AdvanSix's Q3 2025: Contradictions Emerge on Ammonium Sulfate Demand, Tax Benefits, Nylon 6 Tariffs, and Bonus Depreciation Impact

Date of Call: None provided

Financials Results

• Revenue: $374M, down approximately 6% versus prior year
• Gross Margin: Domestic nylon solution margins over benzene expanded year over year; company-level gross margin not disclosed
• Operating Margin: Adjusted EBITDA margin 6.6%; Adjusted EBITDA $25M, down $28M versus prior year

Guidance:

• 2025 CapEx now expected to be $120-$125M; 2026 CapEx expected $125-$135M.
• Expect positive free cash flow for full-year 2025; strong free cash flow anticipated in Q4 supported by working capital tailwinds and ammonium sulfate pre-buy advances.
• Anticipate cash tax rate below 10% over the next few years aided by 45Q credits and 100% bonus depreciation.
• 4Q EBITDA expected to be negatively impacted $7-$9M due to Chesterfield outage.
• Sustained growth program tracking ~15% below budget and unlocking ~200k tons of granular ammonium sulfate.

Business Commentary:

* Sales and Earnings Performance: - AdvanSix's sales for Q3 were $374 million, a 6% decrease from the prior year. - The decline was primarily due to softer demand in chemical intermediates and nylon end markets, as well as higher utility costs due to increasing natural gas prices. * Chemical Intermediates Market: - Chemical intermediates sales showed weakness, with acetone accounting for about 50% of the sales in this segment. - The decline in acetone pricing was anticipated, as market conditions led to moderation from multi-year highs observed in 2024. * Ammonium Sulfate Performance: - Ammonium sulfate revenue reached a record high for a third-quarter, driven by a 20% year-over-year increase in granular volume. - The growth was attributed to the company's sustained growth program and favorable fall pickup in sales. * Capital Expenditures and Cash Management: - AdvanSix revised its 2025 CapEx guidance to $120-$125 million, reflecting a $30 million reduction through refined risk-based prioritization and execution. - The company is targeting positive free cash flow for the full year of 2025, focusing on working capital initiatives and cost productivity to bolster sustained cash flow generation. * Strategic Initiatives and Board Appointments: - AdvanSix added two new members, Dana O’Brien and Daryl Roberts, to its board of directors, enhancing its expertise in global manufacturing and corporate governance. - The company is advancing strategic growth priorities, with select and targeted investments progressing as planned.

Sentiment Analysis:

Overall Tone: Neutral

• Sales of $374M declined ~6% YoY and adjusted EBITDA was $25M, down $28M YoY; management emphasized moderating production to manage inventory and prioritize free cash flow, while noting sustained growth program progress and long-term positioning.

Q&A:

• Question from David Silver (Freedom Capital Markets): Can you provide color on the chemical intermediates market and whether declines were primarily driven by acetone or broader weakness?
  Response: Acetone moderation from 2024 highs was the primary driver; overall chemical intermediates weakness is broad but expected to moderate toward cycle averages.

• Question from David Silver (Freedom Capital Markets): What drove the strong ammonium sulfate revenue in Q3—geographic mix, advanced purchasing, or sustained growth volume?
  Response: Granular volume was up ~20% YoY from the sustained growth program combined with a stronger fall fill, driving the record Q3 revenue for the segment.

• Question from David Silver (Freedom Capital Markets): How do you approach hedging for raw materials like sulfur and natural gas and how should we model 4Q input cost exposure?
  Response: We generally do not hedge regularly; sulfur is difficult to hedge and we have not pursued broad gas hedging—some formula-based natural gas coverage exists in pricing, so costs largely flow through spot markets.

• Question from David Silver (Freedom Capital Markets): Update on Section 45Q carbon capture credits timing and amounts—when will the first credits be realized and what next filings are expected?
  Response: Amended returns triggered audits; timing has shifted and receipt of applied-for credits is expected in 2026; cumulative program benefit remains expected at ~$100M-$120M over its life.

• Question from David Silver (Freedom Capital Markets): How does 100% bonus depreciation affect GAAP vs cash tax—will it change reported taxes or just cash taxes?
  Response: 100% bonus depreciation materially lowers cash tax payments (benefit grows in 2026+), but it has limited impact on GAAP effective tax rate; expect cash tax rate below 10% in coming years.

• Question from David Silver (Freedom Capital Markets): Can you outline the cost reduction initiatives referenced for 2026 and the timing to quantify targets?
  Response: Program will target non-labor fixed costs and productivity (energy/yield optimization); it is a multi-year effort with clearer 2026 targets to be quantified and disclosed around February.

• Question from David Silver (Freedom Capital Markets): Can you describe the recent intellectual property settlement regarding Easy Blocks—monetary terms or ongoing customer relationships?
  Response: The settlement included monetary terms and licensing arrangements, upholds our IP, restricts violative importers, and positions the company for increased sales via proper customer/distribution channels.

Contradiction Point 1

Ammonium Sulfate Demand and Pricing

It involves differing perspectives on the demand and pricing trends for ammonium sulfate, which impacts revenue projections and market positioning.

Could you discuss the ammonium sulfate results this quarter, particularly the revenue figures? - David Silver (Freedom Capital Markets)

2025Q3: With the sustained growth program, we've increased granular volume, coupled with a good fall pickup. We had less standard product to sell, reducing geographical mix considerations. Year-over-year granular volume was up 20%. - Erin Kane(CEO)

What's the outlook for the ammonium sulfate business and the fall fill program? - Unidentified Analyst (Freedom Capital)

2025Q2: We experienced a strong fertilizer year with higher pricing, driving a 7% increase in domestic granular sales volume. - Erin N. Kane(CEO)

Contradiction Point 2

Tax Benefits and Cash Flow Generation

It involves differing expectations regarding tax benefits and their impact on cash flow, which are crucial for financial planning and investor expectations.

Can you explain bonus depreciation? - David Silver (Freedom Capital Markets)

2025Q3: 100% bonus depreciation affects our cash tax rate. The biggest benefit in 2025 is $2 million, with larger benefits expected in 2026 and 2027. - Chris Graham(CFO)

What levers support free cash flow generation, and when are carbon tax credit cash receipts expected? - Unidentified Analyst (Freedom Capital)

2025Q2: We expect second-half cash flow to improve sequentially. 45Q credit refunds are expected this year following IRS audit completion. - Christopher Gramm(CFO)

Contradiction Point 3

Nylon 6 Tariffs and Market Share Opportunities

It highlights the company's stance on the potential impact of tariffs on nylon from China and the opportunity for market share pickup, which is crucial for strategic planning and investor expectations.

Can you provide more details on the chemical intermediates market and pricing environment? Were the revenue declines and margin pressures mainly due to acetone, or did the weakness affect other key products or end markets? - David Silver (Freedom Capital Markets)

2025Q3: The nylon space is challenging if tariffs lead to higher costs. We're watching closely for changes in automotive demand linked to Mexico and U.S. demand. Currently, nylon 6 is excluded from retaliatory tariff lists, which could change. - Erin Kane(CEO)

If tariffs on nylon from China increase costs, can you gain market share and how will product mix be affected? - Charles Neivert (Piper Sandler)

2025Q1: The nylon space is challenging if tariffs lead to higher costs. We're watching closely for changes in automotive demand linked to Mexico and U.S. demand. Currently, nylon 6 is excluded from retaliatory tariff lists, which could change. - Erin Kane(CEO)

Contradiction Point 4

Bonus Depreciation Impact on Financial Statements

It involves potential changes in the impact of bonus depreciation on financial results, which are important for investors to understand the company's tax strategy and cash flow management.

Can you clarify the impact of bonus depreciation? Does it impact GAAP and non-GAAP results, or does it only appear in tax filings? - David Silver (Freedom Capital Markets)

2025Q3: 100% bonus depreciation affects our cash tax rate. The biggest benefit in 2025 is $2 million, with larger benefits expected in 2026 and 2027. The change in the tax rate is not expected to significantly impact the effective tax rate. - Chris Graham(CFO)

Any other changes to short-term assumptions? How will bonus depreciation affect the 2025 cash tax rate? - David Silver (CL King)

2025Q1: We expect 100% bonus depreciation to reduce our cash tax rate by approximately $3 million in 2025. - Sidd Manjeshwar(CFO)