AdvanSix Inc. (ASIX) Q3 2026 Earnings Call Transcript

Operator: Good day, and welcome to the AdvanSix Third Quarter 2026 Earnings Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note, this event is being recorded. I would now like to turn the conference over to Adam Kressel, Vice President, Investor Relations and Treasurer. Please go ahead.

Adam Kressel: Thank you, Danielle. Good morning, and welcome to AdvanSix's third quarter 2026 earnings conference call. With me here today are President and CEO, Erin Kane, and Senior Vice President and CFO, Patrick Day. 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 of 2026 and share our outlook for our key product lines and end markets. Finally, we will leave time for your questions at the end. With that, I will turn the call over to AdvanSix's President and CEO, Erin Kane.

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, we generated 15% sales growth year-over-year as our teams continued to leverage both formula and market-based pricing mechanisms to offset inflationary raw material costs. We also generated improved cash flow, benefiting from disciplined working capital performance and continued risk-based prioritization of base capital spending. While our core caprolactam operating rate continues to exceed global industry averages by nearly 10%, reduced production output at our Hopewell and backward-integrated Frankford manufacturing sites drove unfavorable fixed cost absorption. Patrick will dive into the financials in a moment, but I would like to start the discussion once again by framing our key strategic priorities. Our focus remains centered on the controllable levers that support through-cycle value creation, commercial execution, operational excellence, and disciplined capital deployment. Once again, our pricing actions in aggregate nearly offset the substantial year-over-year increase in raw materials. We are maintaining margin expansion across Nylon Solutions and Chemical Intermediates. In Plant Nutrients, while we continue to navigate elevated sulfur costs, we do expect strong domestic granular ammonium sulfate volume performance for the full 2026-2027 fertilizer year. Turning to operational excellence, we are focused on supporting safe, stable, and sustainable operations while improving earnings and cash conversion through the cycle. Our approach includes risk-based capital prioritization, disciplined turnaround scoping, and the use of continuous improvement as a productivity engine across the enterprise. We continue to progress our multi-year $30 million non-manpower fixed cost reduction program and are on track for year one savings. While this year operating rates are tracking lower year-over-year, including the winter storm impacts of 1Q 2026, we have been optimizing mix across the integrated value chain. Ammonia sales are expected to be up 25% for the full year, and our nylon resin production output is running about 5% higher year-over-year. We're both enhancing our focus in the area of reliability while continuing to enable levers to further position us for forward performance as we look to 2027. Lastly, we are focused on generating meaningful operating cash flow to support disciplined capital deployment. From a working capital perspective, our cash conversion cycle continues to benchmark in the top quartile among peers. Our significant runway of opportunity on 45Q carbon capture tax credits also supports future cash generation. We believe even through the downturn that prudently investing in the right areas for growth and performance is key to driving long-term shareholder value and is reflected in our continued advancement of the SUSTAIN program. As we look forward, we will ensure a well-managed balance sheet as we continue to progress evaluation of our potential DEF growth project, as well as Project CENTURY. Looking ahead, we remain focused on navigating near-term market dynamics while taking deliberate actions to strengthen our performance and position AdvanSix for the future. With that, I'll turn it to Patrick to discuss the financials.

Patrick Day: Thanks, Erin. I'm now on slide four to discuss our results for the third quarter. Sales increased 15% year-over-year to $431 million, driven by 17% favorable pricing, partially offset by a 2% decline in volume. Raw material pass-through pricing was up 10%, following a net cost increase in benzene and propylene. Market-based pricing improved 7%, reflecting increases across all product lines. As Erin highlighted earlier, we were pleased by the strong commercial execution amid a higher input cost environment. The sales volume decline was primarily driven by lower domestic and export caprolactam sales. Adjusted EBITDA was $15 million, down $10 million from last year. I will highlight the key year-over-year variances in a moment. Adjusted earnings per share loss of $0.24 declined by $0.32 versus the prior year, driven primarily by the lower EBITDA. We expect the full year 2026 effective tax rate to be approximately 20%, in line with our year-to-date results. Cash performance improved meaningfully. Cash flow from operations was $48 million, up $21 million from the prior year, primarily reflecting working capital discipline. CapEx declined by $8 million to $18 million as planned, supporting $30 million of free cash flow generation in the quarter. Now, let's turn to slide seven. In the quarter, we drove pricing improvement across the portfolio on a year-over-year basis. This was supported by higher raw material pass-through pricing, as well as an increase in market-based pricing. Looking across the portfolio, nylon resin sales increased 33% year-over-year, while caprolactam sales were roughly flat. Resin volumes continued to increase on improved operational performance at Chesterfield, while domestic and export caprolactam volumes declined in a soft building and construction environment. Consistent with our operating approach, we evaluate the optimal product and geographic mix to ensure the best economic outcome for the integrated enterprise. Plant Nutrients sales increased 8% year-over-year on higher pricing, while sales improved 14% sequentially. The North American ammonium sulfate fall fill program was well received with strong volume interest. However, this was partially offset by the seasonal sequential domestic pricing decline. Lastly, Chemical Intermediates sales increased 24% year-over-year, supported by both price and volume improvement. Sales declined sequentially on moderating propylene prices and lower acetone volume, primarily driven by timing of acetone shipments to align with end market demand. Now, let's turn to slide six. Here, we highlight the key drivers of our third quarter Adjusted EBITDA performance year-over-year. As a reminder, we track three primary variable margin equations across our portfolio: caprolactam and nylon resin over benzene, acetone over propylene, and ammonium sulfate less sulfur and natural gas. Raw material costs were our largest headwind in the quarter of $65 million. This was primarily driven by rising sulfur and benzene prices, and to a lesser extent, increasing propylene prices. Natural gas prices were modestly lower year-over-year. We were able to more than offset the raw material impact of benzene and propylene in our Nylon Solutions and Chemical Intermediates product lines through strong commercial execution with favorable market and pass-through pricing mechanisms. In Plant Nutrients, the fall fill results, driven by both a seasonal reset and challenging competitive dynamics, impacted price over raws performance with continued sulfur cost headwinds. These dynamics also contributed to a greater than typical sequential seasonal earnings impact. Sales volume overall represented a minor unfavorable impact to Adjusted EBITDA. SG&A contributed an approximately $3 million benefit, reflecting disciplined cost management, including our non-manpower fixed cost initiative. SG&A also benefited from the absence of the investment to upgrade our enterprise resource planning system in the prior year period. Lastly, all other items netted to an $8 million headwind, primarily due to the impact of reduced production output. As discussed earlier, the impact overall primarily reflected unfavorable fixed cost absorption. Now, let's turn to slide seven. On the left side of the page, we've shown our third quarter year-to-date free cash flow generation for 2025 and 2026. Our year-to-date performance is largely in line with last year. However, the prior year period benefited from $26 million of insurance proceeds, so we are operationally performing better on a normalized basis. Working capital was a $24 million source of cash year-to-date, compared with a $56 million use of cash in the prior year period. This improvement reflects disciplined inventory optimization aligned with end market dynamics and our business rules. As an organization, we are driving meaningful working capital performance, supporting improvement in the overall cash conversion cycle. As we've shared previously, there is non-linearity in our cash flow on a quarterly basis. Looking ahead, we anticipate working capital tailwinds to continue into the fourth quarter, supported by ammonium sulfate pre-buy cash advances amid current fertilizer pricing. We now expect full year 2026 CapEx of approximately $90 million, comprised of $75 million of base capital and $15 million of high-return growth investments. Of note, we are commissioning the SUSTAIN ammonium sulfate project this quarter. The SUSTAIN program overall continues to exceed our return expectations. Finally, our new five-year, $425 million credit facility, which successfully closed in August, now consists of a revolver and term loan at comparable terms and conditions to our previous facility. The facility provides ample liquidity for our business needs and supports capital deployment optionality. Let me turn the call back to Erin.

Erin Kane: Thanks, Pat. I'm now on slide eight to discuss the key factors we're monitoring across the portfolio as we move through the fourth quarter and look toward 2027. Overall, we anticipate a price over raws headwind year-over-year in the fourth quarter. Much like we have seen in the third quarter, we expect nylon and Chemical Intermediates pricing performance to offset rising raw materials, while sulfur costs continue to represent a significant headwind for Plant Nutrients, particularly given where we are in the fertilizer season. To go a little deeper, starting with Plant Nutrients, we're monitoring trends in farmer economics and crop prices, which can influence buying behavior down the value chain. We expect tighter domestic ammonium sulfate supply and improved demand as we move into the first half of 2027. Customer dialogue and industry news indicate several North American producers of ammonium sulfate are currently not operating or running intermittently given input cost dynamics. It is likely that the market will be short of supply into the spring season. In addition, nitrogen pricing remains elevated and is still affected by the conflict in the Middle East. Sulfur prices remain an important consideration. The Tampa sulfur marker was $705 per long ton in the third quarter and moderated to $615 with the fourth quarter settlement. There is some lag in our realized input pricing, and impacts can also be influenced by timing of purchases and consumption of material. As a reminder, on our sensitivity to sulfur, every $100 per ton per long ton change in sulfur price equals an approximately $35 million cost impact on an annualized basis. We believe we are well-positioned to benefit as sulfur input costs normalize. While we have been navigating various near-term impacts, we remain focused on serving our customers with a strong sulfur nutrition value proposition we have built through sound agronomic research and grower yield benefits. In Nylon Solutions, we continue to monitor the building construction cycle, particularly commercial, where nylon has a strong position in carpet applications. The interest rate environment remains dynamic, impacting this sector, as well as other consumer affordability and buying behavior. Automotive and other consumer durable demand across engineering plastics applications, as well as packaging, have remained relatively stable. We are also monitoring global capacity rationalization in both caprolactam and nylon, which should support improved supply and demand fundamentals over time. Our focus remains on operational execution, product and geographic mix optimization, and maintaining price over raw material expansion. Export markets remain fundamentally challenged. For our domestic sales, there is a regional premium in the U.S., and we have tensioned that spread throughout 2026. However, there is some caution sequentially in the fourth quarter as benzene costs continue to rise, and we are seeing wider disconnects on U.S. benzene prices relative to Asia and European costs. Similar to nylon, end market demand across Chemical Intermediates into construction, coatings, and downstream industrials has been broadly stable. Global phenol operating rates remain low on soft demand. At the same time, balanced acetone supply and demand and reduced imports into the U.S. continue to support spreads near cycle average levels. We are continuing to watch for green shoots across our high-value applications in paints, electronics, and agrichemicals. At the enterprise level, we are progressing several important initiatives, including our non-manpower fixed cost reduction program, the potential DEF growth project, and 45Q carbon capture tax credits. Let's turn to slide nine to discuss our recent selection for a USDA FIELDS grant. As you may have seen in our press release last week, AdvanSix was selected to receive $47 million in proposed funding through the USDA FIELDS Program in support of our Project CENTURY, or Capacity Expansion for Nitrogen Technology, U.S. Resilience, and Yield. We were one of eight projects selected under this program. Project CENTURY represents a planned $98 million multi-year investment through 2031 to modernize and expand our ammonia manufacturing capabilities at our Hopewell, Virginia facility. The project is expected to add approximately 84,000 tons of annual ammonia production, while also improving reliability, enhancing logistics infrastructure, and advancing the modernization of our operations through upgraded controls and digital optimization tools. Importantly, the proposed grant provides a nearly dollar-for-dollar match for our investment. We expect that structure to support attractive financial returns and an IRR above our 20% target hurdle rate for discretionary investments. Strategically, this investment strengthens our integrated ammonia platform and increases our ability to provide essential nitrogen nutrition to American farmers. It also builds on nearly a century of manufacturing in Hopewell and supports a reliable and resilient domestic fertilizer supply chain. We are proud of this recognition and appreciate the administration and USDA's partnership and commitment to strengthening U.S. manufacturing and American agriculture. Let's turn to slide 10 before moving to Q&A. To summarize the key takeaways from today's call, our third quarter results reflect strong commercial execution and the resilience of our integrated business model as we navigate significant input cost inflation and a dynamic market environment. Pricing increased across each product line and nearly offset a substantial increase in raw material costs. At the same time, disciplined working capital performance and lower capital expenditures supported a meaningful improvement in free cash flow. Improving operational reliability and performance also remains an important area of focus for the team to protect our core competitive advantage. We are taking decisive actions to enhance cash generation, reduce our cost base, and optimize our portfolio while continuing to prudently invest in attractive growth opportunities. We remain confident in the underlying strength of AdvanSix. Our integrated asset base and diversified product portfolio provides flexibility as we navigate evolving market conditions. Most importantly, our teams remain focused on the levers we can control, commercial execution, operational excellence, cash generation, and disciplined capital deployment. We believe these actions position AdvanSix to deliver improving through-cycle performance and sustainable long-term shareholder value. With that, Adam, let's move to Q&A.

Adam Kressel: Thanks, Erin. Danielle, please open the line for questions.

Operator: Thank you. We will now begin the question-and-answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. The first question comes from David Silver from Freedom Capital. Please go ahead.

Zhangir: Good morning. This is Zhangir on for David Silver at Freedom Capital Markets. Thanks for taking my questions.

Erin Kane: Good morning.

Zhangir: I wanted to start with Project CENTURY and the FIELDS grant. How should we think about the timing of the project and the capital spending in 2027 as you weigh your broader pipeline of organic growth opportunities?

Erin Kane: Great. Thanks for the question. Certainly, we are excited about this opportunity being one of eight projects selected to move forward with the FIELDS funding process. We are pleased that we are one of the few performing companies under the FPEP grant, and this is just a great extension, I think, of our opportunity set to strengthen really off of our integrated ammonia platform. To reiterate, this is a multi-year program, similar to SUSTAIN, in that it is a series of projects to get after the capacity release. I might remind us all that through a lot of our investment in our Kellogg plant over the last several years, we have been slowly releasing capacity through really smart replacement maintenance projects, and this is really an extension of that opportunity. A large portion of the plant investment is really categorized as modernization and mechanical integrity focus spend that is supporting, again, continued release of additional capacity and capabilities that we would otherwise be evaluating in the context of our ongoing annual capital spend. When you think about the spend from 2027 to 2031, really the 2027 spend would be modest, as we continue to ramp up the program, move through the final approval steps here. As a reminder, 2027 will be our final year of SUSTAIN spending. So planning for the Project CENTURY really assumes more peak spend in the 2029 to 2031 timeframe. Certainly, as we progress and get final approval, we will provide greater clarity on that exact timing of spend. We also recognize that we have the potential DEF project being engineered at current as well. We will have that final investment decision in Q2 of 2027, as we had previously discussed. When you think about CapEx for 2027, if we put this all kind of in context of where we sit today, I want you to think about preliminary capital planning for 2027 to start around $80 million. That would include our sustaining maintenance and health, safety, and environmental compliance spend, that is our base capital, as well as the final project of the SUSTAIN program. Obviously, in light of additional cash flow coming with 45Q, and as we continue to progress the evaluation of these programs, we will come back in February to lay out a broader and better view on the incremental discretionary CapEx. Certainly, we have a refreshed pipeline, but there will be a sequencing consideration here as we are committed to a well-managed balance sheet. Hopefully that gives you a better sense of the profile of how we think about Project CENTURY and early implications for 2027.

Zhangir: Okay. Yeah, that helps clarify the investment timing. Thank you. As the additional capacity comes online, how much flexibility will you have to use the ammonia for ammonium sulfate, merchant sales, or diesel exhaust fluid?

Erin Kane: Yeah, when you think about the opportunity we set, really we have on the ammonia integration platform is, ammonia can be consumed to make our base caprolactam and ammonium sulfate chemistries. With our SUSTAIN program, we have added a lever for SUSTAIN ammonium sulfate, so making that direct. So that is another consumer of ammonia directly through that project, again, creating another lever and flexible option based on underlying nylon and caprolactam market demand. We then have the merchant sales. Then as we think about DEF, you can consume it forward to DEF. So all of these various programs are really just enabling us to think about increased opportunity off of our important Kellogg ammonia asset, but ensuring that we have really enhanced logistics and enhanced levers to ship more merchant ammonia as well. That really is the intent here to support a nitrogen release of additional capacity into the U.S.

Zhangir: Understood. I appreciate the explanation. Just one more from me. Despite the pressure on Adjusted EBITDA, free cash flow improved in the third quarter. With sulfur prices still high but easing, what are you seeing in growers' willingness to pre-buy at current fertilizer prices, and what does it mean for fourth quarter free cash flow?

Patrick Day: Sure, Zhangir. Thanks for the question. I'll take that one. The pre-buy program in Q4 is an important part of our cash flow picture, and this is where we take advances ahead of the 2027 season orders. I'd like to point out, first and foremost, we are here to support our customers and growers as they prepare for the upcoming growing season. Uptake for pre-buy is anticipated to be positive given the current input cost picture and what we expect these market dynamics will support as we look at a higher pre-buy compared to the prior year. Obviously, we're going to be monitoring these factors closely over the next month before we formally initialize our program for the year. I do think in that context, it's important to highlight we see a path forward to break-even free cash flow in the calendar year, and this is going to be a focus of ours as we close out 4Q. Year to date, we are negative $32 million of free cash flow, including $75 million of total Capex. With our remaining planned capital spend of approximately $15 million and continued disciplined management of working capital, we do see a path to this result. I do think it's also important to note on 45Q, this path to break-even free cash flow currently excludes the expected $18 million 45Q refund. We continue to have constructive dialogue with the DOE and the IRS over the quarter. We, at this point, do not have a formal notification on the refund as of yet. Given that we are here in the first week of November, there is a good probability our 2018 to 2020 refund is going to move into 2027 purely for procedural reasons. Hopefully that helps give you some context on free cash flow for the remainder of the year.

Zhangir: Yes, great. Thanks for the color. That is all from me. Thank you.

Erin Kane: Thanks. Have a great day.

Operator: The next question comes from Pete Osterland from Truist Securities. Please go ahead.

Pete Osterland: Hey, good morning. Thanks for taking the questions. First, just wanted to ask about what you are seeing in Plant Nutrients as you look into next year, particularly around your comments around tighter supply-demand. I guess, could you just give some color on what you are seeing across customer commitments, industry channel inventories, and supply availability? As sulfur prices come down, would you expect to retain all that margin, or do you see potential that this could pressure ammonium sulfate pricing lower at all, or incentivize any competing supply to come back online?

Erin Kane: Yeah, so maybe just a bit of a recap on how we think about monetizing the sulfur value proposition. We typically build off of the base nitrogen nutrient value, so as we think about where urea is, where urea is likely to continue to go, gas prices in Europe are escalating. Certainly urea remains a bit snug through the Middle East as well, conflict. So nitrogen pricing is likely to continue to be supporting, so we build off of that floor with our sulfur value proposition. We continue to drive the premium in really what we are monetizing, if you will, on the value proposition there. So we think the pricing will be solid based on sort of the formulation of how we think about that. So normalization of sulfur would and should continue to kind of benefit really our margin at that time. Relative to supply, we are certainly getting significant inquiries from places we do not normally see. At these current input prices for synthetic producers, making it rather tough to be profitable, so we think those folks are challenged, as well as perhaps some of the other folks that are running on a standard, maybe an even more kind of byproduct or co-product basis, and some of the smaller assets that exist through North America. That is then you think about the imports. Europe is very challenged. We are seeing sort of Domo is out completely through their bankruptcy and insolvency consideration, so that they at times would bring product over. There is consideration for the BASF-Highsun JV, considering where materials and output would come out of Europe. So, I think it is constructively setting itself up for a tighter supply consideration as we move forward into the year as well.

Pete Osterland: Very helpful. Thank you. Then, just following up on some of the other businesses. Some of the 2027 commentary around nylon and CI indicates that supply-demand is either improving or at least, at the very least, stable. I guess, putting this all together, could you share how this will impact your strategy around optimal operating rates within your network? Maybe just as context, how far below what you describe as optimal are you currently running Hopewell, and would you expect to meaningfully change your operating rates in the coming quarters as you see conditions stabilize or improve?

Erin Kane: Yeah. Thanks for that. We've long said that our competitive advantage and certainly our cost in producing caprolactam has afforded us to run higher rates, and we continue to do so through this downturn. But obviously, your extended trough, I guess, is the way to think about it. While really demand has stabilized, we haven't necessarily seen the upturn in the important building construction cycles that would generate more demand. So we continue to run an average 10% plus-minus. That's about the same range that we have historically run greater than industry averages as well. Things we're looking for, obviously the European capacity rationalization. Again, I mentioned Domo, the combination potentially in its JV with BASF and Highsun, continuing to watch that. We're thinking about the mix optimization, what assets should run and how we triangulate others. To put it in context, we're really still pushing our ammonia plant relative to full utilization, strong OEEs, and that continues. The Chesterfield nylon plant, again, up 5% year-over-year. That's an area for us to continue to drive mix. So really what we're attenuating here now is the caprolactam train, if you will. If we think about where we're at, we're probably 8%-10% below where we would have been when the markets are a bit healthier, right? So we'll continue to push. We believe and we'll continue to strive. We have high standards relative to our performance. Consistent reliability lends itself to great performance and maintenance spend and capital spend and all those things. We'll really look to be able to respond quickly as the markets continue to evolve, but certainly as we can drive our opportunity set and take advantage using our competitive advantage.

Pete Osterland: Excellent. Great color. Then just lastly, I wanted to ask a follow-up on Project CENTURY as well. Regarding the $47 million of proposed funding, I guess, could you just speak to the details of any regulatory reviews or other hurdles remaining for the grant to be approved, or if there are any funding milestones associated with the grant? Then, just on the economics of the project overall, I mean, would it hurdle your 20% IRR target without the grant, or is this necessary in order for you to move forward?

Erin Kane: Yeah. When we think about the normal process, we've been through with FPEP, the follow-on sort of reviews and risk reviews and environmental reviews are things that we have ultimately already proceeded with on FPEP. So we believe that, again, this is predominantly administrative as we move forward. So we're focused on these next steps and securing as we go. It will work very much the same way as the current grant. So, funding really comes with our milestone achievement against our plan. We submit the funds come back in pretty short, reliable order, once we've hit those milestones and had our sort of spending and commitment levels. There is sort of a modest incremental profit-sharing component that can moderate qualified spend, but that will come in the outer years as well. And so, there's definitely capacity release, and it's, as I mentioned a little bit earlier, we've been doing this behind the scenes now for a number of years, just through our standard ongoing repair and maintenance on the Kellogg plant, right? Continue to look at opportunities on debottleneck. So, I would say just like in SUSTAIN, the overall project has a great return. There are components that you would say, hey, certain things that are just logistics or enablers sometimes can feel have lower returns, if you will. But in totality, this is a good project. It actually has some synergy with the DEF project as well, so we'll be looking at how we think about that as we go forward. So, hopefully that helps.

Pete Osterland: All right, great. Yeah, that's all for me. Thanks a lot.

Erin Kane: Thanks, Pete. You have a safe day.

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

Erin Kane: Thank you all again for your time and interest this morning. Our third quarter performance demonstrated strong commercial execution and meaningfully improved cash generation, while also reinforcing the opportunity ahead as we optimize production output, execute our cost reduction initiatives, and advance our strategic growth priorities. We remain focused on executing against the controllable levers that strengthen our performance through the cycle. Our integrated business model, disciplined approach to capital, and growing operational flexibility position us well as we move into 2027. With that, we look forward to speaking with you again next quarter. Stay safe and be well.

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