Good day and welcome to the AdvanSix First Quarter 2019 Earnings Conference Call. Today's conference is being recorded. After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] I would now like to turn the conference call over to Adam Kressel, Director of Investor Relations. Please go ahead, sir.

Thank you, Riley. Good morning and welcome to AdvanSix's first quarter 2019 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. This morning, we'll review our financial results for the first quarter 2019 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.

Thank you, Adam, and good morning, everyone. Thank you for joining us and for your continued interest in AdvanSix. It was a dynamic first quarter to kick off 2019. As you saw in our press release, AdvanSix successfully navigated through shortages and delivery delays of cumene, our key raw material, while maintaining our focus on safe and stable operations. Mike will detail the full results in a moment, but overall, we capture the benefits of favorable market-based pricing despite ongoing challenges in the acetone industry. We drove higher earnings versus the prior year and generated $42 million of operating cash flow, funding high return investments in the business while we continue share repurchases. There were two onetime considerations in the results this quarter to note however. First, we had an approximately $8 million unfavorable pre-tax income impact from the phenol force majeure event that stem from the shortages and delays of cumene. As a result of this reduced production in Frankford and Hopewell in Q1, we anticipate an additional $2 million of unfavorable impact in the second quarter of 2019 as carryover associated with the resulting loss sales. That will bring the total first half 2019 impact from the force majeure to approximately $10 million, consistent with our previously disclosed estimate. Secondly, we reported a $6.6 million benefit in the quarter from business interruption insurance proceeds related to the first quarter 2018 weather even claim. We expect $1 million to $3 million of additional insurance proceeds. However, the timing remains uncertain as we do continue to progress with the insurance carriers. We’re operating in what continues to be a mix in this market environment. Given our global cost advantage, we're driving nylon plant utilization rates above industry averages, despite continued uncertainly in carpet and automotive applications. In fertilizer markets, wet…

Thanks, Erin, and good morning, everyone. Now, on slide four, where I’ll cover the first quarter financial results. Sales came in at $315 million, and that's down 12% compared to last year. Pricing overall was unfavorable by about 9%, primarily due to a 12% unfavorable impact from raw material pass-through pricing following costing decreases in benzene and also propylene. Market-based pricing was unfavorable -- was favorable actually by approximately 3% compared to the prior year, reflecting improved performance in our nylon, ammonium sulfate, and caprolactam product lines, partially offsetting this was a decline in chemical intermediates pricing due to the lengthening of acetone supply globally. Volume overall was down about 3%, primarily due to the unfavorable impact of the phenol force majeure and continued challenging acetone industry dynamics, partially offset by improved nylon production. EBITDA was $42 million in the quarter, that’s ups about $11 million versus the prior year. And as a reminder, the significant weather event last year resulted in an approximately $30 million unfavorable impact to pretax income in the first quarter of 2018. And as Erin mentioned, this year's results included an $8 million unfavorable impact related to the phenol force majeure that was announced in March, including the impact of fixed cost absorption, lost sales and incremental logistics costs. In addition, we recorded a $6.6 million favorable benefit in the quarter from business interruption insurance proceeds related to the first quarter of 2018 weather event claim. Overall, we saw favorable market-based pricing offset by lower than expected operational performance and the unfavorable impact of challenging acetone industry dynamics. Earnings per share of $0.68 nearly doubled versus the prior year, driven by the factors just highlighted as well as lower interest expense and a lower share count. Our diluted share count for the first quarter of 2019 was approximately 29.8 million shares that’s a declined versus last year, driven by continued share repurchases. Share repurchases contributed to $0.04 of EPS accretion year-over-year. Partially offsetting this was an increase in our effective tax rate year-over-year, which came in close to our expectations right around 25.3% in the quarter, as well as higher depreciation and amortization expense. And lastly, cash flow from operations reached $42 million in the quarter, that's down a modest $2 million compared to last year. CapEx of $40 million was up roughly $9 million year-over-year as we continue to execute against our pipeline of high return growth and cost savings capital projects. Now, let me turn the call back over to Erin to discuss what we're seeing in each of our product lines.

Thanks, Mike. I’m now on slide five, to discuss our nylon product line, which includes our caprolactam resin and films products and represented just over 50% of our sales in the first quarter. As you can see from the chart on the right hand side of the page, industry benzene to caprolactam spreads globally have continued to fluctuate on both the year-over-year and sequential basis in the first quarter. Although we’ve seen occasional interim moves in pricing associated with industry supply constraints, macro demand uncertainty and fluctuations in input costs, we continue to see spreads maintaining levels generally associated with marginal producer economics. From the input cost perspective, benzene prices declined in the first quarter, tracking underlying oil prices. However, we’ve seen an uptick in input costs as we’ve moved into the second quarter. From a demand prospective, we continue to monitor signs of uncertainly in auto and carpet end markets, both of which are primary end users for nylon, particularly in North America. In engineered plastics, which is used primarily in automotive applications is continuing to see falling industry demand globally. In carpet, which has a tie to broader building and construction growth here in U.S., we’ve seen softening demand as we progressed through the first quarter. As we have seen and -- as we’ve been seeing inventory destocking through the value chain, we expect continued softness into the second quarter as we watch for signs of improvement in these applications. We're also monitoring supply and demand fundamentals for the marginal producers located in China, where we expect the continued dynamic environment. The environment on safety inspections that we’ve been discussing over the past two years continued to progress, particularly in response to the more recent tragic pesticides, chemical plant explosion in China that occurred in March. There have…

Okay. Thanks, Erin. I’m now on slide nine where we highlight our cash flow and capital deployment framework. As we’ve previously shown, 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 first quarter of 2019. And as everyone is aware, robust cash flow performance has been and will continue to be a significant area of focus for us. And as you’ll see, operating cash flow has increased 15% on a trailing 12-month basis. Aligned with our strategic priorities we’re driving improved earnings, higher value product minx and efficient working capital performance. We’ve maintained an improving long-term trend helping to fund high-return investments in the business, debt paydown and share repurchases. We are committed to delivering long-term value as we drive growth in the business, consistent with the capital allocation priorities we’ve previously discussed, executing on high return reinvestment, building out our inorganic pipeline capabilities and returning excess cash to shareholders. We continue to see ample opportunities for incremental deployment of capital beyond our base CapEx, further enhancing our integrated value chain. While not all of these projects will come to fruition, disciplined execution of the pipeline will drive further value for the company. Now, we’ve talked more extensively about the two larger capital investments initiated last year. We’ve also triggered other smaller, high return projects. For example, we've invested to expand current production capabilities for our EZ-Blox anti-skinning agent used in paints that meet emerging regulatory requirements, particularly in Europe. We’ve also continued to replenish our pipeline of high return growth and cost savings projects. Most notably, we’re evaluating investments such as ways to improve our cumene to phenol yield, increase our ammonia sulfate granular conversion, as well as improving our approach to buffer…

Great. Thanks, Mike. And Riley, if you can please open the line for questions.

[Operator instructions] And at this time, we will take our first question from Vincent Anderson from Stifel. Please go ahead.

Yes. Good morning. Thanks. So, I wanted to start on the Oben partnership. Just briefly talk about the economic structure of the agreement, whether it’s cost plus on the resin or shared economics? And then, how would those economics change for any jointly developed new product?

So, I appreciate the question, Vincent. Obviously, a lot of that were honing as confidential, associated with how the structure has been set up. I think, I would reiterate that we feel that the capital efficient and sort of synergistic combination is well-structured to meet the needs of our customers and long-term use of the industry. Again, we will be using our Aegis resins produced at Chesterfield to produce the films at Oben, and they will be sold under our brand names as well, as Capran films back into the U.S. We’re focused heavily, as you can imagine right now, focused on our employee transition and the customer transitions into the new value chain. And then ultimately with the new set of capabilities both on our R&D side as well as their capabilities with the new state-of-the-art facility, we’ll then approach what longer term, new product growth could look like. More to come there.

Great. Thanks. And just a quick follow-up on that. I saw Oben also produces Nylon 6 compounds for automotive applications. Is that something that you're talking to them about in terms of areas for further new product development?

The areas of alliance and the collaboration to-date are around packaging films. So, as soon as we're through our transition on the value chain for BOPA, we will have the ability to discuss BOPP and BOPET films sales with them as representing them in the U.S. So, again, starting with films, and we’ll go from there.

And if I could ask one more just on fertilizers real quick. Do you have an estimate for the impact to ANOSL [ph] in 1Q ‘19 from weather and how is the 2Q -- the second quarter started in terms of making up those volumes?

Yes. So, Vincent, we don’t have a specific estimate on ANSOL. [Ph] I will say, as you compare the one thing that Erin talked about, as you compare the first quarter from a year-over-year perspective, what we did see is a slow start to the season, overall. Obviously, we have some wet weather, flooding, some issues related to logistics overall. So, the planting season has been late, and that has impacted some of our domestic volume here in ammonium sulfate in Q1. We do anticipate that to pick up and improve assuming improved weather conditions as we get into the second quarter, which is consistent with the season, but we did see a slow start in the first quarter.

[Operator instructions] And we will take our next question from Chris Moore with CJS Securities. Please go ahead.

Yes. Maybe can start just on nylon end markets. You were cautious after Q4 in terms of some of the end markets there, and called that out again. Just directionally, would you say that the concern or caution at the end of Q1 was heightened versus Q4 or kind of in line with what we were talking about a few months ago?

Sure, Chris. Let me elaborate a little bit more. You are correct. Right? Last quarter, we did discuss that we were closely monitoring the key indicators in auto and carpet with the potential to watch for destocking through the value chain. And over the last few months, I would say certainly as a global signpost continue to point towards weaker demand in engineering plastics and fibers, the U.S continues to see sort or weaker light vehicle sales in the first quarter, China car sales are also reported to be kind of the only shrinking consumer product group. Another contributor is in Europe like Brexit and regulations from the EU Commission on CO2 continue to have ripple on effect. And so, while we are further back in the engineering plastic value chain, certainly we have seen from our customers and talks of potential for further softening on resin demand. And then on carpet, U.S. foreign sales across the board appear to have started the year weaker with certainly a muted seasonal uptick as we would have expected kind of entering spring. And we talked last quarter around the cold and wet weather certainly impacting building and construction growth rates in certain regions of the country. I mean housing starts were down approximately 9% for the quarter year-over-year as well. And we talked last quarter as well that the put in place non-resi construction spending that was already revised down. We saw it revised down again, further moderating growth rates and spending across the sectors. So, I think it’s -- the signposts are continuing and certainly what finally was a softer quarter, rebalancing of inventories through the change does appear to be underway. And I will disclose and kind of reiterate for you that ultimately in this environment, we’ll continue to focus, as I mentioned earlier, right on our robust safe and stable operations while remaining nimble and agile to perform, given the global cost advantage. But, we will always on driving the best possible outcomes, as Mike indicated and we’ll place the products in the best regions available and applications.

Got it, very helpful. Acetone, obviously, supplies looks like it's going to be strong again going to Q2. It seems like things started to really weaken in the second half of 2018. And if you were to compare second half of 2019 versus second half of 2018 where you sit today, any sense as to whether there could be favorability there or still too early to say on that.

Honestly, Chris, I wouldn’t say it’s a bit too early, right? We're focused on navigating through 2Q. As we indicated 2Q is expected to be at or below over that second half of 2018. Just to put it little bit more in context, net-net imports year-to-date are still about 30% more than what is required to balance the market. We saw significant imports coming in April. April imports in 2019 were actually greater than what they were in the same month of last year. And coupled with the fact that beginning in March and sort of carrying forward now into Q2, 30% of the market demand has been offline or disrupted, as I mentioned associated with whether it was a plant turnaround, unplanned turnaround and then the disruption in the Gulf with the fire. So, a lot to navigate through here, and certainly we are committed to making sure that we're communicating when we see signs of anything different.

Chris, we really saw the compressions on the spreads really starting to accelerate in the fourth quarter of last year. So, even from a third quarter perspective year-over-year, you still had reasonable acetone spreads in the third quarter last year. So, really, the year-over-year comps get a little bit easier again to the fourth quarter of this year. But, as I Erin mentioned, I think it’s a little bit difficult to predict at this point. We will continue to monitor it very closely.

[Operator instructions] And we will take our next question from Charles Neivert with Cowen. Please go ahead.

Just a couple of quick ones. One, are you guys still -- having any delivery issues for fertilizer into the Corn Belt, or into the areas you typically deliver in? I mean, you did disruptions on rail or anything else that’s -- obviously to go with the slow seas, if you got logistics disruption, it’s another issue to deal to. But have those been resolved or are you guys still dealing with them?

No. For us, we’re -- we believe we're in pretty good shape at this point with warehouse inventory and certainly shipments that are leaving the site at current. Rail has been -- most of ours is rail and truck in pretty good shape. I think the broader logistics considerations, there are areas of the Mississippi River I think further north that still have locks and dams sort of shut down for movement. So, there could be just considerations on some inter-Corn Belt, certain regions that could get tight from an overall nitrogen perspective. But we believe we're in good shape for how we're currently positioned.

Do you expect any benefit from other issues? I mean, if they can’t get up river big [ph] on barge, does it present some opportunity potentially for sulfate in the region or is that not very likely?

I think, it’s just a considering for overall -- you may see urea move up, right? I think, right now nitrogen pricing fertilizer -- nitrogen prices are rather mix, you may have seen as while urea has been moving up in pretty dynamic and trading, other sources like ammonia and UAN are flat to down. So, I think it’s going to be a mix considering, depending on where the application is and what the current supply states are. But, I think, I wouldn’t at this point sort of assume that it creates a large uptick?

The other thing is Nylon 66 has been having continuing issues with raw materials, pricing has been high relative to 6, we've been seeing talking with some people where there has been some substitution where 6 has been taking out some market share from 66 because they want the better supply situation. Is that something that you guys have been affected by or seen any improvement in or is it something you see going forward that could help things going forward, either by lifting pricing a little bit to close the gap or through demand or some combination of the two?

Yes. I would reiterate for you, ultimately yes. So, I think from the standpoint of opportunities for the broader 6 market to see a demand substitution from 66, there are opportunities and certainly we're aware of compounders working on applications from that perspective. For us engineering plastics, we're primarily focused on independent compounders, given the large integration in the chain with other significant players. We have seen 66 pricing come off and we've also heard indications that supply is improving I think really on that softening of demand of end market. So, I think it’s an area to continue to watch. And I’ll say in these spaces, particularly in auto and OEM, the substitution and transition and qualification time is also rather lengthy as well. So, again, it’s one we’ve been watching but I don’t know that it’s anything that has been creating a large spike one way or the other but rather a consideration for longer term, I would say positioning between the two materials. And well, I will say globally Nylon 6 still has plenty of capacity. So, I think the spreads are more driven by the tightness in 66 versus what 6 can command.

[Operator instructions] And we’ll take our next question from Vincent Anderson with Stifel. Please go ahead.

Yes. Thanks for entertaining a couple more here. I was wondering if you have any insight into whether -- one of your major competitors recently proposed the Nylon 6 price increase in the U.S., and I was wondering if you knew whether or not that’s been accepted by the markets?

So, certainly, we are aware of not just the North American, there has been another market player as well announcing price predominantly out of Europe, and certainly won’t speculate on the rationale. What I can share, will share is that while we see market demand sentiment soft, then we have significantly moved in late Q1, into April and May. And you have the situation where the other coastal [ph] region has gone from effectively being close for nearly six months to significantly opening up with Europe seeing a largest increase in put cost. I think we're monitoring it but I would say getting where the pricing has held in the movement of benzene basically dropping in Q1 and just coming right back into Q2 would be a consideration here.

Great. And the perfect segue, in times like these where the benzene, the propylene spread can become exceptionally wide, have you given any thought to opportunistically hedging your propylene exposure?

Propylene is one that we wouldn’t typically look to hedge. Remember, we also buy cumene. And when we look at our formula based contracts with our suppliers, our cost to cumene will fluctuate obviously with changes of benzene and propylene. And then a good majority of that, as we talked about 50% of our revenues on formula based these contracts, we also pass that through. So, there really isn’t -- I mean, we have -- from a contractual perspective we have natural hedges in place, and therefore, no big reason to pursue hedging.

And with no further questions, this concludes our question-and-answer session. I would now like to turn the conference back over to Erin Kane for any closing remarks.

Very good. Thank you all again for your time and interest this morning. Our results this quarter again demonstrated our ability to navigate a dynamic environment and highlighted the resiliency of our organization. We continue to maintain our focus on operational, commercial and functional excellence strategies, higher value product mix and smart disciplined capital deployment. I’m excited for what we can accomplish for all of our key stakeholders in 2019 and beyond. With that we’ll look forward to speaking again with you next quarter. Thanks and have a great day.

The conference is now concluded. Thank you for attending today's presentation.