AdvanSix (ASIX) Q4 2025 earnings call transcript

Thank you, Bailey. Good morning, and welcome to AdvanSix's fourth quarter 2025 earnings conference call. With me here today are President and CEO Aaron Kane and Interim CFO Chris Grant. 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 identified 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 fourth quarter and full year 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's President and CEO, Aaron Cain.

Thanks, Adam, and good morning, everyone. We appreciate you joining us here today for our quarterly call. As you saw in our press release, the AdvanSix team executed well to close out 2025. A great thanks to our organization for remaining focused on safely optimizing operational and commercial performance. We delivered a year adjusted EBITDA of $157 million and generated $6 million of free cash flow in a year characterized by continued cyclical trough market conditions for nylon solutions, robust plant nutrient supply and demand fundamentals amid an increasing input cost environment, and mixed chemical intermediates industry conditions with lower acetone net pricing as anticipated. While the macro environment has been challenging, there were a number of highlights over the past year to recognize.

We successfully executed our planned turnarounds at the low end of our target spend range. We delivered record annual production across both of our key ammonia and sulfuric acid unit operations. We invested $116 million in CapEx, funding key growth and enterprise initiatives, including our sustained growth program. We progressed tax strategies, claiming additional 452 carbon tax credits, received the final $26 million settlement proceeds in the first quarter 2025 related to the 2019 PES supplier shutdown claim, and we preserved our competitive dividend while maintaining conservative debt leverage levels and ample liquidity.

At the end of the year, we also welcomed Jeffrey Byrd to our board of directors. Jeff's breadth of experience and deep financial and operational leadership in complex industries will further strengthen our board's strategic oversight.

As we look ahead to 2026, the end market environment remains mixed overall. We anticipate continued strength in plant nutrients supply demand fundamentals and expect acetone margins to remain near cycle averages, while nylon remains plateaued in its troughs. Now, there have been several recent industry announcements pointing to capacity rationalization in the nylon chain and lower operating rates in China, which we believe should lead to more favorable supply and demand conditions over time.

Raw material input costs are expected to be a headwind, particularly in the first half of the year, on meaningfully higher sulfur and natural gas prices. As many well know, we recently navigated a significant winter storm across the country in mid-Atlantic. We are proud that we were successful in safely and continuously running our operations through these extreme temperature, ice, and snow conditions. Everyone at our operating sites came together to deliver this result. We did have to contend with natural gas restrictions, additional maintenance costs, and we elected to moderate operating rates, which was a necessary impact to maintain safe operations. In total, we anticipate roughly an $8 million to $10 million unfavorable earnings impact in the first quarter, which we do intend to fully offset as we progress through the year.

In this environment, we remain focused on controllable levers to support through-cycle profitability and cash conversion. This includes optimizing production output and sales volume mix, driving fixed cost reductions and productivity, maintaining a disciplined approach to cash management, and taking a risk-based approach to capital investment and plant turnaround scoping. Our strategic initiatives, unique combination of assets, and business model are core to our durable competitive advantage and long-term positioning.

With that, I'll turn to Chris to discuss the financials.

Thanks, Aaron. I'm now on slide four to discuss our results for the quarter. Sales of $360 million in the quarter increased by approximately 9% versus the prior year. Sales volume increased approximately 11%, driven primarily by the prior year impact of the Q424 extended planned turnaround. Market-based pricing was favorable by approximately 2%, driven by the continued strength in plant nutrients, reflecting favorable North American ammonium sulfate supply and demand conditions, partially offset by lower acetone prices as anticipated. Raw material pass-through pricing was down 4% following a cost decrease in benzene, which is a major input to cumene, our largest raw material, and key feedstock to our products.

Adjusted EBITDA was $25 million, up $15 million from last year, while adjusted EBITDA margin was 6.9%. The improvement in earnings versus last year was primarily driven by the favorable year-over-year sales volume and lower cost impact of plant turnarounds, partially offset by a decline in chemical intermediates pricing net of raw material costs. On a sequential basis compared to the third quarter, earnings were roughly flat as higher plant nutrient pricing was offset by increased sulfur and natural gas input costs, as well as the impact of the previously disclosed unplanned Chesterfield electrical outage and planned Hopewell turnaround.

Now let's turn to slide five. On this slide, we are detailing our quarterly sales contributions by product line, as well as price and volume indicators, both year over year and sequentially. We hope this view into the underlying dynamics of our financials provides better insight into our commercial sales performance. In Nylon Solutions, volumes decline sequentially as we moderate a capital actin and resin production rates to manage inventory in a softer demand environment. Domestic market-based pricing held relatively steady, while raw material pass-through pricing saw declines on lower benzene input prices.

Plant nutrients continue to perform exceptionally well, with strength in volume, pricing, and mix. Granule ammonium sulfate volumes increased year over year, supported by the resiliency of sulfur nutrition demand and continued progress of our sustained growth program. And lastly, chemical intermediates pricing was stable sequentially, but lower year-over-year, consistent with expectations as acetone pricing moderated from the multi-year highs experienced in 2024.

I'm now on slide six, where we've summarized our full-year 2025 financial results. They opened roughly flat year-over-year while we delivered a full-year adjusted EBITDA of $157 million and 90 basis points of margin expansion to 10.3%. Strong plant nutrients pricing and volume performance, in part supported by our sustained growth program, help to overcome higher natural gas and sulfur feedstock costs. continued trough market conditions for nylon solutions and lower acetone pricing over Ross.

I would also highlight that the strong fourth quarter performance supported positive free cash flow generation for the full year 2025.

On the bottom right portion of the slide, we've included a snapshot of our plant utilization across our three major facilities. At Hopewell, operating rates were roughly flat in 2025 on a year-over-year basis. As Aaron mentioned earlier, we delivered record annual production across both of our key ammonia and sulfuric acid unit operations at our Hopewell site, while continuing to optimize granular ammonium sulfate production.

At our Frankfurt phenol and acetone plant, utilization rate was up on improved performance year over year. At Chesterfield, operating rates were down high single digits. This reflects the strategic choice to moderate production and manage inventory levels, as well as the site-wide electrical outage and fire.

Thanks, Chris. I'm now on slide 7 to discuss our end market exposure and what we're seeing across our major product lines. Our diversified end market exposure continues to be a strategic advantage, providing resiliency across cycles. Agriculture and fertilizer remains our largest end market. Overall, we continue to see favorable ammonium sulfate supply and demand fundamentals, with sulfur nutrition demand growing approximately 3% to 4%. There is caution around crop prices and sensitivity to declining farmer profitability, in addition to higher sulfur input costs, which are impacting fertilizer margins. Sofa prices settled at nearly per long ton in the first quarter of 2026 That compares to per ton in the first quarter of 2025 and per ton last quarter so a meaningful increase that the industry is experiencing There continues to be a robust acceptance of the solver value proposition, with growers seeking to maximize crop yields.

In the first seven months of this fertilizer year, granular sales volume is up 10%. We continue to build upon last year's success and are on pace for another record year of sales growth. As the value chain has been preparing for the upcoming planting in spring, we are seeing inventory fill up in the channel, particularly with the impact of weather-related delays.

We're now seeing our first half order book shift more into the second quarter, when fertilizer typically moves very quickly through the chain to the fields. While there is risk to our first quarter plan volume, we also view this as an opportunity to place more tons in the second quarter when we traditionally see the highest in season pricing.

To put this into historical context, at this point in the year, we're typically sold out several months in advance, meaning that pricing for the first quarter shipments is based on the back half of the prior year, and the second quarter shipments largely reflect first quarter pricing. This year, given the considerations around anticipated acceleration of input costs, expectations for corn acres planted, and tight domestic fertilizer supply, we engaged in a more limited pre-buy program and have taken a more cautious and patient approach to the order book. By not selling forward, our average price in the order book is above last year's pricing and much closer to current published pricing without the historical lag.

Moving to building construction, dynamics here remain largely unchanged. We have direct and indirect exposure across nylon and chemical intermediates through flooring, oriented strand board, and paints and coatings to name a few. Our view is that latent demand will build and begin to recover through 2026, assuming moderating interest rates going forward. Third-party estimates indicate approximately 3% commercial construction growth anticipated in 2026. For nylon fiber and filament in particular, we see a stronger presence in commercial applications such as office, hospitality, and leisure.

Broadly across nylon solutions, the industry remains an extended trough. Pricing has stabilized domestically with margins supported by lower benzene input costs. However, demand remains muted across construction, automotive, food packaging, and broader industrial applications. As I mentioned earlier, encouragingly, we are seeing increased evidence of capacity rationalization in Europe and lower operating rates in China, which again should support more balanced supply and demand conditions over time.

In chemical intermediates, phenol demand remains weak overall, driving lower global operating rates and supporting more balanced acetone supply and demand dynamics. While last-term margins have moderated, they remain near cycle averages. Downstream MMA demand is improving following planned and unplanned downtime in the fourth quarter of 2025.

In addition, we note that the refinery-grade propylene pricing marker is being discontinued in 2026, and the industry is moving to buying Q-mean on a polymer-grade propylene minus pricing construct.

Lastly, as of January, the Commerce Department and International Trade Commission made final determinations to renew the anti-dumping duties for acetone into the U. S. for another five years. Let's move to slide eight.

As we look ahead to the remainder of 2026, our strategic priorities remain clear. We're focused on bolstering sustainable cash flow generation through risk-based prioritization of capital investments, cost productivity, tax optimization, and commercial and operational execution. Our balance sheet is positioned to provide optionality and the ability to weather the challenging macro environment with leverage exiting 2025 at approximately 1.2 times net debt to adjusted EBITDA. Starting with CapEx, we're expecting to spend in the range of $75 to $95 million in 2026, compared to $116 million in 2025.

This reduction reflects a rigorous evaluation and risk-based assessment of base investments and enterprise programs with continued progression of growth projects, including our sustained growth program. We anticipate a similar range of investment in 2027 as well, as we prioritize capital based on compliance, risk, and reliability assessments and efficiency improvements. We've also taken a refined risk-based approach to our planned turnaround schedule in 2026. While it is an ammonia turnaround year at Hopewell, we've reduced the scope of these activities, focusing on critical maintenance and compliance areas. In total, we now anticipate the pre-tax income impact of plant turnarounds to be in the range of $20 to $25 million.

The majority of the spend will be in the second quarter this year, as we necessarily aligned our work with planned natural gas pipeline maintenance already scheduled by our vendor partners.

As we previewed on our last earnings call, we are embarking on a non-manpower fixed-cost takeout initiative, which is expected to support margin resilience. Supported by our recent ERP upgrades and enhanced management tools and data analytics, this multi-year productivity program targets approximately $30 million of annual run rate cost savings.

From an execution perspective, we remain focused on optimizing production output, inventories, and sales volume mix, while remaining nimble to capture market opportunity in the areas that are most profitable.

We are also actively managing our cash tax rate, which we anticipate being below 10% this year. Lastly, all of these contributing items support expected meaningful improvement in free cash flow for the year. As a reminder, our linearity consistent with past years will represent a first-half use of cash primarily due to the unwinding of cash advances, the run rate of cash payments on capex, and timing of annual payments. Conversely, we anticipate the second half to be a source of cash to achieve our full-year expectations. Let's turn to slide 9 before moving to Q&A. We believe that AdvanSix offers a compelling investment thesis with several value drivers supporting through-cycle profitability and sustainable performance.

Our leading U. S. -based position, Advantage Value Chain and Business Model, provide inherent competitive advantages. We're aligned to a diverse set of end-market applications, including roughly 40% of our revenue tied to underlying strong agricultural fundamentals. Our ammonia-sulfuric acid platform integration, coupled with leading granular crystallization technology, underpins our 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. With disciplined capital allocation, a healthy balance sheet, and a keen focus on productivity and free cash flow generation, we believe we have the flexibility and resilience to navigate current market conditions and create long-term shareholder value.

With that, Adam, let's move to Q&A.

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

Sure. Sure. Yeah, so let's touch on Europe because I think that certainly is the area where, you know, as you mentioned, Fibrant has already reported, you know, their intention to shut down. You know, Europe remains structurally long relative to its demand, and utilization has been, you know, hovering 50, 60-type percent. And so there's a Fibrant announcement. Domo is also operating in insolvency. And so while not announced, I think there is a watch out there in consideration on their long-term prospects. To put in perspective, if they both were to exit operating rates in Europe on a capital-actam perspective would certainly move up into the 80s range, right, albeit on lower output relative to the full regional capacity, but much more in line from a structured supply-demand fundamental that would ultimately, We support pricing, you know, we think by a couple hundred dollars, you know, per metric ton.

So that's Europe. In China, you know, there are also reports that they are, you know, managing their operating rate, if you will, you know, in the country. We have seen their rates come down in the fourth quarter operating anywhere from the high 60s to mid range which certainly goes a long way to the global oversupply if you will We actually see that reported in constrained ammonium sulfate coming out of the country as well So at the end these are things that are pointing to that direction because obviously the monomer caprolactam is the key starting point for the nylon chain And so when you think about sort of just the overall health of the end markets, you know, it's hard to say.

Certainly on a global basis, you know, building construction, North America building construction continues to be challenged. You know, here that impacts, you know, fiber and filament into carpet. Globally automotive, you know, would be a contributor to engineering plastics, you know, challenges in its demand. And then, you know, in the U. S. on packaging, you know, again, just a little bit more challenged.

Main applications here in, you know, meat and cheese, you know, protective packaging, and you still see some rather, you know, inflationary pressures on red meat that are, you know, impacting, you know, demand there. So, again, pointing in the right direction, we're always looking for, you know, these green shoots, if you will. You know, and I think certainly it appears that perhaps we're at an inflection point for this movement.

Yeah, certainly, you know, we're sitting at nearly 20-year highs for sulfur prices right now, too. So to your point, you know, perhaps they're predictable until they're not predictable. They're not interesting until they become interesting. And, you know, a similar type surge has happened twice before 2008, 2022. You know, and in both times, prices dropped precipitously, you know, in the following sort of six months.

You know, we will note that the first Q settlement was delayed, you know, I think as negotiations were extended, you know, in response to sort of the, you know, perhaps bid ask on the global pricing, you know, basis. Relative to supply demand, I think they both contribute to the current level of pricing. The industry has seen stronger demand in ag and global mining, but we've also seen supply constraints in the U. S. Gulf and lower output in other regions that is certainly contributing to the global prices. So, you know, that international market where we watch the spot, you know, prices have sustained $500 plus offer since, you know, 4Q of, you know, 2025.

You know, we would note at these levels, certainly we don't participate in this space, but, you know, noticing that there is, you know, mentioning now of, you know, phosphate demand destruction, you know, in the industry, right, which would also, again, in just the, you know, supply demand consideration, you know, I'm not sure if it's going to contribute to the expectation that we would see sulfur, believed, to come off across 2026, right? But as you know, it's hard to predict the exact timing there.

No, we contract with a number of suppliers to make sure that we have ample access, and so at this point we do not have any concern in that regard.

Yeah, thanks for the question, Dave. I would say, yeah, obviously we keep an important eye on what's happening in the 45Q credits arena, arena because they are collectively worth $100 million plus to us over the next several years.

So let me take your maybe two questions sequentially here. On the endangerment finding, does that have an impact on the 45Q? And I think the simple answer there is no. And what is probably helpful is to think about it in two frameworks. One is the EPA framework, and the other is on the tax law framework. So, the endangerment finding from an EPA perspective defines what types of air emissions are subject to the EPA's oversight, and the endangerment finding here would, you know, have an impact on the EPA around air permits and air emissions itself, whereas the 45Q is based in tax law. So, in fact, you know, these things are generally separate. In fact, 45Q predates the endangerment finding, and 45Q has had strong bipartisan support since its creation.

In fact, recently in the One Big Beautiful Bill Act, there was strong support for the 45Q, particularly around utilization, and we saw that in which the credit rate was actually increased and is now on par with permanent sequestration. Equestration. So the answer there is that we still see the 45Q carbon credits being available to us moving forward, and we don't see a lot of risk with that. In terms of what we think we can expect, just as a reminder, we have to go through a process where we get approval on the lifecycle assessments from the Department of Energy. And then once that's approved, we can go ahead and claim the credits. As a reminder, we've already been approved and have claimed the credits for years 18 through 20.

For 2021 life cycle assessment, we filed that with the Department of Energy in August of 25, and we've been working with them to answer their questions and sort of help them through the application. Upon approval of that credit, those approvals are typically good for a three-year cycle, and we would expect that each of those three years is worth about $6 million or so. And as we sort of continue to work through this process and catch up to sort of the real time, we would expect that we'd be able to book those three years. So an $18 million impact for 26, once again, subject to the Department of Energy's approval of our lifecycle. But we're confident in our position, and we're working with them on the claim and the approval.

Are they in the 4Q results or anything Sorry your December 31st balance sheets Sorry Yeah no that a good question So the record is in the P across 24 and 25 We are still in order to receive the refund we have to work through the audits and the audits for those particular years have started It's obviously subject a bit to the IRS's resource and workload, but we're working through it with them. Once we get through the audits, obviously there's a bit of an approval process that has to happen. And so we have available resources to support the audit and answer all the questions, but it's a bit of a process that's a little bit out of our control.

But I think we have the resources committed to make this process move as expeditially as possible. So we haven't received them yet, but I do believe we would expect them this year.

Yes.

I appreciate the question and the call out. Obviously, these are two critical assets that are key to our platform integration. The rates and the performance in these assets have continued to improve over time. We've had a keen focus, and I think this is a demonstrative proof point to how we have put forth our repair maintenance, capital investments, and our preventative maintenance programs overall. We have a plan to continue to identify what I would call more incremental gene bottlenecking areas that are contributing as well to these two key assets in our footprint. I would say our currently disclosed capacities are still great to use as a reference point. We will continue to assess if we need to update those.

But I would also say part of our opportunity set and differentiation is we have the ability to monetize additional profitable volumes off of these assets that don't move downstream into the caprolactam process. That continues to be a key focus for us as well. So, all of that contributed to, you know, certainly in this environment, you know, our core strategic, you know, effort is to, you know, place molecules into the most profitable areas of opportunity. And, you know, the plants did, you know, a great job, those teams, to, you know, to reach these records. And, you know, importantly, SAP did it in a turnaround year. So, you know, great kudos to them.

Okay, great. I'll stop there. Thank you very much for all the detail, all the color. Great.

Yeah, so, you know, I think we are seeing, you know, pretty significant increases with sulfur almost at $500 a ton, and natural gas also going up kind of the $300 decatherm range. We are implementing a number of price increases across really the entire portfolio. What we are sensitive to is in, I think, the ammonium sulfate space. There's a bit of probably a gap in terms of the net raw material price impact probably in the five to six, seven. And then similarly in nylon, I think the pricing there is probably stronger correlated with benzene. So we are moving prices up there as well, but we are seeing a bit of margin compression versus natural gas. So, you know, probably overall we're probably seeing sequentially some margin challenges probably in the, you know, the $10 to sort of $15 million range.

Yeah, so we go back to sort of the fundamentals on ammonium sulfate. Certainly, we have the nitrogen baseline, right? So to that extent, the entire nitrogen market is experiencing the increase in natural gas prices. And so, you know, that nutrient value, you know, as you probably have seen in other spaces, urea, you know, has continued to move up, you know, as well, particularly as we're, you know, heading into the season. So that sets the base. And then, obviously, we have to price for the premium of sulfur.

And, you know, certainly, you know, we are seeing industry prices move up mostly in line with sulfur. If you think about our posting and latest pricing, it moved up $50 several weeks ago, another $10 more recently. So again, trying to work in lockstep where we can accordingly. You know, again, the largest sort of fertilizer that takes offer is phosphates, right? And certainly, you know, that, as I mentioned before, has some consideration relative to their outlook. But, you know, we're trying to take all things into consideration, right? Lots comes into play as to sort of what the pricing power is, future crop prices, farmer profitability, you know, acres planted, you know, ultimately, you know, how the weather is going to, you know, allow the We're doing everything that we do in our playbook relative to positioning material into the chain and getting ready for the season.

Yeah, no, so it's recognized that it probably looks different than certainly history. As we mentioned, we have our natural gas pipeline that comes into the plant requiring some maintenance and inspections by our vendors. So we necessarily had to align, and ideally we would align to, you know, the timing of which that takes, right? So it allowed us to come back through and risk prioritize, again, focusing on, you know, key compliance considerations, you know, and the necessary preventative maintenance. And so that's kind of the real drivers here. Overall, we are taking a look in general at our global turnaround strategies and what that really entails. Obviously, we've talked a lot about the importance of the ammonia plant and the sulfuric acid plant, key to our success, but I think there are potentially some opportunities to look at those in light as we go forward.

So, we'll have to come back and kind of, you know, share as we go forward. But, you know, we're really not foregoing anything that we believe is critical at this time, right, to sustain our operations.

Thank you all again for your time and interest this morning. We are confident in our demonstrated ability to perform through a multitude of environments and are positioning the enterprise to win long term. This is supported by our integrated business model, durable competitive advantage, healthy balance sheet, and continued risk-adjusted investment decisions to drive through cycle performance.

With that, we look forward to speaking with you again next quarter. Stay safe and be well.