asix-20240331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


(Mark One)
☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2024


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____ to _____

Commission File Number: 1-37774


AdvanSix Inc.
(Exact name of registrant as specified in its charter)


Delaware						81-2525089
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)


300 Kimball Drive, Suite 101, Parsippany, New Jersey						07054
(Address of principal executive offices)						(Zip Code)

(973) 526-1800

(Registrant’s telephone number, including area code)


Securities registered pursuant to Section 12(b) of the Act:
Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.01 per share	ASIX	New York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.


Large accelerated filer ý	Accelerated filer o	Non-accelerated filer o	Smaller reporting company ☐
			Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ý

The Registrant had 26,818,944 shares of common stock, $0.01 par value, outstanding at April 26, 2024.

ADVANSIX INC.

FORM 10-Q

TABLE OF CONTENTS


Part I.	FINANCIAL INFORMATION

Item 1.	Financial Statements	3
	Condensed Consolidated Statements of Operations for the three months ended March 31, 2024 and 2023 (unaudited)	3
	Condensed Consolidated Statements of Comprehensive Income (Loss) for the three months ended March 31, 2024 and 2023 (unaudited)	4
	Condensed Consolidated Balance Sheets as of March 31, 2024 and December 31, 2023 (unaudited)	5
	Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2024 and 2023 (unaudited)	6
	Condensed Consolidated Statements of Stockholders' Equity for the three months ended March 31, 2024 and 2023 (unaudited)	7
	Notes to Condensed Consolidated Financial Statements (unaudited)	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	24
Item 4.	Controls and Procedures	24

Part II.	OTHER INFORMATION	25
Item 1.	Legal Proceedings	25
Item 1A.	Risk Factors	25
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	25
Item 5.	Other Information	26
Item 6.	Exhibits	27
	Signature	28

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ADVANSIX INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(Dollars in thousands, except share and per share amounts)


	Three Months Ended March 31,
	2024		2023
Sales	$	336,829	$	400,544
Costs, expenses and other:
Costs of goods sold	333,864		330,042
Selling, general and administrative expenses	23,593		25,114
Interest expense, net	2,699		1,267
Other non-operating (income) expense, net	90		(108)
Total costs, expenses and other	360,246		356,315

Income (loss) before taxes	(23,417)		44,229
Income tax expense (benefit)	(6,021)		9,275
Net Income (Loss)	$	(17,396)	$	34,954

Earnings per common share
Basic	$	(0.65)	$	1.27
Diluted	$	(0.65)	$	1.22
Weighted average common shares outstanding
Basic	26,878,660		27,601,784
Diluted	26,878,660		28,586,563

See accompanying notes to Condensed Consolidated Financial Statements.

ADVANSIX INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

(Dollars in thousands)


	Three Months Ended March 31,
	2024		2023
Net income (loss)	$	(17,396)	$	34,954
Foreign exchange translation adjustment	(15)		(33)
Cash-flow hedges	7		(150)

Other comprehensive income (loss), net of tax	(8)		(183)
Comprehensive income (loss)	$	(17,404)	$	34,771

See accompanying notes to Condensed Consolidated Financial Statements.

ADVANSIX INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(Dollars in thousands, except share and per share amounts)


	March 31, 2024		December 31, 2023
ASSETS
Current assets:
Cash and cash equivalents	$	20,633	$	29,768
Accounts and other receivables – net	171,196		165,393
Inventories – net	190,921		211,831
Taxes receivable	8		1,434
Other current assets	8,549		11,378
Total current assets	391,307		419,804
Property, plant and equipment – net	861,982		852,642
Operating lease right-of-use assets	86,835		95,805
Goodwill	56,192		56,192
Intangible assets	45,431		46,193
Other assets	26,236		25,384
Total assets	$	1,467,983	$	1,496,020

LIABILITIES
Current liabilities:
Accounts payable	$	196,772	$	259,068
Accrued liabilities	46,771		44,086
Income taxes payable	935		8,033
Operating lease liabilities – short-term	28,358		32,053
Deferred income and customer advances	11,286		15,678


Total current liabilities	284,122		358,918
Deferred income taxes	152,160		151,059
Operating lease liabilities – long-term	58,621		63,961
Line of credit – long-term	245,000		170,000

Postretirement benefit obligations	4,790		3,660
Other liabilities	10,133		9,185
Total liabilities	754,826		756,783

COMMITMENTS AND CONTINGENCIES (Note 9)

STOCKHOLDERS' EQUITY
Common stock, par value $0.01; 200,000,000 shares authorized; 32,922,935 shares issued and 26,813,996 outstanding at March 31, 2024; 32,598,946 shares issued and 26,750,471 outstanding at December 31, 2023	329		326
Preferred stock, par value $0.01; 50,000,000 shares authorized and 0 shares issued and outstanding at March 31, 2024 and December 31, 2023	—		—
Treasury stock at par (6,108,939 shares at March 31, 2024; 5,848,475 shares at December 31, 2023)	(61)		(58)
Additional paid-in capital	133,823		138,046
Retained earnings	583,218		605,067
Accumulated other comprehensive loss	(4,152)		(4,144)
Total stockholders' equity	713,157		739,237
Total liabilities and stockholders' equity	$	1,467,983	$	1,496,020

See accompanying notes to Condensed Consolidated Financial Statements.

ADVANSIX INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Dollars in thousands)


	Three Months Ended March 31,
	2024		2023
Cash flows from operating activities:
Net income (loss)	$	(17,396)	$	34,954
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	19,102		17,845
Loss on disposal of assets	89		168
Deferred income taxes	1,108		(170)
Stock-based compensation	2,211		2,013
Amortization of deferred financing fees	155		155


Changes in assets and liabilities, net of business acquisitions:
Accounts and other receivables	(5,818)		14,007
Inventories	20,910		(9,133)
Taxes receivable	1,426		8,748
Accounts payable	(52,995)		(54,489)
Income taxes payable	(7,098)		1,101
Accrued liabilities	2,150		(8,408)
Deferred income and customer advances	(4,392)		(8,758)
Other assets and liabilities	4,346		3,542
Net cash provided by (used for) operating activities	(36,202)		1,575

Cash flows from investing activities:
Expenditures for property, plant and equipment	(35,388)		(24,603)


Other investing activities	(1,419)		(1,003)
Net cash used for investing activities	(36,807)		(25,606)

Cash flows from financing activities:



Borrowings from line of credit	184,500		78,000
Payments of line of credit	(109,500)		(66,000)

Principal payments of finance leases	(239)		(231)
Dividend payments	(4,290)		(4,020)
Purchase of treasury stock	(7,023)		(13,499)
Issuance of common stock	426		622

Net cash provided by (used for) financing activities	63,874		(5,128)

Net change in cash and cash equivalents	(9,135)		(29,159)
Cash and cash equivalents at beginning of period	29,768		30,985
Cash and cash equivalents at the end of period	$	20,633	$	1,826

Supplemental non-cash investing activities:
Capital expenditures included in accounts payable	$	13,442	$	8,193

Supplemental cash activities:
Cash paid for interest	$	2,594	$	1,191
Cash paid for income taxes	$	36	$	91

See accompanying notes to Condensed Consolidated Financial Statements.

ADVANSIX INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(Unaudited)

(Dollars in thousands)


	Common Stock			Additional Paid-In Capital		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Income (Loss)		Total Equity
	Shares	Amount
Balance at December 31, 2023	32,598,946	$	326	$	138,046	$	605,067	$	(58)	$	(4,144)	$	739,237

Net Income (Loss)	—	—		—		(17,396)		—		—		(17,396)
Comprehensive income
Foreign exchange translation adjustments	—	—		—		—		—		(15)		(15)
Cash-flow hedges	—	—		—		—		—		7		7

Other comprehensive income (loss), net of tax	—	—		—		—		—		(8)		(8)
Issuance of common stock	323,989	3		423		—		—		—		426
Purchase of treasury stock (260,464 shares)	—	—		(7,020)		—		(3)		—		(7,023)
Stock-based compensation	—	—		2,211		—		—		—		2,211
Dividends	—	—		163		(4,453)		—		—		(4,290)
Balance at March 31, 2024	32,922,935	$	329	$	133,823	$	583,218	$	(61)	$	(4,152)	$	713,157


	Common Stock			Additional Paid-In Capital		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Income (Loss)		Total Equity
	Shares	Amount
Balance at December 31, 2022	31,977,593	$	320	$	174,585	$	567,517	$	(45)	$	(4,197)	$	738,180

Net Income	—	—		—		34,954		—		—		34,954
Comprehensive income
Foreign exchange translation adjustments	—	—		—		—		—		(33)		(33)
Cash-flow hedges	—	—		—		—		—		(150)		(150)

Other comprehensive income (loss), net of tax	—	—		—		—		—		(183)		(183)
Issuance of common stock	555,249	5		617		—		—		—		622
Purchase of treasury stock (333,054 shares)	—	—		(13,496)		—		(3)		—		(13,499)
Stock-based compensation	—	—		2,013		—		—		—		2,013
Dividends	—	—		112		(4,132)		—		—		(4,020)
Balance at March 31, 2023	32,532,842	$	325	$	163,831	$	598,339	$	(48)	$	(4,380)	$	758,067

See accompanying notes to Condensed Consolidated Financial Statements.

ADVANSIX INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share amounts and as otherwise noted)

1. Organization, Operations and Basis of Presentation

Description of Business

AdvanSix Inc. ("AdvanSix," the "Company," "we" or "our") is a diversified chemistry company playing a critical role in global supply chains, innovating and delivering essential products for our customers in a wide variety of end markets and applications that touch people’s lives, such as building and construction, fertilizers, agrochemicals, plastics, solvents, packaging, paints, coatings, adhesives and electronics. Our reliable and sustainable supply of quality products emerges from the integrated value chain of our five U.S.-based manufacturing facilities. AdvanSix strives to deliver best-in-class customer experiences and differentiated products in the industries of nylon solutions, plant nutrients and chemical intermediates, guided by our core values of Safety, Integrity, Accountability and Respect.

Basis of Presentation

The Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, the accompanying unaudited Condensed Consolidated Financial Statements contain all adjustments, consisting of only normal recurring adjustments, necessary for a fair statement of the Company's financial position as of March 31, 2024, and its results of operations for the three months ended March 31, 2024 and 2023 and cash flows for the three months ended March 31, 2024 and 2023. The year-end Condensed Consolidated Balance Sheet data was derived from audited financial statements but does not include all disclosures required by U.S. GAAP. The results of operations of any interim period are not necessarily indicative of the results of operations to be expected for the full fiscal year. These financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 (the "2023 Form 10-K"). All intercompany transactions have been eliminated.

Certain prior period amounts have been reclassified for consistency with the current period presentation.

It is our practice to establish actual quarterly closing dates using a predetermined fiscal calendar, which requires our businesses to close their books on a Saturday in order to minimize the potentially disruptive effects of quarterly closing on our business processes. Historically, the effects of this practice have generally not been significant to reported results for any quarter and only existed within a reporting year. In the event that differences in actual closing dates are material to year-over-year comparisons of quarterly or year-to-date results, we will provide the appropriate disclosures. Our actual closing dates for the three months ended March 31, 2024 and 2023 were March 30, 2024 and April 1, 2023, respectively.

Liabilities to creditors to whom we have issued checks that remained outstanding at March 31, 2024 and December 31, 2023 aggregated to $5.0 million and $2.9 million, respectively, and were included in Cash and cash equivalents and Accounts payable in the Condensed Consolidated Balance Sheets.

The Company's Board of Directors (the "Board") has authorized share repurchase programs to repurchase shares of the Company's common stock as follows:


Date of Authorization	Authorized Amount (millions)		Authorized Amount Remaining as of March 31, 2024 (millions)
May 4, 2018	$	75.0	$	—
February 22, 2019	75.0		—
February 17, 2023	75.0		65.2
Totals	$	225.0	$	65.2

Repurchases may be made from time to time on the open market in accordance with Rule 10b-18 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), including through the use of trading plans intended to qualify under Rule 10b5-1 of the Exchange Act. The size and timing of these repurchases will depend on pricing, market and economic conditions,

ADVANSIX INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share amounts and as otherwise noted)

legal and contractual requirements and other factors. The share repurchase program has no expiration date and may be modified, suspended or discontinued at any time. The par value of the shares repurchased is applied to Treasury stock and the excess of the purchase price over par value is applied to Additional paid-in capital.

As of March 31, 2024, the Company has repurchased a total of 6,108,939 shares of common stock, 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 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.

2. Recent Accounting Pronouncements

Recent Accounting Pronouncements – The Company considers the applicability and impact of all Accounting Standards Updates (“ASUs”) issued by the Financial Accounting Standards Board (“FASB”). ASUs not discussed below were assessed and determined to be either not applicable or are expected to have minimal impact on our consolidated financial position or results of operations.

On December 13, 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The amendments in this ASU require that public business entities, on an annual basis, disclose specific categories in the rate reconciliation and provide additional information for reconciling items that are equal to or greater than 5 percent of the amount computed by multiplying pretax income (or loss) by the applicable statutory income tax rate. The amendments also require that the Company disclose the following (net of refunds received): (1) the amount of income taxes paid disaggregated by federal (national), state, and foreign taxes and (2) the amount of income taxes paid disaggregated by individual jurisdictions in which income taxes paid is equal to or greater than 5 percent of total income taxes paid. Additionally, the amendments in this update eliminate the requirement for all entities to disclose the nature and estimate of the range of the reasonably possible change in the unrecognized tax benefits balance in the next 12 months or to make a statement that an estimate of the range cannot be made, and remove the requirement to disclose the cumulative amount of each type of temporary difference when a deferred tax liability is not recognized because of the exceptions to comprehensive recognition of deferred taxes related to subsidiaries and corporate joint ventures. The guidance is effective for public business entities for annual periods beginning after December 15, 2024. Early adoption of the amendments in this update are permitted for annual financial statements that have not yet been issued. The Company is evaluating the pronouncement and does not expect adoption to have a material impact on the Company's consolidated financial position or results of operations.

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280). The amendments in this ASU require incremental disclosures about the Company's reportable segments, but do not change the definition of a segment or the guidance for determining reportable segments. The incremental disclosures should include (1) significant segment expenses that are regularly provided to the CODM and included within each reported measure of segment profit or loss, (2) an amount for other segment items by reportable segment and a description of its composition, (3) profit or loss and assets currently required by Topic 280 in interim periods, (4) clarification if the CODM uses more than one measure of a segment’s profit or loss in assessing segment performance and deciding how to allocate resources and (5) the title and position of the CODM and an explanation of how the CODM uses the reported measure(s) of segment profit or loss in assessing segment performance and deciding how to allocate resources. The guidance is effective for public entities with fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. Additionally, public entities should apply the amendments retrospectively to all prior periods presented in the financial statements, unless impractical. The Company is evaluating the pronouncement and does not expect adoption to have a material impact on the Company's consolidated financial position or results of operations.

3. Revenues

Revenue Recognition

We serve approximately 400 customers annually in approximately 45 countries across a wide variety of industries. For each of the three months ended March 31, 2024 and 2023, the Company's ten largest customers accounted for approximately 37% of total sales.

We typically sell to customers under master service agreements, with primarily one-year terms, or by purchase orders. We have historically experienced low customer turnover and have long-standing customer relationships, which span decades. Our largest

ADVANSIX INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share amounts and as otherwise noted)

customer is Shaw Industries Group, Inc. (“Shaw”), a significant consumer of caprolactam and Nylon 6 resin, to whom we sell under a long-term agreement. For the three months ended March 31, 2024 and 2023, the Company's sales to Shaw were 9% and 10% of our total sales, respectively.

The Company's revenue by product line, and related approximate percentage of total sales, for the three months ended March 31, 2024 and 2023 were as follows:


	Three Months Ended March 31,
	2024			2023
Nylon	$	84,389	25%	$	99,372	25%
Caprolactam	61,476		18%	72,390		18%
Ammonium Sulfate	85,263		25%	114,218		28%
Chemical Intermediates	105,701		32%	114,564		29%
Total	$	336,829	100%	$	400,544	100%

The Company's revenues by geographic area, and related approximate percentage of total sales, for the three months ended March 31, 2024 and 2023 were as follows:


	Three Months Ended March 31,
	2024			2023
United States	$	284,587	84%	$	320,926	80%
International	52,242		16%	79,618		20%
Total	$	336,829	100%	$	400,544	100%

Deferred Income and Customer Advances

The Company defers revenues when cash payments are received in advance of our performance. Below is a roll-forward of Deferred income and customer advances for the three months ended March 31, 2024:



Opening balance January 1, 2024	$	15,678
Additional cash advances	393
Less amounts recognized in revenues	(4,785)
Ending balance March 31, 2024	$	11,286

The Company expects to recognize as revenue the March 31, 2024 ending balance of Deferred income and customer advances within one year or less.

4. Earnings Per Share

The computation of basic and diluted earnings per share ("EPS") is based on Net income (loss) divided by the basic weighted average number of common shares outstanding and diluted weighted average number of common shares outstanding, respectively. The details of the basic and diluted EPS calculations for the three months ended March 31, 2024 and 2023 were as follows:

ADVANSIX INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share amounts and as otherwise noted)


	Three Months Ended March 31,
	2024		2023
Basic
Net Income (Loss)	$	(17,396)	$	34,954
Weighted average common shares outstanding	26,878,660		27,601,784
EPS – Basic	$	(0.65)	$	1.27
Diluted
Dilutive effect of equity awards and other stock-based holdings	—		984,779
Weighted average common shares outstanding	26,878,660		28,586,563
EPS – Diluted	$	(0.65)	$	1.22

Diluted EPS is computed based upon the weighted average number of common shares outstanding for the period plus the dilutive effect of common stock equivalents using the treasury stock method and the average market price of our common stock for the period.

The diluted EPS calculations exclude the effect of stock options when the options’ assumed proceeds exceed the average market price of the common shares during the period. The anti-dilutive common stock equivalents outstanding at the three months ended March 31, 2024 and 2023 were as follows:


	Three Months Ended March 31,
	2024	2023
Options and stock equivalents	909,231	266,644

Dividend activity for the three months ended March 31, 2024 and 2023 was as follows:


	Three Months Ended March 31,
	2024		2023
Cash dividends declared per share	$	0.16	$	0.145
Aggregate dividends paid to shareholders	$	4,290	$	4,020

5. Accounts and Other Receivables – Net


	March 31, 2024		December 31, 2023
Accounts receivables	$	161,189	$	155,267
Other	10,766		10,959
Total accounts and other receivables	171,955		166,226
Less – allowance for doubtful accounts	(759)		(833)
Total accounts and other receivables – net	$	171,196	$	165,393

6. Inventories

ADVANSIX INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share amounts and as otherwise noted)


	March 31, 2024		December 31, 2023
Raw materials	$	103,227	$	159,240
Work in progress	58,620		54,936
Finished goods	60,893		61,891
Spares and other	32,232		30,931
	254,972		306,998
Reduction to LIFO cost basis	(64,051)		(95,167)
Total inventories	$	190,921	$	211,831

Substantially all of the Company’s inventories at March 31, 2024 and December 31, 2023 are valued at the lower of cost or market using the last-in, first-out (“LIFO”) method. However, approximately 8% was valued at average cost using the first-in, first-out (“FIFO”) method at March 31, 2024.

The excess of replacement cost over the carrying value of total inventories subject to LIFO was $62.2 million and $65.3 million at March 31, 2024 and December 31, 2023, respectively.

7. Leases

We determine if an arrangement is a lease at inception. Operating leases are included in Operating lease right-of-use assets ("ROU"), Operating lease liabilities – short-term, and Operating lease liabilities – long-term in our Condensed Consolidated Balance Sheets. Finance leases are included in Property, plant and equipment – net, Accounts payable, and Other liabilities in our Condensed Consolidated Balance Sheets.

The components of lease expense were as follows:


	Three Months Ended March 31,
	2024		2023
Finance lease cost:
Amortization of right-of-use asset	$	243	$	221
Interest on lease liabilities	38		18
Total finance lease cost	281		239
Operating lease cost	12,252		11,356
Short-term lease cost	1,193		1,026

Total lease cost	$	13,726	$	12,621

As of March 31, 2024, we have additional operating and finance leases that have not yet commenced for approximately $126.7 million and approximately $0.4 million. These leases will commence during 2024 with lease terms of up to 7 years.

8. Goodwill and Intangible Assets

Intangible assets with finite lives acquired through a business combination are recorded at fair value, less accumulated amortization. Customer relationships and trade-names are amortized on a straight-line basis over their expected useful lives of 15 to 20 years and 5 years, respectively.

Goodwill

There was no change in the carrying amount of goodwill for the three months ended March 31, 2024.

Finite-Lived Intangible Assets

Intangible assets subject to amortization were as follows:

ADVANSIX INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share amounts and as otherwise noted)


	March 31, 2024						December 31, 2023
	Gross Carrying Amount		Accumulated Amortization		Net Book Value		Gross Carrying Amount		Accumulated Amortization		Net Book Value
Customer relationships	$	36,820	$	(4,236)	$	32,584	$	36,820	$	(3,760)	$	33,060
Licenses	18,451		(6,227)		12,224		18,451		(5,996)		12,455
Trade names	1,100		(477)		623		1,100		(422)		678
Total	$	56,371	$	(10,940)	$	45,431	$	56,371	$	(10,178)	$	46,193

For each of the three months ended March 31, 2024 and March 31, 2023, the Company recorded amortization expense on intangible assets of $0.8 million.

9. Commitments and Contingencies

The Company is subject to a number of lawsuits, investigations and disputes, some of which may involve substantial amounts claimed, arising out of the conduct of the Company or other third-parties in the normal and ordinary course of business. A liability is recognized for any contingency that is probable of occurrence and reasonably estimable. The Company continually assesses the likelihood of adverse judgments or outcomes in these matters, as well as potential ranges of possible losses, based on an analysis of each matter with the assistance of legal counsel and, if applicable, other experts.

Given the uncertainty inherent in such lawsuits, investigations and disputes, the Company does not believe it is possible to develop estimates of reasonably possible loss in excess of current accruals for these matters. Considering the Company’s past experience and existing accruals, the Company does not expect the outcome of these matters, either individually or in the aggregate, to have a material adverse effect on the Company’s consolidated financial position or results of operations. Potential liabilities are subject to change due to new developments, changes in settlement strategy or the impact of evidentiary requirements, which could cause the Company to pay damage awards or settlements (or become subject to equitable remedies) that could have a material adverse effect on the Company’s consolidated results of operations, balance sheet and/or operating cash flows in the periods recognized or paid.

We assumed from Honeywell International Inc. ("Honeywell") all health, safety and environmental (“HSE”) liabilities and compliance obligations related to the past and future operations of our current business as of the spin-off, as well as all HSE liabilities associated with the three manufacturing locations assumed from Honeywell that are used in our current operations, including any cleanup or other liabilities related to any contamination that may have occurred at such locations in the past. Honeywell retained all HSE liabilities related to former business locations or the operation of our former businesses. Although we have ongoing environmental remedial obligations at certain of our facilities, in the past three years, the associated remediation costs have not been material, and we do not expect our known remediation costs to have a material adverse effect on the Company's consolidated financial position or results of operations.

10. Income Taxes

The (benefit) provision for income taxes was ($6.0 million) and $9.3 million for the three months ended March 31, 2024 and 2023, respectively, resulting in an effective tax rate of 25.7% and 21.0%, respectively.

The Company’s provision for income taxes in interim periods is computed by applying an estimated annual effective tax rate against Income (Loss) 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 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.

11. Fair Value Measurements

ADVANSIX INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share amounts and as otherwise noted)

Financial and non-financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

The pension plan assets are invested in collective investment trust funds. These investments are measured at fair value using the net asset value per share as a practical expedient. Investments valued using the net asset value method (NAV) (or its equivalent) practical expedient are excluded from the fair value hierarchy disclosure.

The Company’s Condensed Consolidated Balance Sheets also include Cash and cash equivalents, Accounts receivable and Accounts payable all of which are recorded at amounts which approximate fair value.

The Company also has assets that are required to be recorded at fair value on a non-recurring basis. These assets are evaluated when certain triggering events occur (including a decrease in estimated future cash flows) that indicate the asset should be evaluated for impairment which could result in such assets being measured at fair value. Goodwill must be evaluated at least annually. Our annual evaluation occurred on October 28, 2023 and we concluded that an impairment for goodwill did not occur.

12. Derivative and Hedging Instruments

The Company had entered into an interest rate swap agreement for a total notional amount of $50 million to exchange floating for fixed rate interest payments for our LIBOR-based borrowings. The interest rate swap had a fair value of zero at inception and was effective July 31, 2019 and matured on February 21, 2023. In accordance with ASC 815, the Company designated the interest rate swap as a cash flow hedge of floating-rate borrowings. The interest rate swap converted the Company’s interest rate payments on the first $50 million of variable-rate, 1-month LIBOR-based debt to a fixed interest rate. The interest rate swap involved the receipt of floating rate amounts in exchange for fixed rate interest payments over the life of the interest rate swap without an exchange of the underlying principal amount. At March 31, 2024, the Company had no derivatives designated as hedging instruments under ASC 815 and had no fair value adjustments related to cash flow hedging for the three months ended March 31, 2024.

13. Supplier Finance Programs

The Company has entered into a supply chain finance program with a financial intermediary providing participating suppliers the option to be paid by the intermediary earlier than the original invoice due date. AdvanSix’s responsibility is limited to making payments to the intermediary based upon payment terms negotiated with the suppliers, regardless of whether the intermediary pays the supplier in advance of the original due date. The Company’s payment terms with suppliers are consistent, regardless of whether a vendor participates in the supply chain finance program or not. All related agreements are terminable by either party upon at least 30 days’ notice.

The total amount due to the financial intermediaries to settle supplier invoices under the supplier finance programs was approximately $13 million as of March 31, 2024 and approximately $17 million as of December 31, 2023. These amounts outstanding are included in Accounts payable.

14. Subsequent Events

As announced on May 3, 2024, the Board declared a quarterly cash dividend of $0.160 per share on the Company's common stock, payable on May 28, 2024 to stockholders of record as of the close of business on May 14, 2024.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of the Company’s financial condition and results of operations, which we refer to as our “MD&A,” should be read in conjunction with the Condensed Consolidated Financial Statements and the notes thereto contained in this Quarterly Report on Form 10-Q (this "Form 10-Q"), as well as the MD&A section included in our Annual Report on Form 10-K for the year ended December 31, 2023 filed with the Securities and Exchange Commission (“SEC”) on February 16, 2024 (the “2023 Form 10-K”). Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties. Actual results and the timing of events may differ materially from those contained in these forward-looking statements due to a number of factors that can affect our performance in both the near- and long-term, including those incorporated by reference in Item 1A of Part II of this Form 10-Q as such factors may be revised or supplemented in subsequent filings with the SEC, as well as those discussed in the section entitled “Note Regarding Forward-Looking Statements” below.

Note Regarding Forward-Looking Statements

All statements other than statements of historical fact included in this Form 10-Q including, without limitation, statements in this MD&A regarding our financial position, business strategy and the plans and objectives of management for future operations, are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). When used in this Form 10-Q, words such as "expect," “anticipate,” "estimate," "outlook," "project," "strategy," "intend," "plan," "target," "goal," "may," "will," "should," and “believe,” and other variations or similar terminology and expressions identify forward-looking statements. Although we believe forward-looking statements are based upon reasonable assumptions, such statements involve known and unknown risks, uncertainties and other factors, many of which are beyond our control and difficult to predict, which may cause the actual results or performance of the Company to be materially different from any future results or performance expressed or implied by such forward-looking statements. Such risks and uncertainties include, but are not limited to: general economic and financial conditions in the U.S. and globally; the potential effects of inflationary pressures, labor market shortages and supply chain issues; instability or volatility in financial markets or other unfavorable economic or business conditions caused by geopolitical concerns, including as a result of the conflict between Russia and Ukraine, the conflict in Israel and Gaza and the possible expansion of such conflicts; the effect of the foregoing on our customers’ demand for our products and our suppliers’ ability to manufacture and deliver our raw materials, including implications of reduced refinery utilization in the U.S.; our ability to sell and provide our goods and services; the ability of our customers to pay for our products; any closures of our and our customers’ offices and facilities; risks associated with increased phishing, compromised business emails and other cybersecurity attacks, data privacy incidents and disruptions to our technology infrastructure; risks associated with operating with a reduced workforce; risks associated with our indebtedness including compliance with financial and restrictive covenants, and our ability to access capital on reasonable terms, at a reasonable cost, or at all, due to economic conditions or otherwise; the impact of scheduled turnarounds and significant unplanned downtime and interruptions of production or logistics operations as a result of mechanical issues or other unanticipated events such as fires, severe weather conditions, natural disasters, pandemics and, geopolitical conflicts and related events; price fluctuations, cost increases and supply of raw materials; our operations and growth projects requiring substantial capital; growth rates and cyclicality of the industries we serve including global changes in supply and demand; failure to develop and commercialize new products or technologies; loss of significant customer relationships; adverse trade and tax policies; extensive environmental, health and safety laws that apply to our operations; hazards associated with chemical manufacturing, storage and transportation; litigation associated with chemical manufacturing and our business operations generally; inability to acquire and integrate businesses, assets, products or technologies; protection of our intellectual property and proprietary information; prolonged work stoppages as a result of labor difficulties or otherwise; failure to maintain effective internal controls; our ability to declare and pay quarterly cash dividends and the amounts and timing of any future dividends; our ability to repurchase our common stock and the amount and timing of any future repurchases; disruptions in supply chain, transportation and logistics; potential for uncertainty regarding qualification for tax treatment of our spin-off; fluctuations in our stock price; and changes in laws or regulations applicable to our business. Forward-looking statements are not guarantees of future performance and actual results could differ materially from those contemplated by the forward-looking statements as a result of a number of risks, uncertainties and other factors including those noted above and those detailed in Item 1A of Part I and elsewhere in our 2023 Form 10-K, and subsequent reports filed with the SEC. All subsequent written or oral forward-looking statements attributable to us or persons acting on our behalf are qualified in their entirety by this paragraph. We do not undertake to update or revise any of our forward-looking statements.

Business Overview

AdvanSix is a diversified chemistry company playing a critical role in global supply chains, innovating and delivering essential products for our customers in a wide variety of end markets and applications that touch people’s lives, such as building and construction, fertilizers, agrochemicals, plastics, solvents, packaging, paints, coatings, adhesives and electronics. Our reliable and sustainable supply of quality products emerges from the integrated value chain of our five U.S.-based manufacturing facilities. AdvanSix strives to deliver best-in-class customer experiences and differentiated products in the industries of nylon solutions, plant nutrients and chemical intermediates, guided by our core values of Safety, Integrity, Accountability and Respect. Our four key product lines are as follows:

•Nylon Solutions

◦Nylon – We sell our Nylon 6 resin globally, primarily under the Aegis® brand name. Nylon 6 is a polymer resin which is a synthetic material used by our customers to produce fibers, filaments, engineered plastics and films that, in turn, are used in such end-products as carpets, automotive and electric components, sports apparel, food packaging and other industrial applications.

◦Caprolactam – Caprolactam is the key monomer used in the production of Nylon 6 resin. We internally polymerize caprolactam into Aegis® Nylon 6 Resins, and we also market and sell the caprolactam that is not consumed internally to customers who use it to manufacture polymer resins to produce fibers, compounds and other nylon products. Our Hopewell, VA manufacturing facility is one of the world’s largest single-site producers of caprolactam as of March 31, 2024.

•Ammonium Sulfate – Our ammonium sulfate is used by customers as a fertilizer containing nitrogen and sulfur, two key plant nutrients. Ammonium sulfate fertilizer is derived from the integrated operations at the Hopewell manufacturing facility. Because of our Hopewell facility’s size, scale and technology design, we are the world’s largest single-site producer of ammonium sulfate fertilizer as of March 31, 2024. We market and sell ammonium sulfate primarily to North American and South American distributors, farm cooperatives and retailers to fertilize crops.

•Chemical Intermediates – We manufacture, market and sell a number of other chemical intermediate products that are derived from the manufacturing processes within our integrated supply chain. Most significant is acetone which is used by our customers in the production of adhesives, paints, coatings, solvents, herbicides and engineered plastic resins. Other intermediate chemicals that we manufacture, market and sell include phenol, alpha-methylstyrene (“AMS”), cyclohexanone, 2-pentanone oxime, cyclohexanol, sulfuric acid, ammonia and carbon dioxide. With the acquisition of U.S. Amines Limited (“U.S. Amines”), we now produce alkyl and specialty amines serving high-value end markets such as agrochemicals and pharmaceuticals.

Global demand for Nylon 6 resin spans a variety of end-uses such as textiles, engineered plastics, industrial filament, food and industrial films, and carpet. The market growth typically tracks global GDP growth over the long-term but varies by end-use. We produce and sell caprolactam as a commodity product and produce and sell our Nylon 6 resin as both a commoditized and differentiated resin product. Our results of operations are primarily driven by production volume and the spread between the sales prices of our products and the costs of the underlying raw materials built into market-based and value-based pricing models. The global prices for nylon resin typically track a spread over the price of caprolactam, which in turn tracks as a spread over benzene because the key feedstock materials for caprolactam, phenol or cyclohexane, are derived from benzene. This price spread has historically experienced cyclicality as a result of global changes in supply and demand. Generally, Nylon 6 resin prices track the cyclicality of caprolactam prices, although prices set above the spread are achievable when nylon resin manufacturers, like AdvanSix, formulate and produce differentiated nylon resin products for current and new customer applications, such as our wire and cable and co-polymer offerings.

Global prices for ammonium sulfate fertilizer are influenced by several factors including the price of urea, which sets the nutrient value for nitrogen as it is the most widely used source of nitrogen-based fertilizer in the world. Other global factors driving ammonium sulfate fertilizer demand are general agriculture trends, including planted acres and the price of crops. Our ammonium sulfate product is positioned with the added value proposition of sulfur nutrition to increase yields of key crops. In addition, due to its nutrient density, the typical ammonium sulfate product delivers pound for pound the most readily available sulfur and nitrogen to crops as compared to other fertilizers. We also directly supply packaged ammonium sulfate to customers, primarily in North and South America, and have diversified and optimized our offerings to include spray-grade adjuvants to support crop protection, as well as other specialty fertilizers and products for industrial use.

We produce ammonium sulfate fertilizer continuously throughout the year as part of our manufacturing process, but quarterly sales fluctuate reflecting both geographical and product sales mix considerations based on the timing and length of the growing seasons in North and South America. North American ammonium sulfate demand and pricing, particularly for our higher-value granular product, are typically strongest during second quarter fertilizer application and then typically decline seasonally with new season fill in the third quarter. Ammonium sulfate industry prices in the corn belt have declined approximately 10% from

the second quarter to the third quarter, on average, since 2016. Due to the ammonium sulfate fertilizer sales cycle, we occasionally build up higher inventory balances because our production is continuous and not tied to seasonal demand for fertilizers. Sales of most of our other products have generally been subject to minimal, or no, seasonality.

We also manufacture, market and sell a number of chemical intermediate products that are derived from the manufacturing processes within our integrated supply chain. Most significant is acetone, the price of which is influenced by its own supply and demand dynamics but can also be influenced by the underlying move in propylene input costs. Our differentiated product offerings include high-purity applications and high-value intermediates including our U.S. Amines portfolio as well as our oximes-based EZ-Blox™ anti-skinning agent used in paints and Nadone® cyclohexanone, which is a solvent used in various high-value applications.

We seek to run our production facilities on a nearly continuous basis for maximum efficiency as several of our intermediate products are key feedstock materials for other products in our integrated manufacturing chain. While our integration, scale and range of product offerings make us one of the most efficient manufacturers in our industry, these attributes also expose us to increased risk associated with material disruptions at any one of our production facilities or logistics operations which could impact the overall manufacturing supply chain. Further, although we believe that our sources of supply for our raw materials, including cumene, natural gas and sulfur, are generally robust, it is difficult to predict the impact that shortages, increased costs and related supply chain logistics considerations may have in the future. In order to mitigate the risk of unplanned interruptions, we schedule several planned plant turnarounds each year to conduct routine and major maintenance across our facilities. We also utilize maintenance excellence and mechanical integrity programs, targeted buffer inventory of intermediate chemicals necessary for our manufacturing process, and co-producer swap arrangements, which are intended to mitigate the extent of any production losses as a result of planned and unplanned downtime; however, the mitigation of all or part of any such production impact cannot be assured.

Recent Developments

Business Operations

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.

Results of Operations

(Dollars in thousands, unless otherwise noted)

Sales


	Three Months Ended March 31,
	2024		2023
Sales	$	336,829	$	400,544
% change compared with prior year period	(15.9)%

The change in sales compared to the prior year period is attributable to the following:


			Three Months Ended March 31, 2024
Volume			(6.7)%
Price			(9.0)%

			(15.7)%

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.

Costs of Goods Sold


	Three Months Ended March 31,
	2024		2023
Costs of goods sold	$	333,864	$	330,042
% change compared with prior year period	1.2%
Gross Margin percentage	0.9%		17.6%

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%).

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%).

Selling, General and Administrative Expenses


	Three Months Ended March 31,
	2024		2023
Selling, general and administrative expenses	$	23,593	$	25,114
Percentage of Sales	7.0%		6.3%

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.

Income Tax Expense


	Three Months Ended March 31,
	2024		2023
Income tax expense (benefit)	$	(6,021)	$	9,275
Effective tax rate	25.7%		21.0%

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.

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.

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.

Net Income


	Three Months Ended March 31,
	2024		2023
Net Income (Loss)	$	(17,396)	$	34,954

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.

Non-GAAP Measures

(Dollars in thousands, unless otherwise noted)

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.

These non-GAAP results are presented for supplemental informational purposes only and should not be considered a substitute for the financial information presented in accordance with U.S. GAAP. Non-GAAP financial measures should be read only in conjunction with the comparable U.S. GAAP financial measures. The Company's non-GAAP measures may not be comparable to other companies' non-GAAP measures.

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:


	Three Months Ended March 31,
	2024		2023
Net Income (Loss)	$	(17,396)	$	34,954
Non-cash stock-based compensation	2,211		2,013
Non-recurring, unusual or extraordinary income	—		—
Non-cash amortization from acquisitions	532		532
Non-recurring M&A costs	—		—
Benefit from income taxes relating to reconciling items	(465)		(435)
Adjusted Net Income (Loss) (non-GAAP)	(15,118)		37,064
Interest expense, net	2,699		1,267
Income tax expense (benefit) - Adjusted	(5,556)		9,710
Depreciation and amortization - Adjusted	18,570		17,313
Adjusted EBITDA (non-GAAP)	$	595	$	65,354



Sales	$	336,829	$	400,544

Adjusted EBITDA Margin* (non-GAAP)	0.2%		16.3%

* Adjusted EBITDA Margin is defined as Adjusted EBITDA divided by Sales

The following is a reconciliation between the non-GAAP financial measures of Adjusted Earnings Per Share to its most directly comparable U.S. GAAP financial measure:


	Three Months Ended March 31,
	2024		2023

Net Income (Loss)	$	(17,396)	$	34,954
Adjusted Net Income (Loss) (non-GAAP)	(15,118)		37,064


Weighted-average number of common shares outstanding - basic	26,878,660		27,601,784
Dilutive effect of equity awards and other stock-based holdings	—		984,779
Weighted-average number of common shares outstanding - diluted	26,878,660		28,586,563

EPS - Basic	$	(0.65)	$	1.27
EPS - Diluted	$	(0.65)	$	1.22
Adjusted EPS - Basic (non-GAAP)	$	(0.56)	$	1.34
Adjusted EPS - Diluted (non-GAAP)	$	(0.56)	$	1.30

Liquidity and Capital Resources

(Dollars in thousands, unless otherwise noted)

Liquidity

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.

On a recurring basis, our primary future cash needs will be centered on operating activities, working capital, capital expenditures, dividends and liquidity reflecting disciplined capital deployment. Capital expenditures are deployed for various ongoing investments and initiatives to improve reliability, yield and quality, expand production capacity and comply with health, safety and environmental ("HSE") regulations. We believe that our future cash from operations, cash on hand and available capacity under our credit agreement, as well as our access to credit and capital markets, will provide adequate resources to fund our expected operating and financing needs and obligations. Our ability to fund our capital needs, however, will depend on our ongoing ability to generate cash from operations and access to credit and capital markets, both of which are subject to the risk factors previously disclosed in Item 1A of Part I of our 2023 Form 10-K, as well as general economic, financial, competitive, regulatory and other factors that are beyond our control.

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.

We assumed from Honeywell International Inc. ("Honeywell") all HSE liabilities and compliance obligations related to the past and future operations of our current business as of the spin-off, as well as all HSE liabilities associated with the three manufacturing locations assumed from Honeywell that are used in our current operations, including any cleanup or other liabilities related to any contamination that may have occurred at such locations in the past. Honeywell retained all HSE liabilities related to former business locations or the operation of our former businesses. Although we have ongoing environmental remedial obligations at certain of our facilities, in the past three years, the associated remediation costs have not been material, and we do not expect our known remediation costs to have a material adverse effect on the Company's consolidated financial position or results of operations.

We expect that our primary cash requirements for 2024 will be to fund costs associated with ongoing operations, capital expenditures, and amounts related to other contractual obligations.

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.

The Company's Board of Directors (the "Board") has authorized share repurchase programs to repurchase shares of the Company's common stock as follows:


Date of Authorization	Authorized Amount (millions)		Authorized Amount Remaining as of March 31, 2024 (millions)
May 4, 2018	$	75.0	$	—
February 22, 2019	75.0		—
February 17, 2023	75.0		65.2
Totals	$	225.0	$	65.2

Repurchases may be made from time to time on the open market in accordance with Rule 10b-18 of the Exchange Act, including through the use of trading plans intended to qualify under Rule 10b5-1 of the Exchange Act. The size and timing of these repurchases will depend on pricing, market and economic conditions, legal and contractual requirements and other factors. The share repurchase program has no expiration date and may be modified, suspended or discontinued at any time. The par value of the shares repurchased is applied to Treasury stock and the excess of the purchase price over par value is applied to Additional paid-in capital.

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.

As of March 31, 2024, the Company did not have any off-balance sheet arrangements as described in Instruction 8 to Item 303(b) of Regulation S-K and did not have any material changes in the commitments or contractual obligations detailed in the Company's 2023 Form 10-K (see Part II, Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations" under "Liquidity and Capital Resources - Liquidity"). The Company has not guaranteed any debt or commitments of other entities or entered into any options on non-financial assets.

Dividends

The Company commenced the declaration of dividends on September 28, 2021.

Dividends announced during 2024 are as follows:

Date of Announcement

Date of Record

Date Payable

Dividend per Share

Total Approximate Dividend Amount ($M)

5/3/2024

5/14/2024

5/28/2024

$0.160

$4.3

2/16/2024

3/4/2024

3/18/2024

$0.160

$4.3

The timing, declaration, amount and payment of future dividends to stockholders, if any, will fall within the discretion of our Board. Holders of shares of our common stock will be entitled to receive dividends when, and if, declared by our Board at its discretion out of funds legally available for that purpose, subject to the terms of our indebtedness, the preferential rights of any preferred stock that may be outstanding, legal requirements, regulatory constraints, industry practice and other factors that our Board deems relevant.

Credit Agreement

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.

On October 27, 2021, the Company completed a refinancing of the Second Amended and Restated Credit Agreement by entering into a new Credit Agreement (the “Credit Agreement”), among the Company, the lenders party thereto, the swing line lenders party thereto, the letter of credit issuers party thereto and Truist Bank, as administrative agent, which provides for a new senior secured revolving credit facility in an aggregate principal amount of $500 million (the “Revolving Credit Facility”).

Borrowings under the Revolving Credit Facility are subject to customary borrowing conditions.

The Revolving Credit Facility has a scheduled maturity date of October 27, 2026. The Credit Agreement permits the Company to utilize up to $40 million of the Revolving Credit Facility for the issuance of letters of credit and up to $40 million for swing line loans. The Company has the option to establish a new class of term loans and/or increase the amount of the Revolving Credit Facility in an aggregate principal amount for all such incremental term loans and increases of the Revolving Credit Facility of up to the sum of (x) $175 million plus (y) an amount such that the Company’s Consolidated First Lien Secured Leverage Ratio (as defined in the Credit Agreement) would not be greater than 2.75 to 1.00, in each case, to the extent that any one or more lenders, whether or not currently party to the Credit Agreement, commits to be a lender for such amount or any portion thereof.

With the cessation of LIBOR on June 30, 2023 and subject to the First Amendment to the Credit Agreement, dated as of June 27, 2023, the Eurodollar Rate was replaced with the Adjusted Term SOFR as an alternative benchmark rate for purposes of the Credit Agreement. The transition was effective July 1, 2023. Borrowings under the Credit Agreement bear interest at a rate equal to either the sum of a base rate plus a margin ranging from 0.25% to 1.25% or the sum of an Adjusted Term SOFR rate plus a margin ranging from 1.25% to 2.25%, with either such margin varying according to the Company’s Consolidated Leverage Ratio (as defined in the Credit Agreement). The Company is also required to pay a commitment fee in respect of unused commitments under the Revolving Credit Facility, if any, at a rate ranging from 0.15% to 0.35% per annum depending on the Company’s Consolidated Leverage Ratio. In conjunction with the cessation of LIBOR, as of July 1, 2023, the applicable margin under the Credit Agreement was 0.25% for base rate loans and 1.25% for Adjusted Term SOFR loans and the applicable commitment fee rate was 0.15% per annum.

Substantially all tangible and intangible assets of the Company and its domestic subsidiaries are pledged as collateral to secure the Company's obligations under the Credit Agreement.

The Credit Agreement contains customary covenants limiting the ability of the Company and its subsidiaries to, among other things, pay cash dividends, incur debt or liens, redeem or repurchase stock of the Company, enter into transactions with affiliates, make investments, make capital expenditures, merge or consolidate with others or dispose of assets. The Credit Agreement also contains financial covenants that require the Company to maintain a Consolidated Interest Coverage Ratio (as

defined in the Credit Agreement) of not less than 3.00 to 1.00 and to maintain a Consolidated Leverage Ratio of (i) 4.00 to 1.00 or less for the fiscal quarter ending December 31, 2021, through and including the fiscal quarter ending September 30, 2023 and (ii) 3.75 to 1.00 or less for each fiscal quarter thereafter (subject to the Company’s option to elect a consolidated leverage ratio increase in connection with certain acquisitions). If the Company does not comply with the covenants in the Credit Agreement, the lenders may, subject to customary cure rights, require the immediate payment of all amounts outstanding under the Revolving Credit Facility. We were in compliance with all of our covenants at March 31, 2024 and through the date of the filing of this Form 10-Q.

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.

Cash Flow Summary


	Three Months Ended March 31,
	2024		2023
Cash provided by (used for):
Operating activities	$	(36,202)	$	1,575
Investing activities	(36,807)		(25,606)
Financing activities	63,874		(5,128)
Net change in cash and cash equivalents	$	(9,135)	$	(29,159)

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.

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.

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.

Capital Expenditures

(Dollars in thousands, unless otherwise noted)

Our operations are capital intensive, requiring ongoing investments that have consisted, and are expected to continue to consist, primarily of capital expenditures required to maintain and improve equipment reliability, expand production output, further improve mix, yield and cost position, and comply with environmental and safety regulations.

The following table summarizes ongoing and expansion capital expenditures:


	Three Months Ended March 31, 2024
Capital expenditures in Accounts payable at December 31, 2023	$	22,660
Purchases of property, plant and equipment	26,170
Less: Capital expenditures in Accounts payable at March 31, 2024	(13,442)
Cash paid for capital expenditures	$	35,388

For 2024, we expect our total capital expenditures to be approximately $140 million to $150 million compared to $107 million in 2023, reflecting increased spend to address critical enterprise risk mitigation and growth projects including our SUSTAIN (Sustainable U.S. Sulfate to Accelerate Increased Nutrition) program.

Critical Accounting Policies and Estimates

SEC Form 10-Q filed by AdvanSix Inc.