Good day everyone, welcome to the AdvanSix Fourth Quarter 2018 Earnings Conference Call. Today's conference is being recorded. After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] I'd now like to turn the conference over to Mr. Adam Kressel, Director of Investor Relations. Please go ahead, sir.

Thank you, Alan, good morning, and welcome to AdvanSix's fourth quarter 2018 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 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 identify the principal risks and uncertainties that affect our performance in our SEC filings, including our annual report on Form 10-K and subsequent quarterly reports on Form 10-Q. This morning, we'll review our financial results for the fourth quarter of 2018 and share with you our outlook for our key product lines and end markets. And 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.

Thank you, Adam, and good morning, everyone. Thank you for joining us this morning and for your continued interest in AdvanSix. As you saw on our press release, AdvanSix delivered a strong fourth quarter to close out a dynamic year. Mike, will detail the full results in a moment but overall we captured the benefits of favorable market based pricing. We drove improved plan production rate across our key manufacturing sites and our cash generation continued to improve. Cash flow from operations increased nearly 30% in 2018 helping to fund high return investments in the business, debt pay down and share repurchases. There were two one times considerations in the results this quarter to note however we had a $6 million pretax income charge to bad debt expense, which was partially offset by a $2.9 million benefit from business interruption insurance advances related to the first quarter of 2018 weather related claims. Taking these items in the consideration, underlying EBITDA would have been roughly $3 million higher in the quarter. As we enter 2019, there continues to be a great momentum across the organization. We strive to be our customers trusted partners across all their various product lines delivering growth and value through excellence in all we build. As you may have seen in our fourth quarter filings we discuss renegotiating and extended our ongoing long-term arrangements with Shaw Industries we've also increased our presence at various industry events and conferences in recent months with members of our technical marketing teams representing each of our major product lines presenting on our breadth of product offerings and capabilities. Operationally, while 2018 began with the significant weather event the two organizations successfully managed through demonstrating our resilience and grit. Our relentless focus on safe and stable operations culminated in fourth quarter plant…

Well, thanks Erin and good morning everyone. I’m now on Slide 4, where I’ll cover the fourth quarter financial results. Sales came in at 387 million and that’s up roughly 4%, compared to last year. Volume is up about 4% and that was primarily due to strong operating rates and our manufacturing sites in the quarter, as well as the unfavorable impact of the plan planned -- plant turnaround in the fourth quarter of 2017. As Erin mentioned plant utilization rates in the fourth quarter were the highest across our sites in any quarter since the spin-off and that is really reflecting benefits from our continued productive maintenance and operational excellence initiatives. Pricing overallwas unfavorable by about 1%, primarily due to a 4% unfavorable impact from raw material pass through pricing, following cost decreases in queuing and driven by benzene and propylene. Market based pricing was favorable by approximately 3% compared to the prior year with improved industry supply and demand dynamics in our ammonium sulfate, nylon and capital acting same product lines. And partially offsetting this was a softness in chemical intermediates pricing due to the lengthening of acetone supply globally as we've previously highlighted. EBITDA was nearly 43 million in the quarter, that's up 4 million versus the prior year and overall, we saw the benefits from improved market pricing, offset by increased manufacturing costs particularly utilities. As you can see on the right-hand side of the page we've highlighted some of the quarterly considerations that impacted our results in both periods. As a reminder, there were a couple of important considerations with respect to the fourth quarter results in 2017, including an approximately 20 million unfavorable impact to pretax income from a planned plant turnaround, partially offset by a non-cash $4 million favorable LIFO reserve adjustments. As…

Thanks, Mike. I'm now on Slide 5 to discuss our nylon product line which includes our capital Latam resin in some products and represented about 48% of our sales in the fourth quarter. As you can see from the chart on the right hand side of the page industry benzene to capital Latam spreads globally, were relatively flat on a year-over-year basis and sequentially as well in the fourth quarter. Since our last update we've seen the following. First, benzene input cost has declined globally, tracking underlying oil prices. As a reminder a majority of our capital in nylon business is on formula or index based pricing agreement. So our sales will fluctuate with the price of key raw materials with our variable margin being largely protected and in the parts of the business without pass thorough contracts the industry also in acts quickly with only a 30 to 60 day lag relative to the movement in input cost. Looking forward we would expect capital in nylon prices to move generally and with the changes in raw materials. Second, we're monitoring signs to the more uncertain near-term auto and building and construction macro environment. And engineered plastics for auto is a primary end use, we're seeing weakening industry demand particularly in Europe and Asia, carbon trend in the U.S. which represents 55% to 60% of nylon demand domestically does have a time to a broader building construction growth rate which have been impacted by cold weather in certain regions of the country as we began in 2019. However, we continue to run our nylon assets at high utilization rates given our low cost position globally. Industry spreads have been fluctuating in and around marginal improves to economics and for the margin producers located in China we expect the continued dynamics…

Thanks, Erin. I'm now on Slide 8 where we've highlighted our CapEx outlook. Following the 109 million of cash outflow from CapEx since 2018 we're expecting 2019 to be in the range of 140 to 150 million, followed by a reduction in 2020factory levels generally in line with what we saw in 2018. Now the increase in 2019 and subsequent decline in 2020, is a result of two factors. The first release to the previously announced 15 million of incremental CapEx associated with the relocation of our R&D facilities from its current location leased from Honeywell into our own Chesterfield, Virginia site. The second consideration relates to approximately $20 million in spend for plant turnarounds. Now this increase has been driven by the scope of the 2019 turnarounds, as well as the timing of the 2020 turnaround schedule for the spring referring CapEx spend in 2019, which I'll explain in a moment. Spend in 2018 and 2019 includes the two high return projects we've initiated focused on debottlenecking specific areas of our operations, optimizing quality and improving our mix and cost position overall that will drive future earnings and cash flow. As a reminder we'll begin to see the benefits from these projects in the back half of 2019, with the full-year benefits starting in 2020. We continue to prioritize organic investments and are executing against our multiyear $150 to $200 million, high return project pipeline, focus on growth and cost savings, asset flexibility and improving plant buffers among other benefits. We set a hurdle rate of approximately 20% in terms of an internal rate of return, and we have a healthy pipeline of investment opportunities. As we've discussed on our last earnings call the relocation of our R&D lab will enable an improved configuration of our labs to drive…

Thanks, Mike. And Alan, if you can open the line for questions.

Thank you, sir. [Operator Instructions] Will first go to Chris Moore with CJS securities.

Start with just on the nylon. You talked about the macro uncertainty relating to end markets like auto and building construction. Is that something that you're starting to feel now or more of a reference to certain macro indicators that you're tracking?

And I would articulate and maybe clarify it would be the latter. I was certainly seeing I would say signs relative to macro trends being in a few data points that we've been watching and certainly China auto sales if you looked at 2018 numbers 2017, fell 3% certainly been highlighted that's the first decline in 20 years followed by the China association of automobile manufacturing releasing basically our forecast for 2019 with no growth rate on weak market sentiments in Europe we have seen certainly Ford have challenges and from that perspective herein the US we're seeing dealer inventories have been driven with the projected sales to probably 17 million vehicles and that's kind of for the first time since 2014. So those are just more I think mileposts out there that are general sentiment that we have to watch for relative to potential for a destocking through the value chain. And then housing construction I think it's the same that we've had some challenges relative to weather certainly we see a deceleration potentially in housing starts and then the non-residential construction spending has been revised down as well with growth slowing that was just the watch out for us certainly as we entered the 2019, which is I think I would anticipate it should be commensurate with what others are saying just relative to macro fields.

Yes, and then Chris what I'll say given our cost position model we're going to expect to continue to run at high utilization rates at our sites and just the question of how we place the product where, what region, what application and will continue to drive the best outcome there for the business.

Got it, thank you. Maybe on the acetone side I know Q4 -- talked about that kind of 4% unfavorable impact on that raw material pass-through, so just trying to understand kind of looking forward, the balance between the input cost and the acetone I know there is a 30 to 60 days lag you had talked about is acetone pricing is weak is it still declining and is it that kind of 4% unfavorable impact is that something that that we will likely continue to see or will it normalize as we head into '19, just kind of understanding it's going to be leading the way?

Yes, I mean overall Chris, I'd say our outlook really hasn’t changed on that front what we saw in the fourth quarter is continued oversupply of acetone globally, high inventories as well as some of the downstream demand for acetone in terms of -- the MMA plans being off-line. So we're continuing to see discounting off of some of the industry benchmarks and therefore we expect you know, the oversupply to continue and margins continuing being challenged going forward. So really not a whole lot of change there.

And last one from me…

And the 4% maybe just to clarify the 4% is overall in total right so that would be inclusive of really the benzene and the propylene all other raw materials pass through and we are associated with the formula which again is that our 50% of our sales that heavily more heavily weighted to nylon and intermediates for about two thirds of the sales they would have that impact.

And just in terms of kind of your Ammonium Sulfate I know that we're heading into kind of seasonally stronger pricing. Has your overall view of the industry changed much over the last three to six months?

So I think our sentiment is that we're still anticipating a strong spring I mean certainly in general right now you intended in a lull between seasons at this time and with not much demand, so there has been a fair amount of nitrogen that wasn’t implied in the fall and as their inventories are collectively kind of full thorough the distribution chain and all that sort of waiting for the start of spring but certainly with the lack of the fall application we do expect solid demand once the season begins its offer as a growing nutrient as well so there is positive demand from that perspective and acreage should be up as well I mean both for corn and wheat, corn should be in that 92 million to 93 million type acres which is up over on the last season of around 89, so again all of the signs continue to point to a stronger strength as we had anticipated.

Next will go to Charles Neivert with Cowen.

Couple of things. When I'm looking at timeframe the CapEx number, a sort of that '19 - '20 combined or I mean realizing that because it is a timing thing you get one on the other. But is the thing is the work being done in 20, if there were sort of all continued in 20 is that would that be a larger than normal year I mean is this sort of like a big turnaround or is this something that sort of the normal turnaround than it's simply a timing issue or is this something that's sort of more major and then more extensive type of turnaround that's a little bit more costly?

It's just more of the timing issue related to the fact that the proximity of the turnaround in 2020 is early in the spring, and it's very close to the fourth quarter turnaround this year resulting more of the CapEx outflow occurring for the 2020 turnaround in 2019, and that's why there's no a significant change in the scope of that turnaround it's more of the timing issue?

Okay, I mean, is there a time when we should look anytime whether it was especially going forward is there a really larger scale turnaround in the future that we should sort of be aware of Mike -- it might be '21, I'm it doesn’t matter what the year I'm just trying to figure that there is of the normal scope of turnaround. And then typically there are bigger ones for certain types of units that come less frequently. Is there anything in that going forward…

But really, I think the way you want to think about the larger scale of the turnaround is really at our Hopewell site and the relateto either the ammonium plant or the sulfuric acid plant and we typically rotate those every other year right. So those are the ones that would be associated with the larger impacts we will see on a quarterly basis. But those are unchanged. I mean those have been large scope turnarounds in the past, and we don't expect any changein that going forward.

And as we spoke about last time, we have a tremendous amount of focus as you can imagine on turnaround excellence both on de-risking them, focusing on using techniques to drive down rent time as well as mitigating the raw material purchases that we have during those times where we would otherwise have made our own raw materials. So again I think the view here is just a matter of the timing but going forward we continue to have this as the key focus of the organization recognizing that they are annual events that are critical to the sustainability of the business.

On Ammonium sulfate as you would go into the sales going forward for the next few months, you are now largely US sales whereas sales toward the tail end of the year and such removed to Latin America, are these better if the pricing was the same as this generally considered going to be a better net back period interest for the USmeaning same price with better margin or similar margin regarding the price issues?

Certainly in second quarter will be better than first quarter but when you think about we spoke last time I think in last quarter, it's certainly on the seasonality associated with the mix of being domestic versus export, volume does as you point tend to be rather flat across the board but certainly in Q2 we have higher granular rate to sell domestically here which is at a premium from to your point and from the net back perspective. Where as it is the back half of the sales tend to be export in standard.

Last you just mentioned something about again the investigation around the EPA so can you go through that again for me please. I mean what's been taken off the board what's still to come or what still of has to be dealt with. Obviously it was a big step to sort of say noin more action but I just need to know sort of what's out there still and what's finished?

And certainly from the start of the investigation there were a number of better on state agencies involved relative to the underlying investigation what has occurred here recently was that we were notified by the USAttorney's Office for the Eastern District of Virginia that they have concluded their portion of the investigation with no further action required by us. So that's the positive developments. However, we do have ongoing dialogue in cooperation on a narrowed interim with the EPA and the DOJ criminal division. So again over the last several months narrowing a scope, narrowing a view and certainly the exit by the USAttorney's Office.

Okay, so one down two more to go. I guess is this still one way to look atit. I think that's it from me this morning. Thank you.

And next will go to Vincent Anderson with Stifel.

So I just want to get a feel for the cadence heading into the next year was the decline in raw material that we've seen over the last few months and the lag effect on the pass through portion of your business. If you hold out everything else equal which is tough to do should we expect margins to improve sequentially into the first half of next year on your spread products.

So just to reiterate a couple of points here, as you may already be aware 50% of our businesses is on form of the lease contracts, but when we take out ammonium sulfate, which is all spot business a disproportionate amount of nylon, caprolactam and intermediates is on form of the pass through it is about two thirds and many of that, many of the pass-through elements of those contracts are pretty real-time. And that leaves about the third of nylon and intermediates to be subject to more of the spot movements in lags, which we may see. What I will say is, when you look down on the chemical intermediates side the -- as we've discussed earlier, the acetone oversupply is continuing, and that's resulting in some discounting relative to some of those marketers and some are I think driven by also soft demand from MMA plants which were off-line in the fourth quarter, so we don’t expect there to be much of the benefit they are going forward and due to that an we expect the price loss for us to be challenged on a continuous basis. The other portion that, I will point out is when you look out through the portion that is for our business and the nylon business that is exported there is a bit of a squeeze in terms of resin spreads going forward as well globally so that it is for the pressure on margins there was well. So we don’t expect there to be a significant uptick or benefit relative to price erosions as we go into the first quarter.

That's very helpful, thank you. And I might have missed this in your earlier comments, but the 2019 growth and efficiency CapEx is that all related to your prior announced projects or is there are new projects. Could you provide some additional detail on those?

So when you look at the growth and cost savings projects the two projects that we had talked about the large one is at Hopewell in total were in the sort of $50 million to $60 million range, half of the spend in 2018, half in 2019 and the new project that we have discussed is the R&D lab of $15 million, which will be incremental in 2019. So that's kind of the new one. And then we continue to evaluate accelerating other opportunities in the pipeline that we talked about the $150 million to $200 million pipeline that we've identified of some really interesting and nice return projects that will continue to continue to evaluate going forward.

Okay, so that's 2020 preliminary estimate could moveup if you accelerate some of those other growth projects?

Yes. We have some scoping engineering work, business case development tooto further vet some of those projects but for now I think as we said, we expect in 2020to revert back to 2018 in aggregate pending further evaluation of those growth projects.

And then one more so we've seen Chinese caprolactam prices come down with benzene, but I haven't personally seen much in the way of relief on cyclohexane availability is that also your view and if cycle is still tight would that better interpretation of this decline in capital prices really be that it’s a headwind to Chinese profitability because of pricing off of benzene but can't get to cyclohexane?

Certainly as raw material feed stocks whether it's a cyclohexane, cyclohexanone even to some case phenyl pricing went up drastically as well through for 2018 all of which would be impacting availability to the Chinese producers as our have growing in the latest investment so we've seen the compression I think that what's happening is certainly that marginal producer economic view it still holds. I think it's moving around a bit it could be a plus or minus $50 to $100 but the availability is certainly a feedstock it has been same production in addition to the environmental constraints that we sell through over the last several quarters as well. So I think it's one of that will have to continue watch as the small number of plants slated to come back on so again I think we still view that region ofthe world to be very dynamic relative to their ability to perform and be profitable.

Actually if I can sneak one more in. Could you remind us what's status of your nylon co-polymer and when you hope to be in the market with that?

Yes, so certainly both products has been launched and just as a reminder we have a high viscosity packaging co-polymer that really is the big launch for drive value for profitability in film extruders thermal formers and driving puncture resistant and clarity for end users and we have had our first sales in the fourth quarter of that product and so we continue to drive the and the customer qualifications and growth so that was really positive for us as we ended the year. And then likewise we have the engineering plastics version which again as we talked about has the value of improved surface finish, lower warpage and higher impact of reinforced products and again that product came into the market mid-year but again it is out being tested again typically in these enough space to head where we looking at automotive and other types of parts have longer qualification period but both are out there now commercially and it's really now around how do we promote the market and ramp those up.

[Operator Instructions] Will take our next question from Bill Dezellem from Tieton Capital.

I have a couple of different questions so first of all just for clarification on some of your earlier cost did you reference building and inorganic pipeline and capabilities being in acquisition pipeline and capabilities?

Yes, so as we talked about in previous quarters certainly as we continue to mature our capital allocation priorities in our long-term growth vectors for the business we did believe that we have a foundation of which we can build upon inside this organization and that certainly as we have talked about our we are prioritizing organic investments through form of high returns both in cost savings projects but as we looked to really assess the potential for long-term growth there are opportunities across the landscape of each of our product lines where we believe over long-range we can broaden our customer base enhance our technology and product offering portfolio I mean and look to ultimately as well, improve our financial profile into free cash flow and margin stability and so again that's a consistent and we believe with our comments previously and something that is in the work.

And then apologizes for this and the next basic questions. But would you please to discuss the steps between now and the preliminary ruling relative to the anti-dumping suits and what then happens with that preliminary ruling if there is a finding that there was some former dumping taking place?

We can actually pull up the timeline because as we've said the investigation process will be completed over the next 12 to 14 months. Right now, we are at the phase where it was all that weak the case -- the next step really is for that case to be accepted of which then once accepted will be a series of an actions and steps associated with questionnaires and responses as well as hearings and briefs that worked away through the ITC and ultimately from a timing perspective the earliest as we could see a preliminary determination would be late summer and the late July timeframe it could be extended upto September. And then that is a preliminary determination of which then ultimately because there is a view here of whether there is material injury through the industry and then ultimately this will conclude roughly a year from now. So again everything is little different there.

After you please.

No, no please I'm sorry there is lots over the timeline is that helpful or I can reiterate.

So what are the perception that's we have had with these type of cases is that once the preliminary ruling is made if there are, if it is concluded that some form of dumping did take place and I'll just pick a number here if there was a 20% of discount does that, that number begins to be collected at that time, and so it's almost even though the investigation is not complete it's the industry begins to behave as though it was complete and then if when the findings are finalized those are the collections and are adjusted. Is that how you proceed just taking place or am I not remembering this process correctly?

No you are correct. Right, relative to the process once the preliminary determination is made or should a preliminary determination be made and on this case the timing on this case would be into the fall, somewhere between the end of July and mid-September those preliminary duties do become active. And then it gets carry forward ultimately to a final determination several months later.

And then I think earlier I cut you off that something else you were going to have that was that's going to be helpful in understanding this process?

No, just from the standpoint that each one takes on as a unique relative to each lease is different and certainly then I was just going to comment that while there is no assurance of particularly outcome in this case we do feel that it was important and a positive first step in a process for us and the other two joined in the petition to restore a fair competition ultimately reflect our commitment to the acetone industry.

And then finally, I recognize it's very early for this question but have you seen any change in behavior in the marketplace as a result of the -- of this?

It's only been about 24 to 48 hours and currently everyone should understanding the process and next steps from that perspective but appreciate the question.

Alright, and it looks like we have no further questions at this time. So I would like to turn call back over to Ms. Erin Kane for any additional or closing remarks.

Very good, thanks Alan. And thank you all again for your time and interest this morning. We remain focused on successfully executing against our strategies, concentrated on operational and commercial and functional excellence, higher value product mix and smart disciplined capital deployment. We are excited by the opportunities ahead of us and we remain confident in our ability to drive value creation for our shareholders over the long-term. We look forward to speaking with you all again next quarter. Have a great day.

That does conclude today's conference call. We thank you everyone again for their participation.