AdvanSix Inc

Previous wording

In January 2024, the Company experienced a process-based operational disruption at its Frankford, Pennsylvania manufacturing site temporarily reducing phenol and acetone production at the facility, as well as production at its Hopewell and Chesterfield, Virginia facilities. As a result of a delayed ramp to targeted utilization rates, the Company recognized an unfavorable impact to pre-tax income in the first quarter 2024 of approximately $27 million, comprised of the impact of lost sales and other additional costs including purchases of replacement product and incremental plant spend. The Company returned to targeted utilization rates at its Frankford, Pennsylvania manufacturing site, as well as across its value chain, prior to quarter end.

Current wording

In January 2024, the Company experienced a process-based operational disruption at its Frankford, Pennsylvania manufacturing site temporarily reducing phenol and acetone production at the facility, as well as production at its Hopewell and Chesterfield, Virginia facilities. As a result of a delayed ramp to targeted utilization rates, the Company recognized an unfavorable impact to pre-tax income in the first quarter 2024 of approximately $27 million, comprised of the impact of lost sales and other additional costs including purchases of replacement product and incremental plant spend. The Company returned to targeted utilization rates at its Frankford, Pennsylvania manufacturing site, as well as across its value chain, prior to the end of the first quarter of 2024.

Previous wording

Sales decreased in the three months ended March 31, 2024 compared to the prior year period by $63.7 million (approximately 16%) due to (i) net unfavorable market-based pricing (approximately 9%) primarily reflecting reduced ammonium sulfate pricing amid lower raw material input costs and a more stable global nitrogen supply environment, as well as lower nylon pricing due to unfavorable supply and demand conditions, and (ii) a decrease in sales volume (approximately 7%) primarily driven by lost sales resulting from the first quarter operational disruption.

Current wording

Sales decreased in the six months ended June 30, 2024 compared to the prior year period by $38.2 million (approximately 5%) due to (i) net unfavorable impact of market-based and raw material pass-through pricing (approximately 4%) primarily reflecting reduced ammonium sulfate pricing amid lower raw material input costs and a more stable global nitrogen supply environment, as well as lower nylon pricing due to unfavorable supply and demand conditions, and (ii) a decrease in sales volume (approximately 1%) primarily driven by lost sales resulting from the first quarter operational disruption partially offset by strong second quarter sales volume.

Previous wording

Costs of goods sold increased in the three months ended March 31, 2024 compared to the prior year period by $3.8 million (approximately 1%) due to the net impact of lower production volumes and incremental costs primarily driven by the process-based operational disruption at the Frankford, Pennsylvania manufacturing site (approximately 4%), partially offset by decreased prices of raw materials (approximately 3%).

Current wording

Costs of goods sold increased in the six months ended June 30, 2024 compared to the prior year period by $16.0 million (approximately 2%) due to increased second quarter 2024 sales volume (approximately 2%), the impact of lower production volumes primarily driven by the process-based operational disruption at the Frankford, Pennsylvania manufacturing site (approximately 1%), partially offset by a decrease in raw material costs driven by natural gas and sulfur (approximately 2%).

Previous wording

Gross margin percentage decreased in the three months ended March 31, 2024 compared to the prior year period (approximately 17%) due primarily to (i) the net impact of lower sales volume and changes in sales mix (approximately 7%) as well as lower production volumes and incremental costs (approximately 4%), both which were driven primarily by the process-based operational disruption at the Frankford, Pennsylvania manufacturing site and (ii) the impact of market-based pricing, net of raw material costs (approximately 6%).

Current wording

Gross margin percentage decreased in the six months ended June 30, 2024 compared to the prior year period (approximately 6%) due primarily to (i) the net impact of lower sales volume and changes in sales mix (approximately 2%) as well as lower production volumes (approximately 1%), primarily driven by the process-based operational disruption at the Frankford, Pennsylvania manufacturing site and (ii) the impact of market-based pricing, net of raw material costs (approximately 2%).

Previous wording

Selling, general and administrative expenses decreased by $1.5 million in the three months ended March 31, 2024 compared to the prior year period due to lower functional support costs.

Current wording

Selling, general and administrative expenses decreased by $1.1 million in the six months ended June 30, 2024 compared to the prior year period due to lower bad debt expense and a decline in functional support costs, including a moderation of enterprise resource planning system expense from the prior year.

Previous wording

The Company’s effective tax rate for the three months ended March 31, 2024 was higher than the U.S. federal statutory rate, due to the impacts of state taxes and executive compensation deduction limitations, partially offset by tax credits. The Company’s effective tax rate for the three months ended March 31, 2023 approximated the U.S. federal statutory rate, due to the impacts of state taxes and executive compensation deduction limitations which generally increase the tax rate, offset by tax credits and the foreign-derived intangible income deduction which generally decrease the tax rate. Additionally, a discrete tax adjustment was recorded in the first quarter of 2023 related to the vesting of equity compensation that resulted in a 2.3% decrease to the Company's quarterly effective tax rate.

Current wording

The Company’s provision for income taxes in interim periods is computed by applying an estimated annual effective tax rate against Income before taxes for the period in addition to recording any tax effects of discrete items for the quarter. The Company’s effective tax rate for the three and six months ended June 30, 2024 was higher than the U.S. federal statutory rate, due to the impacts of state taxes and executive compensation deduction limitations which generally increase the tax rate, partially offset by tax credits which generally decrease the tax rate. The Company’s effective tax rate for the three and six months ended June 30, 2023 differed from the U.S. federal statutory rate, due to the impacts of state taxes and executive compensation deduction limitations which generally increase the tax rate, offset by tax credits and the foreign-derived intangible income deduction which generally decrease the tax rate. Additionally, discrete tax adjustments recorded in the first half of 2023 relating to the vesting of equity compensation and changes in state tax legislation resulted in a net 0.9% decrease to the year-to-date effective tax rate.

Previous wording

The Company's effective tax rate for the three months ended March 31, 2024 was higher than the prior year period due primarily to the larger impact of equity compensation vestings in the prior year period versus the current year period. Additionally, the Company is not currently anticipating a benefit in 2024 related to the foreign-derived intangible income deduction.

Current wording

The Company's effective tax rate for the three months ended June 30, 2024 was higher than the prior year period due primarily to impacts of executive compensation deduction limitations and a decrease in the projected foreign-derived intangible income deduction. The Company's effective tax rate for the six months ended June 30, 2024 was higher than the prior year period due primarily to the larger benefit from the vesting of equity compensation in the prior year period versus the current year period and a decrease in the projected foreign-derived intangible income deduction.

Previous wording

On January 31, 2024, the U.S. House of Representatives approved a tax bill, which among other provisions, aims to reinstate 100% bonus depreciation for property placed in service after December 31, 2022 until January 1, 2026 and to allow taxpayers to expense domestic research costs retroactively back to 2022 and prospectively through tax years beginning before 2026. Enactment remains highly uncertain, but the Company continues to monitor for ongoing developments in the proposed legislation.

Current wording

On January 31, 2024, the U.S. House of Representatives approved a tax bill, which among other provisions, aims to reinstate 100% bonus depreciation for property placed in service after December 31, 2022 until January 1, 2026 and to allow taxpayers to expense domestic research costs retroactively back to 2022 and prospectively through tax years beginning before 2026. Enactment remains highly uncertain, but the Company continues to monitor ongoing developments in the proposed legislation.

Previous wording

As a result of the factors described above, Net Income (Loss) was ($17.4) million for the three months ended March 31, 2024 as compared to $35.0 million in the corresponding prior year period.

Current wording

As a result of the factors described above, Net income was $38.9 million for the three months ended June 30, 2024 as compared to $32.7 million in the corresponding prior year period.

Previous wording

The following tables set forth the non-GAAP financial measures of Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Net Income (Loss) and Adjusted Earnings Per Share. Adjusted EBITDA is defined as Net income (loss) before Interest, Income taxes, Depreciation and amortization, Non-cash stock-based compensation, Non-recurring, unusual or extraordinary expenses, Non-cash amortization from acquisitions and One-time merger and acquisition costs. Adjusted EBITDA Margin is equal to Adjusted EBITDA divided by Sales. The Company believes these non-GAAP financial measures provide meaningful supplemental information as they are used by the Company’s management to evaluate the Company’s operating performance, enhance a reader’s understanding of the financial performance of the Company, and facilitate a better comparison among fiscal periods and performance relative to its competitors, as the non-GAAP measures exclude items that management believes do not reflect the Company’s ongoing operations.

Current wording

The following tables set forth the non-GAAP financial measures of Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Net income and Adjusted Earnings Per Share. Adjusted EBITDA is defined as Net income before Interest, Income taxes, Depreciation and amortization, Non-cash stock-based compensation, Non-recurring, unusual or extraordinary expenses, Non-cash amortization from acquisitions and One-time merger and acquisition costs. Adjusted EBITDA Margin is equal to Adjusted EBITDA divided by Sales. The Company believes these non-GAAP financial measures provide meaningful supplemental information as they are used by the Company’s management to evaluate the Company’s operating performance, enhance a reader’s understanding of the financial performance of the Company, and facilitate a better comparison among fiscal periods and performance relative to its competitors, as the non-GAAP measures exclude items that management believes do not reflect the Company’s ongoing operations.

Previous wording

The following is a reconciliation between the non-GAAP financial measures of Adjusted Net Income (Loss), Adjusted EBITDA and Adjusted EBITDA Margin to their most directly comparable U.S. GAAP financial measure:

Current wording

The following is a reconciliation between the non-GAAP financial measures of Adjusted Net income, Adjusted EBITDA and Adjusted EBITDA Margin to their most directly comparable U.S. GAAP financial measure:

Previous wording

We believe that cash balances and operating cash flows, together with available capacity under our credit agreement, as utilized in the first quarter of 2024, will provide adequate funds to support our current short-term operating objectives as well as our longer-term strategic plans, subject to the risks and uncertainties outlined below, in our "Note Regarding Forward-Looking Statements" above, and in the risk factors previously disclosed in Item 1A of Part I of our 2023 Form 10-K. Our principal source of liquidity is our cash flow generated from operating activities, which is expected to provide us with the ability to meet the majority of our short-term funding requirements. Our cash flows are affected by capital requirements and production volume, which may be materially impacted by unanticipated events such as unplanned downtime, material disruptions at our production facilities, the prices of our raw materials, general economic and industry trends and customer demand. The Company applies a proactive and disciplined approach to working capital management to optimize cash flow and to enable capital allocation options in support of the Company’s strategy. We utilize supply chain financing and trade receivables discount arrangements with third-party financial institutions which optimize terms and conditions related to accounts receivable and accounts payable in order to enhance liquidity and enable us to efficiently manage our working capital needs. Although we continue to optimize supply chain financing and trade receivable programs in the ordinary course, our utilization of these arrangements has not had a material impact on our liquidity. In addition, we monitor the third-party depository institutions that hold our cash and cash equivalents. Our emphasis is primarily on the safety of principal and secondarily on maximizing yield on those funds. We diversify our cash and cash equivalents among counterparties to minimize exposure to any one of these entities.

Current wording

We believe that cash balances and operating cash flows, together with available capacity under our credit agreement, as utilized in the second quarter of 2024, will provide adequate funds to support our current short-term operating objectives as well as our longer-term strategic plans, subject to the risks and uncertainties outlined below, in our "Note Regarding Forward-Looking Statements" above, and in the risk factors previously disclosed in Item 1A of Part I of our 2023 Form 10-K. Our principal source of liquidity is our cash flow generated from operating activities, which is expected to provide us with the ability to meet the majority of our short-term funding requirements. Our cash flows are affected by capital requirements and production volume, which may be materially impacted by unanticipated events such as unplanned downtime, material disruptions at our production facilities, the prices of our raw materials, general economic and industry trends and customer demand. The Company applies a proactive and disciplined approach to working capital management to optimize cash flow and to enable capital allocation options in support of the Company’s strategy. We utilize supply chain financing and trade receivables discount arrangements with third-party financial institutions which optimize terms and conditions related to accounts receivable and accounts payable in order to enhance liquidity and enable us to efficiently manage our working capital needs. Although we continue to optimize supply chain financing and trade receivable programs in the ordinary course, our utilization of these arrangements has not had a material impact on our liquidity. In addition, we monitor the third-party depository institutions that hold our cash and cash equivalents. Our emphasis is primarily on the safety of principal and secondarily on maximizing yield on those funds. We diversify our cash and cash equivalents among counterparties to minimize exposure to any one of these entities.

Previous wording

As of the end of the first quarter of 2024, the Company had approximately $20.6 million of cash on hand with approximately $254 million of additional capacity available under the revolving credit facility. The Company’s Consolidated Leverage Ratio financial covenant of its credit facility allows it to net up to $75 million of cash with debt. Capital expenditures are expected to be approximately $140 million to $150 million in 2024 compared to $107 million in 2023, reflecting increased spend due to replacement maintenance, growth and cost savings projects and enterprise programs.

Current wording

As of the end of the second quarter of 2024, the Company had approximately $12.1 million of cash on hand with approximately $269 million of additional capacity available under the revolving credit facility. The Company’s Consolidated Leverage Ratio financial covenant of its credit facility allows it to net up to $75 million of cash with debt. Capital expenditures are expected to be approximately $140 million to $150 million in 2024 compared to $107 million in 2023, reflecting increased spend due to replacement maintenance, growth and cost savings projects and enterprise programs.

Previous wording

The Company made no cash contributions to the defined benefit pension plan during the three months ended March 31, 2024. The Company expects aggregate cash contributions of $0 to $5 million in 2024 and additional contributions in future years sufficient to satisfy pension funding requirements in those periods.

Current wording

The Company made no cash contributions to the defined benefit pension plan during the six months ended June 30, 2024. The Company expects aggregate cash contributions of $0 to $2 million in 2024 and additional contributions in future years sufficient to satisfy pension funding requirements in those periods.

Previous wording

As of March 31, 2024, the Company has repurchased a total of 6,108,939 shares of common stock life-to-date, including 999,111 shares withheld to cover tax withholding obligations in connection with the vesting of awards, for an aggregate of $189.0 million at a weighted average market price of $30.94 per share. As of March 31, 2024, $65.2 million remained available for share repurchases under the current authorization. During the period from April 1, 2024 through April 26, 2024, the Company repurchased 2,865 shares covering tax withholding obligations in connection with the vesting of equity awards at a weighted average market price of $27.15, and no additional shares were repurchased under the currently authorized repurchase program.

Current wording

As of June 30, 2024, the Company has repurchased a total of 6,250,181 shares of common stock life-to-date, including 1,004,725 shares withheld to cover tax withholding obligations in connection with the vesting of awards, for an aggregate of $192.4 million at a weighted average market price of $30.78 per share. As of June 30, 2024, $62.0 million remained available for share repurchases under the current authorization. During the period from July 1, 2024 through July 26, 2024, 1,933 additional shares were repurchased for tax withholding obligations in connection with the vesting of equity awards at a weighted average market price of $21.64, and no additional shares were repurchased under the currently authorized repurchase program.

Previous wording

On September 30, 2016, the Company as the borrower, entered into a Credit Agreement with Bank of America, as administrative agent (the "Original Credit Agreement"), which was amended on February 21, 2018 pursuant to Amendment No. 1 to the Original Credit Agreement (the "First Amended and Restated Credit Agreement"), and further amended on February 19, 2020 pursuant to Amendment No. 2 to the First Amended and Restated Credit Agreement (after giving effect to the Second Amendment, the “Second Amended and Restated Credit Agreement”). The Second Amended and Restated Credit Agreement had a five-year term with a scheduled maturity date of February 21, 2023.

Current wording

On September 30, 2016, the Company as the borrower, entered into a Credit Agreement with Bank of America, as administrative agent (the "Original Credit Agreement"), which was amended on February 21, 2018 (the "First Amended and Restated Credit Agreement"), and further amended on February 19, 2020 (the “Second Amended and Restated Credit

Previous wording

We had a borrowed balance of $170 million under the Revolving Credit Facility at December 31, 2023. We borrowed an incremental net amount of $75 million during the three months ended March 31, 2024, bringing the balance under the Revolving Credit Facility to $245 million, and available credit for use of approximately $254 million as of March 31, 2024. We expect that Cash provided by operating activities will fund future interest payments on the Company's outstanding indebtedness.

Current wording

We had a borrowed balance of $170 million under the Revolving Credit Facility at December 31, 2023. We borrowed an incremental net amount of $60 million during the six months ended June 30, 2024, bringing the balance under the Revolving Credit Facility to $230 million, and available credit for use of approximately $269 million as of June 30, 2024. We expect that Cash provided by operating activities will fund future interest payments on the Company's outstanding indebtedness.

Previous wording

Cash provided by operating activities decreased by $37.8 million for the three months ended March 31, 2024 versus the prior year period due primarily to a $52.4 million decrease in net income partially offset by a $16.1 million cash impact from working capital (comprised of Accounts and other receivables, Inventories, Accounts payable and Deferred income and customer advances) with a $42.3 million unfavorable cash impact from working capital for the three months ended March 31, 2024 compared to a $58.4 million unfavorable cash impact in the prior year period. The favorable cash change in working capital was primarily due to the favorable impact of inventory partially offset by Accounts and other receivables. Accrued liabilities were also a source of cash of $10.6 million year-over-year.

Current wording

Cash provided by operating activities decreased by $22.6 million for the six months ended June 30, 2024 versus the prior year period due primarily to (i) a $46.2 million decrease in Net income and (ii) the unfavorable cash impact of $12.8 million from Taxes receivable and Income taxes payable combined, driven by the timing of tax payments. These net unfavorable impacts were partially offset by (i) a $20.1 million favorable cash impact from working capital (comprised of Accounts and other receivables, Inventories, Accounts payable and Deferred income and customer advances) with a $46.2 million unfavorable cash impact from working capital for the six months ended June 30, 2024 compared to a $66.3 million unfavorable cash impact in the prior year period due primarily to the favorable impact of Inventory and Deferred income and customer advances partially offset by Accounts and other receivables and Accounts payable, (ii) a $11.9 million favorable cash impact from accrued liabilities due primarily to the timing of payments during the six months ended June 30, 2023 compared to the prior year period and (iii) a $4.3 million favorable impact from other assets and liabilities.

Previous wording

Cash used for investing activities increased by $11.2 million for the three months ended March 31, 2024 versus the prior year period due primarily to cash payments for capital expenditures of approximately $10.8 million during the current year period reflecting increased spend due to replacement maintenance, growth and cost savings projects and enterprise programs.

Current wording

Cash used for investing activities increased by $26.7 million for the six months ended June 30, 2024 versus the prior year period due primarily to higher cash payments for capital expenditures of approximately $25.0 million during the current year period primarily reflecting increased spend on replacement maintenance and enterprise programs.

Previous wording

Cash provided by financing activities increased by $69.0 million for the three months ended March 31, 2024 versus the prior year period due primarily to net borrowings of $75.0 million during the three months ended March 31, 2024 compared to net borrowings of $12.0 million during the prior year period, partially offset by payments for share repurchases of $7.0 million and cash paid for dividends of approximately $4.3 million during the three months ended March 31, 2024 compared to $13.5 million and $4.0 million during the prior year period, respectively.

Current wording

Cash provided by financing activities increased by $52.1 million for the six months ended June 30, 2024 versus the prior year period due primarily to net borrowings of $60.0 million during the six months ended June 30, 2024 compared to net borrowings of $25.0 million during the prior year period, partially offset by payments for share repurchases of $10.4 million and cash paid for dividends of approximately $8.6 million during the six months ended June 30, 2024 compared to $28.4 million and $8.0 million during the prior year period, respectively.

Previous wording

The preparation of our Condensed Consolidated Financial Statements in accordance with U.S. GAAP is based on the selection and application of accounting policies that require us to make significant estimates and assumptions about the effects of matters that are inherently uncertain. We consider these accounting policies to be critical to the understanding of our Condensed Consolidated Financial Statements. For a full description of our critical accounting policies, refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our 2023 Form 10-K. While there have been no material changes to our critical accounting policies, or the methodologies or assumptions we apply under them, we continue to monitor such methodologies and assumptions.

Current wording

The preparation of our Condensed Consolidated Financial Statements in accordance with U.S. GAAP is based on the selection and application of accounting policies that require us to make significant estimates and assumptions about the effects of matters that are inherently uncertain. We consider these accounting policies to be critical to the understanding of our Condensed Consolidated Financial Statements. For a full description of our critical accounting policies, refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our 2023 Form 10-K. While there have been no material changes to our critical accounting policies, or the methodologies or assumptions we apply under them since the filing of the 2023 Form 10-K, we continue to monitor such methodologies and assumptions.