AdvanSix Inc. Common Stock

Good day and welcome to the Advanced Six, Second Quarter, 2024 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal 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 touchtone phone. 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, VP Investor Relations and Treasurer. Please go ahead.

Thank you, Chad. Good morning and welcome to Advanced Six's Second Quarter, 2024 Earnings Conference Call. With me here today are President and CEO Aaron Cain and Senior Vice President and CFO Michael Preston. This call and webcast, including any non-GAAP reconciliations, are available on our website at .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 with the SEC. This morning, we will review our financial results for the second quarter, 2024, 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 Advanced Six's President and CEO, Aaron Cain.

Thanks, Adam, and good morning, everyone. We appreciate you joining us here today for our quarterly call. As you saw in our press release, we delivered a strong second quarter with -over-year improvement in sales, earnings, margin rate, and cash flow, and a return to targeted utilization rates across our integrated value chain. This performance reflects our collective organization's focused execution to capture commercial benefits and the advantages of our business model and diverse product portfolio. We realized a 6% improvement in sales, reflecting higher domestic nylon volumes, a robust domestic application season for ammonium sulfate, and continued strength in acetone pricing. Our disciplined capital execution continued to support long-term performance and growth, including Sustain, our sustainable U.S. sulfate to accelerate increased nutrition program. Overall, our team delivered strong operational performance, including near-record production of granular ammonium sulfate. Additionally, we returned $8 million of cash to shareholders through dividends and repurchases. Looking ahead into the second half, we continued to have several -over-year tailwinds supporting a favorable earnings outlook, including a continued tight global acetone supply and demand environment, modestly improving North American nylon industry spreads, and we started the third quarter with a robust ammonium sulfate fill program at higher pricing levels compared to the prior year. We are highly focused on delivering the right outcomes for our stakeholders by driving superior operational and commercial performance to meet the evolving needs of our customers, building capabilities to strengthen our innovation and portfolio resiliency, and executing against the disciplined capital deployment framework. We continue to positively position the enterprise to fuel future earnings and cash flow performance in support of robust total shareholder returns. Let me now turn the call over to Mike.

Thanks, Erin, and good morning, everyone. I'm now on slide four, where I will provide a summary of the second quarter of 2024 financials and -over-year performance. Higher sales of nylon and ammonium sulfate due to favorable North American supply and demand conditions and continued strength in acetone pricing drove favorable financial results. We saw a 6% increase in sales, 5% from increased volume, and 1% from net pricing, which converted to a 19% increase in adjusted EBITDA of $78 million and a 24% increase in adjusted earnings per share of $1.55. Free cash flow was $17 million in the quarter, up 6%. Cash flow from operations of $50 million increased $15 million, primarily due to higher net income and the favorable impact of changes in working capital. Capital expenditures of $33 million in the quarter increased $14 million, reflecting our planned increased spend on maintenance and enterprise programs. Now let's turn to slide five. Here we highlight the key drivers of our second quarter adjusted EBITDA performance sequentially from the first quarter of 2024. Overall, the quarter can be characterized by our team's ability to both capture the benefits of commercial tailwinds while driving a return to robust operational performance. The absence of the first quarter one-time impact associated with our Frankfurt site resulted in a $27 million benefit sequentially. Tighter North American supply and demand conditions across each of our product lines supported a $19 million improvement in pricing over raw materials and a $21 million benefit in volume and sales mix. As expected, ammonium sulfate price net of natural gas and sulfur costs was up sequentially as prices and demand seasonally strengthened. Plant costs and other items were approximately $10 million favorable, reflecting strong operational performance and lower plant spend, including a $2 million reduction in planned plant turnaround costs. Let's turn to slide six. Everyone will dive further into each of our key product lines in a moment, but here on slide six we've shown our typical industry pricing charts to provide further context on the market dynamics this past quarter. For nylon, global pricing remained relatively stable sequentially, with declines in Asia offset by improved North American spreads on tighter regional supply amidst stable and market demand. In the fertilizer space, corn belt nitrogen pricing saw a reduction overall in the second quarter relative to the first. In contrast, ammonium sulfate pricing strengthened in the quarter, with industry corn belt prices up 25% sequentially, with continued sulfur demand growth and reduced supply in North America. And in chemical intermediates, industry realized acetone prices over refinery grade propylene costs remained healthy. Now let me turn the call back to Erin.

Thanks, Mike. The following three slides provide a deeper look at each of our product lines, including industry spread trends tied to our key variable margin equations, as well as market dynamics and performance drivers. For our plant nutrients business, spreads have strengthened in recent months. We believe this is reflective of an increasingly recognized sulfur value proposition and observed growth in demand. We have entered the third quarter at higher ammonium sulfate pricing levels compared to the prior year as the value chain began restocking fertilizer supporting our new season order book. While we navigate typical seasonal pricing considerations and what many consider more foscious broader ag fundamentals, we know that farmers need yield to support their profitability. Our performance in Q2, at a time when nitrogen prices were on the decline, albeit with some supply tightness, coupled with the outcome of our fill program, we believe our proof to the resiliency of sulfur nutrition demand and supports our expectations to deliver improved -over-year performance. Longer term, we remain excited about the growth prospects for this business and leveraging our expertise as a leader in this space. The projects within our sustain program are progressing well, including passing the environmental stage review of the USDA grant process and are continuing to track our target investment profile of 20% plus. Year to date, we've achieved approximately 68% granular conversion and continue to anticipate reaching approximately 70% by the end of the year. This program will continue to support growing market demand for sulfur nutrition with estimated growth of 3 to 4% per year. In addition, we continue to receive positive feedback around product demand to support essential nutrition, not only for traditional crops, but for soybeans as well. Let's turn to slide 8. For chemical intermediates, the chart on the left represents a weighted average industry acetone over refinery grade propylene margin. As you can see, acetone spreads have recovered mid-tight global supply and demand conditions. This has been supported by persistent lower global phenol operating rates. On reduced demand, it's a value change, serving building and construction and other industrial applications. Acetone and phenol represent approximately 60% of our intermediate sales, with acetone making up a far majority of that. As a reminder, approximately 80% of our produced phenol is consumed by our downstream hopeful operations, while all of our acetone is sold externally. For us, acetone is a key product line with a perform and optimize strategy to meet customer needs while driving favorable sales and profitability mix. For the remaining 40% of our chemical intermediates portfolio, our key strategic focus is around placing our various chemistry platforms into select high-value applications. This diversification of end-market exposure supports our sales and margin performance through applications such as our NEDO and cyclohexanone serving the electronics space, our EZ blocks for outlet-based paints, and specialty amines for ag, pharma, and industrial applications. Now let's turn to nylon solutions on slide 9. Here we've shown both the global composite caprolactam and North American resin over benzene spreads, keeping the meaningful split of our monomer and polymer sales. Globally, nylon demand remains mixed across most major end uses. Varying regional dynamics, including competitive intensity and trade flows, continue to impact regional pricing. Despite long supply and demand fundamentals, estimated operating rates out of China are sitting at multi-year highs, resulting in continued nylon exports to other regions, namely Southeast Asia. Here in North America, demand has been stable, albeit on a lower base, with continuous softness in building construction offset by resilience in packaging and engineering plastics applications. Industry supply has been constrained in North America in recent months, supporting regional outperformance as evidenced in the charts. North American spreads have improved off the second half 2023 trough levels, and we expect further modest improvement through the remainder of 2024, given a tighter regional supply environment. For this business, we remain highly focused on supporting improved trough cycle profitability, given we're operating in the third cycle since spin. While our global low-cost position in caprolactam supports our ability to operate at disproportionately higher immunization rates and meets demand where it exists through a cycle, our goal of generating higher highs requires us to drive productivity, optimize our regional and product sales mix, and continue to promote the value proposition of our differentiated nylon products. Supporting our current performance is an improved geographical mix, as our export sales have moved back to an average historical level, sitting at approximately 12 percent of our total nylon sales volume in the second quarter. Now before moving to Q&A, we would like to take the opportunity on the next two slides to reiterate and illustrate our trough cycle cash generation, how we allocate that cash, and the long-term returns we're generating for our business and shareholders. This is a business best viewed through the lens of long-term performance. The big picture can be missed on a short-term snapshot. Ample cash from operations has been generated to fund critical allocation priorities, and our healthy balance sheet continues to provide flexibility and optionality when needed. Our approach to deploying cash is disciplined with a two-pronged framework of critical funding and discretionary choices to create value. From a critical funding perspective, we have our ongoing base CAPEX, including our maintenance projects and health, safety, and environmental spend, as well as our enterprise programs to support long-term operational excellence and risk mitigation. And our dividend, which has grown since its initiation in 2021, serves as a dependable return of cash to our shareholders and fits very well within this framework, well supported by annual operating cash flow. All through the capital allocation is discretionary where we fund growth and cost savings programs at robust returns, inorganic opportunities, and share repurchases. We've generated $1.2 billion of cash from operations since 2017. Through various conditions and cycles, this framework has allowed us to fund critical employment, grow our dividend, and invest for long-term performance and growth. Now let's turn to slide 11. Pulling it all together, the net outcome of an effective capital allocation framework is robust returns. And we believe for businesses like ours, ROIC is a key valuation metric. We've generated double-digit percentage returns on invested capital through the cycle, outperforming peers, which is a testament to the earnings power created from our investments along with our operational and commercial execution. We remain well positioned to deliver as a diversified chemistry company with a playbook and execution to a set of focused priorities and strategies. We have a leading North American position, an advantage asset base, and are aligned to a diverse set of end-market applications with an enhanced sales mix across the portfolio. We have increased the earnings power of this business with our focus on through-cycle profitability and the goal of generating higher lows and higher highs. And as I just shared, our capital allocation framework provides upside and optionality for further value creation. Advancix offers a compelling investment thesis. So with that, Adam, let's move to Q&A.

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

Thank you. We will now begin the question and answer session. To ask a question, you may press star, then one, on your touchtone phone. To withdraw your question, please press star, then two. And at this time, we will pause momentarily to assemble our roster. And the first question today will be from David Silver from CL King. Please go ahead.

Yeah, hi. Thanks very much. So I do have a number. Yeah, good morning. Thank you. I do have kind of a number of questions. I think maybe the first one I'd like to start on is your comments about, you know, improved operating performance and higher utilization. So, you know, I do recognize, you know, being able to run, you know, your inter-integrated, you know, vertically integrated complex at high rates, you know, does help you out quite a bit. You know, I'd also comment where, you know, there was an issue, I guess, in the first quarter. So, you know, maybe if you could just – what's the word? I don't know. Dart on a dartboard. But how close to optimal would you say your operational execution was this quarter? In other words, you know, maybe, I don't know, 95% utilization might be your target. I'm just saying that. And, you know, obviously without disruptions. But did you really kind of, you know, operate as efficiently as you possibly could? Is that – should we kind of assume that? Or is there incremental room for improvement going forward and, you know, potentially even an extra increment to your underlying, you know, earnings potential?

Thanks for the question. You know, I have to maybe sort of start with a quote. I got an email this morning from a friend that had a Franklin D. Roosevelt quote that said, a smooth scene never made a skilled sailor. And, you know, I know you call out our challenge in Q1. But for us, operational excellence is a forever pursuit, right? I think when we talk about returning to operational rates in the second quarter, we did indeed return sort of mid to high 90% range at Hopewell, which is the sweet spot of where we look to operate relative to our targets. You know, certainly, you know, the rest of the chain supports and fills in around that. But as you say, you know, this is an area of continuous improvement. We know just continuing to create that safe, stable, sustainable operations over longer stretches inherently creates more operational leverage, right? So it supported our results in Q2. We learn from every single challenge that we have. We improve our skill. We improve our capability sets and bring that forward. And that really is the underlying, you know, tenet for operational excellence programs.

You know, when you started with the FDR quote, I thought you were going to say, in politics, nothing happens by accident. But I like your quote better.

Thank you for that.

Okay. I guess I would like to ask a couple of questions on, I guess, the ammonium sulfate side of your business. And maybe you could just characterize kind of the spring selling season. In other words, it looks like you had both high volumes and you were able to achieve, you know, reasonably good pricing, you know, relative to how, I guess, the benchmark pricing moved during the quarter. And I'd also say it was kind of in an environment where, you know, the comparable product, Urea, was, you know, moving in one direction and your product was stable or even slightly higher towards the end. So, you know, maybe if you could just talk about that, did you just out-execute maybe some of your competition? Or, you know, how would you just characterize your ability to kind of, you know, execute very well in the fast-paced spring planning season, you know, especially given a number of issues, but one would be attractively priced comparable or close comparable products? Thanks.

Sure. And I appreciate, you know, certainly the call-out and the comparison here. You know, we believe we positioned ourselves, you know, well through the buildup into the season. That's always important and certainly it's something that we're focused on, you know, here as we start the next fertilizer, you know, year. You may recall that we, you know, had our own production. We've increased our granular ammonium sulfate output. So that certainly went a long way to meeting the demand for the higher value, you know, granular product that is growing in demand here in North America. We also purchased extra volume to make sure that we were ready for our customers' demand to offset our challenges in Q1. But, you know, I think what we're seeing is really the recognition of the essentiality of sulfur nutrition. And, you know, so there is that growing demand, you know, that was taking place. I think the proof points we saw, you know, in the quarter, you know, was really that, you know, not just, you know, the 10 to 50 percent yields that, you know, folks typically see on corn, you know, but a recognized value that folks can also see -single-digit, you know, increases on yields on soybeans as well. And, you know, when the fundamentals are pressuring profitability for farmers, yield is a key consideration for them. And, you know, so I think our execution, our positioning with our customers, the growth of the high product, you know, or the higher demand product that we're, you know, committing to. And then, you know, certainly we are seeing this, you know, demand signal. So there was some supply tightness, you know, certainly, you know, that supported it. But I think it's those fundamentals, you know, that are allowing us to perform, or allowed us to perform in Q2, but also supported, you know, really the fill program that we've seen here at the start of Q3 and really the resilience of demand for fertilizers and particularly sulfur nutrition.

All right. Thank you for that. And just to follow up again, still on ammonium sulfate, first, I think you touched on this, but I did want to clarify from your prepared remarks that there was some benefit, you know, from the increased percentage of granular product that you were, you know, that you might have had available. That was one thing. And then secondly, I mean, this is more from a, you know, corporate boardroom level than from a down on the ground in the, you know, corn belt view. But do you, are you starting to view maybe, I don't know, ammonium sulfate a little bit like acetone? In other words, they're both co-products to a certain extent. And they, you know, the, maybe the pressures on nylon globally led to less product available elsewhere, you know, somewhat like we see with acetone from time to time. But is there any thinking about that in general or is that a little bit too arcane?

Okay. I can certainly, you know, tackle both halves of that. So, you know, relative to the volume increase, we would put our estimate at about 35 percent of the granular sales volume increase, you know, was attributable to our increased production and that mixed benefit. And so that's an important trend for us as we continue to invest in our sustaining program. So that's part one. You know, part two, you know, relative to fertilizer and intermediates, you know, we've shared the view in the past. You know, we talk about the split by sales revenue. But when you look at, you know, what we produce, you know, by volume, you know, fertilizer and intermediates, you know, are two thirds, you know, if not three quarters of our production. So they're very important product lines, you know, for us. A bit different in the supply-demand global fundamentals where, yes, you know, phenol and acetone are leading to a tighter global acetone market. There definitely is, you know, quite a bit of ammonium sulfate, you know, still coming out of China. And, you know, that is predominantly headed to Brazil and other places. But again, you know, we continue to see sovereign nutrition as a recognized, you know, need globally for its boosting yields.

Okay. And this is not a question, but maybe just an observation. But I do appreciate this slide that was added this time to the first time charting, you know, the price of ammonium sulfate over the raw materials. I tracked that myself, but I think it was I appreciate you calling it out this time. I did want to ask a question. It's agricultural, but this is more ag-chem or the pesticide line of things. But, you know, you do have a couple of product lines that service, you know, the crop chemicals market. And, you know, I would say that's an area that for more than a year or so it's been from the folks I talked to, it's been oversupplied. Customer inventories had been built up during the pandemic, and they were, you know, even beyond the normal, you know, buffer stock levels. From your perspective, I mean, US Amiens and I believe parts of your Oxseam's portfolio, you know, go into that area. You know, has the environment there improved? Are you able to place more of your product or have the customers, the ag-chem makers, have they kind of cleaned up the surplus that built up over the past couple of years in your view?

Certainly, we continue and have experienced the headwinds, as you point out, in the ag-chemical business and certainly continue to see retailers and growers work through that higher inventory. You know, the value chain from NEPA through all the way to herbicides is really being impacted with low-priced Chinese imports of glyphosate salts. So, save in mind inventories have improved a little. You know, that value chain is still working through, you know, certainly the dynamics that we've been tracking and certainly you're hearing from others. I'd say the flip side, you know, the adjuvants where we're selling some of the spray-grade ammonium sulfate that gets mixed into that did improve in the season, you know, indicating that there is some progress being made. You know, deeper in the value chain because that would be added in at the last step. So, you know, some progress, but certainly some ways to go relative to the underlying dynamic.

Okay. And then just the last question here. I'm kind of towards the, I don't know, back half of my earnings season. And, you know, I would just say that your company, you know, based on the remarks, it's virtually the only company that did not call out kind of a weaker demand environment across the general, you know, industrial sector. And I'm just wondering if you could maybe comment on, you know, maybe your relatively buoyant or optimistic outlook for supplying the industrial sector when, you know, again, could just be who I'm talking to. But that has not been a common theme this earnings season. Thank you. Yeah,

certainly appreciate that. And we would also, you know, share the view that there are aspects in the industrial manufacturing economy that are challenged, right? And that collectively we're all seeing, you know, a slower recovery than perhaps where many of us would have been, you know, a couple months ago. But that said, you know, I think there are aspects of our diversification, you know, that ultimately are playing out here relative to our, you know, what we would as a favorable outlook year over year for the back half. And, you know, certainly the greatest weakness and the slower recovery isn't building and construction. You know, and I think that's an area we continue to watch. It impacts, you know, the demand growth or the recovery, you know, certainly in nylon, resin, but also in certain aspects of our intermediates. But the flip side is we've seen automotive be relatively stable and strong. We've seen the resiliency of packaging and our wire and cable product lines come back as well. You know, so I think that, you know, for us we've been talking about this diversification as a positive. And that's probably really what's playing out here for us as we look to the second half.

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

Thanks. Thanks,

David.

Have a great day.

And our final question comes from Charles Nivert from Piper Sandler. Please go ahead.

Yeah, just a few things. One, when you look at the sustain program and you're talking about an additional 200,000 tons of sulfate, how is that coming about or what's happening there? You sort of walk through the whole program and whatever expansion there might be.

Sure, as we have shared in the past here and can just kind of recapture for us, you know, it's a series of programs and projects, you know, over the course of years that really is leading to that opportunity set. And so, you know, it's going to take us a couple of years to get to the full output. It is, you know, a win-win across many ways because we're increasing the granular conversion here, you know, which is enabling us to do this, you know, without great increases in, you know, consumption of energy impact to water rates. There is a nice sustainability aspect, you know, to it, but it is a series of projects along that route, right? So we're targeting 70% by the end of this year, you know, with really the full completion by 2027. And so, you know, as you think about just various aspects of how we're going to, you know, address this, you know, it's not a new line. It's really detoking, you know, creating the ability for us to really just convert really standard up to granular is what's happening here over the course of the next few years. And we can certainly share, there was a full page, I believe in the last earnings deck that we could send back over to you, Charlie.

Yeah, I mean, but in terms of total available AX, just both granular and standard grade, has your capacity hasn't actually increased in total because that's just a chemical conversion. So you either leave it as one type or the other, but it's just the amount of product you're converting that we're talking about in that 200,000?

That is the primary consideration. And there are some things that certainly we are exploring that could continue to release that we have, we'll continue to evaluate in our system. But yes, and again, that conversion is valuable, right? Just given the premium that we get from standard to the greater form.

Yeah, I just want to make sure I was understanding it as what it was as opposed to an actual expansion of capacity by that amount. It's just a shift, higher value, higher profitability, but the absolute tonnage available, relatively small change, just what type of tonnage is available. On that same note, are you guys looking at all at and I know that the systems may not be in place even regionally for you to be able to do it, but is there any thought to carbon capture around the ammonia unit and then creating in effect of green or blue ammonia there and then running that that would be part of your AX molecules and maybe higher value still? Is that something that's at all under consideration?

Yeah, so currently, all of our the vast majority of our CO2 is been captured at current has been captured for for years for beneficial reuse. So we have partners on the Hopewell site that are taking that CO2 and is being used in a valuable food and beverage industry and cold chain storage. As you may know, the mid Atlantic is a large poultry and pork industry and so certainly the beneficial reuse in the region is pretty high relative to that. And like I said, also for for beverage. So we do capture it today and have been certainly any other considerations, but right now it's in good use and we have great partners that are taking that taking that off take today.

Yeah, I guess the off take people aren't don't it because you in effect that CO2 doesn't select of a better term disappear. You can't get the green credit, but obviously you've got some credit for whatever sales it's worth. When I look at the again at AX, would you say I mean the realization of sulfur is a valuable part of the input? Do you think that's going to contribute to a better spread over urea over time? I mean, you know, historically there's been a, you know, there's that clearly that relationship has had a certain spread over time. You think that's something that's now going to grow because of that realization is more and I've seen sort of more acceptance of a S in the US or we just substituting in part for Chinese product that used to come across. I mean, how do you see that market shifting?

Yeah, I mean, certainly, you know, as we've we've shared, there is that consideration on the, you know, baseline nitrogen nutrition price of which we're, you know, working in a premium for for the software value proposition. But we do believe certainly the willingness to pay and the acceptance of the software proposition is been one that, you know, again, our field research, our agronomists have been out, but we certainly are seeing it strengthen the last 18 to 24 months. We expect software consumption to continue to increase accordingly and there's a clear willingness to pay for that for that boost to yield.

And, you know, depending on how much over the stock nitrogen addition, considering where corn is going, you know, anything you can do to boost yield under these kind of situations at relatively minimal cost, I think it's going to get looked at pretty positively. On the nylon side of things, is there been any particular market that's been making things a little bit better or is it really spread across all the basic nylon markets?

Yeah, I mean, here in North America, I mean, certainly, you know, it is the region we want to focus on with a clarity of our ability to support our customers here. You know, the resiliency again, we've seen more of it in an EP, Neuroengineering Plastics, really buoyed by automotive. We've seen packaging come back as well and there certainly were pressures, you know, several months ago relative to food inflation. You know, we've all seen those numbers come back, so that's supporting, you know, red meat packaging and others that perhaps were pulled back along the way. And, you know, again, as I mentioned before, it's really that building construction, you know, area that, you know, is I think stable now, but certainly the most challenge given the macro dynamic, you know, that we sit in relative to interest rates, mortgage rates, which is just really slowed down. You know, I think that's a really good example of how we're seeing the recovery in the residential, but more importantly, you know, I think the commercial side indicators are, you know, not there's they're growing, but they're not growing at the rates that they've grown in the past. So there definitely is a recognized growing there, but that's kind of how it plays out. You know, there have been some supply considerations, you know, so I think that has enabled us to, you know, not just capture some of the recovery, but also, you know, a consideration and share as well.

Got it. Natural gas obviously has been moving downward quite a bit over the last month, few months in particular. Are you guys hedged in any way or are you able to take pretty much full advantage of the decline in gas, particularly obviously on the ammonia unit, but just in general? And is that something in terms of the AS spread that's going to make it look better even as the market, you know, moves into a seasonally weaker period and your sales shift, you know, toward South America and maybe a little less granular and a little more of the standard product. But I assume the gas should help a lot.

Yeah, Charlie, we as a natural course, normal course, we don't hedge natural gas. It is a consideration in terms of the, you know, the variable costs for ammonia sulfate and fertilizers and can impact, you know, the pricing, the marketplace, you know, therefore there is I'll call it a longer term correlation, you know, over time with respect to, you know, end market pricing and that that future. We're not hedging feedstocks. So as a normal course, we don't hedge with respect to the forward look, you know, we did see a bit of a spike in natural gas in July, but it did correct and come back down and settle at a lower level in August. And we'll continue to watch it. But net overall, I'd say for Q3, our expectation is that, you know, natural gas costs will be up a bit. And then we'll obviously monitor it closely here as we get into the fourth quarter.

I think that does it for me today. Thanks very much.

Perfect. Thanks, Charlie.

Ladies and gentlemen, this concludes today's question and answer session. I will turn the conference back to Erin Kane for any closing remarks.

Thank you all again for your time and interest this morning. We hope this call and discussion have clarified the continued operational and commercial benefits that our team captured and drove to support our second quarter performance as well as the key considerations for our favorable earnings outlook. The strength of our business model and our position as a diversified chemistry company will serve us well. And we continue to expect performance this year to demonstrate our resilience. We feel very good about the strategies we've implemented and our continued investments to support expectations for advanced long-term sustainable performance. With that, we look forward to speaking with you again next quarter. Stay safe and be well.

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