Good day and welcome to the AdvanSix third quarter 2022 earnings conference call. All participants will be in 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 a touchtone phone. 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 of Investor Relations and Treasurer. Please go ahead.

Thank you Betsy. Good morning and welcome to AdvanSix’s third 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 principle 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’ll review our financial results for the third 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. 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 third quarter results consistent with our update in October that reflect the resilience of our business model and our ability to navigate challenging conditions. Let me share a few highlights on Slide 3 before Mike covers the details of our financials in a moment. Despite the unfavorable impact of the previously announced extended plant turnaround, our sales grew year-over-year as our commercial execution captured higher pricing particularly across our ammonium sulfate and nylon product lines to offset continued higher inflation and lower production output. Our healthy cash flow performance continued to support smart and disciplined deployment of capital in the quarter, including reinvestment in the business, approximately $17 million of cash returned to shareholders in the form of dividends and share repurchases, as well as further debt reduction. With the turnarounds complete, our facilities are now focused on operating at our typical high utilization rates, which we expect to continue into 2023. Looking forward, we expect strong underlying agricultural fundamentals to support robust nitrogen and sulfur fertilizer industry demand into the heart of the 2023 domestic planting season. Nearly a third of our portfolio is in the agricultural sector, including ag chemicals, and our position in this attractive market has extended even further through our acquisitions of U.S. Amines as well as CIS. We know this space well and we continue to invest for growth. As we have share previously, we are today producing more high quality granular grade ammonium sulfate to meet the growing demands of our customers. Overall, this is a core and critical product line for our business. Like every company, we are also closely monitoring the heightened macro uncertainty…

Okay, great. Thanks everyone and good morning everyone. I’m now on Slide 4, where I’ll provide a summary of the third quarter 2022 financial results. Sales of $479 million in the quarter increased approximately 7% versus the prior year. Market-based pricing was favorable by 18% compared to the prior year, driven by higher pricing across our ammonium sulfate and nylon product lines. To a lesser extent, raw material pass through pricing contributed to 4% of top line growth following a net cost increase in benzene propylene. The acquisition of U.S. Amines added approximately 3% to sales as well. Sales volume decreased approximately 18% driven primarily by the unfavorable impact of the extended plant turnaround and lower production output compared to the prior year. Adjusted EBITDA was $33 million and I’ll walk through the key year-over-year variances on the next slide. Adjusted earnings per share was $0.43. Our effective tax rate was 21.4% in the third quarter versus 23.8% in the prior year period, and finally free cash flow reached $37 million. Cash flow from operations of $59 million in the quarter decreased $18 million versus the prior year primarily due to lower net income, partially offset by the favorable impact of changes in working capital. Capital expenditures of $22 million in the quarter increased $9 million versus the prior year. Now let’s turn to Slide 5. Here, we highlight a few of the key drivers of our third quarter adjusted EBITDA performance year-over-year. Pricing of raw materials was a $49 million benefit. Tracking our key variable margin drivers, performance in caprolactam and nylon over benzene was up year-over-year, reflecting balanced North American industry supply and demand where we primarily participate. Ammonium sulfate on a net price over natural gas and sulfur basis also continued its positive trend year-over-year, reflecting the…

Thanks Mike. I’m now on Slide 7 to discuss each of our key product lines. Starting with nylon, we’ve seen the global composite price raw spreads modestly improve in the third quarter year-over-year, led by North America. China and Asia have continued to see volatility from a feedstock perspective as well as weakened demand overall. In Europe, while we have seen some producers return to production from temporary shutdowns amid historically high input costs, third party industry sources are citing utilization in their region remaining around 50% and resulting in a shift towards more imports into the region. The North American supply and demand dynamics, while rebalanced, have continued to support pricing and spreads which have outperformed the global benchmarks. We have seen softness in consumer durables and residential end markets with commercial construction and packaging more resilient. We know this portfolio is more sensitive to consumer demand, particularly for our engineered plastics resins, so we’re keeping a close eye on any further changes in customer buying patterns. Moving to ammonium sulfate, elevated energy input costs alongside resilient underlying ag fundamentals drove higher nutrient values in the third quarter on a year-over-year basis. On a sequential basis, we did experience quarterly sales seasonality reflecting both geographical and product sales mix considerations. Given the pricing environment and demand dynamics coming off the weather-impacted and compressed second quarter planting, the seasonality impact this year was above the higher end of the historical range typically seen. While we have observed some cautious buying behavior given the macro environment, overall underlying agricultural industry fundamentals remain favorable heading into 2023. This is supported by crop prices, stock to use ratios, constrained nitrogen fertilizer supply, as well as continued duties on ammonium sulfate imports from China. While raw material input costs have seen reductions recently, costs…

Great, thanks Erin. Betsy, can you please open the line for questions?

[Operator instructions] The first question today comes from Vincent Anderson with Stifel. Please go ahead.

Thanks, good morning everyone.

Good morning.

Just with regard to the 4Q outlook, I think the top line drivers are fairly well understood; but when I’m looking at sulfur, gas and propylene prices and what they’ve done recently, what kind of keeps the first half earnings the target for 4Q and not the floor for 4Q?

Yes, there is a number of things, and great question as always here, Vincent. Obviously you’ve got sort of sequentially the considerations coming out of the outage, and then you have the dynamics really across all three businesses, so. In ammonium sulfate, obviously we’re moving into the season as we are coming off the fill-in Q3, moving towards the first half of next year, which will be the height of the season, as you know, as we get into Q2. Right now as we see the markets in ammonium sulfate, there is a lot of emotion that we have to continue to watch. I think it’s the underlying long term fundamentals are sound, but there is some cautious buying behavior as we continue to--as we see every year, right? When you think about the timing of how purchases and sales come in, you have folks that continue to watch and time their purchases as we go, but again we anticipate that this will be our typical seasonal move forward in the fourth quarter, but obviously we have to wait until we get into the first half of next year to see the peak performance in that particular product line. As we noted in nylon and chemical intermediates, here again we have the mix from a consideration. While spreads continue to hold up, as we see certainly the residential applications coming off with mortgage rates, those areas are continuing to see softness. We see that both in nylon as well as in do-it-yourself applications through our acetone chain and other intermediates, and then you have the resiliency in packaging as well as areas into acetone distribution for direct solvent use, so there is quite a bit going on in that space. As you know, our utilization rates, this is how we target the operating model of the business, so volume can be consistent perhaps on a year-over-year basis, but that pricing dynamic will play out as we see how demand continues into and throughout the quarter.

Yes Vincent, the only thing I would add is when you’re thinking about rebounding back to the first half performance, I would say value is the greatest in the first half of the year, particularly in the second quarter where you’re in the peak of the season and we sell most of the domestic granular product, so that is definitely a consideration here in the fourth quarter when you compare to the results in the first half of the year. You need to factor that in as well.

No, that makes sense. Then actually the dividend, it was a nice increase. I’m just curious if we should read anything into that in terms of maybe you seeing something even more incrementally positive over the course of this year, that gave you the confidence to underwrite that increase, or did you originally declare the dividend at a level that you knew you would be able to grow for some time before you had to re-evaluate?

Yes well, it was about a year, over a year ago that we announced and initiated a dividend. We felt given the free cash flow conversion and the outlook, it was an appropriate time after about a year to re-evaluate the dividend policy, and hence which resulted in a 16% increase, which we feel very comfortable with and provides a very competitive yield to our shareholders. As we go forward here, we’ll continue to evaluate the dividend policy. We’re very comfortable with the 16% increase and we’ll continue to evaluate based on our outlook and our free cash flow generation. We’ve definitely stepped up the return of cash to shareholders in terms of the dividend as well as share repurchases, so we feel very good about our path forward here and look to continue on that path going forward, so feel very good about it.

Great, and just one last quick one, I know for the base assets, they’re running the same no matter what. But if we do move into a slowdown next year, do you have any rainy day projects that you’re already thinking about pulling forward, maybe on U.S. Amines or maybe some derivative products that there’s work that you can do in a weaker demand environment?

Yes, great question on U.S. Amines. As we looked at that acquisition, one of the core value drivers was to be able to expand and grow that business, and a number of projects are being formulated coming through engineering, and again we’ve started to trigger some investment there as well to be another avenue for us to continue to bolster our pipeline in the high return growth and cost savings efforts. Certainly as we put a finer point on our planning for next year, we will look at anything that makes good sense. Certainly the balance sheet is healthy for reinvestment into the business and preparing for--you know, certainly if we were to come through a recessionary period and have a steep climb out of it, we’ll be well prepared and positioned for that.

Great, thanks again.

The next question comes from Charles Neivert with Piper Sandler. Please go ahead.

Good morning everyone. Can you hear me okay?

We can. Good morning.

Okay, great. Good morning. A couple of things. One, China has been, for lack of a better term, a bit of a pain for a lot of companies, not just so much in what they can sell to them and such, but more that they’re trying to keep their economy running a little bit and, as a result, exporting to places they typically haven’t exported, so we’ve seen product of theirs in Europe, we’ve seen it in South America. Have they run into a--have you guys run into them as a competitor, for instance in South America on sulfate, because they’re apparently trying to push the caprolactam, and then by the same token, are you seeing any caprolactam that typically doesn’t leave China in markets that it--you know, showing up, that might have some impact in pricing, whether you sell there or not, it may ultimately have a--put some pressure on things. Have you seen anything from China on that front?

Yes, certainly a lot of dynamics, as you point out here, Charlie, and if I take AS first, as you commented on, certainly we have seen some significant increases, reaching a record high in September. I think that caught a number of folks, I wouldn’t say by surprise but certainly the numbers are very large when we look at what we believe the operating rates are and where normal inventories are. But that aside, they are supplying a fair majority of the Brazilian imports already. I mean, they have been increasing their share in Brazil over the past few years, particularly after the anti-dumping affirmative case here in North America. We have also seen trade flows pointing that they’ve been moving resin materials into Europe as well, and certainly their cost position and their price points provide an opportunity to move into that region as well given the lower utilization of domestic producers there. In a time where--you know, Europe is structurally long in a number of our value chains, particularly in capro and resin, so it will be something we have to watch as we play out, and certainly that dynamic, while perhaps they’re not bringing materials directly into North America, again these are global markets with global pricing considerations, and that’s something that we are seeing just as the trade flows are moving a bit here, having a consideration as to where we can regionally price.

Got it.

And keep in mind, Charlie, as well, we have anti-dumping duties here in place with respect to China with ammonium sulfate, so that--we don’t see competition from China here in the U.S. China has been a big exporter, as Erin mentioned, to Brazil over a number of years, and we’ve been diversifying our exports to look for other opportunities in the export market outside of Brazil to mitigate that. For AS, those are important considerations I think you need to think about.

Okay. On another front, a little bit more in the future, to the degree that you guys can do it, are you moving towards - I hate to use the word - greener application or greener production, and the reason I’m asking is because we’ve seen some of the other companies we cover who have actually managed to maintain market share over Chinese imports in certain markets where they would compete because they have a far greener footprint in places where it makes a difference, like Europe, like the U.S., like some other countries. They’ve actually maintained share that on a price basis they wouldn’t have because of the greener aspect. Is that something you guys are looking at in terms of your product slate? Can you be greener than somebody else and therefore either maintain or take market share for those who are really focused on that aspect of their business?

Yes, it’s certainly a keen focus for us as we head forward. I would share that we are starting with our life cycle analysis work, which is allowing us to clarify and have third parties validate our footprint associated with our product lines in our integrated asset base. That will, one, help have the clarity of where we sit today, which we believe is in a better position that perhaps the sort of benchmarks that are out there by third parties in the value chain, and then at the same time working on a road map that will allow us to substantively decrease that footprint, and that’s in the works. I think there are known projects that we can accelerate and look at, and that is part of our forward planning, and that’s mostly what we’re hearing at the start from our customer base, is help us understand the greenhouse gas footprint of the product lines, where you sit today, where we have the opportunity set, and as you point out, we believe that will allow us to have a strong position going forward with our customers. I would note that when we think about CO2 emissions, we already do capture the vast majority of our CO2 emissions off of our Kellogg ammonia plant and have for probably decades, right? It is beneficially captured and reused into known commercial applications for cold chain storage in the food and beverage market, and so we’re also--that’s kind of a key factor going into our forward ability to serve customers in a way that is sustainable and with lower footprint.

Got it. I missed it during the call - you said turnaround costs this year, or was it capex--turnaround costs this year were $50 million, that included the $15 million a little bit--

Yes, that’s correct.

Next year is looking at, what? What was next year?

Yes, next year we are looking at--

Twenty-eight to 33.

--28 to 33.

Okay, yes. That’s what I had missed. All right, thanks very much. Appreciate it.

Thank you.

As a reminder, if you would like to ask a question, please press star then one to be joined into the queue. The next question comes from David Silver with CL King. Please go ahead.

Yes hi, good morning. Thanks very much.

Good morning.

I’ll have to stipulate up front, I’ve been jumping around between a couple of calls, so I’ll probably be making you repeat yourself. Actually, just right off the bat, I noticed that the email and the earnings release had a few tweaks to them, and I give them two thumbs up - I think it was more readable and a nicer presentation.

Well, thank you.

Yes, so I’m buttering up Adam because I drove him a little crazy this morning, so. Anyway, so first question would be about ammonium sulfate outlook. In particular, I was kind of looking at the roughly flat year-over-year revenues and checking my price charts, and I think your volumes, ammonium sulfate volumes in the third quarter were down quite a bit year-over-year. I’m wondering first off, if you could confirm that; and then second off, I’m assuming it’s going to be a sold-out post harvest season or very active pre-buy. Could you just--how would you just characterize demand for ammonium sulfate and maybe your supply position heading into the fall sales season? Thanks.

A few comments, maybe just to reiterate from before. As we reset into Q3, certainly we have the dynamics coming off of Q2 with the season there - you know, reduced demand and the weather and that compressed cycle. We saw inventory had to move through the system, not just for our product lines but really across the board for fertilizers, so as we reset across the industry for fill in Q3, clearly that was at the higher end of our previous seasonality trends that we would have seen in recent past. But that said, we’ve been moving through the season as expected, so yes, volumes were down in the third quarter but not unsurprising, given the dynamics. Certainly demand continues to move forward as we progress into the start of next year, so again what we would say right now is the risk aversion that I commented on briefly before is not uncommon, right, for a period before farmers really need to purchase fertilizer, whether it’s a fall buying surge for storage and application activity, then we kind of see a lull before another winter surge heading into the early part of next year, so I think all that we’re seeing is not atypical. Then of course, we had the turnarounds in Q3 that would have impacted some volumes as well moving into the chain, so really as we head forward, and on your comments around pre-buy, we’re really going to be watching over the next 30 days to this market, and emotion is really key to informing customers’ interest in a pre-buy. We are here to support our customers and farmers in their success, and there is always advantages for them at year end, whether it’s tax planning and savings, as well as preparing for the season, but as we’ve shown in previous seasons, we can operate with a pre-buy or not. But we’re going to take the cues from the market here, and we continue to address our order book - you know, pricing has moved up a bit through the fill, as we would have expected, and really positioning into--again, we think the fundamentals here are sound into next year, perhaps as others are already pointing out, for seasons to come, given where global stock to use ratios are going to land. We really do have to continue to support food security around the world, so.

And Dave, just on the top line for ammonium sulfate in the third quarter year-over-year, although volume was down, revenue went from $113 million in the third quarter of ’21 to $132 million in the third quarter of ’22, so market pricing more than offset the volume decline, just to be clear.

Yes--no, thank you for clarifying that. I was mostly just trying to think about it from a volume perspective, but you’re--yes. Thank you for clarifying that. The other thing I just wanted to ask would be raw materials and maybe any opportunities for, I don’t know, strategic purchasing. You know, sulfur has been on a bit of a rollercoaster and it’s settled out much lower this quarter than a couple of quarters ago. This is almost by the day, but when I look at natural gas prices at yesterday’s close, they were about as low as they’ve been in a long time. As you look ahead, how are you thinking about raw material volatility and do you see any kind of opportunity to lock in maybe some more favorable pricing relative to what you’ve encountered year-to-date? Thanks.

No, good question. As we noted earlier, raw materials have come down a bit here in the fourth quarter relative to the third quarter. You did note that natural gas has come off, although natural gas is quite volatile depending on weather patterns, depending on the amount of injections in supply as well as demand, so that’s one to watch closely. Sulfur has also come off in the fourth quarter relative to the third, and we expect benzene to be down a little bit as well whereas propylene might be a bit flat here in the fourth quarter relative to the third. Now with respect to strategic purchases, there is limited, I would say, storage capability from a raw material perspective. We may have the opportunity to add additional volume on the periphery and take advantage of situations, but I would say it’s more on the rounds as opposed to the ability to significantly stock up. But again, keep in mind, Dave, half of our revenue, half of our business is on formula-based agreements, so even despite the volatility in the raw materials that we see, we get that covered through the formula agreements we have, really, on more of a real-time basis with very little lag, so we feel very comfortable with that. Where we have sort of spot oriented business, we do get ahead of those--you know, the changes in the raws and price appropriately, and feel we manage it on that basis very, very well, as you can see from our results when you look at them quarter-by-quarter. That’s how we manage it. We’ll continue to look if there are opportunities to sort of lock in some pricing here and there, but generally our business model is strong and conducive to perform well in a volatile raw material environment.

Okay, great, and I did have one more, and this is maybe picking your brains or getting your perspective on competition from Europe. In particular, I think this really relates to the nylon chain and I’m not really interested so much on the fertilizer side, but things have been quite volatile in Europe on the cost side and now the economic outlook, and I’m wondering in particular as you think about the supply-demand fundamentals on nylon and caprolactam products, just wondering what you’re seeing out of Europe in terms of maybe some of these producers, nylon producers that rely on highly integrated production models, multiple products and everything, coming out of the holiday season, let’s say, in the third quarter, are you seeing them--larger, more strategic players, are they inclined to kind of ramp back up to as hard as they can to kind of maintain their market shares, or are they maybe taking a little more cautious attitude based on maybe regional economic trends? How competitive do you think European based producers are going to be, maybe over the next quarter or two, just based on their regional economic outlook and the cost picture that they face? Thank you.

Sure. Certainly in a number of value chains, when you notably point to caprolactam in the monomer and certainly nylon in the polymer, the energy dynamics, the input cost structure is regionally high there. That is why they have typically been operating at the lower utilization rate for a number of quarters, and while certainly natural gas has come back down more recently and we’ve seen some pick-up in utilization, it is, I would say, a structurally challenged region. It is structurally long and has been. It has relied on the ability to, I would say, export for full capacity utilization, and that is being certainly challenged at current with import pressures really now coming from China. I would say that the strength of integration, so there are players that are more standalone, there are players that have full integration and have positions, and I think those that have that business model, that full integration through most notably probably engineered solutions, have high good contractual considerations that are focused on sustainability considerations, like we talked about a little bit previously, are likely the winners over the long haul here.

Okay, great. I appreciate all the color. Thank you.

You bet.

The last question today comes from Vincent Anderson with Stifel. Please go ahead.

Yes, thanks. I had one more. It feels like we haven’t had a normal economic environment for the fourth quarter large acetone--large buyer acetone negotiations since the trade case went through. What are you seeing--you know, is MMA going to even take significant commitments if we’re staring down a recession? I’m just curious what’s going on there right now.

Yes, and I mean, we’re cautious because we’re in the heart of a lot of those conversations at current, and as you say, if you think about MMA tied through into [indiscernible] application basis. But I think that the best way to think about it is probably just stability year-on-year relative to what we see right now.

Okay, all right. That’s probably as good as it’s going to get for the time being. Actually, I just have one other one. It sounds like the answer is no for now, but have you seen any incremental interest in ammonium sulfate just given your supply is not tied to the logistics issues on the Mississippi River right now?

Yes, again we’re focused into positioning for our customers and into the value chain. As you say, we wouldn’t have the same exposure relative to the barge movements. We do some rail to barge but further north up the river, so I think that relative to those dynamics, we are in a different competitive state.

Okay, all right. Thank you, that was it.

You bet.

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

Thank you all again for your time and interest this morning. Despite the challenges of the third quarter, our performance reflects the resilience of our business model and our ability to navigate and execute in a multitude of environments. The growth prospects of AdvanSix remain robust. We look forward to closing out 2022 with another strong quarter and are committed to delivering long term value to our shareholders. With that, we’ll 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.