AdvanSix Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; financial statements are unaudited. AdvanSix operates three U.S. manufacturing facilities across nylon, caprolactam, chemical intermediates and ammonium sulfate.
Key financial results
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Sales | $376.4 million | $302.7 million |
| Gross margin | 15.5% | 10.1% |
| Net income | $28.1 million | $8.6 million |
| Diluted EPS | $0.98 | $0.31 |
| EBITDA (non-GAAP) | $55.1 million | $28.6 million |
| EBITDA margin (non-GAAP) | 14.6% | 9.5% |
| Cash from operating activities | $57.1 million | $19.7 million |
Sales rose 24.3% year over year, reflecting 8.4% higher volume and 15.9% higher pricing. Management cited higher formula-based pass-through pricing, stronger market pricing—particularly for acetone—and volume growth across product lines, led by caprolactam. Gross margin improved mainly on market pricing and volume, partly offset by an unfavorable non-cash LIFO inventory reserve adjustment. Costs of goods sold increased 16.9%; SG&A rose to $19.3 million from $16.7 million, primarily due to incentive and stock-based compensation.
Financial position and cash flows
- At March 31, cash was $14.1 million; revolving-credit borrowings were $246.0 million, down $29.0 million from year-end. Approximately $178 million of the $425 million facility was available.
- Total current assets were $310.1 million and current liabilities were $259.5 million. Inventories declined to $141.8 million from $180.1 million at December 31, 2020.
- Operating cash flow was $57.1 million; investing outflow was $23.9 million, including $14.2 million of capital expenditures and $9.5 million for an acquisition. Financing outflow was $29.6 million, principally reflecting net debt repayment. Cash increased by $3.5 million during the quarter.
- The company reported compliance with credit-agreement covenants at March 31 and through the filing date. $100 million of borrowings was covered by interest-rate swaps; management estimated a 25-basis-point rate change would affect quarterly interest expense by approximately $0.4 million at quarter-end borrowing levels.
Outlook, developments and risks
- Management expects 2021 capital expenditures of approximately $70–$80 million, compared with $83 million in 2020. Planned pension contributions for 2021 are approximately $9–$11 million; $1.2 million was contributed in Q1.
- Management said demand had recovered to pre-COVID-19 levels during the second half of 2020 and through Q1 2021, but warned that the pandemic, new strains and renewed restrictions could disrupt demand, supply chains, operations and liquidity. It cannot reliably estimate future COVID-19 impacts.
- In January, AdvanSix acquired ammonium-sulfate packaging, warehousing and logistics assets in Virginia for approximately $9.5 million. The acquisition is intended to expand packaged fertilizer and specialty-product offerings and improve logistics; purchase-price allocation remains preliminary.
- A $12.3 million federal tax refund related to a CARES Act NOL carryback was received in Q1 and contributed to cash flow. The effective tax rate was 24.8%, versus 29.9% in Q1 2020.
- Risks include cyclical end markets and commodity prices, raw-material costs and availability, planned or unplanned plant and logistics interruptions, customer concentration, leverage and covenant requirements, and COVID-19 uncertainty. The ten largest customers accounted for about 38% of sales; the largest customer, Shaw, represented 12%.
- The company reported no material changes to previously disclosed risk factors, no material off-balance-sheet arrangements, and no known legal matters expected to materially affect its financial position or results. It noted ongoing environmental remediation obligations, which it does not expect to be material based on known costs.
Important facts for investors to verify
- Whether demand recovery, pricing and volume gains continue, especially in chemical intermediates and caprolactam.
- Whether raw-material inflation, LIFO adjustments and other costs affect margins in coming quarters.
- Progress on cash generation, working capital, capital spending and the planned reduction in revolving-credit debt; confirm covenant headroom.
- Final acquisition asset valuations and whether the Virginia expansion delivers the expected commercial and logistics benefits.
- Potential changes in COVID-19 impacts, customer concentration, plant reliability, environmental obligations and other contingencies.
- Management’s filing states that actual quarterly closing dates were April 3, 2021 and March 28, 2020; consider this calendar difference when assessing year-over-year comparability.