AdvanSix Inc. Q4 2025 earnings call

Thank you, Bailey. Good morning, and welcome to AdvanSix's fourth 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 fourth quarter and full year 2025 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 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, the AdvanSix team executed well to close out 2025. A great thanks to our organization for remaining focused on safely optimizing operational and commercial performance. We delivered full-year adjusted EBITDA of $157 million and generated $6 million of free cash flow in a year characterized by continued cyclical trough market conditions for nylon solutions, robust plant nutrient supply and demand fundamentals amid an increasing input cost environment, and mixed chemical intermediates industry conditions with lower acetone net pricing as anticipated. While the macro environment has been challenging, there were a number of highlights over the past year to recognize. We successfully executed our planned turnarounds at the low end of our target spend range.

We delivered record annual production across both of our key ammonia and sulfuric acid unit operations. We invested $116 million in CapEx, funding key growth and enterprise initiatives, including our sustained growth program. We progressed tax strategies, claiming additional 45Q carbon tax credits, received the final $26 million settlement proceeds in the first quarter of 2025 related to the 2019 PES supplier shutdown claim, and we preserved our competitive dividend while maintaining conservative debt leverage levels and ample liquidity. At the end of the year, we also welcomed Jeffrey J. Bird to our board of directors. Jeff's breadth of experience and deep financial and operational leadership in complex industries will further strengthen our board's strategic oversight. As we look ahead to 2026, the end market environment remains mixed overall.

We anticipate continued strength in plant nutrients, supply-demand fundamentals, and expect acetone margins to remain near cycle averages, while nylon remains plateaued in its trough. Now, there have been several recent industry announcements pointing to capacity rationalization in the nylon chain and lower operating rates in China, which we believe should lead to more favorable supply and demand conditions over time. Raw material input costs are expected to be a headwind, particularly in the first half of the year, on meaningfully higher sulfur and natural gas prices. As many well know, we recently navigated a significant winter storm across the country and mid-Atlantic. We are proud that we were successful in safely and continuously running our operations through these extreme temperature, ice, and snow conditions. Everyone at our operating sites came together to deliver this result.

We did have to contend with natural gas restrictions, additional maintenance costs, and we elected to moderate operating rates, which was a necessary impact to maintain safe operations. In total, we anticipate roughly an $8 million-$10 million unfavorable earnings impact in the first quarter, which we do intend to fully offset as we progress through the year. In this environment, we remain focused on controllable levers to support through-cycle profitability and cash conversion. This includes optimizing production output and sales volume mix, driving fixed cost reductions and productivity, maintaining a disciplined approach to cash management, and taking a risk-based approach to capital investment and plant turnaround scoping. Our strategic initiatives, unique combination of assets and business model are core to our durable competitive advantage and long-term positioning. With that, I'll turn to Chris to discuss the financials.

Thanks, Erin. I'm now on slide four to discuss our results for the quarter. Sales of $360 million in the quarter increased by approximately 9% versus the prior year. Sales volume increased approximately 11%, driven primarily by the prior year impact of the Q4 2024 extended planned turnaround.

Market-based pricing was favorable by approximately 2%, driven by the continued strength in plant nutrients, reflecting favorable North American ammonium sulfate supply and demand conditions, partially offset by lower acetone prices as anticipated. Raw material pass-through pricing was down 4% following a cost decrease in benzene, which is a major input to cumene, our largest raw material and key feedstock to our products. adjusted EBITDA was $25 million, up $15 million from last year, while adjusted EBITDA margin was 6.9%. The improvement in earnings versus last year was primarily driven by the favorable year-over-year sales volume and lower cost impact of plant turnarounds, partially offset by a decline in chemical intermediates pricing net of raw material costs.

On a sequential basis compared to the third quarter, earnings were roughly flat as higher plant nutrient pricing was offset by increased sulfur and natural gas input costs, as well as the impact of the previously disclosed unplanned Chesterfield electrical outage and planned Hopewell turnaround. Now let's turn to slide 5. On this slide, we are detailing our quarterly sales contributions by product line, as well as price and volume indicators, both year-over-year and sequentially. We hope this view into the underlying dynamics of our financials provides better insight into our commercial sales performance. In Nylon Solutions, volumes declined sequentially as we moderated caprolactam and resin production rates to manage inventory in a softer demand environment. Domestic market-based pricing held relatively steady, while raw material pass-through pricing saw declines on lower benzene input prices. Plant nutrients continue to perform exceptionally well, with strength in volume, pricing, and mix.

Granular ammonium sulfate volumes increased year-over-year, supported by the resiliency of sulfur nutrition demand and continued progress of our sustained growth program. And lastly, chemical intermediates pricing was stable sequentially, but lower year-over-year, consistent with expectations as acetone pricing moderated from the multi-year highs experienced in 2024. I'm now on slide 6, where we've summarized our full year 2025 financial results. Sales were roughly flat year-over-year, while we delivered full year adjusted EBITDA of $157 million and 90 basis points of margin expansion to 10.3%. Strong plant nutrients pricing and volume performance, in part supported by our sustained growth program, helped to overcome higher natural gas and sulfur feedstock costs, continued trough market conditions for nylon solutions, and lower acetone pricing over raw.

I would also highlight that the strong fourth quarter performance supported positive free cash flow generation for the full year 2025. On the bottom right portion of the slide, we've included a snapshot of our plant utilization across our three major facilities. At Hopewell, operating rates were roughly flat in 2025 on a year-over-year basis. As Erin mentioned earlier, we delivered record annual production across both of our key ammonia and sulfuric acid unit operations at our Hopewell site, while continuing to optimize granular ammonium sulfate production. At our Frankford phenol and acetone plant, utilization rate was up on improved performance year-over-year. At Chesterfield, operating rates were down high single digits. This reflects the strategic choice to moderate production and manage inventory levels, as well as the site-wide electrical outage and fire.

Thanks, Chris. I'm now on slide 7 to discuss our end market exposure and what we're seeing across our major product lines. Our diversified end market exposure continues to be a strategic advantage, providing resiliency across cycles. Agriculture and fertilizer remains our largest end market. Overall, we continue to see favorable ammonium sulfate supply and demand fundamentals, with sulfur nutrition demand growing approximately 3%-4%. There is caution around crop prices and sensitivity to declining farmer profitability, in addition to higher sulfur input costs, which are impacting fertilizer margins. Sulfur prices settled at nearly $500 per long ton in the first quarter of 2026. That compares to $165 per ton in the first quarter of 2025, and $310 per ton last quarter, so a meaningful increase that the industry is experiencing.

There continues to be a robust acceptance of the sulfur value proposition, with growers seeking to maximize crop yields. In the first seven months of this fertilizer year, granular sales volume is up 10%. We continue to build upon last year's success and are on pace for another record year of sales growth. As the value chain has been preparing for the upcoming planting in spring, we are seeing inventory fill up in the channel, particularly with the impact of weather-related delays. We're now seeing our first half order books shift more into the second quarter, when fertilizer typically moves very quickly through the chain to the fields. While there is risk to our first quarter plan volume, we also view this as an opportunity to place more tons in the second quarter when we traditionally see the highest in-season pricing.

To put this into historical context, at this point in the year, we're typically sold out several months in advance, meaning that pricing for the first quarter shipments is based on the back half of the prior year, and the second quarter shipments largely reflect first quarter pricing. This year, given the considerations around anticipated acceleration of input costs, expectations for corn acres planted, and tight domestic fertilizer supply, we engaged in a more limited pre-buy program and have taken a more cautious and patient approach to the order book. By not selling forward, our average price in the order book is above last year's pricing and much closer to current published pricing without the historical lag. Moving to building construction, dynamics here remain largely unchanged. We have direct and indirect exposure across nylon and chemical intermediates through flooring, oriented strand board, and paints and coatings, to name a few.

Our view is that latent demand will build and begin to recover through 2026, assuming moderating interest rates going forward. Third-party estimates indicate approximately 3% commercial construction growth anticipated in 2026. For nylon fiber and filament in particular, we see a stronger presence in commercial applications such as office, hospitality, and leisure. Broadly across nylon solutions, the industry remains an extended trough. Pricing has stabilized domestically, with margins supported by lower benzene input costs. However, demand remains muted across construction, automotive, food packaging, and broader industrial applications. As I mentioned earlier, encouragingly, we are seeing increased evidence of capacity rationalization in Europe and lower operating rates in China, which again should support more balanced supply and demand conditions over time. In chemical intermediates, phenol demand remains weak overall, driving lower global operating rates and supporting more balanced acetone supply and demand dynamics.

While acetone margins have moderated, they remain near cycle averages. Downstream MMA demand is improving, following planned and unplanned downtime in the fourth quarter of 2025. In addition, we note that the refinery-grade propylene pricing marker is being discontinued in 2026, and the industry is moving to buying cumene on a polymer-grade propylene minus pricing construct. Lastly, as of January, the Commerce Department and International Trade Commission made final determinations to renew the anti-dumping duties for acetone into the U.S. for another five years. Let's move to slide 8. As we look ahead to the remainder of 2026, our strategic priorities remain clear. We're focused on bolstering sustainable cash flow generation through risk-based prioritization of capital investments, cost productivity, tax optimization, and commercial and operational execution.

Our balance sheet is positioned to provide optionality and the ability to weather the challenging macro environment, with leverage exiting 2025 at approximately 1.2 times net debt to adjusted EBITDA. Now, starting with CapEx, we're expecting to spend in the range of $75 million-$95 million in 2026, compared to $116 million in 2025. This reduction reflects a rigorous evaluation and risk-based assessment of base investments and enterprise programs with continued progression of growth projects, including our sustained growth program. We anticipate a similar range of investment in 2027 as well, as we prioritize capital based on compliance, risk, and reliability assessments and efficiency improvements. We've also taken a refined risk-based approach to our planned turnaround schedule in 2026.

While it is an ammonia turnaround year at Hopewell, we've reduced the scope of these activities, focusing on critical maintenance and compliance areas. In total, we now anticipate the pre-tax income impact of plant turnarounds to be in the range of $20 million-$25 million. The majority of this spend will be in the second quarter this year, as we necessarily aligned our work with planned natural gas pipeline maintenance already scheduled by our vendor partners. As we previewed on our last earnings call, we are embarking on a non-manpower fixed cost takeout initiative, which is expected to support margin resilience. Supported by our recent ERP upgrades and enhanced management tools and data analytics, this multi-year productivity program targets approximately $30 million of annual run rate cost savings.

From an execution perspective, we remain focused on optimizing production output, inventories, and sales volume mix, while remaining nimble to capture market opportunity in the areas that are most profitable. We are also actively managing our cash tax rate, which we anticipate being below 10% this year. Lastly, all of these contributing items support expected meaningful improvement in free cash flow for the year. As a reminder, our linearity consistent with past years will represent a first half use of cash, primarily due to the unwinding of cash advances, the run rate of cash payments on CapEx, and timing of annual payments. Conversely, we anticipate the second half to be a source of cash to achieve our full year expectations. Let's turn to slide 9 before moving to Q&A. We believe that AdvanSix offers a compelling investment thesis with several value drivers supporting through-cycle profitability and sustainable performance.

Our leading U.S.-based position, advantage value chain and business model provide inherent competitive advantages. We're aligned to a diverse set of end-market applications, including roughly 40% of our revenue tied to underlying strong agricultural fundamentals. Our ammonia and sulfuric acid platform integration, coupled with leading granular crystallization technology, underpins our 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. With disciplined capital allocation, a healthy balance sheet, and a keen focus on productivity and free cash flow generation, we believe we have the flexibility and resilience to navigate current market conditions and create long-term shareholder value. With that, Adam, let's move to Q&A.

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