AdvanSix Inc (ASIX) 2016 Q4 法說會逐字稿

Good morning and welcome to the AdvanSix fourth-quarter 2016 earnings conference call. (Operator Instructions). Please note this event is being recorded.

I would now like to turn the conference over to Adam Kressel, Director, Investor Relations. Sir, please go ahead.

Thank you, Stephen. Good morning and welcome to AdvanSix's fourth-quarter 2016 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.advan6.com, using the number 6 in the web address.

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 registration statement on Form 10 and our Form 10-K for 2016 that we will file.

This morning, we will review our financial results for the fourth-quarter and full-year 2016, and share with you our outlook for our key product lines and end markets. Finally, we will 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 interest in AdvanSix. It was I dynamic first quarter as an independent company, and we are proud to report our first full quarter earnings following our successful spinoff in October.

As you saw in our press release, AdvanSix generated strong cash flow in the fourth quarter, despite lower income that was a result of the significant plant downtime we have previously disclosed. Mike will detail the full results in a moment, but we generated nearly $30 million of free cash flow for the full-year 2016, a significant increase from the prior year.

Sales for the full year were $1.2 billion and EBITDA was $96 million, which included a roughly $64 million impact in the fourth quarter from both a planned turnaround and unplanned outages.

I would like to take a break moment to expressly thank our employees who worked diligently through the quarter to safely return our operations to standard, as well as the tremendous collaboration and partnership our customers offered during the quarter. We are confident in our operating discipline and management systems to continue reducing risk across our supply chain by driving the maturity of our mechanical integrity programs, proactively assessing and maintaining safety stock levels, and driving a culture of continuous improvement.

We are back on track with our sites currently running at planned rates and we remain focused on safe operations, reliable supply to customers, and productivity discipline. We expect the investment, and worked on it at our facilities over the past year, to yield improved production rates, enhance quality, and increase the overall mechanical integrity of our asset base.

It's an exciting time at AdvanSix. Last month we announced that the Company has joined the American Chemistry Council, or ACC, as a full member, and is taking a seat on its Board of Directors. Being a member of the ACC reinforces our ongoing commitment to excellence in health, safety and environmental performance, and sustaining safe operations for our employees, our customers and the communities in which we operate.

I will detail what we are seeing and expecting in each of our key product lines later in the call, but indications are that recent industry price increases across the nylon space will continue to be supported by near-term supply and demand dynamics in the first half.

We are also closely monitoring global nitrogen fertilizers where prices of ammonium sulfate have stabilized sequentially, but conditions overall remain dynamic. Our vertical integration and cost advantage position give us the confidence and flexibility to manage through uncertainty in both the macro environment and dynamic end-market fundamentals, providing a sound foundation for margin expansion and free cash flow improvement over the long term.

In addition, we are maintaining a conservative capital structure and financial flexibility with a strong balance sheet that will drive further value for our shareowners. We are excited about the year ahead and look forward to sharing more with you.

So with that, I will turn it over to Mike to discuss the details of the quarter.

All right, thanks, Erin, and good morning, everyone. I'm now on slide 4 where I will cover the fourth-quarter financial results. As you can see, sales in the quarter were $259 million and that was down 18% compared to last year. And really the volume declines drove the entire quarter results as a result of the extended downtime, particularly in our caprolactam and resin product lines.

The unplanned outages in the quarter represented about a 23% unfavorable impact to the top line. Pricing was overall flat, and that included a 2% benefit from the pass-through of higher raw material prices, which was offset by a 2% unfavorable impact from market-based pricing. Now this was primarily driven by unfavorable industry conditions for nitrogen fertilizers as we've discussed in the past on ammonium sulfate pricing. It's notable to mention that we saw pricing headwinds moderate throughout 2016.

Now EBITDA was a loss of $29.6 million in the quarter, and that decreased from $33.1 million in the prior year, due to the roughly $64 million unfavorable impact of planned and unplanned turnaround activities which I will cover later. Items below EBITDA were as expected. Depreciation increased by about $1 million compared to last year, driven by our broad scope of capital investments and repair maintenance and HS&E, while interest expense increased by about $2 million.

Our diluted share count for the quarter was approximately 30.5 million shares. Now keep in mind basic and diluted EPS for all periods prior to the spin reflect the number of shares that were distributed as of the spin. As everyone is aware, there was no common stock outstanding prior to the date of the spinoff.

Now the EBITDA decline translated to an EPS loss of $0.81 in the fourth quarter, declining from $0.50 in the same quarter of the prior year.

Now finally, we had a very strong quarter in terms of cash flow generation, as Erin pointed out. Free cash flow improved to $20.1 million, and that's an increase of almost $18 million versus the prior year.

Now net income was down, but that was more than offset by strong working capital performance. Working capital benefited from strong collections, the seasonal pre-buy for ammonium sulfate, which is what we typically see in the fourth quarter, as well as the timing of supplier payments. Now, some of those supplier payments were impacted by the linearity of our CapEx. Our CapEX spending was very backend loaded.

One of the important things to note is that we were able to successfully pay down debt in the quarter. We brought our debt levels down by about $43 million as compared to the third quarter of 2016. So overall, we saw strong cash generation despite the impact of the extended outage.

Now I'd like to move to slide 5. As we discussed throughout the fourth quarter in our disclosures, the planned turnaround activities and extended planned outages had a significant impact on our fourth-quarter results. Now, as a reminder and to put the magnitude of the planned turnaround in perspective, we started detailed planning of the outage about two years ago.

And to give you a couple of examples at our Hopewell site, we managed an additional 300 contractors on the site each day, 700 during the utility work, and we maxed out at approximately 1,200 total workers on a peak day. To really put that in perspective, we have approximately 1,300 employees across all of AdvanSix, so it gives you a sense of the scope and the magnitude of the planned turnaround.

We completed and commissioned approximately $90 million worth of capital in the outage for equipment purchased over the last couple of years. That capital was commissioned and used to replace and upgrade critical equipment, install NOx controls as we've discussed in the past, and generally address mechanical integrity across all of our major manufacturing sites while at the same time reducing safety risks.

As a quick recap on the timeline of events, the planned turnaround across our sites began in early October 2016. On October 31, we announced that the planned fourth- quarter turnaround would be extended due to additional unplanned maintenance of our ammonia plant within Hopewell.

Now operations did resume on November 21 as we expected. On December 8, however, we announced a temporary outage at Hopewell which reduced capital caprolactam production and led to a reduction in resin production at Chesterfield. Now under normal conditions, I would point out the impact on customers is typically mitigated by buffer inventories throughout the supply, chain, but due to the timing of the outage relative to the November 21 startup where inventories were depleted by incremental downtime, buffer inventories through the supply chain were just simply not high enough to offset the temporary outage.

In total, the planned turnaround activities and incremental extended outages reduced pretax income in the quarter by approximately $64 million as Erin mentioned, and that includes the impact of fixed-cost absorption, lost sales, the revaluation of inventory as inventory levels were depleted. But we also had additional raw material costs and some additional maintenance expenses as well.

Now as we break down the $64 million in a little more detail, when you look at the planned impact of that $64 million, that equated to approximately $20 million. And keep in mind, that was roughly 80% larger than our average turnaround at the site. Now, roughly half of the $44 million of the unplanned impact was related to the fixed-cost absorption, which is really a non-cash item.

Lost sales accounted for about $13 million, with the remainder of the impact inclusive of the revaluation of inventory, higher raw material and maintenance expenses, as I discussed previously. So in total, about 60% of the impact when you look at the entire $64 million, 60% of that impact was cash.

The fourth-quarter plant turnaround activities and the extended outage had no adverse impact on expected first-quarter 2017 financial results. And, in fact, we are happy to say our planned production rates now, as Erin mentioned, are on track for the first quarter. And as we look forward to 2017, our planned turnarounds in total across all of our sites are expected to be in line with historical levels.

So in other words, we will have a tailwind this year and we expect to benefit from many of the upgrades and the reliability improvements we've made, notably also as part of the fourth-quarter turnaround.

Now we're in the process of finalizing our detailed planning around our 2017 turnarounds currently, and they're scheduled for the second and fourth quarters. And we plan to share a lot more detail on that front over the coming months.

So let's move to slide 6 and I'll provide a brief recap of the full-year 2016 financials. So for the full year, sales came in at $1.2 billion. That's down 10% compared to last year, and really most of that impact was driven by pricing. Pricing was down 9% overall. Within that 9%, 5% was due to challenging global supply/demand imbalances affecting ammonium sulfate, caprolactam and resins pricing, and 4% of that impact came from just simply the pass-through of lower raw material prices.

Volume overall was down 1% versus the prior year, including the extended plant downtime in the quarter, which represented roughly a 5% unfavorable impact. As a reminder, sales volume increased 5% for the first 9 months of the year due to improved production rates at our manufacturing sites.

EBITDA was $96 million for the full year. That was down from $137 million in the prior year and primarily due to the outage impacts that we already had talked about. Continued productivity was more than offset by declining market pricing. SG&A expense for the full year was roughly in line with the prior-year period.

Now when you look at items below EBITDA, generally they were unfavorable on a year-over-year basis, but as we expected. Depreciation increased by about $4 million, while interest expense increased by about $2 million.

Our effective tax rate was 36.5% for the full year of 2016, and that was really in line with prior periods. Our share count was approximately 30.5 million shares as we talked about, and EPS was $1.12 in 2016, down from $2.09 in the prior year.

And as we talked about, cash flow was strong for the year. Free cash flow improved to approximately $30 million, and that's an increase of roughly $25 million compared to last year. Strong working capital performance and a decrease in CapEx more than offset net income, lower net income.

CapEx was $84 million for the year, or approximately $90 million including an accounts payable due to the timing of payments. And we do expect CapEx to come in the $90 million for 2017, and that's driven by an elevated level of health, safety and environmental spending related to the NOx mandated control system investments that we've talked about before.

Now let's turn to slide 7 for an update on our plants' performance. Now as you can see from the chart, production rates in 2016 were well below the average we had seen over the prior four years, due to the significant impacts of the fourth-quarter extended outages. As we've discussed, our manufacturing sites are highly integrated, so production rates for all of our plants were affected during the downtime at Hopewell.

We did see a 6% increase in production at Chesterfield in 2016, versus the average rates from 2012 to 2015, which is really driven by a new polymer line that was commissioned in late 2015. The new line is flexible; it's capable of producing multiple grades of higher value nylon 6 resin, as well as copolymer resins with a high nylon 6 content.

For 2017, we expect improved production rates across all three of our major manufacturing sites. At Hopewell, we expect production rates to be in line or better than the utilization we've seen historically. And two months into the year, we are happy to say that we are on track to those planned production rates, and continue to focus on very safe and sustainable operations.

Our maintenance excellence and mechanical integrity programs have been maturing for several years to support the stable and high operating rates, and the organization remains extremely focused on driving improved uptime and output.

Now let me turn the call back to Erin to discuss what we are seeing in each of our key end markets.

Thanks, Mike. Let's now turn to slide 8 to discuss our nylon product line which includes our caprolactam, resin, and film products, and represents approximately 45% of our total sales.

The chart on the right side of the page depicts the Asia benzene to caprolactam spreads, and caprolactam to resin spreads, based on third-party data sourced from Tecnon OrbiChem. We focus on these trends as a barometer for the supply/demand fundamentals of the industry, given Asia is the key net importing region of the world.

As you can see, industry pricing is well off of the peak from the early 2011 time period, but we have seen a stabilization and uptick in recent months. In the fourth quarter, we saw an increase globally in pricing starting in December, on the back of higher benzene prices and tighter supply/demand as a result of wider spread planned outages and curtailments and announced capacity shutdowns.

Asia caprolactam import price raw spreads, or benzene to caprolactam spreads tracked by the market, increased 18% in the fourth quarter on a year-over-year basis and increased 13% sequentially from the third quarter of 2016. During the same period, the Asia-based resin spread over caprolactam, while down about 15% year-over-year, was up nearly 35% on a sequential basis from the third quarter.

So a continuation of the stabilization improvement in pricing that we have seen throughout the whole year. We have continued to see this strength in industry pricing and spreads through the first 2 months of 2017, as a result of rising raw material costs and tighter supply/demand fundamentals.

Prices and spreads have increased globally as demand remains strong. With current dynamics, we would expect Asia benzene to caprolactam spreads to improve roughly 25% in the first half of 2017, compared to the fourth-quarter 2016.

Although capacity increases in China have significantly slowed and supply/demand fundamentals have improved in recent months, we are still tracking potentially two to four caprolactam plants coming online over the next 18 months. This could add up to 800,000 metric tons of capacity to the industry.

We will continue to monitor the market fundamentals for the balance of the year, but with supply more balanced and demand remaining firm near-term, we expect improved performance in our nylon product line, particularly given the expected improvement in our own production rates in the first half.

Let's now turn to slide 9 to discuss ammonium sulfate. Ammonium sulfate represents about 25% of our total sales, and we remain cautious on market fundamentals despite some sequential pricing improvement in nitrogen fertilizers. As we've discussed, ammonium sulfate pricing is ultimately impacted by a number of factors, including overall trade flays flows and supply demand fundamentals of both ammonium sulfate specifically and overall nitrogen fertilizers.

In addition, farmer income, grain prices, and the growing recognition of sulfur value are included into those considerations.

On nitrogen, urea is the largest nitrogen fertilizer, representing about 55% of global consumption and, therefore, does have an underlying influence on all other nitrogen nutrient products. The graph on the right-hand side plots urea and ammonium sulfate retail pricing on a nutrient basis. It's important to normalize pricing as urea contains 46% nitrogen, whereas ammonium sulfate contains 21%.

Based on the data from Blue, Johnson, we saw corn belt urea prices decline nearly 15% year-over-year in the fourth quarter, but actually improve about 15% sequentially from the third quarter. As for retail corn belt granular ammonium sulfate prices [across it], we saw a roughly 20% decline year-over-year but a more modest 4% decline sequentially in the fourth quarter.

Our ammonium sulfate product is positioned at a premium over urea, due to the value proposition of sulfur nutrition on increasing yields of key crops, including corn, wheat, cotton, sugar and coffee, to name a few. We have a unique expertise in the industry with dedicated agronomists on staff and more than two decades of field research.

Just last week, our sponsored research on the efficacy of various sulfur fertilizers and their availability to crops was discussed in a webinar attended by nearly 200 individuals. The research determined that claims by producers of season-long sulfur availability to crops from various new products are unfounded. Farmers depend on products that can give them the best results every year, and this research confirms that ammonium sulfate continues to be the sulfur product of choice for farmers.

As we look forward to the remainder of 2017, we will continue to monitor agricultural fundamentals, including flat to potentially declining planted nitrogen acres and an expectation that growers will be cautious in their overall spend decisions, as US farmer income and crop futures continue to remain at multiyear lows.

To put it in context, if ammonium sulfate prices were to remain flat sequentially for the rest of the year, they would still represent a headwind on a year-over-year basis. So even with the sequential stability in pricing, we will need to see further improvement in underlying fundamentals to realize a meaningful benefit year-over-year in 2017.

So let's now move to slide 10 to discuss chemical intermediates. Our chemical intermediates business represents about 30% of our total sales and provides revenue diversification from the variety of coproducts we sell. On the chart on the right-hand side of the page, we've shown prices for acetone and refiner grade propylene based on third-party data sourced from IHS Markit.

Acetone represents roughly half of our chemical intermediates sales, and as a reminder is made through our phenol process. Acetone prices will move with its own supply/demand dynamics, which we expect to remain relatively in balance, but can also be influenced by the underlying moves in propylene prices. Inflow prices of propylene hit a 2016 low in December, but have since rebounded with increases in the first two months of 2017.

As for phenol, domestic utilization is approximately 80%, and we continue to see steady demand in the industry. As a reminder, roughly 80% of the phenol we produce is consumed internally as part of our caprolactam production, with the remaining 20% sold to the merchant market. We remain focused on fully utilizing and maximizing each unit operation of our broader supply chain, given the nature of our vertical integration.

I'd like to now move to slide 11. In order to help better frame the various factors that impact our business, we have highlighted some of the key considerations influencing our financials. The top portion of the slide shows our financial results back through 2012, with sales in the blue bars and net income in the gray bars. Below that, we've included the approximate annual averages for some of the more significant industry inputs impacting our performance.

There are a few items and trends to highlight. Starting with raw material inputs, and as we've noted before, cumene is our largest raw material and is correlated to the price of oil, given it's derived from benzene and propylene. When you look at 2015 when oil prices declined substantially in a short period of time, we saw a significant reduction of our sales. However, we were able to primarily mitigating the price risk to our variable margin through our formulary index-based price agreements.

Industry price raws and their spreads are also vital to track, as they are correlated to the supply/demand fundamentals. The declines we have seen across our key end markets over the last few years have had a significant impact on our profitability. The Asia benzene to caprolactam spread tracked by the industry has declined 70% from the 2011 peak through the first half of 2016.

We have seen some recovery in nylon industry spreads into the first quarter of 2017, trending to where pricing was back in the 2014 timeframe. Ammonium sulfate prices have also retreated over this time period based on a number of the factors I have discussed earlier.

When put together, there are numerous items that will ultimately influence our top- and bottom-line performance. And if you put this in perspective given the current environment, you can look across the page and see that we are at varying points in the industry cycles for each of these key considerations.

Let's turn to slide 12 for a high-level view of how we're thinking about the outlook for the first half of 2017. There are a number of puts and takes across the business as we've just discussed. Given the uncertainty in some of our key end markets, we will continue to take a relatively conservative approach to 2017 planning. However, we believe we are well-positioned to drive margin expansion and improve cash flow, given our cost advantage position and the strength of our portfolio.

There are some known tailwinds. As Mike discussed, we expect improved planned production rates to drive our volumes across our product lines. And from a cash flow perspective, higher net income and sustained strong working capital performance are expected to support our targeted CapEx spending and continue to create that cash flow generation we expect this year.

In the nylon space, increases in industry pricing have sustained through the first two months of the year, and expectations are for this improvement to continue in the near-term. A number of our key raw material inputs are increasing. However, roughly 50% of our total revenue base is protected by formula or index price agreements that we discussed in the past.

While our sales will fluctuate with the price of those raw materials, so will our COGS, and they will move in tandem representing the pass-through of those key raw material inputs.

As I mentioned earlier, we are also continuing to closely monitor developments in fertilizer. It remains a challenging environment overall. We've experienced many cycles over the years and although we can't predict this one, we will continue to run our business efficiently and deliver the value that our customers have come to expect from us.

I'd like to turn to slide 13 for a quick wrap-up. As we mentioned before, 2016 was a milestone year for AdvanSix, successfully spinning off into a standalone public company. We are excited by the opportunities ahead of us, and the entire organization is highly focused on driving safe and sustainable operations while delivering strong results.

Our 2016 results were impacted by the significant extended outages in the fourth quarter, but we are well positioned to benefit from improved uptime and higher utilization rates going forward. In this dynamic end-market environment, we saw strong cash flow improvement to finish the year.

The planning framework we discussed, coupled with our expectation for improved performance across a number of our key products, really sets the stage for an exciting 2017 and beyond.

With that, Adam, why don't we move to Q&A.

Thanks, Erin. Stephen, please open the line for Q&A.

(Operator Instructions). Christopher Hillary, Roubaix Capital.

I appreciate some of your comments on the outlook. I was wondering if you would care to also share some comments on corporate level EBITDA margins and your free cash flow outlook for this year.

So we don't provide -- we are not providing guidance. We provided a framework in terms of what we are expecting in certain areas on the last slide of the presentation as you can see, and you can take those and start thinking about a framework for 2017.

I will say the fourth quarter, we had very strong cash flow as we talked about. We did generate $20 million in the quarter and $30 million for the full year. So we are very pleased at that. That will continue to be a focus area for 2017. But what I will remind everyone is that we do anticipate to spend about $90 million of CapEx in 2017. So that needs to be a consideration as we move forward.

Okay. And then maybe just one other question would be, do you have any goals for 2017 or the next one to two years in terms of debt reduction?

So when we came out and spun, we capitalized the Company with a $270 million term loan and also a $155 million revolver. If you look at our leverage ratios there, in terms of debt to EBITDA, we came out at 2, which we felt was appropriate. We do have mandated prepayments on those loans over the next five years, which represents roughly a third of the total balance. So we will have to contend with that as we move forward. And we'll sort of manage the debt levels and cash, depending on how we generate free cash flow.

I will say in the quarter, we were able to pay down roughly $43 million of debt. We were also able to pay down roughly $3.5 million of the Term A loan as well, one year in advance of when it was required. So due to the positive cash flow, we were able to get the debt levels down.

Okay. And then you mentioned some areas of better supply/demand balance. And I wanted to ask, we've seen a lot of regional and national manufacturing surveys with very strong readings, in some cases the best in 5 or 10 years. And I've also noted that some of the specifics do allude to improvements from chemical companies.

Could you just comment on that, like are you seeing some strength in certain areas in particular? Do you have any thoughts on what these surveys are suggesting and how it may or may not reflect some of the conditions that you are seeing in your business?

Sure. If we tag nylon, maybe to start, certainly regionally, you're going to see end-market dynamics tied to house and overall construction, engineering plastics into automotive, and then ultimately into packaging. I would say that we are seeing, as I remarked in my comments, that certainly regionally, demand is robust, and certainly firm as you look more globally. Asia will be heavily tied to textile performance and demand in that region.

Our largest next section there on fertilizers, again, USDA I think is projecting about 90 million acres of corn to be planted. So it's still relatively seen as a potentially robust year, but cautious given about how growers will continue to potentially make their buying decisions.

And then certainly in intermediates, again, we sell a number of products there, but again, relatively firm supply and robust demand sources from that regard. So I think there is an overall sense, just given that we are a strong US manufacturing base, a lot of optimism here that I think we are seeing throughout the markets, and that supports a number of things that we are seeing as well.

Okay, thanks very much and good luck with the rest of the year.

Great, thank you.

Brian Morrison, Stansberry Asset Management.

I was wondering if you had an opportunity to assess the potential tax impacts that are being discussed in the current political environment, specifically a border tax and your ratio of imports and exports.

Yes. So when you just look at simply the effective tax rates, obviously we're largely US-based. We sell largely in the US. We are an exporter overseas. We do pay high tax rates here in the US, and if we could get legislation that will reduce the tax rates down to the levels that the administration is targeting, that would help us.

So for every 5% reduction in the effective tax rates and the federal rates, that would equate to roughly $6 million of net income and free cash flow for us. So certainly very positive.

On the border tax side, we continue to evaluate. Depending on where those taxes are imposed or the import duties are imposed could impact us, and we continue to watch it closely. And it could from a raw material perspective but also a sales perspective, we will have to see how that plays out. I would say generally, we feel like that would either be neutral or positive for us.

Okay, thanks for that. On your third-party results that you're referencing for some of the pricing the ammonium sulfate, the nylon, that sort of thing, do your own experiences reflect fairly closely that third-party data in terms of pricing?

It's a great question, Brian. I think why we are providing those, and certainly they are good correlating factors for you all to consider, particularly as you are considering building models. As you think about maybe a few things to point out; AS, the pricing that we are pointing for Blue, Johnson, that is retail or dealer pricing.

So that reflects pricing down through the chain. So that would be a consideration that would have to be taken into -- but they are good, solid barometers of how the market and the industries are performing.

Okay, thank you.

(Operator Instructions). Eric Gandhi, Boston Partners.

A couple of questions here. Erin, first, could you give us an idea of where your customers might have found alternative supply during the quarter, and if there could be any lingering effects from that?

Hi, Eric, good to hear from you. What I'd like to say is that certainly, while always challenging to navigate through an outage, I would like to just reiterate that I am thankful for the collaboration and cooperation both from our customers and our suppliers; and that we do take the responsibility of ensuring the security of our supply, the reliability of our supply to customers seriously, and look forward to continuing to drive that forward.

It's hard to say and it would be tough to comment, I do feel that, again, the strength of our performance here year to date has filled those supply chains back up and we're back on track.

Okay. You said your productions were back to levels that you expected here. Is it at least with the usual customer base, or has there been any change to the max?

No, I think that, again, I'm thanking my suppliers and customers and partners, and I do think that we have navigated well through that, and certainly worked hand-in-hand to minimize the disruption where we could on their end as well.

Got it, okay. Okay, Mike, following up on one of the previous caller's questions, do you have the annual mandatory payment schedule for the term loan? Or give us an idea at least of what the annual number is.

Actually, we do. I think probably best that we take that offline. We can provide you with all that detail. The credit agreement outlined the minimum requirements. In 2017, if I recall correctly, there was roughly $3.5 million that was due as a mandatory payment. That lasted for four quarters in a row, and then that stepped up to $6.8 million for the following four quarters.

And that would continue until you get to roughly that 35% of the total amount over the five years. So we could give you the exact quarters, but that's how it played out based on that.

Cool, that's helpful. Okay. And then the last one, just a little bit broader, but just curious if there's a way we can think about the percentage of nylon or capro demand in the US that's imported right now.

No, I think in general, Eric, and when you look at really the overalls that on caprolactam, we would come back in as we've discussed in the past with fiber and exiting, that the US is coming back into balance. But we believe it to still be probably a net exporting region, just at smaller and decreased levels, and then on resin as well still in that exporting region.

Got it. Okay, great. Thank you, guys.

Thank you.

This concludes our question-and-answer session for today. I would now like to turn the conference back over to Erin Kane for any closing remarks.

Great, thanks. To close, beneath the surface we had a terrific first full quarter as a standalone company, with a few notable highlights. We set up our organization with all supporting functions and key hires. We are aggressively executing our plans to migrate off the Honeywell TSA, and have achieved a nearly 40% reduction in non-IT TSA line items.

And as we've discussed and Mike pointed out, commissioned nearly $90 million of capital projects across our sites to sustain our asset base, improve mechanical integrity, and reduce risk. And we had a bump in the road, but strong companies navigate well through challenging times and that is what we did. We safely returned our operations to standard with zero AdvanSix safety reportables, mitigated a number of threats and risks on our operations that will serve us well in 2017 and beyond, all while efficiently operating the business and achieving strong cash flow improvements year-over-year.

In 2017, we will deliver improved operational and financial performance with a continued focus on safe operational output, driving higher value product mix and continued strong working capital results. Our leading cost position will serve us well with a combination of the current pricing strength and stability we are seeing across all of our product lines, and our plants running at full rates.

We continue our product development work and copolymer launches, as well as building out our capabilities for longer-term growth, all while ensuring end-to-end business efficiency with delivering the strong working capital and improved cash flow performance. So we look forward to the prospect of an improved 2017, and we thank you for your time this morning.

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