Good day, and welcome to the AdvanSix Fourth 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 over to Mr. Adam Kressel. Please go ahead, sir.

Thank you, Britney. Good morning and welcome to AdvanSix's fourth 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 fourth quarter of 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. As you saw in our press release, AdvanSix continued to navigate a difficult end market environment exiting the year. Despite the global slowdown in demand, we continue to benefit from our low cost position and remained focused on executing against our strategic priorities. Mike will detail the results of the quarter in a moment, but I like to take the opportunity to highlight some of the great works that has been accomplished across the organization over the past year. As we’ve highlighted, 2019 saw several strategic investments that position the company for long-term success. First of all, we continue to drive safe, stable and sustainable operations. We achieved robust near record output in 2019 across our Caprolactam and Ammonia Production units, which are key operations within our integrated asset base. Total utilization was roughly 95%, a testament to the multi-year focus to drive stability, mechanical integrity programs, and mitigate risk. This utilization rate is up from a pre-spend 2013 to 2016, three-year average of approximately 89%. Higher less variable utilization rates drive efficiency and build the foundation for higher returns. As you likely saw this past quarter, we announced the appointment of Wim Blindenbach as Vice President, Integrated Supply Chain. Wim comes to us following more than two decades at ExxonMobil and has the responsibility for safe, stable and sustainable operations across our integrated manufacturing footprint, while advancing our strategic priorities with operational excellence and improving in robust safety performance. We were also recently awarded a 2020 Gold Rating for corporate social responsibility from EcoVadis, an independent CSR assessment agency. The Gold Rating is an acknowledgment of our commitment to corporate social responsibility and the great foundation we have built as…

Okay. Thanks, Erin, and good morning, everyone. I’m now of Slide 4 where I’ll review the fourth quarter financial results. Sales for the quarter were $327 million, and that’s down 16%, compared to last year. Pricing overall was down by about 12%, primarily due to an 8% unfavorable impact from raw material pass-through pricing. Market-based pricing was unfavorable by approximately 4%, compared to the prior year predominantly driven by our nylon and caprolactam product lines. Volume overall was down about 4%, primarily due to unfavorable mix across our nylon and ammonium sulfate product lines and the larger planned plant turnaround in the quarter. EBITDA was $13 million in the quarter, down about $30 million versus the prior year. The decrease primarily reflects an approximately $25 million net unfavorable year-over-year impact of planned plant turnarounds, as well as the unfavorable impact of nylon market based pricing and lower volume. This was partially offset by lower raw material costs, including natural gas and sulfur and an approximately $6 million charge to bad debt expense in the prior year period. Fourth quarter 2019 results also include an approximately $6 million unfavorable impact from increased raw material and logistics costs related to the PES supplier plant disruption and shutdown as previously highlighted and within expectations. Earnings per share decreased $0.76 versus the prior year to a loss of $0.08 in the quarter, driven by the factors just mentioned. And lastly, cash flow from operations reached $20 million in the quarter. That’s down about $26 million, compared to last year, primarily due to lower net income. CapEx of $44 million was up roughly $7 million year-over-year, due to the execution of high return growth and cost savings projects underway and an increase in maintenance CapEx associated with the timing of 2020 planned plant turnarounds. Now, let me turn the call back over to Erin.

Thank you, Mike. I’m now on Slide 5 to discuss our nylon product line, which includes our caprolactam, resin, and films products and represented about 46% of our sales in the fourth quarter. As you can see from the chart on the right-hand side of the page, nylon industry spreads globally continued to decline sharply in the fourth quarter. The declines reflect a weak demand environment across most major nylon end uses in what is already an oversupplied industry globally. As you recall, we began to see a sequential step down in industry spreads really take hold in June, which were then sustained through the end of the year. The Asia benzene to caprolactum industry spread averaged just below $700 per ton in the fourth quarter with December averaging closer to $500 per ton and dropping below the trough most recently seen in 2016. These levels indicate industry spreads below cash cost, and in some cases, below variable costs for a portion of the global caprolactam cost curve. As we look at the nylon environment overall, we've seen decelerating growth and uncertain market sentiment continue to weigh on pricing and spreads. From an end user application perspective, we've seen persistent weakness in North American carpet, soft auto end market across multiple regions and a slowdown in textile demand growth out of Asia. Carpet, which is the largest domestic nylon end user, has been under pressure due to shift in customer preferences, mixed construction growth and some level of destocking, particularly into year-end. Our own robust total operating performance and slowing demand across these end users has resulted in a shift towards export opportunities, which we do expect to continue in the near term. We continue to actively work on upgrading our nylon resin mix into higher value applications and adapt…

Thanks, Erin, and now I’m on Slide 9 to discuss our cash flow expectations. As Erin mentioned earlier, 2019 was a strategic investment year that will position the company for stronger performance over the long term. Moving into 2020, we have a number of tailwinds from a cash flow perspective, particularly as we progress through the year and expect stronger cash flow generation in the second half compared to the first half. Due to our realignment to spring timing for a larger planned maintenance turnarounds, we expect a more significant impact in 2020 to be in the second quarter of roughly $25 million to $30 million in line with previous expectations. This follows our large planned turnaround of $25 million just executed in the fourth quarter of 2019. As a reminder, our large planned turnarounds are typically a year apart. In addition, we expect CapEx will remain relatively high in the first half driven by the spring 2020 turnaround, as well as the completion of our key growth projects, but will then start ramping down as the year progresses. In total, we now expect full year 2020 CapEx in the range of $90 million to $100 million and that’s down about $50 million to $60 million on a year-to-year basis. Given the challenging end market environment, we’re targeting the low-end of the range and continue to be disciplined around reinvestment in the business. Approximately 14% of our 2020 CapEx will still be on high return projects as we continue to mature our long-term pipeline of opportunities. Now, as you saw in our filing this morning, we announced an amendment to our existing credit facility due primarily to timing considerations, which will provide flexibility as we navigate through the current dynamic. As mentioned, the CapEx will be heavier in the first…

Thanks Mike. Britney, please open the line for Q&A.

Yes sir. [Operator Instructions] Our first question comes from David Silver - C.L. King.

Yes, hi. Good morning.

Good morning, David.

Okay. So, only a few questions, I think the first one I’d like to maybe just touch on your year-end balance sheet so, in particular the inventory level I think is at an all-time high at least for while you’ve been a public company and I guess that kind of moving in the opposite direction of quarterly sales trends recently. So, what is it that either strategically or tactically is going on there that has led to the pretty significant inventory build-up, the last couple of quarters including the fourth quarter? Thank you.

Sure. Sure, Dave. I'll take that one. As you point out, the inventory at the end of the year came in at 172 million that is the highest level of the year, but that’s driven by a few factors that I'll cover here. First of all, raw material inventory was also the highest level that we saw all year and that’s really driven by the timing of cumene deliveries. There actually became more spot purchases or spot cumene available for purchase here in the fourth quarter and we took advantage of that to really to add to our buffer inventories, you’re familiar with the PES shut down here and we felt that was good opportunistic time to increase those inventory levels. So, that’s one factor that we saw here in the quarter. The other factor is around finished goods and with inventory, those inventories where a [115 million] at the end of the quarter and we’ve highlighted over the past number of quarters some of the challenges around nylon and what we saw is higher resin inventory, and we’ve been seeing as we’ve discussed a lot of changing demand dynamics in that business. We operate six different lines at Chesterfield where we make the resin and we’re adapting our operations to those changing demand conditions and as a result we have a bit of a different mix here in higher resin inventories. We expect those inventories will go down throughout the year and by the end of the year gets a more normalized balance or more normalized level. The other factor on finished goods and with inventory is ammonium sulphate inventory levels, which were a little bit higher than what we would normally expect. Some of that is really being driven by a greater mix of standard grade production relative to granular production of ammonium sulphate and the sales timing associated with that and we expect ammonium sulphate inventory is in Q1 to come down to more normalized levels and I would say overall in Q1 inventory is anticipated to come down. So, that’s really what’s driving the inventory levels.

Okay, thank you for that. And just one more quick one, one more on the balance sheet that in current liabilities there’s the deferred income item, I guess, $19 million and I see it includes customer advances. So, I just want to clarify that in your prepared remarks you touched on the pre-buying for spring fertilizers is that what’s the third quarter two fourth quarter bump is related to?

Yes. As you point out the balance at the end of the year was 19.7 million. That is prominently related to our ammonium sulphate pre-buy program as we typically see in the fourth quarter and what you’ll see during the year is that balance decline in the first half of the year as we sell the ammonium sulphate through the season and those advances come down and typically get to a low point right around the June and July timeframe before building back up in the fourth quarter. From a modeling perspective it is an important consideration as you think about the linearity of cash flow during the year, and we expect the same factors to come into play as we look at free cash flow and cash flow generation in 2020.

Sure. That makes sense. Thanks for clarifying. I’m now going to ask kind of the China coronavirus and other kind of issues question, which I think for your company has a little bit more multilayer then for some of the other companies I follow, but the nylon business both on the supply and demand side has been driven by Chinese factors auto production and new capacity for the past several years and now there is kind of a certain amount of uncertainty injected in, I guess in both of those areas, I know it’s early days, but at this point how does your company prepare or what’s your thinking about your ability or what are you seeing in the market – opportunistic exports bleeding outdoor, you know what’s your market intelligence tell you that the Chinese nylon industry is how they’re reacting here, and you know, I guess I’m wondering about how this, what challenges it might present you to maintain that high Hopewell utilization rate that you cited earlier and the various benefits that maintaining the high utilization provides? Thank you.

We can take that in few different steps here David, maybe these two to calibrate us all just from the teams that which China plays out in all of our end markets because as you point out sales into China really only represents about 1% of our total sales and closer to about 3% of our caprolactam and nylon sales is small from a standpoint of our direct participation, but obviously as you point out either more significant from sort of how China impacts below the broader consideration of these industries and that’s because when you look at China they represent 50% of the total nylon supply and demand, on the phenol acetone perspective they are 20% of the phenol acetone supply and 25% of global demand. On the ammonium sulphate they are nearly 40% of the total AS supply, but only 13% of AS demand globally. So, as you say, it’s early days, but we could see both second and third order consequences are impacts here potentially playing forward. From our intelligence, we’re certainly seeing that prolonged demand weakness has played what I believe the last weeks utilization rates from our intelligence puts China utilization about 54%, right. So, certainly that’s lower than where they have been driving. We’re also hearing about the potential mismatch between production and consumption, right as the transportation and logistics and various points of these sort of multistep integrated chains play out that is causing challenges again that has to play forward a little bit, but we’re really watching out as you say for the impact on trade flows between China to the rest of the world and in between other regions that could create either challenge or opportunity for demand and pricing. And from our standpoint, relative to our positioning the reach that we have, you know for us we’re, we continue to stay focused on ensuring that our reach allows us to place product and to the most opportunistic and best geographies and application mix that’s available to us. So, that remains our focus both here in the U.S., as well as into the export markets and then again looking to where there could be disintermediation that provides opportunity as well.

Okay. Thank you for that. I know it’s very early days and it’s just kind of multi-layered kind of situation at this point. I'm going to get back in queue. Thank you.

Okay. Thank you.

Our next question comes from Vincent Anderson with Stifel.

Yes, thanks. Good morning, everyone. So, I wanted to ask maybe a little bit of a longer one on your R&D initiatives, particularly in nylon, so I’ll try to be clear three parts. First, when you look at how is your position to compete in composites. I was curious how broad your portfolio is today in terms of fiber sizing, and the number of base resins that you are able to optimize for? And then the second is, just you introduced the nylon fixed products last year with some of [6/6] characteristics, you know tough environment to launch in to. So, any update on progress there and any success you’ve had getting that specked in with OEMs and the last one is just simply any strategic priorities you want to share for the Oben partnership in 2020 and if we can expect any measurable margin improvement from the combinations of the possible shutdown and any new film sales?

Sure, we can. Happy to talk about your bit here. So, maybe I can start around really our focus into engineering plastics and where we sit in the value chain to sort of set a – some context right. So, our focus is ensuring that our customers who really the target here is the independent compounder then serving OEMs whether it be in automotive and consumer products, industrial electronics so they are armed with the best resins to meet their solution needs. So, and from where we sit in that chain, obviously when you come to the number of things that those compounders need is all solutions is as you say a variety of resins, both from base homopolymers to homopolymers with masterbatch blends perhaps, and then obviously we have our co-polymer capabilities that we have invested in and continue to bring forward. So, I would share that we made great inroads this past year as I noted in my remarks, you 30% volume growth into this space. I would say that certainly the focus is, we need to get those high-volume products into the space first, so that we’re there as a partner. And then we have a number of programs that lead us into those more bespoke tailored solutions underway. And so we've seen opportunity and growth in our wire and cable sales as an example and our copolymers are out for testing and solution providing, but those are the ones where again there are going to be smaller volume, more tailored solutions, you know, we’re excited about the projects that are in the queue, but those are coming with time and as you say 2019 wasn't a fabulous year relative to sort of the demand pool if you will for projects, but an area that we continue to stay focused on, you know tours of our site and driving those collaborations, again this is long-term and we feel confident that we’re moving in the right direction. So, if I touch on Oben, again the Oben alliance here was really a win-win for us relative to the ability to continue to have great quality films and use current best-in-class manufacturing technology to serve our customer base. We remain committed to that transition and that’s moving along. And really this year key things that we’re looking at is being able to now look at, just not our base films but using the capabilities around metalized films, as well as other characteristics and opportunities that they have, you know working with them on their other film opportunities that they have, they also are our BOPET and BOPP supplier. So, more to come there, but I would say, we are well underway and making good strides relative to really our transition plan and alliance focused.

Great, thank you. And you’ve provided some really helpful remarks on acetone, but 2019 was a bit nuts in North America, specifically, so I was hoping you could just give us the lay of the land today in North America, including any numbers you could possibly put around MMA, demand and capacity on a year-over-year basis. And then on that note, the market appears to be moving towards more balance today. So, what’s your impression of the basis for these aggressive large buyer bids that you’ve referenced?

No, that’s great. And a lot of it is contextual to where and when, you know sort of annual contracts get negotiated and they are typically done at the end of the year prior to the start. At that time, we still had a fair amount of inventory in this system, and so again when you have these dislocations in supply demand length it can lead to aggressive and sort of phonetic competitor behavior. We do see the large buyer volumes moving back. We do have, you know and see their demand profiles picking back up relative to where we were last year, and really our focus here post the petition now that we have some duties in place, but also rightsizing to the supply and demand balance, but our main focus here, Vincent is really to seek to lead in returning to really what we believe is good fair disciplined pricing in the marketplace and that’s our current level.

Great, thanks. And just a quick one on the trade case, if you're able or willing to share, is it the opinion of your council that the ITC is favorable decision in the Spain and Singapore duties, but specifically the damages reads very favorably for finding damages in the remaining trade cases?

Great question. I think we would share that, we would expect the same rationale and approach that apply with the first two countries to carry through and read through to the final three.

Excellent. Thank you so much.

Our next question comes from Chris Moore with CJS Securities.

Good morning guys.

Good morning.

Good morning. Talk a little bit further about, you had referenced on Q3 that kind of shifting geographic sales and talked about a little more today, maybe can provide some specifics there and I know it is response to near-term market conditions, but is it kind of a longer-term trend as well?

So, what you're going to see in really where, as again the robust performance comes out of Hopewell, you know certainly in the current dynamic and in the U.S. that, you know, you should think about that last time that's coming off really is going to have to be an export pound, right, that’s just where we sit today. And so, that – you know as we proceed certainly in the near term and over the last quarter, you know, we’ve seen that influencing that. So when we talk about mix and sort of impact, you know, that is, you know, a pound that’s going into the spot market. You know, now as the leading global cost advantage player, that’s still a good pound for us, but we just wanted to be transparent and clear that that is something that, you know, is happening and would continue to happen for now. as we continue to shift the portfolio, and again, as we talked about, you know, moving and offsetting the declines in carbon into engineering plastics and packaging, those are growth application, and so, we do believe over time as we continue to progress in that nature of that, you know, we’ll continue to get that mix shift in the direction that we want for the long term.

Got it, that’s helpful. It’s all I had, thanks.

Okay. Thanks, Chris.

Thank you.

Our next question comes from Bill Dezellem with Tieton Capital.

Thank you. I have a couple of questions. First of all, would you please repeat the duties, the February 7 determination on acetone?

Sorry, give me one second. So, Belgium has – you know for Ineos has a final duty determination of 20%, as do all others exporting from that country. In South Africa, Sasol has moved to 415 roughly percent with all others moving to around 315%. And then, in Korea, we have a move against two players. Kumho came in at just shy of 48; LGC came in just around 25 with all others at 33.

Great, thank you. And then, you made reference to soybean market or ammonium sulfate, and that’s very early, you said, I guess two questions. First of all, how many acres are you anticipating being planted this year? And is that going to influence the business at all? Or is it still truly in trial phase? And then secondarily, how many acres of soybeans are planted in the United States relative to corn?

Okay. So, we can – give me one second here. So, we talked about soybeans. Really our large focus here, Bill, has been on the U.S. and Brazil. So, maybe I can kind of just frame, you know, how we’re thinking about that. So, if we think about, you know, 164 million acres kind of combined for those two regions, you know, in sort of a modest adoption, and again, so early days, but if we – you know, if we applied that sort of a 20% adoption rate, that could yield right to mid-to-high digit percent increases in AS demand opportunities. So, you know, well north of, you know, a million tons, which is, you know, significant growth opportunity just in two regions. So, I hope that puts a little bit of color commentary, you know, around that opportunity. And then, for AS relative to corn or just corn in general, I believe the [indiscernible] still is maintaining in and around, you know, 81.5 acres, you know, for corn and their yield targets around 160 bushels. It kind of have remained same for the last couple of months.

And for soy, you're looking of roughly 75 million acres planted here in the U.S. approximately, so it’s little bit lower corn.

But still very close to a similar number.

Yes.

Yes, in general, I mean those two tend to be the two largest crops planted here, you know.

And is there any indication at this point with your early research that the penetration of ammonium sulfate into soybeans, really there should be any more or less than corn?

So, it’s obviously all application rates. You know, when you look at ag are soil dependent so they become regional dependent, as well as, you know, tied to what the planning is, but hopefully just what I shared, again early days, you know, just kind of framing what could be a, you know, a modest adoption. You know, there's got to be a strong grower education program here. All of the things – you know as a leader in this space, you know, this is what we've been doing for quite some time. We believe differentiated, compared to our other AS, you know, competitors here and, you know, committing to the research, you know, driving opportunities for global demand growth. And so, we’re excited and I think we’ll be able to share more as time unfolds here.

And then, the first part of the question was acres that you would expect this year and if you think it has an impact at all or whether – because I think you answered the question for the long-term.

Yes, so I think, you know, again, near term, we’re out talking with folks today, but again, in any adoption cycle, you know, I think it becomes, you know, several fertilizer seasons before you have the approach there. So, you know, I think that’s the reason.

And was your question on corn acres planted specifically in the outlook for 2020, was that your question?

No. I'm sorry, it was – it really was soybeans and whether there’d be any material impact this year whether it was still too early?

Got you, okay.

Thank you. And then, my last question is the boiler project. Were you originally planning for that 30% plus IRR and which typically being conservative is not knowing, frankly, the unknowns? Or were there some things that developed that let the IRR to actually be graded in what you anticipated?

Yes. So, the spend overall, when we talk about $40 million in CapEx, which includes most of that – sorry the $40 million in spent most of that being CapEx is a little bit of expense in there. That came in line with our expectations, which has an impact, obviously, on the returns and the benefits. Really it comes down to the performance of the boilers, which are coming in in-line or better than what we had anticipated, which we now have some run time with them after them being up and starting up in the third quarter of last year, as well as a lower natural gas environment. You know, we’ve seen natural gas prices decline and that has provided more of a benefit than what we had anticipated. You know, I think it's tough to predict exactly where, you know, the future of natural gas prices are going to go. it's – you know some of it is weather dependent, supply-demand dependent overall, but as you saw, natural gas prices have been down, have been low, and some of that being driven by, you know, the warm weather conditions we’ve seen here. So, when you kind of reset those expectations going forward, that doesn't prove the returns on the project.

Thank you both.

Thank you.

Thank you.

And we will take our last question from David Silver with C.L. King.

Okay, hi. Just a couple of follow-ups. So, first would be on your CapEx programs and I believe in Michael’s comments you talked about major project or two being completed in the first half of 2020, and I was just wondering if you could remind me which projects are due to be completed, and you know, put into service in the first half of 2020, is that the caprolactam expansion and upgrade or something else?

Yes. So, when we first really started talking about, you know, these growth and cost savings products in the pipeline associated with that the $150 million to $200 million of, you know, multi-year pipeline that we have and opportunities that we have, it – really the two big projects that we started discussing are the boiler project, which we talked about, started out in the third quarter of last year and we’re seeing really good benefits from that one. And the other one is the caprolactam bottlenecking project, which is set to be completed here and start coming online here in the second quarter. You know, the one thing I'll say about that project, you know, obviously more caprolactam production goes into the nylon space. Nylon, as we’ve talked about, has been a bit more challenging from a supply-demand perspective and we’ve seen, you know, adder and the margins compress a little bit here. But for us, we’re still very excited about that project. Over the long term, we anticipate it will expand our caprolactam capacity by 2%, as well as improve our yields at our downstream Chesterfield resin plant, which will provide benefits there as well. So, that project is again anticipated to come online here in the second quarter.

Okay, great. And just last one, when I look at your – when I look at Slide 10 and I look at your red light, green light, yellow light layout, I mean everything kind of seems to align with your comments, would perhaps the exception of the chemical intermediates and you assigned that a yellow light and I’m just wondering, but my impression was your acetone business was pretty depressed last year such that yourselves and other producers you know persuade any dumping relief, and now that relief seems to be coming in to play, and I don’t want to read into it too much, but the graph, I think on Page 7, kind of point to may be a stabilization in acetone pricing even while underlying propylene costs, you know continue to decline. So, I am just wondering why yellow and not green when you compare full-year 2020 to full-year 2019, which again I thought was fairly depressed from a longer-term perspective? Thank you.

No, sure, and appreciate the question and the challenge here and as we look at the year and certainly Mike pointed out, of the stoplights on that page, and the neutral ratings on AS and chemical intermediates, I think those are the two that we remain cautiously optimistic about as we move forward here into 2020. Obviously, on the acetone we have a number of great mileposts that are moving in our direction and we now need to go do the work to lead pricing back to that fair and disciplined level that we believe that the market should bear and that’s the work that’s underway. You know the duties themselves don’t snap back the market to previous states. So, work to be done there, but again we’re feeling good and we’re focused on it, but again I think it a good call and certainly one where you were going to watch and while we were really – we struggled to cut the length of the oversupply, right. I think, if we go back to where we started, but again good milepost that we’re seeing and we do have some cost optimism here on that being able to improve throughout the year.

Alright, thank you very much for that.

Thank you.

This concludes our question and answer session. I would like to turn the conference back over to Erin Kane for closing remarks.

Great. Thank you all again for your time and interest this morning. As we continue to navigate end market dynamics, we remain focused on successfully executing against our strategic priorities and positioning the company for long-term success. While planning conservatively in the near term, we’re confident in our ability to build upon our advantage foundation and are excited for what we can accomplish for all of our key stakeholders through 2020 and over the long-term. We look forward to speaking with you again next quarter. Have a great day.

Thank you everyone. This concludes today’s teleconference, you may now disconnect.