range of one to two five times, we continue to expect a robust cash flow.
The outlook for 2021 and leverage to continue trending lower now let me turn the call back to Erin.
Thanks, Mike and now on slide eight we've included our typical pricing and spreads across our product lines.
Have you seen nylon industry spreads improving off trough levels as demand has modestly improved with economies.
Reopening around the globe.
As we've shared previously Asia has led the recovery with the U S and Europe lagging what you see here on the difference between the global composite and Asia spread.
Although the industry remains in an oversupplied position globally, and we're monitoring inventory levels through the value chain. We are encouraged by the recent improvement.
Movement in demand and pricing.
The Asia Caprolactam to benzene spreads average around $700 per ton in the fourth quarter compared to roughly $600 per ton in the first nine months of 2020.
We saw benzene input costs, increasing as we exited 2020.
Which caprolactam and resin prices closely.
Okay.
In addition, we continue to see global prices trending positively entering the new year.
Overall nitrogen industry pricing was subdued through the fall application season, but it has picked up considerably as we've exited the year on the back of improved agricultural fundamentals, including crop prices farmer profitability.
And planted acres overall.
As a reminder, urea is the largest nitrogen fertilizer by total consumption and tends to have an underlying influence on other nitrogen products.
However, ammonium sulfate does habits on supply and demand dynamics influencing that premium earned for the sovereign interest nutrient.
Sequentially.
Ammonium sulfate prices were roughly flat as we enter the new AG season, and were down year over year on the impact of lengthening supply and demand as we continue to monitor competitive dynamics in light of North America's supply additions as well as European imports.
And lastly industry realized acetone prices over refinery grade propylene costs.
Continuing to expand in the fourth quarter trucking, a snug supply and demand balance in the U S.
We've seen the continued expansion on the premium and a small medium buyer acetone prices over the large biomarker on a year over year basis through the end of the year.
As a reminder for small medium buyer price is reflective of roughly one third.
<unk> of the domestic industry, where pricing is predominantly freely negotiated.
This is coming at a time when propylene costs have continued to increase significantly on very tight supply and demand dynamics.
We're seeing this trend play out into the first quarter with further industry price increases to keep pace with rising input costs.
Bob refinery grade propylene.
Opaline prices have reached their highest level in over two years.
Let's turn to slide nine to discuss some industry considerations as we progressed into 'twenty and 'twenty one.
As shared in the past we've included a breakdown of North American industry demand as well as our own 2000, twenty's sales mix to provide some context around our exposure to various end users.
Starting with nylon, we've seen some improvement in demand across its consumer oriented end markets.
Carpet, which is the largest nylon end use in North America, while still faced with structural demand declines has rebounded from its <unk> COVID-19 trough.
And mill rates have stabilized through the fourth quarter. This year's improvement from residential applications on.
On the back of strong housing starts and existing home sales supported sequential demand improvement while commercial construction continues to lag.
We continue to expect commercial construction, where nylon has a stronger foothold to remain soft in the near term until there's more visibility until office and hospitality trends postponement.
In engineered.
Six were auto represents about 60 per cent of nylon demand in that space, we've seen demand improvement with global auto production rates increasing.
To date, we haven't seen any impact back to our compounding customers related to the widely known silicon chip shortages.
Which had impacted output at several Oems further down the value.
Third planning the.
For the remainder of our engineered plastics exposure and consumer and industrial and electric and electronic spaces remains resilient with volume and demand back to pre COVID-19 levels.
Lastly, food packaging demand for nylon has remained robust during this period, which we expect to continue into 2021.
So overall we're.
You changed by other trends, we've seen exiting the fourth quarter and entering 2021 moving forward our efforts focus on asset flexibility, new product and application development and customer qualifications are helping to mitigate the temporal unfavorable mixed consideration we faced throughout 2020, as we place the products where demand existed.
Our incurred let's shift to ammonium sulfate.
I will highlight a number of recent activities around ammonium sulfate on the next slide but from an industry perspective software demand remains robust as a key nutrient supporting crop yields and we expect ammonium sulfate fertilizer fertilizer demand to increase for the 'twenty and 'twenty one planting season.
A number.
Number of key indicators are trending favorably.
Lowered expectations for ending stocks, including corns and soybeans is translating into increased crop prices, which have surged in recent weeks and months to multi year highs.
The supply and demand balance has been supporting crop prices at these higher levels, while the profitability outlook for growers continues.
True.
Stronger anticipated nitrogen fertilizer demand, coupled with regional supply constraints and increasing input cost has supported increases in urea pricing, which in turn has supported other nitrogen pricing, including ammonium sulfate.
And this basically will continue to monitor and increases in industry raw material inputs as well, including net.
Natural gas and sulfur.
Moving to chemical intermediates, we expect a favorable acetone industry supply and demand balance to continue into 'twenty and 'twenty one.
Acetone imports into the U S remain low with global feed on industry utilization, keeping supply and demand rather snug.
Man for acetone continue.
<unk> used to be robust as a precursor into acrylic screens continue to be used as protective equipment at retail offices in other locations.
We also continue to see strong demand for our chemical intermediates into paints and coatings Patrice.
Particularly with do it yourself home improvement projects on the rise during the pandemic.
As I mentioned in regard.
Hard to nylon auto demand has been recovering and although we are further back in the value chain a number of our products on the intermediate portfolio portfolio officer that end market.
We also continue to see growth momentum for a need on product line, which is a solvent using various high value applications.
Let's turn to slide 10.
As you may have seen in.
On our press release earlier this quarter. We are further building on our long standing leadership and expertise in ammonium sulfate and sulfur nutrition, while creating further opportunities for growth and efficiencies across the value chain.
We can continue to see increased demand for software nutrition and ammonium sulfate is proven to deliver a pound for pound the most readily available software.
For our nitrogen to a wide variety of crops, including wheat, cotton corn and soybeans.
We highlighted a number of recent activities, including.
The value of ammonium sulfate on soybeans, a crop where a S is not applied today.
We're continuing to educate growers and retailers about recent lab and field trial results, particularly.
With the benefit.
Of ammonium sulfate, which add sulfur and supplement on nitrogen to their soybean crop management plans.
We believe farmers have a great opportunity to boost production for new nutrient management strategies with research showing yield increases as much as 10 or more bushels per acre.
Operationally recent efforts in <unk>.
Hansman and crystallize our technology have supported our production output of more high quality granular grade ammonium sulfate to meet the growing demand of our customers.
We are now targeting conversion of approximately 65 per cent of the ammonium sulfate produced into this higher value granular form which is an increase of roughly 5% a.
Particularly on that granular products can earn a sales premium over the standard grade product of up to $50 per ton on average.
And lastly, we announced a recent acquisition of certain assets of Commonwealth Industrial services, or Cif, which enables us to expand our offering to directly supply packaged ammonium sulfate to customers.
Reminds me in North and South America, It Diversifies and optimize their offerings to include a spray grade adjuvant to support crop protection, a fire retardant insulation as well as other specialty fertilizers in products for industrial use.
We also expect the addition of packaging and warehousing capabilities to bolster logistics and operational efficiency in our Richmond.
Primarily area plants.
We are very excited to welcome our new teammates and extend our industry leading value chain for ammonium sulfate.
Now, let's turn to slide 11.
As you may have seen on our December press release, I wanted to spend a moment highlighting a number of achievements and the progress we made in 2020 as we continue.
Virginia on a broad platform for sustainability and corporate social responsibility across our organization and with stakeholders.
We were proud to join with other industry leaders in a number of global sustainability initiatives, including active participation with the ego about ex corporate social responsibility assessment that resulted in a gold.
Rating, placing us in the top 4% of chemical industry peers.
In November we joined together for sustainability, a global procurement driven initiative to assess and improve the sustainability performance of chemical companies and their suppliers.
There were also a signatory to the UN global compact and made a pledge.
<unk> operation clean sweep.
Underpinning all of this is our ongoing commitment to being an ACC responsible care company, including having all of our advance excite RFP for the 14001 certified.
In the year, we also established for sustainability Council under oversight of the newly created health.
Safety Environmental and sustainability Committee of the board the sustainability Council supported by subject matter experts throughout the organization to develop a holistic enterprise wide view of sustainability, we look forward to sharing our next sustainability report in the next in the coming months with you all building on the enhanced ESG disclosures published last year.
Our sustainability efforts continue to mature in concert concert with our strategic priorities.
Let's turn to slide 12 to wrap up before moving to Q&A.
Consistent with what we shared last quarter, our core focus areas for 'twenty and 'twenty. One include continued operational excellence and improving through cycle profitability.
Enhancing portfolio resiliency and strong capital stewardship.
We are targeting a record year of production output in 2021, supporting higher earnings and robust cash flow for.
We're maintaining a rigorous focus on productivity and cost savings with approximately half of the 20th funding cost savings living through based on structural and permanent.
Actions taken throughout last year.
Commercially as I've highlighted we're largely seeing the trends of the fourth quarter across the business continue into the first quarter of 'twenty and 'twenty one and.
In addition to strengthening agricultural fundamentals.
You have all seen the recent severe weather that has covered a large majority of the country, particularly down in the golf.
<unk> is an evolving situation real time, and our focus at current is to protect our value chain and customers while minimizing disruptions.
We are bolstering growth from investments in our need on an axiom product lines, serving differentiated and high value applications, while continuing to optimize our nylon offerings and made carpet end market declines.
We do continue to expect capex to be $80 million to $90 million in 'twenty and 'twenty, one which does include a modest amount of spend towards high return growth and cost savings projects.
We are focused on improving our return on invested capital and we will remain disciplined on our approach as we look to drive long term shareholder value.
We expect leverage to remain within our target.
This is and have approximately $60 million remaining under our share repurchase authorization.
We're maintaining a disciplined inorganic framework, because we assess opportunistic acquisitions that would have a strong portfolio coherence with our product lines and technologies.
<unk> is a great example of this is to drive the sulfur nutrition value proposition.
Rain integrating their packaged ammonium sulfate business.
To close where I started we are gaining momentum and remain confident that advance ex is well positioned to deliver long term shareholder return so with that Adam let's move to Q&A.
Thanks, Darren Chad, let's open the line for questions.
Certainly.
We will now begin the question and answer session.
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Volume below roster.
Yeah on the first question will come from Vincent Anderson with Stifel. Please go ahead.
Yes, good morning, and wonderful into the year.
So just to start it off and dialogue.
We've watched extra.
Early towards prices out of Taiwan recover pretty rapidly ahead of their capital costs, which would seem to underscore the spreads that you published on your slide deck.
I guess should we still be looking to now.
Taiwan is kind of a price setter for the Asian markets or is that maybe a naive view.
Especially since our exports have continued.
Export declined since really 2016.
So great Great question on Vincent and thanks for Hum for the complement on 'twenty and 'twenty.
You know when we think about the global markets as we've talked about in the past.
Now, it's important to kind of look where sort of day clearinghouse of.
Of sort of supply and demand needs and you know as we had indicated.
He used to look at China, with China sort of the anti dumping components in place and expansion of their their local regional supply. That's on a clearinghouse markers went too to Taiwan and South Korea.
So I do think and we still track those key key markers because that is where sort of the incremental imports around the world do gull.
And there there is a strong sort of connection in that region too.
Providing a global picture of where for the supply and demand have to meet.
So I do think that there is still the right place to look as.
As you know, we do see some disconnects and have seen a little bit more sort of volatility on where pricing has moved real time.
And would you have to look at sort of a broader lens on.
On a composite over a couple of weeks you know maybe months.
Is that what we can see some temporary disconnect from we saw that if you look on the chart a big jump in yeah.
Year on year, but that's really tied to sort of a one month challenge in our in the prior year's quarter itself that can often skew some.
Some of those metrics, but I guess then on.
On a short answer your question, we still believe.
To see if you just look at from a.
So that's where the global dynamics have to sort themselves out.
Perfect. Thanks, and this is maybe.
For a little far back, but if my memory serves Gil Goodrich used to operate a specialty nylon plant in Canada that was shut down kind of a wash.
While ago, but he used to supply its tire manufacturing.
It's one area that we haven't really heard you talk about potential applications for nylon six is it still used in tire applications and if so is that an area of opportunity for you to explore.
Yeah, So one one of the areas.
Operating.
Opportunity that that shutdown has presented itself is the growth on our wire and cable apps.
Application space. So they they did participate there and certainly our wire and cable.
Growth continues to be a you know a a great sort of stand out in our differentiated application.
Sort of growth for nylon.
In tires overalls on you know historically, there was a large demand for tire cord into them.
Yeah.
So what I would say for the the large non performance tires, but sort of large bias or things that would go on to construction.
Type applications that was a very large.
Large application in China at one point, and particularly could still be found.
Merit and 99 six can still be found although I would say, it's probably not as prevalent as it was.
You know years ago.
Okay perfect. Thanks for clearing that up and just one more quick one and then I'll, let somebody else.
Let's have a turn here.
How many field trials do you have scheduled for 2021.
On soybean acres in a rough split between University test fields and farmer fields.
I'm going to ask that we will get you that detail in the exact.
Numbers I would say that certainly our field trials continue.
And is it kind of dragging on our press release, we had a link to new micro sites that we have up and running on providing information about our our soybeans only Adam can follow up but it was in the press release. There are I can say that we have been receiving positive.
<unk> from our customers and you know I think anecdotally, we believe there actually could be a that's actually moving to field and potentially moving to the field this spring as well.
But I apologize I don't have the exact split here for you.
Top of mind, but I think we are seeing positive trends absolutely.
Okay perfect. Thank you very much.
Once again, if you have a question. Please press Star then one on next.
Question comes from Chris Moore with CJS Securities. Please go ahead.
Hey, good morning, guys.
Good morning.
Good morning.
So projecting turnaround costs in the $25 million to $30 million range in fiscal 'twenty, one and I guess, that's the question.
Kind of what are the drivers there versus historically more on the $35 million to $40 million range and is this level the new normal.
Okay.
Yes.
It's a good good point, Chris I appreciate you pointing that out and what we provided in the back of the presentation as the year by year on quarter by quarter.
Impacts of the planned plant turnarounds and to your point, we have seen an improvement in the spend.
If you go back a number of years and this year, we're looking at 25% to $30 million, which which is down.
From last year of $31 million and in 2019, roughly $35 million.
Yeah, and we do believe $30 million is that sort of range 25 to 30 is roughly our new <unk>.
Okay.
This is an area that we've been very focused on in terms of driving efficiencies better planning managing the scope the duration really driving the cost down.
So I would say we are this has been an area, we've been trying to drive productivity and efficiency and effectiveness and.
<unk> I believe that that's roughly on new range now I will say from year to year, depending on whether or not we'd do the sulfuric acid plant turnaround or the ammonia plant turnaround from year to year, you could see a bit of a fluctuation in that total amount, but over time, we're seeing a reduction.
Got.
And we do.
It looks like nylon sales for.
Consumer corporate doing well can you just kind of.
Remind me what day did mixed normally is between.
Consumer and commercial and what that mix looks like currently.
Currently.
Great question, if you kind of think back around the.
The overall north American carpet market.
Overall, let's say fibers right you've got about 70% is residential 30% is commercial so that's kind of on when you think about all mix in the residential space Chris.
About 55% of that is going to be non nylon.
And about.
About 15 percentage is going to be nylon.
Then most the commercial has been historically.
<unk> six for nylon 66.
Certainly when we look at.
Chris.
For the mill rates were down from year on year, we kind of ended on down about 10%.
We think and certainly the residential space here has been.
You know a big sort of backfill if you will I think just in the surge right with every home sale, you've got a renovation turn and then with Newbuild.
You can get a full on going in as well so.
Hard to say.
It's been nice to see sort of the rebound I mean, our corporate customers are are pulling at rates that were sort of pre COVID-19.
But I think it is definitely on the.
On the residential side that is.
As bolstering that.
Got it that's helpful last one for me then.
The headlines recently regarding severe weather, particularly from disruptions down on the Gulf.
Are you seeing any.
Challenges to your supply chain.
Thanks.
So that question from Chris and I guess first let me.
I'd point out.
Some positive as it came into this week because as you know right. There is a number of headlines number a force majeure situation is evolving real time.
We came into this running very strong I'm keenly through Q4, all the way through January.
January good solid utilization 90, plus percent 91 across our value chain with Hopewell performing very well in to the mid to high nineties again, a continued demonstration that our operational discipline and so that reinvestment efforts are truly paying off.
We also had robust.
Ralph and I would say with inventory so I would think about that as our intermediate chemicals all those levels in place to buffer what is typically through this time of year seasonal on supply chain challenges with storms and and also they knew that they were gonna be known refinery turnarounds to be executed early in the first quarter.
Huh.
But as you say.
Lots of headlines the situation is evolving very quickly and by the day.
In some cases, it's rather opaque as we learned sort of hour by hour here.
While we are located geographically away from the heart of the storm impact as you pointed out it's widely known we do source our key raw material.
Cash from the golf and at current on North American producers of Cumin have declared force majeure.
And also earlier in the week, we did have some water supply and stability from our supplier and hope all due to some icing that occurred through the mid Atlantic I think it's important to note Chris that we're running all of our plants.
However, given the evolving nature other situation we have elected.
And it wouldn't be uncommon with with patterns like that so we would see right. Our plants and then proactively think about how we minimize disruption.
So what we have done is proactively.
Proactively turned on rates, we have brought for.
What have been planned maintenance already in the quarter predominately in March forward into.
On the back half of February again, one it gives us time to assess the situation and gained some clarity on on what's going to happen a lot of indication that refiners are gonna be restarting over the weekend, but certainly.
For our power utility.
Transportation disruptions, we are absolutely focused on protecting our customers and certainly minimizing this destruction.
Or this is what our execution DNA kicks in which is you know I think a strength for us and we demonstrate that strength last year as well.
The error. So we do at current have everything from suppliers competitors and customers all impacted and obviously, we're working to navigate both the opportunity on the respect that the situation kind of brings and really focus just staying in lock step right now Chris with the.
The situation with our suppliers and our custom.
<unk>.
As a sort of the evolving situation unfolds.
I appreciate the color I'll jump back in line.
Okay. Thanks, Thanks, Chris.
And the next question comes from David Silver with C.
Okay. Please go ahead.
Yeah, Hi, thanks.
Thank you.
I just wanted to follow up maybe on the previous question regarding the impact from the situation in Texas.
You focused right in on I guess, the Q mean for supply situation, but could you just take.
Take a moment and just clarify whether you are reliant on.
U S Gulf sources for either natural gas or sold for ore.
And anything else to think about right.
And as you said right in this kind of fast evolving real.
Time kind of situation just.
Are there alternative sources from non U S Gulf.
Sources.
That you're comfortable with for the other.
Inputs to your overall production chain. Thank you.
Yeah, no happy to provide that.
That clarity, David and Bill Thanks for the follow on here. So it's really even with Q mean, right I think when we talked about how we have worked to mitigate and even the 2019 shut down of the east coast supplier Philadelphia Energy solutions, we talk about broadening the basket of suppliers. So.
We do have suppliers that are outside the golf, which is.
Important to note and I you know, including.
The ability to import and so you know all of those levers are things that we are pulling in and have been pulling you know for it for the performance of the company and value chain kind of going forward when it comes to natural.
I mean, certainly you have seen you know.
A restriction.
We.
From where we sit geographically we are predominantly pulling from molecules.
You know that are tied to.
The basin closer to us right in that pipeline so.
They're they're not restrictions in the area.
So certainly this time of year. It is not uncommon for us to see some curtailments from time to time, just as you know natural gas lines are managing both residential as well as industry, but yes.
There is no disruption to natural gas.
You know for us at this point and suffer.
As you as you well know is awful.
Coming off the refinery complex again, given yeah, we're moving molten sulfur you know logistics are important so I think it's fair to say that a vast majority of our sulfur coming from refineries outside the Gulf that are going to be geographically.
So located to us and and again, we see.
Why it's one other.
You know as I pointed on and why we built up inventories.
Through the end of 2020.
On one hand, you could see that based on how refineries will get more operating just risk COVID-19 impacts and people not traveling that all of these materials kind of coming off the system.
The thing.
It could be could be challenged so we've been proactively making sure that we were buying.
Buying molecules.
You know ahead of time to keep our value chain protected.
Okay. Thank you for that.
Again, as you pointed out the real time kind of evolving situation.
I was wondering if Mike could help me with the next one but.
In the release you talked about the year over year change are you broke down the revenue change the 4% growth in terms of volume plus eight and then price both kind of I guess list price increase.
Kris.
And then the pass through effect of about minus for.
I was wondering if you could do something similar on a sequential basis in other words, how much of the 21% sequential bump in revenues.
It was volume driven.
The price however, you might have or you might have that that would be much appreciated. Thanks.
Sure Yeah happy to happy to do that.
As you saw as you noted we did have quite a.
An increase in revenue in the fourth quarter relative to the third quarter and the way you want to think.
About that as volumes were for.
Up sequentially and sort of the mid teens range from a topline perspective.
And we saw there is some.
Domestic granular ammonium sulfate growth some seasonality with that acetone.
As well as caprolactam and nylon.
For some it overall.
Volume, particularly in North America.
So volumes were up strong in the fourth quarter relative to the third yeah, I would say market pricing net of raw materials was pretty pretty neutral.
We did have.
And unfavorable impact fourth quarter versus third from a natural gas perspective.
Improved a lot of that you would typically see from a seasonal perspective.
And that was offset by better pricing for for acetone sequentially, and then you sort of left with the planned turnaround impacts in the fourth quarter relative to the third.
And Thats, an $18 million change.
Obviously, we had a large impact in the third quarter and much less an impact.
On the fourth so on an EBITDA basis, Thats about an $80 million change. So those are the I would say the biggest changes when you look sequentially from third to the fourth quarter.
Okay. Thanks, I have one.
That'd be one more and then I'll get back in queue.
We just.
Where did that go.
Pardon.
Could you just talk about.
The effect of the cares act on your cash flow I apologize.
Yes sure.
And that's the one thing.
We wanted to make.
Hello, everyone.
Because we did it.
Part of the cares Act, we were able to carry back our Nols for a lot of color.
<unk> made took advantage of that and we did claim.
A refund.
$12 million and we had been had been anticipating receiving that before the end of the year, but it seems things with the IRS have been quite slow in terms of processing.
Those refunds and.
And we were pleased to see we were able to generate the cash.
And have a very strong conversion to cash conversion quarter, even though we did not receive the $12 million refund.
But we do anticipate to receive that here in the first half of the year.
On a push it and if we can drive.
Five that and get that in the first quarter, we will.
But that is the primary benefit that we're seeing from from the cares Act. The other element of the cares Act, which you may recall relates to <unk>.
Payroll taxes, where we were able to defer.
$6 5 million on payroll.
Our taxes in 2020 of which we have to pay debt pay 50% of that back in 'twenty, one and 50% of that back in 2022, but I would say those were the key elements of the cares Act that we took advantage of.
And but that refund is still outstanding.
Standing.
Yes, no. Thanks, and I was going to ask you just about how that affects the cash flows from the cares Act.
And then the repayment so thank you anticipated debt.
Just real quick, but the energy tax credit of $3 8 million.
Is that a one time.
Or is your investment in the new boiler and whatnot is that eligible for additional tax credits going forward.
I would consider that.
One time, one time event and if you recall back in the second quarter of.
2019, we.
Did claim this credit on a return and we felt and it does relate to the natural gas boilers.
And at the time, we concluded that we certainly had enough enough authority to claim the credit but.
We needed some more analysis from technical analysis as well as discussions with the Doe.
Items to be comfortable that.
We can we can reverse that and take the financial statement recognition of that and the hurdle for that is getting to a more likely than not position.
On an uncertain tax position, we claimed it on a return in the second quarter book, the uncertain tax position and in the fourth quarter.
We got comfortable enough that we're able to reverse that and then take the financial statement.
Impact, which reduced the effective tax rate.
As you saw.
Again, $3 $8 million, a majority of that is part of that $12 million a.
Refund that where.
Where that we've claimed and as you point out it was roughly a 13 cents per share impact in the in the fourth quarter and it had the impact on a full year effective tax rate basis, an impact of roughly six 5% on our.
On our ETR, but it is one time, but what I will say.
David.
We continue to look for opportunities on how we optimize tax on opportunities that we could drive on planning to manage our rate and also manage our cash taxes and we've been doing a lot of good things on that front and we'll continue to look for opportunities going forward.
Okay.
That's great I do have one more question, but im going to get back in queue. Thank you.
Ladies and gentlemen, this concludes our question and answer session I would like to turn the conference back over to Erin Kane for any closing remarks.
Thank you all again for your time and interest this morning.
Facing one of the most challenging external set of circumstances. This business has ever encountered our collective organization delivered terrific results in 2020, we optimize our positions across our portfolio and executed levers in our control to drive the best possible outcomes, we will leverage that momentum into 2021, and we executed against our focus.
<unk> strategy that we believe will allow us to outperform and deliver strong shareholder returns into the future. So with that well look forward to speaking with you again next quarter and stay safe and be well.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
[music].
Okay.