2q 2019 earnings presentation august 1,...

2Q 2019 Earnings PresentationAugust 1, 2019

2Q 2019 Earnings Presentation – August 1, 2019

2Forward Looking StatementsThis 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, many of which are beyond our control and difficult to predict, 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: 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; our operations requiring substantial capital; general economic and financial conditions in the U.S. and globally; growth rates and cyclicality of the industries we serve; risks associated with our indebtedness including with respect to restrictive covenants; failure to develop and commercialize new products or technologies; loss of significant customer relationships; adverse trade and tax policies; extensive environmental, health and safety laws that apply to our operations; hazards associated with chemical manufacturing, storage and transportation; litigation associated with chemical manufacturing and our business operations generally; inability to acquire and integrate businesses, assets, products or technologies; protection of our intellectual property and proprietary information; prolonged work stoppages as a result of labor difficulties; cybersecurity and data privacy incidents; failure to maintain effective internal controls; disruptions in transportation and logistics; our inability to achieve some or all of the anticipated benefits of our spin-off including uncertainty regarding qualification for expected tax treatment; fluctuations in our stock price; and changes in laws or regulations applicable to our business. 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, 2018.

Non-GAAP Financial MeasuresThis 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 considercarefully the comparable GAAP measures and the reconciliations to those measures provided. Non-GAAP measures in this presentation may be calculated in away that is not comparable to similarly-titled measures reported by other companies.


3Overview

• 2Q19 Sales $345M, down (14%) including (9%) lower raw material pass through and (5%) volume

• 2Q19 pre-tax income results include previously announced (~$12.6M) repositioning charge associated with closure of Pottsville, PA manufacturing facility; Expect ~1 year cash payback

• 2Q19 Cash Flow from Operations $25M, down ($8M); Capex $32M, up $9M, with continued investment in high-return growth and cost savings projects

• 2Q19 EPS $0.53, down (42%); Repurchased ~$16M of shares in 2Q19; Lower share count contributed ~$0.04 benefit vs. prior year

• Targeting strong nylon plant utilization rates while navigating through soft carpet and auto end markets• Expect 3Q19 ammonium sulfate seasonal domestic price decline and higher export mix• Preliminary acetone anti-dumping duties announced for Singapore and Spain – expect remaining preliminary

duty determinations by end of 3Q19

• Expect FY19 Capex to be ~$150M and continue to expect FY19 pre-tax income impact of planned plant turnarounds to be $35-$40M

• Expect sufficient availability of cumene supply following Philadelphia Energy Solutions (PES) supplier fire –expect unfavorable pre-tax income impact of $6-$8M in 3Q19 and $5-$7M in 4Q19


42Q 2019 Financial SummaryHigh Plant Utilization Rates Despite Challenging Macro Environment

$400.5 $345.2 • Sales Down (14%): Volume (5%), Price (9%)– Raw Material Pass Through (9%), Market Pricing ~Flat

$53.013.2%

$35.910.4%

• (~$12.6M) Pre-Tax Repositioning Charge Associated With Closure of Pottsville, PA Manufacturing

• ~$2M Insurance Proceeds Related to 1Q18 Weather Event Claim Offset by (~$2M) 1Q18 Phenol Force Majeure Carryover

$28.4 $15.3 • 2Q19 Effective Tax Rate 25.6%

$0.91 $0.53 • 2Q19 Share Count 29.1 Million; Lower Share Count Contributed ~$0.04 Benefit vs. Prior Year

$10.4 ($6.4)• Cash Flow From Operations $25M, Down ($8M) vs. Prior

Year – Unfavorable Impact of Changes in Working Capital• Capex $32M, Up $9M vs. Prior Year – Continued High-Return

Investments

Comments2Q 2018 2Q 2019($ Millions, Except Per Share Amounts)

Sales

EBITDAMargin %

Net Income

Free Cash Flow

EPS (Diluted)

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 OutlookSoft Carpet and Auto End Markets

What We’re Seeing

What We’re Expecting

• Demand softness and customer destocking in carpet and auto end markets

• Pricing/spreads more regionalized: China/Asia weakening on soft end-market demand environment

• Muted demand with year-over-year growth deceleration

• Continued uncertainty around global operating rates, pricing and spreads

(1) Sources: Tecnon OrbiChem and Wood MackenzieAsia = Caprolactam Asia Import Contract (Taiwan & S. Korea)Global Composite = Weighted Avg Spreads From U.S., Europe, China, Other Asia

BN

Z-C

PL

Spr

ead

($/M

T)

Key Industry Spreads (1)

2Q19 YoY 2Q19 vs. 1Q19

Global Composite BNZ-CPL (13%) (3%)

Asia BNZ-CPL (20%) (3%)

Asia CPL-Resin (22%) (31%)

Nylon

CP

L-Resin S

pread ($/MT)0

200

400

600

800

0

400

800

1200

1600

Global Composite BNZ-CPL SpreadAsia BNZ-CPL SpreadAsia CPL-Resin Spread


6Ammonium Sulfate (AS) Industry OutlookIndustry Dynamics Mixed as New ’19/’20 Season Begins

What We’re Seeing


• AS price movement modest relative to recent nitrogen pricing

• Wet weather in U.S. resulting in lower crop yields and reduced planted acres projections

• Higher corn prices

• 3Q19 seasonal domestic price decline and higher export mix; Global pricing relatively flat year-over-year

• Continued demand growth for sulfur nutrition

(1) As reported in Green Markets

Key Industry Prices (1)

Avg

Cor

n B

elt A

S p

rice

(gra

nula

r $/s

ton

N c

onte

nt b

asis

)

2Q19 YoY 2Q19 vs. 1Q19

Corn Belt Granular AS (1%) (1%)

Corn Belt Urea 20% 11%

Avg C

orn Belt U

rea price ($/ston N

content basis)

Ammonium Sulfate

500

600

700

800

1000

1200

1400

Jan-

18

Feb-

18

Mar

-18

Apr-

18

May

-18

Jun-

18

Jul-1

8

Aug

-18

Sep-

18

Oct

-18

Nov

-18

Dec

-18

Jan-

19

Feb-

19

Mar

-19

Apr-

19

May

-19

Jun-

19

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


7Chemical Intermediates Industry OutlookGlobal Acetone Supply Continued to Lengthen in 2Q19

What We’re Seeing


Chemical Intermediates

• Global acetone oversupply further lengthened in 2Q19 pressuring spot market spreads

• U.S. acetone imports moderating into 3Q19

• Lower phenol utilization rates

• North America acetone inventory levels to stabilize

• Preliminary acetone anti-dumping duties announced for Singapore and Spain – expect remaining preliminary duty determinations by end of 3Q19

Key Industry Prices (1)

Cen

ts p

er P

ound

(1) As reported in IHS Markit

2Q19 YoY 2Q19 vs. 1Q19

Acetone, Small/Medium Buyer (37%) (11%)

Acetone, Large Buyer (28%) 1%

Refinery Grade Propylene Costs (36%) 2%

10

20

30

40

50

60

Acetone, Small/Medium BuyerAcetone, Large BuyerRefinery Grade Propylene Costs


8Cumene Supply Considerations – PES Fire ImpactExpect Sufficient Availability of Cumene Supply to Maintain High Utilization Rates

• Secured additional supply of cumene and phenol from multiple suppliers to maintain production output

• PES local supply provided logistics and working capital benefits; Actively evaluating incremental buffer inventory, logistics and storage capacity to mitigate impact of extended supply chain

Near-Term

Long-Term

Financial Impact

• Supply / demand dynamics support cumene availability

• Broad base of qualified contract and spot suppliers

• Assessing optionality for cumene supply and partnerships for 2020 and beyond

Pre-Tax Income Impact ($M)

3Q19 4Q19 FY19

$6-$8 $5-$7 $11-$15

• 2H19 pre-tax income impact expected to be $11-$15M

• 2H19 one-time cash flow impact expected to be $10-$15M to build cumene buffer inventory

• Optimizing expected base feedstock and logistics cost increases as supply chain realigns into 2020


9Full Year 2019 OutlookContinued Focus on High-Return Investments and Improved Operational Performance

• Capex expected to be ~$150M, including execution of high-return growth/cost savings projects

• Tax rate expected to be ~25%, cash tax rate expected to be ~15%

• Expect $10-$15M one-time unfavorable cash flow impact in 2H19 to build cumene buffer inventory

• Continue to expect pre-tax income impact of planned plant turnarounds to be $35-$40M– 2Q19: ~$5M, 3Q19: ~$5M, 4Q19: $25-$30M

• New natural gas boilers online providing 2H19 productivity benefits

• PES supplier fire – expect unfavorable pre-tax income impact of $6-$8M in 3Q19 and $5-$7M in 4Q19

• Nylon: targeting strong plant utilization rates while navigating through soft carpet and auto end markets• Ammonium Sulfate: typical seasonality expected to drive 3Q19 sequential domestic pricing decline and

higher export mix• Chemical Intermediates: preliminary acetone anti-dumping duties announced for Singapore and Spain –

expect remaining preliminary duty determinations by end of 3Q19

Commercial

Operational

Cash / Other


10AdvanSix Strategy And PrioritiesWell Positioned for Strong Operational and Financial Performance Over Long Term

Focus Areas For Further Value Creation

1) Safe and Stable Operations

2) Differentiated Product Growth

3) Cash Generation and Deployment

• Averaging 90%+ utilization rates through the cycle

• Less variability in utilization rates drives higher returns

• Represent ~10% of total sales today but growing

• 1.5x – 2x gross margin vs. company average

• Generated >$400M of operating cash flow since spin

• Executing against $150-$200M high-return capex pipeline

• Return cash to shareholders; Disciplined M&A


11

Appendix


12Capital ExpendituresExecution of High-Return Growth and Cost Savings Projects in 2019

2018 2019E 2020E

Maintenance HSE Growth/Cost Savings

$109M

~55%

~12%

~33%

~$150M

~57%

~8%

~35% ~2018 Levels

Growth/Cost Savings

HSE

• Continued focus on risk reduction and improved security

Maintenance

• Maintenance capex up ~$20M in 2019 due to scope and timing of planned plant turnarounds

• Timing of Spring 2020 turnaround accelerates capex to 2019

• Executing against multi-year $150-$200M pipeline of high-return projects; 20%+ IRR target

• Relocation of R&D lab to Chesterfield from Colonial Heights adds ~$15M incremental capex in 2019


13Planned Plant Turnarounds

1Q 2Q 3Q 4Q FY

2017 -- ~$10M ~$4M ~$20M ~$34M

2018 ~$2M ~$10M ~$30M -- ~$42M

2019E -- ~$5M ~$5M $25-$30M $35-$40M

2020E -- -- In-line with historical averages

Pre-Tax Income Impact by Quarter (1)

• Timing driven by compliance, inspection and sustaining asset base

• Critical to supporting high utilization rates

• Dedicated teams to improve effectiveness

• Staggered across unit operations to maintain output

(1) Primarily reflects the impact of fixed cost absorption, maintenance expense, and the purchase of feedstocks which are normally manufactured by the Company


14

Appendix:Reconciliation of non-GAAP

Measures to GAAP Measures


15Reconciliation 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.

(1) Free cash flow is a non-GAAP measure defined as Net cash provided by operating activities less Expenditures for property, plant and equipment


16Reconciliation 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 theCompany’s operating performance, enhance a reader’s understanding of the financial performance of the Company, and facilitate a better comparison among fiscal periods andperformance relative to its competitors, as these non-GAAP measures exclude items that are not considered core to the Company’s operations.

(2) EBITDA is a non-GAAP measure defined as Net Income before Interest, Income Taxes, Depreciation and Amortization(3) One-time Pottsville restructuring charges reflect the closure of the Company’s Pottsville, Pennsylvania films plant (4) EBITDA margin is defined as EBITDA divided by Sales

2q 2019 earnings presentation august 1,...

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