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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 June 30, 2023
or
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 classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.01 per shareASIXNew 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 27,213,058 shares of common stock, $0.01 par value, outstanding at July 28, 2023.


ADVANSIX INC.
FORM 10-Q
 
TABLE OF CONTENTS


 
Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2023 and 2022 (unaudited)




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
June 30,
Six Months Ended
June 30,
2023202220232022
Sales$427,940 $583,736 $828,484 $1,062,809 
Costs, expenses and other:
Costs of goods sold360,017 476,835 690,059 852,482 
Selling, general and administrative expenses24,011 20,841 49,126 42,051 
Interest expense, net1,954 769 3,221 1,332 
Other non-operating (income) expense, net(1,325)172 (1,433)(431)
Total costs, expenses and other384,657 498,617 740,973 895,434 
Income before taxes43,283 85,119 87,511 167,375 
Income tax expense10,555 19,962 19,829 39,145 
Net income$32,728 $65,157 $67,682 $128,230 
Earnings per common share
Basic$1.19 $2.31 $2.46 $4.55 
Diluted$1.16 $2.23 $2.39 $4.37 
Weighted average common shares outstanding
Basic27,494,555 28,168,207 27,547,874 28,183,951 
Diluted28,113,402 29,262,709 28,348,266 29,316,792 
 

See accompanying notes to Condensed Consolidated Financial Statements.
3

ADVANSIX INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(Dollars in thousands)

 
Three Months Ended
June 30,
Six Months Ended
June 30,
2023202220232022
Net income $32,728 $65,157 $67,682 $128,230 
Foreign exchange translation adjustment(125)(35)(158)22 
Cash-flow hedges 295 (150)807 
Other comprehensive income (loss), net of tax(125)260 (308)829 
Comprehensive income$32,603 $65,417 $67,374 $129,059 

See accompanying notes to Condensed Consolidated Financial Statements.
4

ADVANSIX INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in thousands, except share and per share amounts)

June 30,
2023
December 31,
2022
ASSETS
Current assets:
Cash and cash equivalents$10,536 $30,985 
Accounts and other receivables – net153,148 175,429 
Inventories – net225,986 215,502 
Taxes receivable1,442 9,771 
Other current assets20,043 9,241 
Total current assets411,155 440,928 
Property, plant and equipment – net816,885 811,065 
Operating lease right-of-use assets109,816 114,688 
Goodwill56,192 56,192 
Intangible assets47,717 49,242 
Other assets25,244 23,216 
Total assets$1,467,009 $1,495,331 
LIABILITIES
Current liabilities:
Accounts payable$220,158 $272,770 
Accrued liabilities43,310 48,820 
Operating lease liabilities – short-term34,342 37,472 
Deferred income and customer advances2,333 34,430 
Total current liabilities300,143 393,492 
Deferred income taxes164,256 160,409 
Operating lease liabilities – long-term75,829 77,571 
Line of credit – long-term140,000 115,000 
Postretirement benefit obligations2,279  
Other liabilities10,143 10,679 
Total liabilities692,650 757,151 
COMMITMENTS AND CONTINGENCIES (Note 9)
STOCKHOLDERS' EQUITY
Common stock, par value $0.01; 200,000,000 shares authorized; 32,577,862 shares issued and 27,302,873 outstanding at June 30, 2023; 31,977,593 shares issued and 27,446,520 outstanding at December 31, 2022
326 320 
Preferred stock, par value $0.01; 50,000,000 shares authorized and 0 shares issued and outstanding at June 30, 2023 and December 31, 2022
  
Treasury stock at par (5,274,989 shares at June 30, 2023; 4,531,073 shares at December 31, 2022)
(53)(45)
Additional paid-in capital151,706 174,585 
Retained earnings626,885 567,517 
Accumulated other comprehensive loss(4,505)(4,197)
Total stockholders' equity774,359 738,180 
Total liabilities and stockholders' equity$1,467,009 $1,495,331 
See accompanying notes to Condensed Consolidated Financial Statements.
5

ADVANSIX INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
 

Six Months Ended
June 30,
20232022
Cash flows from operating activities:
Net income$67,682 $128,230 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 35,958 34,226 
Loss on disposal of assets 568 800 
Deferred income taxes 3,894 2,558 
Stock-based compensation4,449 5,379 
Amortization of deferred financing fees309 309 
Changes in assets and liabilities, net of business acquisitions:
Accounts and other receivables 22,123 (52,145)
Inventories (10,484)3,012 
Taxes receivable8,329  
Accounts payable (47,216)52,439 
Accrued liabilities (5,744)(8,821)
Deferred income and customer advances (32,097)(1,142)
Other assets and liabilities (11,192)(19,792)
Net cash provided by operating activities 36,579 145,053 
Cash flows from investing activities:
Expenditures for property, plant and equipment (43,894)(38,779)
Acquisition of businesses (97,456)
Other investing activities(2,034)(1,221)
Net cash used for investing activities (45,928)(137,456)
Cash flows from financing activities:
Borrowings from line of credit230,500 230,500 
Payments of line of credit(205,500)(219,000)
Principal payments of finance leases(456)(481)
Dividend payments(8,004)(7,032)
Purchase of treasury stock(28,385)(10,419)
Issuance of common stock745 1,032 
Net cash used for financing activities (11,100)(5,400)
Net change in cash and cash equivalents (20,449)2,197 
Cash and cash equivalents at beginning of period30,985 15,100 
Cash and cash equivalents at the end of period$10,536 $17,297 
Supplemental non-cash investing activities:
Capital expenditures included in accounts payable $9,832 $9,207 
Supplemental cash activities:
Cash paid for interest$3,027 $1,024 
Cash paid for income taxes$7,024 $47,439 
See accompanying notes to Condensed Consolidated Financial Statements.
6

ADVANSIX INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
(Dollars in thousands)


Common StockAdditional Paid-In CapitalRetained EarningsTreasury StockAccumulated Other Comprehensive Income (Loss)Total Equity
SharesAmount
Balance at December 31, 202231,977,593 $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 stock555,249 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, 202332,532,842 325 163,831 598,339 (48)(4,380)758,067 
Net Income— — — 32,728 — — 32,728 
Comprehensive income
Foreign exchange translation adjustments— — — — — (125)(125)
Cash-flow hedges— — — — —   
Other comprehensive income (loss), net of tax— — — — — (125)(125)
Issuance of common stock45,020 1 122 — — — 123 
Purchase of treasury stock (410,862 shares)
— — (14,881)— (5)— (14,886)
Stock-based compensation— — 2,436 — — — 2,436 
Dividends— — 198 (4,182)— — (3,984)
Balance at June 30, 202332,577,862 $326 $151,706 $626,885 $(53)$(4,505)$774,359 

7

ADVANSIX INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
(Dollars in thousands)
Common StockAdditional Paid-In CapitalRetained EarningsTreasury StockAccumulated Other Comprehensive Income (Loss)Total Equity
SharesAmount
Balance at December 31, 202131,755,430 $318 $195,931 $411,516 $(36)$(6,539)$601,190 
Net Income— — — 63,073 — — 63,073 
Comprehensive income
Foreign exchange translation adjustments— — — — — 57 57 
Cash-flow hedges— — — — — 512 512 
Other comprehensive income (loss), net of tax— — — — — 569 569 
Issuance of common stock144,875 1 713 — — — 714 
Purchase of treasury stock (181,536 shares)
— — (7,010)— (2)— (7,012)
Stock-based compensation— — 3,374 — — — 3,374 
Dividends— — 313 (3,830)— — (3,517)
Balance at March 31, 202231,900,305 319 193,321 470,759 (38)(5,970)658,391 
Net Income— — — 65,157 — — 65,157 
Comprehensive income
Foreign exchange translation adjustments— — — — — (35)(35)
Cash-flow hedges— — — — — 295 295 
Other comprehensive income (loss), net of tax— — — — — 260 260 
Issuance of common stock61,651 1 317 — — — 318 
Purchase of treasury stock (87,251 shares)
— — (3,406)— (1)— (3,407)
Stock-based compensation— — 2,005 — — — 2,005 
Dividends— — 155 (3,670)— — (3,515)
Balance at June 30, 202231,961,956 $320 $192,392 $532,246 $(39)$(5,710)$719,209 





See accompanying notes to Condensed Consolidated Financial Statements.
8

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, chemical intermediates and plant nutrients, 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 June 30, 2023, and its results of operations for the three and six months ended June 30, 2023 and 2022 and cash flows for the six months ended June 30, 2023 and 2022. 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, 2022 (the "2022 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 and six months ended June 30, 2023 and 2022 were July 1, 2023 and July 2, 2022, respectively.

Liabilities to creditors to whom we have issued checks that remained outstanding at June 30, 2023 and December 31, 2022 aggregated to $3.7 million and $9.0 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 June 30, 2023
(millions)
May 4, 2018$75.0 $ 
February 22, 201975.0 10.6 
February 17, 202375.0 75.0 
     Totals$225.0 $85.6 

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
9

ADVANSIX INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts and as otherwise noted)



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 June 30, 2023, the Company has repurchased a total of 5,274,989 shares of common stock, including 849,265 shares withheld to cover tax withholding obligations in connection with the vesting of awards, for an aggregate of $164.4 million at a weighted average market price of $31.17 per share. As of June 30, 2023, $85.6 million remained available for share repurchases under the current authorization. During the period July 1, 2023 through July 28, 2023, the Company repurchased an additional 94,715 shares at a weighted average market price of $36.45 per share primarily under the current 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.

In September 2022, the FASB issued ASU No. 2022-04, Liabilities - Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations. The amendments in this ASU require that a buyer in a supplier finance program disclose sufficient quantitative and qualitative information about its supplier finance programs to allow a user of the financial statements to understand the program’s nature, activity during the period, changes from period to period and potential magnitude. On a retrospective basis, for each annual reporting period, an entity should disclose the key terms of the program, including a description of the payment terms, assets pledged as security or other forms of guarantees, the confirmed amount outstanding that remains unpaid, a description of where the obligations are presented in the balance sheet and a roll-forward of those obligations confirmed as well as the amount of obligations subsequently paid. In each interim reporting period, an entity should disclose the amount of confirmed obligations outstanding. The guidance is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, except for the amendment on roll-forward information, which is effective for fiscal years beginning after December 15, 2023. Early adoption of the amendments in this update is permitted. The Company adopted ASU 2022-04, effective January 1, 2023, which did not have a material impact on the Company's consolidated financial position or results of operations upon adoption.

3. Revenues

Revenue Recognition

We serve approximately 400 customers annually in approximately 40 countries across a wide variety of industries. For the three months ended June 30, 2023 and 2022, the Company's ten largest customers accounted for approximately 41% and 40% of total sales, respectively. For each of the six months ended June 30, 2023 and 2022, the Company's ten largest customers accounted for approximately 38% of total sales during both periods.

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 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 each of the three and six months ended June 30, 2023 and 2022, the Company's sales to Shaw were 10% of our total sales.

The Company's revenue by product line, and related approximate percentage of total sales, for the three and six months ended June 30, 2023 and 2022 were as follows:
10

ADVANSIX INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts and as otherwise noted)



Three Months Ended
June 30,
Six Months Ended
June 30,
2023202220232022
Nylon$92,953 22%$132,105 23%$192,325 23%$250,715 23%
Caprolactam74,682 18%87,169 15%147,073 18%157,174 15%
Chemical Intermediates121,365 28%158,611 27%235,929 28%294,300 28%
Ammonium Sulfate138,940 32%205,851 35%253,157 31%360,620 34%
Total$427,940 100%$583,736 100%$828,484 100%$1,062,809 100%
The Company's revenues by geographic area, and related approximate percentage of total sales, for the three and six months ended June 30, 2023 and 2022 were as follows:
Three Months Ended
June 30,
Six Months Ended
June 30,
2023202220232022
United States$367,608 86%$494,155 85%$688,534 83 %$897,174 84 %
International60,332 14%89,581 15%139,950 17 %165,635 16 %
Total$427,940 100%$583,736 100%$828,484 100 %$1,062,809 100 %
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 six months ended June 30, 2023:
Opening balance January 1, 2023$34,430 
Additional cash advances5,878 
Less amounts recognized in revenues(37,975)
Ending balance June 30, 2023$2,333 
The Company expects to recognize as revenue the June 30, 2023 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 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 and six months ended June 30, 2023 and 2022 were as follows:
 
Three Months Ended
June 30,
Six Months Ended
June 30,
2023202220232022
Basic
Net income$32,728 $65,157 $67,682 $128,230 
Weighted average common shares outstanding27,494,555 28,168,207 27,547,874 28,183,951 
EPS – Basic$1.19 $2.31 $2.46 $4.55 
Diluted
Dilutive effect of equity awards and other stock-based holdings618,847 1,094,502 800,392 1,132,841 
Weighted average common shares outstanding28,113,402 29,262,709 28,348,266 29,316,792 
EPS – Diluted$1.16 $2.23 $2.39 $4.37 

11

ADVANSIX INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts and as otherwise noted)



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 and six months ended June 30, 2023 and 2022 were as follows:
Three Months Ended
June 30,
Six Months Ended
June 30,
2023202220232022
Options and stock equivalents 503,354 121,794 404,009 121,055 

Dividend activity for the three and six months ended June 30, 2023 and 2022 was as follows:
Three Months Ended
June 30,
Six Months Ended
June 30,
2023202220232022
Cash dividends declared per share$0.145 $0.125 $0.290 $0.250 
Aggregate dividends paid to shareholders$3,984 $3,515 $8,004 $7,032 

5. Accounts and Other Receivables Net
June 30,
2023
December 31,
2022
Accounts receivables$149,303 $171,923 
Other5,106 4,100 
Total accounts and other receivables154,409 176,023 
Less – allowance for doubtful accounts(1,261)(594)
Total accounts and other receivables – net$153,148 $175,429 

6. Inventories
June 30,
2023
December 31,
2022
Raw materials$125,162 $126,060 
Work in progress73,417 64,669 
Finished goods92,824 60,711 
Spares and other30,894 28,892 
322,297 280,332 
Reduction to LIFO cost basis(96,311)(64,830)
Total inventories$225,986 $215,502 

Substantially all of the Company’s inventories at June 30, 2023 and December 31, 2022 are valued at the lower of cost or market using the last-in, first-out (“LIFO”) method. However, approximately 7% was valued at average cost using the first-in, first-out (“FIFO”) method at June 30, 2023.

The excess of replacement cost over the carrying value of total inventories subject to LIFO was $67.2 million and $58.2 million at June 30, 2023 and December 31, 2022, 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.
12

ADVANSIX INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts and as otherwise noted)




The components of lease expense were as follows:
Three Months Ended
June 30,
Six Months Ended
June 30,
2023202220232022
Finance lease cost:
Amortization of right-of-use asset$216 $238 $438 $474 
Interest on lease liabilities23 8 41 22 
Total finance lease cost239 246 479 496 
Operating lease cost11,592 10,272 22,841 20,610 
Short-term lease cost1,511 1,244 2,537 2,598 
Total lease cost$13,342 $11,762 $25,857 $23,704 

As of June 30, 2023, we have additional operating leases that have not yet commenced for approximately $1.0 million. These leases will commence during the second half of 2023 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 six months ended June 30, 2023.

Finite-Lived Intangible Assets

Intangible assets subject to amortization were as follows:
June 30, 2023December 31, 2022
Gross Carrying AmountAccumulated AmortizationNet Book ValueGross Carrying AmountAccumulated AmortizationNet Book Value
Customer relationships$36,820 $(2,807)$34,013 $36,820 $(1,854)$34,966 
Licenses18,451 (5,535)12,916 18,451 (5,074)13,377 
Trade names1,100 (312)788 1,100 (201)899 
Total$56,371 $(8,654)$47,717 $56,371 $(7,129)$49,242 

For each of the three months ended June 30, 2023 and June 30, 2022, the Company recorded amortization expense on intangible assets of $0.8 million. For the six months ended June 30, 2023 and June 30, 2022, the Company recorded amortization expense on intangible assets of $1.5 million and $1.2 million, respectively.

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
13

ADVANSIX INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts and as otherwise noted)



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 provision for income taxes was $10.6 million and $20.0 million for the three months ended June 30, 2023 and 2022, respectively, resulting in an effective tax rate of 24.4% and 23.5%, respectively. The provision for income taxes was $19.8 million and $39.1 million for the six months ended June 30, 2023 and 2022, respectively, resulting in an effective tax rate of 22.7% and 23.4%, respectively.

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, 2023 and 2022 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 0.6% increase to the quarterly effective tax rate and a net 0.9% decrease to the year-to-date effective tax rate.

On August 16, 2022, the Inflation Reduction Act of 2022 (the "IRA") was signed into law. This legislation includes significant changes relating to tax, climate change, energy and health care. Among other provisions, the IRA introduces a corporate alternative minimum tax (CAMT) on adjusted financial statement income of certain large corporations and a 1% excise tax on share repurchases. The Company is not currently subject to the CAMT which became effective for tax years beginning after December 31, 2022. The 1% excise tax is generally applicable to publicly traded corporations for the net value of certain stock that the corporation repurchases during the year and is also effective for tax years beginning after December 31, 2022. The impact of any excise tax imposed on the Company for share repurchases is generally accounted for as an equity transaction with no consequences to the Company's results in operations, and this provision of the law is not expected to have a material impact on the Company's financial condition. The IRA also includes significant extensions, expansions and enhancements related to climate and energy tax credits designed to encourage investment in the adoption and expansion of renewable and alternative energy sources. The Company continues to evaluate these energy credit provisions of the law in relation to our sustainability and environmental, social and governance initiatives.

11. Fair Value Measurements

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. In July 2019, the Company entered into an interest rate swap transaction related to its credit agreement. The interest rate swap, considered a Level 2 liability, expired February 21, 2023.

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.

14

ADVANSIX INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts and as otherwise noted)



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 March 31, 2023 and we concluded that an impairment for goodwill did not occur.

12. Derivative and Hedging Instruments

The specific credit and market, commodity price and interest rate risks to which the Company is exposed in connection with its ongoing business operations are described below. This discussion includes an explanation of any hedging instrument and interest rate swap agreement, used to manage the Company’s interest rate risk associated with a fixed and floating-rate borrowing.

For cash flow hedges, the entire change in the fair value of the hedging instrument included in the assessment of hedge effectiveness is recorded in Other comprehensive income. Those amounts are reclassified to earnings in the same income statement line item that is used to present the earnings effect of the hedged item when the hedged item affects earnings.

Credit and Market Risk – Financial instruments, including derivatives, expose the Company to counterparty credit risk for non-performance and to market risk related to changes in commodity prices, interest rates and foreign currency exchange rates. The Company manages its exposure to counterparty credit risk through specific minimum credit standards, diversification of counterparties, and procedures to monitor concentrations of credit risk. The Company’s counterparties in derivative transactions are substantial investment and commercial banks with significant experience using such derivative instruments. The Company monitors the impact of market risk on the fair value and cash flows of its derivative and other financial instruments considering reasonably possible changes in commodity prices, interest rates and foreign currency exchange rates and restricts the use of derivative financial instruments to hedging activities.

The Company continually monitors the creditworthiness of its customers to which it grants credit terms in the normal course of business. The terms and conditions of credit sales are designed to mitigate or eliminate concentrations of credit risk with any single customer. The Company did not have any customers with significant concentrations of trade accounts receivable – net at June 30, 2023 or December 31, 2022. Allowance for doubtful accounts is calculated based upon the Company's estimate of expected credit losses over the life of exposure based upon both historical information as well as future expected losses.

Commodity Price Risk Management – The Company's exposure to market risk for commodity prices can result in changes in the cost of production. We primarily mitigate our exposure to commodity price risk by using long-term, formula-based price contracts with our suppliers and formula-based price agreements with customers. Our customer agreements provide for price adjustments based on relevant market indices and raw material prices and generally do not include take-or-pay terms. We may also enter into forward commodity contracts with third-parties designated as hedges of anticipated purchases of several commodities. Forward commodity contracts are marked-to-market, with the resulting gains and losses recognized in earnings, in the same category as the items being hedged, when the hedged transaction is recognized. At June 30, 2023 and 2022, we had no financial contracts related to forward commodity agreements.

Interest Rate Risk Management – The Company had entered into one 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.

15

ADVANSIX INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts and as otherwise noted)



Asset (Liability) Derivatives
June 30, 2023December 31, 2022
Balance Sheet ClassificationFair ValueBalance Sheet ClassificationFair Value
Derivatives designated as hedging instruments under ASC 815:
Interest Rate ContractsAccounts and other receivables, net$ Accounts and other receivables, net$197 
Total Derivatives$ $197 

The following table summarizes adjustments related to cash flow hedge included in Cash-flow hedges, in the Condensed Consolidated Statements of Comprehensive Income:

June 30,
2023
Gain on derivative instruments included in Accumulated other comprehensive loss at December 31, 2022$197 
Fair value adjustment(197)
Gain (Loss) on derivative instruments included in Accumulated other comprehensive loss at June 30, 2023$ 

At June 30, 2023, the Company expects no reclassifications of net gains or losses on derivative instruments from Accumulated other comprehensive income ("AOCI") to earnings during the next 12 months as the interest rate swap agreement matured on February 21, 2023. The following table summarizes the reclassification of net (gains) losses on derivative instruments from AOCI into earnings:
Amount of (Gain) Loss Recognized in Earnings
Three Months Ended
June 30,
Six Months Ended
June 30,
2023202220232022
Derivatives:
Interest Rate Contracts$ $(131)$ $(119)
Total Derivatives$ $(131)$ $(119)

13. Acquisitions

In February 2022, the Company acquired the stock of U.S. Amines, a leading North American producer of alkyl and specialty amines serving high-value end markets such as agrochemicals and pharmaceuticals for a purchase price of approximately $97.5 million, net of cash acquired.

In January 2021, the Company acquired certain assets associated with ammonium sulfate packaging, warehousing and logistics services in Virginia from Commonwealth Industrial Services, Inc. ("CIS") for approximately $9.5 million.

14. 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 $14 million and approximately $17 million as of June 30, 2023 and December 31, 2022, respectively. These amounts outstanding are included in Accounts payable.
16

ADVANSIX INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts and as otherwise noted)




15. Subsequent Events

As announced on August 4, 2023, the Board declared a quarterly cash dividend of $0.160 per share on the Company's common stock, payable on August 29, 2023 to stockholders of record as of the close of business on August 15, 2023.
17


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, 2022 filed with the Securities and Exchange Commission (“SEC”) on February 17, 2023 (the “2022 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, including the impact of the coronavirus (COVID-19) pandemic and any resurgences; 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 effect 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 and disruptions to our technology infrastructure; risks associated with employees working remotely or 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, 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; cybersecurity, data privacy incidents and disruptions to our technology infrastructure; 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 2022 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
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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, chemical intermediates and plant nutrients, guided by our core values of Safety, Integrity, Accountability and Respect. Our four key product lines are as follows: 

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. In addition, our Nylon 6 resin is used to produce nylon films which we sell to our customers primarily under the Capran® brand name.

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 nylon fibers, films and other nylon products. Our Hopewell, VA manufacturing facility is one of the world’s largest single-site producers of caprolactam as of June 30, 2023.

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, oximes (methyl ethyl ketoxime, acetaldehyde oxime and 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.

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 June 30, 2023. We market and sell ammonium sulfate primarily to North American and South American distributors, farm cooperatives and retailers to fertilize crops.

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. Generally, prices for Nylon 6 resin and caprolactam reflect supply and demand trends in the marketplace as well as the value of the basic raw materials used in the production of caprolactam, consisting primarily of benzene and, depending on the manufacturing process utilized, natural gas and sulfur. 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 variation as a result of global changes in supply and demand. Nylon 6 resin prices generally track caprolactam prices, although prices set above the average commodity spread are achievable when nylon resin manufacturers, like AdvanSix, formulate and produce differentiated nylon resin products for current and new customer applications. Our differentiated Nylon 6 products, such as our wire and cable and co-polymer offerings, are typically valued at a higher level than commodity resin products.

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.

Global prices for ammonium sulfate fertilizer are influenced by several factors including the price of urea, which 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
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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, however, quarterly sales experience seasonality reflecting both geographical and product sales mix considerations based on the timing and length of the growing seasons in North and South America. The North America planting season runs from July through June. The new season fill typically occurs in the third quarter and proceeds sequentially into the following spring which is the peak period for fertilizer application for key crops in North America. As a result of this typical pattern, North American ammonium sulfate demand and pricing, particularly for our higher-value granular product, are typically the strongest in the first half of the year through application for the spring crop and then decline in the second half. Our export sales, primarily into South America, are predominantly of the standard grade product. 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 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 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

Share Repurchase Authorization

On February 17, 2023, the Company announced that the Board authorized a share repurchase program of up to an additional $75 million of the Company's common stock, which was in addition to the remaining capacity available under the previously approved share repurchase program. 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 repurchase program has no expiration date and may be modified, suspended or discontinued at any time.

Hopewell South Collective Bargaining Agreement

On April 7, 2023, the Company issued a press release announcing that a labor strike had been initiated by the Hopewell South bargaining unit, consisting of the International Chemical Workers Union Council/the United Food and Commercial Workers, Local 591-C, the International Brotherhood of Electrical Workers, Local 666, the International Association of Machinists and Aerospace Workers, Local No. 10, and the United Association of Journeymen and Apprentices of the Plumbing and Pipe Fitting Industry, Local 851, affecting approximately 340 workers at the Company's manufacturing facility in Hopewell, Virginia. The Company had robust contingency measures in place and was well prepared to support safe, stable and sustainable operations during this period. On May 8, 2023, the Company announced that the Hopewell South bargaining unit voted to ratify a new five-year collective bargaining agreement and that Hopewell South employees would return to work on May 10, 2023. The strike did not have a material impact on the Company's results of operations.

Dividends

During 2023, the Company has declared dividends as follows:

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Date of AnnouncementDate of RecordDate PayableDividend per Share
8/4/20238/15/20238/29/2023$0.160
5/5/20235/16/20235/30/2023$0.145
2/17/20233/3/20233/17/2023$0.145

Results of Operations
(Dollars in thousands, unless otherwise noted)
 
Sales
Three Months Ended
June 30,
Six Months Ended
June 30,
2023202220232022
Sales$427,940 $583,736 $828,484 $1,062,809 
% change compared with prior year period(26.7)%(22.0)%

The change in sales compared to the prior year period is attributable to the following:
Three Months Ended
June 30, 2023
Six Months Ended
June 30, 2023
Volume(1.5)%(4.6)%
Price(25.2)%(18.5)%
Acquisition—%1.1%
(26.7)%(22.0)%

Sales decreased in the three months ended June 30, 2023 compared to the prior year period by $155.8 million (approximately 27%) due to (i) net unfavorable market-based pricing (approximately 19%) primarily reflecting lower pricing across our ammonium sulfate and nylon product lines, (ii) lower raw material pass-through pricing (approximately 6%) as a result of a net cost decrease in benzene and propylene (inputs to cumene which is a key feedstock to our products) and (iii) a decrease in sales volume (approximately 2%).

Sales decreased in the six months ended June 30, 2023 compared to the prior year period by $234.3 million (approximately 22%) due to (i) net unfavorable market-based pricing (approximately 13%) primarily reflecting lower pricing across our ammonium sulfate and nylon product lines, (ii) unfavorable raw material pass-through pricing (approximately 6%) as a result of a net cost decrease in benzene and propylene (inputs to cumene which is a key feedstock to our products) and (iii) decreased sales volume (approximately 5%) largely driven by chemical intermediates, partially offset by the acquisition of U.S. Amines (approximately 1%).

Costs of Goods Sold
Three Months Ended
June 30,
Six Months Ended
June 30,
2023202220232022
Costs of goods sold$360,017 $476,835 $690,059 $852,482 
% change compared with prior year period(24.5)%(19.1)%
Gross Margin percentage15.9%18.3%16.7%19.8%

Costs of goods sold decreased in the three months ended June 30, 2023 compared to the prior year period by $116.8 million (approximately 24%) due to (i) decreased prices of raw materials (approximately 22%) and (ii) decrease in sales volume (approximately 2%).

Costs of goods sold decreased in the six months ended June 30, 2023 compared to the prior year period by $162.4 million (approximately 19%) due to (i) decreased prices of raw materials (approximately 17%) and (ii) lower sales volume (approximately 4%), partially offset by increased plant costs (approximately 2%) and the impact of the U.S. Amines acquisition (approximately 1%).

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Gross margin percentage decreased in the three months ended June 30, 2023 compared to the prior year period (approximately 2%) due primarily to the impact of market-based pricing, net of raw material costs (approximately 4%) partially offset by (i) the net impact of lower sales volume and changes in sales mix, including higher domestic plant nutrients' sales (approximately 1%) and (ii) lower planned plant turnaround expenses (approximately 1%).

Gross margin percentage decreased in the six months ended June 30, 2023 compared to the prior year period (approximately 3%) due primarily to (i) increased plant spend (approximately 2%) and (ii) the impact of market-based pricing, net of raw material costs (approximately 1%).

Selling, General and Administrative Expenses
Three Months Ended
June 30,
Six Months Ended
June 30,
2023202220232022
Selling, general and administrative expenses$24,011 $20,841 $49,126 $42,051 
Percentage of Sales5.6%3.6%5.9%4.0%

Selling, general and administrative expenses increased by $3.2 million in the three months ended June 30, 2023 compared to the prior year period due primarily to upgrades to our enterprise resource planning systems and other functional support costs, and a reduction in bad debt expense in the prior year period associated with a cash collection of a previously reserved customer receivable.

Selling, general and administrative expenses increased by $7.1 million in the six months ended June 30, 2023 compared to the prior year period due primarily to increased functional support costs including upgrades to our enterprise resource planning system, and a reduction in bad debt expense in the prior year period associated with a cash collection of a previously reserved customer receivable partially offset by lower incentive-based compensation costs.

Income Tax Expense
Three Months Ended
June 30,
Six Months Ended
June 30,
2023202220232022
Income tax expense$10,555 $19,962 $19,829 $39,145 
Effective tax rate24.4%23.5%22.7%23.4%

The Company’s effective tax rate for the three and six months ended June 30, 2023 and 2022 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 0.6% increase to the quarterly effective tax rate and a net 0.9% decrease to the year-to-date effective tax rate.

The Company's effective tax rate for the three months ended June 30, 2023 was higher than the prior year period due primarily to state tax legislation changes enacted in the current period that resulted in a 0.7% increase to the Company's quarterly effective tax rate. The Company's effective tax rate for the six months ended June 30, 2023 was lower than the prior year period due primarily to the vesting of equity compensation that resulted in a 1.3% decrease to the Company's effective tax rate in the current year.

On August 16, 2022, the Inflation Reduction Act of 2022 (the "IRA") was signed into law. This legislation includes significant changes relating to tax, climate change, energy and health care. Among other provisions, the IRA introduces a corporate alternative minimum tax (CAMT) on adjusted financial statement income of certain large corporations and a 1% excise tax on share repurchases. The Company is not currently subject to the CAMT which became effective for tax years beginning after December 31, 2022. The 1% excise tax is generally applicable to publicly traded corporations for the net value of certain stock that the corporation repurchases during the year and is also effective for tax years beginning after December 31, 2022. The impact of any excise tax imposed on the Company for share repurchases is generally accounted for as an equity transaction with no consequences to the Company's results in operations, and this provision of the law is not expected to have a material impact on the Company's financial condition. The IRA also includes significant extensions, expansions and enhancements related to
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climate and energy tax credits designed to encourage investment in the adoption and expansion of renewable and alternative energy sources. The Company continues to evaluate these energy credit provisions of the law in relation to our sustainability and environmental, social and governance initiatives.

Net Income
Three Months Ended
June 30,
Six Months Ended
June 30,
2023202220232022
Net income$32,728 $65,157 $67,682 $128,230 

As a result of the factors described above, Net income was $32.7 million and $67.7 million for the three and six months ended June 30, 2023 as compared to $65.2 million and $128.2 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 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.

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, Adjusted EBITDA and Adjusted EBITDA Margin to their most directly comparable U.S. GAAP financial measure:
Three Months Ended
June 30,
Six Months Ended
June 30,
2023202220232022
Net income$32,728 $65,157 $67,682 $128,230 
Non-cash stock-based compensation2,436 2,005 4,449 5,379 
Non-cash amortization from acquisitions532 551 1,064 752 
Non-recurring M&A costs— — — 277 
Benefit from income taxes relating to reconciling items(498)(439)(933)(995)
Adjusted Net Income (non-GAAP)35,198 67,274 72,262 133,643 
Interest expense, net1,954 769 3,221 1,332 
Income tax expense - adjusted 11,053 20,401 20,763 40,141 
Depreciation and amortization - adjusted 17,580 16,982 34,893 33,474 
Adjusted EBITDA (non-GAAP)$65,785 $105,426 131,139 208,590 
Sales$427,940 $583,736 $828,484 $1,062,809 
Adjusted EBITDA Margin * (non-GAAP)15.4%18.1%15.8%19.6%
* Adjusted EBITDA Margin is defined as Adjusted EBITDA divided by Sales

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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
June 30,
Six Months Ended
June 30,
2023202220232022
Net Income$32,728 $65,157 $67,682 $128,230 
Adjusted Net Income (non-GAAP)35,198 67,274 72,262 133,643 
Weighted-average number of common shares outstanding - basic27,494,555 28,168,207 27,547,874 28,183,951 
Dilutive effect of equity awards and other stock-based holdings618,847 1,094,502 800,392 1,132,841 
Weighted-average number of common shares outstanding - diluted28,113,402 29,262,709 28,348,266 29,316,792 
EPS - Basic$1.19 $2.31 $2.46 $4.55 
EPS - Diluted$1.16 $2.23 $2.39 $4.37 
Adjusted EPS - Basic (non-GAAP)$1.28 $2.39 $2.62 $4.74 
Adjusted EPS - Diluted (non-GAAP)$1.25 $2.30 $2.55 $4.56 

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, 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 2022 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, together with cash on hand and 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 2022 Form 10-K, as well as general economic, financial, competitive, regulatory and other factors that are beyond our control.

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As of the end of the second quarter of 2023, the Company had approximately $10.5 million of cash on hand with approximately $359 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 $110 million to $120 million in 2023 compared to $89 million in 2022, reflecting increased spend due to critical infrastructure, other maintenance, and growth and cost savings projects.

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 2023 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 six months ended June 30, 2023. The Company expects cash contributions of up to $5 million in 2023 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 June 30, 2023
(millions)
May 4, 2018$75.0 $— 
February 22, 201975.0 10.6 
February 17, 202375.0 75.0 
     Totals$225.0 $85.6 

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, 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 June 30, 2023, the Company has repurchased a total of 5,274,989 shares of common stock life-to-date, including 849,265 shares withheld to cover tax withholding obligations in connection with the vesting of awards, for an aggregate of $164.4 million at a weighted average market price of $31.17 per share. As of June 30, 2023, $85.6 million remained available for share repurchases under the current authorization. During the period from July 1, 2023 through July 28, 2023, we repurchased an additional 94,715 shares at a weighted average market price of $36.45 per share primarily under the currently authorized repurchase program.

As of June 30, 2023, 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 2022 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.
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Since commencement of dividends, the Company has declared dividends as follows:

Date of AnnouncementDate of RecordDate PayableDividend per ShareTotal Approximate Dividend Amount ($M)
8/4/20238/15/20238/29/2023$0.160$4.4 
5/5/20235/16/20235/30/2023$0.145$4.0 
2/17/20233/3/20233/17/2023$0.145$4.0 
11/4/202211/15/202211/29/2022$0.145$4.0 
8/5/20228/16/20228/30/2022$0.145$4.1 
5/6/20225/17/20225/31/2022$0.125$3.5