asix-20210331

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, 2021


☐			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 o	Accelerated filer ý	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 28,051,056 shares of common stock, $0.01 par value, outstanding at April 23, 2021.

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, 2021 and 2020 (unaudited)	3
	Condensed Consolidated Statements of Comprehensive Income for the three months ended March 31, 2021 and 2020 (unaudited)	4
	Condensed Consolidated Balance Sheets a s of March 31, 2021 and December 31, 2020 (unaudit ed)	5
	Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2021 and 2020 (unaudited)	6
	Condensed Consolidated Statements of Stockholders' Equity for the three months ended March 31, 2021 and 2020 (unaudited)	7
	Notes to Condensed Consolidated Financial Statements (unaudited)	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	25
Item 4.	Controls and Procedures	26

Part II.	OTHER INFORMATION	26
Item 1.	Legal Proceedings	26
Item 1A.	Risk Factors	26
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	26
Item 6.	Exhibits	28
	Signature	29

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,
	2021		2020
Sales	$	376,383	$	302,713
Costs, expenses and other:
Costs of goods sold	317,899		272,008
Selling, general and administrative expenses	19,308		16,740
Interest expense, net	1,544		1,959
Other non-operating expense (income), net	230		(234)
Total costs, expenses and other	338,981		290,473

Income before taxes	37,402		12,240
Income tax expense	9,271		3,664
Net income	$	28,131	$	8,576

Earnings per common share
Basic	$	1.00	$	0.31
Diluted	$	0.98	$	0.31
Weighted average common shares outstanding
Basic	28,093,764		27,942,486
Diluted	28,741,066		28,050,955

See accompanying notes to Condensed Consolidated Financial Statements.

ADVANSIX INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(Dollars in thousands)


	Three Months Ended March 31,
	2021		2020
Net income	$	28,131	$	8,576
Foreign exchange translation adjustment	(70)		(57)
Cash-flow hedges	483		(1,836)
Pension obligation adjustments	—		—
Other comprehensive income (loss), net of tax	413		(1,893)
Comprehensive income	$	28,544	$	6,683

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, 2021		December 31, 2020
ASSETS
Current assets:
Cash and cash equivalents	$	14,124	$	10,606
Accounts and other receivables – net	149,461		123,554
Inventories – net	141,810		180,085
Taxes receivable	340		12,289
Other current assets	4,342		6,969
Total current assets	310,077		333,503
Property, plant and equipment – net	763,605		765,469
Operating lease right-of-use assets	113,458		114,484
Goodwill	17,592		15,005
Other assets	38,051		34,946
Total assets	$	1,242,783	$	1,263,407

LIABILITIES
Current liabilities:
Accounts payable	$	173,593	$	190,227
Accrued liabilities	39,724		41,152

Operating lease liabilities – short-term	26,589		29,279
Deferred income and customer advances	19,576		26,379


Total current liabilities	259,482		287,037
Deferred income taxes	127,973		125,575
Operating lease liabilities – long-term	87,231		85,605
Line of credit – long-term	246,000		275,000

Postretirement benefit obligations	39,795		39,168
Other liabilities	7,714		6,899
Total liabilities	768,195		819,284

COMMITMENTS AND CONTINGENCIES (Note 9)

STOCKHOLDERS' EQUITY
Common stock, par value $0.01; 200,000,000 shares authorized; 31,660,339 shares issued and 28,051,056 outstanding at March 31, 2021; 31,627,139 shares issued and 28,033,227 outstanding at December 31, 2020	317		316
Preferred stock, par value $0.01; 50,000,000 shares authorized and 0 shares issued and outstanding at March 31, 2021 and December 31, 2020	—		—
Treasury stock at par (3,609,283 shares at March 31, 2021; 3,593,912 shares at December 31, 2020)	(36)		(36)
Additional paid-in capital	186,652		184,732
Retained earnings	303,374		275,243
Accumulated other comprehensive loss	(15,719)		(16,132)
Total stockholders' equity	474,588		444,123
Total liabilities and stockholders' equity	$	1,242,783	$	1,263,407

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,
	2021		2020
Cash flows from operating activities:
Net income	$	28,131	$	8,576
Adjustments to reconcile net income to net cash (used for) provided by operating activities:
Depreciation and amortization	16,104		14,432
Loss on disposal of assets	84		35
Deferred income taxes	2,237		11,204
Stock based compensation	2,363		1,198
Accretion of deferred financing fees	141		130

Changes in assets and liabilities, net of business acquisitions:
Accounts and other receivables	(25,119)		(8,746)
Inventories	38,986		13,644
Taxes receivable	11,949		(7,654)
Accounts payable	(13,781)		(9,752)

Accrued liabilities	912		2,912
Deferred income and customer advances	(6,803)		(6,626)
Other assets and liabilities	1,886		366
Net cash provided by operating activities	57,090		19,719

Cash flows from investing activities:
Expenditures for property, plant and equipment	(14,177)		(34,100)
Acquisition of business	(9,523)		—

Other investing activities	(231)		(385)
Net cash used for investing activities	(23,931)		(34,485)

Cash flows from financing activities:



Borrowings from line of credit	54,000		133,500
Payments of line of credit	(83,000)		(93,500)
Payment of line of credit facility fees	—		(425)
Principal payments of finance leases	(199)		(182)
Purchase of treasury stock	(443)		(925)
Issuance of common stock	1		2

Net cash provided by (used for) financing activities	(29,641)		38,470

Net change in cash and cash equivalents	3,518		23,704
Cash and cash equivalents at beginning of period	10,606		7,050
Cash and cash equivalents at the end of period	$	14,124	$	30,754

Supplemental non-cash investing activities:
Capital expenditures included in accounts payable	$	2,965	$	11,553

Supplemental cash activities:
Cash paid for interest	$	1,518	$	730
Cash paid for income taxes	$	35	$	109

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, 2020	31,627,139	$	316	$	184,732	$	275,243	$	(36)	$	(16,132)	$	444,123

Net Income	—	—		—		28,131		—		—		28,131
Comprehensive income
Foreign exchange translation adjustments	—	—		—		—		—		(70)		(70)
Cash-flow hedges	—	—		—		—		—		483		483
Pension obligation adjustments	—	—		—		—		—		—		—
Other comprehensive income (loss), net of tax	—	—		—		—		—		413		413
Issuance of common stock	33,200	1		—		—		—		—		1
Purchase of treasury stock (15,371 shares)	—	—		(443)		—		—		—		(443)
Stock-based compensation	—	—		2,363		—		—		—		2,363
Balance at March 31, 2021	31,660,339	$	317	$	186,652	$	303,374	$	(36)	$	(15,719)	$	474,588


	Common Stock			Additional Paid-In Capital		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Income (Loss)		Total Equity
	Shares	Amount















































Balance at December 31, 2019	31,423,898	$	314	$	180,884	$	229,166	$	(35)	$	(9,451)	$	400,878

Net Income	—	—		—		8,576		—		—		8,576
Comprehensive income
Foreign exchange translation adjustments	—	—		—		—		—		(57)		(57)
Cash-flow hedges	—	—		—		—		—		(1,836)		(1,836)
Pension obligation adjustments	—	—		—		—		—		—		—
Other comprehensive income (loss), net of tax	—	—		—		—		—		(1,893)		(1,893)
Issuance of common stock	154,495	2		—		—		—		—		2
Purchase of treasury stock (73,157 shares)	—	—		(924)		—		(1)		—		(925)
Stock-based compensation	—	—		1,198		—		—		—		1,198
Balance at March 31, 2020	31,578,393	$	316	$	181,158	$	237,742	$	(36)	$	(11,344)	$	407,836

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") plays 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, plastics, solvents, packaging, paints, coatings, adhesives and electronics. Our reliable and sustainable supply of quality products emerges from the vertically integrated value chain of our three 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.

COVID-19

In March 2020, the World Health Organization categorized the novel coronavirus (COVID-19) as a global pandemic with numerous countries around the world declaring national emergencies, including the United States. Since early 2020, COVID-19 has continued to spread rapidly, with most countries and territories worldwide having confirmed cases, and with certain jurisdictions experiencing resurgences. The spread resulted in authorities implementing numerous measures to contain the virus, such as travel bans and restrictions, quarantines, shelter-in-place orders and business shutdowns. The pandemic and these containment measures have had a substantial impact on businesses around the world and on global, regional and national economies, including disruptions to supply chains, reduced demand, production and sales across most industries, declines and volatility within global financial markets, and decreased workforces causing increased unemployment. The continuously evolving nature of this pandemic and the pace of recovery may continue to have an impact on the United States and global economies.

The Company’s Consolidated Financial Statements reflect estimates and assumptions made by management that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the Consolidated Financial Statements and reported amounts of revenue and expenses during the reporting periods presented. The Company continues to consider the impact of COVID-19 on the estimates and assumptions used for the financial statements. As previously disclosed, the Company experienced a material impact on its second quarter 2020 results of operations associated with lower demand, particularly in nylon, caprolactam and phenol, and a decrease in overall sales volume related to global markets and the economic impact of COVID-19. During the second half of 2020, and through the first quarter of 2021, demand improved to pre-COVID-19 levels with states, regions and countries in various phases of re-opening and continued administration of vaccines for COVID-19, although there is no assurance demand recovery will continue given the potential for surges in infection rates and newly identified strains of COVID-19. The Company will continue to monitor developments and execute our operational and safety mitigation plans as previously disclosed.

As the situation surrounding COVID-19 remains fluid and unpredictable, the Company cannot reasonably estimate with any degree of certainty the future impact COVID-19 may have on the Company’s results of operations, financial position, and liquidity.

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, 2021, and its results of operations for the three months ended March 31, 2021 and 2020 and cash flows for the three months ended March 31, 2021 and 2020. The year-end Condensed Consolidated Balance Sheet data were 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, 2020 (the "2020 Form 10-K"). All intercompany transactions have been eliminated.

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

ADVANSIX INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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 were generally not 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, 2021 and 2020 were April 3, 2021 and March 28, 2020, respectively.

Liabilities to creditors to whom we have issued checks that remained outstanding at March 31, 2021 and December 31, 2020 aggregated $1.0 million and $7.2 million, respectively, and were included in Cash and cash equivalents and Accounts payable in the Condensed Consolidated Balance Sheets.

On May 4, 2018, the Company announced that its Board of Directors (the “Board”) authorized a share repurchase program of up to $75 million of the Company’s common stock. On February 22, 2019, 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 May 2018 share repurchase program. Repurchases may be made from time to time on the open market, including through the use of trading plans intended to qualify under Rule 10b5-1 of the Securities Exchange Act of 1934, as amended (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, 2021, the Company had repurchased 3,609,283 shares of common stock, including 519,521 shares withheld to cover tax withholding obligations in connection with the vesting of awards, for an aggregate of $102.2 million at a weighted average market price of $28.30 per share. As of March 31, 2021, $59.6 million remained available for share repurchases under the current authorization. During the period April 1, 2021 through April 23, 2021, no additional shares were repurchased under the currently authorized repurchase program.

2. 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 March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The amendments of ASU No. 2020-04 are effective for companies as of March 12, 2020 through December 31, 2022. An entity may elect to apply the amendments for contract modifications by Topic or Industry Subtopic as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or prospectively from a date within an interim period that includes or is subsequent to March 12, 2020, up to the date that the financial statements are available to be issued. The amendments in this update apply only to contracts, hedging relationships and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform and provide optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. The Company is evaluating the impact that the amendments of this standard would have on the Company's consolidated financial position or results of operations upon adoption.

On December 18, 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The ASU removes the exception to the general principles in ASC 740, Income Taxes, associated with the incremental approach for intra-period tax allocation, accounting for basis differences when there are ownership changes in foreign investments and interim-period income tax accounting for year-to-date losses that exceed anticipated losses. In addition, the ASU improves the application of income tax related guidance and simplifies U.S. GAAP when accounting for franchise taxes that are partially based on income, transactions with government resulting in a step-up in tax basis goodwill, separate financial statements of legal entities not subject to tax, and enacted changes in tax laws in interim periods. Different transition approaches, retrospective, modified retrospective, or prospective, will apply to each income tax simplification provision. The guidance is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption of the amendments in this update is permitted, including adoption in any interim period.

ADVANSIX INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

The Company adopted ASU 2019-12 effective January 1, 2021, 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 50 countries and across a wide variety of industries. For the three months ended March 31, 2021 and 2020 the Company's ten largest customers accounted for approximately 38% and 43% of total sales, respectively.

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 the three months ended March 31, 2021 and 2020, our sales to Shaw were 12% and 17%, respectively, of our total sales.

Each of the Company’s product lines represented the following approximate percentage of total sales for the three months ended March 31, 2021 and 2020:


	Three Months Ended March 31,
	2021	2020
Nylon	22%	26%
Caprolactam	21%	22%
Chemical Intermediates	38%	29%
Ammonium Sulfate	19%	23%
	100%	100%

The Company's revenues by geographic area for the three months ended March 31, 2021 and 2020 were as follows:


	Three Months Ended March 31,
	2021		2020
United States	$	300,672	$	230,443
International	75,711		72,270
Total	$	376,383	$	302,713

Deferred Income and Customer Advances

The Company defers revenues when cash payments are received in advance of our performance. Customer advances relate primarily to sales from the ammonium sulfate business. Below is a roll-forward of Deferred income and customer advances for the three months ended March 31, 2021:



Opening balance January 1, 2021	$	26,379
Additional cash advances	1,016
Less amounts recognized in revenues	(7,819)
Ending balance March 31, 2021	$	19,576

The Company expects to recognize as revenue the March 31, 2021 ending balance of Deferred income and customer advances within one year or less.

4. Earnings (Loss) Per Share

ADVANSIX INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

The computation of basic and diluted earnings (loss) per share ("EPS") is based on Net income divided by the basic weighted average number of common shares and diluted weighted average number of common shares, respectively. The details of the basic and diluted EPS calculations for the three months ended March 31, 2021 and 2020 were as follows:


	Three Months Ended March 31,
	2021		2020
Basic
Net Income (loss)	$	28,131	$	8,576
Weighted average common shares outstanding	28,093,764		27,942,486
EPS – Basic	$