AdvanSix Inc. (ASIX)

Investor Day 2021

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Sep 28, 2021

Good morning and welcome to AdvanSix's 2021 Investor Day. It's very exciting to see a lot of familiar faces here in the room in Richmond with us and thank you to everyone listening over the webcast. So some housekeeping. This webcast and related presentation materials, including any non GAAP reconciliations, are available on our website at investors. Advan6 .com. Note that elements of this presentation contain forward looking statements that are based on our best view of the world and of our business as we see it today. We refer you to the forward looking statements included in our press release and presentation as well as our SEC filings. We have an exciting story to share with you this morning, including our roadmap for long term value creation and how our core strategies are aligned to sustainable and robust total shareholder return. So for those in the room, please hold your questions for Aaron and Mike until the very end. And for those participating virtually, you'll have an opportunity to submit questions via the webcast. And we will have plenty of time for your questions at the very end. And if you can, please silence your electronic devices. And with that, I'd like to turn it over to AdvanSix President and CEO, Erin Kane. Great. Thanks, Adam. And I would certainly like to echo our appreciation for everyone who has joined us here today for our 2021 Investor Day on essentially what is our 5th anniversary as a public company. We're very excited of our accomplishments today and to share with you, as Adam indicated, our roadmap for the future. Now with me here today as well, I'd like to make a few introductions just to start. Folks that are joining from our leadership team, They'll be joining our lunch as well as our plant site tours this afternoon. First, our 3 business leaders, Sarah Waller, who runs our Nylon Solutions Business Mike Hamilton, who runs Plant Nutrients Paul Sanders, who runs our Chemical Intermediants business we also have Wim Blinnbach Our Vice President of Integrated Supply Chain Achilles Contaroglou, our General Counsel and Chris Graham, our Controller. So thanks as well for those listening in and joining us here today. So today, you're going to hear Four key themes. We really want to walk have you walk away with at the end of the presentation. First is about our strong foundation that we have built and the value that we have created since our spin. Now when you think about our quarter to quarterly earnings or as we navigate through varying external factors, Sometimes this can be missed, so we want to take some time to shed further light on this for you today. 2nd, we're going to emphasize our leading positions across our diverse portfolio. The diversification enables us, again, to navigate through multiple environments, but it also affords us great growth opportunities going forward. We'll continue to touch upon the unique combination of our asset base and the integrated business model which we operate That is core to our competitive advantage, especially our leading cost of advantage in capital actin here as well, right, which again, Think about what that's enabled us to do, to drive net earnings last year in one of the toughest environments that we faced and to outperform this year in a very tight supply demand dynamic. And then we'll close-up and spend most of the time today on our go forward strategies. But we have been prewiring and talking to you about through our earnings calls, We're really making sure that it's clear that we've aligned those priorities with an enhanced capital allocation strategy to really drive total shareholder returns. So quickly at a glance, AdvanSix's 1400 teammates strong, living for our customers each and every day. We are guided by our 4 key values: safety, integrity, accountability and respect. It is upon this values based leadership That we strive every day to be a trusted partner to deliver the essential products that we produce to make our customers successful in the end markets And applications in which we serve. So as I mentioned, we're going to spend most of the day Talking about how we are positioning the company going forward. But we think it's important on this 5th anniversary to pause and reflect And the accomplishments to date. And we'd like to start out really with our leading positions. That diverse product portfolio It's really important not just to the success we've seen in the last 5 years, but certainly to where we see our future going forward And really helping everyone clearly understand that we are more than just a Nylon 6 company. When you think about our leading positions, we have world scale assets that enable our positions across each aspect of our product portfolio. We further build upon that on a global basis with our leading cost advantage capitalactam position. Now the value chains in which we play have become increasingly regionalized. A positive trend we believe for us that we can capitalize upon with our geographical footprint and vertical integration. Now certainly while our scale and our cost Underpin our position, we differentiate ourselves through the strength and execution, the security supply we provide to our customers, Our best in class delivery and quality. And we continue to develop capabilities to solve our customers' tough challenges as we move forward. We are also aligned to a number of macro trends. Now many of these may be familiar to you, but you may not have necessarily connected them directly to our product portfolio. And some may be more obvious connections and others a little bit further So I'd call out 2 key things here. Digital transformation. We are operating in a more connected and smart Sort of everything in our personal and professional lives. And we think about that demand generation for semiconductors and electronics That is growing in demand for our products, particularly for high quality and high purity solvents, including cyclohexanone and acetone. 2nd, when you think about global population growth, over the coming decades, it's projected We're going to grow from 7,600,000,000 humans on the planet to nearly 9.5. And over those coming decades, we will need to produce nearly 50% more Food today tomorrow than we do today. When you think about that, that is going to drive more prescriptive use Of nutrients to drive crop production as sustainably as possible and to efficiently use the global arable land. We're also going to need to address global food waste and spoilage. And here again, we have an interesting play in our nylon barrier packaging. Now historically, we have disclosed our revenues by our product lines. We wanted to open the aperture here a bit for you today to also show you the volume split by each of these product lines. When we do that, you can actually see a bit more clearly, right, that chemical intermediates and the ammonium sulfate product lines Our significant contributors to both our top line, key in our volumetric output, But also significant drivers of profitability for the company. And that is precisely why we have dedicated Sales, marketing and technical teams focused on delivering for our customers in each of these spaces. They are significantly different in their dynamics. Well, we also target specific product line strategies, right, that allow us to capitalize on our opportunities and growth for the future. I can see too with these product lines, we have a greater diversity into the end applications in which we serve that helps mitigate and isolate variability in any one given end application over time and certainly that has served us well In 2020 and into 2021. With that, I'm going to let Mike talk to you about our next point. Great. Excited to be here and share with everyone the levers that we've pulled as a business to drive and Create value for the company and also talk about the levers we have available to us to grow and continue our path towards value creation for the long term. With our leading North American positions across our various different product lines, we are uniquely positioned And you could see that from our performance through some of the challenges with respect to COVID as well as the environment we're in, in terms of a very tight supply demand environment that we're dealing with today. Our integrated business model, Along with our unique set of assets, we believe creates a competitive advantage for us, a sustainable advantage for the long term. And that in combination with our pricing strategies in terms of how we manage pricing, how we manage raw materials and the spread of those Our integrated value chain as a company. And so the question is why do we think that creates a competitive advantage for us, A sustainable one for the long term. Well, there are several factors that come into play in that regard, and one is scale. That's one of the many factors that support our competitive advantage. And you think about the fact that we run 1 of the largest caprolactam and ammonium sulfates single site production facilities in the world provides an advantage. The fact that we're number 2 in terms of acetone and phenol production and scale as well as resin production here in North America is a significant advantage. The next is make buy economics, right. Many of our competitors Have to purchase a lot of the intermediates that are used in the production process. We run a world scale ammonia plant, A world scale sulfuric acid plant, which provides significant advantage from a make versus buy perspective because those materials inherently are Okay. 3rd, as you look at inherently the technologies that we practice, right, you think about Also the chemistries with respect to phenol versus caprolactam yields, only 15% of the World practices the phenol to caprolactam technology, which is the most efficient process in terms of caprolactam production. Only roughly 20% of the world practices the technology that results in a 4:one ratio of ammonium sulfate production To caprolactam production inherently provides us with significant advantage where we derive a lot of value from ammonium sulfate, particularly being located here in the U. S. And then also being located here in the U. S. Inherently provides advantages from a raw material perspective, The lowest source of natural gas globally, the ability to source raw materials with customers that are qualified, Being able to get those competitively priced and pull those in provides also an advantage. So with all of those factors in combination, We think this advantage is sustainable for the long term. What's really important to understand about our business model is how we manage pricing and how we manage as I indicated the pricing versus raw material relationship. And I will say this is a core competency for the company. If you think about pricing and the sort of mechanisms associated with that, you really have Two areas. 1 is formula based pricing or index pricing. And we've shared in the past that approximately 50% of our business It's on formula based agreements. Most of those are 1 to 2 year agreements. Many of those will also stand beyond the 1 to 2 years. And the 2 product lines where that's the most prevalent is nylon solutions as well as the intermediates business. What's really interesting about the formula pricing strategy here and how we manage it is that it is shown and demonstrated that it could perform and work in all different environments and clearly adds value to the company as we manage The variability in the raw materials that we buy, whether it be cumene, sulfur or natural gas. The other pricing mechanism here is market based Pricing and that represents the remaining 50% of our business. A good example of that is the ammonium sulfate business. That's all freely negotiated pricing with customers. And clearly, there are many factors that come into play on how that pricing works in terms of supply demand dynamics, Marginal producer, economics as well as raw material changes. But this is a core competency for us and we need to manage the market pricing across our different product lines where that is Freely negotiated and we've demonstrated this and it is a core competency that we have across the business and ensure that we deliver that value and margin growth for the long term. With that, I will pass it to Aaron. So this year earlier, we were really proud to share with you our 2020 Sustainability Report, which served as a reflection on our progress in this critical area of sustainability And our efforts really to mature our approach over the last several years. We are continuing to drive impact As an environmentally responsible enterprise, we are extremely proud of our efforts to date and really where we're headed going forward. We shared with you in 2020 that we were recognized with a gold rating by Equivadis. And as you reminder, Equivadis evaluates corporate And it's a set of international standards, right, built on a multitude of factors that are taking into consideration The CSR indicators as well as a number of procurement categories, so pretty exhaustive. So as we think of that gold rating Progressing to a platinum rating in 2021. This is a great proof point really of our commitment here to continuous improvement. And really just say a great further acknowledgment of how far we have come right in this space. So we're pleased to share really how this connects more deeply today To our corporate strategies. Now over time, as I shared, we've been maturing our efforts. And on the left hand side of the chart here Really helps you see how that framework has evolved over time, starting with our first materiality assessment to where I just talked about our 2021 accomplishments. We mobilized early on, have been developed a roadmap and have been executing to that roadmap ever since. A few notable highlights I would call out. First, all of our sites, including our headquarters, are ACC Responsible Care certified. This is really important in the chemical industry because it represents our commitment to health and human safety To the communities in which we operate, right, and overall the environmental impact that we have. The Sustainability Council was core to us through this maturity phase. We pulled together a number of key senior leaders Really to allow us to look at the various aspects that we needed to control and to drive progress on as you see here. We further matured our commitment by establishing a Board committee to provide oversight to our efforts As well as to our reporting. And that is now our health, safety, environmental and sustainability commitment at the Board of Directors level. A few other key recent developments. We have also joined together for sustainability. That's a key Program really with 31 chemical companies setting sort of the de facto global standard for chemical supply chains And responsible and procurement. And it's really key here because it's tied to the global compact for responsible care principles as well. We have formalized our commitment to Operation Clean Sweep. This is key because we operate a resin plant in Chesterfield. And this is a pledge to keep 0 flake, Pellet and powder loss away from the marine environment. It's a key for us there. And finally, we've also signed or I have signed the CEO commitment to the UN Global Compact. And really just again, a commitment here to align our strategies to the U. N. Sustainability development goals And ultimately to continuous improvement as we head forward. Here we just wanted to highlight a number of key accomplishments, As we seek to build on our strong ESG foundation, improve our operational alignment to our strategies And to ultimately demonstrate the improvement in our shared impact, we reflected on a number of key factors here that we think are material to our company And tied to our corporate strategic priorities. On the environmental front, you can see to date significant reduction Global Greenhouse Gas Emissions to kicking off our lifecycle analysis this year, a key effort that will support our customer Needs going forward, but also reducing our energy usage and driving up our water stewardship. Our people remain our most critical asset of the company. Here again, we are targeting a 0 incident mindset when it comes to safety Environmental incidents, right? How do we really bring that behavior based approach into our company, As well as the commitment to equity, diversity and inclusion. And as we drive forward, ever more important to increase our representation as we drive forward. And as I mentioned, strong governance framework in place. It's really critical for all companies, but certainly a company in the industries we serve, right, to make sure that we have Clear governance, oversight, accountability and transparent reporting. So with that, I'll turn it back to Mike. Great. Yes, I'm excited to share What we've done in terms of driving the foundational earnings power of this business since the spin Through the quarterly volatility, when you look at the quarterly numbers, raw material movements, that impact on the top line and margins, it's Easy to sort of get lost to really understand and pull back what the value has been since we've I spun the company in terms of the investments we've made, the resources that we deployed around differentiated products And also how we've managed certain elements of the supply chain where that has been challenged from time to time, particularly as it pertains to cumene supply. So what has been the impact? And since 2017, we've driven a net $45,000,000 of incremental EBITDA value for the company. And you could see where this is derived from in terms of the growth in cost savings CapEx where we've deployed $100,000,000 The growth in differentiated products and the margins those are providing as well as operational improvements with respect to ammonium sulfate Production and granular conversion as well as our first acquisition earlier this year in Commonwealth Industrial Services, By the way, it's going very, very well. So when you look at the investments we've made, the large one being the boiler investment that many of you are familiar with, you'll get See that today, driving significant value for the company. Our target for growth and cost savings projects, as we Shared previously is roughly a 20 percent internal rate of return. That investment is far surpassing that level. The Capital Lactam debottlenecking and quality project Providing additional throughput and quality benefits for the company as well as other growth and cost savings projects that we've executed over this time Differentiated products, dollars 25,000,000 You think about where that was back in 2017, roughly 8% of sales, now representing Approximately 12% of sales. The average gross margins for those products, 2x our base business gross margin, so offering Significant value, many of those products associated with end markets that have good growth prospects that are Also supported by good strong macro drivers. So feel very good about that. When you think about sort of the CAGR over that time period in terms of top line We're talking sort of double digit sales CAGR and we expect that trajectory to continue. In terms of ammonium sulfate granular conversion, Our previous conversion metric or expectation was roughly 60%. We've driven many operational improvements in that area, I've made certain investments to drive that performance up to a 65% level. We think there is more to go there and look for more opportunities to grow that even further. And we've also built out our R and D capabilities to better understand many aspects of how we drive that conversion for the long term. And we talked a little bit about the CIS acquisition, again providing about $2,000,000 of incremental EBITDA going extremely well. Again, a viewpoint of, hey, this is another investment subject to our internal rate of return target metrics and at this point Exceeding that level. And then lastly, the PES shutdown, that's Philadelphia Energy Solutions. If you recall, Philadelphia Energy Solutions was a material commune supplier located very close to our Frankfurt facility that provided Inherent logistical and working capital benefits for us, they shut down abruptly in June of 2019. We've done a terrific Job navigating that, adding additional suppliers, increasing our buffer inventories to enable us to continue to operate Even in an environment here particularly early in the year where we had many suppliers declaring force majeure and having trouble Providing that supply, we navigated through that extremely well and feel we're very, very well positioned in that regard. And in addition to these investments and the value that they brought, we've also repurchased about 1,500,000 shares worth $100,000,000 So this is clearly another value driver and something we feel very proud of in terms of what we've been able to deliver since the spin. Okay. With that, I will move on here to the next section. Thanks, Mike. So let's pivot now and thanks for taking the time to really kind of run through where that strong foundation has We want to pivot now really to our go forward strategies. If we think back to our last earnings call, we prewired really those four 1st and foremost, right, enhancing our day to day execution by strengthening our core foundations of excellence in our culture, So the base of who we are, building off that great set of accomplishments in the last 5 years. 2nd is to improve through cycle profitability by driving superior commercial and operational excellence. Then we're focused on driving sustainable long term growth by enhancing our portfolio resiliency and then further enhancing our value creation through a robust Capital allocation strategy. When we put those three things together, we're really driven now to focusing on how those levers, So for a company like ours, operational excellence really is a critical differentiator as Mike pointed out, right. So we start there. With an asset base of roughly $3,000,000,000 of estimated replacement value, it is a great source of operating leverage, strictly in an environment like today. And it's also really important that we continue to sustain that asset base while we continue to drive up that utilization. But first, I want to frame through cycle profitability for us all today. So, Historically, and we will continue to disclose the key pricing parameters in each of our product lines. We think about our earnings disclosures, we talk about acetone. We typically show you large buyer and small, medium buyer pricing as well as refinery grade propylene. We talk about where the global pricing is for caprolactam and the spreads over benzene and how that links to nylon as well. In ammonium sulfate, typically we share urea pricing and global Corn Belt Ammonium sulfate pricing. What we've done here today to help everybody internalize and see sort of this notion of industry margins through cycles, We have deduced those pricing metrics that we share, expanded the horizon to cover a 10 year period and aligned it To how we think about those core variable margin equations for the business. So the first chart, let's walk you through. Acetone here, we've taken a composite. The market is roughly 2 thirds large buyer, 1 third small medium buyer. And here we're showing you that composite spread over refinery grade propylene. The center should look pretty standard. This is our Asia Caprolactam price over the Taiwanese sorry, Korean FOB, benzene pricing. And then ammonium sulfate, Again, we've put over the input prices of nitrogen, in this case, natural gas and then sulfur being the sulfur nutrient. So what you can see and then we've also gone ahead and sort of visually allowed you to see what everybody is trying to internalize as a Right, where we've moved around in these industry spreads over the last number of years. Kind of showing you the average predominantly weighted to 2013 through 20 Because we have some interesting things that happen on either side and shown you sort of where those average cycles have produced sort of an average margin. Now there have been some structural things that have occurred over time here. Certainly in the center, we called out the significant Chinese Expansion, right, it really started in 2011 and carried us forward. We've also had antidumping We placed against the Chinese in ammonium sulfate in 2017. And as you all are very familiar with, we also had antidumping Duties from 5 countries put in place in 2020 for acetone, but also coupled at the time we went into the pandemic and a very tight supply demand dynamic. So hopefully this helps you see sort of in the 3 key product lines we've talked about, there's some shorter cycle things going on and some longer cycle aspects going on as well. But now let us put that in terms of how our weighted average spread So here we've taken sort of the core product spreads that you saw in the previous slides. We've indexed them really to 1 in 2011. We've placed them on a weighted average spread using a consistent sort of weighted average volume Over this time period, really to help us isolate the moves of the market, right, the moves of those industry cycles in the margin spreads. And so we have a number of things going on here. We like to call out certainly the 2011 to 2014 timeframe Really showcases the impact of that Chinese expansion. As you may recall, we've had conversations that Capacity really outstripped demand and its growth by almost 2x in that time period. We also saw some decline in nitrogen markets in that time period as well. 2014 through 2020 when you look at it, we really have just sort of been modulating around the shorter cycle dynamics that you saw on the previous page That are unfolding in the acetone markets and really sort of the post realities of the nylon world living through its oversupply. Now most interestingly here, as we come into 2021, we have some great dynamics currently at play. We have the nylon market that's recovered off of the troughs we saw during the pandemic. We do see continued strong acetone fundamentals, even though we see that rebalancing in the supply demand dynamic. We also now see those longer cycle ag markets really starting to perform with some of the best fundamentals we've seen in nearly a decade. So when you think about this improved market based pricing environment, right, again, that asset productivity and operational leverage is so key, Right. It's when we actually get to see it come to bear. The commercial price and mix optimization we have going on in the business also further enhances our margins. And clearly in an environment like this, those return on investments that Mike talked you through earlier really will start to shine through. So we'd like to take you through just a few slides here on the operational excellence. Okay. So what we're trying to show here is some proof points about in terms of our asset productivity and the kind of performance and benefits we're As a result of the investments that we're making. And just to describe the slide a little bit here, you'll see we have different timeframes here where we show the capitalactam daily non outage rate and the height of the bar is really the frequency of hitting that non outage rate And the dotted line is our externally reported capacity. And what you'll see is back in the 2011 'twelve timeframe, What you'll note is that there is variability in the non outage daily rate at Hopewell. And that reflects a bit more of an unstable process, perhaps more of a reactive approach with respect to maintenance activities, maintenance CapEx and clearly an area and an opportunity for improvement. Now as we continue to improve our Operations as we drive maintenance excellence, drive your repair and maintenance CapEx, you'll see in 2017 that variability really sort of shrunk down And you'll see the height of the bar reflects much more frequency at a stable rate. And it gives you an indication of how over time we've transitioned To be much more proactive in terms of how we manage the assets and drive the preventative maintenance as well as the CapEx programs to ensure we run at a more stable rate. Now you fast forward a little bit into 2021, and you'll see the heights aren't quite the same way they were in 2017, but that is by design. The variability is a little bit wider, but what you'll see a lot more of the daily non adage rates are above the externally reported capacity, Reflecting again a lot of the benefits from the capital investments that we've made as well as our proactive approach around how we maintain the assets. So really We're testing new highs when it comes to the non added trade at the Caprolactam facility. And the goal is really to continue to sort of narrow that in And potentially have an opportunity to rerate the plan in terms of that externally reported capacity. So That is the goal and certainly again reflecting the benefits we've seen from more of that proactive approach in how we manage the assets. Next is turnaround excellence, turnaround planning and execution. As a reminder, at Hopewell, we take 2 Turnarounds a year, one larger than the other. We typically alternate the ammonia plant turnaround with the sulfuric acid plant turnaround. At our other two facilities at Chesterfield and Frankfort, we typically take 1 turnaround per year. This is a critical element of how we drive Safe and stable and sustainable operations. You'll see the impact here by year and by quarter, Not insignificant, hence why we have a laser focus on driving improvements and efficiency on how we execute. Through these turnarounds, we typically stagger the turnarounds to make sure that we continue to operate, albeit as we go through it, perhaps at lower utilization rates. But the important thing here is that we have dedicated teams focused on continuous improvement as this, we believe, is a lever not only to support Strong utilization going forward, but also driving incremental productivity as we drive efficiency through the process. And one thing you'll see here is over time, We've been able to reduce the amount of impact on average as compared to 2017 2018, which is again a reflection of how we've been performing. Every hour, every day we manage to drive productivity through this process means more production, More value, lower cost. On an annualized basis, these turnaround impacts could vary depending on the scope of the turnaround, We'd like to think we've been very good at driving productivity and we're very focused on continuing that journey. Let's turn to the enhanced portfolio resiliency. As you all are aware, we spent the last several years building new capabilities in this organization, right. If think back to our 2018 Investor We spent a lot of time talking about how we were transitioning R and D and technology spend away from just simply supporting the manufacturing technology It's a building capability sets for application development, adding to our technical resources And marketing resources to reach further into customer opportunities. And as Mike shared earlier, really starting to see the benefit of that investment and of that And here we see the combination of growth coming from 2 different areas as we go forward, Certainly underpinned by that organic differentiated product growth. But now being able to also explore Really the M and A side for bolts on and accretive opportunities. So again, when you look across the portfolio, There are a number of growth drivers at play, really providing a nice backdrop in each of the various product lines, Right. They range from regulatory drivers to sustainability drivers, environmental considerations and just general overall economic growth. Again, underlying growth rates for the business tied to consumer oriented sort of GDP, right, because at the end of the day where our products end up Are things where humans, right, and people like us are consuming the end products and formulations where we play. So our priorities going forward are really aligned to taking advantage of that growth. And a few kind of callouts, right. Chemical intermediates is a place where we're focusing on Investments and in some case new chemistry development are extending our platforms of chemistry. We like to go after key end markets that we like In Paints and Coatings, Pharmaceuticals, Ag Chemicals and Electronics. When we think about nylon, We're focused here on growing those capability sets as we align our portfolio to the best and most attractive end use applications. And to do that, we have to align with our customers, continue to drive the ability to solve their technical challenges as well as their sustainability efforts going forward. And then in ammonium sulfate, really it is around the promotion of that sulfur nutrition proposition. How do we continue to promote the use of ammonium sulfate, extending the use in areas like soybeans for different But also to promote the use in regions over time where software deficiency is starting to play out. In this case, China could be a very interesting long term area. So again, many things at play, but a lot of great drivers, A lot of core drivers in each area that are allowing us to prioritize our resource allocation, right, and our investments going forward. We've given you the headline numbers on differentiated product growth. But here we wanted to actually depict And to share with you how the growth has actually played out in the last few years in each of the key areas, in high priority applications, High value intermediates and in differentiated NIMA. Tremendous growth and it's great to See that the wheels are turning, though the engine is moving, we've got this long term double digit growth now growing on this core. Just as we said, it's key, right, for our ability to extend this growth lever across each of the product lines that we serve. That's how we'll be able to sustain that double digit CAGR growth. And I would mention here that this does not include the roughly 20% of our sales That is in granular ammonium sulfate that we also think about as being differentiated for the value proposition and the value it creates and we earn. Touch on a few now kind of highlights for you. We have talked quite a bit about EZ Blocks. It's been a great growing launch for us. I'm seeing quite a bit of growth. Here we're showing you the total oxine sales of which EZ Blocks is underpinning. We see nearly 50% sales growth on a CAGR basis from 2017 to 2020, all of which is really sort of Pre the Eagle implementation of the regulatory change that we anticipate coming in March of 2022. Now going forward, in all launches, right, you come up the curve and you balance out. And as we go Forward, right, we'll continue to look not just at capitalizing on the EU opportunity, but capitalizing and capturing broader growth opportunities In this realm, as well as extending the application use. We've talked about certainly this accolade paints. We also see potential applications here for our 2PO product lines and silane sealants and a few others. And last Thursday, you may have caught that we introduced a new product line in nylon. Here we introduce a 100% post industrial recycled content opportunity, right. It allows us to sell nearly 10 And it's a great opportunity here, right, to allow an easy drop in Use for our customers and really an effective way for them to start to meet their sustainability goals. And here it's important because we are capturing reclaimed monomers from our various waste streams across our integrated value chain, Being able to apply that into the certification and using a industry accepted practice on mass balancing. So really excited, New for us. And just again, another testament of how we are partnering with our customers and trying to meet their needs and sustainability going forward. We recognize that thinking about Bolt on M and A is new, right. We certainly have talked in prior earnings calls about how this has moved up in our capital allocation Priority list, because it's important for us again, as we think about the growth opportunities, how we can extend The growth and scale of the company. I think it's important to note first, right, the emphasis we will have on a disciplined approach, right. And then we have a framework that we hope clarifies really where we're looking for strategic rationale in a bolt on acquisition. We like opportunities that can integrate with our value chain. We have a number of chemistries we practice, And a number of opportunities to think about how we could forward integrate and also continue to upgrade our molecules. We like opportunities that can allow us to build future platforms, right, that allow us to scale and to drive synergy capture. We like opportunities that really build on our core strengths. We've talked a lot about them today, whether it's the operational excellence, The market expertise we have, the core business model and where can we actually leverage that for opportunity. And we will stay disciplined when it comes to looking at the financial returns. We know that's important to our investor base. It's certainly important for us as we think about Aligning our approaches for that total shareholder return. Again, robust IRRs, greater than our weighted average cost of capital, ensuring we are margin accretive, Finding good cash flow acquisitions and targets, right, that will also help us drive earnings and margin stability. So if you apply this framework to the CIS acquisition, we really hit across them in a number of places. When we think about the value chain integration, what CIS has enabled us to do, we talked about again in ammonium sulfate, Driving the value to granular form allows us to earn greater margins. We still have 35% of standard grade ammonium sulfate. We can through CIS and are now taking a portion of that standard product and now upgrading it Through the package business into adjuvants, into industrial applications and in doing so allowing us to get an upgrade Over our traditional export standard margins for that standard material. We're also extending Our reach with our current customer base and building out opportunities for ourselves in North America and South America, again, extending the franchise This acquisition brought great logistics synergies as well in warehousing, Truck scales and just overall operational efficiency that just allows us to run our collective businesses better. As Mike pointed out, Again, while small, right, delivering in and demonstrating that we can stay focused and disciplined on those financial returns is really important. So the question is what will we be interested in? I'll walk you through, it's been very difficult to think about how do we illustrate this, Right. But I'll start first with the center, right. And this is where typically everyone's minds go, right. And so threading a few Thoughts through here today, right. If you only think about the current value chain, Phenol to capital actam to nylon, being a vertically integrated nylon player, your mind stays with either upstream or downstream We have talked over time that we need to reimagine the approach and reimagine the company with these 3 distinct Portfolios, chemical intermediates, nylon solutions and plant nutrients, now on a different axis. And so when you do that, you can think through, Right. So we aren't just sort of this integrated producer for Nylon 6, but rather a platform and a foundation for future growth. Talked about the value chain integration and molecule derivatization, right. We know in this business when we upgrade phenol to cyclohexanone and cyclohexanol To nylon, to resin, right, we are increasing the value and profitability on that derivative. We To solve long term customer challenges, we have what we have today. We've invested in our capabilities and we'll share More for those who get to tour our R and D facility. But batch and flexible production allows us to think about getting into different types of Chemistries or chemistries that we practice today, but at scale and formulations that can be quicker to market, scale up or even recycling as we think about our long term We're focused in on core end markets that we like, where our customers growing in the fields of agriculture, electronics, Pharmaceuticals, paints and coatings and how do we extend our portfolio in those spaces beyond sort of the handful of great products that we sell today. And of course, we've talked quite a bit about our business model. There are lots of places where we can extend our strength and operate businesses quite profitably Going forward. So hopefully this helps you expand a bit more on the optionality space and how you can think about what could be interesting For this business, right? Obviously, this is an area where we can't pre wire, we can readily kind of share that. It's a small world in which we operate. But again, the key thing here is open the aperture a bit and build on those concepts. Okay. Great. Yes, I'd like to Close here on the one of the really important value creators is managing Capital and the capital allocation and really strong capital stewardship overall. First of all, clearly a strong commitment to a healthy balance We've demonstrated that over the number of years that we've been operating as a public company and we'll continue with that path, While at the same time thinking about how we can enhance our capital allocation strategy, certainly we've done a lot. Today, we've announced an initiation of a dividend, which is great. We did our first M and A deal this year as well. So looking to enhance the value by looking at additional opportunities. But one of the really important things as well is not only the leadership team Sort of having that view of an ownership mindset and a focus on total shareholder return is how do we drive that Across the entire organization and as a leadership team, we've been spending a lot of time helping our employees understand what that means, What is TSR? How do they make decisions? How does that influence total shareholder return? And one of the changes that we've made is we've now linked Relative TSR to our long term incentive plans as well, just to reinforce that mindset. Okay. And it really starts with cash generation. And this was an important focus coming out of this spin. And what this slide depicts is the trailing 12 months of operating cash flows, which is the blue line, and the trailing 12 months of our capital expenditures, which is the gray line, going back from the time of the spin, the Q4 of 20 up until the Q2 of 2021. And clearly, coming out of Honeywell and the spin, the focus was on generating Incremental operating cash flows and you can see that trend was very strong for the number of periods post spin. All that while Identifying and scoping the pipeline of growth and cost savings CapEx projects by which we started to deploy Significant capital tour, again holding that threshold of a 20% internal rate of return. Like many other companies in 2020, we were hit with COVID and that had an impact on our cash flows and hence we went through a rigorous prioritization process In terms of our capital expenditures, but also our capital expenditures started coming down as a result of the completion of several of those larger projects. The boiler is a good example and the Capital Lactam debottlenecking project also a good example of that. Now what we've seen is The capital expenditures have come down to a lower run rate and we're seeing an acceleration of operating cash flows in this environment. All through this period, we generated just under $700,000,000 of operating cash flows, which is significant. Our free cash flow generation, free cash flow as a percent of net income averaged 73%, and that's even with the significant reinvestment in the business. But more importantly, more recently, if you look at the past two quarters and the trailing 12 months of free cash flow conversion, We've been well north of 100%, and our free cash flow yield has been in the mid teens. So clearly, an acceleration and a sense Confidence that we have in our ability to generate cash and deploy that cash going forward. So we're coming upon our 5 year anniversary as a public company. And so we are developing a track record. And I think it's important for everyone to understand of what we've done and also where we plan to go in terms of capital allocation. And what this slide represents is how we've deployed roughly the $700,000,000 over the past number of years. And you'll see A significant portion of it was very focused on internal investment as we discussed in the form of CapEx. Approximately 69% Of those operating cash flows deployed towards maintenance, health, safety and environmental CapEx, but again, a significant uptick in growth and cost savings CapEx. We deployed approximately $100,000,000 to share repurchases, representing about 15% and about the same roughly in terms of debt reduction. And we talked about the acquisition in Commonwealth representing a smaller portion of our capital allocation, just under 1%. But again, As we develop our maturity in terms of M and A capability and pipeline, something we're just starting to scratch the surface on. As we look forward, the question is how is that going to change? Now we do see internal investment in the form of CapEx continuing to be a primary source of how we And so CapEx, we expect, will approximate approximately 60%. We're very excited that we're in a position now Generate cash and really the rest is firepower. 25% firepower for M and A, by which, again, we did our first one this year, but we've developed that pipeline and we have many opportunities that we are evaluating as well as opportunistic share repurchases going forward. But the important thing to note is that when you look at The opportunities and the firepower that could be expanded. When you think about our target net debt to EBITDA range, our leverage range of Roughly 1,000,000 to 2.5,000,000 as we increase the leverage levels to 2.5,000,000 that firepower just gets enhanced. And that provides us With an incremental over $325,000,000 of incremental firepower by which we can deploy. So feel very good. We're well positioned. So on the last earnings call, we shared our capital allocation framework and we thought it would make sense to reiterate Our approach so it's clear. First, it begins with our base CapEx. And our base CapEx Drive the utilization rates and support safe and stable operations as well as ensuring we're complying with all health, safety and environmental requirements. And we would expect the base CapEx to run approximately $75,000,000 per year. In terms of debt management and cash management and debt pay down, we have a leverage range of roughly 1 to 2.5 that We're comfortable operating in and we will continue with that disciplined approach. Now when it comes to more discretionary uses of cash, Clearly, our focus and priority is continued organic investment in the business. We have a very healthy pipeline Growth in cost savings projects, dollars 50,000,000 to $100,000,000 That's not a static number. We continue to refine And improve and look for opportunities to reinvest to deliver value. We've demonstrated we can do that. There are plenty of opportunities out there, And we're going to continue to target an IRR of 20%. The next is accretive M and A. Aaron highlighted Our approach and our strategy in terms of M and A, you think about our history and coming out of the spin, we had very Little resources or none focused on M and A. We've developed those capabilities. We've developed a pipeline. We've asked and answered a lot of questions on areas of interest. And we are very focused on driving M and A, and it is clearly a strategic priority for us going forward. And then lastly is return of cash to shareholders. Very excited to announce the dividend today, again, a structural return of cash, a dividend by which we feel we have a very good baseline from and one that we could continue to look to grow over time. And in terms of share repurchases, we're going to have more of an opportunistic approach going forward. We're very proud about what we've done, 100,000,000 of share repurchases, 1,500,000 shares net reduction in the shares outstanding and we have 60,000,000 of capacity remaining in the authorization for Those share repurchases going forward. Okay. So we talked a lot about CapEx and base CapEx and how we think about that. And this highlights our approach in terms of how we think about it. I mean, clearly, as we evaluate our assets, Evaluate our equipment and go through our prioritization process in terms of understanding sort of our asset life, the key critical equipment, Deploy the reliability control plans, we've developed a process and a methodology that is very disciplined on how we prioritize And approach our maintenance capital expenditures. And we don't look to just replace in kind. We look for opportunities To upgrade where possible to continue to support safe and stable operations and drive that utilization For the long term and again approximately $75,000,000 per year. We spoke a lot about the high return growth and cost savings projects. Going forward, I wouldn't expect there to be the larger projects that we've seen over the past number of years. On average, The projects will be $5,000,000 or less. There are some that are a little bit higher than that, some of that are a little bit lower, but that's sort of the average. Those projects will be very focused on rate yield, quality, as well as cost and again subject to those The hurdle rates that we've discussed. What we show here in the bar graph is the history of our capital expenditures since the spin Broken out between the base CapEx as well as the growth in cost savings projects. And it's very clear that in 2018 2019, we had a significant step up In spend for those high return projects, we've seen a reduction as we got into 2020. In 2021, Clearly, a much smaller level of spend with respect to maintenance CapEx as well as the growth in cost savings CapEx. Next year, we do expect to see a bit of an increase. Some of that will be sort of ramping up from levels that we saw Post COVID as we were going through prioritizing all of our projects and where we needed to focus, but also the scope of the turnarounds next year I have added a little bit additional CapEx overall. So we expect a range of roughly $95,000,000 to $105,000,000 and we'll continue To refine that, we also expect a bit of an uptick in the growth in cost savings CapEx as well. Okay. A little more color on the high return growth and cost savings CapEx for Projects where we've deployed capital against and for ones that we anticipate providing incremental capital 2, and you'll see this is a summary of all the different projects. We've talked a lot about the boilers, a lot about the caprolactam debottlenecking project and the value That we're seeing there, which is significant. We're going to walk everyone through our new R and D facility and show you The benefits we're reaping from that investment feel very good that that is paying off. And then we just completed our 2PO expansion Literally in July of this year, which is positioning us very well in terms of meeting the increased demand for EZ Blocks driven by regulation as Aaron highlighted, And that has gone very well and is positioning us well to earn a nice return on that investment. Now going forward, one of the areas of opportunity for us is an investment in the growth of nadone cyclohexanone That is a differentiated product that we expect will It goes into high value applications, feel very good about that. We'll have some spend this year. That will carry us into 2023 as well. But that is a very good project, which again we expect will create value for us. And then lastly, we have a number of Other incremental high return projects, again, smaller in size, but there is a long list of projects that are Identify, these are just a slug of unidentified projects. When we look at that pipeline, there's many out there, many opportunities that Play into that $50,000,000 to $100,000,000 pipeline that we feel very good about. Again, we'll continue to refine and improve on that and look for incremental opportunities Okay. We've talked a little bit about the dividend. We're Very excited now to go ahead and announce the initiation of what we view as a very competitive dividend. And what you'll see here is In the bar charts relative to our proxy peers, it clearly shows that it is a competitive dividend level in terms of yield coming out of 1 point 3%. Many of the proxy peers don't have a dividend today and many of them pay at a much lower yield level. So feel very good about that. It's quarterly dividend of $0.125 Again, the yield is 1.3% annualized, Record date of November 9 and payable date of November 23. Again, a reflection of our confidence in the cash flow that we have generated as well as Our confidence going forward and our plan is to grow the dividend over time. We that will be a focus of ours and Clearly, one that we will sustain and look to grow over time and to remain competitive for the long term. Okay. So what does this all mean? As you think about the strategies that we've laid out, The growth in differentiated products, our competitive advantages relative to our vertical integration as well as Our business model, we feel very proud about the recognition that we've received. And if you look at how we've performed relative to peers Comparing to the S and P 600 as well as our proxy peer group, we've outperformed. And when you look at the short term and the long term, You could see in the bar chart here, we've exceeded those peer groups and feel very good about that. Again, spending a lot of time driving that ownership Mindset in helping our employees understand the decisions that they make, how that drives total shareholder return for the long term. But I will say a lot of the improvement in the share price has really been driven by earnings growth. We've seen very little or no benefit from a And given our focus on differentiated products, expanding into all the markets that provide diversity for And also tied to strong macro trends, we feel there is an opportunity. We feel there's also an opportunity in terms of As we deploy our enhanced capital allocation strategy, the initiation with the dividend, we think will also make a difference. Okay. So given where we are in the quarter and also How that uniquely aligns with our Investor Day today, we thought it would be helpful to give you a view on our outlook for the Q3. And we are extremely proud about how we performed in the Q3. When you read about how many companies are struggling with Logistics issues, supply chain disruptions, raw material variability, at the end of the day, we're executing. We've executed again after an extremely strong Q2. We expect EBITDA in the $65,000,000 to $70,000,000 range, diluted EPS of $123,000,000 to $136,000,000 On a trailing 12 months basis though importantly, we're looking at EBITDA of roughly $245,000,000 to 2 $50,000,000 and diluted earnings per share of $4.65 to $4.78 Now clearly, we'll provide a lot more detail and information On the quarter as we announced earnings on Friday, October 29, But again, really a reflection of our ability to execute in a very tight supply demand environment and feel very proud about those results and Okay. Lastly, we'd like to take everyone back on Everything you've heard today and why that creates a very compelling investment opportunity. When you look at our advantaged asset base, we We've talked about our integrated business model, our unique set of assets, how that creates a competitive advantage For us, our position here in the U. S, our make versus buy economics, all of that playing into a sustainable competitive advantage. We talked about our leading product portfolio and our positions, growth in differentiated products. We've seen the results. We continue to expect strong results. The margins, very strong with those products, Continued investment and growth opportunity for those. And all of that supporting a base earnings power of the business that can perform through the cycle, right? The idea is that the lows are higher than they were before and the highs that Higher than they were before through the investments we're making, through the positions we have and our advantage in terms of our integrated business model. And then lastly, we just covered the capital allocation strategy. We think that is an area of opportunity and an additional lever Through M and A, through the dividend that we've initiated today as well as other opportunities to create value. So with that, Adam, we'll move to Q and A. All right. Thanks, Mike. So as a reminder for folks listening in the webcast, you can submit a question that we can share here. And For those in the room, could just raise your hand, I'll come around and pass the microphone and we'll have plenty of time for everyone's questions. So we can start here with Vincent. Yes, thanks everyone. This is Vincent Anderson at Stifel. I want to start out with OXIMS actually. So interesting, the 2025 barometer versus where you're already going to be at for this year maybe feels a little modest given We're still waiting to see the EU officially phase in. It sounds like polyurethanes are an additional opportunity there. So how should we think about That is it really capacity constrained frankly? And if so, what are your opportunities to maybe even go a step further and Maybe derivatize even more oxyens out of that phenols chain. Thanks for the question, Vincent. And certainly, it's our best view as we see it today, right. The expansion and the efforts that we Put into our multipurpose unit at the oxine facility certainly gives us a lot more degrees of freedom to expand on this particular product line, Right, 2PL. We also make a number of other auxins that perhaps again have opportunity sets. It's interesting in these sort of more niche applications, we didn't highlight it here today, but we touched on it. We've launched a digital platform through node, which is allowing us also to do really sort of digital marketing, Be able to push out opportunity sets and allow formulators to know more about what our features and product benefits are. And that's going to allow us to expand what is has been sort of a EU oriented approach to date To where there are going to be global extensions, right. When you think about regulatory environments, a lot of folks follow the EU. So it's not quite clear how to fully size the opportunity set perhaps in we think about Japan, U. S. And Other regions. So that will come out to play as well as again these other applications. So I think the investment into what we do today has worked, Gives us good runway. And again, in that flexible asset base, we also will still have the opportunities that we're a stretch to continue to refine. Thanks. So Dave Silver with C. L. King. So your company is earning at a record rate And it's my it's just my tendency to think what might throw a spanner in the works. So Couple of things. First off with the turnaround in maintenance budget. So compared to a few years ago you've cut it by about A third in real dollars, I guess with inflation is probably even more. So beyond the direct costs So maybe an unplanned outage of which you've had a couple over the last several years. I mean there's also the opportunity cost when you're earning at a much higher rate, The missed opportunities from any kind of shortfall and planned production has a greater economic effect. So how do you think about balancing the desire to kind of tighten That maintenance and turnaround budget or overall kind of just spending on keeping the assets running With the desire to kind of optimize things, I mean, how do you kind of trade those off here? No, great question. One that's a good point, I think, to provide some clarification on, right. So while we have certainly brought down the impact Of our outages, it really was driven from a point of execution, right. And so we think about it's less about Our belt and doing less, but more around how we're driving global strategies for turnarounds that improve our performance. So a few things. 1, if you go back to 2017, that outage was the largest we had taken across our asset base. We also, Kaylee, probably threw things in at the last minute, right? So we didn't manage scope. We had some discoverables. And so I wouldn't say we were operating at a world class level associated with turnaround effectiveness. So what have we done? On Wim's team now, we have a turnaround director. We have turnaround leaders at all of our sites. So we're not kind of taking the person who's available to run the turnaround. We have a dedicated approach. We are planning our turnarounds further in advance. We're locking scope. When you do that, you then increase your capability set for execution. So now you can go out and bid earlier. You can have access to contractors. You can actually create and we have Larger, more integrated schedules between maintenance and CapEx. And that has allowed us to Really realigned. So thinking about turnaround activities in series to where things can be done in parallel, how we can drive the wrench time down. And it's really it's around how we have started to perform and the efforts and the global strategies that we've put in place That allowed us to really pull, I would say, the excess cost, if you will, out of our turnarounds. So they're going to move around based on size and scope. We are absolutely clear on our asset risk matrices and where our priorities are. And that's all linked. So I think it's as much about how we are executing that's allowing really sort of the waste, if you will, in our continuous improvement efforts to really fall through to the bottom Okay. Thank you. I have one other question, again maybe in Wim's Corner or something. But in terms I was wondering if you could just touch on a couple of things. First would be labor And the labor cost and availability situation for your major production facilities. And then this morning I saw that Brent Crude topped $80 a barrel and I don't know, I'm the world's worst energy expert, but the price has been going in one direction for several months now. So maybe if you could just review how you're thinking of maybe The operating your plants, I guess the boiler investment, you're congratulating yourself. But how do you think about operating your Big facilities in a rising energy cost environment. Thanks. No, I appreciate that. And Certainly, labor, the environment is quite interesting one, right? If I So to step back and we think about sort of the industry overall, where the chemical industry is characterized, I would say, by A unique demographic. We like many others have sort of a bimodal demographic, right. So we have Put a lot of effort into our early career recruiting, right, so allow us to onboard and And create good transitional knowledge, right, as we think about that transition, that's going to play out over the course of 5, 7, 10 years. The snapback in manufacturing, right, in post the COVID sort of pandemic here has also tightened the labor So we are also working and heavily work into our high schools, right. We work with our community colleges, Right. It's key entry points for our operators coming in. So it definitely is a tighter environment And it's one where, Kelly, we're likely to see wage inflation, just as everyone is going forward. So I think it's one that we Really are really more focused on how we think about this longer term transition from that perspective. On the energy side, David, hopefully, you walked away here today that we've had energy Environments in the last 10 years that have been $100 per barrel for oil. And we've had things that are 35 or at times perhaps lower. So the model that we operate with Right, allows us to perform through really all of those environments. In an arising energy environment, the cost curves steepen, Right. So that is an advantage when you think about the cost curve steepening in caprolactam because we sit on the left hand side. If we think about the energy implications in plant nutrients, I'm sure you're seeing lots of headlines, 25% give or take of the ammonia production in Europe right now, maybe a little bit more based on this morning's announcement is down because of very high gas Right. So structurally where we sit geographically, even in a rising market, we still sit in a region where we are afforded Really sort of long term, what we believe longer term structural advantages when it comes to those areas. And so it just allows the opportunity Really for spread from that perspective, but it does create, as you see, a very dynamic environment in which we have to be nimble and agile and accommodate to. So Most of our energy though comes in the form of raw materials, less in the form of actually energy to run our plants. So maybe just one question from the webcast, Bill Dezellem from Tieton Capital asks, Is the hurdle IRR for M and A different than the 20% for other investments? So we look at the trade offs. Certainly, as we look at the IRRs associated With M and A, we'd like to target that 20% internal rate of return. But what I will say is Certainly, our weighted average cost of capital, which runs in roughly that 10% range, if we can look at opportunities that Our strategic fit that offer the potential for growth and also provide opportunities for synergy overall, we'd be We're open to a hurdle rate that is lower than the 20% internal rate of return, but certainly look to sort of mid teens, I would say, Would be what we would like to achieve, although the CIS acquisition as we discussed is achieving that 20% return and clearly that's something we would strive for. But in terms of M and A, we would look for probably sort of mid teens as a minimum hurdle to adhere to. Regarding the soybean opportunity, can you walk us through an update what you guys are doing to bridge the education gap there for ammonium sulfate? Yes. Hopefully, you've had a chance to check out our microsite. And if you haven't, we'll make sure to get the website afterwards. There is a great amount of work that's been done by Mike and his team with the marketing promotions. We continue to field research. But we certainly have seen product go to market this year as well. We're getting great pickup by 3rd party experts, right, going out and really speaking on behalf of the benefits on the opportunity set. It is a little bit difficult to track. I mean, once it gets into retailers and gets into bins, exactly where it's going. But the evidence suggests that there has been in some particular cases based on the soil where it's fitting very nicely and providing The opportunity set. So I think we're kind of measuring the traction based on the views, the pickups, the learning and that's giving us all positive Indications. And here again, it's not necessarily about making sure RAS gets down on soybeans, but how we continue to be Really seen as a promoter of software nutrition that really rises and maintains that value proposition Into the marketplace because that's our focus, right, earning that premium over the nitrogen level. And I think we really distinguish ourselves being out in front as a global leader here in this space. You noted a robust pipeline of $50,000,000 to $100,000,000 of growth CapEx, but in 'twenty two you have it Dropping to a negligible amount. And then you have M and A and share buybacks, Firepower, but noted that you would accept IRRs lower than 20% in M and A. Should we interpret that as you See potential opportunity in buybacks or and then you initiated the dividend or is there some other constraint That's bringing growth CapEx down in 'twenty two. And then just beyond that base CapEx, will it it's elevated in 'twenty To where will it be in 'twenty three? Do you anticipate it to come back down to the $75,000,000 range or stay elevated? In terms of base CapEx, We talked about sort of this baseline of $75,000,000 per year. That's on average. So there'll be periods there'll be years where that may be a little bit elevated depending In many cases, the scope of the turnarounds, compliance requirements, etcetera, we are seeing a bit of an uptick. 2021 was lower And 2022 is expected to move up. We haven't really gone through the 2023 planning to see where all that's going to Come through, so more work to go there. In terms of share repurchases, our approach is We're going to be more opportunistic going forward and just want to be clear with that. We felt as we make these trade offs, thinking about Dividends versus repurchases in terms of returning cash to shareholders, we felt right now that really It's good to move ahead with a structural return, one that investors can count on and view as a sustainable return of cash For the long term, certainly so we feel good about that. But share repurchases, we have plenty of authorization remaining. We'll view that as more opportunistic going forward. In terms of the pipeline of high return growth and cost savings projects, That pipeline remains robust. We first scoped and deployed capital towards the larger ones, right, in the 2018 and timeframe, ones of which we discuss. As we look at that pipeline, more of the projects, they tend to be a bit smaller. On average, as we indicated, about $5,000,000 Per project and so that's why the level that we'll see going forward on an annualized basis will probably be in sort of that $10,000,000 range is what I would expect. But again, it's not a static pipeline. As we look at the $50,000,000 to 100,000,000 Our view is that we'll continue to refine and look for opportunities. And if we see more or we identify more opportunities to deploy capital in that regard, we will. But That's as far as we see it right now. I think Tyler to point out, we're not holding back on that. I think there are A few just considerations to note, right. We do deploy the vast majority of our capital during turnarounds. So there has to be an alignment with sort of when different assets are down from that perspective. The other thing I would say is we've increased Again, hopefully you're gathering, right. We're a company that learns, drives continuous improvement and kind of Plays forward the key learnings from events of the past. And for us on our larger projects, We've become more disciplined on really funding to milestone achievement, right. So if we think about even this EZBlocks Expansion. That's been in the works for a number of years. We could have deployed the capital years ago and it could have sat, Based on how the adoption and the launch would have played out. Instead, in this case, Paul and his team, we agree on very specific Sort of commercial milestones that we would have to see up to and including getting contracts with a number of the customers you saw on the slide That will give us the confidence that would make good sense then to trigger the investment. And that was all aligned kind of down to when we knew We would need the volume. We're going to use that same approach with the cyclohexanone growth. Right. So we could certainly trigger it next year. But again, we're trying to align to where the markets are headed, where the entry points will come so that we are best aligning our use of cash With the timing of the opportunity set. So that's playing out as well. But as Mike says, we're not holding back. There just tends to be sort of how things It's Vincent again with So I think it's probably already answered by the fact that you've been running your plants at above nameplate without any Emissions violations or similar concerns, but is that something that we should be thinking about? Does your permit Currently allowed for you to officially rerate the capacity of that plant? Great question. You may recall back in 2019, if my memory serves me correct, was when we got our new growth permit, Right. So you may remember there are quite a number of interesting events that year. But in that timeframe, we actually did receive a new Which we had a number of our forward projects laid out. So right now we feel pretty good under the current environment. And again, it's just really the opportunities as we've talked. I can't tell you exactly what the nameplate capacity of Hopewell is. We can talk to you about what its performance is. And in that safe, stable operations approach, As we really narrowed our performance in the last few years, we're giving ourselves the opportunity to test and move up. And again, I think that's Just going to allow us to see where we can take it in a very regimented disciplined approach. But I think we have a runway in the coverage. So we have another question from the webcast from Corey Mitchell at English Capital. So you just told us 20% of cash flow will be used for M and A and buybacks, while also portraying an outlook for cash flow growth. So my question is given the outlook and large percentage of cash earmarked for firepower, can you talk about deals in the pipeline since you're not buying stock? Kraton just sold for nearly 9 times. Is this in line with multiples you're seeing? And can you talk about how you think about M and A at those multiples versus buying your stock here and also maybe about what you don't want to do in M and A. Yes. Answer Loudly and clearly. Okay. Look, I think that we would reiterate, we knew this was going to be an interesting Point here and obviously the news yesterday creates a new environmental landscape Relative to one of our proxy peers and just industry peers in that general approach. So again, back to our discipline, we're very You should walk away from today, right, recognizing that our strategies and our approach are aligned to be And for us to be good stewards of this enterprises capital. We recognize where we are Trading today, we've had some solid performance here as well. And today is really about allowing The proof points to come through. So that slide, whether it's earmarked, it's showing you the potential to where We can use our cash. M and A is and will always be lumpy, right. We aren't necessarily going to Spend that firepower on things that don't make sense, right? We also recognize in an environment like we are today, multiples have become very heated, Right. We like and will target what I would say are more proprietary transactions. The CIS one was something where we found a very good strategic fit. We believe there are others out there Of like opportunity, bigger in scale, but again, where we can have good conversations Around where valuations are for companies like ours and what is the appropriate price to pay for the things that we're interested in. So again, hopefully that just provides color again. Buying back shares will sort of do that. We think the dividend at this point is a great step relative to structural return. Shunning earlier, when you think about where we have traded over the last 5 years, a dividend by our analysis will also should create a bit of a structural floor for us as well. We didn't have the benefit of trading through on the confidence on our cash conversion in 2020. Right. So all of these things play out to what we're I just wanted to follow-up on the multiple difference between Kraton and ASICs. I know you guys don't control the multiple, but given the strong outlook for continued EBITDA growth Outlined here, I'm curious to know what you attribute the difference to. It was almost 9 times for the M and A transaction and we're trading with a 5 handle On LTM numbers. So I'm just curious why you think that is? Well, again, I think it was interesting that they put the 9 times on a July Share price not on today, share price 2 or at least where when they did the announcement as one point, right. Again, they have a different Set of characteristics, again, it's not clear. The emphasis today that we have a diverse Portfolio that we have different product lines that are going to be able to drive performance for this company are key to understanding I think of getting And breaking through where we've been. Over time, you can take the China caprolactam price of our benzene and our stock price has followed Right. We are more than a nylon company. We have navigated environments where Our chemical intermediates and our plant nutrients businesses have shined through. So I think there has to be, again, a recognition, Right, of the portfolio base, of the earnings power that we've generated in the last 5 years, hence all the proof points we're trying to bring here today For a broader investor base to think through, right, how we have been trading and what the forward opportunity is for the company. Just one more on M and A. Can you just walk through, I guess, some of the how you're thinking about the risks, Not just the integration of the physical assets or the handling the customers or whatnot, but also just the cultures and sort of how you're going to integrate and bring A completely different set of people and teams or whether there's a few key people, how do you retain them and just I know you guys have both been here a long time, just any experience And the Honeywell days and working with M and A because that's always a risk behind the scene that doesn't necessarily clearly show up. No, and it's one of the critical aspects to I would argue we've had 5 years practicing it, right, because We think about a spin, right, a spin is a complex transaction, right. You some degree, it's got all the elements of actually selling a It's got all the elements of buying a company. It's got all the elements of how do you integrate and set yourself up for success. So we have been keen again on our core values, how we think about the culture of AdvanSix, And it does play into what is a good target. Absolutely. Finances are one thing. We have to know that we can bring a company in And Merge, both learning from what another company has to offer and bringing those best practices forward, as well as smartly choosing What we take forward and providing the opportunity for growth. So I've had the experience the Sunoco acquisition back in 'eleven and 'twelve, right. We brought that into the company. I have that experience directly. We have that experience, right. It is this Operating company that led that transaction several years ago. And many of us through our prior lives have We're drawing upon and building a solid playbook and the senior leadership team is very engaged in that key aspect. Wanted to talk about differentiated products and do you see a path to really catapulting them beyond the 12% revenues that they are today? And does M and A play an important role in that? Just wanted to cover that a little bit. Yes. No, It's a great question. The percent of sales things, I'll just sort of caveat, is a tough measure for us, right, particularly when we tie it back To sort of the energy conversation and you tie it back to the business model where we have a fair amount of pass through and industry oriented pricing that follows those energy So there is a point of reference, right, but not necessarily just like we don't talk about CapEx as a percent of sales or SGA as a percent of sales, because they can get swamped based on where the top line goes. However, the focus is how do we grow that Basket of products and how do we add to it, right? So yes, when we think about the opportunity for Growth is how do you bolster that base, right? What do you put in and around the product lines that already exist in that And again, targeting margin profiles, right, that allow us to see that accretion through to the entire So it definitely plays into it. It also plays into this conversation on the high return project pipeline as well. We recognize that reinvestment in the business tends to be in a wheelhouse for ourselves. And that organic opportunity set is always Top of mind. So we like businesses as well where we can see that we can add to that pipeline of high return. And so it's not just a Buy it to run it today, but how do we actually add to it? And where is there an opportunity set to grow? Thanks. A few quick questions. 1, when you look at Turnarounds and all the things you have sort of a regular schedule. Some of these turnarounds, the larger ones are usually not at 1 year's, but 2, 3 or 4 years out. What's in the pipeline for a big one? I mean, obviously, you'd have to take it, but where is it? Are we looking at a 20 3 or 24 for one of these majors or sort of look for the bump up in the cost in the CapEx costs and the opportunity there? It's a great question. And right now, we think about turnarounds. Again, we take them across the value chain. We typically throttle down to marry the integration. We really have 2 assets That are the single use assets, right, our ammonia plant and our sulfuric acid plant. And they're the ones that drive sort of the rotation every other year. In fact, we're actually looking in one of our strategies is should it be every other year or has the investment to date And the protocols going forward potentially allow us to expand that timeframe as well. Those two plants were also The focus of significant capital investment in the 20 ten-eleven forward range, right, where we're really going after critical equipment, Single points of failure. So a lot of capital went in to bolster those 2 assets to date. So for the foreseeable future, they're really maintenance driven, RM oriented projects and CapEx associated with those two assets. We have a few sort of cost savings projects aligned with them as well. But again, we don't see, hey, gosh, there's At least in the foreseeable horizon, something is coming that will change, I would say, our global approach. And the other is, there's obviously going to be expenditures on, for lack of there were green things coming. How do you see that pipeline developing in terms of things you're going to have ultimately either have to spend on or choose to spend on? Because based on some of the numbers in regarding you're talking about multiple expansion, things like that, there is a problem you get dinged down if you're Behind a curve and you might get dinged up if you're ahead of a curve. So what are you looking at going forward? Are there carbon capture? What has to happen for you guys to Keep moving forward on that front. Yes. So we've kicked off our lifecycle analysis with a third party. Certainly, we have our own internal models, but it's important for us to kind of get that 3rd party assessment that will allow us to, I think prioritize where the opportunity set really sits. One of the interesting points is We capture the vast majority of the CO2 off of our ammonia plant today. It's sold and captured to on-site parties who are using it for Liquified CO2 into the beverage and meat packaging industry. So if you're following what happened in the UK, Right. We have that opportunity set here because we already capture a fair amount of it. We're actually going to try and figure out what that means relative to Sort of the status of our ammonia plant because we already do pull off and capture for beneficial use a good portion of that CO2. So we really need to look and say where are the opportunity sets. And I think only when we have that, honestly, we'll be able to then assess, hey, gosh, where do we accelerate Or should we accelerate any investments across the entire footprint? Yes, thanks. Just 2 more, I promise. So first, can I ask for a very quick Chemistry lesson, going back to my Oxygen's comments and questions, how much of this excess phenol that you have, I think it's about 20%, 25%, How much of that could be derivatized into some of these specialty intermediates without having to invest in additional capital active capacity? Is that an opportunity in your asset base right now. So Phenol today is upgraded the question there is around Phenol is Upgraded to cyclohexanol and cyclohexanol. And we do that through phenol hydrogenation, right. We have a actually one of the largest sort of hydrogenators of And that chemistry is interesting for us. So we have an asset base, right, that is oversized today to produce And match the capitalactam production downstream, which is why we have a growing and sort of thriving cyclohexanone business and cyclohexanol business. So there are some degrees of freedom today, but it's really why we're looking at that future growth, right. How do we expand upon that, which really becomes a purity question and assay. So think about it really as We have probably a little bit more capacity to hydrogenate, but it's really about the cleanup and getting it to the right Merchant quality for sales. On the oximes, the chemistry lesson here is we're taking the opposite side of the plant, right? So if You need the hydroxyl amine, you need the amine to put together to force that Beckman rearrangement into caprolactam. So we use that amine stream to then drive anoximation of other Incoming raw materials, right. So methyl ethylketone drives the MECO process, 2pentanone drives the 2PO process, The acetaldehyde drives the AO process, right, but it's taking the stream off of So it's just another opportunity set, right, again, that reimagining that we've got these different chemistries, Which are really phenol, ammonia and sulfur based chemistries. And how do you start to link them in the asset base and pick and choose the spots to expand? In many cases, maybe the analogy here is sort of that multi variable refinery program, right, where you can think about those streams To boost and optimize your margins overall. Is that helpful? Yes. No, it's plenty to follow-up on reading. And then just the last one, it's a 2 parter. Just when I think about short cycle risk reward opportunities here, your stock has most We've been able to avoid some of the short cycle positioning in the market, which has been nice. But how do you think about potential Volume wins this year that came from competitor outages, but then maybe on the positive side, if you have any early insight And so the Chinese decision to ban fertilizer sales by SOEs, whether that extends to the capitalactam producers or not? Certainly, this year has been characterized by quite a tight supply Side environment in what has been a sort of snapback, strong demand environment. And Again, back to our core strengths, I think we were in a solid position to capitalize on the opportunity set. So In North America, a few things have played out. Certainly, there were a number of products that were primarily imported. So, we think about our co polymer product line. Again, we're making a high 6 content 666 co polymer. We're the only North American producer of those materials. And we were entering into a marketplace competing against others who are importing. So In this case, while we had the logistics constraints and certainly there have been supply side disruptions in Europe as well, It gave us an opportunity, I think, to catalyze the qualification process with customers. In many cases, they had to move Right. And so when you think about that expansion and differentiated product growth for nylon this year, getting into those positions that we were striving to get That we had talked about was going to take time, right. That second position we have captured, right. And that is allowing us to continue to grow there. So I think that is a sustainable opportunity set that we've captured. Certainly, we have worked very hard this year To be a good secure supplier for folks and to help the industry navigate the other players' disruptions, right. So As the world plays out, right, back up and running and there'll still be some movement around. But I think, again, we've been able to Demonstrate the solid execution we have, our commitment to working with them on delivering quality. And I think it also provides a tail because the value chains are rather thin. And so even when we were to think about a cycle change, Value chains are going to have to continue to sort of restock a bit to get back into a comfort level. On the fertilizer and the nitrogen side, man, this thing is changing day to day. So, I think that You pick up the news, right, BASF curtailed ammonia production in Europe today, right. I mean, it's every day something's changing the dialogue Because of get back to these fundamentals, right? We're going to be in a position where crop to use ratios kind of globally Are down, right. So being able to plant large acreage around the world. In China, it'd be interesting. We also have considerations of the Beijing Olympics. We've seen this in the past when they have a big international event. How do they think about their emissions, right? And so you've got a coal based industry to some degree that will be watched and follow again. These are just hypotheses. They've had export taxes in place in the past. It does change the dynamic in the seasonality of the nitrogen prices, but I think it's More to come. And the question is, will it extend all the way to AS? It's really hard to tell. We'd love for China to start to recognize that AS is a valuable fertilizer to start. They have sulfur deficiency that's starting to become apparent. They've historically probably over fertilized using nitrogen. So it could be a really nice balance for us to think about how again partnering and helping that proposition So just time for a few more and maybe one more from the webcast. Bill Dezellem from Teton Capital asks, How would you characterize your culture today compared to the culture before the spin? I've been answering a lot of questions. Sure. I'll give it a shot and maybe Aaron can expand. So yes, I think one of the things that's Really interesting about when you think about sort of the textbook view on how a spin would work And why it would work and the cultural aspects of that, it's kind of interesting because under Honeywell, clearly, we were A much smaller business in a very integrated multi industrial portfolio. And certainly, there were certain Sort of policies, procedures, cultures that sort of went across all businesses, right, in terms of how capital was managed, where investments were made, Etcetera, etcetera. Now, as an independent company, the sort of the line of thinking is what is in the best interest of this business For the long term, what makes sense in terms of how we invest, how we manage our capital, where we choose to make decisions In the best interest of this business and the business model for the long term. So more of the sort of cultural elements in terms of How we drive the business has changed to focus on what drives and what delivers value for the long term. The other interesting aspect of this is being a smaller company under a large conglomerate like Honeywell, clearly Not having a full grasp of the decisions that you're making and how it impacts the company because again, being a much smaller company, there's Probably that lack of understanding across the entire employee base. So we've taken a lot of time to really educate our employees that, Hey, the decisions you make have a direct and significant impact on the company for the long term. How should we be thinking about those decisions? How should we think about ROI and that ownership mindset? What is total shareholder return? There's been a significant effort to sort of Help the employee base understand what that means and how their decisions impact value. So maybe just to add, what you hear Mike talking a lot about is our results orientation, right. Clearly that is DNA that Threads back through Honeywell, back to our Allied days. The one word that also pops Which I think is we've been working on for us is caring. We've done some testing through the organization through our leadership and caring is a very interdependent Concept, right. So I think we continue to work on how we drive results through that interdependency working together. You see the words together in our purpose, right. We are stronger. We'll go further in working in that regard. And then the areas of continued opportunity for us as well, I think are On the innovation and on the customer centricity that we're starting to embed and focus on. Okay. So since Vincent broke the ice on chemistry questions, I'll ask one here. But this relates to the flexibility in your production process. And My impression is I think, well, okay. So Mike touched on the 4 to 1 process that you've We've chosen to give you some advantages. You've touched on the best agricultural fundamentals in a decade. And In a book I have in my office, I have a list of Nylon 6 production processes. I think I have Six different ones and I'm sure there's many others. So you've chosen a process that really pushes the amount of Ammonium sulfate fertilizer produced from every ton of caprolactam. And I'm just wondering from your perspective Based on the fundamentals, based on the situation in ammonia around the world, is there an opportunity to tilt that process In a way to give you more ammonium sulfate output more than 4 to 1, 4 to 2, 4.2, 4.4. And I'll stipulate it by saying at a reasonable capital cost. But is there the flexibility in your process to generate More high value co products or by products and in particular ammonium sulfate than what you're currently operating in? Thanks. Sure. I would characterize it as we have flexibility in certain aspects of our chemistry, Right. So, you're going to take me down the chemistry route, I have to take you down the physics route, where there are certain laws that you just can't fundamentally break. However, Based on the configuration of assets, you can perhaps mix chemistries that allow you to Get the results that you're looking for, right. So if you think about our opportunity set in 2020, just as a proof We saw the largest impact of the pandemic in nylon, 30% to 40% of our demand challenge from that perspective. So we have the challenge of at the same time we're in the height of the spring Planting season and trucks are coming into the site and needing ammonium sulfate. So I think we tested the capability sets and there are some knobs We hold them pretty secretive, as you could imagine from a trade secret perspective and from a competitive perspective. But there is an opportunity and we have been flexing that through this timeframe. And if you were to look at sort of our Biometric output, we were able to preserve quite a bit, right, over time as we navigated through those challenging times. So it's Again, as we talk about our investments in technology, primarily from an R and D perspective, we are focusing on the manufacturing technology, How do we continue to put the best and the most amount of ammonium sulfate granular ammonium sulfate out of our production facility as And this last one just picks up on what you just said, but it had to do with R and D. So when you came public and you had that Group of discretionary capital projects. I think the new R and D facility was maybe the 2nd biggest one after the boiler. You didn't talk about it too much today at least directly. But to date, where would you say we should look For the biggest return thus far from that investment on the R and D side and where might we look for the most visible Incremental benefit from that maybe over the next 2, 3 years. Thanks. And at the time of the spin, we left with a few sort of interplant or intersite Relationships, right. And the time has been our R and D facility was fully housed in a Honeywell site. And I would argue it was actually shoehorned over time into that Honeywell site. So as we step back and we looked at sort of the progression And this would be the 3 year timeline we had to be separated. We were faced with The opportunity set to either put a lot of capital into a non AdvanSix Right, to allow us to meet the needs of the separation agreement, while also making it a place where we would want to bring customers to partner and collaborate for future opportunity sets. Or we could take open real estate that we had on the Chesterfield site, Which you'll get to see today if you're here for the plant site and refurbish and bring folks who are in a satellite location, Co located with the rest of us, right, we talked about culture and creating those connections on to site, outfit The space the way we would like it to be, right. So people aren't shoehorned into closets, but actually have good viable laboratory space, Have the equipment we need for success and then create those connections directly to the site. So that was the path we chose. And we said a handful of things were going to come out of this. 1, just better productivity and better results out of Because you have a viable workplace to be, we can expand our instrumentation, we can expand our capability set, we have room to grow. 2nd was that we would have a place to bring customers, right, to increase that connection point on collaboration. Candidly, I think that's what's to come here, David, because we finished the project and COVID hit. So we have not had the opportunity really to bring A number of customers through, have them roll up our sleeves, work with us on our application development sites. And that's really where again this was headed long term. I think we have seen the benefit of folks being co located. I think there is a greater connection. I think the dialogue that happens and where we need to drive that manufacturing support is more seamless now as well. But it's that customer intimacy, that customer connection, that collaboration that was really at the heart of being able to have us on our site. All right. So we have time for one last question. Boy, I got to finish it out. So this is relating back to the press release that you put out last week, which you touched on the presentation. But just want a little bit, I guess, to clarify. So the post industrial recycled opportunity, you called out that it's 10% of your production or available capacity today. Is that additional? Is that basically you're producing this already and now you have this additional certification? And we now have the opportunity to certify up to 10% of it with this Post industrial recycled content being 100%, right. So it's the ability to take 10% and upgrade it, right, with a value for sustainability because Our customers can use it to foot to their claims. There are pushes for plastics to have up to 30% recycle Content in the very near future. So this is just enough way for them to take 100% stream and drive it there. Long term back to the lifecycle analysis, We just approved a capital project roughly 2 weeks ago. That will give us some more in the future, right. So we're going through and looking at all of our streams and saying, hey, gosh, Can we recapture something that might be going to landfill and then put it to beneficial use that will allow us over time Potentially to expand upon that certification. All right. So I just want to turn it back to Aaron for concluding remarks. Terrific. Thanks, Adam. And thank you for your Time and attention here this morning. A great, I think, thorough dialogue and Q and A. And hopefully, you're as excited about our future as we are and we appreciate your long term support. As we concluded, when we think about our go forward priorities, right, we are building on a really strong foundation. One that we hope everybody walks away today is based more than just in our Nylon 6 position, right, that we have leading positions In our plant nutrients business with ammonium sulfate, a growing and thriving chemical intermediates business as well, and that each of the portfolios are underpinned By growth prospects going forward. We have our core advantage to build upon, which is more Certainly then just the underpinning of the global leading capitalized and cost advantage, but really in how we take our unique asset Based today, right, our integrated business model, how we go to market, how we serve customers and where we're driving forward that is allowing us to continue to differentiate against our competitors. And then finally, aligning really here against a set of core KPIs going forward, right, In driving our top line growth, expanding our margins, staying focused on durable free cash flow yield, Ensuring that our ROIs are coming through on the investments that we're making. And again, all aligned with our ability to drive, really achieve an attractive total shareholder return. So there's core priorities of what we're focused on, enhancing our day to day execution, right, improving that through cycle profitability. Over the long haul, right, we need to have our lows be higher and our highs be higher. And I think in this next set of environment Sort of macro considerations, you're going to see that shine through. Then of course here, continuing to enhance our resiliency, Organic growth being at the core, starting to supplement that with smart and disciplined accretive bolt ons. And then finally, Really using financial policy and strategy and that capital allocation lever to further enhance our value for the long haul. We're super excited for what's to come and we hope you are too. We look forward to chatting with everybody on October 29 when we report our Q3 earnings. So, thanks again and we look forward now to a little bit of lunch conversation and then we'll head on over to the sites.

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