Good day, and welcome to the AdvanSix Fourth Quarter 2021 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note today’s event is being recorded. I would now like to turn the conference over to Adam Kressel, Director of Investor Relations. Please go ahead, sir.

Thank you, Rocco. Good morning and welcome to AdvanSix’s fourth quarter 2021 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 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 of 2021 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. Thank you for joining us and for your continued interest in AdvanSix. As you saw in our press release, AdvanSix delivered terrific 2021 results. I’d like to thank our nearly 1,400 teammates, who delivered outstanding results for one another, our customers and our shareholders. 2021 was a milestone year for AdvanSix, celebrating our fifth anniversary since the spinoff. We achieved post-spin record annual sales, EBITDA and free cash flow, executed our first acquisition, initiated a quarterly dividend, entered into a new revolving credit facility and significantly reduced our debt levels to provide optionality for further value creation. We were also recently named one of Newsweek’s Most Responsible Companies for 2022. Mike will cover the details of our fourth quarter and full year financials in a moment, but our strong results reflect the resilience and strength of our execution and business model as well as our leadership positions across our diverse product portfolio. We are highly focused on executing what is in our control, including driving superior, operational and commercial performance to meet the evolving needs of our customers, building capabilities to strengthen our innovation and portfolio resiliency and maturing our capital stewardship. On that front, we are very excited to announce today the all-cash acquisition of U.S. Amines for an estimated net purchase price of approximately only $100 million. U.S. Amines’ existing portfolio of differentiated margin accretive products is a strong complement to our value chain and supports further penetration into high value end markets and applications. We expect the deal to close in the first quarter of 2022 subject to customary closing condition. Building on the success we had with the CIS acquisition last year in the initiation of our structural dividend, today’s announcement marks another step as we evolve and enhance our capital allocation strategy to support sustainable and robust shareholder returns. We are eager to welcome the roughly 50 U.S. Amines’ team members to AdvanSix and look forward to their contributions to our continued growth. As we look ahead, we have a lot of excitement around our organization and the outlook for our business remains favorable. We are targeting significant earnings growth in 2022 as we continue to execute on our strategic priorities supported as well by an expected robust ammonium sulfate fertilizer performance. We remain confident that AdvanSix is well positioned to deliver robust returns over the long-term. With that, I’ll turn it over to Mike to discuss the financial details.

Okay. Thanks, Erin, and good morning. I’m now on Slide 4, where I’ll highlight the full year 2021 financial results. As you can see, it was terrific performance across the board. Sales of $1.7 billion, EBITDA of $255 million, earnings per share of $4.81 and free cash flow of $162 million all represented record annual performance since we’ve become a public company. We captured pricing net of increased raw material costs, achieved sales volume growth and expanded margins while further reducing leverage levels throughout 2021. Our organic investments continue to pay off with strong top and bottom line performance from our differentiated product portfolio and continued contributions from our growth and cost savings capital projects. Overall, strong execution in what was an outstanding year for AdvanSix. Now let’s turn to Slide 5 to recap the fourth quarter results. Sales totaled $424 million, up 25% compared to last year. Pricing was favorable by 37% comprised of raw material pass-through pricing of 12% following a net cost increase in benzene and propylene and market-based pricing of 25% driven by higher pricing across our ammonium sulfate and nylon product lines. Sales volume in the quarter decreased approximately 12%, driven primarily by the impact of the planned plant turnaround in the fourth quarter of 2021 as well as lower production volume out of Chesterfield and Frankfurt compared to a robust operational performance in the prior year period. EBITDA was $49 million, an increase of approximately $1 million versus the prior year. I’ll walk through the key year-over-year variances on the next slide. Earnings per share of $0.80 increased $0.14 per share versus the prior year. We saw a higher effective tax rate in the quarter versus a prior year, primarily driven by an approximately $3.8 million energy tax credit associated with our natural gas…

Thanks Mike. I’m now on Slide 8 to discuss each of our product lines. Starting with nylon, we’ve seen spreads further improving through the end of 2021 on both a year-over-year and sequential basis. The North American market continues to be characterized by robust end market demand with a backdrop of rising input costs and continued industry supply constraints globally. The global cost curve has steepened in this current energy environment restoring marginal producer spreads back to the $1000 to $1,100 per ton range. From an end market perspective in North America, residential construction has remained strong and we continue to see signs of recovery on the commercial side. Packaging demand also remains robust. As for engineered plastics we are monitoring effects of chip and other material shortages such as glass fiber through the auto compounding value chain. However, it was encouraging to see leading automakers in the U.S. report, a sequential improvement in inventory in the fourth quarter. Moving forward, our efforts continue to focus on being our customers’ trusted partner, as well as new product and application development. This includes our hundred percent post-industrial recycled content resonant films, which has been met with positive feedback in commercial orders since its launch and last fall. Moving to ammonium sulfate, a number of key ag indicators continue to trend favorable. Overall, nitrogen industry pricing reached record levels supported by higher raw material input cost, industry supply constraints globally, including export limitations and restrictions in various regions and continued strong underlying demand and agricultural fundamentals, including crop prices, stock to use ratios, planted acres overall. As we’ve discussed previously, natural gas and therefore, ammonia as well as software prices have substantially moved higher through 2021 and into 2022. Over the last several weeks, we have seen global nitrogen prices fall from…

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

Yes, sir. [Operator Instructions] And ladies and gentlemen, our first question today comes from Vincent Anderson of Stifel. Please go ahead.

Yes, good morning. Can you guys hear me okay?

Yes, good morning.

Yes. Good morning, Vin.

Good morning. Congratulations on the year and the acquisition that’s it looks very – like a very nice set. You can imagine – thanks. You can imagine I’m going to spend most of the time on that. So I’m trying to understand the raw material fit here. So is the plan for us as a means to supply the Alabama plant from Hopewell specifically, the ammonia I would imagine or is it more that you just have this natural hedge on the company’s input costs. And then if you are going to supply it internally, do you have enough excess capacity in ammonia? I imagine cyclohexanone and maybe phenol.

Yes, great question. And thanks, because I think it’s important for relative to the framework we shared in the Investor Day that we are interested in moving and molecule upgrades and as you point out, there are a number of things here to consider, one, acetone is their largest raw material purchase. There is ammonia as you point out to make all of the immune chemistries. We also see opportunity through our cyclohexanone and in some chemistries as well. So certainly it is core to chemistries and raw material chains that we know and understand. I think that the fact that we supply these raw materials offer a second source of supply and supply security and redundancy. And then it also opens the opportunity set for us to think about the ecosystem. There’s local supply, but then there’s also the ability for us to think about how we best optimize the ecosystem potentially through co-producer arrangements and slots.

Okay. That makes sense. And then I guess, could you just spend like a minute on how this portfolio fits specifically with your solvent portfolio? And you may have mentioned this, but are there any other markets that U.S. it means isn’t selling into today that you would like to help kind of drive it towards?

Yeah. So when you think about the chemistry they practice, and one of the things that we really like about the assets that we are acquiring here is that they are multipurpose in nature and offer batch reactions as well. And so they provide a lot of flexibility and optionality. One of the opportunities is to think about those chemistries. They have the ability to also make alcohols. And so when we think about expanding beyond where acetone, we’ve got cyclohexanone, ITI could fit there as well. And so think about it in that regard as we continue to build out in those sectors.

Okay. That makes sense. And you kind of answered my next question in terms of how flexible the assets are in terms of moving between products. It looks like – correct me if I’m wrong, the cyclohexylamine, is that, that is separate capacity down there in Alabama. Is that true? Is that a separate line and process? And if so, can you talk about maybe specifically what that product goes into and is that could capacity pretty well filled out?

Yes, so across the asset base, again, there’s various trains, different configurations. Those are things that we will look forward into the opportunity set for us to grow and optimize. When you think about cyclohexylamine, there are certainly applications into water treatment. It also is a catalyst for polymerization reactions up to, and including nylon. So, again, just other opportunities for us to think about synergistic set.

Got you. Okay. Very helpful. And I think just one more quick one, I mean, when you think about synergies beyond raw materials, I would imagine that the sales force is pretty well specified for what they do, but should we think about back office consolidation as some kind of percent of revenues just to earmark?

I wouldn’t want anyone thinking about the acquisition as targeting cost synergies, per se. I think there’s a tremendous amount for us to put one on one together and make three plus relative to the sale and the growth aspect here. They have again, strong execution. I think they run a great shop and the target of the integration now, the outset is to go in and learn, they’re highly nimble and agile and those are characteristics that we aspire to. And so we’ll make sure, obviously there are core functions that we can bring our strength to as well. But hopefully that just gives you a little bit more perspective how we’re thinking about it.

Yes. And Vincent, the only other thing I’d add is there, what we see is we see opportunities for growth non-CapEx related growth, just in the various different end markets and opportunities that we’re discussing, but it also opens up the appertoire for additional organic CapEx opportunities on the site. There are a lot of brownfield opportunities that we see there on site. And so it just completely opens up this additional again, opportunity to expand and grow and grow organically.

Okay, thanks. And actually I did have just one more, I promise. So it looks like several of these specific chemicals are functionally duopolies, at least in terms of U.S. capacity, what is kind of the representation of imports in some of, I guess maybe the core chemistries at these facilities and then maybe like contract structure or at least structure of sales, generally speaking around these markets.

Yes. I mean, I think when you – in my comments here, I mean, you’re going to have primary customers in again, a range of large and regional consumers, yes, there’s a handful of other U.S. producers, but they’re also importers as well. Depending on the chemistry in one case, U.S. means as a sole producer of [indiscernible]. So, it kind of varies across the full chemistry sets. As you say there, and again with long tenure customer relationships, there are formula mechanisms, which again is a nice fit, right to how we know we succeed and very complimentary to how we approach our markets overall.

All right. Thanks. I’ll turn it over.

Thank you.

And our next question today comes from Charles Neivert with Piper Sandler. Please go ahead.

Good morning, guys. Can you hear me okay?

Yes. Good morning.

Fairly, Charlie.

Okay good. Yes. Just on the acquisition, this is all going to be obviously to get solely, or is there some cash coming off the balance sheet on this? And then looking at it, as you said, we haven’t sort of specified synergies, but I mean, I’m assuming that there’s some amount of it. And is there an EBITDA that’s associated with this price or with the sales?

Yes. So I mean, I think you broke up a little bit on the first question, Charlie. But I think your question is how are we funding the acquisition? And we have plenty of capacity with our existing credit facility, which is a revolver structure, which we just renewed new five year structure. So we have all the capacity we need and as is available for us to fund the acquisition through that, so not an issue in that regard.

Yes. And maybe I’ll take your second half here. When we think about how we report our financials, again, we don’t report segment financials, both for how the P&Ls are nested here, but also from the standpoint of a competitive nature. So what I share is I think the – we gave you sort of the view on the top line. This portfolio has demonstrated and why we like it, right? The ability to earn our target differentiated product gross margins at 1.5x to 2x our base business. So we kind of look over history, our average gross margin for AdvanSix has been in the low teen. So, again, this is an accretion opportunity for us. And then when we think about – well, we haven’t quantified, if you will, to your point, the sales synergies. Again, for the things that we like relative to highly flexible assets, the brownfield space for expansion. When we look at our initial pipeline of synergies and our targets here, it really does adjust, we can double the earnings of the business through both CapEx and high return projects and initiatives as Mike point out in three to five years.

Got it. And then on another side, like you said, they buy a lot of acetone. So I’m assuming that you’re going to up – at some point going forward, you’re going to be supplying most of that. I mean, I would assume that that’s a fairly significant step up in the profitability of acetone unless you have an extremely strong cyclical rebound in acetone, or is it always going to get covered anyway, even in the times when acetone is making a cyclical upswing.

Yes. So when we think about the...

Sort of cutting off the top end, so to speak.

Yes. No maybe just to build on the question even that Vincent started with too here, just to reiterate. Either they have a strong supplier partnership today, which again, we value through the diligence. Certainly it is one of their raw materials. But again, as we think about the opportunity set for us here is one that provides security of supply and redundancy. And then two, we have to think about the tradeoffs, and we do think that the ecosystem can be optimized whether its direct shipments or really a broader co-producer swap arrangement to effectively get the value of the integration without the physical product actually moving.

Got it. And then last question, there’s been some small issues in South America on the crop side, some dry weather and things like that. Do you expect that to affect any of your sales there in the seasons that you typically move into South America? Or is that sort of next season? So we’re not really worried about the current growing situation down there.

Yes. So when we really think about, again, when we did that big shift to South America really comes in the back half of the year, right? Our primary focus as we sit here today is ensuring we’ve got supply ready for our key customers as the season hits here in the next couple of weeks in the domestic market.

Got it. And I assume that’s pretty robust given what some of the other fertilizer guys have been saying about this season that they had really strong early seasons and they’re expecting a pretty robust spring coming as well as that seemed to be the case so far as you’re seeing?

Exactly. I think as we’re a couple of weeks away, but we’ve seen Chuck shipments pick up, right? So early signs. So certainly Mid-Atlantic, it’s got warm here. So, I think that again, the primary focus is us to be staged and ready and I think we’re well positioned to be – again, primary focus on servicing our customers, make sure they have the product they need when the season hits and it should be a good season here domestically.

Great. Thanks very much. I’ll pass it on.

Ladies gentlemen, our final question today comes from David Silver of C.L. King. Please go ahead.

Final question. Okay. Thank you. Okay, so just a couple of questions. I mean, maybe I would just like to start with your overall inventory levels, but I’m looking at your year-end inventory, a little under $150 million that that’s well down from 12 months ago. And really it’s barely up from the other quarters of 2021. And I’m just scratching my head and I’m thinking of the direction of the feedstock costs that are implied there. So couple of questions, but you mentioned – so sorry, sorry. Couple of questions. First, I mean, how should we think about that December 31 inventory level, in other words, has that been bulked up in the month and a half since the end of the quarter? And I guess I’m just wondering, how does that kind of compare with based on your comments about – an optimistic comments about the demand outlook. I mean, will you be able to, let’s say match, I think the volumes sold in 2021, which I believe was a record year for your company. I mean, how does that – how does just the overall volume projection look for 2022 compared to 2021?

Yes. I mean, I would say just, we think about the end markets and demand, demand continues to be strong and robust across all the product lines. So no issue there. You do point out the inventory for the quarter, we did add end at $150 million of inventory. But when you look at that, the finished goods inventory was the lowest it’s been in a number of quarters, certainly the lowest all year and probably in a number of years. When you look at the activity within the quarter, we did have our large turnarounds. So when we do run through the turnaround, our inventories do tend to get a little slimmer with respect to – particularly in finished goods. And we also had a less robust operational quarter relative to the prior quarter, the third quarter, and also the fourth quarter of 2020. The other thing I’ll point out is, through the year, many of our competitors did experience force majeures and industry supply was very low and challenged because of that. And as a result, we did benefit and we’re able to get some sales during the year. The goal as we get into the first quarter is to see improved operational performance, which we are seeing, and also build those buffer inventories back up to levels that are more normalized. But in terms of meeting the demand and the demand trends and growth, that’s all still strong and there in front of us to be had.

Okay. Mike, this one might be for you as well. But I wanted to follow up on a comment you made in your opening remarks. I think you used the term dynamic. But has to do with, I guess, the pre-buy or the fill season for your fertilizer business. But if I look on the current liabilities on the deferred income and customer advances line, I mean, sequentially again, the balance was kind of flat here in the fourth quarter, and that compares to a plus $20 million change one year ago and a plus, I don’t know, I think $18 million the year before that. So can you just kind of interpret that? I mean, I apologize, I used to know this stuff a little bit better. But why the flatness and how does that relate to either your shipping – the timing of your shipments or your marketing strategies? What does that flatness reflect?

Yes. So we did decide to forego are the ammonium sulfate pre-buy in the fourth quarter of this year. And if you think about the end market environment, they’ve – when you look at the raw materials, right, that sort of feed into the fertilizer space with sulfur up 165% year-over-year in the fourth quarter, natural gas up 125%. I mean, clearly we’ve seen an escalating raw material environment, as well as a lot of volatility and volatility in the raws but also in the end market in terms of pricing and given all those dynamics we did decided it to forego the pre-buy in the fourth quarter and continue to monitor and track and serve our customers as best we can in a very volatile and dynamic environment. As a result some of that cash will come in, in the first half of the year as we indicated as the sales and the cash are more closely aligned as we head into the season, but that’s really the decision behind for going the pre-buy in the fourth quarter and we think that was a prudent move given the environment.

Okay. I hope you don’t mind. I’m going to just keep going a little bit, but just real quick, I think in your release you said volumes – shipment volumes were down 12% year-over-year. Would you actually have that trend for the sequentially for the third quarter to the fourth quarter, what was the, the delta on your shipment volumes?

Yes. It wasn’t quite as down. What I would say is the third quarter of 2021 had similar operational performance as the fourth quarter of 2020. So volume was down when you look sequentially from the third to the fourth quarter? Not quite as much as we saw year-over-year but still I’ll call it mid- to upper-teens volume decline. And I will say in both of those quarters, the operational performance was very, very robust, right? We didn’t – we had very strong results from Hopewell and the other sites as well. But want to make it clear that we’re not seeing issues with demand; demand is still robust and strong. We did see some discreet impacts on various unit operations here in the fourth quarter of 2021 that reduced output. And with some of the discussion around inventory levels, and the fact that the finished goods inventory was relatively low. We didn’t necessarily have the buffer inventories. We would normally have to navigate through some of these disruptions if there’s a power outage or things of that nature. But again as we head here into the first quarter we’re seeing improved operations, improved performance, we’re going to get those inventory levels built back up and be in a very good position in, in 2022.

Okay. And maybe my last question, but this – I’m going to go to the outlook section of the earnings release and the very first bullet point under there, I’m going to just quote some snip bits, but you say you’re targeting "significant earnings" growth in 2022. And then separately you say robust ammonium sulfate fertilizer performance. So I’m just trying to put those two together and then I understand the demand outlook currently is very good, but I also understand I’ve heard on this call several times dynamic and volatile and cost pressures and some supply chain issues. So I hope this doesn’t sound too naive, but you are coming off of a record year for your company, and yet you’re targeting "significant" earnings growth in 2022. And I guess, just from your perspective looking at all these moving parts, I mean, you felt confident in making that statement about not just growth, but significant growth. So what can you point to qualitatively that tells you that things are going to break the right way? So in other words, have you pre-sold all of your fertilizer? Or do you have strong volume commitments in your stable margin, your margin stabilized product line. So just qualitatively what is it that that made you comfortable saying significant earnings growth over and above the record earnings year you just completed? Thank you.

Sure. David, and Kelly there I’ll point to a lot of the things that you’ve printed on, right, relative to your view of our opportunity set in 2022 as some of your most recent publications as well, and drawn some of the messages we had in the Investor Day as well. We have – we’re more than an nylon company, right? We’ve got an intermediate portfolio, we’ve got a plant nutrients portfolio and we’ve got our, our nylon space. We show back in Investor Day, how the nuances of the shorter cycle and the longer cycle mix right was starting to turn with the longer cycle Ag market. And again, Ag is secular, right, but does have its implications here tied to the energy, environment as well as nearer-term supply demand considerations. And that that Ag market is in fertilizer industry. Again, as we’ve been saying, has made its turn. This will be a strong season about everybody made that call and for the – the fertilizer season from July 2021 into June of 2022. I think that order books are strong; we are not fully sold out. No player is to our knowledge, but certainly we are finishing up Q1 and head into Q2. So consistent with a lot of those broader peer comments that that is going to support certainly first half views across the board. And then we’ve got what we’ve been working on, right? All of our strategic priorities around driving higher highs, right, are playing out, right. Our ability to expand the earning base of the company around our differentiated product portfolio saw great growth last year. And again, targeting mid-teens CAGR on those product lines, we’re adding in a great portfolio with U.S. And so much of what you’ve already sort of captured and tried to call us is pointed to what our opportunity set is in 2022 is what gives us the confidence in our statement here today.

All right. That’s great. Thank you very much.

Thanks, Dave.

Ladies and gentlemen this concludes our question-and-answer session. I’d like to turn the conference back over to Erin Kane for closing remarks.

Perfect. Thank you all again for your time and interest this morning. 2021 results represented standout performance, and I’m very proud of how organization continues to support our customers, while navigating the current dynamics. We are executing against focused strategies, align with our ability to drive and achieve attractive total shareholder return over the long-term. To close where I started, we are gaining momentum into 2022 and remain confident that AdvanSix is well positioned to deliver robust performance and returns. I hope you’re excited about our future as we are. So with that we’ll look forward to speaking with you again, next quarter. Stay safe and be well.

Thank you, Ma’am. This concludes today’s conference call. We thank you all for attending today’s presentation. You may not disconnect your lines. Have a wonderful day.