3q 2017 earnings presentation november 7, 2017 - …/media/files/a/advansix...3q 2017 earnings...

3Q 2017 Earnings PresentationNovember 7, 2017

3Q 2017 Earnings Presentation – November 7, 2017

2Forward Looking Statements

This presentation contains certain statements that may be deemed “forward-looking statements” within the meaning of Section 21E of the Securities Exchange

Act of 1934, as amended. All statements, other than statements of historical fact, that address activities, events or developments that our management intends,

expects, projects, believes or anticipates will or may occur in the future are forward-looking statements. Forward-looking statements may be identified by words

like "expect," "anticipate," "estimate," “outlook”, "project," "strategy," "intend," "plan," "target," "goal," "may," "will," "should" and "believe" or other variations or

similar terminology. Although we believe forward-looking statements are based upon reasonable assumptions, such statements involve known and unknown

risks, uncertainties and other factors, which may cause the actual results or performance of the company to be materially different from any future results or

performance expressed or implied by such forward-looking statements. Such risks and uncertainties include, but are not limited to: our inability to achieve some

or all of the anticipated benefits of the spin-off from Honeywell including uncertainty regarding qualification for expected tax treatment, indebtedness incurred in

connection with the spin-off, and operating as an independent, publicly traded company; fluctuations in our stock price; general economic and financial

conditions in the U.S. and globally; growth rates and cyclicality of the industries we serve; the impact of scheduled turnarounds and significant unplanned

downtime and interruptions of production or logistics operations as a result of mechanical issues or other unanticipated events such as fires, severe weather

conditions, and natural disasters; price fluctuations and supply of raw materials; adverse trade and tax policies; extensive environmental, health and safety laws

that apply to our operations; litigation associated with chemical manufacturing and our business operations generally; loss of significant customer relationships;

protection of our intellectual property and proprietary information; cybersecurity incidents; failure to maintain effective internal controls; and prolonged work

stoppages as a result of labor difficulties. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date

of this presentation. Such forward-looking statements are not guarantees of future performance, and actual results, developments and business decisions may

differ from those envisaged by such forward-looking statements. We identify the principal risks and uncertainties that affect our performance in our filings with

the Securities and Exchange Commission, including our Annual Report on Form 10-K for the year ended December 31, 2016.

Non-GAAP Financial Measures

This presentation includes certain non‐GAAP financial measures intended to supplement, not to act as substitutes for, comparable GAAP measures.

Reconciliations of non‐GAAP financial measures to GAAP financial measures are provided in the appendix of the presentation. Investors are urged to consider

carefully the comparable GAAP measures and the reconciliations to those measures provided. Non-GAAP measures in this presentation may be calculated in a

way that is not comparable to similarly-titled measures reported by other companies.


3Overview

• Strong 3Q17 Results: Sales $367M, Net Income $21M, Cash Flow from Operations $38M

• Favorable Conditions Across Nylon and Intermediates; Ammonium Sulfate Price Movement

Modest Relative to Recent Nitrogen Pricing

• Expect 4Q17 Planned Turnaround Impact to Pre-Tax Income of ~$20M, Consistent with

Prior Outlook

• Continued Benefits from Strong Operating Rates

• Disciplined Reinvestment in the Business to Create Further Shareowner Value


43Q 2017 Financial SummaryContinued High Utilization Rates, Favorable Market Conditions

$324.0 $366.7• Volume +5%, Price +8%

– Market Pricing +4%, Raw Material Pass Through +4%

$38.111.8%

$50.313.7%

• Favorable Market Pricing

• Unfavorable LIFO Reserve Adjustment (~$4M Impact)

• EBITDA Margin Up 190 bps vs. Prior Year

$16.5 $21.3 • Pre-Tax Interest Expense Up $2M

$0.54 $0.68 • EPS Up 26% vs. Prior Year

$7.0 $18.3• Cash Flow From Operations $38M, Up $13M vs. Prior Year

• Capex $19M, Up $2M vs. Prior Year

Comments3Q 2016 3Q 2017($ Millions, Except Per Share Amounts)

Sales

EBITDAMargin %

Net Income

Free Cash Flow

EPS

See Appendix in this presentation for a reconciliation of EBITDA, EBITDA Margin, and Free Cash Flow, which are non-GAAP measures;

Free cash flow = net cash provided by operating activities less capital expenditures


5Nylon Industry OutlookIndustry Conditions Remain Improved Year-Over-Year

What We’re

Seeing

What We’re

Expecting

Nylon

• Tightened supply environment –

North America and Europe

• China announced capacity adds,

utilization impacted by stricter

environmental controls

• Industry spreads fluctuating near

marginal producer cost

• North America supply/demand

remains in balance

• Global industry planned

turnarounds scheduled for 4Q17

• Steady nylon end market

demand growth

(1) Sources: Tecnon OrbiChem and PCI Wood Mackenzie

Asia = Caprolactam Asia Import Contract (Taiwan & S. Korea)

Global Composite = Weighted Avg Spreads From U.S., Europe, China, Other AsiaS

pre

ad

($

/MT

)

Key Industry Spreads (1)

3Q17 YoY 3Q17 vs. 2Q17

Global Composite BNZ-CPL 38% 17%

Asia BNZ-CPL 23% 3%

Asia CPL-Resin 64% 27%

0

300

600

900

1200

1500

Global Composite BNZ-CPL Spread

Asia BNZ-CPL Spread

Asia CPL-Resin Spread


6Ammonium Sulfate (AS) Industry OutlookNitrogen Prices Recently Firmed, Fundamentals Remain Challenging

What We’re

Seeing

What We’re

Expecting

Ammonium Sulfate

• Nitrogen prices firmed due to

supply availability / China costs

• AS price movement modest

relative to recent Nitrogen pricing

• Cautious buying behavior

through the value chain

• 2018 urea demand growth

expected to lag capacity adds

• Tough agriculture fundamentals

to continue pressuring growers

• Sustain AS value proposition on

sulfur nutrition

(1) As reported in Blue, Johnson

Key Industry Prices (1)

Avg

Corn

Belt A

S p

rice

(gra

nula

r $/s

ton

N c

onte

nt

basis

)

3Q17 YoY 3Q17 vs. 2Q17

Corn Belt Granular AS (-3%) (-9%)

Corn Belt Urea 4% 4%

Avg

Corn

Belt U

rea p

rice

($/s

ton

N c

onte

nt b

asis

)

400

500

600

700

800

1000

1200

1400

Jan

-16

Fe

b-1

6

Ma

r-16

Ap

r-16

Ma

y-1

6

Ju

n-1

6

Ju

l-16

Au

g-1

6

Se

p-1

6

Oct-

16

No

v-1

6

Dec-1

6

Jan

-17

Fe

b-1

7

Ma

r-17

Ap

r-17

Ma

y-1

7

Ju

n-1

7

Ju

l-17

Au

g-1

7

Se

p-1

7

Avg Corn Belt AS price (granular $/ston N content basis)

Avg Corn Belt Urea price ($/ston N content basis)


7Chemical Intermediates Industry OutlookPhenol and Acetone Tightened Supply Environment

What We’re

Seeing

What We’re

Expecting

Chemical Intermediates

• Competitors’ force majeure

announcements largely resolved

• Tightened North America supply

environment – refinery grade

propylene (RGP), phenol,

acetone

• End market conditions to remain

favorable

• Industry utilization returns to

normal levels post hurricanes

Key Industry Prices (1)

Cen

ts p

er

Po

un

d(1) As reported in IHS Markit

3Q17 YoY 3Q17 vs. 2Q17

Acetone, Large Buyer 22% 1%

Refinery Grade Propylene 18% 1%

0

20

40

60

Acetone, Large Buyer Refinery Grade Propylene


8Operational ExcellenceDriving Improved Reliability, Increased Output and Higher Returns

• Continuing to Benefit from Upgrades and Reliability Improvements

– 3Q17 YTD Production Up 3% vs. Prior Year and 8% Above 2012-2015 Average

– Focused Maintenance Capex Drives More Stable Production, Higher Returns

• 4Q17 Planned Turnaround Pre-Tax Income Impact ~$20M, As Expected

– Turnarounds Key to Safe, Sustainable and Improved Operations

– 2018 Planned Turnarounds Expected to be Consistent with Historical Levels in Total

• Sustaining Robust Operational Performance Into 2018

– Low Cost Position Supports High Utilization Rates

– Growth Capex to Drive Improved Plant Buffers and Debottlenecking Over Long Term

2012-2015 Avg 3Q16 YTD 3Q17 YTD

Annualized Plant Production

Frankford Annual Capacity: 1.1B lbs Phenol

Hopewell Annual Capacity: 795M lbs Caprolactam

Chesterfield Annual Capacity: 440M lbs Nylon 6 Resin


94Q 2017 Outlook~$20M Impact to Pre-Tax Income from Planned Turnaround Consistent With

Prior Expectations

Commercial

Operational

Cash / Other

• Ammonium Sulfate pre-buy advances

• Planned turnaround expenses

• $2M cash pension contributions in October 2017 (total ~$17M for full year 2017)

• Executing planned turnaround on time and on budget

• Continuing to enhance mechanical integrity program

• Anticipate similar supply/demand environment to 3Q17 across major product lines

• Monitoring China environmental considerations into Winter months


102018 OutlookExpect Current Industry Conditions to Continue, Focus on Organic Investments

• Reinvestment priorities in safe and stable operations expected to continue in 2018 with

incremental investments in high-return growth and cost savings projects

– Potential for up to $20-30M incremental investment

• Expect continued strong working capital performance

• Lower cash pension contributions, higher cash taxes

• Planned turnarounds expected to be consistent with historical levels in total ($30-35M)

• Continued proactive maintenance to support high utilization rates

• Safe and sustainable operations to drive higher returns

• Anticipate similar supply/demand environment to 2017 across major product lines

– Nylon: industry spreads fluctuating near marginal producer cost

– Ammonium Sulfate: seasonal industry pricing, cautious on nitrogen market fundamentals

– Chemical Intermediates: stable North America market environment

Commercial

Operational

Cash / Other


11AdvanSix Strategy And PrioritiesWell Positioned for Strong Operational and Financial Performance Over Long Term

Focused Strategy Delivering In 2017 2018 Priorities

• Rigorous commitment to

operational excellence

• Drive high value product and

regional mix

• Continuous enhancement of R&D

capabilities

• Upgrade current chemistry via new

product pipeline

• Balanced and disciplined capital

allocation

• Robust sales and production volume

• Trending to record safety

performance

• Optimizing results in dynamic

market environment

• Successfully built up standalone

company functions

• Funded pension provides flexibility

in future periods

• Improving cash flow generation

• High operating rates to continue

• Continued strong working capital

management

• Final NOx controls system installed

• Maximize high value product mix

• Execute high-return growth and

cost savings capex projects

• Fully exit transition services


12

Appendix:

Reconciliation of non-GAAP

Measures to GAAP Measures


13Reconciliation Of Net Cash Provided By Operating

Activities To Free Cash Flow

(in $ thousands)

The Company believes that this metric is useful to investors and management as a measure to evaluate our ability to generate cash flow from business operations and

the impact that this cash flow has on our liquidity.

Three Months Ended

September 30,

Nine Months Ended

September 30,

2017 2016 2017 2016

Net Cash Provided by Operating Activities $ 37,679 $ 24,614 $ 98,471 $ 66,467

Expenditures for Property, Plant and Equipment (19,421) (17,567) (67,206) (56,859)

Free Cash Flow (1) $ 18,258 $ 7,047 $ 31,265 $ 9,608

(1) Free Cash Flow is a non-GAAP measure and defined as Net Cash Provided by Operating Activities less Expenditures for Property, Plant and Equipment


14Reconciliation Of Net Income To EBITDA

(in $ thousands)

The Company believes these non-GAAP financial measures provide meaningful supplemental information as they are used by the Company’s management to evaluate the

Company’s operating performance, enhance a reader’s understanding of the financial performance of the Company, and facilitate a better comparison among fiscal periods and

performance relative to its competitors, as these non-GAAP measures exclude items that are not considered core to the Company’s operations.

Three Months Ended

September 30,

Nine Months Ended

September 30,

2017 2016 2017 2016

Net Income $ 21,274 $ 16,460 $ 74,331 $ 58,861

Interest Expense 1,961 — 5,373 —

Income Taxes 14,538 11,342 46,803 36,712

Depreciation and Amortization 12,565 10,307 35,524 29,964

EBITDA (2) $ 50,338 $ 38,109 162,031 125,537

Prior Year One-Time Benefit (3) — 15,500

EBITDA Excluding Prior Year One-Time Benefit $ 162,031 $ 110,037

Sales $ 366,660 $ 323,953 $ 1,104,805 $ 932,201

EBITDA Margin (4) 13.7% 11.8% 14.7% 13.5%

EBITDA Margin Excluding Prior Year One-Time Benefit 14.7% 11.8%

(2) EBITDA is a non-GAAP measure and defined as Net Income before Interest, Income Taxes, Depreciation and Amortization

(3) Prior Year One-Time Benefit reflects the $15.5 million one-time benefit in 1Q 2016 related to the termination of a long-term supply agreement

(4) EBITDA Margin is defined as EBITDA divided by Sales

3q 2017 earnings presentation november 7, 2017 - …/media/files/a/advansix...3q 2017 earnings...

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