AdvanSix Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; comparative period is Q1 2022. AdvanSix is a U.S.-based diversified chemicals producer with product lines in nylon, caprolactam, chemical intermediates and ammonium sulfate fertilizer.
Financial performance
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Sales | $400.5 million | $479.1 million |
| Gross margin | 17.6% | 21.6% |
| Net income | $35.0 million | $63.1 million |
| Diluted EPS | $1.22 | $2.15 |
| Adjusted EBITDA (non-GAAP) | $65.4 million | $103.2 million |
| Adjusted EBITDA margin (non-GAAP) | 16.3% | 21.5% |
| Operating cash flow | $1.6 million | $49.2 million |
| Cash capital expenditures | $24.6 million | $21.0 million |
Sales declined 16.4%, reflecting lower volume (8.8%) and pricing (10.1%), partly offset by the U.S. Amines acquisition (2.5%). Management cited soft end-market demand, lower ammonium sulfate and nylon pricing, and lower raw-material pass-through pricing. Gross profit was approximately $70.5 million, versus $103.4 million a year earlier. Lower production and increased plant maintenance and operational-enhancement spending weighed on gross margin. SG&A rose to $25.1 million from $21.2 million, primarily due to ERP upgrades and functional support costs.
Financial position and liquidity
- At March 31, 2023, cash was $1.8 million, down from $31.0 million at year-end 2022. Total assets were $1.449 billion and stockholders’ equity was $758.1 million.
- Revolver borrowings were $127 million, up $12 million from December 31, 2022. Approximately $372 million of revolving capacity remained available. The company reported compliance with its debt covenants.
- Operating cash flow fell substantially year over year, with management attributing the decline mainly to lower net income and a $57.3 million unfavorable working-capital impact. The quarter’s cash decline was $29.2 million.
- Cash paid for dividends was $4.0 million and share repurchases were $13.5 million. Inventory was $224.6 million, up from $215.5 million at year-end.
Outlook, risks and unusual items
- Management expects 2023 capital expenditures of approximately $110–$120 million, compared with $89 million in 2022, for infrastructure, maintenance, growth and cost-savings projects. It believes cash generation and available credit will support planned needs, subject to stated risks.
- After quarter-end, a strike began on April 7 involving approximately 340 workers at the Hopewell, Virginia facility. The company said it continued operating, had contingency measures, had no estimate for the timing of negotiations, and did not expect a material financial impact.
- Risks highlighted include weak or cyclical customer demand, raw-material costs and supply, unplanned downtime and integrated-facility disruptions, labor stoppages, logistics, interest-rate exposure, and environmental and safety obligations. A 25-basis-point rate change at quarter-end borrowing levels was estimated to affect quarterly interest expense by approximately $0.3 million.
- The filing describes ongoing environmental and other legal matters. The company did not expect known matters to materially affect its financial position or results; a Philadelphia air-emissions matter settled for approximately $62,000, and EPA matters may potentially result in penalties.
- The company reported no goodwill impairment at its March 31 annual assessment. Its interest-rate swap matured in February 2023. The company said it was not currently subject to the IRA corporate alternative minimum tax and did not expect the stock-repurchase excise tax to materially affect financial condition.
Key facts for investors to verify
- Whether weak end-market demand and lower product pricing persist, and how sales volumes and margins develop.
- Operating cash conversion and working-capital movements, particularly accounts payable, inventory and customer advances.
- Hopewell strike duration and any resulting production, customer-service or cost effects.
- Execution and funding of the $110–$120 million capital-spending plan, alongside dividends and repurchases.
- Revolver balance, available capacity and continued covenant compliance as interest rates and operating results change.
- Developments in EPA matters and other environmental, legal or remediation obligations.