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Sidd Manjeshwar

Thanks, Erin, and good morning. I'm now on slide 4, where I'll highlight key items of the first-quarter 2025 financials. Sales of $378 million in the quarter increased approximately 12% versus the prior year. Sales volume increased approximately 7%, primarily driven by improved operational performance and higher granular ammonium sulfate sales, supported by our flagship SUSTAIN growth program.
Market-based pricing was up 4%, driven by continued strength in plant nutrients, reflecting favorable North American ammonium sulfate supply and demand conditions. Raw material pass-through pricing was up 1%. Adjusted EBITDA was $52 million, and adjusted EBITDA margin was 13.7%.
I'll walk through the year-over-year variances on the next slide. Adjusted earnings per share of $0.93 increased by $1.49 versus the prior year. The effective tax rate was 19.3% compared to 25.7% in the first quarter of 2024, primarily driven by an additional $1.8 million in 45Q tax credits claimed for the 2019 period.
Free cash flow was negative $23 million in the quarter, up $49 million versus the prior year. Cash flow from operations of $11 million increased $48 million versus the prior year, primarily due to higher net income. Capital expenditures of $34 million in the quarter decreased $1 million.
I'd like to thank our dedicated and talented employees for supporting our operational excellence, while driving commercial success across our diversified product portfolio and a job well done on the turnarounds. Now let's turn to slide 5.
Here, we highlight the key drivers of our first-quarter 2025 adjusted EBITDA performance compared to the prior-year period. Pricing over raw materials was unfavorable by $5 million. Tracking our key variable margin drivers, we saw a contraction in acetone margins over rising propylene costs in the first quarter. In plant nutrients, ammonium sulfate prices increased year over year, but were largely offset by significantly higher natural gas and sulfur input costs.
Lastly, we saw a modest increase in our nylon and caprolactam portfolio over benzene. The absence of the prior-year disruption supported higher volume and improved operational performance. Volume represented a $10 million improvement year over year, including favorable mix of higher granular ammonium sulfate sales, supported by our investments in the SUSTAIN growth program.
Operational performance and other items were a $20 million tailwind, with improved plant output and a focus on cost discipline and productivity. As Erin mentioned, we received the previously announced $26 million of final PES insurance settlement proceeds in the first quarter.
Now let's turn to slide 6. Our healthy balance sheet, ample liquidity, and prudent leverage ratios have continued to support reinvestment, growth, and return of cash. Our CapEx framework is a key pillar of our balanced and value-creative capital allocation strategy.
We remain focused on our base maintenance and health, safety, and environmental spend, which has averaged $75 million to $90 million per year to support safe, stable, and sustainable operations, and our enterprise programs to support long-term operational excellence and risk mitigation.
Above and beyond that, we've invested in a pipeline of high-growth and cost savings projects with our flagship SUSTAIN growth program, representing our largest near-term organic investment supporting compelling IRRs of over 30%. We've tightened our overall CapEx forecast for the full-year 2025 to a range of $145 million to $155 million.
We recognize that in the current macro dynamics, managing cash flow is critical. We're focused on generating positive free cash flow for the year, while making smart and disciplined investments to support our through-cycle performance.
Beyond 2025, we do expect base CapEx to moderate next year as the Frankford dock and boiler projects are completed, with further declines anticipated in 2027 as our Hopewell water program investment is moderated over its remaining years.
Our growth pipeline is evaluated and replenished on an ongoing basis, and we expect to see the heaviest of our spend for the SUSTAIN program in 2025 and 2026. Overall, we continue to seek the best risk-adjusted return opportunities.
Now let me turn the call back to Erin.

Erin Kane

Thanks, Sidd. I'm now on slide 7 to discuss each of our product lines, starting with our plant nutrients business. In the lead up to the North American spring, we saw nitrogen fertilizer pricing increase in the quarter amid higher energy costs and tighter supply and demand.
Industry corn belt ammonium sulfate prices were up 34% year over year and 25% sequentially from the fourth quarter, outpacing broader nitrogen and supporting continued healthy realized sulfur premiums. We are continuing to monitor higher raw material prices on a year-over-year basis, particularly natural gas and sulfur, which are expected to impact fertilizer margins overall.
We remain confident that the underlying industry fundamentals will continue to support nutrient demand. Expectations for 95 million acres of corn in the US represents one of the largest plantings, while stock-to-use ratios remain below 10%, supporting crop prices.
Given the positive weather outlook, we're anticipating having an earlier season than we've recently seen, which could modestly impact the back half of June in-season sales. As always, we're working closely to serve our plant nutrients customers as the season progresses.
Our volume growth has been strong this fertilizer year compared to last and supplemented with favorable mix, supported by the progression of our SUSTAIN growth program. We continue to anticipate production capability by the end of 2025 to reach a milestone of 72% granular conversion, up from roughly 70% at the end of 2024.
Overall, we remain excited about the growth prospects for this business and leveraging our expertise as a leader in this space. We continue to see strong demand for ammonium sulfate as growers understand the value and seek ways to maximize crop yields. Let's turn to slide 8.
For nylon, it was a slow start to the year. But we saw orders and pricing pick up through the quarter amid lower benzene costs, supporting a modest [price rise expansion] in the US. Domestic nylon demand remained stable amid highly dynamic macro factors. Customer indicators downstream have pointed to a modest uptick in commercial construction applications, supported by return to office and hospitality sectors.
The past uncertainty to a lower interest rate environment, which would favorably impact building and construction end markets and translate to improved demand in fiber and filament applications, continues to be difficult to predict. Our order book across the packaging space has been steady. And we continue to monitor potential inflationary impacts on consumer buying behavior.
Tariff and trade policy uncertainty has impacted engineering plastics, most particularly into the auto value chain, which represents significant demand for that end use. Now outside of the US, persistent global oversupply conditions continue to pressure pricing and spreads.
Operating rates in China remain robust despite soft demand in the region. As a result, trade flows out of China, primarily to Southeast Asia and Europe, have also continued to limit pricing improvement globally. Third-party reporting has cited a moderation in China operating rates in April, which is encouraging but far from a trend.
While we continue to navigate a protracted downturn in the cycle, I would characterize our nylon business overall as performing a bit better than what we had seen just a few months ago. Our focus remains on supporting improved through-cycle profitability by driving productivity, optimizing our regional and product sales mix, and continuing to promote the value proposition of our differentiated nylon offerings, while benefiting from running at higher operating rates relative to our peers.
Let's turn to slide 9. Moving to chemical intermediates, industry realized acetone prices over refinery grade propylene costs declined sequentially and year over year in the first quarter, in part due to higher input costs. But it remains above cycle averages.
Propylene prices settled significantly higher on the back of refinery turnarounds and lower trading volumes in the industry. From an acetone supply and demand perspective, while phenol operating rates continue to remain low, we did see a slow start to the year, particularly into the large buyer space.
As a reminder, this sector primarily serves the MMA market. And as we shared previously, there were several industry turnarounds occurring in the first quarter. Into the second quarter, acetone demand is expected to modestly improve, following the completion of those downstream turnarounds and seasonal improvements in paints and coatings.
Supply and demand conditions overall, as well as stabilization of propylene costs, are expected to continue to positively support acetone spreads at or above cycle averages. However, this does represent a year-over-year headwind.
Demand across the rest of chemical intermediates continues to remain mixed into ag chemicals, electronics, and European paints and coatings. So many of these chemistries serve high-value applications in support of longer-term growth and profitability.
Let's wrap up on slide 10 before moving to Q&A. We thought it would be worthwhile to spend a moment on our position as a diversified chemistry company. Our business is aligned to domestic agricultural and manufacturing supply chains and energy markets, as well as a diverse set of end market applications.
While we know that 2025 will again be another dynamic year, we are well positioned as an American manufacturer of essential chemistries. And we will continue to pivot where needed. As a reminder, all five of our manufacturing sites are located in the US, primarily along the East Coast.
We are largely insulated from first-order impacts of reciprocal tariffs, with nearly 90% of our sales in the US and most of our key product lines being in a net import industry position. We have been operating with structural tariffs in place globally across our value chains for quite some time. So we feel we are adept at navigating an environment like this.
AdvanSix is also advantaged to the domestic energy market, with nearly all direct raw materials procured from the US. And in fact, we have a limited reliance on foreign vendors, with approximately 98% of all supplier spend procured domestically. We are continuing to monitor the potential second- and third-order impacts on demand across end markets, particularly since we operate far back in the value chain.
In times of uncertainty, we're keenly focused on delivering on what we can control. This includes taking a measured and disciplined approach to cost and cash management, while maintaining smart investments for sustainable long-term performance.
We also continue to protect our healthy balance sheet, enabling our strategic capital allocation framework to provide optionality for further value creation and remain confident in the potential of AdvanSix.
With that, Adam, let's move to Q&A.

Adam Kressel

Thanks, Erin. Megan, can you please open the line for questions?

Question and Answer Session

Operator

(Operator Instructions) David Silver, C.L. King.

David Silver

Yeah, hi, good morning. Good morning. Yeah, so -- and I'm sorry, I have -- I can't read my own handwriting here, sorry. I would like to maybe just pick up on, I guess, Sidd's comments or both of your comments regarding tactical moves that are preparing for uncertainty.
And in particular, I guess, your company had a playbook of some sort as of a few years ago tied to pandemic pressures. And while it's not a perfect guide, I'm assuming there is a few pages that you could have pulled from that earlier book -- playbook for use here.
But just in particular, Erin, you talked about things you can control. And is this a period where as a company, you want to maybe increase or selectively build up inventories and strategic inputs, or maybe any other concrete steps that you're thinking of?
And then for Sidd, you did mention cash flow and managing cash. Is this kind of an opportunity to increase borrowing capability or gaining more financial flexibility that way? I'll stop there. Thank you.

Erin Kane

Sure. And David, as you mentioned, certainly, the playbook from prior trough and recessionary considerations will serve us well, right? We've been through this. As we said, we've navigated various cycles through our time as a company here.
Relative to operating the value chain, again, given that we're a US-based manufacturing chain -- our raw materials are here; we're producing and then predominantly selling here -- allows us to really ensure that we're running the business to our business rules.
So I don't think this is a time -- at current, we're very focused on delivering for our customers, having the right service levels accordingly, and continuing to rightsize the inventory buffers really against the operational performance of our plants.
So I don't think at this time -- I know in the past, we may have used inventories in the balance sheet to navigate through. We are not there, and I don't see that as part of how we're operating at current.

Sidd Manjeshwar

Yeah. And I think just building on Erin's comments -- and hope you're doing well, Dave, and good question. Look, I think from a finance perspective and just from a strategy perspective, right, what I'd say is, look, today, our leverage is roughly 1 times. We've got ample liquidity, right, in this period of uncertainty. We continue to believe cash is king and have a laser focus on driving cash flow, like you heard in our prepared remarks.
And as we think about that, we continue to focus on tightening up our supply chains, right, improving our working capital turns and efficiency. And then as we look at costs across our fixed asset base, we look to drive those costs down and amortize those costs over a larger molecule base, right, while meeting our customers' needs.
So I think those are the tangible things. And then the other piece, which I'd highlight, is the intangibles, right? I think continuously, we have a mindset of countermeasures to stay very agile as a company as we sort of jab and tack, seeing what the trade winds present us. And I think we've got that focus constantly in everything that we do across the organization.

David Silver

Okay. Thank you for that. I would want to follow up, I guess, on one input, and that would be sulfur. My -- just my history with it is that I'm always worried at times like this when the supply might be constrained by an economic slowdown while agricultural demand remains steady or even better.
How concerned are you or what steps can you take to ensure not necessarily -- I'm not interested in the particular price that will find its own level. But can you take steps to increase your assurance of supply? In a pinch, could you substitute purchased sulfuric acid for purchases of elemental sulfur? Just what's the flexibility in your system just to ensure that the sulfur side of your input requirements are covered?

Erin Kane

Yeah. So certainly, we buy molten sulfur, bringing that into our sulfuric acid and oleum plant. We have a broad-based supply mix of vendors across the board.
I would say, though, that our discussions with external analysts indicate that the supply-demand is actually more balanced than probably the current price indicates. So we certainly do -- we have this short-term pressure relative to the settlement, but we would anticipate sulfur to come down. And again, right now, we believe that supply is ample for our needs.

David Silver

Okay. Great. Thank you for that. I did have a question about ammonium sulfate and the outlook there. I mean, I do think the fundamentals have been very healthy for a little while here domestically. I am thinking a little bit about that post-spring demand outlook.
Have you kind of been getting inquiries -- just given the relatively firm fundamentals there, have you been getting inquiries from overseas? Or are you adjusting your strategies as a result of the profit opportunities? Just how are you thinking about the post-spring demand and deployment of your -- demand for and deployment of your ammonium sulfate products?

Erin Kane

Yeah. Well, certainly, right now, we're in the heart of the season and focused here on maximizing our granular sales into the heart of the season. As we do progress towards the end, right -- just as you say, we pause, we reflect, we look at the fundamentals. Obviously, there's a lot here relative to yields and acres, and farmer profitability and things of that nature. And then we will move into the domestic fall fill program as we go.
Relative to inquiries, we definitely do get regular inquiries. But again, given our investments and the growth in the domestic demand, that is ultimately where we are focused. And certainly, with SUSTAIN, it's an increasing focus, right, on our domestic demand growth with our key customers here. And our exports are reducing over time.

David Silver

Okay. Very good. I did have a question on the nylon side here. And I'm making reference to your comments in the press release regarding kind of positioning yourself for a more protracted period of, I guess, softer demand. Could you just qualitatively kind of discuss how you plan to maybe shift your marketing emphasis to adapt to the more protracted period of demand weakness that you're citing?

Erin Kane

Sure. And maybe as a point of clarification, it's probably not more protracted from last release and last call, but just that the protraction continues if that is helpful, right, not that we necessarily see that it has gotten more challenging.
Just that this value chain, like others, is living through just a persistent global oversupply environment. And so as we navigate through that, we certainly are focused on serving the domestic nylon demand. Again, I would reiterate that here in North America, demand remains stable.
Obviously, there's quite a bit that we have to continue to watch in this highly dynamic set of macro factors. We focus on our mix as well. Certainly, as we look and continue to focus on packaging, on our wire and cable accounts, these are areas where more of the differentiated nylon offerings come to play.
And then, of course, we just need to manage the productivity and the cost side, and some of the more challenging application sets. So again, that's -- we focus on our customers, being customer-centric, understanding what offerings they need as they continue to drive forward into their value chains.
And so it's really just much more of what we've already been doing and continuing forward, recognizing that those self-help measures and the focus on the domestic opportunity set is going to be key to the success.

David Silver

Okay. And then last one from me. But I did notice in your talk -- in your discussion in the slide covering your chemical intermediates unit, you did cite patent infringement proceedings regarding your EZ-BLOX additives.
And just wondering if you could discuss that a little bit, I mean, I guess, just sticking to what's publicly available. But just maybe if you could kind of characterize this -- well, first of all, congratulations for having a product that people want to poach your technology from.
But separately, it says Europe here, but I'm kind of scratching my head and wondering where the source of the infringement originated. But anyway, maybe if you could just share a brief overview of that and then your expectations for how the infringement proceedings might progress. Thank you.

Erin Kane

Yeah, sure. Maybe by way of background, a reminder, so our EZ-BLOX 2-pentanone oxime really since March of '22 has been the only and ideal replacement for MEKO. Again, this was a drop-in replacement for MEKO, which was severely restricted by the EU chemical regulatory agency for toxicity concerns. So it was a great drop-in, great product.
And then in 2024, the European Patent Office formally granted the patent covering those claims as an anti-skinning agent in alkyd paints and coatings. So we're in a position really to protect the market exclusivity in 23 countries in the patent convention in Europe until April of 2036, right?
And so obviously, this is important to us, as you point out. And we continue to work with our key partners to ensure that, A, there's clear end user awareness of the patent protection. I'll leave it to you. You can probably connect dots on where most likely sources come for folks who don't necessarily abide by patent rules, right, in the world.
And so relative to the legal matters, right, they are proceeding. We can't necessarily comment further on those. We would seek damages for past unauthorized sales of 2-PO and then certainly ask for permanent injunction so that the infringing product does not interfere, right, with our opportunity set and development of the product.

David Silver

Okay, that's great. Thank you very much. I appreciate all the color.

Erin Kane

You got it.

Operator

(Operator Instructions) Charles Neivert, Piper Sandler.

Charles Neivert

Good morning, everybody. Just a few questions. One, on the nylon side, China obviously has some position here in the US. And assuming some level of tariff exists, do you guys anticipate, A, being able to pick up some market share from the fact that their product is going to become a lot more expensive?
And from what they do bring in, how does that -- might that affect your share -- I mean, your -- excuse me, your product mix? I mean, if they're bringing in carpet, you're going to get carpet business. If they're bringing in other resins, you're going to get the other resin business? Or is there something you guys are going to be doing to sort of adjust product mix based on changes due to the potential for some tariffs on that front.
And then by the same token, you guys have talked as well about your own export to domestic mix and at times, has affected earnings. Where are we today? And do you anticipate that changing over the next, let's say, six months or a year if the significant tariffs come into place?

Erin Kane

Yeah, okay. A lot there. Let's see if we can unpack that for you, Charlie. Thanks. I think when we look at nylon overall, it probably is an area that if tariffs lead to higher costs and sort of consumer-led recessionary environment, we know this is the space that will be most challenged.
But relative to what we're seeing right now, right now, the focus is watching on the engineering plastic demand. And this certainly has an interplay with Mexico and automakers. There's the dependency on parts that are made in Mexico and certainly the demand inside the US.
So that's the area that we're watching closely. Obviously, there's a lot of moving parts associated with pauses, bilateral agreements, here as we go. But that's probably the area to watch the closest. Obviously, as you say, for downstream products, increased cost for imported yarns or carpets would help the fiber and filament folks and our customers in their pricing opportunities.
But then relative to direct tariffs on PA 6, currently -- it's unfortunate -- but Nylon 6 is excluded from the retaliatory tariff list. This could change. We're obviously, like many, reviewing Annex II, but something we'll have to watch. But again, it's not as if -- we see more parts and compounds and things down the chain coming in than perhaps direct Nylon at current.
So relative to our mix, as you say, we are at times in sort of a balance to net export position. That's predominantly net export inside the North American region versus going to other places in the world. Again, if we remain focused on the same measures I shared with David earlier, that's kind of how we seek the opportunity set to navigate through here.
And then the caprolactam side that at times we export relative to meet demand, some of that is into more or less South America. So right now, it's continuing on. I would say, our exports in this space in Q1 were sort of consistent with the historical averages. So kind of steady as she goes here, if you will, and just focus on the execution for the remainder of the year.

Charles Neivert

Got it. Okay. And on the ammonium sulfate side, obviously, you talked about the higher acreages that are going in. You've got a little bit of an early start to the year, I guess, which is good, which means potentially it ends a little earlier. I think you mentioned that as sort of late June might be some tail off.
But I mean, given the acreages, given the pricing for corn, are you guys seeing like -- and volumes are up, but it's sort of hard to measure whether it's just a timing thing. But does it look like volume over the course of the season is going to be substantially higher given the acreage? And are you seeing any more like a higher application rate on the acres that you're selling into?

Erin Kane

Yeah. No, great clarifying question. Certainly, our order book was robust headed into the season. We should have a record volume really for the fertilizer year and very close in Q2. As you say, this is a robust planting, robust use of sulfur nutrition.
The point around June, as you can say, like by this time in the year, right, we -- our sort of modus operandi is to position everything into the market, into the value chain, so that it can go to the field. Obviously, when there's a little bit of a longer season, if you will, you get an extended top-dress type application.
And so when we are low on inventories, if you will, out of the plant, we get that extension of every extra day of production or week of production on that extended season, then goes out in what is a tight supply-demand environment, so you get that extra tail.
That's the part that is difficult to call every year. And so that's just the part that's difficult to call now. But all things said, a robust year for us and a robust season.

Charles Neivert

Then last question is -- on the CapEx side, you said after '25 you sort of hit peak, then you start winding down a little bit '26, '27 as some of these projects complete.
But if you're looking at a total spend between CapEx plus the opportunity stuff that you also talk about, does that mean we have, for lack of a better term, assuming that we don't have any real serious earnings issues, that we've got actually more to spend on those opportunistic type of acquisitions?
And does the pipeline -- given the current situation, does the pipeline for acquisition look a little better right now, I mean, just in terms of what might be out there? And obviously, again, if you're spending less, you may have more to get there if those things become available.

Erin Kane

Yeah, no, certainly, that's (inaudible) as you think about that, obviously, we would look to continue to bring that base CapEx back in line as we lap some of these larger enterprise considerations. We continue to refresh and look at organic opportunities.
I mean, these things are also in our wheelhouse, right, and typically have some of the best risk-adjusted return profiles. But certainly, there are -- as you say, I think the time and energy heating up relative to inorganic opportunities, I think that's an area that we will continue to look at and evaluate as well, right?

Charles Neivert

Okay. Well, that's it from my end. Thanks.

Erin Kane

Thanks, Charlie.

Operator

This concludes our question-and-answer session. I would like to turn the conference back over to Erin Kane for any closing remarks.

Erin Kane

Thank you, all, again for your time and interest this morning. We are confident in our demonstrated ability to perform through a multitude of environments. We feel very good about the strategies we've implemented and our continued investments to support expectations for AdvanSix's long-term sustainable performance.
Importantly, we are well positioned as a US-based diversified chemistry company with a resilient business model to navigate the current macro dynamics. With that, we look forward to speaking with you again next quarter. Stay safe and be well.

Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.