AdvanSix Inc. Q3 2025 earnings call

Thank you, Rocco. Good morning, and welcome to AdvanSix's third quarter 2025 earnings conference call. With me here today are President and CEO Erin Kane and Interim CFO Chris Gramm. This call and webcast, including any non-GAAP reconciliations, are available on our website at investors.advanSix.com. Note that elements of this presentation contain forward-looking statements that are based on our best view of the world and of our business as we see it today. 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 third quarter 2025 and share our outlook for our key product lines and end markets. Finally, we'll leave time for your questions at the end. With that, I'll turn the call over to AdvanSix's President and CEO, Erin Kane.

Thanks, Adam, and good morning, everyone. We appreciate you joining us here today for our quarterly call. As you saw in our press release, AdvanSix continued to navigate challenging industry dynamics in the third quarter with a focus on optimizing operational and commercial performance. Our team executed with agility and discipline as we seasonally entered a new fertilizer year in plant nutrients with a strong fall fill program amid higher raw material input costs, while continuing to realize the ongoing benefits from our sustained growth program. Given the protracted downturn in nylon solutions and demand softness in chemical intermediates, we're making the strategic choice to moderate production rates to manage inventory levels with a keen focus on free cash flow. Utilization across our integrated value chain was down roughly four percentage points sequentially from the second quarter to the third.

Operationally, we experienced a site-wide electrical outage at our Chesterfield nylon plant in mid-September. While there was minimal impact to 3Q results, we did have an isolated fire upon restart that impacted one polymerization line of the plant and was fully contained. There were no injuries or environmental impacts, and the majority of our plant operations continue as normal. While we were already tactically opting to reduce production levels, this incident is expected to impact 4Q EBITDA by $7 million-$9 million, primarily related to the negative impact of unabsorbed fixed costs. On a positive note, our fourth quarter planned plant turnaround centered around our sulfuric acid and oleum plant at Hopewell was completed successfully at the low end of our target range. While our domestic nylon solution margins over benzene once again expanded year-over-year, we are seemingly operating in a lower-for-longer macro environment.

In times of uncertainty, we're focused on delivering on controllable levers. This includes continued optimization of production output and sales volume mix while driving productivity to support through-cycle profitability. Taking a disciplined approach to cash management is critical, reflected in our prioritization of base capital investment and anticipated tailwinds in 2026 from 45Q carbon tax credits and recent tax legislation. 2025 CapEx is now expected to be $120 million-$125 million, reflecting $30 million full-year cash conservation through refined risk-based prioritization and execution. Our select and targeted investments for growth are continuing to progress. The sustained growth program, which unlocks 200,000 tons of granular ammonium sulfate, has been favorably tracking roughly 15% below its capital budget, with the final two projects remaining to be completed over the next year.

In addition, our planned investment to upgrade our enterprise resource planning system went live in the third quarter, which will help streamline key processes across the organization while enhancing management tools and data analytics. Finally, we added two new members to our board of directors this past quarter, Dana O'Brien and Daryl Roberts. Their deep industry and professional backgrounds and proven expertise in global manufacturing will be invaluable to our board's role in ensuring strong corporate governance practices and supporting advancement of our strategic growth priorities. With that, I'll turn it over to Chris to discuss the financials.

Thanks, Erin. I'm now on slide four to discuss our results for the quarter. Sales of $374 million in the quarter decreased approximately 6% versus the prior year. Sales volume was approximately half of that change, driven primarily by softer demand in both chemical intermediates and nylon end markets. Raw material pass-through pricing was down 5% following a cost decrease in benzene, which is a major input to cumene, our largest raw material and key feedstock to our products. Market-based pricing was favorable by approximately 2%, driven by continued strength in plant nutrients, reflecting favorable North American ammonium sulfate supply and demand conditions. Adjusted EBITDA was $25 million, down $28 million from last year, while adjusted EBITDA margin was 6.6%. The decline in earnings versus last year was primarily driven by a reduction in acetone price raw spreads, as we anticipated.

The impact of lower nylon and chemical intermediate sales and production volume and higher utility costs as a result of increasing natural gas prices. On a sequential basis, compared to the second quarter, we saw a nearly $20 million earnings decline due to typical ammonium sulfate seasonality with the start of the new fertilizer year. In addition, our results reflect the impact of moderated production rates amid softer demand for nylon solutions and chemical intermediates. Now let's turn to slide five.

Here we are illustrating our quarterly sales contributions by product line, as well as price and volume breakdown, both year-over-year and sequentially. We believe this double-click into the underlying dynamics of our financials provides insight into our commercial sales and performance. Plant nutrients continues to positively stand out. While we navigated typical seasonal pricing considerations, our continued strong performance in Q3, including the higher year-over-year pricing of our fall fill program and favorable sales mix supported by our sustained growth program, are further proof points to the resiliency of softer nutrition demand. Broader nylon markets continue to face pressure here in the U.S. and abroad. However, our domestic market-based pricing across nylon solutions is holding steady, while raw materials pass-through pricing saw declines on lower benzene input prices. Lastly, acetone pricing has moderated, as expected, from the multi-year highs witnessed in 2024. Let's turn to slide six.

Our end market exposure remains a strategic advantage. It provides a source of diversification, which helps insulate the company from significant variability in any one industry, as demonstrated by our results in various environments. We've highlighted our exposure in descending order, with agriculture and fertilizer at the top. This is an area that continues to grow. We estimate sulfur nutrition demand growing 3%-4% per year on average, and where we are leveraging our expertise as leaders in the space. There continues to be robust acceptance of the sulfur value proposition amid underlying increases in global nitrogen pricing, primarily driven by supply-side impacts. Given current corn futures, this is a positive reinforcement that the value chain believes in sulfur to improve economics for the same acreage. We believe stock-to-use ratios globally continue to support fertilizer demand over the long term. Moving to building construction, dynamics here remain largely unchanged.

Across this end application, we have direct and indirect exposure across nylon and intermediates through flooring, oriented strand board, and paints and coatings, to name just a few. Our view is late in demand will build and begin to recover through 2026, assuming moderating interest rates going forward. Plastics does remain challenged, reflecting broader macro softness. We had previously communicated that the auto sector was a watch-out, including impacts of tariffs, uncertainty, and trade policy. We've continued to see a drawdown in auto inventories, as well as weakness across consumer durables and other industrial applications. Solvents likewise have been mixed. We've seen moderated growth into construction, pharmaceutical, and electronics industries. In the semiconductor space, our NADON sales demand was down year-over-year in the third quarter, but is anticipated to improve sequentially into 4Q and 2026.

Lastly, we continue to monitor and track trends in food packaging, where beef is the largest category. Nylon Six is preferred here due to its excellent barrier properties and its puncture resistance. Our inflationary pressure and tariffs are impacting demand in this space, notwithstanding the relative resilience we are seeing in packaging. Let's move to slide seven.

Cash flow generation remains a critical focus area for us. We believe it's important to view our business performance on a trailing 12-month basis, given the linearity considerations, primarily driven by the timing of the fertilizer season. Trailing 12-month free cash flow through Q3 2025 is approximately break-even, and we continue to target positive free cash flow for the full year of 2025. There are a number of levers that we're focused on to bolster sustained and improved cash flow generation moving forward, including working capital initiatives, risk-based prioritization of capital investments, cost productivity, and tax optimization. Our balance sheet is positioned to provide optionality and the ability to weather the challenging macro environment. We expect strong free cash flow in the fourth quarter, supported by working capital tailwinds, including the ammonium sulfate pre-buy cash advances.

As Erin mentioned earlier, we're able to capture a roughly $30 million reduction to our full-year 2025 capital plan. We expect CapEx for 2026 to be in the range of $125 million-$135 million. We're also actively managing our cash tax rate, which we anticipate being below 10% over the next few years, supported by the continued progress on the 45Q carbon capture tax credits and 100% bonus depreciation. Now let's turn to slide eight to wrap up before moving to Q&A.

Our strategic initiatives, unique combination of assets and business model, are core to our durable competitive advantage and long-term positioning. Our global low-cost position in vertically integrated caprolactam production serves us well. In addition, ammonia and sulfuric acid platform integration, coupled with a leading granular crystallization technology position, underpins our sustained ammonium sulfate growth and how we win in plant nutrients. These capabilities, combined with our asset utilization agility and product mix, position us to navigate cycles and capitalize on emerging opportunities. 2025 has been a dynamic year, but we've remained well-positioned as an American manufacturer of essential chemistries. We have been operating with structural tariffs in place globally across our value chains for quite some time, so we are adept at navigating an environment like this.

We are largely insulated from first-order impacts of reciprocal tariffs, with nearly 90% of our sales in the U.S. and our key product lines in a net import industry position. Our U.S. footprint has allowed us to optimize our tax position with a meaningful impact on cash flow going forward. Recently, we've seen a number of industry actions with announced European capacity rationalization in phenol and acetone, as well as caprolactam and ammonium sulfate. We believe we're reaching an inflection point in several markets, and as we've discussed today, we're positioning ourselves to win long-term. With that, Adam, let's move to Q&A.

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