AdvanSix Inc. — Q3 2021 Form 10-Q
Reporting period: Quarter ended September 30, 2021; comparisons are with the corresponding 2020 period. AdvanSix is a vertically integrated U.S. manufacturer serving nylon, chemical intermediates, and plant-nutrient markets.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Sales | $446.5 million | $281.9 million | $1,260.6 million | $817.6 million |
| Gross margin | 18.0% | 5.7% | 17.4% | 9.9% |
| Net income (loss) | $43.9 million | $(0.7) million | $116.2 million | $19.3 million |
| Diluted EPS | $1.51 | $(0.02) | $4.02 | $0.69 |
| EBITDA margin (non-GAAP) | 16.8% | 5.6% | 16.4% | 9.2% |
Q3 sales rose 58.4% year over year, reflecting higher market pricing, formula-based pass-through pricing and 7.9% higher volume. For the nine months, sales increased 54.2%, including 15.3% higher volume. Management attributed the improvement to stronger demand and pricing across product lines, with raw-material pass-throughs linked to higher benzene and propylene costs. Q3 gross margin improvement also included a favorable year-over-year turnaround comparison and additional insurance proceeds related to the 2019 shutdown of a cumene supplier.
For the first nine months, operating cash flow was $185.5 million, compared with $64.1 million in 2020. Investing cash outflow was $48.0 million, including $37.5 million of capital expenditures and a $9.5 million acquisition. Financing cash outflow was $140.9 million, primarily reflecting net debt repayments. Cash declined to $7.2 million from $10.6 million at year-end 2020.
Balance sheet, liquidity and capital allocation
At September 30, 2021, the company reported $135.0 million drawn on its revolving credit facility, down from $275.0 million at December 31, 2020. It reported $289 million of availability under the then-existing $425 million facility and was in compliance with its debt covenants. Total liabilities were $724.1 million and stockholders’ equity was $566.3 million.
On October 27, 2021, after quarter-end, AdvanSix refinanced the facility with a new $500 million senior secured revolving credit facility maturing October 27, 2026. The company reported $150 million borrowed under the new facility at that date. The agreement includes leverage and interest-coverage covenants, collateral requirements, and restrictions on certain activities.
Management expected 2021 capital expenditures of approximately $63 million, compared with $83 million in 2020. The company declared a quarterly dividend of $0.125 per share, payable in November 2021. It planned 2021 pension contributions of approximately $18 million to $23 million; $17.5 million had been contributed through September.
Material changes, outlook and risks
- Demand had improved to pre-pandemic levels by Q3 2021, according to management, following the significant COVID-19-related demand impact in 2020. The company said the future effects of COVID-19 remained uncertain.
- Management gave capital-spending and pension-contribution expectations but no specific revenue or earnings guidance in the supplied filing text.
- Raw-material prices, supply-chain and logistics disruptions, inflation, plant outages and scheduled turnarounds may affect costs and production. The integrated manufacturing model can amplify the effect of a disruption at one facility.
- Ammonium sulfate sales are seasonal. The company also disclosed customer concentration: its ten largest customers represented 43% of Q3 sales, and Shaw accounted for 13%.
- Ongoing lawsuits and environmental remediation obligations were not expected by the company to have a material adverse effect, though outcomes and potential liabilities may change. The filing reported no material changes to previously disclosed risk factors.
- The January 2021 acquisition of ammonium sulfate packaging, warehousing and logistics assets for $9.5 million was intended to expand packaged offerings and improve logistics.
Important facts for investors to verify
- Whether higher market pricing and pass-throughs continue to cover raw-material, freight and operating-cost increases.
- Whether demand, production reliability and working-capital trends support the strong year-to-date operating cash flow.
- Borrowings, available capacity and covenant headroom under the refinanced credit agreement, including the effect of its collateral and restrictions.
- Progress against the stated 2021 capital-expenditure and pension-funding expectations.
- Exposure to major customers, seasonal fertilizer demand, COVID-19 developments, and supply or logistics disruptions.