Q4 2022 AdvanSix Inc Earnings Call

Good morning, and welcome to the advanced six fourth quarter 2022 earnings conference call all participants will be in listen only mode.

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After todays presentation, there will be an opportunity each west questions to ask.

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Now I would like to turn the conference over to Adam Crystal.

P Investor Relations and Treasurer. Please go ahead.

Thank you Andrew Good morning, and welcome to advanced <unk> fourth quarter 2022 earnings conference call with me here today are president and CEO, Erin Kane, and senior Vice President and CFO Michael Preston.

This call and webcast, including any non-GAAP reconciliations are available on our website at investors <unk> advanced six 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 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-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 2022 and share 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 six as president and CEO Erin Kane.

Thanks, Adam and good morning, everyone. Thank you for joining us and for your continued interest in advance X.

As you saw in our press release advances delivered record annual sales earnings and cash flow performance in 2022, reflecting strong commercial execution.

This builds on our track record of performance with earnings growth for the third consecutive year.

Now, let me share a few highlights before Mike covered the details of our financial in a moment.

We continue to benefit from our diversified portfolio and integrated efficient and cost advantaged business model in.

In the fourth quarter, our strong commercial performance helped to offset pockets of soft end market demand customer destocking and operational challenges.

Cash flow generation continued to be robust to close out the year supporting disciplined and value accretive capital deployment.

In 2022 we enhanced our capital deployment with the acquisition of U S amines.

And an increase in return of cash to shareholders through share repurchases and an increased dividend while further reducing debt.

Our board of directors has approved an additional $75 million share repurchase authorization reinforcing the flexibility we've built into our capital allocation strategy.

We've also had several exciting recognition recently I.

I am pleased to announce that we continue to be recognized for our strong corporate governance and focus on sustainability.

Advanced <unk> was recently awarded its second consecutive platinum rating for corporate social responsibility from Echo about it.

This continues to rank us among the top 1% of all companies assessed.

In addition, the National Association of corporate Directors, New Jersey Chapter has recognized advantages as a public company board of the year.

Leading with transparency and accountability enables us to deliver better results for our stakeholders, while driving our long term strategy forward.

Now looking to 2020 three we believe that we are well positioned for another year of differentiated performance supported by our diverse product portfolio continued strong agricultural and fertilizer industry fundamentals and the resilience of our business model.

Roughly one third of our portfolio is in the agricultural sector, including on chemicals.

And our position in this attractive market has extended even further through our acquisitions of U S amines as well as the package the ammonium sulfate business Cif and.

And organic investments to expand our high value granular ammonium sulfate.

While we do anticipate the challenges of an uncertain environment and expect demand weakness in several market segments within our nylon and chemical intermediate product lines.

Remain confident in our demonstrated ability to execute and perform through various macroeconomic cycles.

We have structurally improved the earnings power of this business and our competitive advantage will support us running disproportionately higher plant production rates in 2023 to complement our strong commercial performance.

Our healthy balance sheet will also serve us well and continues to support our ability to deploy capital and maximize shareholder value.

With that I'll turn it over to Mike to discuss the financials.

Okay.

Thanks, Sharon and good morning, I'm now on slide four where I'll provide a summary of the full year 2022 financial results.

As Aaron pointed out it was terrific performance across the board as commercial strong commercial execution more than offset volume declines and raw material inflation, resulting in significant top and bottom line growth.

Sales of $1 9 billion adjusted EBITDA of $308 million.

Adjusted earnings per share of $6.28.

And free cash flow of $184 million all represented record annual performance.

We've now increased earnings for three consecutive years and believe this represents differentiated performance versus our peers.

Let's turn to slide five to recap the fourth quarter results.

Sales of $404 million decreased approximately 5% in the fourth quarter, primarily driven by a 15% decline in volume.

Pockets of soft end market demand and customer Destocking contributed to the volume decline.

Pricing was favorable by 6% comprised of an increase in market based pricing up 10%.

Primarily driven by higher ammonium sulfate pricing.

This was partially offset by a 4% decline in raw material pass through pricing following a net cost decrease in benzene and propylene.

The acquisition of <unk> added approximately 4% of sales as well.

Adjusted EBITDA was 67 million.

I will highlight the key year over year variances on the next slide.

Adjusted earnings per share was $1 27 up 44% versus the prior year.

And finally free cash flow reached $41 million up 194% versus the prior year.

Cash flow from operations of $70 million increased $36 million, primarily due to higher net income.

Capital expenditures of $28 million in the quarter increased $9 million versus the prior year.

Let's turn to slide six.

Here, we highlight a few of the key drivers of our fourth quarter adjusted EBITDA performance year over year.

Pricing over raw materials was a $44 million benefit track.

Tracking our key variable margin drivers ammonium sulfate on a net price of our natural gas and sulfur basis remained positive year over year, reflecting the strong underlying AG environment as well as our ability to drive our sulfur nutrient value proposition.

Chemical intermediates price over raws spread was positive year over year, as well largely reflecting acetone margin over following propylene costs.

Performance across our caprolactam and nylon portfolio over our key raws was roughly flat year over year.

Volume was approximately $26 million unfavorable in the quarter, primarily due to customer destocking and soft end market demand across some of our portfolio.

We saw the most impact across our nylon and chemical intermediates product lines, particularly product, serving consumer durables and building and construction end markets.

The impact of our planned plant turnarounds was a known tailwind to our year over year performance as we had no turnaround activities in the fourth quarter of 'twenty two versus approximately $18 million in the fourth quarter of 2021.

As you May recall, we completed our 2022 multi site planned plant turnaround in the third quarter of 2022.

Finally, we saw approximately $21 million and higher costs and plant spend driven by an increase in gas utility prices and an increase in non raw material inflation, primarily on transportation costs.

Operational performance in December in particular was impacted by extremely cold temperatures across our integrated value chain.

As a result, our quarterly utilization was roughly flat to the fourth quarter of 2021 and below historical run rates for non outage quarter.

Let's turn to the next slide.

On the left side of page seven we've highlighted a robust 2022 cash flow generation, which was primarily driven by net income of $172 million and $39 million favorable impact of net working capital, including approximately $32 million of ammonium sulfate pre buy cash advances in the fourth quarter.

Capex was approximately $89 million for the year driven by a planned increase in maintenance and health safety and environmental projects.

I would highlight that over the last 12 months, our free cash flow yield is roughly 17% and our free cash flow conversion is 107%, which reflects the healthy cash flow generation and quality of earnings our business model delivers.

On the right side of the page we've depicted our capital allocation since 2017.

As you can see we've enhanced our capital deployment in 2022 with the acquisition of you. It's a means at a meaningful step up in cash returned to shareholders all while further reducing debt levels in.

In 2022, we returned a combined $49 million to shareholders by way of dividends and share repurchases.

Our next quarterly dividend of <unk> 14, and a half cents per share will be made payable on March 17th for shareholders as of record date March 3rd.

We are in a favorable position with our healthy balance sheet, particularly as we enter a more uncertain macro environment in 2023.

Let's turn to slide eight.

We remain disciplined in our approach to investing in the business for long term sustainable returns.

We generated strong returns on invested capital and has outperformed peers, which is a testament to the earnings power created from our investments along with our operational and commercial execution.

We continue to focus on improving through cycle profitability across the business with the goal of generating higher lows and higher highs.

We expect an increase in capital expenditures in 2023, which included which will include a mix of critical infrastructure, other maintenance and growth and cost savings projects as well.

These projects are vital for safe sustainable and consistent long term performance.

Our growth project pipeline amongst others includes projects to support our multi year goal to double earnings of the U S amines business and expand our granular ammonium sulfate converging.

So with that let me turn the call back to Aaron.

Okay.

Mike I'm now on slide nine to discuss each of our key product lines.

Starting with the nylon.

Global composite price raws spread remained relatively flat sequentially and year over year in the fourth quarter.

Asia spreads however declined more severely as COVID-19 lockdowns in China led to weaker demand and excess supply moving to other regions at lower prices.

Textile demand declines in Asia has impacted global nylon industry supply and demand conditions.

Well not a significant end user advanced excels directly textiles represents the largest nylon end use globally and are impacted by greater consuming U S and Europe market, which face increase uncertainty with respect to consumer spending on good.

Now from an end market perspective in North America. The situation is quite mixed.

And the fiber and filament space, where we serve our carpet customers, we've seen a slow down through the chain with continued inventory correction, which we expect to continue in the first half of the year.

In engineered plastics, while we are expecting sequential volume improvement from the fourth quarter into 2023, the price compression out of Asia is impacting global pricing.

Now as a reminder, roughly 30% of our nylon portfolio serves this space.

[noise] into applications, such as auto consumer and other industrial goods.

And here, we are seeing RASM pricing moving at a multiple lower than the change your raw material input costs.

And then as a bright spot packaging continues to be a stable end market and despite some inventory drawdowns at year end remains a resilient and application for our business.

We continue to focus on being a reliable and north American supplier.

And we will optimize our mix as we have in the past to meet customer demands and navigate through these dynamics.

Moving to ammonium sulfate, we witness nitrogen prices come down pretty significantly higher levels seen earlier in 2022.

Nitrogen supply availability as well as lower energy costs, particularly in Europe .

Has supported a reduction in nutrient pricing.

Well it is not uncommon to see a seasonal lull in demand exiting the year, we remain confident that the resilient underlying agricultural industry fundamentals.

Supported by crop prices farmer profitability fertilizer affordability expected planted acres and stock to use ratios ratios will continue to support strong nutrient demand.

And so despite some cautious buying behavior ahead of the season, we remain well positioned to serve our key customers as we move into the heart of the domestic planting season.

And lastly, turning to chemical intermediates industry realized acetone prices over refinery grade propylene costs improved year over year and sequentially in the fourth quarter.

Propylene costs have continued to trend lower on ample supply over the last few months.

Well acetone demand downstream has seen some softness into the large buyer applications, we see supply is balanced to tight.

Supported by stable acetone imports into the U S and lower phenol operating rates globally on reduced demand into building and construction and other industrial applications.

I'll point out here that our integrated operating operating model serves us well in industry dynamics like these.

Now, let's turn to slide 10 to discuss our outlook.

We expect performance in 2023 to once again demonstrate the resilience of our business model and our ability to navigate through the challenges of an uncertain environment.

We expect favorable underlying agricultural industry fundamentals to continue.

We also expect the balance supply and demand conditions for North American acetone, given lower industry operating rates globally.

Well also have the potential for some tightness, particularly in the first half of 2023.

We do anticipate headwinds in consumer durables and building construction end market across our nylon and other chemical intermediates product lines.

And as I shared earlier this will have implications for both volume and price.

Now for reference we've shared our sales by end market exposure on the left hand side of the page.

We are a diversified chemistry company and the range of our end market exposure helped insulate the company from significant variability in any one product line as demonstrated by our results in several environments.

Operationally, we continue our focus on safe stable and sustainable performance, while driving less variability in utilization rate.

Which in turn drives our improved customer experience and higher returns for the business.

Our integrated value chain and competitive cost advantage enables us to target running our plants that does disproportionately higher rates than the industry on average.

For the full year 2023, we are projecting capex spend to be approximately $110 million to $120 million.

This range reflects higher spend to support critical infrastructure improvement.

Although maintenance as well as additional growth and cost savings projects.

We expect the pretax impact of planned plant turnarounds to be in the range of 28 million to $33 million in 2023, a tailwind compared to approximately $50 million for the full year 2022.

And lastly, we expect our effective tax rate for the year to be approximately 24% and anticipate cash pension contributions to be approximately zero to $5 million.

Following $20 million in contributions in 2022.

Bringing our defined benefit plan to a nearly fully funded status.

Let's turn to slide 11 to wrap up before moving to Q&A.

As we've shared previously we believe that advanced six offers a compelling investment thesis over the short medium and long term.

Our leading north American position and advantaged asset base, coupled with our efficient and lean business model provide inherent competitive advantages.

And we are aligned to the diverse set of end market applications.

As I pointed out and reiterate again roughly one third of our portfolio is supported by exposure to strong agricultural fundamentals.

We also continue to invest for long term growth across the broader portfolio into applications, such as paints and coatings electronics and other solvents.

Supplementing our exposure to these diverse end use applications, we seek to enhance our sales mix through our differentiated product portfolio, which are in margins that are roughly twice our average base business gross margins and also continue to make smart and disciplined investments in our assets to sustain and improve throughput and profitability.

We have substantially increased the earnings power of this business with our focus on through cycle profitability.

Lastly, our enhanced capital allocation framework provides upside and optionality for further value creation.

So all in we feel very good about the strategies, we've implemented which continue to support expectations for advantest is long term sustainable performance.

That Adam let's move to Q&A.

Thanks, Sharon we will now Andrew.

Please open the line for questions.

Thank you we will now begin the question and answer session.

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At this time, we will pause momentarily to assemble our roster.

The first question comes from Charles <unk> with Piper Sandler. Please go ahead.

Good morning, everyone.

Good morning Charles.

Good morning, I have a quick question in terms of the Capex, how do I look at that across the course of the year is it going to be fairly evenly spread out is there one or two quarters that are going to be heavier than others and then in terms of the work getting done. So is any of that bring sort of increased efficiencies that might lead to may.

A small tweak in capacity or anything of that nature that that comes or is it just more of a long term maintenance that has to get done to improve the existing equipment etcetera.

Yeah, So yeah, Charlie typically the capex.

Spend run rates are heavier in the second half than the first half.

As we sort of ramp up here from.

The $90 million levels in 2022 to roughly the 110 to $1 20 and 2023.

And again some of the increase in the spend is Chris.

Critical infrastructure work at our sites other repair and maintenance projects, which we've demonstrated has an effect and improves.

Safe and stable operations support safe and stable operations going forward here. So that's.

That's what I would expect so probably in the sort of.

60% range in the second half 60% to 70%.

First half versus first half.

Got it.

And then in terms of the movement of product that you guys are seeing meeting I'm, assuming China is exporting where they typically haven't exported because.

Because they have some excess production and they want to keep running I mean do you see that is that yes.

The cadence of that product or has that changed at all over the last let's say couple of months or is it maintaining the level the higher level.

Looking at it going forward do you have any idea of what things are you know might come back to let's say there are more normal state or you know.

Pre existing.

No certainly and you know.

We have seen that's.

Trends again, it's a confluence of factors as you pointed out here over the last couple of months I'm, you know I'm, probably starting late Q3 through Q4 coming into the start of the year and you know it.

It's the lower.

Certainly in demand in the region now impacting those trade flows right. So we're also seeing you know not just Chinese resin, but also certainly rather than from other countries you know being export it into the European Union, obviously that started and Ah in 2022, certainly west.

The higher cost considerations in Europe , and the pull back on their operating rates moving into South America, Mexico as well.

We've also seen downstream products, including compounded resins.

Part of the Asia, moving into America and Mexico.

Certainly Oems have global footprint. So there is this pressure of how do they compete and how what is the consideration.

Against the the collective set of overseas asset so.

Certainly we're watching for the.

And certainly in a recovery in the region, obviously to pull their volumes back up you have little operating rates starting to be seen and outside of China. There are about 50%, so hopefully that will contribute as well.

So I think it will certainly be a first half consideration how long it it moves into that certainly there is contracted volume here is for us, but there's also freely negotiated and spot oriented products as well, but again, we see that is predominantly in that engineered plastics space.

And certainly freight as well just as another components of factors freight rates dropped dramatically in the back half of the year and sort of making transport, which may have been would have impacted sort of landed cost has moderated here as well.

Got it okay. Thanks, very much ill come back and I haven't seen more thanks.

Thanks, Charlie.

Again, if you have a question. Please press Star then one on a touchtone phone.

The next question comes from Vincent Anderson with Stifel.

Please go ahead.

Thanks, and good morning, everyone. Good morning.

Okay.

Hey.

You made a point to come out and say a couple of times, so you'll be running the plants very hard next year harder than than this year and that's kind of despite this demand outlook.

In the past that's involved things like spot export sales.

But you've also mentioned over the last couple of years and improved U S market share.

In nylon, specifically and you also have a balance sheet that can handle greater inventory builds if he needed to lean on that so I'm just wondering how your commercial strategy may look different in this particular downturn versus what we observed in prior years.

Thanks for the question Vincent and certainly happy to.

So to clarify and provide a little bit more more color around the statement on the <unk>.

Certainly as we have discussed throughout 2022, we didn't have a strong as an operational year as we normally would have I mean, certainly you know relative to all the strategies, we have in place around space sustainable.

Operations that is that it continues to be a core focus for us and the commentary around the returning of plant utilization rates. It is again, ensuring that our strategies are delivering the outcomes. We expect our integrated value chain allows us to run naturally higher.

Right to start so, let's kind of make or break it down just quickly here yeah. So our female plants are operating at least 15% higher.

Then other north American players right now because of our integrated position on phenol and a market where phenol demand is off right to that that again allows us to.

You have to have the the presence in the acetone market, which again serves us well.

In in Hopewell, and running caprolactam ammonium sulfate, we how they and do see and are confident in a strong spring season relative to demand for fertilizer. So again, it's important for us to get our performance back and to ensure that we are running you know to fulfill our customer demands there.

Obviously, then and you know moving through for Caprolactam and nylon.

We here, we have two things going on in some cases that the volume consideration as I pointed out mostly in fiber and filament.

Rising consideration associated with engineering plastics and on packaging is remaining robust and resilient. So I think what you'll see US do is yes, we have mixed as a lever for this organization and for this enterprise.

But up to and including as you say I'm thinking about the right inventory build against the right margin sales.

Those are all things that go into our calculus, and we have all of those degrees of freedom of which to pull and operate through this market, which I think differentiates us and separates us from other competitors in this space.

Perfect very.

Very helpful. Thanks.

And if my math is correct.

Maybe a big hits on a Friday.

It looks like Youre aiming as revenues were actually up sequentially in the fourth quarter do I have that right and if so can you talk about what was going on there.

Yeah. When you look at the third the fourth quarter, a sequential bridge here, but you'll note that roughly a percentage point.

Total revenue was.

It was driven by M&A and that's all that's all you assume means in and some of that is there.

They're serving.

When you look at the.

The AG sector.

And the seasonality associated with that that could impact the timing of revenues from a quarter to quarter. So more of this was a bit of a seasonal improvement and we would expect also the first half of the year.

To be strong as the season is that a.

A high level typically in the first half.

Okay excellent and actually a quick one in the similar vein your cash advances picked up quite a quite a bit.

Versus prior years, obviously, excluding last year can you speak to how much of that represented a higher percentage of your two Q fertilizer volumes versus just price being higher than that yeah that dollar amount.

Sure we can certainly provide them.

Some clarity there. So again, we did proceed with a pre buy this year as it was in the interest of our customers and a desire to.

Proceed with wine are what we would say is that the volume for their pre buy would be on average consistent with the pre buys that we conducted in the years prior to last year. So let's call. It 19, 2020 and 'twenty one.

Yeah, the differentially being the the market price being them being higher than that timeframe.

Okay perfect. Thanks, I'll turn it over.

Yeah.

The next question.

The next question comes from David Silver with C. L King.

Please go ahead.

Yes, hi, good morning, planning I'm going to <unk>.

Good morning, I'm going to warn you in advance I've had a unusual morning, so I.

I joined the call late.

But.

So I'm going to make you repeat yourself on one or two things but could.

Could we just start.

Could you just summarize.

What the operational challenges were this quarter again, I wasn't able to listen to your opening remarks, but.

Both in the U S.

If you could just characterize the source of it and then if you quantified it at all and I. Appreciate you just summarized including that comment as well. Thank you.

Yeah sure David happy to provide a little bit more color.

Where we saw some more of the.

Lower utilization rates relative to what we had planned was later in the quarter, particularly in December you may recall we.

A string of weather across the country that had some very frigid temperatures.

It impacted not only.

US, but also others in the industry and that resulted in us running at lower rates than what we would've liked.

And so that was the main driver in the quarter and we're comfortable that we took all the necessary actions to get back up to plan.

Plan here and it.

It will and do expect a better performance here as we get into.

The first quarter.

Okay. Thank you for that.

I wanted to ask a question about USA I mean so.

It's been you've owned it now for three.

Three full quarters.

And I was just wondering if you could just talk about the integration talk about.

The synergies you've been able to realize.

Cost, but also revenue if there if there are some.

Some crossover benefits and then with your Capex spend for next year, the higher Capex spend how much if anything of that is really dedicated to.

Yeah.

Executing on some comments you made in the past about.

There being some pretty straightforward expansion opportunities there. Thank you yeah.

Sure David.

Yeah. So we were actually coming up on a year, which is which is terrific and I would share that the integration has gone well and functional.

Gration is largely complete them, which is a which is great. It went to plan them. As has you know sort of the the last couple of quarters relative to our expectations and bringing the portfolio into our fold.

So again, we're pleased with where we sit and we're on target to where we were expecting to be at.

And so that that's important.

One of the considerations when we.

And now that the acquisition was really around that this was the asset or a set of assets and a business that.

That lend itself for future growth rates of our primary focus was to begin executing against those projects, where we saw opportunity to take the multifaceted assets that they possess straight which are more pots and pans oriented to expand capable.

<unk> sat.

And begin to use them in a new a new and expanded way so again the capex Todd.

Targets again.

Capex here the assets are not as capex intensive as our as our other assets. So again, we have begun deploying against those projects until enable us to expand our capability set. So there are a number of it means that we can make including cyclohexylamine.

Improving the production of isopropyl alcohol.

And things that are inside the views other diamine and you know we continue to have cost you know customers and.

Potential customers reach out.

And so again that is where we are headed to relative to the value creation of the acquisition rather than more traditional you know sales synergies as you asked about so again on track and I think as we continue to progress the ball will be able to speak more about those items, but we are where we expect it to be.

And continue to work that plant.

Okay, and just a follow up on that you know.

In the past you've talked about I believe.

$200 million or so of specialty.

Our specialty intermediate and other specialty product revenues or differentiated revenues.

Where do you think that that run rate is now and what are your you know when you think about 2023.

Is that going to comprise a growing.

Percentage of your overall revenues or overall earnings power in your estimation, what what is the what is budgeted for for that clutch of differentiated products. Yeah. Thank you.

It's a terrific and certainly we have been proud of the growth that we have seen really over the last five years as we pointed out in prior recessions right.

Significant growth in our both high purity intermediates and high value intermediates that are going into areas of paints and coatings and electronics.

You know that expanding and.

Continuing to grow for our wire and cable on copolymer ourselves in nylon.

What I would say David is that while these are differentiated products theyre not necessarily immune per se to the the global considerations and end market dynamics. So.

Certainly long term trends for these applications are very positive and it's why we continue to invest.

Invest and continue to think about our portfolio is in these spaces.

But they they can have consideration for demand just like other applications and so yeah. There's continued focus but for instance, you know semiconductors as things kind of moved down and people are thinking about and purchase of goods and in 2023 may perhaps be at a different.

The rate of growth than we've seen in the past few years Europe has also seen a slowdown in paints coatings and sealant itself again. This is a long term.

The focus for us and our you know I think that kind of the key takeaway is that it's not.

Entirely immune but again, we expect these things to recover and continue to have those long term.

The opportunities for us.

Okay, great I'm going to keep going if you don't mind, everyone else had their first job so too bad for them, but.

I wanted to ask a question about nylon and in particular, I guess the construction or.

Related uses and.

In the in North America, I guess, the residential construction side of things has slowed down.

A fair amount.

And what do I know, but if the fed is continuing to raise interest rates I'm thinking that could have an incremental negative effects, let's say on mortgage rates and things like that.

How do you think about you know.

Marketing I guess or.

Allocating your nylon capacity to different end markets and you know what what makes sense.

Uncertain economic environment, but definitely one where residential construction seems to be you know.

On the on the downturn right now I'll stop there, but thank you.

Yeah.

Did you say certainly in residential construction is being a hit more strongly than than commercial.

That said you know nylon plays.

Well into the commercial space.

You know, we would see that certainly areas like lodging hospitality you know these are areas, where the consumer is still spending yeah. We think about the latest report.

You know sales against leisure and hospitality and those types of services continue to be strong areas that it generates opportunities for us.

You know continued remodeling and upgrades you know so there is a mix, but certainly that potential.

That that can be a challenge and certainly will be most impacted by inflation consumer confidence interest rates and and we see that in remodeling activity coming down.

And did you say housing starts and certainly in existing home sales, but again nylon.

Yeah.

Focusing on that on that commercial space is going to be important for us as we navigate through the.

The collective set of dynamics.

For this you know again, our assets to produce nylon have some flexibility.

So you know again, it's one of those degrees of freedom that we have to manage mix.

Along the way our customers are still buying and wanted to make sure that we are supporting those.

Key folks on opportunities around them in the space of sustainability are becoming important as well and sell interest in our.

Postindustrial recycled grades and can post consumer recycled grades are going to be important here as they are in other applications as well. So you know again at the end we've got the flexibility of our assets we've.

We've got sort of a mix of.

Ensuring that we are capturing the commercial opportunities even as a smaller base residential impact on on carpet may come into play.

And then you know really ensuring that and we've proven this in past that.

We can pull those levers and navigate through.

Okay.

Probably nothing you haven't seen before but interest.

Interest rates have been so low recently I don't know I just.

I wanted to hear you talk through that so thank you one last question.

And this has to do with Europe , and I guess, the impact of lower natural gas costs there.

Don I guess global trade patterns, but.

I guess.

Natural gas has come well off of its spiking highs over the past year year and a half.

And I'm.

Just wondering since natural gas is used effectively for both fertilizers that could be produced in Europe , as well as nylon and caprolactam.

Just wondering if you're seeing or anticipating any shift in trade patterns in other words.

Import product that used to be exported to Europe imported into Europe .

May now get back backed out and just wondering if you're seeing any of that on either nylon or in.

Fertilizer to this point and what what might your expectations be.

Forward.

Yes.

Yeah, certainly as you know the the general situation has improved in Europe are they you know as you point out on the input cost improving.

The the sentiment too to produce right and and a number of chains.

It still has sort of reduced demand in general and weakness that theyre going to have to sort through and in a number of end applications as we've touched on.

So.

It's one where yes there is.

You know when we think about production of nutrients those rates have picked up.

Primarily for certainly the regional demands there we'll.

We will see like I said, it's Europe's probably 50% capacity utilization as we know it right now in caprolactam through the chain.

But and this is a this is a space where you know global trade is understood and certainly things moving in from Asia went in heavily last last year as well and they'll will resort themselves you know accordingly, as we move forward right. It's hard to say that there is.

Definitive move here, one way or the other you know, but again these are you know.

Global markets on that sense, but certainly they have.

There are regional they're regional nuances as well. So you know Europe is certainly a buyer's market for nylon, so theres going to be pretty.

Certainly.

I'd say pressure there just because you have a length of supply.

And.

In our fertilizer, you've got global buying you know just slowing down in general and so you know again nitrogen capacity there we would put it at about 70% so.

And like anything else. This is what the world is going to have to navigate through both globally and regionally I think moving forward as we as we've.

Progress through the year, and even though natural gas prices have come down there. So when you think of those prices relative to history and on a relative basis to like the U S. There's still high right. So that's just another consideration there Dave.

Yes, no there definitely still is that regional disparity no question, yes.

Okay. Thank you very much I appreciate all the color.

Thanks, Dave.

This concludes our question and answer session I would like to turn the conference back over to Erin Kane for any closing remarks.

Okay. Thank you all again for your time and interest this morning, despite the macro headwinds and operational challenges in the fourth quarter. Our performance reflects the resilience of our business model and our ability to navigate and execute in a multitude of environment.

Following a record performance in 2022, we look forward to continued execution of our strategic priorities in 2023 and are committed to delivering long term value to our shareholders with that we look forward to speaking with you again next quarter stay safe and be well.

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

Yeah.

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