AdvanSix Inc. Q1 FY2022 Earnings Call

Good morning, and welcome to the AdvanSix First Quarter 2022 Earnings Conference Call. All participants will be in listen-only mode. After today’s presentation, there will be an opportunity to ask questions. 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.

Thank you, Anthony. Good morning and welcome to AdvanSix’s first quarter 2022 earnings conference call. With me here today are President and CEO, Erin 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.advansix.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 first quarter of 2022 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 AdvanSix’s President and CEO, Erin Kane.

Thanks, Adam, and good morning, everyone. Thank you for joining us and for your continued interest in AdvanSix. As you saw in our press release, AdvanSix delivered robust first quarter performance to start 2022. I would like to thank our nearly 1,400 teammates who delivered outstanding results for one another, our customers, and our shareholders. Our collective organization contributed to generating record sales, earnings, and margins in the quarter. Across the various value chains we participate in, we continue to see rising input costs and industry supply tightness at a time when demand overall remains robust. Our integrated business model, including our unique competitive asset base, pricing mechanisms, and leading customer positions across a diverse set of end uses and applications, is core to our ability to execute and navigate in this environment. Across the board, it was a terrific start to the year as we sustain the momentum we've built. We also continue to enhance shareholder value creation as we deployed a significant amount of capital in the first quarter with a combination of our increased CapEx investments, acquisition of U.S. Amines, sustained dividend, and opportunistic repurchase of approximately $7 million of shares. The acquisition of U.S. Amines was officially closed on February 24th, and I am proud to say that the integration is progressing well, and we are excited about the future opportunities for the combination of our businesses. As we look ahead, our outlook remains favorable. We continue to target significant earnings growth and robust cash flow in 2022, supported by disciplined execution of our integrated business model and expected robust ammonium sulfate fertilizer performance in particular. We cannot always predict what the markets will do. However, we are highly focused on executing our strategic priorities and managing what is in our control. We remain confident in our ability to deliver robust and sustainable performance and attractive shareholder returns over the long term. With that, I'll turn it over to Mike to discuss the financial details.

Great. Thanks, Erin, and good morning, everyone. I'm now on slide 4, where I'll highlight the first quarter 2022 financial results. Overall, our strong execution and robust ammonium sulfate fertilizer performance supported record sales, earnings, and margins. Sales totaled $479 million, up 27% compared to last year. Pricing was favorable by 29%, primarily driven by higher market-based pricing, with 26% from higher pricing across our ammonium sulfate and now on product lines. To a lesser extent, raw material pass-through pricing contributed 3% to top line growth, following a net cost increase in benzene and propylene. Acquisitions added approximately 2% to sales as well. Sales volume decreased approximately 4%, driven primarily by robust sales in the first quarter of 2021 as we reduced finished goods inventory in the prior year period to meet a recovery in customer demand amid very tight industry supply conditions. On a sequential basis, sales volume increased roughly 3% in the first quarter of 2022 versus the fourth quarter of 2021, and we expect further sequential improvement in sales volume into the second quarter. Adjusted EBITDA was $103 million, an increase of approximately 79% versus the prior year. I'll walk through the key year-over-year variances on the next slide. In addition, adjusted EBITDA margins were also a quarterly record at 21.5%. As a reminder, beginning this quarter, we are now reporting adjusted EBITDA and adjusted EPS, which exclude non-cash-based stock compensation, non-cash amortization from acquisitions, and one-time M&A costs. Adjusted earnings per share of $2.26 more than doubled versus the prior year. And finally, free cash flow reached $28 million. That's down about $15 million compared to last year. Cash flow from operations declined roughly $8 million year-over-year with higher net income more than offset by the unfavorable impact of changes in working capital and an approximately $12 million cash tax refund in the prior year period. CapEx of $21 million increased roughly $7 million year-over-year, reflecting timing of maintenance spend as we expected. Now let's turn to slide 5. Here, we highlight a few of the key drivers of our first quarter adjusted EBITDA performance year-over-year. Pricing of our raw materials was a $53 million tailwind as we drove value through strong commercial excellence. Tracking our key variable margin drivers, performance in ammonium sulfate on a net price over natural gas and sulfur basis continued its positive trend year-over-year, reflecting the strong underlying ag environment as well as our ability to drive value above and beyond sharp increases in input costs. Caprolactam and nylon over benzene were up year-over-year as well, reflecting continued improvement in industry spreads supported by tight industry supply, while demand remained healthy, particularly in North America. Lastly, chemical intermediates reflected a continued moderation in acetone over propylene spreads compared to robust levels seen in the first half of 2021, as we expected. As a reminder, in the first quarter of 2021, we had an approximately $6.6 million unfavorable non-cash LIFO inventory reserve adjustment. That adjustment reflected the reduction in inventories from 2020 year-end, resulting in the expensing of higher cost inventory layers from prior years. Lastly, volume and other items were approximately $50 million unfavorable in the quarter. We saw increased plant spend, primarily driven by higher utilities costs due to sharp increases in natural gas prices, as well as lower sales volume versus the prior year. These items were partially offset by an approximately $2 million favorable benefit from planned plant turnarounds year-over-year and a modest contribution from the U.S. Amines acquisition. Now let's turn to the next slide. On the left side of Page 6, we've once again highlighted the drivers of our first quarter 2022 free cash flow generation, which was supported by higher net income. Working capital was a roughly $39 million use of cash in the quarter. Accounts receivable represented approximately $28 million of that total, reflecting the 13% jump in sales compared to the fourth quarter of 2021, as well as sales that were more back-end loaded in the last month of the first quarter. This resulted in relatively low conversion of those sales into cash within the quarter. Given this, we expect our cash conversion to improve meaningfully in the second quarter. With respect to capital expenditures, our spend run rate has increased as expected, reflecting the timing of maintenance spend. Improved cash flow generation alongside robust earnings has enabled more flexibility to create value for our shareholders. On the right side of the page, we've highlighted the nearly $130 million of capital deployed in the first quarter, comprised of our organic CapEx investments of $21 million, acquisition of U.S. Amines for an estimated net purchase price of approximately $98 million and over $10 million of cash returned to shareholders through roughly $7 million of share repurchases and $3.5 million of dividends paid. We intend to sustain and grow the dividend over time and declared today our second quarter of 2022 dividend of $0.125 per share payable on May 31 to stockholders of record as of May 17. Our balance sheet is in a healthy position with net debt leverage below 1, and we are continuing to execute a disciplined and balanced capital allocation strategy that we believe is a value enhancer to our core strategies and a focus to support attractive total shareholder returns.

Thanks, Mike. I'm now on Slide 7 to discuss each of our product lines. Starting with nylon. We've seen price roll spread further improving into 2022 on a year-over-year basis, with notable strength in North America and Europe, which has continued into the second quarter. There was a sequential moderation from the fourth quarter of 2021, particularly in China and the rest of Asia. The global cost curve has remained steep in this current energy environment with input costs continuing to rise, supporting spreads relatively in line with marginal producer economics. In North America, where we primarily participate, we have seen pricing and spreads fare better regionally as reflected in the global composites seen on the chart here, outperforming the Asia benchmarks. The North American market continues to be characterized by healthy end market demand and solid industry supply conditions. Recovery in commercial construction continues where nylon carpet has a strong presence, and we've seen packaging demand remain steady. Demand for engineered plastics resins remains resilient as well. While we have seen more impact from material shortages of glass fiber and additives through the auto compounding value chain, with supply remaining tight for the industry, we remain well positioned to support our customers in the current set of market dynamics. Moving to ammonium sulfate. We continue to see strong underlying ag fundamentals and higher energy costs supporting significant increases in fertilizer pricing year-over-year. As you can see from the chart, urea pricing has been more dynamic relative to ammonium sulfate, which is often the case. We saw ammonium sulfate sequential price improvement in the first quarter at the high end of the long-term range, commensurate with our typical in-season progression and supported by the most favorable conditions we have seen in over a decade. We continue to expect strong ammonium sulfate performance during the seasonal peak in the second quarter. However, we are experiencing a wet and cool weather delay to the start of the US spring season, which does have implications for timing of application demand. Lastly, turning to chemical intermediates, industry realized acetone prices over refinery grade propylene costs declined year-over-year as expected, on continued balancing of acetone supply and demand. However, they do remain at healthy levels relative to prior years. Pricing in the small, medium buyer market, which is reflective of roughly one-third of the domestic industry, also moderated sequentially in the first quarter of 2022 compared to the fourth quarter of 2021. While this was expected, we did see a slight lag in this pricing relative to the large buyer on the back of sharp increases in propylene costs through the end of the first quarter. Looking forward, with significant downstream MMA turnarounds now complete, we are seeing acetone industry prices increase into the second quarter and more closely tracking the rise in input costs. We expect healthy demand to continue for our full intermediate product portfolio. We serve a diverse set of end markets and customers across building construction, auto paints and coatings, solvents, agrochemicals, electronics, and pharmaceuticals, among others. Let's turn to slide 8 to discuss further the ag and fertilizer environment. As we have highlighted, the ag and fertilizer sector has undergone the most significant change and improvement over the last year. We thought it would be helpful to frame some of the considerations that are impacting the environment today as well as the implications beyond this year's planting season. First, to set some background of our own plant nutrients business, this is a space that we know well and see as an opportunity for continued growth. Today, ammonium sulfate represents more than 30% of our total company revenues and more than 50% of our total sales volume. Our Hopewell facility is the world's largest single-site producer of ammonium sulfate, so it is a meaningful part of our diverse portfolio, driving significant value. Roughly 75% of our ammonium sulfate sales are here in the US, with the remaining 25% going into export markets as we serve customers year-round in both the Northern and Southern Hemisphere planting seasons. Now, demand for soft nutrition has been growing about 3% per annum, and ammonium sulfate has proven to deliver, pound for pound, the most readily available sulfur and nitrogen to a wide variety of crops, including corn, wheat, and cotton, among others. With sulfur demand remaining robust as a key nutrient supporting crop yields, we have dedicated sales and marketing resources as well as the granular grade and staff supporting our farming communities, while driving the ammonium sulfate value proposition down the value chain. Through operational improvements and enhancements in crystallizer technology, we are producing today more high-quality granular grade ammonium sulfate than ever before to meet the growing demand of our customers. As of last year, we increased our targeted granular conversion to approximately 65% of our premium grade product. And we've been investing inorganically to expand our presence in agrochemicals, supporting crop protection through our acquisitions of CIS, which expands our offerings to directly supply packaged ammonium sulfate into spray-grade adjuvant applications, as well as U.S. Amines, whose products are used in a wide range of applications, including as an important intermediate for the chemical synthesis of herbicides. So overall, this is a core and growing product portfolio within our business. Turning to the industry. We have seen a number of key ag indicators continue to trend favorably. With key crop prices at multiyear highs and essentially doubling in the last nine months, corn futures near $8 per bushel and cotton prices hovering around $1.50 per pound, just to name a few, farmer economics remain positive. Recent University of Illinois estimates indicated farmer profitability for both corn and soybeans to remain healthy despite sharp increases in input costs. Stock-to-use ratios for grains have also continued to come down, with USDA projecting US corn ending stocks to be below 10% of total use for the end of this planting season, which is just marginally higher than the multiyear lows seen in 2021. These considerations together support the continued need for robust acres to be planted next season. The favorable demand fundamentals now committed during a time when overall nitrogen fertilizer supply has remained tight and raw material input costs have escalated, support fertilizer pricing that has reached record levels. Natural gas, and therefore ammonia, as well as sulfur prices have substantially moved higher and steepened the industry cost curve through 2021 and now into 2022. Both natural gas pricing and availability have also constrained production in Europe. Supply constraints globally further include export limitations and restrictions in various regions such as Russia and China. Overall, the elevated energy environment, which has kept marginal producer costs high, coupled with lower global grain stocks and higher future crop prices constructively support increased planted acres as well as higher fertilizer demand and pricing going forward. Now let's turn to slide 9. Our outlook for 2022 remains consistent with what we have shared previously. We are targeting significant year-over-year earnings growth on top of an outstanding year in 2021. As we continue to drive superior operational excellence and differentiated product growth, progressive sustainability initiatives, and maintain strong and disciplined capital stewardship. Demand is expected to remain healthy across our nylon and chemical intermediate product lines, and we are in the midst of the strongest fertilizer environment that we have seen in over a decade. We're supporting growth across the portfolio through investments in high-value and high-purity applications as well as in our differentiated nylon products. Collectively, sales of our differentiated product portfolio are expected to grow double-digits for the full year 2022, consistent with our longer-term performance. As a reminder, our differentiated products have historically earned gross margins that are roughly two times our company average. With the acquisition of U.S. Amines now closed, we are efficiently integrating the business into our portfolio and expect the deal to be modestly accretive to earnings this year. Operationally, we continue our focus on safe, stable, and sustainable performance while driving less variability in utilization rates, which in turn, drives improved customer experience and higher returns for the business. In 2022, we continue to expect CapEx to be in the range of $95 million to $105 million, primarily reflecting timing of base CapEx for maintenance relative to 2021. We expect the pre-tax income impact of planned plant turnarounds to be in the range of $32 million to $37 million in 2022, with the larger of our Hopewell turnaround or about 80% of the full year impact scheduled for the third quarter. Lastly, we continue to expect our effective tax rate for the year to be approximately 25% and now anticipate cash pension contributions to be in the range of $5 million to $50 million compared to approximately $18 million in 2021. There are a number of tailwinds supporting robust earnings and cash flow in 2022, and we remain well-positioned to deliver sustainable performance and attractive returns over the long term. Let's quickly turn to slide 10 to wrap-up before moving to Q&A. In summary, we believe that AdvanSix offers a compelling investment thesis over the short, medium, and long-term. We remain focused on supporting our customers while navigating the current market dynamics, and the results this quarter reflect the resilience and strength of our execution and integrated business model as well as our leadership positions across our diverse product portfolio. We have demonstrated that we can perform in all environments and have built a solid track record. We are executing to a set of focused priorities, all of which are aligned to driving the critical measures that underpin achieving durable free cash flow yield and top quartile conversion, compelling returns on capital, and an attractive total shareholder return. It is certainly an exciting time at AdvanSix for all of our key stakeholders. With that, Adam, let's move to Q&A.

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

Sure. We will now begin the question-and-answer session. Our first question will come from Charles Neivert with Piper Sandler. You may now go ahead.

Good morning, everyone. Just a couple of quick questions. One, the earnings drop-off from the chemical intermediates that occurred during the quarter versus a year ago, is that largely a lag in the price increase timing, meaning that it might be recovered next quarter? Or is the business a little less?

Yes. So if you recall, Charles, we anticipated a moderation in acetone spreads. Really, we've been messaging this for a number of quarters here. And as expected, we did see that moderation through the quarter, and that's what drove some of the decline in intermediates from a year-over-year perspective.

Okay. And then one other thing, actually two others. One, with the late planting and the fact that some of the deliveries for ammonium sulfate haven't been made yet. Is there any chance that there would be a different choice of nitrogen application instead of the sulfate? I mean, in some cases, some people are moving from ammonia to urea or UAN. Is that something that might affect ammonium sulfate in the quarter because it's late and they would go to a different nitrogen application?

No. The way you should think about sort of the late planting season is a little bit different from ammonium sulfate, really around timing of application, Charles. So as we see the seeds starting to go in, I think it could lead to a larger top dress application later in the season. So for us, it's more about when the fertilizer goes down than if, right now.

Okay. It's not a matter of getting substituted out for a different nitrogen form because of the timing difference?

Yes. Because again, we're providing that sulfur nutrient that is needed in addition to the nitrogen. So we still see strong demand. It's really now around logistics. We're well positioned in the warehouses and well positioned to the field. So now it's just being ready for when the pull to the fields comes.

Okay. And one last question is you moved a lot of products into the granular form. Is there an opportunity for you to invest more to enhance granularity going forward? Is this a worthwhile capital expenditure to consider in order to increase from the current level to around 75%, 80%, or 85%?

No, it's a terrific question, and it is part of our focus as we continue to refine that high-growth CapEx pipeline. Yes, as you say, I think 100% is not something we would target for where our assets are structured, but certainly building out and continuing to push towards higher conversion is part of our efforts going forward.

Okay. Well, thanks very much.

Thank you.

Our next question will come from Vincent Anderson with Stifel. You may now go ahead.

Thanks. A nice start to the year, pretty sure…

Thanks, Vincent.

Having earnings nearly all of 2019's EBITDA in a single quarter probably has Michael sleeping pretty well these days. Well, I figured I'd start with ammonium sulfate. I am just curious what your netbacks looks like, at least directionally for whatever share of 1Q volumes went to export compared to what that looked like in the US.

So give us a second, we can kind of pull up. But as you know, our first half sales are always tilted to a higher percentage into North America. One is we're kind of staging, but I think Mike scrubs the specific numbers there.

Yeah. So for the quarter, if you're looking at the split of revenue between export and domestic, about 75% of the sales were in the US, and that's generally our overall split for ammonium sulfate, 25% export, 75% US.

Okay. And your earnings on exports, is that starting to converge with kind of just the market prices that we follow in the US? Or has that lagged somewhat?

Yeah. The best markers to look at for export are going to be keying off of where China is selling into Brazil, right? Certainly, they are a key player in that seaborne export trade for ammonium sulfate with significant share. So, on a standard basis or even a compacted granular, they tend to set a little bit more of the target there, and prices have moved up, but certainly not to the extent that we would see the high-value granular ammonium sulfate move up in North America.

Okay. But trending in the right direction.

Yes.

Yes.

Okay. All right. Excellent. So I'm trying to interpret your nylon versus capro revenues in the quarter. Did that divergence come more from flexing additional capro through Chesterfield? Or was there a significant increase in nylon beyond capro on the spread front?

Yes, the short answer is yes. Year-over-year, we sold more merchant caprolactam and were more active in export markets than we were last year. With the recovery in North American demand, we converted more of that caprolactam to resin this year to meet the strong demand for resin in North America, even as we sold less caprolactam. Additionally, we benefited from a favorable mix by doing this.

And market pricing did move up substantively in the nylon space year-over-year and a little bit sequentially, but certainly on a year-over-year basis was up.

Okay. Perfect. And then, if I could ask one more, just kind of digging into the capro cost curve, obviously, benzene is the contributor there that we all think about. But if we're looking at ammonia prices and even just ammonia availability in places like Europe and China, I'm wondering if you are starting to see any of that weighing on production just purely and being able to source the feedstock and as an extension of that, last quarter, we talked about you were still prioritizing your US market share. Are you starting to see a positive export margin opportunity developing, whether it's caprolactam or nylon over whatever your lowest margin domestic sales provide?

Yes. So, right now, given the healthy demand, I would say rather snug conditions on supply in North America, we do remain focused here and it's still the highest value region for where our focus should be. But to provide some color as you say, the raw material pricing as well as availability has impacted, I would say, global utilization, which, again, also contributes to further tightening available resin supplies mostly, right, that we have typically seen as standard trade coming into the US kind of be constrained.

Okay, perfect. Thank you. I'll let it go.

Our next question will come from David Silver with C.L. King. You may now go ahead.

Okay. Thanks. Good morning.

Good morning.

Good morning.

I'm going to warn you that I couldn't listen to any of the prepared remarks. I apologize in advance for needing to ask you to repeat yourself. Let’s begin with a couple of questions regarding inventories and raw materials. Looking at the inventory level of $163 million, it has increased slightly from the fourth quarter, but it has been higher during periods when feedstock costs and finished product prices were much lower, especially in the second half of 2020. Additionally, we have U.S. Amines this time around. How do you feel about the inventory levels as we approach what is usually the peak selling season for many of your products, particularly fertilizer?

Yes, sure. Yes, I think one of the things, Dave, that you need to consider in the inventory balance going in, just to be clear, when you look at the absolute balance, we went from $150 million at the end of the fourth quarter of 2021 to $163 million at the end of the first quarter of 2022. And really, all of that increase was driven by the U.S. Amines acquisition. So, as that closed in the quarter, we added that inventory into our balance sheet. Otherwise, the inventories were pretty flat, again, comparing to the fourth quarter of 2021. But what we saw from an inventory perspective in the first quarter is we were able to build ammonium sulfate inventories to be prepared and ready to meet these robust demand we anticipate, and we're seeing here in the second quarter. That was, again, more of a normal build in terms of seasonality. So we feel good about our inventory position there. And offsetting that was a bit of a decline in cumene inventory in the first quarter relative to the fourth quarter. Otherwise, when you look at the other finished goods inventory balances, we continue to optimize the different products, different SKUs in terms of where we're seeing the demand and working to make sure we have enough robust inventories to meet that demand by looking at cycle times and lead times with respect to our customers and trying to make sure we're in a position to be the trusted partner to our customers and to deliver the supply that they need to meet that demand. So, we'll continue to optimize that going forward and again, try to be that trusted partner with our customers.

I have a question about raw materials, particularly regarding procurement strategies in the current environment. Historically, I’ve been reminded that your largest cost is cumene, followed by natural gas and sulfur. Cumene is typically priced more consistently, while the others fluctuate more frequently. I’m curious how your raw material costs or proportions have changed. Have you noticed a shift away from cumene toward the others? Has this prompted you to reconsider your procurement strategies given the increased volatility and unpredictability? Thank you.

Yes. As you mentioned, cumene constitutes a significant portion of our direct material, approximately 75%. We have established contracts with numerous suppliers for specific volumes that include formula pricing linked to benzene and propylene markers. This ensures a steady supply of cumene necessary for our operations. On the customer side, half of our business operates on formula-based pricing, which allows us to pass through the costs of raw materials. Our quarterly results demonstrate that our business model effectively manages the volatility in raw materials. For those customers without formula contracts, we proactively implement price increases in response to raw material hikes. We also collaborate extensively with suppliers regarding natural gas and sulfur and feel confident about our supply continuity. Overall, we haven't experienced any significant changes in our strategy due to this volatility, as we prioritize maintaining a consistent supply and working closely with our suppliers to uphold their commitments, while also effectively passing costs to our customers.

The next question relates to slides 8 and 9 and concerns your perspective on the agricultural cycle. Some of your peers in the fertilizer industry have started to mention a potential multiyear period of global grain tightness, which they believe will take several growing seasons to resolve. My understanding, which may not be entirely accurate, is that fertilizer tends to experience tightness for a single season. However, considering the ongoing situation with Russia-Ukraine and insights from industry executives, I wonder if this current period is indeed unusual. Do you think there is a possibility of an extended timeframe where the demand and pricing for fertilizer could remain significantly higher than historical averages? What are your thoughts on the current grain or fertilizer market that might indicate a prolonged period of elevated demand and prices?

I'm happy to summarize our thoughts for you, David. As others have mentioned, we also see a favorable set of fundamentals at play. Coming into the year, there was already strong underlying demand in agriculture, particularly when considering the crop stock-to-use ratios. Grain inventories have been decreasing over the past few years despite a series of record yields. Agriculture has a long-term growth trend due to the increasing global population, which necessitates more efficient food production and thus greater demand for fertilizers and related technologies. Currently, the factors at play continue to trend positively. Future crop prices indicate a strong supply and demand situation, with several key commodities—including corn futures at $8 a bushel and cotton prices reaching $1.50 a pound—showing significant increases in recent months. Despite concerns about farmer profitability, which improved through last year, it still remains in a positive territory even with rising costs. The future is characterized by a stabilization of global stocks that are currently low, along with a constrained energy environment that has been exacerbated by various factors, including the Russia-Ukraine crisis impacting grain flows. Russia and Ukraine are significant exporters of wheat and other key crops and are also vital players in fertilizer production. These underlying fundamentals have been strong, and while there are transient factors at play, the disruptions in supply and demand suggest that this situation may extend beyond just this season. Given the historical context and sustained trends in yields and declining global stock-to-use ratios, along with the current elevated energy costs, the fundamentals are strongly supportive for both the current season and potentially for the foreseeable future.

Okay. Great. Thanks for all that color. I appreciate it.

Our final question will come from Vincent Anderson with Stifel. You may now go ahead.

Thank you. I have a couple of quick follow-up questions. You provided a thorough overview of acetone, but I noticed that recently, the prices for small and medium buyers have increased, particularly for propylene. Are you experiencing the same trend, or do you think it’s just a temporary situation as the market adjusts to renewed M&A demand? I’m interested to know if you see anything that could help maintain those price spreads at least in the near term.

Yes. I think to build on Mike's earlier comment, we recognized at the start of the year that acetone over propylene spreads would be a challenge for us. We expected the supply-demand and pricing environments to stabilize, aiming for a healthy level, closer to the higher end of our long-term range. As we noted, we did feel a pinch in the small and medium buyer market in addition to the large buyer market. Several factors contributed, including a spike in propylene prices, which lagged in the freely negotiated environment and contributed to the situation. The subsequent price increases should help us align prices moving forward. We believe small and medium buyers should receive a premium over large buyers because servicing them incurs costs related to truck volumes. We’ve been expanding our distribution network of terminals across the U.S. for this purpose. Additionally, the turnarounds of two large MMA players in Q1 resulted in more available molecules in the market, which has been a factor as well. These aspects are aligning, and we see the turnaround in April, as indicated in the chart, and are now working to stabilize the appropriate premium over large buyers as we reach the midpoint of the quarter.

Okay. Perfect. So it's an improvement over the first quarter, but it's still in line with your expectations for the year?

Improvement over what you saw in March, right in that in...

All right.

Yes. I think our overall expectations for 2022 still remain the same as we initially indicated for the full year.

I understand. This is my last question about the turnaround strategy. I was examining the timing history and considering the seasonal effects on the reliability of competitor assets. If Europe implements gas allocation this year, having the turnaround in the third quarter instead of the fourth quarter could be quite beneficial, even if the outcome is uncertain. Is that something you are considering? I know that turnarounds occur each year, but do you have enough flexibility to schedule your major turnarounds earlier in the year to keep your plants operational during the quarters when production disruptions are most common for your competitors?

Yes, that's an excellent question. If these factors were highly predictable, we could potentially handle them simultaneously, removing any sequential considerations. Our strategy is being formulated on a multi-year basis. There are several elements that need to be driven by code inspection and permits, along with the integration across various assets that require coordination. Additionally, ensuring the safe execution of turnarounds is essential. For example, we want to avoid having workers in rubber suits during the summer heat. We typically try to sidestep the second quarter as we approach our peak seasons, particularly with ammonium sulfate. Many factors influence how these activities are timed year after year, including the availability of labor and contractors. We often double or even triple the workforce on-site, so we must manage resources with respect to our vendors and contractors, who may have other commitments. While we strive for alignment, our main focus remains on ensuring safe and effective execution during turnarounds and getting the necessary work completed at those times. We appreciate your insights and are continually looking for ways to enhance our efficiency and consider how best to approach timing.

Fair enough. I figured it might be a gross oversimplification. So I appreciate the reminder on how hard this actually is.

Yeah.

That's all from me. Thanks a lot.

Thanks, Vincent.

Thanks, Vincent.

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

Terrific. Thank you all again for your time and interest this morning. We delivered terrific results in the first quarter of the year and are hopeful you share our excitement about the opportunities that lie ahead. We are focused on driving the best possible outcomes for our business in the current set of industry conditions and remain confident in our ability to create long-term and sustainable shareholder value. So with that, we look forward to speaking with you again next quarter. Stay safe and be well.

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