November 7, Q 2017 Earnings Presentation

Transcription

1 November 7, Q 2017 Earnings Presentation

2 Forward Looking Statements 2 This presentation contains certain statements that may be deemed forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. All statements, other than statements of historical fact, that address activities, events or developments that our management intends, expects, projects, believes or anticipates will or may occur in the future are forward-looking statements. Forward-looking statements may be identified by words like "expect," "anticipate," "estimate," outlook, "project," "strategy," "intend," "plan," "target," "goal," "may," "will," "should" and "believe" or other variations or similar terminology. Although we believe forward-looking statements are based upon reasonable assumptions, such statements involve known and unknown risks, uncertainties and other factors, which may cause the actual results or performance of the company to be materially different from any future results or performance expressed or implied by such forward-looking statements. Such risks and uncertainties include, but are not limited to: our inability to achieve some or all of the anticipated benefits of the spin-off from Honeywell including uncertainty regarding qualification for expected tax treatment, indebtedness incurred in connection with the spin-off, and operating as an independent, publicly traded company; fluctuations in our stock price; general economic and financial conditions in the U.S. and globally; growth rates and cyclicality of the industries we serve; the impact of scheduled turnarounds and significant unplanned downtime and interruptions of production or logistics operations as a result of mechanical issues or other unanticipated events such as fires, severe weather conditions, and natural disasters; price fluctuations and supply of raw materials; adverse trade and tax policies; extensive environmental, health and safety laws that apply to our operations; litigation associated with chemical manufacturing and our business operations generally; loss of significant customer relationships; protection of our intellectual property and proprietary information; cybersecurity incidents; failure to maintain effective internal controls; and prolonged work stoppages as a result of labor difficulties. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this presentation. Such forward-looking statements are not guarantees of future performance, and actual results, developments and business decisions may differ from those envisaged by such forward-looking statements. We identify the principal risks and uncertainties that affect our performance in our filings with the Securities and Exchange Commission, including our Annual Report on Form 10-K for the year ended December 31, Non-GAAP Financial Measures This presentation includes certain non GAAP financial measures intended to supplement, not to act as substitutes for, comparable GAAP measures. Reconciliations of non GAAP financial measures to GAAP financial measures are provided in the appendix of the presentation. Investors are urged to consider carefully the comparable GAAP measures and the reconciliations to those measures provided. Non-GAAP measures in this presentation may be calculated in a way that is not comparable to similarly-titled measures reported by other companies.

3 Overview 3 Strong 3Q17 Results: Sales $367M, Net Income $21M, Cash Flow from Operations $38M Favorable Conditions Across Nylon and Intermediates; Ammonium Sulfate Price Movement Modest Relative to Recent Nitrogen Pricing Expect 4Q17 Planned Turnaround Impact to Pre-Tax Income of ~$20M, Consistent with Prior Outlook Continued Benefits from Strong Operating Rates Disciplined Reinvestment in the Business to Create Further Shareowner Value

4 3Q 2017 Financial Summary Continued High Utilization Rates, Favorable Market Conditions 4 ($ Millions, Except Per Share Amounts) Sales 3Q Q 2017 $324.0 $366.7 Volume +5%, Price +8% Comments Market Pricing +4%, Raw Material Pass Through +4% EBITDA Margin % $ % $ % Favorable Market Pricing Unfavorable LIFO Reserve Adjustment (~$4M Impact) EBITDA Margin Up 190 bps vs. Prior Year Net Income $16.5 $21.3 Pre-Tax Interest Expense Up $2M EPS $0.54 $0.68 EPS Up 26% vs. Prior Year Free Cash Flow $7.0 $18.3 Cash Flow From Operations $38M, Up $13M vs. Prior Year Capex $19M, Up $2M vs. Prior Year See Appendix in this presentation for a reconciliation of EBITDA, EBITDA Margin, and Free Cash Flow, which are non-gaap measures; Free cash flow = net cash provided by operating activities less capital expenditures

5 Spread ($/MT) Nylon Industry Outlook Industry Conditions Remain Improved Year-Over-Year 5 Nylon Key Industry Spreads (1) Tightened supply environment North America and Europe 3Q17 YoY 3Q17 vs. 2Q17 Global Composite BNZ-CPL 38% 17% What We re Seeing China announced capacity adds, utilization impacted by stricter environmental controls Industry spreads fluctuating near marginal producer cost Asia BNZ-CPL 23% 3% Asia CPL-Resin 64% 27% What We re Expecting North America supply/demand remains in balance Global industry planned turnarounds scheduled for 4Q17 Steady nylon end market demand growth (1) Sources: Tecnon OrbiChem and PCI Wood Mackenzie Asia = Caprolactam Asia Import Contract (Taiwan & S. Korea) Global Composite = Weighted Avg Spreads From U.S., Europe, China, Other Asia Global Composite BNZ-CPL Spread Asia BNZ-CPL Spread Asia CPL-Resin Spread

6 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Avg Corn Belt AS price (granular $/ston N content basis) Ammonium Sulfate (AS) Industry Outlook Nitrogen Prices Recently Firmed, Fundamentals Remain Challenging 6 Ammonium Sulfate Key Industry Prices (1) Nitrogen prices firmed due to supply availability / China costs 3Q17 YoY 3Q17 vs. 2Q17 Corn Belt Granular AS (-3%) (-9%) What We re Seeing AS price movement modest relative to recent Nitrogen pricing 1400 Corn Belt Urea 4% 4% 700 What We re Expecting Cautious buying behavior through the value chain 2018 urea demand growth expected to lag capacity adds Tough agriculture fundamentals to continue pressuring growers Avg Corn Belt Urea price ($/ston N content basis) Sustain AS value proposition on sulfur nutrition Avg Corn Belt AS price (granular $/ston N content basis) (1) As reported in Blue, Johnson Avg Corn Belt Urea price ($/ston N content basis)

7 Cents per Pound Chemical Intermediates Industry Outlook Phenol and Acetone Tightened Supply Environment 7 Chemical Intermediates Key Industry Prices (1) What We re Seeing Competitors force majeure announcements largely resolved Tightened North America supply environment refinery grade propylene (RGP), phenol, acetone 60 3Q17 YoY 3Q17 vs. 2Q17 Acetone, Large Buyer 22% 1% Refinery Grade Propylene 18% 1% 40 What We re Expecting End market conditions to remain favorable Industry utilization returns to normal levels post hurricanes 20 0 (1) As reported in IHS Markit Acetone, Large Buyer Refinery Grade Propylene

8 Operational Excellence Driving Improved Reliability, Increased Output and Higher Returns 8 Annualized Plant Production Continuing to Benefit from Upgrades and Reliability Improvements 3Q17 YTD Production Up 3% vs. Prior Year and 8% Above Average Focused Maintenance Capex Drives More Stable Production, Higher Returns 4Q17 Planned Turnaround Pre-Tax Income Impact ~$20M, As Expected Turnarounds Key to Safe, Sustainable and Improved Operations 2018 Planned Turnarounds Expected to be Consistent with Historical Levels in Total Sustaining Robust Operational Performance Into 2018 Low Cost Position Supports High Utilization Rates Growth Capex to Drive Improved Plant Buffers and Debottlenecking Over Long Term Avg 3Q16 YTD 3Q17 YTD Frankford Annual Capacity: 1.1B lbs Phenol Hopewell Annual Capacity: 795M lbs Caprolactam Chesterfield Annual Capacity: 440M lbs Nylon 6 Resin

9 4Q 2017 Outlook ~$20M Impact to Pre-Tax Income from Planned Turnaround Consistent With Prior Expectations 9 Commercial Anticipate similar supply/demand environment to 3Q17 across major product lines Monitoring China environmental considerations into Winter months Operational Executing planned turnaround on time and on budget Continuing to enhance mechanical integrity program Cash / Other Ammonium Sulfate pre-buy advances Planned turnaround expenses $2M cash pension contributions in October 2017 (total ~$17M for full year 2017)

10 2018 Outlook Expect Current Industry Conditions to Continue, Focus on Organic Investments 10 Commercial Anticipate similar supply/demand environment to 2017 across major product lines Nylon: industry spreads fluctuating near marginal producer cost Ammonium Sulfate: seasonal industry pricing, cautious on nitrogen market fundamentals Chemical Intermediates: stable North America market environment Planned turnarounds expected to be consistent with historical levels in total ($30-35M) Operational Continued proactive maintenance to support high utilization rates Safe and sustainable operations to drive higher returns Cash / Other Reinvestment priorities in safe and stable operations expected to continue in 2018 with incremental investments in high-return growth and cost savings projects Potential for up to $20-30M incremental investment Expect continued strong working capital performance Lower cash pension contributions, higher cash taxes

11 AdvanSix Strategy And Priorities Well Positioned for Strong Operational and Financial Performance Over Long Term 11 Focused Strategy Delivering In Priorities Rigorous commitment to operational excellence Drive high value product and regional mix Continuous enhancement of R&D capabilities Upgrade current chemistry via new product pipeline Balanced and disciplined capital allocation Robust sales and production volume Trending to record safety performance Optimizing results in dynamic market environment Successfully built up standalone company functions Funded pension provides flexibility in future periods Improving cash flow generation High operating rates to continue Continued strong working capital management Final NOx controls system installed Maximize high value product mix Execute high-return growth and cost savings capex projects Fully exit transition services

12 12 Appendix: Reconciliation of non-gaap Measures to GAAP Measures

13 Reconciliation Of Net Cash Provided By Operating Activities To Free Cash Flow 13 (in $ thousands) Three Months Ended September 30, Nine Months Ended September 30, Net Cash Provided by Operating Activities $ 37,679 $ 24,614 $ 98,471 $ 66,467 Expenditures for Property, Plant and Equipment (19,421) (17,567) (67,206) (56,859) Free Cash Flow (1) $ 18,258 $ 7,047 $ 31,265 $ 9,608 (1) Free Cash Flow is a non-gaap measure and defined as Net Cash Provided by Operating Activities less Expenditures for Property, Plant and Equipment The Company believes that this metric is useful to investors and management as a measure to evaluate our ability to generate cash flow from business operations and the impact that this cash flow has on our liquidity.

14 Reconciliation Of Net Income To EBITDA 14 (in $ thousands) Three Months Ended September 30, Nine Months Ended September 30, Net Income $ 21,274 $ 16,460 $ 74,331 $ 58,861 Interest Expense 1,961 5,373 Income Taxes 14,538 11,342 46,803 36,712 Depreciation and Amortization 12,565 10,307 35,524 29,964 EBITDA (2) $ 50,338 $ 38, , ,537 Prior Year One-Time Benefit (3) 15,500 EBITDA Excluding Prior Year One-Time Benefit $ 162,031 $ 110,037 Sales $ 366,660 $ 323,953 $ 1,104,805 $ 932,201 EBITDA Margin (4) 13.7% 11.8% 14.7% 13.5% EBITDA Margin Excluding Prior Year One-Time Benefit 14.7% 11.8% (2) EBITDA is a non-gaap measure and defined as Net Income before Interest, Income Taxes, Depreciation and Amortization (3) Prior Year One-Time Benefit reflects the $15.5 million one-time benefit in 1Q 2016 related to the termination of a long-term supply agreement (4) EBITDA Margin is defined as EBITDA divided by Sales The Company believes these non-gaap financial measures provide meaningful supplemental information as they are used by the Company s management to evaluate the Company s operating performance, enhance a reader s understanding of the financial performance of the Company, and facilitate a better comparison among fiscal periods and performance relative to its competitors, as these non-gaap measures exclude items that are not considered core to the Company s operations.