AdvanSix Announces Third Quarter 2016 Financial Results

AdvanSix (NYSE:ASIX) today announced its financial results for the third quarter ending September 30, 2016:

3Q 2016 Highlights
  • Continued volume growth across all three product lines, with sales volume up 4% versus the prior year
  • Capital Expenditures of $17.6 million, down $5.1 million versus the prior year
  • Free Cash Flow of $7.0 million, an increase of $6.3 million versus the prior year
  • Selling, General and Administrative expense of $11.7 million, or 3.6% of sales
  • Company successfully began regular way trading on October 3, 2016 on the NYSE

"AdvanSix delivered a solid quarter, highlighted by continued improvement in production output across our key manufacturing sites and resulting sales volume growth, while successfully spinning as an independently traded public company," said AdvanSix President and CEO Erin Kane. "Our focus on safe operations, reliable supply to customers, and productivity discipline remained at the forefront, as we prepared for this key next chapter."

3Q 2016 Results
                 
( $ Thousands, Except Earnings Per Share) 3Q 2015 3Q 2016 Change
Sales 335,874 323,953 (4%)
Income Before Taxes 32,095 27,802 (13%)
Net Income 20,411 16,460 (19%)
Earnings Per Share $0.67 $0.54 (19%)
EBITDA (1) 40,082 38,109 (5%)
EBITDA Margin % (1) 11.9% 11.8% (10) bps
Cash Flow from Operations 23,421 24,614 5%
Free Cash Flow (1)(2) 775 7,047 N/A
 

(1) See "Non-GAAP Measures" included in this press release for non-GAAP reconciliations

(2) Net cash provided by operating activities less capital expenditures

Sales volumes in the quarter increased by 4%, with continued strong operational performance year-over-year at each of our key manufacturing sites. While the volume increase in the quarter nearly mitigated the 5% unfavorable impact of market based pricing, revenues overall decreased to $324 million from $336 million in the third quarter of 2015 including lower raw materials pass-through pricing.

Sales by product line represented the following approximate percentage of our total sales:

     

3Q 2015
     

3Q 2016
Nylon Resins 28 % 29 %
Caprolactam 18 % 16 %
Ammonium Sulfate Fertilizers 24 % 22 %
Chemical Intermediates 30 % 33 %

EBITDA of $38.1 million decreased 5% from the prior year as improved production and sales volume and continued productivity were more than offset by the unfavorable impact of market based pricing. EBITDA margins were sustained year-over-year at nearly 12%.

Recent Trends and Outlook

  • Caprolactam capacity rationalization expected to rebalance supply and demand in North America, while global industry utilization rates remain low
  • Nitrogen fertilizer prices declining throughout 2016 with recent stabilization; Weak fundamentals ahead of 2016/2017 season
  • Capital Expenditures are expected to be approximately $90 million for the full year 2016

On October 31, 2016, the Company announced that its planned fourth quarter turnaround activities would be extended due to additional, unplanned maintenance of its ammonia plant within its Hopewell, VA facility. Solid progress is being made on the repairs and the Company continues to work with its customers and suppliers to mitigate the impact of the extended outage. All three sites are currently operating, and the Company expects to be at full rates on or around November 21, 2016. As a result of this incremental extended outage, the Company expects the impact to fourth quarter 2016 pre-tax income to be in the range of $20 to $25 million, inclusive of lost sales, reduced fixed cost absorption, additional raw material costs, and repair expenses. The fourth quarter plant turnaround activities had no adverse impact on third quarter 2016 financial results.

"Looking forward, we will operate conservatively as end market fundamentals remain dynamic across our major product lines," continued Kane. "While the unplanned incremental cost of the fourth quarter outage is a key factor to our near term performance, we remain confident in our sustainable cost-advantaged position, and the resiliency and strength of our portfolio. With the strategic focus as an independent company, we are positioned to achieve margin expansion and free cash flow improvement over the long-term."

Conference Call Information

AdvanSix will discuss its results and an update to its previously disclosed fourth quarter turnaround activities during its investor conference call today starting at 9:00 a.m. EST. To participate on the conference call, please dial (866) 807-9684 (domestic) or (412) 317-5415 (international) approximately ten minutes before the 9:00 a.m. EST start. Please mention to the operator that you are dialing in for AdvanSix's third quarter 2016 earnings call. The live webcast of the investor call as well as related presentation materials can be accessed at http://investors.advan6.com. Investors can hear a replay of the conference call from 12:00 p.m. EST, November 10, until 12:00 p.m. EST, November 17, by dialing (877) 344-7529 (domestic) or (412) 317-0088 (international). The access code is 10095033.

About AdvanSix

AdvanSix is a leading manufacturer of Nylon 6, a polymer resin which is a synthetic material used by our customers to produce engineered plastics, fibers, filaments and films that, in turn, are used in such end-products as automotive and electronic components, carpets, sports apparel, fishing nets and food and industrial packaging. As a result of our backward integration and the configuration of our manufacturing facilities, we also sell caprolactam, ammonium sulfate fertilizer, acetone and other intermediate chemicals, all of which are produced as part of the Nylon 6 resin manufacturing process. More information on AdvanSix can be found at http://www.advan6.com.

Forward Looking Statements

This release 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. 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 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; loss of significant customer relationships; protection of our intellectual property and proprietary information; 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 release. 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 Registration Statement on Form 10.

Non-GAAP Financial Measures

This press release 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 this press release. Investors are urged to consider carefully the comparable GAAP measures and the reconciliations to those measures provided. Non-GAAP measures in this press release may be calculated in a way that is not comparable to similarly-titled measures reported by other companies.
AdvanSix Inc.
Consolidated Balance Sheets
(Unaudited; in thousands, except share and per share amounts)
             

September 30,
December 31,
2016 2015
Assets
Current assets:
Cash and cash equivalents $ 37,964 $ -
Accounts and other receivables - net 148,583 127,545
Inventories 136,650 150,231
Other current assets   5,051     4,443  
Total current assets 328,248 282,219
 
Property, plant, equipment - net 551,578 527,542
Goodwill 15,005 15,005
Other assets   28,043     16,220  
Total assets $ 922,874   $ 840,986  
 
Liabilities
Current liabilities:
Accounts payable $ 190,228 $ 192,733
Accrued liabilities 15,425 25,114
Deferred income and customer advances   1,705     25,207  
Total current liabilities 207,358 243,054
 
Deferred income taxes 130,678 114,910
Long-term debt 308,230 -
Postretirement benefit obligations 34,935 -
Other liabilities   4,205     3,952  
Total liabilities 685,406 361,916
 
Equity

Common stock, par value $0.01; 200,000,000 shares authorized and 30,482,966shares issued and outstanding
305 -

Preferred stock, par value $0.01; 50,000,000 shares authorized and 0 shares issuedand outstanding
- -
Additional paid in capital 242,254 -
Retained earnings - -
Invested equity - 482,809
Accumulated other comprehensive loss   (5,091 )   (3,739 )
Total equity   237,468     479,070  
Total liabilities and equity $ 922,874   $ 840,986  
 
     
AdvanSix Inc.
Consolidated Statements of Operations
(Unaudited; in thousands, except share and per share amounts)
             
Three Months Ended September 30, Nine Months Ended September 30,

2016

2015

2016

2015
Sales $ 323,953 $ 335,874 $ 932,201 $ 1,013,544
 
Costs, expenses and other:
Costs of goods sold 285,091 289,985 804,471 900,194
Selling, general and administrative expenses 11,695 14,609 33,949 39,204
Other non-operating, net   (635 )   (815 )   (1,792 )   (2,014 )
296,151 303,779 836,628 937,384
 
Income before taxes 27,802 32,095 95,573 76,160
Income taxes   11,342     11,684     36,712     27,722  
Net income $ 16,460   $ 20,411   $ 58,861   $ 48,438  
 
Earnings per common share
Basic $ 0.54 $ 0.67 $ 1.93 $ 1.59
Diluted $ 0.54 $ 0.67 $ 1.93 $ 1.59
 
Weighted average common shares outstanding
Basic 30,482,966 30,482,966 30,482,966 30,482,966
Diluted 30,482,966 30,482,966 30,482,966 30,482,966
 
     
AdvanSix Inc.

Consolidated Statements of Cash Flows
(Unaudited; in thousands)
 
   

Three Months Ended September 30,
     

Nine Months Ended September 30,

2016
 

2015

2016
 

2015
Cash flows from operating activities:
Net income $ 16,460 $ 20,411 $ 58,861 $ 48,438

Adjustments to reconcile net income to net cash (used for) provided by
operating activities:
Depreciation and amortization 10,307 7,987 29,964 27,376
Loss on sale of assets 630 78 1,246 1,035
Deferred income taxes 4,510 2,671 29,206 7,629
Changes in assets and liabilities:

 

 

 

 
Accounts and other receivables (5,344 ) 28,834 (20,117 ) 40,175
Inventories (2,346 ) (20,936 ) 13,581 16,539
Accounts payable 3,698 (8,682 ) (161 ) (34,513 )
Accrued liabilities (2,788 ) (1,110 ) (9,690 ) (3,183 )
Deferred income and customer advances (966 ) (413 ) (23,501 ) (28,640 )
Other assets and liabilities   453     (5,419 )   (12,922 )   (5,008 )
Net cash provided by operating activities   24,614     23,421     66,467     69,848  
 
Cash flows from investing activities:
Expenditures for property, plant and equipment (17,567 ) (22,646 ) (56,859 ) (67,898 )
Other investing activities   (133 )   (219 )   (461 )   (563 )
Net cash (used for) investing activities   (17,700 )   (22,865 )   (57,320 )   (68,461 )
 
Cash flow from financing activities:
Proceeds from long term debt 270,000 - 270,000 -
Payment of debt issuance costs (1,770 ) - (1,770 ) -
Borrowings under revolving credit facility 40,000 - 40,000 -
Payment of revolving credit facility fees (1,016 ) - (1,016 ) -
Distribution to Honeywell in connection with the Spin-Off (269,347 ) - (269,347 ) -
Net increase (decrease) in invested equity (6,817 ) (556 ) (9,050 ) (1,181 )
Other financing activities   -     -     -     (206 )
Net cash provided by (used for) financing activities   31,050     (556 )   28,817     (1,387 )
 
Net increase/(decrease) in cash and cash equivalents 37,964 - 37,964 -
Cash and cash equivalents at beginning of period   -     -     -     -  
Cash and cash equivalents at the end of period $ 37,964   $ -   $ 37,964   $ -  
 
 
AdvanSix Inc.
Non-GAAP Measures
(Unaudited; in thousands)
 
Reconciliation of Net Cash Provided by Operating Activities to Free Cash Flow
 
       

Three Months Ended September 30,
   

Nine Months Ended September 30,
  2016       2015     2016       2015  
 
Net Cash Provided by Operating Activities $ 24,614 $ 23,421 $ 66,467 $ 69,848
Expenditures for Property, Plant and Equipment   (17,567 )   (22,646 )   (56,859 )   (67,898 )
Free Cash Flow (1) $ 7,047   $ 775   $ 9,608   $ 1,950  
 

(1) Free Cash Flow is defined as Net Cash provided by Operating Activities less Capital Expenditures

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.
 
Reconciliation of Net Income to EBITDA
                 

Three Months Ended September 30,

Nine Months Ended September 30,

2016

2015

2016

2015
 
Net Income $ 16,460 $ 20,411 $ 58,861 $ 48,438
Income Taxes 11,342 11,684 36,712 27,722
Depreciation and Amortization   10,307     7,987     29,964     27,376  
EBITDA (2) $ 38,109   $ 40,082   $ 125,537   $ 103,536  
 
Sales $ 323,953   $ 335,874   $ 932,201   $ 1,013,544  
EBITDA Margin (3)   11.8%   11.9%   13.5%   10.2%
 

(2) EBITDA is defined as Net Income before Interest, Income Taxes, Depreciation and Amortization

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

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 the non-GAAP measures exclude items that are not considered core to the Company's operations.

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