AdvanSix Inc. 2026 Q2 Earnings Call

Good morning and welcome to AdvanSix's Second Quarter 2026 Earnings Conference Call. With me here today are President and CEO, Erin Kane, and Senior Vice President and CFO, Patrick Day. 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, as further updated in subsequent filings with the SEC.

This morning, we will review our financial results for the second quarter 2026 and share our outlook for our key product lines and end markets. Finally, we'll leave time for your questions at the end. With that, I'll turn the call over to AdvanSix's President and CEO, Erin Kane.

Thanks, Adam, and good morning, everyone. We appreciate you joining us here today for our quarterly call. As you saw in our press release, our resilient second quarter results reflected a significant sequential improvement in earnings and cash flow amid what remains a highly dynamic macro environment, particularly in Plant Nutrients. Patrick will dive into the financials in a moment, but I would like to start the discussion today framing our key strategic priorities. To drive through cycle value creation and support total shareholder return with higher highs and higher lows, we remain focused on commercial execution, operational excellence, and disciplined capital deployment. These are the controllable levers that are critical to anchor our performance. On commercial execution, we continue to focus on winning with customers to profitably fill our plants and shifting product mix towards higher-value applications.

Our commercial teams continue to leverage both formula and market-based pricing mechanisms to recover inflationary raw material costs. In the quarter, strong pricing across Plant Nutrients, Chemical Intermediates, and Nylon Solutions offset higher sulfur, benzene, and propylene costs. Importantly, our year-over-year net price over raws impact was neutral in the quarter, which is a notable improvement from the first quarter headwind. On operational excellence, we are well-positioned through our integrated asset base, global low-cost position, and continued focus on productivity. Our base capital investments support safe, stable, and sustainable operations. As we discussed on prior calls, our ammonia turnaround was moved to the second quarter and scoped to align with our supplier's natural gas pipeline inspection. We are pleased to share that we executed to our expectations. Lastly, we are focused on generating meaningful operating cash flow to support disciplined capital deployment.

From a working capital perspective, our cash conversion cycle benchmarks in the top quartile among peers. Our significant runway of opportunity on Section 45Q carbon capture tax credits also supports future cash generation. As we allocate capital, our discretionary organic investments target greater than 20% returns. Our SUSTAIN growth program is generating returns in excess of 30%, and we remain on track to deliver product mix optimization with 75% ammonium sulfate granular conversion. This is an important milestone as we continue to align our production output with growing demand for sulfur nutrition. We will continue to ensure a well-managed balance sheet that will afford the investments for performance and growth. We continue to expect improved earnings and cash flow in the second half of the year compared to the first half as we build momentum into 2027.

While the near-term market environment has been mixed, our durable competitive advantage, portfolio resiliency across a diverse set of end markets, and our long-term positioning for growth underpin what we believe is a compelling investment thesis for AdvanSix. Let's turn to slide four. Based on our expectations coming out of the first quarter earnings call, a number of items played out as anticipated. Notably, the sequential improvement in net pricing over rising raw material costs was a primary driver of our earnings improvement. Both Nylon Solutions and Chemical Intermediates performed at or better than our expectations, with strong commercial performance and mix optimization supporting margins. Plant Nutrients volume, however, was lower than anticipated. The spring planting season saw a significant increase in grower input costs while crop and grain prices remained steady at lower levels. This unfavorably impacted farmer profitability and resulted in a reduction of fertilizer consumption overall.

Despite these challenges, we ended the full fertilizer year at near record volume performance for domestic granular ammonium sulfate. Lastly, our utilization rates were lower on operational performance, including the impact of our ammonia plant turnaround. With that, I'll turn to Patrick to discuss the financials.

Thanks, Erin. I'm now on slide five to discuss our results for the quarter. Sales of $421 million increased approximately 3% versus the prior year, comprised of 18% favorable pricing, partially offset by a 15% decline in volume. Raw material pass-through pricing was up 13%, following a net cost increase in benzene and propylene. Market-based pricing improved 5%, primarily driven by an increase in Plant Nutrients, reflecting higher nitrogen pricing amid increased sulfur input costs. Lower sales volume was primarily driven by more challenging agricultural fundamentals, including farmer economics, which resulted in a reduction of in-season fertilizer purchases. Adjusted EBITDA was $32 million, down $24 million from last year. I will highlight the key year-over-year variances in a moment. Adjusted earnings per share of $0.19 declined $1.05 versus the prior year.

The higher effective tax rate compared to last year was driven primarily by 45Q carbon capture tax credits claimed in the prior year period and changes in taxable income. We expect the full year 2026 effective tax rate to be in the range of 10%-15% prior to any additional 45Q claims. On a sequential basis compared to the first quarter, earnings and cash flow improved significantly with tailwinds across the portfolio from net favorable pricing over raw material input costs. Overall, a testament to the commercial performance in the first half of this year. Let's turn to slide six. In the quarter, we drove pricing improvement across the portfolio on both a year-over-year and sequential basis. This was supported by higher raw material pass-through pricing, as well as an increase in market-based pricing.

The primary driver of lower volume, both year-over-year and sequentially, was Plant Nutrients due to the in-season dynamics we observed. To a lesser extent, we saw modestly lower volumes quarter-over-quarter in Nylon Solutions and Chemical Intermediates. Across Nylon Solutions, resin volumes increased year-over-year on improved operational performance, while caprolactam volumes moderated in a soft demand environment for carpet applications. We saw a reduction overall in export volume sequentially in the second quarter. A more constrained production environment, including the planned turnaround activities, shifted our focus to serving our North American customers. Consistent with our ongoing operating approach, we evaluate the optimal product and geographic mix to ensure the best economic outcome for the integrated enterprise. Let's turn to slide seven. Here, we highlight the key drivers of our second quarter Adjusted EBITDA performance year-over-year.

We completely offset the significant raw material cost increase in the quarter through commercial execution and pricing actions. We thought it was important to highlight in this environment the magnitude of the input cost inflation that we were able to offset through pricing in the quarter. As you can see on the right side of this slide, raw material costs were a headwind of $72 million in the second quarter on a year-over-year basis. This was primarily driven by rising benzene and sulfur prices. We were able to fully recoup that impact through strong commercial execution with favorable market and pass-through pricing across the portfolio. On a sequential basis, while we incurred a $10 million headwind in 1Q, we saw that flip to a $39 million tailwind in 2Q. This was also supported by strong pricing in each business line, more than offsetting rising benzene, sulfur, and propylene costs.

Back to the bridge on the left side of the chart. Volume represented a $17 million unfavorable impact, primarily driven by lower sales in Plant Nutrients in the face of more challenging agricultural fundamentals, including farmer economics. Operationally, we saw an approximately $4 million unfavorable impact from the timing of planned plant turnarounds. Lastly, all other items netted to a $3 million headwind, with the impact of reduced production output partially offset by lower SG&A as planned. Let's turn to slide eight. On the left side of the page, we've shown our first half free cash flow generation for 2025 and 2026. Our year-to-date performance is largely tracking to last year when taking into account approximately $26 million of insurance proceeds in the prior year period.

Working capital, although improved year-over-year, has been a seasonal use of cash in the first half as expected. The primary driver of the improvement was disciplined inventory management. As we've shared previously, there is non-linearity in our cash flow on a quarterly basis. We look forward into the second half, we anticipate significant sequential improvement, notably as a result of our reduced CapEx run rate, working capital tailwinds, including our fourth quarter pre-buy program in Plant Nutrients, timing of annual payments paid in the first half, and 45Q cash tax credits. Let me turn the call back to Erin.