AdvanSix Inc. (ASIX) Q4 2017 Earnings Report, Transcript and Summary

Good morning and welcome to the AdvanSix Fourth Quarter 2017 Earnings conference call. All participants will be in listen-only mode. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Adam Kressel. Please go ahead.

Thank you, Brandon. Good morning and welcome to AdvanSix’s fourth quarter 2017 earnings conference call. With me here today are President and CEO, Erin Kane, and Senior Vice President and CFO, Michael Preston. This call and webcast, including any non-GAAP reconciliations, are available on our website at investors.advansix.com. Note that elements of this presentation contained 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 identify the principle risks and uncertainties that affect our performance in our SEC filings, including our annual report on Form 10-K. This morning, we’ll review our financial results for the fourth quarter and full year 2017 provide an update on our planned performance and share with you 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, Erin Kane.

Thanks Adam, and good morning everyone. Thank you for joining us and for your continued interest in AdvanSix. As you saw in our press release, AdvanSix delivered another strong quarter to cap off a terrific 2017 that was highlighted by higher sales volume, margin expansion and improved cash flow generation. Mike will detail the full results in a moment, but I’d like to highlight the following. Sales for the year reached $1.5 billion, with both higher volume and pricing contributing to the improvement. We generated over $200 million of EBITDA in 2017, a significant increase from the prior year, and expanded margins by 550 basis points. And lastly, our cash generation continued to improve with $48 million of free cash flow for the year, up over $18 million versus 2016. We have generated nearly $70 million of free cash flow since the spinoff. We completed our planned turnaround in the fourth quarter on time and on budget. And our safety performance continues to improve, while production output reached record highs during the year in various production areas. Our operational excellence and safe and stable production discipline continue to be critical to our performance. It is an exciting time in AdvanSix. While we’re maintaining our rigorous commitment to operational excellence, we’re also highly focused on leveraging our R&D investments and building application development capabilities to drive higher-value products. We’re still in the early days, but have achieved commercial success with our copolymer resin and engineering process applications as well as our EZ-BLOX anti-skinning agent, which optimizes the performance of alkyd paints, and is becoming more widely adopted as the safe and cost-effective drop and replacement to meet environmental regulation. We’re differentiating our distribution model across parts of our portfolio as well. Acetone is a great example of this, as our extended terminal network enables us to reach more end customers safely and efficiently by a barge, rail or truck. We are also significant beneficiaries of the recent passage of tax reform. We’ll spend more time highlighting the impact later in the call, but overall see a favorable impact on net income and cash flow, which further positions us to generate incremental value. I’m also pleased to report that the weather-related production issues we experienced earlier in the first quarter are now behind us and resolved, as expected. We expect a roughly $30 million impact to pretax income in the first quarter of 2018 as a result of the temporary unplanned interruption, which was on the low end of the range we’ve previously communicated. I would like to expressly thank our employees, who worked diligently over the past several weeks to safely return our operations to standard, and, importantly, recognize and thank our customers for their cooperation and partnership that they offer during this time as well. Although the event is a near-term consideration for our first quarter results, the underlying prospects and performance of our business hasn’t changed. Our leading cost position is serving us well for the dynamics of our end markets. We’re highly focused on safe operational output, and we’re driving continued strong working capital performance and improved cash flow generation. We’re encouraged by our expectations for robust operational performance, coupled with the prospects of the current supply and demand environment to continue. While we’re still cautious on agricultural fundamentals, as we’re seeing some – although we are seeing some Q1 firming of price to the early part of the spring planting season here, we do expect, though the improved conditions across are now on the chemical intermediates product lines to continue in 2018. We’re also maintaining a capital structure that enables financial flexibility and optionality to drive value for our shareholders. We announced this morning that we’ve entered into an amended credit facility with an all-revolver structure at lower borrowing costs, reflecting more favorable credit market conditions. As we highlighted in our last call, we see ample opportunities for incremental deployment of capital beyond our base CapEx, with high return organic growth and cost savings investments that will further debottleneck specific areas of our operations, optimize quality and improve our mix and cost position overall. This includes about $20 million to $30 million of incremental CapEx plan for 2018, with a healthy pipeline of projects that extend beyond these investments. I’m extremely proud of what our organization has accomplished in its first full year as an independent company, and I’m even more excited about what the future has to offer. The momentum of 2017 will serve us well, and we remain confident in our ability to create value over the long term. So with that, I’ll turn it over to Mike to discuss the details of the quarter.

Thanks, Erin, and good morning, everyone. For those of you on the phone, I’m now on Slide 4. And there, I’ll cover the fourth quarter financial results. As Erin indicated, we closed out the year with another very strong quarter. Sales came in at $370 million, and that’s up 43% compared to last year. Volume was up 25% due to improved plant production and the impact of unplanned downtime in the fourth quarter of 2016. Pricing also contributed to the top line, increasing 18% overall, and that included a 2% favorable impact from market-based pricing and a 16% benefit from the pass-through of higher raw material costs. We saw favorable industry supply and demand conditions in our nylon, caprolactam and chemical intermediate product lines. As for raw material pass-through pricing, benzene and propylene, which are both oil derivatives and inputs to our key feedstock humin, both of those increased significantly year-over-year. EBITDA was $39 million in the quarter, an increase significantly versus the prior year, driven by higher production and sales volume and the favorable impact of market-based pricing. During the quarter, we successfully completed our planned turnaround at Hopewell, which resulted in an approximately $20 million unfavorable impact to pretax income in the quarter, as we expected. We also realized in the quarter a noncash $4 million favorable pretax income impact from a LIFO inventory reserve adjustment. In all, a very strong quarter unto itself, even when you net the unfavorable impact of the fourth quarter 2016 unplanned events of $44 million. As a result of the strong underlying operational performance, net income and EPS also increased significantly. The results this quarter included an approximately $53 million onetime net tax benefit to reflect the Tax Cuts and Jobs Act, primarily related to the remeasurement of the net deferred tax liability at a lower corporate tax rate. Finally, we generated approximately $17 million of free cash flow in the quarter. That’s down about $3 million from the prior year period, with higher net income and lower CapEx generally offset by working capital timing as a result of the unplanned outages in the fourth quarter of 2016. Okay, now I’m on Slide 5, where we’ve highlighted our reported results for the quarter as well as net income and EPS, excluding the onetime net tax benefit. As I mentioned, as a result of the Tax Cuts And Jobs Act, we recorded a roughly $53 million onetime net tax benefit in the fourth quarter, primarily related to the remeasurement of our net deferred tax liability at a lower corporate tax rate of 21% from 35% previously. Excluding the onetime net tax benefit, net income would have been approximately $19 million in the quarter, while EPS would have been $0.60 per share. Importantly, the reduction in our net deferred tax liability reduces our future cash tax obligation, which is a significant positive for us. Now let’s turn to Slide 6 with a brief recap of the full year 2017 results. The fourth quarter results were very much a reflection of how we performed on a full year basis. Plant production output, margin expansion, earnings growth and cash flow generation all improved significantly in 2017. Sales came in at $1.5 billion, as Erin mentioned, with strong contributions from both volume and price, including a 3% increase in market pricing. EBITDA of over $200 million more than doubled the prior year, with EBITDA margin expansion of 550 basis points to 13.6%. Net income of $147 million translated into earnings per share of $4.72. Excluding the onetime net tax benefit, EPS increased $1.88 or 168% versus the prior year. And lastly, free cash flow generation, which has been a significant focus for us, continue to improve, with an increase of over $18 million to $48 million in 2017. Now, let me turn the call back to Erin to discuss what we’re seeing in each of our product lines.

Great. Thanks, Mike. I’m now on Slide 7 to discuss our nylon product line, which includes our caprolactam, resin and films products, and represented nearly 50% of our sales in 2017. As a reminder, the chart on the right side of the page depicts the Asia benzene to caprolactam spreads and caprolactam to resin spreads, with the caprolactam price reflecting the Asia import contract in Taiwan and South Korea. Similar to prior presentations, we’ve also shown a global composite index, again, which encompasses benzene to caprolactam spreads across four regions, the U.S., Europe, China and the rest of Asia, and provides a weighted average view based on each region’s percentage of global caprolactam demand. We continue to see generally balanced to tighter supply conditions across North America and Europe. While in China, the government-imposed environmental constraints remain in place, particularly in the northern region, where a good portion of the capacity sits. Stricter control has resulted in lower utilization, increased costs and further plant downtime. Availability of feedstock – key feedstock materials, notably cyclohexanone, are also impacted as a result of these constraints. The environmental policy enforcement really started in earnest in December of 2016. So the 40%- plus growth rates you see for the fourth quarter truly are a result of the timing on a year-over-year basis. The Asia caprolactam to resin spread sequential decline of 17% from the third quarter is important to put in context to the second half of 2017 in total. As a reminder, that spread increased nearly 30% sequentially in the third quarter from the second quarter. So overall, spreads were in line with what would have expected in the back half of the year. On occasion, we will see timing lags on how raw material movements are shipped and supply and demand get reflected in pricing further downstream. But overall, nylon end market demand remains steady across all the applications we serve. The industry pricing environment overall exiting the year remain improved on the back of higher raw material prices and tighter supply conditions. With the improvement in farming throughout 2017, industry spreads are now fluctuating near levels we would associate with marginal producer costs, an improvement over the depressed levels we saw for most of 2016. Entering 2018, there’ve been a number of planned and unplanned plant outages globally, including our own temporary interruption, which has kept industry supply tighter overall. As we have seen in the past, market pricing can react quickly to shifts in supply. So despite the market being structurally long, overall, global nylon industry spreads have held up reasonably well. We continue to expect industry conditions to be similar in 2018, given the current supply and demand outlook. So let’s turn to Slide 8. So if we move to ammonium sulfate, which represented nearly 20% of our total sales in 2017, we’re seeing nitrogen prices continue to firm, but do remain cautious, as I mentioned, on market fundamentals through the 2018 spring planting season. The graph on the right-hand side plots urea and ammonium sulfate industry retail pricing on a nutrient basis. It’s important to normalize pricing as urea contains 46% nitrogen, whereas ammonium sulfate contains 21% nitrogen. As a reminder, our ammonium sulfate product is positioned with the added value proposition of sulfur nutrition to increase yields of key crops. Although prices have firms entering 2018, we have seen urea pricing be more dynamics than ammonium sulfate. Urea is the largest nitrogen fertilizer by total consumption, and tends to have an underlying influence on all of our nitrogen nutrient products. As a result of the same certain systematic environmental controls we’ve been discussing impacting the nylon chain, we’ve seen continuing reductions in China urea utilization, overall urea production and, more importantly, urea exports. The reduction in Chinese exports are helping balance out supply additions elsewhere, particularly in the U.S., and have supported a firmer global pricing. Underlying agricultural fundamentals overall continue to challenge growers in the key regions that we sell. U. S. farmer income remains depressed, as high corn production and grain inventories continue to influence crop futures. In addition, the market still needs to work through a full year impact of all the urea capacity addition. While we have been able to achieve some increase in ammonium sulfate pricing and are in the midst of seasonally strong quarters, we’ll continue to be agile through this dynamic industry conditions. So let’s turn to Slide 9 for an update on chemical intermediates. Our chemical intermediates business, which represents about one-third of our total sales, provides revenue diversification from the variety of coproducts we sell. As we’ve done in the past, we’ve shown prices on the right-hand side of the page for refinery grade propylene and acetone based on third-party data. Acetone prices will move with its own supply and demand dynamics, but can also be influenced by the underlying moves in propylene prices. Input prices of propylene continue to increase in the fourth quarter on both a sequential and year-over-year basis. As we close the year, domestic phenol utilization improved, as expected, following the aftermath of the hurricanes in the U.S. Gulf region. In addition, phenol and acetone derivative demand continues to be strong in the U.S., and we expect end market conditions overall to remain favorable. Looking forward, recent U.S. acetone industry supply rationalization announcements will begin to flow through the supply chain. And we’re also closely monitoring acetone imports, which have increased and are offsetting those capacity reductions. Let’s move to Slide 10. So I wanted to spend a moment discussing the impact of the weather-related production issues that we faced earlier in the first quarter. As we disclosed in January, we experienced a temporary production issue at our Hopewell Virginia facility related to severe winter weather. In particular, the record low temperatures for the water treatment control system that ultimately resulted in ammonia plant shutdown for boiler repairs. Due to the unplanned interruption, caprolactam and resin production were reduced at our respective Hopewell and Chesterfield Virginia facilities. We have completed the required mechanical work, and did so in approximately 2.5 weeks, and we’re running at full rates as of the first week of February. The unplanned interruption is expected to reduce pretax income in the first quarter of 2018 by approximately $39 million, at the lower end of the range we initially communicated. That impact includes fixed cost absorption, law sales, additional raw material costs and repair and maintenance expenses. To reiterate, this was not a premature mechanical failure of our assets, but rather the impacts of the severe winter weather that we, and other chemical manufacturers, have navigated through. Our mechanical integrity programs and reliability control plans have significantly matured to monitor critical assets, and we’ll continue to enhance our weatherization programs to protect to the best of our ability instrumentation and pricing that are exposed to the elements. Our operational excellence and proactive maintenance, capital investments, coupled with a culture of continuous improvement, has paid off. Plant production in 2017 was up 8% over our historical averages from 2012 to 2015, and we will continue to drive and expect robust operational performance from our integrated asset base. As it relates to our planned plant turnaround scheduled for 2018, we do continue to expect a $30 million to $35 million impact to pretax income across all of our manufacturing sites in total, in line with what we incurred in 2017 and consistent with historical levels. Given the circumstances of the unplanned downtime, we were able to pull forward a modest amount of work into the first quarter, and have shifted the remainder timing of the turnaround schedule for the year. Roughly two-thirds of the full year impact is now expected to be incurred in the third quarter, with about 30% in the second quarter. And the remainder was handled here in the first quarter. So let me turn the call back to Mike to discuss the impact of tax reform and cash flow.

Thanks, Erin, and I’m now on Slide 11. And we’d like to spend a little more time discussing the anticipated impact of the recent tax reform legislation and what it means for AdvanSix. Given our U.S. footprint and high effective tax rate, we will be a beneficiary of the recent tax reform legislation, and we will see a favorable impact on net income and cash flow. We had a net deferred tax liability of nearly $150 million through the third quarter of 2017, and highlighted earlier that we recorded a $53 million onetime net tax benefit, primarily related to the remeasurement of that net liability out of lower corporate tax rate. Historically, our effective tax rate had been in the 38% range. In 2018, we expect our all-in effective tax rate to be approximately 25%. The reduction of the federal corporate tax rate to 21% from 35% will more than offset the elimination of certain deductions, such as the domestic manufacturing credit. To put that in perspective, the estimated 13 point reduction in our effective tax rate equates to a roughly $0.60 earnings per share benefit, and that’s based on 2017 full year results. The adoption of full expensing of CapEx for tax purposes will also have a favorable impact on our cash tax rate. We estimate that our 2018 cash tax rate will be in the 15% range. So overall, tax reform provides significant benefits to both income and cash flow, and further positions the company to generate incremental value through reinvestment in the business. Now let’s turn to Slide 12 to further discuss our cash flow. The chart on the left-hand side of the page shows our cash flow from operations and CapEx on a trailing 12-month basis through the fourth quarter of 2017. As you can see, we’ve maintained an improving trend in cash generation, while capital investments have remained relatively steady. As I mentioned earlier, we’ve generated nearly $70 million of free cash flow since our spinoff in October 2016. We have several levers to drive higher cash flow, including improved earnings and efficient working capital performance. And 2017 was really a great example of this as plant production rates increased significantly; we optimized our product and geographic mix with market pricing up 3%, and we drove more than 20 working capital returns. In addition, managing our own cash now as a stand-alone company allows us the flexibility to drive incremental improvements. As Erin mentioned, we just amended our credit facility and converted to an all-revolver structure at a lower borrowing cost, reflecting more favorable credit market conditions. The amended credit facility, coupled with the benefits from tax reform, will provide further flexibility for the company to fund value-creating opportunities. As we think about cash deployment, our focus remains on disciplined reinvestment in the business. We prioritize organic investments in the form of high-return growth and cost savings CapEx. We set a hurdle rate of a 20%-plus internal rate of return, and have a healthy pipeline of investment opportunities. As we previewed last quarter, we plan to invest an incremental $20 million to $30 million of high return CapEx in 2018 that will address debottlenecking of our plants, improve yield and quality and generate more efficiency. So overall, continued strong cash flow generation and a prioritized deployment that will create further shareholder value. I’m now on Slide 13 for a quick recap of our outlook for 2018. Our outlook remains generally intact from what we shared with you last quarter. From a commercial perspective, we anticipate a similar supply and demand environment to what we saw in 2017 across our key product lines. We remain cautious on nitrogen market fundamentals, but have seen prices firm into the season. Operationally, we discussed the impacts from our planned plant turnarounds throughout the year as well as the consideration for the weather-related production issue we faced in the first quarter. As we look forward to the rest of 2018, we expect robust operational performance. Lastly, cash generation continues to be a key focus area for us in 2018, with the expectation of ongoing strong working capital performance. Tax reform will have a favorable impact on net income and cash flow. And as I mentioned earlier, we’re executing on a pipeline of high return growth and savings CapEx projects that will drive future earnings and cash flow. Now let’s turn to Slide 14 for a brief summary. We finished 2017, our first full year as a stand-alone public company, with significant improvements across a number of key metrics, including production output, margin expansion, earnings growth and cash flow generation. We have a focused strategy that we’re executing against, built on our rigorous commitment to operational excellence, continued enhancement of research and development capabilities and an emphasis on longer-term, growth-oriented investments. We’ve created a foundation that will position the company for strong operational and financial performance for years to come. In 2018, our priorities remain centered on continuing to drive safe and stable operations, enhancing our long-term growth capabilities and making smart investments in the business to drive higher returns. We are very excited by the opportunities ahead of us, and we remain confident in our ability to drive value creation over the long term. Now with that said, Adam, let’s turn to Q&A.

All right. Thanks, Mike. Brandon, please open the line for Q&A.

[Operator Instructions] Our first question comes from Chris Moore with CJS securities. Please go ahead.

Hey, good morning guys. Thanks for taking my question.

Hey Chris.

Let me just start on a specialty chemicals in terms of, can you talk a little bit about kind of the current focus now, the investment being made there and how that might look in two to three years in terms of kind of the impact on current revenue and earnings versus looking a little bit into the future, kind of your thoughts there?

Sure. I think what we want to characterize for you, Chris, is probably talking about in a few different ways. First thing, you look on the nylon side of the business. Roughly 10% to 15% of our total nylon business today, we would characterize as more specialty differentiated, including North America packaging, wiring, cable and our Aegis barrier resin for those oxygen and CO2 barrier-type products. As we introduce MTI, we have several in the pipeline, right. And these are, as you know, focused on driving value and earnings growth above our peers in this markets. But they do take time to build out. We’ve introduced our copolymer program that doesn’t – have had early successes here in the engineering plastics environment. We look to extend that into packaging as well throughout the year in more high-viscosity grades, but recognize that the qualification processes in these types of programs can extend out six to nine months. So while our assets are – we’ve got roughly the 400 million pounds of resin capacity. Certainly, we’ll still have our significant large-volume grades, but do see that as a buildout to these capabilities and those programs that we can make a significant move against that 10% to 15% base today. On the specialty chemicals side, as we know it, right, when you look at intermediates, you’re roughly one-third of our business today. About half of that is acetone, as I’ve mentioned before, a good dozen chemistries or so in there, oxime being one. And so the EZ-BLOX product here, again, is a nice one for us that has grown year-on-year. But again, we’re building out that capability. And those product lines will be a bit more niche in their total size, but it will be the combination of those that we look to build out over time. That will drive what we hope to be and are endeavoring to be a meaningful change in that profile of that business as well.

Got it. That’s helpful. Just looking at CapEx for a second. So obviously, 2018 is going to – going up to get the $20 million to $30 million incremental investments being made. Looking out into 2019, the NOx work should be done by then, or primarily done by 2019 is that correct?

Yes. When you look at the NOx program, again, that was roughly a $100 million program. We are finishing up that consent decree this year. There’s about $12 million or so to finish off that program. As we’ve talked, our base age SME CapEx does run in the $8 million to $10 million range. Although, as I mentioned, we have this first set of projects that are contributing to the additional CapEx level this year. We do have a pipeline that are continued to be evaluated, that could come forward into 2019 as well as we progress our engineering and business cases associated with other opportunities around production output, upgrading our products and to our high-return, cost-oriented projects as well.

Got you. So I mean, it certainly, even with that potential additional investment, looks like free cash flow should – in 2019, should definitely continue to improve. In terms of – Mike talked a little bit about priority. So obviously, you need to invest there. From there would be, what, paydown debt? Is there any – is there much effort on any potential acquisitions, things like that?

Yes. So we’re evaluating all of those, as you know, Chris. It’s been – the focus really has been generating the cash to begin with. It was our first full year as a stand-alone public company. We’ve done a good job with that. We continue to focus on that. And then also reinvest in the business, that’s been the focus as well. We’ve also had some obligations that we’ve had to contend with in 2017. We had $17 million of pension contributions, we’ll have between $8 million and $70 million in 2018 as well. But the focus for now is really reinvesting the business, funding these high-return CapEx projects, which will be $20 million to $30 million of incremental CapEx in 2018, as we discussed. And then we continue to evaluate other opportunities as we go forward, including value-creating M&A.

Got it. Perfect. Thank you. Last question just relates to something in terms of the outlook on the chemical intermediates. You talked about North America acetone industry, supply offset by increased acetone imports. Is this a relatively new phenomenon? Or something has been heading this direction for a while? Or maybe if you can just talk about it a little bit.

Yes. When you – the note there is it’s our understanding and confirmed by third parties that Shell is cutting back their capacity in the U.S. They have two trains, and it’s become apparent that they will be bringing down one train of phenol and acetone. So that does and has, I think, as we’ve shared, put the U.S. in a – I’d say a balanced position on phenol to slightly being a net exporter at times, but puts the U.S. in a net import position over the long haul for acetone. So that is something new that has come to light here in 2018.

Got you. Appreciate. All right. Let me jump back in line. Thanks guys.

Thank you, Chris.

Thank you.

[Operator Instructions] Our next question comes from Charles Neivert with Cowen. Please go ahead.

Good morning guys. Just one quick question is, we’ve seen propylene pricing starting to come off. Obviously, there were a lot of issues in propylene. One, because on the supply side, did you guys have any problems accessing propylene because of some of the market problems that were occurring? I know they were mostly Gulf Coast, and you guys aren’t buying there. But sometimes, they affect different regions as well. And the other is that if the markets are strong enough, either whether they’re acetone or some of the other products, are you going to be able to keep maybe some of the margin that comes from the drop in – for the non-formula prices? Do you think you’ll be able to keep some of that margin gain from a decline in propylene pricing?

Sure. So certainly, benzene and propylene influence the cumene that we purchase, right? We are purchasing cumene from a number of suppliers here in the U.S., so that has and will influence that direct material cost. So no challenges in our cumene supply chain here as a result of your question around propylene underlying conditions. When it comes to the fundamentals around price, I mean, obviously, as we’ve shared, there’s formula orientation that allows us to move price in tandem. And then where we are negotiating with supply and demand fundamentals, we can have, at times, that sort of 30 day to 60 day lag in both directions, right, I think. So in the context of rising prices, moving them up as quickly as possible, and then certainly making our decisions in how propylene influences the ultimate [ph] price and taking a look at where that supply-demand conditions are and what the markets will bear associated with those conditions. So to the note of the importers, I mean, there was a significant level of imports that came in, in December, early January of acetone, I think, that are working through, through the market. But certainly, we remain focused on our product management discipline to place our products into the value-orientated end markets and leveraging our terminals to reach that small and medium distribution markets. So I think we’re well positioned to navigate through it well.

And then second question, is there any particular area within the nylon end markets that’s moving more strongly or less strongly than the rest or off of, let’s say, the average numbers that you guys have generally sort of put out to the marketplace? Is anything doing a little bit better than expected or a little worse than expected in terms of those?

No, I think it’s a good question. I think as you might imagine, right, given where the construct of our sales being heavily influenced here in the U.S., I mean, on the heels of sort of the hurricanes and the fires. and we have seen building construction be fairly robust here over the last quarters and even as we head into the early part of 2018.

Okay. Thanks very much.

Thank you, Charles.

Our next question comes from Chip Saye with AWH Capital. Please go ahead.

Thanks for taking my questions. And I appreciate the segment detail that was given in the slide presentation. A question about your caprolactam business. How much of that – you just mentioned it in discussing the question, the nylon end market in the last question. What percentage of that business is U.S. versus OUS?

Clearly, when you look at the nylon sales, roughly about 78% is going to be in the U.S. when you look at where we sit today. And then out by other regions, Asia would be the largest remaining region.

Okay. And then is the U.S., is it an import market or an export market for caprolactam and nylon?

So when you look at it today, I mean, I would say we would characterize the caprolactam component probably net balanced. There are some small imports of material coming in, but there are also exports leaving as well. But when you look at – same thing happens on resin. Resin is still a net export market as well. But resin does fill in at times, and certainly – and we do export from that consideration as well. So that tends to be more tied to the types of products that people are buying, and perhaps where they have global considerations with the suppliers that they’re working with. So structurally, they’re both net exporters today, caprolactam being more balanced, but with material moving in both direction.

Okay. I didn’t know after past few years, you had some supply go out. I didn’t know if it was balanced toward U.S. and maybe perhaps become an import market on caprolactam. But right now, it’s balanced, is your view, right?

Correct. And I said, I think there are movements across North America. So if you go back to with Fibrant exiting, that took about 25% of North America capacity out in 2016. So it went from, I would say, a considerable net exporting position to being more balanced, and then throughout the year depending on movements. But I would say it’s coming in. As we mentioned, the North America market is predominantly – again, that molten market material is moving in hot liquid form. So there are movements coming in, but we would note that they would be pretty minimal.

Got it. And even worldwide, you maintain a low cost position, correct?

Correct. We do have that, and that position serves us well, right, through these dynamic times.

Got it. Okay and then the next question would be on the agricultural ANS, the ammonium sulfate. The – when will we know – you said spring planting season, we’ve shown some strength in nitrogen and urea. When will we know if the bottom is in? Because a lot of the producers are talking about they’re not seeing the exports show up at NOLA like they did last year to your commentary about the Chinese imports coming in. So when will we know that we won’t have a return to that 165 they had last, say, May and June?

Right. No, I’m following you. No problem, Chip. And I think the one thing that the markets are really waiting to see is we have to live through, as I mentioned, the full impact of all of the capacity additions coming online. So when you look at sort of what – where we sit today and affirming pricing, certainly, the Chinese is not exporting the way they were, is allowing other trade points to move around and keeping the NOLA region right now relatively quiet and firm, right? We’re still early in the season, so volumes are not very high at this point. There are some conditions related to on the urea side to – the new Indian tender. Certainly, there’s a stock pile consideration in China that is supporting perhaps more near-term fundamentals or dynamics that we’re seeing. But we have yet – relative to the capacity additions that have come on in the U.S., all of those have not been running full steam yet. And that’s really I think where the market is waiting to see what will be that true full ag season and full year impact of all of that capacity additions. So certainly, there’s the near term considerations. But until we see through all of that, I think that’s where folks are really – from our vantage point, right, that we remain sort of in that cautious view to see what really happens through the spring season, and then as – even as we enter into the fall.

Okay. I appreciate the commentary. Thank you.

Okay. Thank you.

[Operator Instructions] I’m seeing no further questions at this time. I would like to turn the conference back over to Erin Kane for any closing remarks.

Great. Thank you, and thanks for everyone’s time this morning. We’re pleased to share with you the results of another robust quarter to cap off a terrific first full year as a stand-alone company, highlighted by the improved production, earnings and cash flow. Building upon this foundational year, we’ll continue to build out our capabilities for longer-term growth and value creation, all while maintaining our safe and stable operations focused, strong working capital results and improved cash flow. There’s a lot to be excited about, and we remain confident that AdvanSix is well positioned over the long term. Thank you, again, and we’ll speak to you next quarter.

This conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.