Good morning, and welcome to the AdvanSix Second Quarter 2025 Earnings Conference Call. [Operator Instructions] 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, Wyatt. Good morning, and welcome to AdvanSix's Second Quarter 2025 Earnings Conference Call. With me here today are President and CEO, Erin Kane; and Interim CFO, Chris Gramm. This call and webcast, including any non-GAAP reconciliations, are available on our website at investors.advansix.com. Note that elements of this presentation contain forward-looking statements that are based on our best view of the world and of our business as we see it today. Those elements can change, and the actual results could differ materially from those projected and we ask that you consider them in that light. We refer you to the forward-looking statements included in our press release and earnings presentation. In addition, we identify the principal risks and uncertainties that affect our performance in our SEC filings, including our annual report on Form 10-K as further updated in subsequent filings with the SEC. This morning, we will review our financial results for the second quarter 2025 and share our outlook for our key product lines and end markets. Finally, we'll leave time for your questions at the end. So with that, I'll turn the call over to AdvanSix' President and CEO, Erin Kane.

Thanks, Adam, and good morning, everyone. We appreciate you joining us here today for our quarterly call. As you saw in our press release, AdvanSix delivered resilient earnings with strong sequential improvement in the second quarter while continuing to execute key growth in enterprise initiatives in support of long-term sustainable performance. Our second quarter results reflect our collective organization's execution and the advantages of our business model and diverse product portfolio amid an evolving macro environment. While we faced an earlier end to the spring domestic application season, earnings and cash flow improved sequentially from the first quarter, driven by strong volume and pricing performance from our plant nutrients business. End market demand across the rest of our portfolio remains softer overall, and we continue to navigate margin impact driven by higher raw material prices, mainly natural gas and sulfur. Supported by our healthy balance sheet, we have supplemented our commercial and operational performance with investment in growth in enterprise initiatives to sustainably improve through-cycle profitability. We continue to focus on making the necessary investments at the right time to support our long-term performance. Our planned investment to upgrade our enterprise resource planning system is nearing completion, which will help streamline key processes across the organization while enhancing management tools and data analytics. We've also reduced our CapEx forecast for this year to a range of $135 million to $145 million reflecting the planned progression of our sustained growth program, refined execution timing to address critical enterprise risk mitigation, intention prioritization in our base CapEx. As you may have seen, we released our 2024 sustainability report, which highlights the terrific work happening around the organization, integrated with our overall strategic priorities. More recently, we were awarded a 2025 gold rating for corporate social responsibility from Ecovadis, with our score placing…

Thanks, Erin, and good morning, everyone. I'm excited to be joining my first earnings call and look forward to engaging with the investor community. Let's take a look at Slide 4, where I'll highlight the key items of the second quarter 2025 financials. Sales of $410 million in the quarter decreased approximately 10% versus the prior year. Sales volume was approximately 8% of that change primarily driven by softer demand in key nylon end markets, including engineered plastics applications serving the auto sector. Raw material pass-through pricing was down 5% following a cost decrease in benzene, which is a major input to cumene, our largest raw material and key feedstock to our products. Market based pricing was favorable by 3% driven by continued strength in plant nutrients, reflecting favorable North American ammonium sulfate supply and demand conditions. Adjusted EBITDA was $56 million, and adjusted EBITDA margin was 13.6%. I'll walk through the year-over-year variations on the next slide. Adjusted earnings per share was $1.24 and our effective tax rate was 0.9% compared to 25.2% in the second quarter of 2024, primarily driven by $8 million of 45Q tax credits claimed for the 2020 period. Cash flow from operations of $21 million decreased $29 million versus the prior year, primarily due to lower net income, 45Q tax credit cash timing and the unwinding of prior year ammonium sulfate prebuy cash advances. Capital expenditures of $28 million in the quarter decreased $5 million versus the prior year. This yielded a negative $7 million of free cash flow in the quarter. We expect free cash flow generation to strengthen in the second half and are targeting a positive full year free cash flow. Now let's turn to Slide 5. Here, we highlight the key drivers of our second quarter adjusted EBITDA performance compared…

Thanks, Chris. I'm now on Slide 7 to discuss each of our key product lines, starting with our plant nutrient business. While we did have an earlier end to the season, favorable ammonium sulfate supply and demand conditions in North America supported higher pricing and increased sales volume for the total fertilizer year. As a reminder, the North American fertilizer year typically runs from July when the value chain begins restocking through June of the following year when application is largely complete. As a result, it's important to view performance through this lens versus a calendar year. In the past fertilizer year, we delivered a 7% increase in domestic granular sales volume which was enhanced by the progression of our sustained growth program. We continue to anticipate production capability by the end of 2025 to reach a milestone of 72% granular conversion up from roughly 70% at the end of 2024. Moving into the new season fill, prices reset each year. We have entered the third quarter of 2025 at higher ammonium sulfate pricing levels compared to last year. There continues to be a robust acceptance of the sulfur value proposition amid underlying increases in global nitrogen pricing, primarily driven by supply side impacts. While market-oriented prices must contend with rising raw material prices, we've seen strong uptake in our field program. And given current corn futures, this is a positive reinforcement that the value chain believes in sulfur to improve economics for the same acreage. While we navigate typical seasonal pricing considerations and what many consider a mix set of broader ag fundamentals, we know that farmers need yield to support their profitability. Overall, we remain excited about the growth prospects for this business and leveraging our expertise as a leader in this space. Let's turn to Slide 8.…

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

[Operator Instructions] Our first question will come from David Silver with Freedom Capital.

Yes. Am I coming through clearly, please?

Yes, David. Good to hear you.

Okay. Sorry. My phone is a little dodgy here. Okay. So several questions. I think the first one would be on the ammonium sulfate business. And I was wondering if you could maybe give us a little bit of a look ahead maybe on how the fall fill program is shaping up. And maybe overall, how you're looking at the next planning cycle. And then separately, there has been some variation in the pricing relationship between ammonium sulfate, at least on the list price basis. and then urea and some other nitrogen products. Could you maybe just touch on how you see that pricing relationship performing, I guess, as the next several months play out.

Yes. And first, I may start off by just reiterating that we're coming off a strong fertilizer year and where we saw higher pricing continuing to drive our sales increase 7% in the fertilizer year with our domestic granular AS sales volume, again, continuing to be supported by the benefits of the sustained growth program and the favorable North American supply and demand conditions. As we roll forward here into the next year, we started and have built up a robust order book rate supporting a strong anticipated fall fill program. Again, here, again, just a complement to the work done by our team as growers continue to recognize the sulfur value proposition. Every year, we're continuing to see more and more interest in fill programs, particularly as players on the value chain are focused on ensuring supply, which is supporting the pricing consideration. And when you think about the premiums, when you look long range and long term, premiums, really ammonium sulfate to urea have been in about the 75% range. We're expecting similar numbers this year. I would note, though, David, that when you think about a 75% premium on a, let's call it, a 500 type urea number, that's a much higher sulfur value than a 75% premium, let's say, at a 300 as an example. So we're still selling the sulfur value at a very good price, which is what we're really focused on. And so as we achieve these robust premiums, it's clear that growers, right, are seeing that value willingness to pay. And then obviously, that supply/demand will always play a factor. Each year, we're seeing perhaps that we may be just coupling a bit from nitron based on that growing sulfur value proposition. I would say we're cognizant of the broader environment. We see that corn prices have come down relative to nitrogen costs, and that relationship is a bit low. So we recognize farmer economics are a bit more challenging. But again, with the signs of the overall good fill program in 2025, we're seeing that strong uptake on our demand, which is a positive reinforcement of the value chain does believe in sulfur as a key nutrient to improve economics for the same acreage. So we'll a lot more to go, but things are looking in the right direction.

Okay. Great. Next question, I think, would just be more on the chemical industry environment. that you're operating in right now. So I guess we're most of the way through the current earnings season and a number of major chemical companies have reported what I would say were very weak results. Your results may be there are some puts and takes there, but you're probably not as bad as some that have reported in recent days. Maybe if you could just focusing on maybe the more petrochemical-oriented products and markets that you're dealing with. Given the tariff uncertainties and some weak regional economies here, I mean how do you view the stability, I guess, or the predictability of AdvanSix's profitability, I guess, or market opportunities, let's say, over the medium term, let's say, through the next couple 2, 3 quarters.

Certainly, we do recognize that the environment in which we're operating in has been dynamic, right, in a number of value chains, a number of end applications. But we remain cautiously optimistic given the diversified nature of our portfolio, and I think that came through in the Q2 results, right, and coupled with our integrated business model. It also includes our formula and index-based pricing mechanisms that have continued to support pricing and value across various parts of the business. Relative to the broader uncertainty, relative to others, we have the strength of being a U.S.-based manufacturer. All of our assets are here, 90% of our sales are staying within the U.S. And certainly, we're procuring most materials from the U.S., 90% of all of our supplier spend is procured domestically. So we get the opportunity set relative to good value in end markets in this region. And as we've shared before, relatively insulated from first order impacts to tariffs. We do have the downstream uncertainty, if you will. And that's probably predominantly what we see in nylon. The price overall spreads have increased. We're pleased to see that pricing has held, right, in this environment. So that's allowed us to see that expansion in -- particularly with benzene and really just focus on the stability, driving the opportunity set into those end markets where we are, can get a differentiated price and hold that stability. On acetone, phenol is mostly impacted given the environment down into building construction, as we share that creates a bit of a natural hedge for us. because 80% of our phenol is consumed internally. And -- so globally, that is keeping acetone relatively balanced in the near term. Here, again, pricing holding, we have a portfolio that is well balanced between small, medium and large buyer no customers. So it's affording us flexibility to move where the value is in the market. We did have to contend with a spike in propylene costs earlier this year. Those have stabilized and moderated. So I think that the diversity, the regional footprint and just our flexibility. We've long said that we can navigate through a number of macro environments. And I think the goal here is to continue to put those proof points on the board.

Okay. Great. Maybe if I could just follow up. I mean, you did start off your previous answer with the idea of you operate highly vertically integrated production chain. And this was a quarter where you -- I think you cited nylon sales down around 10%. But the ammonium sulfate volumes -- I'm sorry, nylon volumes down about 10% and ammonium sulfate volumes up, I think, 7%. And you've added on with comments about acetone, which I appreciate. But looking ahead, I mean, it can get a little tricky at different -- under different market environments to confidently, I guess, place all of your products, including those that might be experiencing weaker demand. So again, as you -- maybe as you look forward, maybe thinking about nylon in particular. I mean how confident are you or what strategies are you looking at to kind of make sure that you can maintain those high utilization rates that give you pretty nice cost advantages, and you're able to place all of our co-produced products into a reasonable markets. I hope that made sense, sorry.

Yes. No, I believe I know where your head is trying to tease out here and yes, we do have an integrated value chain that integrated value chain brings strength to create our global cost advantage in the monomer for Nylon 6, right? So that does afford us, as we've shared in the past, to be able to run higher utilization rates than others, which then as you say, then supports the further strength of the business model around the diversification the end market applications that we reach with our diversified chemistries and the other product lines. When we think about that and oftentimes we drive to meet demand where it sits. I would say in nylon right now, as we think about the geographic mix, we're being more selective in our export business. In past years, more volume might have been better. But when you look at really where the global clearing price is below cash cost for a number of players. Europe is struggling. I think operating rates there are well 60% or less. We're going to really maintain some discipline as we navigate these current dynamics. On the flip side, through these cycles, it's important. We've been working to create more degrees of freedom for ourselves and we learn that through each cycle, we create levers for ourselves. And One of the things that we've mentioned in SUSTAIN is investing in the capabilities around some synthetic production of AS as well. It's part of that road map to allow us again, how do you navigate through these times create more flexibility across the asset base and perhaps we've had in the past that allows us to take advantage of the various market opportunities as we go. So even in a challenged global nylon environment. We still see North America here as stable. So that's affording our utilization rates. And then coupled with the technology and operational leverage that we've created for ourselves, give us the agility that we're demonstrating here and we'll continue to seek more of that as we go forward to ensure that we can drive performance in our other product lines and not just be held solely to what we can produce there.

Okay. Great. Maybe my last one here would be a cash flow oriented question. And I was hoping you could just build on the comments you've made in your prepared remarks. But Chris, as I look at the first half cash flow statement, I mean, there were some sources, I guess, of the reduced operating cash flow totals year-to-date. And I was just hoping you could comment on some of the levers or some of the bigger items where you either expect a meaningful pickup in improvement in cash flow through the balance of the year or maybe where your incremental flexibility might be to kind of some levers you might have to support free cash flow generation even in a less than robust environment. And then secondly, I was hoping you did provide some big picture numbers on the carbon tax credit opportunity, which was great. But I was just wondering if you might be able to comment on the expected timing of when those cash flows might be received. So for instance, you've claimed, I believe, $20 million thus far. I'm guessing there hasn't been much received there. But when should we expect meaningful cash to be received from the carbon tax credit program.

Yes. Thanks, David, for the question there. As we have shared our expected second half cash flow performance is expected to be sequentially better. I would point to probably 2 larger levers that we're tracking as we move into the second half. 45Q is one of those levers. So just as a little bit of background into the collective process is we've been working with the Department of Energy and the IRS. And we've got the 2018 LCA approved, which does cover the 2018 through 2020 years. Based on that approval, we've gone and filed amended returns to claim that credit. Those amended returns automatically trigger and audit, and we need to work with the IRS through that audit. Once the audit is complete, we would expect to receive a refund on those credits and we believe that these will happen in the current calendar year. So that's one item. I think our second probably a significant item that we would point out to help understand our position on why we believe second half cash flow is going to be better, as I would point out, our ammonium sulfate prebuy program, which by design is a headwind on cash in the first half. I would expect us to continue this program and so we would see a positive cash flow in Q4 of this year, and that would be consistent with our regular practice sort of year-over-year. A couple of other things maybe to point out relative to cash flow. We are trying to be very thoughtful about CapEx spend. Obviously, we continue to give priority to sustain and other sort of growth programs, but we are being much more thoughtful about how we deploy sort of the base CapEx in the current environment. I would point out our healthy balance sheet position with our debt levels at the lower end of our target range. And as well, I would point out our trailing 12-month free cash flow position and performance is an indicator of how we typically perform in the second half environment. So probably that gives you some context and some thoughts there around why we believe it's going to be sequentially better. And I appreciate the question, David.

So just to clarify, you're one of the rare taxpayers that's actually looking forward to an IRS audit this year. Is that right?

Yes. I don't think we're the rare, but yes, we're certainly one of them. And once again, when you claim those sort of credits on an amended return, it automatically gets triggered for an audit.

With no further questions, this will conclude 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. We hope this call and discussion have clarified the key considerations that supported our second quarter performance and outlook across our key end markets. The strength of our business model and our position as a diversified chemistry company will serve us well, and we continue to expect performance this year to demonstrate our resilience. We are confident in our strategic vision to support safe, stable and sustainable operations, improved through-cycle profitability and total shareholder returns. 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.