AdvanSix (ASIX) Q3 2025 Earnings Call Transcript

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DATE

Friday, November 7, 2025 at 9:30 a.m. ET

CALL PARTICIPANTS

• President and Chief Executive Officer — Erin N. Kane
• Senior Vice President and Chief Financial Officer — Christopher Gramm
• Vice President, Investor Relations — Adam Kressel

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RISKS

• Erin N. Kane stated that a site-wide electrical outage and an isolated fire upon restart, which affected one polymerization line at the plant, are expected to lower Q4 2025 EBITDA by $7 million to $9 million due to unabsorbed fixed costs.
• Christopher Gramm reported, "Sales of $374 million decreased approximately 6% versus the prior year," with Half of this decline was driven by softer demand in both chemical intermediates and nylon end markets.
• Adjusted EBITDA declined by $28 million year over year to $25 million, primarily due to lower acetone price raw spreads, decreased nylon and chemical intermediates sales and production volume, and higher utility costs.
• Christopher Gramm cited a nearly $20 million earnings decline due to typical ammonium sulfate seasonality with the start of the new fertilizer year on a sequential basis from Q2 to Q3, and highlighted "impact of moderated production rates amid softer demand."

TAKEAWAYS

• Sales Revenue -- $374 million in sales, representing a 6% decrease, with volume declines accounting for half of this reduction.
• Adjusted EBITDA -- Adjusted EBITDA was $25 million, down $28 million from the prior year, driven by weaker chemical and nylon markets as well as lower acetone price spreads.
• Fourth-Quarter Incident Impact -- The Chesterfield nylon plant fire and outage will reduce EBITDA in Q4 2025 by $7 million to $9 million, mainly due to unabsorbed fixed costs.
• Production Utilization -- Utilization rates across the integrated value chain dropped roughly four percentage points sequentially from Q2 to Q3 as the company proactively moderated production.
• Plant Nutrients Performance -- Granular ammonium sulfate volumes rose 20% year over year, reflecting successful execution of the sustained growth program and higher fall fill pricing.
• Capital Expenditures -- 2025 CapEx guidance was lowered to $120 million to $125 million, reflecting a $30 million annualized reduction via risk-based reprioritization and project execution.
• 45Q Carbon Capture Credits -- Delayed cash inflow from tax credits is now expected in 2026 due to government shutdown-related audit delays, but positive free cash flow is still targeted for 2025, and the full program benefit of $100 million to $120 million is reaffirmed for the program's life.
• Bonus Depreciation Impact -- Cash tax rate benefits are expected to be below 10% for several years, with a $2 million benefit in calendar year 2025 and a growing impact in 2026 and 2027.
• Ammonium Sulfate Segment -- Revenue was the highest ever for the segment in a third quarter.
• Intellectual Property Resolution -- Erin N. Kane said, "we were able to agree and sort of resolve the differences of opinion there with the various parties" regarding a patent dispute over EZ-Blox, including both monetary settlement and licensing terms.
• Enterprise Resource Planning (ERP) Upgrade -- The company's ERP system upgrade went live in the quarter and is expected to enhance management tools and data analytics capabilities.

SUMMARY

Management implemented active production cuts in response to ongoing demand weakness in nylon solutions and chemical intermediates, resulting in a sequential decline of four percentage points in utilization rates from Q2 to Q3. The Chesterfield nylon plant outage and restart fire will drive a $7 million to $9 million negative EBITDA impact in Q4, primarily through unabsorbed fixed costs. Company leadership stated that capital spending will be reduced by $30 million for 2025, and major growth projects in granular ammonium sulfate are progressing at about 15% below budget. Due to governmental audit delays, cash receipts from 45Q tax credits are now anticipated in 2026, though positive free cash flow is still expected for 2025. The ERP system upgrade was completed as planned, and the company achieved a favorable patent dispute settlement for EZ-Blox, positioning itself for future sales expansion.

• Erin N. Kane highlighted continued cost reduction efforts targeting non-manpower fixed costs through a two-year program to be quantified in early 2026.
• Christopher Gramm disclosed that ammonium sulfate pre-buy advances are expected to provide a working capital tailwind supporting fourth-quarter free cash flow.
• Management stated that the company’s U.S.-focused sales mix—nearly 90% domestic—largely insulates it from first-order impacts of international tariffs.
• R&D and base CapEx projects remain prioritized over discretionary investments, according to management, while bonus depreciation incentives and new board appointees add further strategic support.

INDUSTRY GLOSSARY

• 45Q Tax Credits: U.S. federal incentives providing tax credits for carbon capture and sequestration activities.
• Granular Ammonium Sulfate: A value-added fertilizer form manufactured for improved handling, blending, and application in agriculture.
• Adjusted EBITDA: Earnings before interest, taxes, depreciation, and amortization, excluding specified items, used to assess operating performance.
• Fall Fill Program: Pre-season sales campaign for fertilizers allowing customers to secure product ahead of primary planting periods, typically with price or volume advantages.
• ERP (Enterprise Resource Planning) System: Integrated software platform designed to streamline and automate company-wide business processes and improve data management.

Full Conference Call Transcript

Erin N. 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 Inc. continued to navigate challenging industry dynamics in the third quarter with a focus on optimizing operational and commercial performance. Our team executed with agility and discipline as we seasonally entered a new fertilizer year in Plant Nutrients, with a strong fall fill program amid higher raw material input costs while continuing to realize the ongoing benefits from our sustained growth program.

Given the protracted downturn in Nylon solutions and demand softness in chemical intermediates, we are making the strategic choice to moderate production rates to manage inventory levels with a keen focus on free cash flow. Utilization across our integrated value chain was down roughly four percentage points sequentially from the second quarter to the third. Operationally, we experienced a site-wide electrical outage at our Chesterfield nylon plant in mid-September. While there was minimal impact to 3Q results, we did have an isolated fire upon restart that impacted one polymerization line of the plant and was fully contained. There were no injuries or environmental impacts, and the majority of our plant operations continue as normal.

So while we were already tactically opting to reduce production levels, this incident is expected to impact 4Q EBITDA by $7 million to $9 million, primarily related to the negative impact of unabsorbed fixed costs. On a positive note, our fourth-quarter planned plant turnaround centered around our sulfuric acid and oleum plant at Hopewell was completed successfully at the low end of our target range. While our domestic Nylon solution margins over benzene once again expanded year over year, we are seemingly operating in a lower-for-longer macro environment. In times of uncertainty, we are focused on delivering on controllable levers. This includes continued optimization of production output and sales volume mix while driving productivity to support through-cycle profitability.

Taking a disciplined approach to cash management is critical, reflected in our prioritization of base capital investment and anticipated tailwinds in 2026 from 45Q carbon capture tax credits and recent tax legislation. 2025 CapEx is now expected to be $120 million to $125 million, reflecting $30 million full-year cash conservation through refined risk-based prioritization and execution. Our select and targeted investments for growth are continuing to progress. The sustained growth program, which unlocks 200,000 tons of granular ammonium sulfate, has been favorably tracking roughly 15% below its capital budget, with the final two projects remaining to be completed over the next year.

In addition, our planned investment to upgrade our enterprise resource planning system went live in the third quarter, which will help streamline key processes across the organization while enhancing management tools and data analytics. Finally, we added two new members to our Board of Directors this past quarter, Dana O'Brien and Daryl Roberts. Their deep industry and professional backgrounds and proven expertise in global manufacturing will be invaluable to our Board's role in ensuring strong corporate governance practices and supporting the advancement of our strategic growth priorities. With that, I'll turn it over to Chris to discuss the financials.

Christopher Gramm: Thanks, Erin. I'm now on Slide four to discuss our results for the quarter. Sales of $374 million in the quarter decreased approximately 6% versus the prior year. Sales volume was approximately half of that change, driven primarily by softer demand in both chemical intermediates and nylon end markets. 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 approximately 2%, driven by continued strength in plant nutrients reflecting favorable North American ammonium sulfate supply and demand conditions. Adjusted EBITDA was $25 million, down $28 million from last year, while adjusted EBITDA margin was 6.6%.

The decline in earnings versus last year was primarily driven by a reduction in acetone price raw spreads as we anticipated. The impact of lower nylon and chemical intermediates sales and production volume and higher utility costs as a result of increasing natural gas prices. On a sequential basis compared to the second quarter, we saw nearly $20 million earnings decline due to typical ammonium sulfate seasonality with the start of the new fertilizer year. In addition, our results reflect the impact of moderated production rates amid softer demand for nylon solutions and chemical intermediates. Now let's turn to Slide five.

Erin N. Kane: Here we are illustrating our quarterly sales contributions by product line as well as price and volume breakdown, both year over year and sequentially. We believe this double click into the underlying dynamics of our financials provides insight into our commercial sales and performance. Plant Nutrients continues to positively stand out. While we navigated typical seasonal pricing considerations, our continued strong performance in Q3, including the higher year-over-year pricing of our fall fill program and favorable sales mix supported by our sustained growth program, are further proof points to the resiliency of software nutrition demand. Broader nylon markets continue to face pressure here in the U.S. and abroad.

However, domestic market-based pricing across nylon solutions is holding steady while raw materials pass-through pricing saw declines on lower benzene input prices. And lastly, acetone pricing has moderated as expected from the multi-year highs witnessed in 2024. Let's turn to Slide six. Our end market exposure remains a strategic advantage. It provides a source of diversification, which helps insulate the company from significant variability in any one industry, as demonstrated by our results in various environments. We have highlighted our exposure in descending order with agriculture and fertilizer at the top. This is an area that continues to grow.

We estimate software nutrition demand growing 3% to 4% per year on average, and where we are leveraging our expertise as leaders in this space. There continues to be robust acceptance of the software value proposition amid underlying increases in global nitrogen pricing, primarily driven by supply-side impacts. Given current corn futures, this is a reinforcement that the value chain believes in software to improve economics for the same acreage. We believe stock-to-use ratios globally continue to support fertilizer demand over the long term. Moving to building construction, dynamics here remain largely unchanged.

Across this end application, we have direct and indirect exposure across nylon and intermediates through flooring, oriented strand board, and paints and coatings, to name just a few. Our view is latent demand will build and begin to recover through 2026, assuming moderating interest rates going forward. Plastics does remain challenged, reflecting broader macro softness. We have previously communicated that the auto sector was a watch-out, including impacts of tariffs, uncertainty, and trade policy. We continue to see a drawdown in auto inventories as well as weakness across consumer durables and other industrial applications. Solvents likewise have been mixed. We've seen moderated growth into construction, pharmaceutical, and electronics industries.

In the semiconductor space, our nadon sales demand was down year over year in the third quarter but is anticipated to improve sequentially into 4Q and 2026. And lastly, we continue to monitor and track trends in food packaging, beef is the largest category. Nylon six is preferred here due to its excellent barrier properties and its puncture resistance. Inflationary pressure and tariffs are impacting demand in this space. Notwithstanding the relative resilience we are seeing in packaging. Let's move to slide seven.

Christopher Gramm: Cash flow generation remains a critical focus area for us. We believe it's important to view our business performance on a trailing twelve-month basis given the linearity considerations, primarily driven by the timing of the fertilizer season. Trailing twelve-month free cash flow through Q3 2025 is approximately breakeven, and we continue to target positive free cash flow for the full year of 2025. There are a number of levers that we're focused on to bolster, sustain, and improve cash flow generation moving forward, including working capital initiatives, risk-based prioritization of capital investments, cost productivity, and tax optimization. Our balance sheet is positioned to provide optionality and the ability to weather the challenging macro environment.

We expect strong free cash flow in the fourth quarter supported by working capital tailwinds, including the ammonium sulfate pre-buy cash advances. As Erin mentioned earlier, we're able to capture a roughly $30 million reduction to our full-year 2025 capital plan. We expect CapEx for 2026 to be in the range of $105 million to $135 million. We're also actively managing our cash tax rate, which we anticipate being below 10% over the few years supported by the continued progress on the 45Q carbon capture tax credits and 100% bonus depreciation. Now let's turn to Slide eight to wrap up before moving to Q and A.

Erin N. Kane: Our strategic initiatives, unique combination of assets, and business model are core to our durable competitive advantage and long-term positioning. Our global low-cost position and vertically integrated caprolactam production serve us well. In addition, ammonia and sulfuric acid platform integration coupled with a leading granular crystallization technology position underpins our sustained ammonium sulfate growth and how we win in Plant Nutrients. These capabilities combined with our asset utilization agility and product mix position us to navigate cycles and capitalize on emerging opportunities. 2025 has been a dynamic year, but we remain well-positioned as an American manufacturer of essential chemistries.

We have been operating with structural tariffs in place globally across our value chains for quite some time, so we are adept at navigating an environment like this. We are largely insulated from first-order impacts of reciprocal tariffs with nearly 90% of our sales in the U.S. and our key product lines in a net import industry position. Our U.S. footprint has allowed us to optimize our tax position with a meaningful impact on cash flow going forward. Recently, we've seen a number of industry actions with announced European capacity rationalization in phenol and acetone as well as caprolactam and ammonium sulfate.

We believe we're reaching an inflection point in several markets, and as we've discussed today, we're positioning ourselves to win long-term. With that, Adam, let's move to Q and A.

Adam Kressel: Thanks, Erin.

Rocco, can you please open the line for questions?

Operator: Of course. And our first question today comes from David Silver with Freedom Capital Markets. Please go ahead. Hello, Mr. Silver. Do you have any questions, sir? Is your line on mute perhaps?

David Silver: Yes, it was. I apologize. Thank you for that.

I always like to build up the suspense. There. Good morning, David. Good morning. And I apologize, let me just get a tiny bit organized here, sorry. Okay. So I did have a number of questions. I think first, I was hoping maybe you could provide a little additional color on the chemical intermediates market and pricing environment. So were the revenue declines and the margin pressures, was that primarily acetone or did the weakness extend to other key products or end markets? So maybe just a little more color on the fall-off in chemical intermediates results this quarter?

Erin N. Kane: Yes. Certainly. And we recognize that we provided some new formats here today and we did go ahead and include the specific line of business industry spreads and KPI updates in the appendices for reference. But yes, the acetone side, as you well know, David, represents roughly 50% of our sales in chemical intermediates. And we would characterize Q3 as really more in line with our expectations, right. As we headed into the year, we've been saying that we did expect phenol demand overall to remain subdued, right, that would keep acetone supply and demand balance, but that we were expecting that we would come off the highs of 2024 and certainly probably moderate back to cycle averages.

That's where we continue to see the market play out. Our portfolio is well balanced between small, medium, and large buyers that allow us quite a bit of flexibility to go where the value is in the market. And while the moves were significant kind of year over year, right, they are sort of moderating as we think about the adjustments to those cycle averages sequentially. When you look across the rest of the portfolio as you say, we hear in a number of other end markets whether it's electronics, paints and coatings, adhesives, you kind of think about ag chemicals, full space, in general, we would say that there's continued views of softness.

I think this is thematic what you're seeing across the entire chemical sector, not anything unique to us. We did call out semiconductor space and NATO on demand. We're seeing signs that's picking back up in Q4. With some no sight of improvement into 2026. So I'd like to say that there's opportunities in different places. We continue to stay focused in the right areas with favorable long-term trends and that's what we're seeing there on intermediate. Hopefully, that helps.

David Silver: Okay. Great. Thank you. I'm sorry, I should have reviewed the appendix page.

Erin N. Kane: No, but Detail is there. Okay.

David Silver: I would like to talk about the ammonium sulfate results this quarter. So the revenue number is quite striking. I believe that's your highest third-quarter revenue total ever. For that segment. And the summer quarter is typically, I guess, when you try to you typically sell a little bit more of the standard product and into international markets. But maybe just looking at the third-quarter results, I mean, there a disproportionate amount of products sold into the U.S. market or was there maybe some advanced purchasing? I mean, maybe just a little more color on the strength in ammonium sulfate?

Erin N. Kane: Yes. So as you point out, right, prior to, you know, the sustain program, that would have been, you know, the trend we would have expected sort of Q2 into Q3. For us now, right, the additional granular volume that we are producing coupled with a good fall, you know, pickup. We did have less standard to sell across the board, right? So that mix differential is not as perhaps I would say, mix consideration is not as great as it used to be. So certainly, 3Q year over year granular volume was up 20%, right?

And so again, that is really at the heart of the intent behind sustain and obviously with the year-over-year prices for fill up led to that revenue generation you saw.

David Silver: Okay, great. Next question would be probably about raw material cost trends. So you have cited some of the data again in the appendix slides, but sulfur as you noted continues to track upwards and natural gas has recently kind of shot up a bit maybe on anticipated winter demand here. Should we just assume that you are a spot market purchaser for the fourth quarter or would this would there be the case where maybe you were able to do some hedging or other pre-buying kind of ahead of the quarter.

So maybe just a sense of how we should look at spot market or the recent changes in some of your raw materials and the flow through to your fourth-quarter results?

Christopher Gramm: Yes. That's a great question. I would say generally we typically don't, you know, execute hedges on a regular basis. Sulfur is probably not as widely traded. And so the hedging process there would command a premium. But I think natural gas, generally, we've elected to not enter a hedging strategy. What we've seen from gas, obviously, from a year-over-year perspective that, you know, the price has gone up from let's say an average of $2.30 a Decatherm to $3.40 here this year. So obviously super sensitive to that watching for that. You know, most of these two molecules do end up in ammonium sulfate.

And while ammonium sulfate is generally based on value pricing, input cost does have a tendency to put pressure on the least marginal producers. So it does have some indirect effect I would say as well on particularly on the natural gas side with our formula pricing. That there is natural gas components there. And so even though we don't, let's say, execute a financial or synthetic hedge, we do have some coverage in our formula-based pricing in the nylon business as well. So hopefully that gives you sort of bit of color there, David, and kinda how we think about and react to some of these changes.

David Silver: Okay. Great. Maybe another one for Chris. But I was looking or hoping to get a bit of an update on the Section 45Q carbon capture credits that you've applied for and you may apply for in the future. So maybe just your sense of the timing for capturing I guess the first $20 million of credits that you've filed for, I guess, in the first half of the year. And then maybe is there an early read on what you may be filing for next year?

Christopher Gramm: Yes. No, that's a great question. Obviously, 45Q is a significant value driver for us. And just as a reminder, we perfected the 2018 claim last year. And 2019 and 2020. This year, based on those perfected claims we filed amended returns. Those amended returns, as you can imagine, trigger an audit process that we have to work through. We're confident based on all the upfront work that we've done both with the Department of Energy and with the IRS that will be successful through that audit process.

What I would say is due to the government shutdown, think the timing of when we would expect to receive the credits that we have applied for looks like that's going to be shifting to 2026. I would point out that our early comment on positive free cash flow for the 2025 year does take that shift into account. So we still believe we're gonna be positive free cash flow in 2025. We do expect the cumulative benefit once again for the $100 million and $120 million across the life of the program. Just as an update, we filed the 2021 life cycle assessment and that needs to be reviewed and approved by the Department of Energy and the IRS.

Under normal circumstances, that would take probably three to four months. So we're hoping that in short order, once things sort of get back to a bit normal that it wouldn't be too long till we get approval for that. So going to continue to obviously provide you updates as we move forward and move along, we continue to push the opportunity there and the progress as well.

David Silver: Okay. Thanks. And I think this one's also for Chris, but I have seen how your carbon capture credits flow through your income statement. Can you just remind me regarding bonus depreciation? Is that something that will impact your GAAP or GAAP and non-GAAP results? Is that something that strictly shows up on your tax filings? Just the impact of bonus depreciation is on how I should think about my estimates for next year. Does that impact them or is the impact solely going to be reflected on your tax base filings?

Christopher Gramm: Yes. No, great question. Just as a reminder, 100% bonus depreciation really affects our cash tax rate. So if you think about our effective tax rate, it looks at and tries to book the expected I'll call it tax consequences of what our U.S. GAAP financial statements are. So I would expect the changes in the one big beautiful Bill Act won't have a significant impact on the effective tax rate, but it does have a very significant impact on our cash tax rate. So and to just give you a little color, the biggest benefit on bonus depreciation is on acquired and placed in service assets, after January 19 of this year.

So the dollar benefit of projects that qualify for both of those is $2 million for the calendar year 2025. As we move forward to 2026, the benefit is going to grow as more of the projects qualify for those criteria. And we expect that number to be sort of mid in the high single digits from a cash tax basis. And we would expect 27% to be even larger than that. So hopefully, gives you a sense there of how it'll get expressed in the sort of the order of magnitude as we move forward.

David Silver: Okay. No. Very, very helpful. I did get my CPA, but it was a long time ago. Thank you for walking me through that lapse CPA. I know. I admit it.

Christopher Gramm: Yeah.

David Silver: All right. Yes. So this one, has to do with the last bullet point where you talk about inventory management and then you say cost reduction initiatives for 2026. And I think it was touched on briefly in the prepared remarks, but just wondering if you could maybe talk about some of the buckets that go into that category of cost reduction initiatives for 2026? Thank you.

Erin N. Kane: Sure. I mean, you would expect, our normal course focus on productivity includes things like optimizing yield certainly inflationary energy environments, energy utilization programs like this. Here specifically, David, we're programmatically setting up to really address non-manpower fixed costs. You may see this, you know, other companies when they announce these types of programs. We believe that there is a meaningful opportunity for us to I would say target that programmatically and that is what we are really pointing to here. So we would be in a position as we continue to set ourselves up for that.

It's likely a two-year type of a program, but in February, you know, we'd be happy to come back and certainly clarify and quantify what we expect to be our 2026 targets and sort of what our full run rate opportunity set would be for that program.

David Silver: Sure. Okay. All right. Very good. And let me just ask, but am I if I'm the only one here, just have one or two kind of additional questions, would that be okay or is there some if not, I can get back in the queue.

Erin N. Kane: Sure, David. Go ahead.

David Silver: Okay. Earlier this quarter, you did put out a press release regarding the I guess settlement over your intellectual property for, I guess, easy blocks. And I read the release with interest. I don't have it right in front of me, but I believe it was a settlement that your company considered satisfactory. And I was just wondering if qualitatively you might be able to discuss the nature of the settlement. In other words, are they going to be a new customer for you? Longer term or was there a monetary settlement? Just what was the nature of the settlement in that intellectual property dispute that you considered to your satisfaction?

Erin N. Kane: Yes. And this is I think, a win for us, obviously, when you spend the time talent and treasure to put good IP in place, want to protect it and you know, so we have been certainly defending that opportunity set for ourselves. And so we certainly were pleased that we were able to agree and sort of resolve the differences of opinion there with the various parties. And yes, with all agreements, there is some monetary settlement. You have an agreement relative to the patent use and upholding licensing from that regard.

But I think importantly here, it allows us to set up the right customer and distribution base that you know, is living by, you know, the, you know, the rightful upholding of the IP and allowing us to make sure that sort of importers that are coming from other regions of the world that are violating Sutter MP, you know, can be held at bay. So we do believe that ultimately this sets us up for increased sales as a result.

David Silver: Okay.

Adam Kressel: Thanks, David. Thank you.

Operator: And that does conclude our question and answer session. I'd like to turn the conference back over to Erin N. Kane for closing remarks.

Erin N. Kane: Thank you all again for your time and interest this morning. AdvanSix Inc. is a resilient company, and we are positioning ourselves to win long-term. We're navigating a challenging market environment with discipline and agility, continuing to make risk-adjusted investment decisions to support through-cycle profitability and sustainable performance. We're not just reacting to market conditions, we're shaping our future with a clear focus on value creation. And we're doing it with an integrated business model, durable competitive advantage, and a healthy balance sheet. With that, we look forward to speaking with you again next quarter. Stay safe and be well.

Operator: Thank you. That does conclude our conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful weekend.

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