AdvanSix Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. This is an annual filing, not a standalone fourth-quarter report; quarterly results are not clearly provided in the supplied filing text. Amounts below are in U.S. dollars.
Business context
AdvanSix is a vertically integrated U.S. chemical manufacturer and reports one operating and reportable segment. Its principal product lines are Nylon 6 resin, caprolactam, chemical intermediates and ammonium sulfate fertilizer. It operates manufacturing facilities in Pennsylvania and Virginia and serves about 400 customers in roughly 50 countries.
Financial performance and liquidity
| Metric | FY2021 | FY2020 |
|---|---|---|
| Sales | $1,684.6 million | $1,157.9 million |
| Gross margin | 16.3% | 11.6% |
| Income before taxes | $185.1 million | $55.0 million |
| Net income | $139.8 million | $46.1 million |
| Diluted EPS | $4.81 | $1.64 |
| EBITDA margin (non-GAAP) | 15.2% | 10.7% |
| Cash from operating activities | $218.8 million | $111.8 million |
| Capital expenditures | $56.8 million | $82.9 million |
- Sales mix in 2021: chemical intermediates $544.5 million (32%); Nylon $422.9 million (25%); ammonium sulfate $401.1 million (24%); caprolactam $316.1 million (19%).
- Year-end cash was $15.1 million. Debt outstanding was $135 million, down from $275 million a year earlier; $364 million remained available under the $500 million revolving facility.
- Net cash used in investing activities was $67.6 million; net cash used in financing activities was $146.8 million, principally reflecting net debt repayments. Cash increased $4.5 million during the year.
- Year-end total assets were $1.312 billion and stockholders’ equity was $601.2 million.
- The company paid $3.5 million in dividends in 2021 and began a quarterly dividend of $0.125 per share. A further $0.125 dividend was declared in February 2022.
Material changes versus FY2020
- Sales rose 45.5%: approximately 38.1 percentage points came from price and 7.4 points from volume. Management attributed the improvement to stronger market pricing, formula-based feedstock pass-through pricing, improved demand and tight industry supply.
- Costs of goods sold increased 37.7%, mainly from higher raw-material costs and increased volume, plant spending and freight. Gross margin nevertheless expanded by about 4.7 percentage points.
- Net income increased to $139.8 million from $46.1 million. Operating cash flow rose by $107.0 million, supported by earnings and a $12.3 million tax refund received in 2021.
- Capital expenditures fell by $26.1 million, which the company attributed to project execution efficiencies, timing and completion of several investments in 2020.
- AdvanSix acquired ammonium-sulfate packaging, warehousing and logistics assets for approximately $9.5 million. In October 2021 it refinanced its revolving facility, extending scheduled maturity to October 2026.
Outlook, commentary and risks
- Management expects 2022 capital expenditures of approximately $95 million to $105 million and pension contributions of $10 million to $15 million. No specific earnings or revenue guidance is provided in the filing.
- In February 2022, the company signed an agreement to acquire U.S. Amines for an estimated net purchase price of approximately $100 million; closing was expected in Q1 2022, subject to customary conditions.
- The shutdown of Philadelphia Energy Solutions’ refinery had an approximately $35 million unfavorable cumulative pre-tax impact through year-end 2021. AdvanSix had received $3.9 million in insurance proceeds and said its business-interruption claim remained ongoing.
- Management says COVID-19 demand had recovered to pre-pandemic levels by the second half of 2020 and remained so through 2021, but cannot reliably estimate future pandemic impacts. Risks include cyclical prices and spreads, inflation and supply-chain disruption, raw-material availability and cost, unplanned plant downtime, customer concentration, and environmental, safety and regulatory liabilities.
- The new credit agreement is secured by substantially all domestic assets and includes leverage and interest-coverage covenants. The company reported compliance at December 31, 2021 and through the filing date. Floating-rate debt, LIBOR transition, pension funding and the company’s capital-intensive operations remain relevant financial risks.
- Management and the auditor reported effective internal control over financial reporting. The auditor identified revenue recognition and the timing of transfer of control as a critical audit matter. The company said the EPA matter concerning alleged, self-reported Hopewell compliance violations was under negotiation and was not expected to have a material adverse effect.
Important facts for investors to verify
- Whether FY2021 pricing and margin gains are sustainable as raw-material costs, industry supply and demand, and product spreads change.
- The status and recoverability of the outstanding Philadelphia Energy Solutions insurance claim and the cumulative $35 million impact.
- U.S. Amines acquisition closing, final purchase price, financing and expected contribution to earnings and cash flow.
- Execution and returns on the planned $95 million–$105 million of 2022 capital expenditures, alongside pension funding needs.
- Available revolving-credit capacity, covenant headroom, interest-rate exposure and the effect of debt restrictions on dividends or repurchases.
- Customer concentration: the ten largest customers represented about 40% of 2021 sales, and Shaw represented 12%.