Q4 2023 AdvanSix Inc Earnings Call
Operator: Good morning, and welcome to the AdvanSix Fourth Quarter 2023 Earnings Conference. All participants will be in listen-only mode.
Good morning, and welcome to the advance export quarter 2023 earnings conference call.
All participants will be in listen only mode.
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Adam Kressel: Thank you, Andrea. Good morning, and welcome to AdvanSix's fourth quarter 2023 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.advansix.com. Note that certain 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.
Thank you Andrea good morning, and welcome to advance <unk> fourth quarter 2023 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.
These elements can change and the actual results could differ materially from those projected and we ask that you consider them in that light.
Adam Kressel: 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 2023 and share our outlook for our key product lines and end markets. Finally, we'll leave time for your questions at the end.
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 2023 and share our outlook for our key product lines and end markets.
Finally, we'll leave time for your questions at the end so.
Erin N. Kane: So with that, I'll turn the call over to AdvanSix's president and CEO, Erin Kane. Thanks Adam, and good morning everyone. Thank you for joining us and for your continued interest in AdvanSix. As you saw in our press release, AdvanSix navigated a continued challenging end market environment to close out 2023. We maintained our focus on long-term priorities, including portfolio simplification during the year and further investment for improved fruit cycle profitability. Our healthy balance sheet supported our performance as we maintained our organic investments and return of cash to shareholders. Core to our long-term strategy is accelerating growth in the most profitable areas of our portfolio, continuous improvement to strengthen the underlying earnings power of this business, and sustaining our cost-advantaged business model.
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.
You saw in our press release advancing navigated a continued challenging end market environment to close out 2023.
Maintained our focus on long term priorities, including portfolio simplification in the year and further investment for improved through cycle profitability are.
Our healthy balance sheet supported our performance and we maintained our organic investments and return of cash to shareholders.
Core to our long term strategy is accelerating growth in the most profitable areas of our portfolio continuous improvement just strengthen the underlying earnings power of this business and sustaining our cost advantaged business model.
Erin N. Kane: While the nylon environment has been pressured by unfavorable global industry supply and demand conditions for several quarters now, we've continued to see resilient performance within our acetone portfolio and solid results from our plant nutrients business. We'll provide more color and an outlook for 2024 later in the call. So, as we look forward, our focus is to perform in the current set of industry dynamics and to execute on the levers in our control, including cost discipline and working capital optimization that will be key mitigations to our operational headwinds as we have started the year. To support our long-term potential, it is also key that we invest to address enterprise risk mitigation, advance our IT platforms to achieve digital transformation, and deliver growth through projects like our SUSTAIN program. Now, let me turn the call over to Mike. Hey, thanks, Erin. And good morning, everyone.
Well the nylon environment has been pressured by unfavorable global industry supply and demand conditions for several quarters now we've continued to see resilient performance within our off at home portfolio and solid results from our plant nutrient business.
We'll provide more color on our outlook for 2024 later in the call.
So I look forward our focus is to perform in the current set of industry dynamics and to execute on the levers in our control, including false discipline and working capital optimization that'll be key mitigation through our operational headwinds as we had started the year.
To support our long term potential is also key that we invest to address enterprise risk mitigation advance our I T platform to achieve digital transformation and deliver growth through projects like our sustained program.
Now, let me turn the call over to Mike.
Hey, Yeah, Thanks, Sharon and good morning, everyone I'm now on slide four we'll I'll provide a summary of the full year 2023 and financials.
Michael Preston: I'm now on slide four. Well, I'll provide a summary of the full year 2023 financial results. Our results declined in 2023 against a record prior year. Sales were down 22 percent, primarily driven by price, but volume was flat overall, pointing to the benefits of our diverse product portfolio and cost-advantaged position. Adjusted EBITDA of $154 million was down 50% from the prior year, driven primarily by unfavorable market-based pricing, net of raw material costs. We continue to focus on expanding the earnings power of our business and improving annual through-cycle profitability, as evidenced by the resilient performance relative to prior troughs achieved in 2019 and 2016. Adjusted EPS was $2.14 per share. Our effective tax rate was 21.1% versus 23.9% in 2022, primarily driven by research, tax credits, and tax benefits related to the vesting of equity compensation. We anticipate our full-year 2024 effective tax rate to be approximately 24 percent. Free cash flow declined year over year as a result of lower net income and the unfavorable impact of changes in working capital as well as higher capital investment.
Our results declined in 2023 against a record prior year sales were down 22%, primarily driven by pricing.
Volume was flat overall, pointing to the benefits of our diverse product portfolio and cost advantaged position.
<unk> EBITDA of 154 million was down 50% from the prior year, driven primarily by unfavorable market based pricing net of raw material costs.
We continue to focus on expanding the earnings power of our business and improving annual through cycle profitability as evidenced by the resilient performance relative to prior troughs achieved in 2019 and 2016.
Adjusted EPS was $2 14 per share.
Our effective tax rate was 21, 1% versus 23, 9% in 2022, primarily driven by research tax credits and tax benefits related to the vesting of equity compensation.
We anticipate our full year 2024 effective tax rate to be approximately 24%.
Free cash flow declined year over year as a result of the lower net income and the unfavorable impact of changes in working capital as well as higher capital investment.
Michael Preston: Now let's turn to slide five to discuss the fourth quarter performance. Sales of $382 million decreased approximately 5% versus the prior year, and market-based pricing was unfavorable by 22%.
Now, let's turn to slide five to discuss the fourth quarter performance.
That was 382 million decreased approximately 5% versus the prior year.
Market based pricing was unfavorable by 22%.
Michael Preston: This primarily reflects reduced ammonium sulfate pricing amid low raw material input costs and a more stable global nitrogen supply environment, as well as lower nylon prices. However, raw material pass-through pricing was favorable by 1% as a result of a net cost increase in benzene and propyl. Sales volume increased approximately 16 percent in the quarter, primarily driven by higher export shipments of both ammonium sulfate and nylon. Adjusted EBITDA was approximately $15 million, down from $67 million in the prior year period. The pricing of raw materials was by far the primary driver of the earnings decline.
This primarily reflects reduced ammonium sulfate pricing amid low raw material input costs, and a more stable global nitrogen supply environment as well as lower nylon pricing.
Raw material pass through pricing was favorable by 1% as a result of a net cost increase in benzene and propylene.
Sales volume increased approximately 16% in the quarter, primarily driven by higher export shipments in both ammonium sulfate in Iowa.
Adjusted EBITDA was approximately $15 million down from $67 million in the prior year period.
Pricing of raw materials was by far the primary driver of the earnings decline.
Michael Preston: Performance across our Capri-Lactam and Nylon portfolio presented a significant headwind year-over-year. Ammonium sulfate on a net price over natural gas and sulfur was also down, with lower pricing partially offset by a reduction in raw material input costs. Chemical Intermediate's price of a raw material spread was up, supported by an increase in acetone margin over propylene costs. Plan costs were a modest tailwind in the quarter, driven primarily by lower natural gas utility costs, while volume and other items were also favorable, reflecting higher ammonium sulfate and nylon export sales. Adjusted earnings per share were a loss of 10 cents.
Performance across our caprolactam and nylon portfolio presented a significant headwind year over year.
Ammonium sulfate on a net price over natural gas and sulfur basis was also down with lower pricing, partially offset by a reduction in raw material input costs.
Chemical intermediates price over raw material spread was up supported by an increase in assets on margin over propylene costs.
Plant costs were a modest tailwind in the quarter, driven primarily by lower natural gas utility costs, while volume and other items were also favorable reflecting higher ammonium sulfate in nylon export sales.
Adjusted earnings per share was a loss of 10 cents.
Michael Preston: The effective tax rate was 38.3% in the quarter. And finally, free cash flow was approximately $22 million in the quarter. Cash flow from operations of $60 million decreased roughly $9 million versus the prior year. This was primarily due to lower net income, partially offset by the favorable impact of changes in working capital. Capital expenditures of $38 million in the quarter increased $10 million versus the prior year, primarily reflecting increased spending on enterprise programs and other maintenance projects. Now, let me turn the poll back to Erin.
The effective tax rate was 38, 3% in the quarter.
Finally free cash flow was approximately 22 million in the quarter.
Cash flow from operations of $60 million decrease roughly $9 million versus the prior year.
This was primarily due to lower net income partially offset by the favorable impact of changes in working capital.
Capital expenditures of $38 million in the quarter increased $10 million versus the prior year, primarily reflecting increased spend on enterprise programs and other maintenance projects.
Now, let me turn the call back to Eric.
Erin N. Kane: Thanks, Mike. I'm now on slide six to discuss each of our key product lines, starting with Nylon. While significant year-over-year declines in industry spreads continued through the fourth quarter, we did begin to see some stabilization and improvement sequentially of prior trough levels. While this is encouraging, we continue to see weak demand and varying regional dynamics and trade flows resulting in the global composite underperforming the Asian benchmark. We've seen China's global nylon exports reach all-time highs in 2023 as the solar growth economy led to increased low-priced exports to the rest of the world. Here in North America, the higher interest rate environment has unfavorably impacted building and construction markets, as well as consumer spending, impacting packaging applications. Consumer durables within the engineering plastic space have also remained weak, while all applications have been more resilient.
Thanks, Mike I'm now on slide six to discuss each of our key product lines.
With nylon or lots.
The significant year over year declines in industry spreads continued through the fourth quarter. We did begin to see some stabilization and improvement sequentially off prior trough levels.
While this is encouraging we continue to see weak demand and varying regional dynamics and trade flows, resulting in the global composite underperforming the age of that tracks.
We think well China's football niland exports reached all time highs in 2023 is a slower growth economy led to increased low priced exports to the rest of the world.
Here in North America, the higher interest rate environment has unfavorably impacted building and construction markets as well as consumer spending impacting packaging applications.
Consumer durables within the engineered plastics space has also remained weak well.
Well all applications have been more resilient.
Erin N. Kane: As previously shared, for our business, we've seen a higher share of export sales, both Capri-Lactam and Nylon Resin, which does come with a mixed consideration for our performance. While not at fortune levels, our first half 2024 exports are expected to be higher year over year. In the fertilizer space, we've seen a multi-quarter reset in nitrogen pricing amid a more stable supply environment and lower energy costs. While we did see cost of buying behavior exiting the year, pricing did follow the initial fall fill in line with historical sequential averages. We remain confident that the underlying industry fundamentals, supported by crop prices, fertilizer affordability, and expected planted acres, will continue to support nutrient demand into the 2024 spring application. However, the USDA is projecting a decline in inflation-adjusted farmer profitability as a result of rising costs and lower crop prices.
As previously shared is for our business, we've seen a higher share of export sales, both caprolactam and nylon resin, which does come with a mixed consideration for our performance.
Well not at four key levels, our first half 'twenty 'twenty four exports are expected to be higher year over year.
In the fertilizer space, it's been a multi quarter reset in nitrogen pricing made it more stable supply environment and lower energy costs.
While we did see cautious buying behavior and exiting the year pricing did follow the initial fall fell in line with historical sequential averages.
We remain confident that the underlying industry fundamentals supported by crop prices fertilizer affordability and expected planted acres will continue to support nutrient demand into the 'twenty 'twenty four spring application.
The USDA is projecting a decline in inflation adjusted farmer profitability as a result of rising costs and lower crop prices. However, the absolute level remains at long term historical averages.
Erin N. Kane: However, the absolute level remains at long-term historical averages. Overall, demand remains stable, and we are gearing up to serve our key customers as we move into the heart of the domestic planting season. Lastly, Chemical Intermediates.
Overall demand remains stable and we are gearing up to serve our key customers as we move into the heart of the domestic planting season.
Lastly in chemical intermediates.
Industry realized acetone prices over refinery grade propylene costs.
It will improve in the fourth quarter.
Erin N. Kane: Industry realized ASTM prices over refinery-grade propylene costs continued to improve in the fourth quarter. While acetone demand has seen softness, particularly into the large buyer end applications, we see supply as balanced to tight globally. This has been supported by persistent lower global phenol operating rates on reduced demand into value chains serving building and construction and other industrial applications. However, across the rest of our intermediate portfolio, demand has remained soft. For our U.S. Amines business, which largely serves the ag-chemical space, we've continued to face de-stocking headwinds as retailers and growers work through higher inventory levels. So let's turn to the next slide.
Well I have to tons of man has seen softness, particularly into the large buyer and applications. We see supply is balanced to tight globally.
This has been supported by persistent lower global phenol operating rates on reduced demand and the value chain, serving building and construction and other industrial applications.
Across the rest of our intermediates portfolio demand has remained soft.
For our U S. I mean does that switch largely serve the AG chemical space, we've continued to face destocking headwinds as retailers and growers broke through higher inventory.
Now, let's turn to the next slide.
I think shared in our press release, we expect capex of $140 million to $150 million in 'twenty 'twenty four.
This reflects increased spending to address critical enterprise risk mitigation and growth projects.
Erin N. Kane: As we shared in our press release, we expect CapEx of $140 to $150 million in 2024. This reflects increased spend to address critical enterprise risk mitigation and growth projects, in addition to our core replacement maintenance and health, safety, and environmental investments. We recognize the challenges we're facing in some of our end markets. However, we continue to focus on making the necessary investments at the right time to support our long-term performance. We have a rigorous prioritization process that evaluates a variety of factors, including asset life, risk, compliance, return profiles, and other factors, culminating in an execution plan over the short, medium, and long term.
In addition to our core replacement maintenance and health safety and environmental investments.
We recognize the challenges we're facing in some of our end markets whoever.
However, we continue to focus on making the necessary investments at the right time to support our long term performance.
We have a rigorous prioritization process that evaluates a variety of factors, including asset life risk compliance return profiles and other factors common.
Comedy and insulin actually execution plan over that short medium and long term.
We have to to treat enterprise programs at our Frankford phenol plant unrelated to the first quarter operational disruption that are primarily driving the increased spend in 2024.
These projects are targeting upgrades to critical infrastructure and operational efficiency.
Firstly, the rehabilitation of our dock, which is critical to support our integrated value chain and movement, a key role in intermediate materials within our own system and to and from customers and suppliers.
Erin N. Kane: We have two discrete enterprise programs at our Frankfurt Phenol plant, unrelated to the first quarter operational disruption, that are primarily driving the increased spend in 2024. These projects are targeting upgrades to critical infrastructure and operational efficiency. The first is a rehabilitation of our docks, which is critical to support our integrated value chain and the movement of key raw and intermediate materials within our own system and to and from customers and suppliers. The second is an upgrade and the installation of a new boiler, which we expect to drive operational and cost benefits, as well as reduce NOx emissions. Let's turn to slide 8 for more detail on the growth and cost savings investment. Our sustain program is the primary driver of near-term growth capital investment with approximately $75 million of spend between 2024 and 2027. Ammonium sulfate continues to be the primary go-to for sulfur nutrition, with continued strong consumption growth.
The second is it upgrades and the installation of a new boiler.
We expect to drive operational and cost saving benefits as long as reduce Nox emissions.
Let's turn to slide eight for more detail on the growth and cost savings.
Our sustained program is the primary driver of near term growth capital investment with approximately $75 million of spend between 'twenty 'twenty, four and 'twenty 'twenty seven.
Ammonium sulfate continues to be the primary go to for sulfur nutrition with continued strong consumption growth.
North American customers require the granular form of sulfate and our sustained program is designed to meet the growing need.
As we progressed this multiyear program, we endeavor to provide greater clarity to the timing of our investments and expected outcomes.
As a reminder, sustain is a series of projects targeting targeting expansion of our granular ammonium sulfate production predominantly through increased conversion by approximately 200000 tons per year.
That represents a nearly 20% increase.
Erin N. Kane: North American customers require the granular form of sulfate, and our sustain program is designed to meet that growing need. As we progress this multi-year program, we will endeavor to provide greater clarity to the timing of our investments and expected outcomes. As a reminder, SUSTAIN is a series of projects targeting expansion of our granular ammonium sulfate production, predominantly through increased conversion, by approximately 200,000 tons per year. That represents a nearly 20% increase. This program wins on multiple fronts, as it also targets no increases in net energy consumption or emissions.
This program wins on multiple fronts as it also targets no increases in that energy consumption or emissions.
It also improves domestic customer logistics through improved efficiency for truck and rail loading.
Benefits are expected to phase in over the investment period at the individual components of each project to come online.
All projects are proceeding in front end engineering design within best friend and execution priorities now firmed up for the next two years.
We expect production capability by the end of 'twenty 'twenty four to meet the milestone of 68% to 69% conversion as compared to our current target of approximately 65% in.
Erin N. Kane: It also improves domestic customer logistics through improved efficiency for truck and rail loading. Benefits are expected to phase in over the investment period as individual components of each project come online. All projects are proceeding in front-end engineering design, with investment and execution priorities now firmed up for the next two years.
And by completion of this program, we anticipate roughly 75% bringing that conversion.
The return profile for a sustained program remains robust with expected irr's approximating, our 20% target hurdle rate.
Erin N. Kane: We expect production capability by the end of 2024 to reach a milestone of 68 to 69 percent conversion, as compared to our current target of approximately 65 percent. And by completion of this program, we anticipate roughly 75% granular conversion. The return profile for a sustained program remains robust, with expected IRRs approximating our 20% target hurdle rate. We also continue to progress on grant funding from the USDA through the Fertilizer Production Expansion Program, supporting innovative domestic fertilizer production.
We also continue to progress on grant funding from the U S D. A into the fertilizer production expansion program supporting innovative domestic fertilizer production.
Now, let's turn to slide nine to wrap up before moving to Q&A.
Now more than ever the strength of our business model and our position as a diversified chemistry company will serve us well as we navigate the current set of dynamics.
We expected an island to industry margins remained stabilize near current levels amid weak demand.
This means that we can take it to anticipate higher nylon solutions exports year over year in the near term.
And our plant nutrient business, we anticipate strong seasonal demand supported by continued favorable industry fundamentals.
Erin N. Kane: So let's turn to slide nine to wrap up before moving to Q&A. Now more than ever, the strength of our business model and our position as a diversified chemistry company will serve us well as we navigate the current set of dynamics. We expect nylon industry margins to remain stabilized near current levels amid weak demand.
We do expect first half 'twenty 'twenty four year over year pricing declined amid a lower nitrogen pricing environment.
And in our chemical intermediates portfolio, we expect balanced to tight global acetone supply and demand conditions.
Erin N. Kane: This means that we continue to anticipate higher nylon solutions exports year-over-year in the near term. In our planned new trans business, we anticipate strong seasonal demand supported by continued favorable ag industry fundamentals. So we do expect first half 2024 year-over-year pricing declines amid a lower nitrogen pricing environment. And in our chemical intermediate portfolio, we expect balanced to tight global acetone supply and demand conditions. Operationally, we expect the pre-tax income impact of planned plant turnarounds to be $30 to $43 million in 2024, compared to approximately $30 million in 2023.
Operationally, we expect our pretax income impact of planned plant turnarounds to be $38 million to $43 million in 2024 compared to approximately $30 million in 2023.
The majority of this impact will be incurred in the third quarter.
Now before I conclude.
I wanted to spend a moment, providing an update on the previously disclosed process based operational disruption at our Frankford manufacturing sites.
As a result of a delayed ramp planned utilization rates there.
We are now anticipating a total unfavorable impact to pretax income in the first quarter of $23 million to $27 million.
This is comprised of the impact of lost sales and other additional costs, including purchases a replacement product and incremental plants that.
Erin N. Kane: A majority of this impact will be incurred in the third quarter. Now, before we conclude, I wanted to spend a moment providing an update on the previously disclosed process-based operational disruption at our Frankfurt manufacturing site as a result of a delayed ramp to planned utilization rates. They are now anticipating a total unfavorable impact on pre-tax income in the first quarter of $23 to $27 million.
We are on the right path and have framework currently operating at 65% to 75% of the plant utilization rates, which is enabling us to ramp back Oh, Wow and Chesterfield to targeted rates.
While this has been a difficult start to the year operationally.
I'd like to thank our customers and partners for their collaboration to mitigate value chain impact.
And I'd also like to acknowledge our advanced six teammates that had been focused on the safe operation of our sites. During this time for their commitment and focus on getting the job done.
Erin N. Kane: This is comprised of the impact of lost sales and other additional costs, including purchases of replacement products and incremental plant spend. We are on the right path and have Frankfurt currently operating at 65 to 75 percent of its planned utilization rates, which is enabling us to ramp back up Hopewell and Chesterfield to targeted rates. While this has been a difficult start to the year operationally, I would like to thank our customers and partners for their collaboration to mitigate value chain impact. And I'd also like to acknowledge our AdvanSix teammates that have been focused on the safe operation of our sites during this time for their commitment and focus on getting the job done. We have much of the year ahead of us and are committed to delivering for our key stakeholders. With that, Adam, let's move to Q&A. Great. Thanks, Erin.
We have much of a year ahead of us and are committed to delivering for our key stakeholders.
With that Adam let's move to Q&A.
Great. Thanks, Erin Andrea can you. Please open the line for questions.
We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad.
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Once again that was star then one to ask a question at this time, we will pause momentarily to assemble the roster.
And our first question comes from Vincent Anderson of Stifel. Please go ahead.
Hi, good morning, everyone.
Good morning, So I wanted to.
Good morning.
I wanted to start with am so are the revenues in the quarter were better than at least I was expecting given where export pricing has lingered for most of the quarter, where your overall volumes up year over year or did you start to see better pricing in December you know whether market base, or just placing tons and higher value regions.
Operator: Andrea, can you please open the line for questions? We will now begin the question and answer session. To ask a question, you may press star, then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the key.
Yeah.
Yeah Vincent Thanks for the question here are you from a year over year perspective volume was up if you look at the.
Operator: To withdraw your question, please press star then 2. Once again, that was star then one to ask a question, and at this time, we will pause momentarily to assemble the roster. And our first question comes from Vincent Anderson of Spiefel. Please go ahead. Good morning, everyone. Good morning, Vincent. Good morning. I wanted to start with Amsol.
Top line growth, we were looking at roughly a $60 million of volume improvement from a year over year perspective, that's worth about 15, million% to 15% increase year over year, a good amount of that was ammonium sulfate also a good amount of volume from a nylon and caprolactam perspective.
Vincent Alwardt Anderson: The revenues in the quarter were better than, at least, I was expecting given where export pricing had lingered for most of the quarter. Were your overall volumes up year over year? Did you start to see better pricing in December?
Most of that was exports so.
In particular, we had a really strong exports a quarter and that's what drove the majority of the volume from a year over year perspective.
Got you. Thank you and that kind of feeds into my next question, which maybe partially answered, but you recorded lower deferred income and customer advances was that largely the result of absolute pricing or where your pre buys consciously kind of managed lower this year.
Erin N. Kane: You know, whether it's the market base or just placing tons in higher value regions? Yeah. Yeah, Vincent, thanks for the question here. Yeah, from a year-over-year perspective, volume was up. If you look at the, you know, top-line growth, we were looking at roughly $60 million of volume improvement from a year-over-year perspective. That's worth about a 15% increase year-over-year. A good amount of that was ammonium sulfate. Also, a good amount of volume from a nylon and capolactam perspective.
You know when we think about sort of where the the fundamental it is and certainly we.
They got petsmart signals here as well as approaching every years, you know pre buy program and sell program.
So we would say that our volumes were you know add sort of long term historical averages, but pricing just given the entire complex on an energy and nitrogen nutrient values was about.
Erin N. Kane: Most of that was exports. So, for AF in particular, we had a really strong export quarter, and that's what drove, you know, the majority of the volume from a year-over-year perspective. Gotcha. Thank you. And that kind of feeds into my next question, which may be partially answered, but you recorded lower deferred income and customer advances.
Okay, Alright excellent.
Kind of similar question around intermediates that was a bit better than we were expecting so I'm curious if that was really all acetone pricing or are we starting to see some early recovery, an oxymoron and maybe the means that go into agricultural use.
Yeah, I mean, the majority of really the intermediates improvement was more market related pricing and most of that was with acetone.
Erin N. Kane: Was that largely the result of absolute pricing, or were your pre-buys consciously kind of managed to lower this? You know, when we think about sort of where the fundamental market is, and certainly we take our customer signals here as well as approach every year's, you know, pre-buy program and fill program. So we would say that our volumes were, you know, at sort of long-term historical averages, but pricing, just given the entire complex of energy and nitrogen nutrient values, was down. Okay, all right. I had a kind of similar question about intermediates. That was a bit better than we were expecting.
That's its own strength given our.
Favorable supply demand conditions overall.
Sure Okay.
And then just a real quick one I'll give someone else a turn but is there any risk here that you don't have enough output from Frankfurt to build inventory ahead of the planned turnaround and we see more purchase product in around.
Around the third quarter or the second quarter or is this still at 65% to 75% of planned utilization, where we're good in terms of balance of the year risk.
Yeah. So certainly if the current rates we're at are supporting us.
Modest purchases at that level too to bring back the full rate at a the Hopewell and Chesterfield here, just given our normal level of integration of 75% to 80% you cannot you know that those numbers are out there.
Erin N. Kane: So I'm curious if that was really all acetone pricing, or are we starting to see some early recovery in oximes and maybe the amines that go into agricultural use? Yeah, I mean, the majority of the really intermediate improvement was more market-related pricing, and most of that was with Acetel. That's the tone of Frank given favorable supply-demand conditions overall. Sure, okay.
Relative to sort of how the system works on average over long stretches.
We certainly as you might expect we pulled forward the maintenance work at Hopewell I'm just given the slowdown. So we are proactive in that nature and our key focus right now is to get our Frankfurt facility stabilized and up and running the systems returned the return up.
Erin N. Kane: And then just a real quick one, I'll give someone else a turn, but is there any risk here that you don't have enough output from Frankfurt to build inventory ahead of the planned turnaround and we see more purchase product in, you know, around the third quarter or the second quarter, or is this still at 65 to 75 percent of planned utilization where we're good in terms of balance of the year risk? Yeah, certainly the current rates we're at are supporting us, you know, with some modest purchases at this level to bring back the full rate at the Hopewell and Chesterfield here, just given our normal level of integration, 75 to 80%. You can be sure that those numbers are out there.
Our customers have been very collaborative with us during this time and we're reevaluating our plans for the remainder of the year on timing and execution to be successful.
Okay, Alright, thank you very much.
Yeah.
The next question comes from David Silver of C. L. King. Please go ahead.
Yeah, Hi, good morning.
Hum.
Yeah, I wanted to maybe just start with the.
Maybe just a couple of details regarding the sustain program.
And in particular, you know maybe I missed it before but I wasn't aware of the grant funding from the U S. T. A.
Erin N. Kane: Relative to sort of how the system works on average over long stretches, we certainly, as you might expect, we pulled forward the maintenance work at Hopewell, just given the slowdown, so we are proactive in that nature. And our key focus right now is to get our Frankfurt facility stabilized and up and running. The system's returned, the return of flow to our customers who have been very collaborative with us during this time, and we're reevaluating our plans for the remainder of the year on timing and execution to be successful. All right. Thank you very much for that. The next question comes from David Silver of CL King. Please go ahead. Bye-bye. Yeah, hi, good morning. This morning,
The opportunity there.
Could you just maybe touch on that what what is maybe.
The aspect of your project that is most directly I guess attributable or erode.
I can't think of the right word, but which would the funding request be tied to is it.
The emissions performance is it something in the actual process just.
You know if you could just talk about the broadly and then if you could also size the amount of the potential grant funding you know a range or whatever that would be helpful. Thank you.
David Silver: Yeah, I wanted to maybe just start with maybe just a couple of details regarding the SUSTAIN program. And in particular, you know, maybe I missed it before, but I wasn't aware of the grant funding from the USDA opportunity there. Could you just maybe touch on that? What is, maybe, the aspect of your project that is most directly, I guess, attributable, or I can't think of the right word, but to which the funding request would be tied? Is it emissions performance?
And is that 75 million Capex net of any grant funding or is that the gross figure before any any funding. Thank you.
Yeah.
Certainly so the the grant from the USDA is is actually in support of increased fertilizer production for U S growers and U S. Farmers. So you know really that you know given the growing need of sulfur.
Erin N. Kane: Is it something in the actual process? Just, you know, if you could just talk about that, you know, broadly, and then if you could also size the amount of the potential grant funding, you know, a range or whatever, that would be helpful. Thank you. Oh, and is the $75 million CapEx net of any grant funding, or is that the gross figure before any funding? Thank you.
They are in the country and our ability to.
To generate more capacity and grow with those needs are we think we are a great match and certainly are working through the process with them. So it really is about improving that we have increased our local we produced fertilizer.
The glass markets and so that is the key there there are steps the granting process right. So we continue to proceed.
And you know when we think about the opportunity set. It's you know between the 10 to 15 million dollar opportunity for us against our total spend.
Erin N. Kane: Certainly. So the grant from the USDA is actually in support of increased fertilizer production for U.S. growers and U.S. farmers. So, you know, given the growing need for software in the country and our ability to generate more capacity and grow with those needs, we think we are a great match and certainly are working through the process with them. So it really is just about improving that we have increased locally produced fertilizer for the U.S. market. And so that is the key. There are steps to the grant process, right, so we continue. And you know, when we think about the opportunity set, it's, you know, between a $10 to $15 opportunity for us against our total spend.
Yeah.
Okay. Thank you for that I'd like to switchover to maybe to get some of your thoughts about.
The global supply demand balance.
And nylon and caprolactam and in particular, I guess competitive reactions to the current funding.
Fundamental environment.
But.
My sense is that there are some producers are even with the stabilization that you cited in your charts, but there are some producers who are just not.
Erin N. Kane: Okay, thank you for that. I'd like to switch over to maybe get some of your thoughts about the global supply-demand balance for nylon and caprolactam and, in particular, I guess, competitive reactions to the current, you know, fundamental environment. But, you know, my sense is that there are some producers, even with the stabilization that you cited in your charts, but there are some producers who are just not, you know, making suitable returns that, I don't know, I would consider sustainable. And, you know, from your perspective here, you know, regionally, I guess, we, you know, have you noticed any behavioral shifts, in other words, would the Chinese producers be reducing production rates in response to lower domestic demand, or have there been some adjustments at www.advansix.com?
Making suitable returns that.
I dunno would consider sustainable and.
You know from your perspective here, you know regionally I guess.
You know have you noticed any behavioral shifts in other words would the.
The Chinese producers be reducing production rates in response to you know lower domestic demand or have there been some adjustments and.
Production or.
I don't know the facilities that you see operating in Europe or elsewhere, but you know beyond shifting around your marketing strategy is a little bit have you noted any concrete shifts that you know might lend to a firmer fundamental balance, let's say over the medium term.
Yeah.
Erin N. Kane: If I provide a little context for you, David, on sort of current operating rates, as we've seen certainly at the start of the year, China is running closer to 80 percent. That continues to be a, you know, strong, healthy rate for them and is a rate at which they need to export, you know, vis-a-vis sort of their internal domestic needs. That has had a ripple effect on the fact that he's got the rest of Asia operating at about 50%.
Well they provide a little context for you David on sort of current operating rates are you have you seen it certainly started the year you know China is running closer to 80% you know that continues to be a.
A strong healthy rate for them and Ah and has a rate of which they needed to export you know vis vis or their internal domestic needs and that has had a ripple on effect you've got the rest of Asia operating at about <unk>.
50% is right. So when we talk about sort of the impact of these trade flows.
Erin N. Kane: Right. So when we talk about sort of the impact of these trade flows, you know, China begins to export to the rest of the world, you know, into the rest of Asia, into Europe. Europe is operating around 60% as well.
I'm trying to get us to export to the rest of the world and you know into the rest of Asia into Europe, Europe is operating around six 7% as well.
Erin N. Kane: You know, structurally, it is a higher-cost region. And so that is the area that we continue to watch. You know, when you think about the regional balances, North America is the market, and demand recovers relatively balanced to slightly long. Europe is structurally long. The rest of Asia is structurally long, as is, you know, China to some degree as well.
You know structurally them. It is a higher cost region and so that is the area that we continue to watch you know when you think about the regional balances.
North America is the market and demand recovers.
A relatively balanced to slightly long in Europe is structurally long rest of Asia is structurally long as is you know trying to to some degree as well. So you know that yeah, I think you're asking around are we seeing any one yet announcing a sign of of closure you know again there are definitely.
Erin N. Kane: So, you know, that's, you know, I think you're asking around, are we seeing anyone yet announcing a sign of closure? You know, again, there are definitely lines that are not running, lines that are curtailed in rate. But we have not yet seen a definitive call of state, but certainly, the areas that we would watch would be those regions that are structurally lost. Okay. No, thank you for that. Maybe the last question, and I apologize; I always feel like a dumb chemicals analyst here.
Lines that are not running lines that are curtailed in rates.
But we have not yet seen a definitive called fade, but certainly the areas that we would watch would be those regions that are structurally long.
Sorry, Okay no. Thank you for that.
Maybe the last question and I apologize I always feel like a dumb chemicals analyst here, but.
David Silver: But at a couple of points, you know, in talking about critical investments for the long term, you, I guess you used the terminology critical enterprise risk mitigation, right? And I'm kind of scratching my head there, but could you just, you know, just flesh that out a little bit more? I mean, is this a cyber defense kind of thing?
Couple of points you.
And <unk> been talking about critical investments for the long term.
U S. I guess you used the terminology critical enterprise risk mitigation right.
And I'm kind of scratching my head there, but could you just just flesh that out a little bit more I mean is this a cyber defense kind of thing or what what what types of activities.
Erin N. Kane: Or what types of activities, you know, are included in a critical enterprise risk mitigation program as you imagine it? Thank you. Yeah, so, one question you might ask us, as you may be trying to potentially probe here, is, why couldn't we manage some of these programs within our sort of, our base CapEx framework, right? And we could, but then we would then need to sacrifice the ongoing, I would say, sustaining replacement maintenance at some of our sites, right? Because these are larger projects in nature. They are lumpier in scale.
<unk> are included in our critical enterprise risk mitigation program as you envision it. Thank you.
Sure Yeah. So.
You know one what May you know after that you may be trying to potentially problem. Here is you know why why couldn't we manage some of these programs within our sort of.
Our base Capex framework.
And.
And we could but then we would then need to sacrifice the ongoing I would say sustaining replacement maintenance at some of our sites right. Because these are larger projects in nature. They are lumpier and scale them and so you know when you think about enterprise risk. When you think about supply chain risk. When you think about the finite risk we think about cyber risk.
Erin N. Kane: And so, you know, when we think about enterprise risk, we think about supply chain risk. We think about climate risk. We think about cyber risk. We think about, you know, the totality of risk factors that, you know, we disclose in our 10-K. Now, you know, when we think about these projects right now, we've got, you know, the dock. That dock at Frankfurt is the start of our entire value chain, right? And the length of service and its needs. And, you know, it's a large project for the scale, and it's not a Frankfurt dock per se.
Think of that you know the totality of risk factors that you know when we we disclosed in our and our 10-K.
Now you know when we think about these projects right now.
We've got you know the Doc that that docket frankford at the start of our entire value chain.
And the length of service and and its need and you know and it's a large large project for the scale and it is not our frankford Doc per se. Its a advance X dark ride that is necessary to maintain for the entirety of the system.
Erin N. Kane: It's an AdvanSix dock, right? That is necessary to maintain for the entirety of the system. Likewise, the boiler, this is not a standard replacement agent boiler program that we would put into our base framework. You know, again, in our integrated value chain, this is a significant sort of switch to handling a critical utility at a key site that's moving forward. And again, because of the approach we took for adding great redundancy and resiliency to a site, we put it in that category. But again, long-term compliance risk. One might think, you know, regulatory changes could fall into this. But if you think back to when we funded this, we did have a program that we would view as enterprise, you know, critical risk mitigation associated with our multi-year NOx reduction program, right? So these are the types of things that, you know, we feel are over and above what would be prudent to manage into and within our base $75 million sustaining maintenance capex for each base that manages the base, but it's, let me pause.
Likewise the boiler this is not a standard replacement they danced boiler program that we would put into our base framework.
And again, you know in our integrated value chain.
This is a significant sort of switch a handling of critical utility at a at a key site. That's moving forward and again because of the approach we took for adding great redundancy and resiliency onto a site. It we put it in that category, but again.
Long term compliance risks one might think you know regulatory changes could fall into this if you think back to when we spun we did have a program that we would view as enterprise you know critical risk mitigation associated with our multi year Nox reduction program right. So.
These are the types of things.
You know when you feel are over and above what.
But it would be prudent to manage into and.
Within our base $75 million sustaining maintenance capex for for each.
Erin N. Kane: I hope that helps a little bit. Okay, great. Thank you. I'm going to get back on the queue, www.advansix.com. Once again, if you would like to ask a question, please press star, then 1. This will conclude our question and answer session. I would like to turn the conference back over to Erin Kane for any closing remarks. Great. Thank you all again for your time and interest this morning. While there are puts and takes across our end markets and broader macro uncertainty, we have a demonstrated playbook and track record to navigate these dynamics. We'll continue to position our business for long-term sustainable performance through smart and disciplined investment and focus on accelerating growth in the most profitable areas of our portfolio. With that, we look forward to speaking with you again next quarter. Stay safe and be well. The conference is now concluded. Thank you for attending today's presentation, and you may now disconnect. ,,,,,,,,, www.advansix.com
The base of it.
Let me pause I hope that helps a lot of it.
Yes.
Okay, great. Thank you I'm going to get back in the queue.
Yeah.
Once again, if you would like to ask a question. Please press Star then one.
This will conclude our question and answer session I would like to turn the conference back over to Erin Kane for any closing remarks.
Great. Thank you all again for your time and interest. This morning, while there are puts and takes across our end markets and broader macro uncertainty we have a demonstrated playbook and track record to navigate these dynamics will continue to position our business for long term sustainable performance through a smart and disciplined investments.
And focus on accelerating growth in the most profitable areas of our portfolio.
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 and you may now disconnect.
Yeah.
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Yeah.
Okay.
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