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spk06: Good morning and welcome to the Advance 6 Third Quarter 2021 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Adam Kressel, Director of Investor Relations. Please go ahead.
spk04: Thank you, Andrea. Good morning and welcome to Advance Six's third quarter 2021 earnings conference call. With me here today are President and CEO Aaron Kane and Senior Vice President and CFO Michael Preston. This call and webcast, including any non-GAAP reconciliations, are available on our website at investors.advancix.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. Those elements can change, and the actual results could differ materially from those projected, and we ask that you consider them in that light. We refer you to the forward-looking statements included in our press release and earnings presentation. In addition, we identify the principal risks and uncertainties that affect our performance in our SEC filings, including our annual report on Form 10-K as further updated in subsequent filings of the SEC. This morning, we will review our financial results for the third quarter of 2021 and share our outlook for our key product lines and end markets. Finally, we'll leave time for your questions at the end. So with that, I'll turn the call over to Advancix's president and CEO, Erin Kane.
spk07: Thanks, Adam, and good morning, everyone. Thank you for joining us this morning and for your continued interest in Advancix. Advancix continued to execute well in the third quarter while supporting our customers to successfully navigate the current set of industry dynamics. We delivered robust sales, earnings, and margin performance, as well as record quarterly cash flows and spins amid improving end market demand and tight industry supply conditions. Mike will cover the details of our financials in a moment. It's important to note that our integrated business model and unique combination of assets, coupled with our leading North American positions across our diverse product portfolio, are paying significant dividends for the business. The industries in which we participate were once again presented with supply chain and logistics disruptions, escalating raw material inputs, and inflationary costs. Our team continued to demonstrate that we can perform in all environments, and this quarter was no exception. Our performance was supported by strong pricing and volume improvement, including contributions from differentiated products and our continued execution to capitalize on near-term opportunities while driving our long-term strategies. Building off of what we shared at our recent investor day, we feel very good about the foundation we've built in the last five years and how we are positioning the company going forward to drive performance and growth. We are highly focused on executing what is in our control, driving superior operational and commercial performance to meet the evolving needs of our customers, building capabilities to strengthen our innovation and portfolio resiliency, and maturing our capital stewardship to enhance attractive total shareholder returns. There is a lot to be excited about. This past quarter, we continued to expand our digital presence with our Node storefront featuring a number of chemical intermediates and nylon products across our portfolio. We received our first commercial order of our newly introduced 100% post-industrial recycled nylon resins. We maintained conversion of roughly 65% of our ammonium sulfate into our higher-value granular grades to meet the growth demands of our customers. We were ranked 30th in Investor's Business Daily Best 100 ESG Companies of 2021. We initiated a 12.5 cent per share quarterly dividend, reflecting our confidence in free cash flow generation. And we completed a refinancing of our existing credit facility by entering into a new five-year, $500 million revolving credit facility, providing increased liquidity and flexibility at lower barring costs. As we look ahead, the outlook for our business remains favorable. We're focused on strong execution to close out an expected post-spin record year in 2021 and taking that momentum into 2022 as we align our long-term strategies with strong and sustainable shareholder returns. With that, I'll turn it over to Mike to discuss the details of the quarter.
spk03: Okay. Thanks, Erin, and good morning, everyone. I'm now on slide four where I'll highlight the third quarter financial results. As you can see, it was terrific performance really across the board. Sales totaled $446 million, up 58% compared to last year. Pricing was favorable by 50%, comprised of raw material pass-through pricing of 22% following a net cost increase in benzene and propylene, and market-based pricing of 28 percent. The improvement in market-based pricing was seen across each of our product lines. Sales volume in the quarter increased 8 percent, driven primarily by improved end-market demand across our ammonium sulfate, nylon, and caprolactam product lines. EBITDA was 75 million, an increase of approximately 59 million versus the prior year. I'll walk through the key year-over-year variances on the next slide. Earnings per share of $1.51, increased $1.53 per share versus the prior year loss of 2 cents per share. Our earnings results were above the high end of our outlook we provided at our September 28th investor day, primarily driven by better than expected pricing, net overall material costs, as well as the timing of ammonium sulfate sales. And finally, cash flow from operations was a quarterly record since spin, reaching 76 million, That's up about $41 million compared to last year, primarily due to higher net income and the favorable impact of changes in working capital. CapEx of $13 million was favorable by roughly $3 million year-over-year, reflecting capital process efficiencies and timing of project execution. Now let's turn to slide five. Here we highlight a few of the key drivers of our third quarter EBITDA performance year-over-year. Pricing over raw materials was roughly a $40 million tailwind as we drove value through strong commercial excellence across the portfolio. Tracking our key variable margin drivers, performance in chemical intermediates reflected a continued favorable supply and demand environment for acetone over propylene spreads. Caprolactam and nylon over benzene were up year over year as well, reflecting continued improvement in industry spreads supported by tight industry supply demand, while demand has steadily improved. and as expected, ammonium sulfate on a net price over natural gas and sulfur basis, termed positive year-over-year, reflecting the strong underlying ag environment, as well as our ability to drive value above and beyond the sharp increase in input costs. The impact of planned turnaround to pre-tax income was zero in the third quarter of 2021 versus approximately $20 million in the third quarter of 2020, representing an approximately $20 million benefit year-over-year. As you may recall, we successfully completed our larger Hopewell turnaround in 2020 in the third quarter, including our Kellogg ammonia plant. In 2021, our larger Hopewell plant turnaround, including our sulfuric acid plant, is in the fourth quarter, which as of today is mechanically complete. Lastly, volume and other items were approximately 1 million unfavorable in the quarter. Higher volume was largely offset by increased plant spend and sales rate to support growth. and higher incentive compensation expense. In the third quarter of 2021, we also had roughly $2 million of favorability from additional insurance proceeds related to the 2019 shutdown of Cummings Supplier Philadelphia Energy Solutions, or PES. So overall, strong commercial and operational execution in the current set of industry conditions. Now let's turn to the next slide. On the left side of page six, we've highlighted the drivers of the $63 million of free cash flow generation in the third quarter, supported by net income, working capital, and lower CapEx spend rates. Another very strong quarter from a cash flow perspective, building on the $85 million of free cash flow generated in the first half of the year. Working capital was roughly a $12 million source of cash in the quarter, with an increase in accounts payable, partially offset by other working capital. As always, there are timing considerations when it comes to working capital, particularly around inventory and accounts payable related to raw material purchases. For CapEx, we now anticipate a full-year estimate of approximately $63 million compared to our prior expectations of $65 to $70 million, reflecting efficiencies in our capital processes and timing of project execution. This does represent a step up sequentially in capital spending in the fourth quarter relative to our run rate year to date. Improved cash flow alongside with robust earnings enables more flexibility to create value for our shareholders. As Aaron mentioned earlier, our new credit facility also provides increased liquidity and flexibility at lower borrowing costs, reflecting our strong business performance and more favorable credit market conditions. Given the strength of our cash flows and our confidence in future cash generation, we have committed to a structural return in the form of a competitive dividend, which we intend to sustain and grow over time. We also continue to target accretive M&A and are building off the success of the CIS acquisition earlier this year. So overall, a disciplined and balanced capital allocation strategy that we believe is a value enhancer to our core strategies and a key focus to support attractive total shareholder returns. Now, let me turn the call back to Erin.
spk07: Thanks, Mike. I'm now on slide seven, where we've included pricing and spreads across our product lines. Starting with nylon, we've seen spreads further improving through the third quarter on a year-over-year basis, while remaining roughly flat sequentially from the second quarter. The Asia caprolactam over benzene spreads average roughly $10.50 per ton in the third quarter, in line with the second quarter of 2021, and an increase from just over $600 per ton in the third quarter of 2020. Spreads are relatively in line with marginal producer economics, reflecting a more disciplined environment. While we are monitoring potential impacts from dual policy controls in China on these value chains, the North American market continues to be characterized by robust end market demand with a backdrop of rising input costs and continued industry supply constraints globally. Overall nitrogen industry pricing has significantly surged higher through the third quarter, supported by higher raw material input costs, industry supply constraints globally, and continued strong agricultural fundamentals, including crop prices, stock-to-use ratios, and planted acres overall. As we've discussed previously, natural gas, and therefore ammonia, as well as sulfur prices have substantially moved higher this year relative to historically low prices throughout most of 2020. We do believe we're well positioned to succeed in this environment given our footprint here in the U.S. with access to key premium selling regions and our make versus buy advantage on feedstocks. As an example, natural gas prices in Europe have been roughly five to six times higher than here in the U.S. Overall, we would note that we did not see our typical ammonium sulfate seasonal price and mix impact sequentially in the third quarter. The better than expected results reflected improved domestic volume and pricing performance through the quarter. And lastly, industry-realized acetone prices over refinery-grade propylene costs, while still higher year-over-year, have further moderated sequentially into the third quarter as expected, and now into the fourth quarter on continued balancing of supply and demand. As a reminder, the small-medium buyer acetone price is reflective of roughly one-third of the domestic industry, where pricing is predominantly freely negotiated. Let's turn to slide eight to discuss our preliminary outlook considerations for 2022. We are building on the momentum created this year as we head into next year. Across the various value chains we participate in, we continue to see rising input costs and industry supply chain disruptions at a time when demand overall remains robust. Our ability to execute and navigate in this environment is core to our integrated business model, pricing mechanisms, and leading customer positions across a diverse set of end uses and applications. There are some puts and takes across the portfolio from a commercial perspective. In the nylon space, we expect steady North America demand amid favorable end market conditions and tight industry supply. Residential construction has remained strong, and we're seeing early signs of recovery on the commercial side. Packaging demand has remained healthy as well. Demand for engineered plastics continues to be resilient. However, we are monitoring the effects of chips and other material shortages leading into the auto value chain. In this tight supply demand environment, we remain focused on delivering to our brand promise of being our customer's trusted partner by meeting their volume and quality needs. In the short term, our priority is to ensure inventories are in line to meet our targeted service levels while we continue to drive our longer-term development efforts on differentiated nylon product offerings. In ammonium sulfate, a number of key indicators continue to trend favorably as well, and we expect robust industry fundamentals through the 2022 planting season. It's fair to say that this is the strongest ag and fertilizer environment we've seen in the last decade. Underlying demand, coupled with nitrogen industry supply tightness and rising input costs, all have supported increases in pricing. With sulfur demand remaining robust as a key nutrient supporting crop yields, we continue our efforts to drive the sulfur nutrition value proposition down the value chain, as well as our initiatives to drive strong granular conversion of our ammonium sulfate products. Moving to chemical intermediates, we expect favorable demand trends to continue for our full product portfolio, which serves a diverse set of end markets and customers across building and construction, auto, paints and coatings, solvents, electronics, and pharmaceuticals, to name a few. We're supporting growth across the portfolio through investments in high-value and high-purity applications. Our recent 2PO expansion will enable further growth into applet-based paints and other applications as we continue to drive commercial traction in this product launch. We're also ramping up efforts to support anticipated growth of our natone cyclohexanone product line, which is a solvent used in various high-value applications. Now, finally, we do anticipate further balancing, as we've seen this year, to continue with North America acetone supply and demand into 2022. Operationally, we will continue to be focused on safe, stable, and sustainable performance while driving less variability in utilization rates, which, as we've shared, in turn drives higher returns for the business. We have ramped back up following our planned fourth quarter 2021 plant turnaround. I would highlight that as part of the turnaround activities this quarter, we did identify additional required maintenance work at Hopewell and were delayed in our restart, achieving full rates now, several days later than planned. During this time, we did take the opportunity to pull forward some compliance and essential work that ultimately would have been completed in 2022. So for the fourth quarter of 2021, we now expect the pre-tax income impact from planned turnaround to be approximately $19 million, or roughly $4 million higher than the midpoint of our previous expectations. In 2022, we expect CapEx to be in the range of $95 to $105 million, primarily reflecting an increase in base maintenance capex from 2021. Some of this is tied to an increase in capital associated with our turnarounds and timing of project execution relative to this year. We are also still refining and executing against the roughly $50 to $100 million high growth and cost savings project pipeline. However, as we share, these projects will generally be smaller in size to what has been executed over the past few years. Overall, we expect continued strong execution into next year with a number of tailwinds at our back to support robust earnings and cash flow performance. So let's turn to slide nine to wrap up before moving to Q&A. I'd like to return back to our investment thesis that we shared at our recent investor day. Our integrated business model and unique combination of assets is a source of competitive advantage and positions us well in any environment. We continue to see that on display through the third quarter. We have leading positions across our product lines and are more than a nylon company with significant contributions from our ammonium sulfate and chemical intermediate portfolios. Our products have a variety of diverse applications where macro trends are supporting long-term growth. We've significantly improved the base earnings power of the company with the high return investments we've made in operational and commercial execution. Our differentiated products are providing good tailwinds for the company, and we expect that will continue. And lastly, we are enhancing value creation through our disciplined and balanced capital allocation strategy. We have initiated a structural return of cash to shareholders in the form of a dividend and are excited about further opportunities to deploy capital. All of this positioning us to drive total shareholder return over the short, medium, and long term. With that, Adam, let's move to Q&A.
spk04: Great. Thanks, Aaron. Andrea, can you please open the line for questions?
spk06: We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up the handset before pressing the keys. To withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble the roster. The first question comes from David Silver of CL King. Please go ahead.
spk05: Yeah, hi. Good morning. Thanks very much. Morning. Yeah. So I have a few questions. I guess maybe I would first maybe like to drill down on the elements or the catalysts that drove your, you know, third quarter results above the guidance that you issued, I guess, on September 28th as part of the, you know, analyst investor day event. So, you know, what happened maybe in the last few business days of the month that, you know, led to that incremental upside? Thank you.
spk03: Yeah, I mean, Dave, it's a combination of really two things. One is ammonium sulfate volume, domestic volume here was a bit stronger than what we anticipated. And, you know, we closed a bit strong. So that's really timing between the third quarter and the fourth quarter. So that may perhaps give us a little bit of a headwind in the fourth quarter. So really timing that drove, you know, half of that upside. And the other half was better price raws, you know, results, particularly in the intermediate space. You know, we had propylene that ended settling down just a little bit, a little more favorable than what we expected, and that drove the other half of the favorability.
spk05: Okay. So I'm going to, you know, drill down on the fertilizer side of things now. But when I looked through the quarterly results, I mean, the one – number, there were a lot of great numbers, but the one that really stuck out to me was the, um, revenue performance in ammonium sulfate three Q versus two Q. And, uh, I, I don't re I did not expect, you know, the revenues to be higher in the third quarter. Could, could you maybe just discuss, I mean, I, I, you know, I see the price chart and this and that, but, uh, Can you maybe discuss the elements that led to that kind of unseasonably strong, I guess, revenue performance?
spk07: Sure. Thanks, Dave. And certainly when you look at where pricing was, let's say, on July 1st to where things have really kind of been trending in the last couple of weeks, as you see on the pricing charts, you know, the AS corn belt pricing is up 33%. You know, the corn belt's up nearly 54%. You have rising through this timeframe, you know, energy prices and natural gas just have continued to drive forward on what that means into the industry's, you know, cost base. So when we think about normal three Qs, right, we've talked about this in the past, We tend to see it's our fall fill, our pricing resets for the next season. We had indicated pricing would be higher this fall than previous years as the industry reset. So we started out at a good spot. But as the situation just became tighter. I think the volumes picked up domestically more than we would have anticipated, and pricing moved up quickly as well. So, you know, when you think about sort of that sequential consideration that we normally think about, it comes in both volume and mix, right? So we swing to the export markets. We still supported the export markets in both granular and standard sales, but the domestic side moved more quickly than what would have typically been seen. And it really is that price move that contributed to the expectations, or sorry, the results that you saw here versus our expectations.
spk05: Okay, and then maybe just one question on cash flow. You know, I was a tiny bit surprised that the working capital, the net working capital usage was, I don't know, I think a $10 million benefit this quarter. And, you know, I'm thinking, I was just wondering, you know, how much of that might be, you know, and inability to get your full complement of raw materials on the one hand. Are you teed up for continued high utilization in the fourth quarter across your integrated chain? And then the second thing would be, again, back on fertilizer and kind of that fall fill, the customer deposit activity. Maybe if you could chart that this third quarter versus a year ago, that would be helpful. Thank you.
spk03: Yeah. Yeah, I'm happy to take that. When you look at the working capital, Dave, really most of that benefit is timing. I would say when you look at the roughly working capital, when you look at the slide, was a generator of $12 million in cash flow overall. And if you sort of peel the onion on that, accounts receivable was actually unfavorable from a cash perspective. Sales were up, so that's Not a surprise. Inventories were slightly unfavorable by about $3 million. And then really where you saw the big benefit on cash is in accounts payable. Accounts payable was favorable by $20 million and a quarter. And, you know, frankly, that was really more associated with timing. You know, when we're acquiring raw materials, particularly cumine, you could see some swings. from a QME perspective that could impact the inventory balances as well as the accounts payable. And by the way, some of that, so that contributed to the very high conversion, free cash flow conversion that we had in the quarter, in addition to the fact that the CapEx spend rates were still below depreciation, which also contributed to to the high conversion. What I'll say is some of the working capital will probably reverse itself. So working capital, when you look at the fourth quarter, is likely to be a bit of a headwind. And then we'll see the capex spend rates come up in the fourth quarter. If you sort of back out the first three quarters of the year, we're anticipating roughly $25 million of capex spend in the fourth quarter. So that conversion, if you will, when you look at free cash flow relative to net income, will come down relative to what we've seen. So that's what I would anticipate. With respect to the pre-buy, you know, as is the case in any fourth quarter, we'll assess, you know, the market environment, understanding, you know, the pre-buy and what the customers are are anticipating and what they're looking for. Clearly, it is a tight environment, a supply-demand environment overall. At the same time, raw materials, natural gas, as you see, sulfur, have been very volatile. So we'll take all of these elements into consideration and develop an approach intended really to optimize the outcome in the fourth quarter. So we'll evaluate that as we get through the quarter.
spk05: Okay, great. You read my mind there a little bit. Thanks very much. I'm going to get back in queue.
spk07: Thanks, David.
spk06: The next question comes from Vincent Anderson of Stifel. Please go ahead.
spk02: Yeah, thank you. So I'm wondering, can we expect to see you placing incremental CAPRO into Europe over these next few months, just given the disruptions to their gas and ammonia availability? Or is the U.S. market tight enough that with freight it's still more profitable to keep most of your product here?
spk07: Yeah, Joe, pointing out, Vincent, you know, globally there's quite a bit of tightness going on and disruption in this chain. Given, you know, our long-tenured and standing relationships with our North American customers, you know, As you think about how demand has come back, we have always said that our volumes would come back here relative to supporting their demands and their needs. And right now, North American demand is robust. So appreciate that. There are these considerations, you know, externally, but, you know, over long stretches, being close to our customers that we share, you know, 20, 30 years where the relationships work, it's a keen focus here that we're their trusted partner first. And then, obviously, if there's additional molecules to optimize around thereafter, then we would obviously seek to place them in the best opportunity.
spk02: Gotcha. That makes perfect sense. And just kind of given it's coming up on that time of the year and with the huge swing in trade flows around acetone into the U.S., do you have any indication or maybe some history of the large buyer networks working with some of these new Asian suppliers to the U.S.?
spk07: Yeah, I think the large buyers – Customers here. I mean, they're they're buying larger volumes, right represents, you know more or less two-thirds of the market You know, you can look at them on a geographical basis and some do have the ability to potentially import way we see the market is We need about 15,000 tons give or take to balance The really the North American situation on average, right, as we think about what those monthly and quarterly volumes need to be coming in. So, you know, right now, though, you know, when you look at where underlying raw material pricing is and everything else vis-a-vis where North America sits, you know, most of our discussions, you know, are around security of supply, and that has been a focus really throughout a number of our value chains and obviously plays well into what we believe is our competitive advantage and a core proposition that we can bring to customers. So it's always a point of conversation, but I think you're seeing it tilt to how folks are securing their molecules for next year.
spk03: Yeah, Vincent, the only other thing I'd add is that channel of the market, which is two-thirds of acetone, going into primarily MMA is highly contracted. So we do have agreements that span over time for volumes. And, you know, as Aaron indicated, security of supply is really an important element and consideration with that channel.
spk02: Okay. Thank you. That's helpful. If I may, I just had a couple of non-market-based questions. So first, you know, we've been hearing more and more about labor shortages, and, you know, you in Virginia are maybe a little secluded from the bulk of the U.S. pet chem industry. So I was hoping you might be willing to discuss how you feel about your age distribution at your key assets and what kind of programs you run or are exploring to promote and secure skilled labor over the longer term.
spk07: Thanks, Vincent. And certainly, you know, from a trend perspective and a demographic perspective, footprint perspective, I would say that our demographics would look very much like the broader industry. And I don't think we've talked about this personally, but there is sort of a missing generation, if you will, in the chemical industry based on where in the past we've had tougher times and less hiring. So we do have a bimodal demographic to some degree. And Certainly, as we think about that transition, I think there's a lot of opportunities set for us. Obviously, we are spending time thinking about how we can use technology relative to improvement in those industry 4.0 conversations and opportunities and how we leverage our technology. building out our reach into communities and high schools, and working even with some state programs on what the profile of the graduate needs to be, right, for us to have a thriving pipeline. You know, we've been supportive of, you know, programs and scholarships for, into FOSSE, which is the Future of STEM Scholars Initiative, focused on really enabling folks that are underprivileged and underrepresented minorities getting into STEM education. So, again, building out really a multifaceted program here and, as you point out, something that the industry will have to transition. That said, I do think we're going to have multi-generations in our labor force for years to come, and I think that could be a real strength for us given the longevity of many of our employees and really the strength of knowledge and opportunities that they have you know, relative to driving the company forward as well.
spk02: Excellent. And then just because you brought it up, so I was playing around on this Node website. It looks pretty interesting. Can you just describe how this operates from a commercial perspective? Is this like, you know, sales draw from distributors, or is it more of like a lead generator where the customers are directed to you?
spk07: Yeah, so the latter at this point, Vincent, so appreciate you noticing around there. And, you know, we think about, again, it's a build perhaps from your last question, right? Generationally, we see our buyers and our customers have different profiles. You know, technology in our personal lives is how we interact with what we buy as well. So, you know, this digital platform and digital marketplace is just another opportunity for us to, right now, broaden our reach into formulators and folks who are specifying and looking for products with various attributes and benefits. And then in the background, we obviously are providing technology you know, technical expertise and of the like, and it's a lead generation. And we'll look to continue seeing how, you know, this can really kind of play forward for us going forward.
spk02: All right. Thank you. That's all from me. Good luck on the rest of the year.
spk07: Thanks, Vincent.
spk02: Thank you.
spk06: The next question comes from Charles Nivert of Piper Sandler. Please go ahead.
spk01: Good morning, everybody. A couple of quick questions. One, I'm looking at your chart for ammonium sulfate, and obviously the last month or so we've seen a real movement up on all the nitrogen pricing, but sulfate seems to be lagging a bit. Do you guys expect to sort of close that gap up again? I mean, it seems to periodically will open up and then reclose. So looking at where things are right now and some of the prices that have gone off, Is that something you expect in the fourth quarter numbers, understanding that there's maybe a switch between the granular and standard product? And then sort of working off of that, have you guys seen any logistics issues, I guess, to Brazil? Because I guess it's about time to start moving product down there once you go to winter and you're not moving as much product domestically. So can you just talk to that dynamic a little bit?
spk07: Yeah, so certainly when you look at, you know, the pricing of AS and urea, you know, as we note, there is a – we watch urea, as you point out, because it provides the underlying nitrogen value, if you will. And then certainly we are then focused on earning the premium associated with sulfur and sort of the residual dollars that a grower would pay for. And indeed, you know, when we look at sort of the current – mark-to-market prices of the latest offerings of ammonium sulfate against the latest offerings of urea, we do continue to see a strength in that value proposition and premium. They have different dynamics relative to where where reach the product is, right? There can be varying considerations on what is more spot-oriented trades which may get published out versus what fulfills, if you will, or sort of where people take positions. It is a market, as you well know, that there are folks that kind of sell and buy into positions at various times throughout the year. Certainly, though, the ammonium sulfate market does continue to appreciate in price, and we expect that to continue to move forward.
spk03: And, Charlie, just one consideration with that as well is the rapid escalation with natural gas. If you think about the variable margin for ammonium sulfate, it's less sulfur, less natural gas. And we saw a 40% increase in natural gas in the third quarter. We're looking at another 40% increase. In the fourth quarter, you know, clearly, millennium sulfate pricing is moving, you know, in a favorable direction. But when you think from a net-net EBITDA perspective, you also need to consider, you know, the escalation in natural gas as well.
spk01: Got it. And then with regard to Brazil, you guys are going to, I mean, assume you move product down into that region. Have there been any logistics issues you're having to deal with? I mean, I'm assuming that pricing down there is also moving up. fairly nicely. So, you know, what do you see going on into the Latin American markets going forward?
spk07: Yeah, no, thanks for reminding. There was a part two there, Charlie. I appreciate that. And as you say, certainly, yes, I mean, I gave some of the data points for the corn belt, but, you know, AS granular in Brazil, you know, July to now is up 60% as well. You see, even on the black sea side, you know, significant appreciation, particularly on the tightness of, you know, materials coming out of Europe as well as even Asia. But on the logistics side, because they're really here more bulk vessels, we've been able to continue to secure or our customers have continued to secure know the transportation they need to to take that material down um into south america so not the same logistics um challenges that you see in the container side um certainly the freight is up um you know relative to to fuel and things like that but um no no fundamental sort of capacity constraints and then just one quick fault sorry to sort of beat the horse the same horse um one of the things i've noticed in the for the plastics producers
spk01: they've been able to move on the export side a lot of product into the Latin American market, more so than they usually have in large part because competitors who would typically also show up in those markets haven't been able to get product there, whether it's from Europe or from Asia. Is that something you guys are seeing at all in the fertilizer side? Or by the same token, you know, maybe there's a nylon opportunity as well. I don't think that market is particularly large for that, but is there an opportunity to let in this? So for lack of that, it's opened up because others can't get there.
spk07: Yeah. No, I think it's something to watch for. I mean, certainly China has played significantly into Brazil. in its exports into that region over the last couple of years, particularly post the anti-dumping measures that were put into place here in 2017. As you know, China has put an export ban on fertilizers. As of October 15th, it does not include ammonium sulfate to date, but certainly we understand that given just sort of the last two-week appreciation, there's been quite a bit of price movement that we have heard and it's been reported through Prophecy that government officials have reached out to ammonium sulfate producers in China, perhaps suggesting that if these types of price gains continue on, that they could potentially be added into Into the band so something to watch going forward But I would say just given the exports coming out of that region probably right now certainly You know taking Kind of filling the void perhaps with what has been constrained through sort of European supply but you know this this market is characterized right now just you know a lot of focus on security of supply and making sure that folks have a have their fertilizers as they head forward into what is expected to be a rather robust planting season, given where just sort of the fundamentals are on stock-to-use ratios. A number of moving parts this year, as I'm sure you track on, just sort of where yields have been and where production has been reduced, leading to higher crop futures and just a strong expectation for the coming year.
spk01: Okay. Well, thanks very much.
spk07: Thank you, John.
spk01: Thank you.
spk06: The last question is a follow-up from David Silver of CL King. Please go ahead.
spk05: Yeah, hi. Thanks very much. So I'll just make a – based on the questions in this call, I'm going to make a suggestion. Your company name might be Amsulfix or something. I don't know. Okay. Sorry, that's all I could come up with on short notice.
spk07: On short notice, okay.
spk05: Yeah, so I am actually going to maybe grab Vincent's comment about production disruptions starting with ammonia in other regions and Charlie's comment about excellent demand, I guess. But this is more kind of you know, a marketing philosophy question. So I think this is, you know, you, you mentioned in response a couple of times in the Q and a here, you know, the balance between your long-term customer relationships and maybe the nearer term profit opportunity. And I know that, you know, Mike and Aaron, you've both used the term robust or strong. Um, but you know, I, I think personally, you know, I think, uh, This is borderline shortage conditions already, and that's just my opinion looking ahead to spring. I guess I'm just wondering, has your oversight, has your philosophy with marketing your fertilizer volume, let's say from now through next spring? How does that change or how does that evolve in this environment? In other words, any of your customers that bought in the third quarter, they're probably extremely happy now just based on the trends in the market. The markets are going to be volatile for sure, but is this the kind of market where the selling, the product allocation decisions before your fertilizer business maybe moved from the selling office to the boardroom? How has that thinking about marketing your product for the next few quarters changed? Thank you.
spk07: First, I'd like to probably give a great shout-out to our plant nutrients team. group of individuals that are steeped in the industry are led by a set of folks that really know the industry well, know our customers, have a great pulse on where things are, and have inherently, I think, through the cycles that we've experienced in the past, stayed true to driving the value proposition, driving priorities for growth and having a keen check on value and how we extract value for the propositions that we deliver, getting paid competitively for the products and earning, in many cases, strong premiums over our competitive set as well. So I think the key thing, as you point out, that is probably most notable in what has changed is the frequency of our conversations. There's just a – with the markets moving at the pace that they are, a bit more of a conversation on where our order book is, how we can think about where pricing is moving competitively, how, as you say, we balance the – the security of supply to customers that have been with us for a very long period of time. It's interesting, as I would point out, I was reflecting that too long ago. In the nitrogen space, we have been servicing customers since the 1930s, right? You think about the transition of the marketplace and our value chain and where we really entered selling nylon, right, was 2006, 2007. So our... Our depth here and longevity is important to our success. And, you know, maybe the flip side of even Charlie's question on, you know, can we move up at the same pace as urea, you can go back in time and see we don't give back at the pace urea. Urea in general is much more volatile than where AS sits. So a lot of attention, a lot of focus on how we think about – you know, optimizing our performance in the set of considerations, but we have a tremendous and quite talented team at the helm here managing this business, and I have, you know, full trust in them, and our conversations are just more frequent.
spk05: Oops. Okay. No, thanks a lot, and I apologize for not, in my long preamble, I should have mentioned that, you know, I consider your sales team probably the most sophisticated, you know, in terms of marketing ammonium sulfate probably in the world. So I left out that part. But, no, thank you for that perspective.
spk07: You bet. Appreciate it. They're working hard.
spk06: This concludes our question and answer session. I would like to turn the conference back over to Erin Kane for any closing remarks.
spk07: Terrific. Thank you all again for your time and dialogue and interest this morning. The third quarter results represented standout performance, and I'm very proud of how our organization continues to support our customers while navigating the current environment. We continue to execute against focused strategies aligned with our ability to drive and achieve attractive total shareholder return over the long term. I hope you are as excited about our future as we are here today. So with that, we'll look forward to speaking with you again next quarter. Stay safe and be well.
spk06: The conference is now concluded. Thank you for attending today's presentation and you may now disconnect.
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