Good morning, and welcome to the AdvanSix First Quarter 2022 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 this event is being recorded. I would now like to turn the conference over to Adam Kressel, Director of Investor Relations. Please go ahead.

Thank you, Anthony. Good morning and welcome to AdvanSix’s first quarter 2022 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 first quarter of 2022 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 robust first quarter performance to start 2022. I would like to thank our nearly 1,400 teammates who delivered outstanding results for one another, our customers and our shareholders. Our collective organization contributed to generating record sales, earnings and margins in the quarter. Across the various value chains we participate in, we continue to see rising input costs and industry supply tightness at a time when demand overall remains robust. Our integrated business model, including our unique competitive asset base, pricing mechanisms and leading customer positions across a diverse set of end uses and applications is core to our ability to execute and navigate in this environment. Across the board, it was a terrific start to the year as we sustain the momentum we've built. We also continue to enhance shareholder value creation as we deployed a significant amount of capital in the first quarter with a combination of our increased CapEx investments, acquisition of U.S. Amines, sustained dividend and opportunistic repurchase of approximately $7 million of shares. The acquisition of U.S. Amines was officially closed on February 24th, and I am proud to say that the integration is progressing well, and we are excited about the future opportunities for the combination of our businesses. As we look ahead, our outlook remains favorable. We continue to target significant earnings growth and robust cash flow in 2022, supported by disciplined execution to our integrated business model and expected robust ammonium sulfate fertilizer performance in particular. We cannot always predict what the markets will do. However, we are highly focused on executing our strategic priorities and what is in our control. We remain confident in our ability to deliver robust and sustainable performance and attractive shareholder returns over the long-term. With that, I'll turn it over to Mike to discuss the financial details.

Great. Thanks, Erin, and good morning, everyone. I'm now on slide 4, where I'll highlight the first quarter 2022 financial results. Overall, strong execution and robust ammonium sulfate fertilizer performance supported record sales, earnings and margins. Sales totaled $479 million, up 27% compared to last year. Pricing was favorable by 29%, comprised primarily of higher market-based pricing, of which 26% was driven by higher pricing across our ammonium sulfate and now on product lines. To a lesser extent, raw material pass-through pricing contributed to 3% of top line growth, following a net cost increase in benzene and propylene. Acquisitions added approximately 2% to sales as well. Sales volume decreased approximately 4%, driven primarily by robust sales in the first quarter of 2021 as we reduced finished goods inventory in the prior year period to meet a recovery in customer demand amid very tight industry supply conditions. On a sequential basis, sales volume increased roughly 3% in the first quarter of 2022 versus the fourth quarter of 2021, and we expect further sequential improvement in sales volume into the second quarter. Adjusted EBITDA was $103 million, an increase of approximately 79% versus the prior year. I'll walk through the key year-over-year variances on the next slide. In addition, adjusted EBITDA margins were also a quarterly record at 21.5%. As a reminder, beginning this quarter, we are now reporting adjusted EBITDA and adjusted EPS, which excludes non-cash-based stock compensation, non-cash amortization from acquisitions and onetime M&A costs. Adjusted earnings per share of $2.26 more than doubled versus the prior year. And finally, free cash flow reached $28 million. That's down about $15 million compared to last year. Cash flow from operations declined roughly $8 million year-over-year with higher net income more than offset by unfavorable impact of changes in working capital and…

Thanks, Mike. I'm now on Slide 7 to discuss each of our product lines. Starting with nylon. We've seen price roll spread further improving into 2022 on a year-over-year basis, with notable strength in North America and Europe, which has continued into the second quarter. There was a sequential moderation from the fourth quarter of 2021, particularly in China and the rest of Asia. Now the global cost curve has remained steep in this current energy environment with input costs continuing to rise, supporting spreads relatively in line with marginal producer economics. In North America, where we primarily participate, we have seen pricing and spreads fare better regionally as reflected in the global composites seen on the chart here, outperforming the Asia benchmarks. The North American market continues to be characterized by healthy end market demand and slug industry supply conditions. Recovery in commercial construction continues where nylon carpet has a strong presence, and we've seen packaging demand remain steady. Demand for engineered plastics resins remains resilient as well. While we have seen more impact from material shortages of glass fiber and additives through the auto compounding value chain, with supply remaining tight for the industry, we remain well positioned to support our customers in the current set of market dynamics. Moving to ammonium sulfate. We continue to see strong underlying ag fundamentals and higher energy costs support significant increases in fertilizer pricing year-over-year. As you can see from the chart, urea pricing has been more dynamic relative to ammonium sulfate, which is often the case. We saw ammonium sulfate sequential price improvement in the first quarter at the high end of the long-term range, commensurate with our typical in-season progression and supported by the most favorable conditions we have seen in over a decade. We continue to expect strong…

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

Sure. We will now begin the question-and-answer session [Operator Instructions] Our first question will come from Charles Neivert with Piper Sandler. You may now go ahead.

Good morning, everyone. Just a couple of quick questions. One, the earnings drop-off from the chemical intermediates that occurred during the quarter versus a year ago, is that largely a lag in the price increase timing, meaning that it would might be recovered next quarter? Or is it just the business is a little less?

Yes. So if you recall, Charles, we anticipated a moderation in acetone spreads. Really, we've been sort of messaging this for a number of quarters here. And as expected, we did see that moderation through the quarter, and that's what drove some of the decline in intermediates from a year-over-year perspective.

Okay. And then one other thing – two others, actually. One, with the late planting and the fact that, obviously, some of the deliveries have been -- haven't been made yet for the ammonium sulfate. How does -- is there any chance that there would be a different choice of nitrogen application versus the sulfate. I mean, in some cases, you have guys moving from ammonia to urea or UAN. Is that something that might affect ammonium sulfate in the quarter that because it's late they would go to a different nitrogen application?

No. The way you should think about sort of the late planting season, a little bit different from ammonium sulfate, really around, I would say, timing of application, Charles. So as we see the seed starting going in I think it could lead itself to a larger sort of top dress application than earlier in the season. So for us, it's more around when the fertilizer goes down, than if right now.

Okay. It's not a matter of getting substituted out for a different nitrogen form because of the timing difference?

Yes. Because again, we're providing that sulfur nutrient that is needed in addition to the nitrogen. So still see strong demand. It's really now around. We're well positioned into the warehouses and well positioned to the field. So now it's just being ready and for when the poll to the fields come.

Okay. And one last question is -- you moved a lot of products into the granular form. Is there something that you guys could spend more to get more granular going forward? Is that a worthwhile CapEx expenditure looking ahead to get maybe not a 100%, but maybe get up to 75%, 80%, 85% versus the current number?

No, it's a terrific question, and it is part of our focus as we continue to refine that high-growth CapEx pipeline that -- yes, as you say, I think 100% is not something we would target for where our assets are structured, but certainly building out and continuing to push the roadmap towards higher conversion is part of our efforts going forward.

Okay. Well, thanks very much.

Thank you.

Our next question will come from Vincent Anderson with Stifel. You may now go ahead.

Thanks. A nice start to the year, pretty sure…

Thanks, Vincent.

Having earning nearly all of 2019's EBITDA in a single quarter, probably has Michael sleeping pretty well these days. Well, I figured I'd start with ammonium sulfate. I am just curious what your netbacks looks like, at least directionally for whatever share of 1Q volumes went to export compared to what that looked like in the US.

So give us a second, we can kind of pull up. But as you know, our first half sales are always tilted to a higher percentage into North America. One is we're kind of staging, but I think Mike scrubbed the specific numbers that...

Yeah. So for the quarter, if you're looking at the split of revenue between export and domestic, about 75% of the sales were in the US, and that's generally our overall split for ammonium sulfate, 25% export, 75% US.

Okay. And your earnings on exports, is that starting to converge with kind of just the market prices that we follow in the US? Or has that lagged somewhat?

Yeah. The best markers to look at for export are going to be keying off of where China is selling into Brazil, right? Certainly, they are a key player into that seaborne export trade for AS with significant share. So, on a standard basis or even a compacted granular, they tend to set a little bit more of the target there, and prices have moved up, but certainly not to the extent that we would see the high-value granular ammonium sulfate move up in North America.

Okay. But trending in the right direction.

Yes.

Yes.

Okay. All right. Excellent. So I'm trying to interpret your nylon versus capro revenues in the quarter. Did that divergence come more from flexing additional capro through Chesterfield? Or was there a significant increase in nylon beyond capro on the spread front.

Yeah. I mean the short answer on that, Vincent, is yes. If you're looking year-over-year, we sold more merchant capital, and we were active in the export markets, more active than we were this year. With the recovery in North American demand, we did convert more of that capital to resin this year, and we met again, the robust demand here in the form of resin in North America and sold less capital. So it was more of a conversion of that capro into nylon, which reduced caprolactam revenue from a volume perspective and then it increased nylon. So that's -- and then we do get a mix benefit from doing that as well.

And market pricing did move up substantively in the nylon space year-over-year and a little bit sequentially, but certainly on a year-over-year basis was up.

Okay. Perfect. And then, if I could ask one more, just kind of digging into the capro cost curve, obviously, benzene is the contributor there that we all think about. But if we're looking at ammonia prices and even just ammonia availability in places like Europe and China, I'm wondering if you are starting to see any of that weighing on production just purely and being able to source the feedstock and as an extension of that, last quarter, we talked about you were still prioritizing your US market share. Are you starting to see a positive export margin opportunity developing, whether it's capital or nylon over whatever your lowest margin domestic sales provide?

Yes. So, right now, given the healthy demand and I would say rather snug conditions on supply in North America, we do remain focused here and it is still the highest value region, we believe, on -- for where our focus should be. But to provide some color as you say, the raw material pricing as well as availability has impacted, I would say, global utilization, which, again, also contributes to further tightening available probably resin supplies mostly, right, that we have typically seen as standard trade coming into the US kind of be constrained. Just to give you kind of some color in March with mac recording sort of best operating rates in Europe, just under 50%. China has dropped to about 70%. So, while the US has stayed rather robust in the low 90s. So, certainly, a lot of regional dynamics happening here, which is really leading to a focus by most players in the region. Q - Okay, perfect. Thank you. I'll let it go.

Our next question will come from David Silver with C.L. King. You may now go ahead.

Okay. Thanks. Good morning.

Good morning.

Good morning.

Hey I'm just going to warn you, I was unable to listen to any of the prepared remarks. So, I'll apologize in advance of making you repeat yourself. If we could just start with -- I'm going to start with a couple of questions on inventories and raw materials. But looking at the inventory level, $163 million, I mean, it is up a little bit from the fourth quarter, but it's been higher in periods with much lower feedstock cost levels or finished product prices back half of 2020. And of course, there's U.S. Amines this time as well. So, how would you characterize your comfort level with the inventories heading into what is typically the peak selling season for a number of your products and especially fertilizer, please? Thanks.

Yes, sure. Yes, I think one of the things, Dave, that you need to consider in the inventory balance going in, just to be clear, when you look at the absolute balance, we went from $150 million at the end of the fourth quarter of 2021 to $163 million at the end of the first quarter of 2022. And really, all of that increase was driven by the U.S. Amines acquisition. So, as that closed in the quarter, we added that inventory into our balance sheet. So, otherwise, the inventories were pretty flat, again, comparing to the fourth quarter of 2021. But what we saw from an inventory perspective in the first quarter is we were able to build ammonium sulfate inventories to be prepared and ready to meet these robust demand we anticipate, and we're seeing here in the second quarter. That was, again, more of a normal build in terms of seasonality. So we feel good about our inventory position there. And offsetting that was a bit of a decline in cumene inventory in the first quarter relative to the fourth quarter. Otherwise, when you look at the other finished goods inventory balances, we continue to optimize the different products, different SKUs in terms of where we're seeing the demand and working to make sure we have enough robust inventories to meet that demand, looking at the cycle times and lead times with respect to our customers and trying to make sure we're in a position to be the trusted partner to our customers and to deliver the supply that they need to meet that demand. So, we'll continue to optimize that going forward and again, try to be that trusted partner with our customers.

Okay. I had a question about raw materials, and this is more maybe from procurement strategies in the current environment. But I mean, historically, Adam has been pretty good at reminding me that your number one cost is for cumene and second and third are natural gas and sulfur. And what I would say is, I mean, cumene tends to be more of a formula priced product where the others, I think, are more variable over shorter periods of time. So I'm just wondering, I mean, how does your overall raw material slate differ in terms of cost or share of the pie, let's say? And have you thought about -- and has that shift, let's say, away from cumene to the others? I mean, has that caused you to rethink or think differently about your strategies for procuring -- greater volatility, has the greater volatility, lower predictability changed your thinking about that? Thank you.

Yes. I mean, look, we -- as you pointed out, cumene represents a majority of our direct material by approximately 75%. We have contracts with many, many suppliers for specific volumes that have embedded formula pricing based on markers for benzene and propylene. And so we have the continuity of supply. We have a supply chain that ensures we get all the cumene we need to be able to operate. And on the customer end of things, as you know, half of our business is on formula-based pricing, whereby we pass those raw materials through. And if you look at our results quarter-over-quarter-over-quarter, we clearly demonstrate that the business model in this environment with the volatility that we've seen and the impact and the volatility of raw materials, we can pass that through our formulas of working. And then for the agreements and the customers we do business with that, where we don't have formula contracts in place. We do a good job getting ahead of that and making sure we get those price increases in prior to -- or following those -- shortly following those increases in the raw materials. We work with a lot of suppliers with respect to natural gas and sulfur as well and feel very good about the supply we have and the continuity of supply there. So we really haven't had a significant change or a significant point of view change as a result of the volatility we've seen. It's more ensuring that the continuity of supply is there, working with our suppliers to ensure that they can meet their commitments. And then, again, continuing to reinforce our execution with respect to passing those raw materials through to our customers.

Okay. Great. The next question, and I was just flipping through the slide deck, and I think this next question relates to your slides 8 and 9. But it has to do with your thinking about the Ag cycle. So one or more of your fertilizer industry peers during their conference calls, they've started to highlight what they believe is going to be a multiyear period of global grain tightness, unusual tightness that's going to require multiple growing -- global growing seasons to address. And my impression, and I could be a little off, but my impression is fertilizer gets tight from time to time, but it's typically just a one-season thing. But I look at Russia-Ukraine and some other things, and I -- and the comments from some of the fertilizer industry executives. And I do wonder, from your perspective, is this such an unusual period? Or is anything unusual about this period that makes you think that the good times could roll on for a little bit longer than has been the case in the past? Could this be a two-plus year run of extremely good fertilizer demand and pricing relative to what, I guess, Erin, you've seen over your 20 or more years managing these businesses. Anything jump out at you about the current either grain or fertilizer environment that makes you think we're -- we could have an extended period of well-above historical norms in terms of pricing and demand?

Yeah. Certainly happy to recap some of our remarks there for you, David. And I think that, as you've heard from others, we too would agree that there are a constructive set of fundamentals that have aligned here. One, even as we were articulating coming into the year, there are already strong underlying, I would say, demand fundamentals when you look at the Ag fundamentals relative to crop stock-to-use ratios, grain inventories have been declining over the last couple of years even with a series of years with record yields, in many cases, Ag is secular, right? There's a growing population in the world. There are more -- we need more food production that is efficient use of variable land, which lends itself to good fertilization and demand of fertilizers as well as the other technologies that are brought to bear through -- throughout chemicals and other things. But when you look at the factors that are playing out right now, you still see those trending favorably. One, when you look at future crop prices, which again are an indicator of, again, that crop supply/demand or those grain supply/demands. You've got a number of things that have doubled in the last nine months. Corn futures at $8 a bushel, cotton prices, we mentioned at $1.50 a pound to name a few. And even with that, there's been concern of pharma profitability was moving in a positive direction through last year. It still remains in a positive territory, even with sharp increases. So you've got -- the future is driven with a restabilization of global stocks, which are down. And then you look at the energy environment, which was increasing already, but certainly has been exacerbated. But now you've got a supply constrained set of situations associated with fertilizer availability. You've…

Our final question will come from Vincent Anderson with Stifel. You may now go ahead. Q – Vincent Anderson: Yes. Thanks. I just had a couple of, hopefully, very quick follow-ups. You covered acetone very thoroughly, but I did find it notable that like just very recently, we saw the small, medium buyer prices certainly expand over at least for propylene was that minute. Do you -- is that what you are seeing? Or do you think that might have just been short term, as the market absorbed returning M&A demand? I just -- I'm curious if you see anything that can help support those spreads at least sequentially. A – Erin Kane: Yes. I think it is maybe to build off of Mike's comment earlier, we did come into the year recognizing that acetone over propylene spreads in total, would be a headwind for us. We expected the supply-demand environment and the pricing environment to rebalance, and we expected it to rebalance at a healthy level, sort of the higher end of the long-term range relative to what we had seen. As you -- as we pointed out, we certainly saw a pinch, right, in the small, medium buyer market on top of the large buyer. A number of factors there. Certainly, the -- we saw a propylene spike, right? So in that freely negotiated environment, you do have a lag that spike came late, and so that contributed to it. And obviously, price increases that have followed will allow us to allow prices going forward to better track and catch up. We do believe the small, medium buyer market should earn a spread over a large buyer, right? This is an area where we drive a cost to serve associated with truck volumes. We have a distribution network of terminals that we have continued to grow throughout the U.S. to service this space. So there should be an earned premium. And as I mentioned too, we also had a situation where the two large MMA players had turnarounds in Q1, which also had the impact of a few more molecules available as well into the space. So those things are writing itself. I think April is seeing that turn as we put on the chart, and we are heading into now sort of the mid of the quarter, working to restabilize the appropriate premium over the large buyer. Q – Vincent Anderson: Okay. Perfect. So it's an improvement over the first quarter, but it's still in line with your expectations for the year?

Improvement over what you saw in March, right in that in… Q – Vincent Anderson: All right.

Moving up and yes. I think our overall expectations still hold from where we -- what we indicated we thought would be for 2022 still sort of hold for full year. Things will moderate, but we'll stay at the higher end of the long-term range. Q – Vincent Anderson: Got it. Last one, I promise, on turnaround strategy. I was looking at the history of those from a timing perspective, but also some of the seasonal implications for competitor asset reliability. And maybe this year, again, if Europe goes on gas allocation, a third quarter turnaround versus the fourth quarter turnaround seems like it could be quite advantageous even if it's outside of your control if it pays off or not. Is that at all part of your thought process? And I know the turnarounds happen every year, but do you have enough flexibility to keep your turnaround -- your major turnarounds earlier in the year to keep your plant available during the quarters where we've most often seen production disruptions at your competitors?

Yes. It's a great question, and I know that certainly, if these things are highly predictable, we could do them at the same time. We eliminate sequential considerations and all the above. At the end relative to strategy, we are again, formulating our approach on a multi-year basis. If the -- we've got a combination of things that have to be driven by code inspection, permits as well as the integration across a set of assets that have to be coordinated and at least, but not I'd say, last but not least periods, the notion of the safe execution of turnarounds as well. For instance, we don't want folks in rubber suits in the heat of the summer. We try to stay out of second quarter, because we're approaching our -- and handling our peak seasons and ammonium sulfate. So there are a number of factors that come into play in how they are timed year-on-year. And as you say, and also availability of labor and contractors, right? We've mentioned before, we typically double if not triple it, sometimes the amount of folks on the site. So we've got to manage relative to where a crews for our vendors and our contractors and our partners also have other work to be done. So I know it would always be loved to align, we take as many factors into consideration. But our primary focus is always getting the safe and fullest execution and start-ups and getting the right work done during those times. But points well taken, and we continue to focus on this and to get more efficient and I appreciate that there's always trying -- ways to triangulate how we should think about that timing.

Fair enough. I figured it might be a gross oversimplification. So I appreciate the reminder on how hard this actually is.

Yeah.

That's all from me. Thanks a lot.

Thanks, Vincent.

Thanks, Vincent.

That completes the question-and-answer session. I would like to turn the conference back over to Erin Kane for any closing remarks.

Terrific. Thank you all again for your time and interest this morning. We delivered terrific results in the first quarter of the year and are hopeful you share our excitement about the opportunities that lie ahead. We are focused on driving best possible outcomes for our business in the current set of industry conditions and remain confident in our ability to create long-term and sustainable shareholder value. So with that, we look forward to speaking with you again next quarter. Stay safe and be well.

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