AdvanSix Inc. — Q1 2022 Form 10-Q
Business context and period: Unaudited results for the three months ended March 31, 2022, compared with Q1 2021. AdvanSix manufactures nylon, caprolactam, chemical intermediates and ammonium sulfate through an integrated U.S. production network. It acquired U.S. Amines in February 2022.
Financial results
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Sales | $479.1 million | $376.4 million | Up 27.3% |
| Gross margin | 21.6% | 15.5% | Up 6.1 percentage points |
| Income before taxes | $82.3 million | $37.4 million | Up 120% |
| Net income | $63.1 million | $28.1 million | Up 124% |
| Diluted EPS | $2.15 | $0.98 | Up 120% |
| Adjusted EBITDA (non-GAAP) | $103.2 million | $57.6 million | Up 79% |
| Adjusted EBITDA margin (non-GAAP) | 21.5% | 15.3% | Up 6.2 percentage points |
| Cash from operations | $49.2 million | $57.1 million | Down $7.9 million |
| Cash used in investing | $119.9 million | $23.9 million | Higher mainly due to acquisition |
Sales growth reflected higher market-based and raw-material pass-through pricing, partly offset by 4% lower volume; the filing attributes approximately 2% of growth to acquisitions. Costs of goods sold rose 18%, chiefly from higher natural gas and sulfur costs. Management cited pricing and a favorable prior-year LIFO reserve adjustment as key contributors to gross-margin expansion. SG&A was $21.2 million, or 4.4% of sales, versus $19.3 million, or 5.1%.
Balance sheet, debt and liquidity
- Cash was $19.3 million at March 31, 2022, versus $15.1 million at year-end 2021. Current assets were $412.5 million and current liabilities $307.3 million.
- Revolving credit facility borrowings were $220 million, up from $135 million at December 31, 2021; approximately $279 million of facility capacity remained available. The $500 million facility matures October 2026.
- Total assets were $1.457 billion and total liabilities $798.7 million. Stockholders’ equity was $658.4 million.
- Operating cash flow was below the prior-year period, primarily reflecting a $43.9 million adverse year-over-year working-capital swing and payment timing, partly offset by higher net income and income-tax cash effects. Investing included $98.6 million for U.S. Amines and $21.0 million of capital expenditure cash payments.
- Cash provided by financing was $74.9 million, including $85 million of net borrowings, alongside $7.0 million of share repurchases and $3.5 million of dividends paid.
Material changes and notable items
- U.S. Amines was acquired for approximately $98 million net of acquired cash; net cash paid was $98.6 million, including a working-capital adjustment. Preliminary purchase accounting added $40.3 million of goodwill and $31.4 million of intangible assets. Valuations were not final.
- Ammonium sulfate sales increased to $154.8 million from $70.8 million; its share of sales rose to 32% from 19%. Chemical intermediates declined to $135.7 million from $141.4 million, and caprolactam to $70.0 million from $80.4 million.
- Inventory carrying value was $163.4 million. The excess of replacement cost over carrying value for LIFO inventory rose to $72.5 million from $29.4 million at year-end 2021; the filing notes that substantially all inventory is valued using LIFO.
- The company paid a quarterly dividend of $0.125 per share and repurchased 181,536 shares, including shares withheld for tax obligations. $54.8 million remained under the repurchase authorization at quarter-end.
Outlook, risks and contingencies
- No specific revenue, earnings or margin guidance is provided. Management expects 2022 capital expenditures of approximately $95–$105 million, versus $57 million in 2021, reflecting maintenance and health, safety and environmental spending.
- Management said cash, operating cash flow and available credit should support operating needs and strategic plans, subject to risks and uncertainties. It planned 2022 pension contributions of approximately $5–$15 million; $5 million was contributed in April.
- Key risks include inflation and raw-material cost or supply volatility, labor and logistics constraints, production interruptions at integrated facilities, seasonal fertilizer demand, COVID-19 uncertainty, geopolitical and market disruption, floating-rate debt exposure, and environmental and chemical-manufacturing obligations. The company said it could not reliably estimate the future effects of COVID-19.
- The company reported compliance with credit-facility covenants at March 31 and through the filing date. A $50 million interest-rate swap hedged part of floating-rate borrowings; a 25-basis-point rate change was estimated to affect quarterly interest expense by approximately $0.4 million.
- Management did not expect known litigation or environmental remediation matters to materially affect results or financial position, while noting outcomes and potential liabilities remain uncertain. No material changes to previously disclosed risk factors were reported.
Important facts for investors to verify
- Whether pricing, margins and earnings remain resilient as raw-material costs, demand and product mix change; assess the contribution of the prior-year LIFO adjustment.
- How working capital, particularly receivables and inventories, affects operating cash conversion and liquidity.
- U.S. Amines’ finalized purchase accounting, integration, and contribution to revenue and earnings; post-acquisition results were not separately presented.
- Debt levels, interest costs, covenant headroom and availability under the revolver as capital spending and cash requirements evolve.
- Execution and returns on the $95–$105 million 2022 capital program, alongside dividend and share-repurchase decisions.