3Q 2019 Earnings Presentation November 1, 2019
Forward Looking Statements 2 This presentation contains certain statements that may be deemed “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. All statements, other than statements of historical fact, that address activities, events or developments that our management intends, expects, projects, believes or anticipates will or may occur in the future are forward-looking statements. Forward-looking statements may be identified by words like "expect," "anticipate," "estimate," “outlook”, "project," "strategy," "intend," "plan," "target," "goal," "may," "will," "should" and "believe" or other variations or similar terminology. Although we believe forward-looking statements are based upon reasonable assumptions, such statements involve known and unknown risks, uncertainties and other factors, many of which are beyond our control and difficult to predict, which may cause the actual results or performance of the Company to be materially different from any future results or performance expressed or implied by such forward-looking statements. Such risks and uncertainties include, but are not limited to: the impact of scheduled turnarounds and significant unplanned downtime and interruptions of production or logistics operations as a result of mechanical issues or other unanticipated events such as fires, severe weather conditions, and natural disasters; price fluctuations and supply of raw materials; our operations requiring substantial capital; general economic and financial conditions in the U.S. and globally; growth rates and cyclicality of the industries we serve including global changes in supply and demand; risks associated with our indebtedness including with respect to restrictive covenants; failure to develop and commercialize new products or technologies; loss of significant customer relationships; adverse trade and tax policies; extensive environmental, health and safety laws that apply to our operations; hazards associated with chemical manufacturing, storage and transportation; litigation associated with chemical manufacturing and our business operations generally; inability to acquire and integrate businesses, assets, products or technologies; protection of our intellectual property and proprietary information; prolonged work stoppages as a result of labor difficulties; cybersecurity and data privacy incidents; failure to maintain effective internal controls; disruptions in transportation and logistics; our inability to achieve some or all of the anticipated benefits of our spin-off including uncertainty regarding qualification for expected tax treatment; fluctuations in our stock price; and changes in laws or regulations applicable to our business. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this presentation. Such forward- looking statements are not guarantees of future performance, and actual results, developments and business decisions may differ from those envisaged by such forward-looking statements. We identify the principal risks and uncertainties that affect our performance in our filings with the Securities and Exchange Commission, including our Annual Report on Form 10-K for the year ended December 31, 2018. Non-GAAP Financial Measures This presentation includes certain non ‐ GAAP financial measures intended to supplement, not to act as substitutes for, comparable GAAP measures. Reconciliations of non ‐ GAAP financial measures to GAAP financial measures are provided in the appendix of the presentation. Investors are urged to consider carefully the comparable GAAP measures and the reconciliations to those measures provided. Non-GAAP measures in this presentation may be calculated in a way that is not comparable to similarly-titled measures reported by other companies. 3Q 2019 Earnings Presentation – November 1, 2019
Overview 3 • Sales $311M, down (16%) including (11%) lower raw material pass-through pricing, (3%) unfavorable market-based pricing, and (2%) lower volume • Pre-tax Income results reflect net favorable ~$25M YoY impact of planned plant turnarounds 3Q19 • EPS $0.28, up 56%; Repurchased ~$13M of shares in 3Q19; Lower share count contributed ~$0.02 Results benefit vs. prior year • Cash Flow from Operations $33M, down ($17M); Capex $35M, up $16M due to higher planned turnaround maintenance spend and continued investment in high-return growth and cost savings projects • Targeting strong nylon plant utilization rates despite further global demand softness • Expect mixed ammonium sulfate fertilizer environment to continue through 2019/2020 planting season • Expect acetone anti-dumping duties to be finalized by 1Q20 Outlook / Other • Capex tracking to ~$150M in 2019, expect $90-$110M in 2020; Expect pre-tax income impact of planned plant turnarounds to be $33-$38M in 2020 (versus ~$35M in 2019) • Optimizing expected base feedstock and logistics cost increases following Philadelphia Energy Solutions (PES) supplier fire – (~$4M) pre-tax income impact in 3Q19 (expect $4-$6M in 4Q19 and $10-$15M in 2020) 3Q 2019 Earnings Presentation – November 1, 2019
3Q 2019 Financial Summary 4 Executing in a More Challenging Macro Environment Comments 3Q 2018 3Q 2019 ($ Millions, Except Per Share Amounts) • Sales Down (16%): Volume (2%), Price (14%) Sales $368.7 $310.6 – Raw Material Pass Through (11%), Market Pricing (3%) • Net ~$25M Favorable YoY Impact of Planned Plant Turnarounds • Market Pricing (~$11M): Challenging Industry Conditions EBITDA $20.0 $24.9 • Volume / Operational Performance / Other (~$5M): Unfavorable Margin % 5.4% 8.0% Product Mix, Benefit of New Natural Gas Boilers • PES Supplier Fire / Cumene Impact (~$4M) Net Income $5.5 $7.9 • 3Q19 Effective Tax Rate 16.0% – Additional R&D Tax Credits • 3Q19 Share Count 28.6 Million; Lower Share Count Contributed EPS (Diluted) $0.18 $0.28 ~$0.02 Benefit vs. Prior Year • Cash Flow From Operations $33M, Down ($17M) vs. Prior Year – Unfavorable Impact of Changes in Working Capital Free Cash Flow $31.3 ($2.0) • Capex $35M, Up $16M vs. Prior Year – Higher Planned Turnaround Maintenance Capex, High-Return Investments See Appendix in this presentation for a reconciliation of EBITDA, EBITDA Margin, and Free Cash Flow, which are non-GAAP measures; Free cash flow = net cash provided by operating activities less capital expenditures 3Q 2019 Earnings Presentation – November 1, 2019
Sequential EBITDA Performance (2Q19 3Q19) 5 AS Seasonality and Challenging Industry Conditions Key Sequential Drivers EBITDA ($M) Performance Considerations Ammonium Sulfate Seasonality • (~$13M) typical seasonal decline and unfavorable product mix with new season fill in 3Q • Domestic ammonium sulfate prices typically strongest during 2Q fertilizer application; 3Q characterized by higher export standard sales Closure of Pottsville Manufacturing $36 • ~$12.6M repositioning charge in 2Q19 $25 Business Performance • (~$6M) market pricing: further nylon demand softness, challenging acetone industry conditions 2Q19 3Q19 • (~$4M) cumene supply: impact of PES supplier fire • (~$1M) volume / operational performance / other: fixed cost absorption and lower yields net of savings from new natural gas boilers See Appendix in this presentation for a reconciliation of EBITDA which is a non-GAAP measure 3Q 2019 Earnings Presentation – November 1, 2019
Nylon Industry Outlook 6 Broader Macro Uncertainty, Falling Commodity Input Environment Nylon Key Industry Spreads (1) • Further demand softness in 3Q19 YoY 3Q19 vs. 2Q19 3Q19 Global Composite BNZ-CPL (26%) (15%) What We’re Asia BNZ-CPL (40%) (25%) • Industry pricing/spreads near recent 2016 low Asia CPL-Resin (15%) 13% Seeing 1600 800 • Global caprolactam cost curve flattening on weaker feedstocks CPL-Resin Spread ($/MT) BNZ-CPL Spread ($/MT) 1200 600 • Year-over-year demand growth 800 400 deceleration to continue in near term What We’re 400 200 Expecting • Macro uncertainty to drive 0 0 fluctuations in global operating Sep-18 Sep-19 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Oct-18 Nov-18 Dec-18 Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 rates, pricing and spreads Global Composite BNZ-CPL Spread (1) Sources: Tecnon OrbiChem and Wood Mackenzie Asia BNZ-CPL Spread Asia = Caprolactam Asia Import Contract (Taiwan & S. Korea) Asia CPL-Resin Spread Global Composite = Weighted Avg Spreads From U.S., Europe, China, Other Asia 3Q 2019 Earnings Presentation – November 1, 2019
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