AdvanSix Inc (ASIX) 2017 Q3 法說會逐字稿

Good morning, and welcome to the AdvanSix Third Quarter 2017 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 of Investor Relations. Please go ahead, sir.

Thank you, Rachel. Good morning, and welcome to AdvanSix' Third Quarter 2017 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. 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.

This morning, we'll review our financial results for the third quarter 2017 and share with you 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' 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 on our press release, AdvanSix delivered another strong quarter, highlighted by higher sales volume, margin expansion and improved cash flow generation. Mike will detail the full results in a moment, so I’d like to highlight the following. Sales for the quarter were $367 million, with both higher volume and pricing contributed to the improvement year-over-year. We generated over $50 million of EBITDA in the quarter, a significant increase from the prior year, and expanded margin by 190 basis points. These improved results were inclusive of a $4.4 million unfavorable LIFO reserve adjustment. And lastly, our cash flow generation continued to improve, with roughly $18 million of free cash flow in the quarter.

Our end markets remain dynamic, but we're seeing more favorable conditions overall. Nylon and intermediates pricing have been supported through 2017 by a tightened supply and demand environment as well as higher raw material costs. While ammonium sulfate fertilizer prices modestly firmed late in the quarter with the uptick in overall nitrogen pricing.

The hurricanes in the U.S., particularly Harvey in Q3, had varying impacts across our supply chain. Overall, when you consider the puts and takes from raw material timing and logistics, fixed cost absorption and commercial pricing, the net impact on our second half results is minimal.

From an operations perspective, our manufacturing plants continue to run at relatively high utilization rates, given our Mid-Atlantic locations and that we have the rightsized supply chain buffers in place ahead of the hurricane season. Tightened supply conditions support the improvements in pricing for some of our key product lines. However, it is also important to note that operations for certain downstream customers were also impacted by these events.

Our supply chain and commercial teams worked hard to remain flexible and agile with our customers and suppliers, leveraging the optionality in our business model to overcome disruptions.

In addition, I'm proud to announce that AdvanSix and our employees donated more than $60,000 to support the disaster relief through the Red Cross.

In October, we hit our 1-year mark as a public company. It has been an outstanding year since our spin-off, and we continue to build momentum across the organization. There have been a number of milestones reached and achievements made as we set a solid foundation for future performance.

Our safety performance continues to improve, with production output reaching record highs in some areas of our supply chain. We've reinvigorated our Green Belt Six Sigma training program. We have successfully stood up stand-alone company functions like our customer-to-cash and accounts payable teams while exiting a majority of our transition services. Our efforts around long-term growth and R&D capabilities have strengthened, with a focus on application development and the buildout of our technical marketing team. And our team focus on operational excellence through a long-term mechanical integrity program, value stream strategy team and a day-to-day culture of continuous improvement are providing the framework for generating robust results.

As I think about the remainder of 2017, we're wrapping up our fourth quarter turnaround. As we communicated last quarter, we continue to expect an approximately $20 million impact to pretax income in the fourth quarter. The impact we'll see in our financials will come in the form of fixed cost absorption, additional raw material costs and other maintenance expenses. This turnaround is being completed safely, on time and on budget and is another great example of the continuous improvement of our dedicated teams in action.

We'll provide more color on our priorities for 2018 later in the call, but as we look forward, we're encouraged by our expectations for high plant utilization rates, coupled with the prospects of the current supply and demand environment to continue. We're also maintaining a capital structure that enables financial flexibility to drive further value for our shareowners. We see opportunities for incremental deployment of capital beyond our base CapEx, high-return organic growth and cost savings investments that will further debottleneck specific areas of our operations, optimize quality and improve our mix and cost position overall. We're looking forward to closing out a strong 2017 and excited about the year ahead and beyond.

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

Thanks, Erin, and good morning, everyone. I'm now on Slide 4, where I'll cover the third quarter financial results. As Erin indicated, we've continued the momentum seen in the first half. Sales in the quarter came in at $367 million, and that's up 13% compared to last year. Volume was up 5%, with continued high operating rates at our manufacturing sites.

Pricing also contributed to the top line, increasing 8% overall. And that included a 4% favorable impact from the market-based pricing and a 4% benefit from the pass-through of higher raw material costs. We saw favorable industry supply and demand conditions in our nylon and caprolactam product lines, partially offset by a decline in ammonium sulfate pricing. As for raw material pass-through pricing, we've seen that impact moderate throughout 2017 but remain higher on a year-over-year basis.

As a reminder, prices for our end products typically track a spread over the underlying raw material costs, which are largely sensitive to changes in oil prices. With these inputs increasing year-over-year, trending with underlying oil prices, our sales in the third quarter also grew.

EBITDA of $50 million in the quarter increased 32% versus prior year, driven primarily by higher sales volume and the favorable impact of market-based pricing. EBITDA margin also expanded year-over-year, up 190 basis points to 13.7%. These results included a noncash $4.4 million unfavorable pretax income impact from a LIFO inventory reserve adjustment due to a reduction in inventories since 2016 year-end, primarily associated with overall lower raw material levels. Taking the LIFO inventory adjustment into consideration, EBITDA and margins would have increased even more significantly year-over-year.

Items below EBITDA were also as expected. Depreciation increased by about $2.3 million compared to last year, driven by our broad scope of capital investments, as we've discussed before, while interest expense increased by about $2 million.

Our diluted share count for the quarter was approximately 31.2 million shares. And as we shared before, basic and diluted EPS for all periods prior to the spin-off reflect the number of shares that were distributed as of the spin, which is approximately 30.5 million shares.

Earnings per share reached $0.68 in the quarter compared to $0.54 in the prior year period. That's up 26% on a year-over-year basis.

And finally, we generated approximately $18 million of free cash flow in the quarter, up over $11 million from the prior year period. And that was primarily driven by higher net income and deferred taxes, partially offset by pension contributions and a slight increase in CapEx. Overall, cash flow generation is improving, and we continue to manage working capital levels efficiently.

Now let me turn the call back to Erin to discuss what we're seeing in each of our product lines.

Thanks, Mike. I'm now on Slide 5 to discuss our nylon product line, which includes our caprolactam resin and films product and represented over 45% of our sales in the quarter.

Similar to last quarter, the chart on the right side of the page depicts the Asia benzene to caprolactam spread and caprolactam to resin spread, with the caprolactam price reflecting the Asia import contract in Taiwan and South Korea. In addition, we've shown a global composite index again, which encompasses benzene and caprolactam spreads across 4 regions: the U.S., Europe, China and rest of Asia, and provides a weighted average view based on each region's percentage of global caprolactam demand.

We've seen generally balanced to tighter supply conditions across North America and Europe, while China's structural imbalances continue to create volatility. In China, while reported caprolactam capacity has come online, government-imposed environmental policies appear to be more systematic, which have resulted in lower utilization, increased costs [in approvals] to start-up capacity or restart production after a turnaround. Availability of key feedstock materials, notably cyclohexanone, are also impacted as a result of these constraints. So with the volatility in supply and demand fundamentals in the region, we continue to see significant moves in China pricing and spreads.

Given these regional considerations, the industry pricing environment in the third quarter remained favorable on the back of higher raw material prices and tighter supply conditions. The composite level -- global composite benzene and caprolactam spread increased nearly 40% in the quarter on a year-over-year basis and increased a more modest 17% sequentially.

As a reminder, China represents over 40% of global caprolactam capacity and demand. Surprising movements there will heavily influence the global composite and overall dynamics. We're seeing prices fluctuate near levels that we would associate with marginal producer costs compared to the depressed levels for most of 2016. During the same period, the Asia caprolactam import price roll spread increased by more than 20% from last year but saw just a slight increase on a sequential basis.

Lastly, the Asia-based resin spread over caprolactam increased significantly year-over-year, up about 65%, while also representing a 27% increase sequentially from the second quarter.

As for the fourth quarter, we expect tightened industry supply conditions to continue. There are planned plant turnarounds scheduled in the industry across all major regions, including our own turnaround at Hopewell that we highlighted earlier.

In North America where we primarily sell, industry supply and demand is expected to remain more balanced given the capacity rationalization we saw near the end of last year. And in China, we continue to track potential capacity additions in the region into 2018. However, the timing remains uncertain for some of these projects and are balanced against continued lower utilization, partially due to the environmental constraints.

So despite the market being structurally long, overall global nylon industry spread have held up reasonably well in the second half of this year and better than we had anticipated given the feedstock supply constraints and the continued environmental considerations discussed earlier. We expect industry conditions to be similar in 2018 given this current supply and demand outlook.

Let's now turn to Slide 6. Moving to ammonium sulfate, which represented 20% of our total sales in the quarter, we're seeing nitrogen prices recently firm but remain cautious on the market fundamentals through the 2018 spring planting season. 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%. As a reminder, our ammonium sulfate product is positioned with the added value proposition of sulfur nutrition on increasing yields of key crops.

Based on data from Blue, Johnson, we saw Corn Belt granular ammonium sulfate prices in the industry modestly decline in the third quarter on a year-over-year basis. Prices also seasonally declined sequentially, nearly 10% from the second quarter.

As for Corn Belt urea, industry prices increased 4% on both a year-over-year and sequential basis in the third quarter. Keep in mind, urea prices have declined more significantly in the second quarter while ammonium sulfate was relatively stable.

Intra-quarter, we saw nitrogen industry pricing begin to increase in the back half of the quarter, driven by delayed start-ups of new capacity, production issues and rising costs for Chinese producers. In addition, the environmental considerations in China we have discussed with the nylon industry are also playing a role on costs, output and utilization for nitrogen fertilizer producers in that region.

While we've been able to achieve some increase in ammonium sulfate pricing in both domestic and export markets and are entering seasonally stronger quarters, we continue to see cautious buying behavior through the value chain as U.S. farmer income and crop futures remain challenged. We continue to expect tough agricultural fundamentals to pressure growers in the key regions that we sell.

As a reminder, urea being the largest nitrogen fertilizer consumed will have an underlying influence on all other nitrogen nutrient products. Although global urea demand is expected to grow modestly in 2018, consumption is still lagging capacity addition, particularly in the U.S. So despite recent firming of nitrogen prices, fundamentals in the industry are expected to remain challenging overall, and we'll remain focused on sustaining our ammonium sulfate value proposition on sulfur nutrition.

So let's turn to Slide 7 for an update on chemical intermediates. Our chemical intermediates business, which represented 33% of our total sales, provides revenue diversification from a variety of coproducts we sell, acetone being the largest of those coproducts or about half of our intermediate sales, which is made through our phenol process.

As we've done in the past, we have continued to show prices on the right-hand side of the page for refinery-grade propylene and acetone, based on third-party data sourced from IHS Markit. Acetone prices will move with its own supply and demand dynamics but can also be influenced by the underlying moves in propylene prices. Input prices of propylene continued to increase in the third quarter, on a year-over-year basis, up nearly 20% following the significant increase from the first half.

In the third quarter, a number of our key competitors as well as customers located in the U.S. Gulf region faced operational and logistics issues as a result of Hurricane Harvey. There were numerous force majeure announcements in the industry, resulting in a tightened supply environment for propylene, phenol and acetone in the quarter. These issues have largely been resolved, with our key competitors and their customers returning to operations heading into the fourth quarter.

As we look forward, domestic phenol utilization is expected to improve following the aftermath of the hurricane. Phenol and acetone derivatives demand also continued to be strong in the U.S., and we expect end market conditions overall to remain favorable.

So let's move to Slide 8. As you can see from the chart, our plant production rates on an annualized basis have continued to be robust through the third quarter of 2017 compared to the prior year period as well as the average we had seen over the prior 4 years. Third quarter year-to-date production volume increased 3% over the prior period and 8% over our historical average.

As we've discussed, our manufacturing assets are highly integrated, so ensuring safe and stable production across our operations is critical. Our maintenance capital investments and mechanical integrity initiatives helped drive more stable production. That less variation in our daily production rates enables upside and drives higher returns. Our operational excellence and detailed turnaround programs are at the forefront of driving that success.

Our fourth quarter turnaround at Hopewell is wrapping up as planned. As disclosed earlier this year, we continue to expect that approximately $20 million of impact to pretax income in the quarter. For most of the areas we worked on now during this turnaround, there are multiple trains in the process, so we ran continuously, though at a reduced production rate. We've implemented dedicated teams assigned to continue improving the effectiveness of our plant turnaround efforts. And the fourth quarter is a great example of what we can accomplish from the start of the planning process through the restart of the asset.

In 2018, we expect the full year impact to pretax income from our planned turnarounds across all of our manufacturing sites in total to be in line with what we incurred in 2017 and consistent with historical levels.

Our leading cost-advantaged position supports high utilization rates, and we're making smart investments to improve performance and debottleneck our operations. So overall, we expect to sustain our robust operational performance in 2018 and beyond.

So let me turn the call back to Mike to discuss our outlook.

Thanks, Erin, and I'm now on Slide 9. And we'd like to spend a little more time discussing what we're seeing and expecting for the fourth quarter.

From a commercial perspective, we anticipate a similar supply and demand environment to what we saw in the third quarter across our major product lines. In particular, we're continuing to monitor the impacts of government-imposed environmental constraints in China as we enter the peak winter heating season in the region.

Operationally, we expect continued strong results. Our turnaround and mechanical integrity programs, which have been maturing for years now, are really key components to our operational performance. As we have discussed, we expect our fourth quarter planned turnaround impact to pretax income to be approximately $20 million. From a sequential perspective, this compares to a minimal impact from turnarounds in the third quarter, so a key consideration to our expected results in the fourth quarter. And as Erin reported, and I'm happy to report, that we are executing the turnaround on time, on budget, and we are near completion.

There are some other considerations as it relates to cash flow generation in the fourth quarter. CapEx is tracking to approximately $90 million for the full year, as we previously discussed, or roughly $25 million for the fourth quarter. And of course, there will be some timing and working capital considerations around our planned turnaround. We'll likely see some level of cash outflow as a result of raw material spend and maintenance expenses related to the turnaround. In addition, there may also be some timing differences between the deployment of our committed capital investments versus the actual cash outflow. We also expect to see some level of prebuy advances in the fourth quarter for ammonium sulfate, as is common in that business, which results in some timing differences between sales and cash where we receive the cash in the fourth quarter for sales planned for 2018.

Lastly, we made a $2 million cash pension contribution in October, bringing our full year 2017 total contributions to approximately $17 million and sufficient to satisfy pension funding requirements this year. We do not expect to make any additional contributions for the remainder of the year.

Now let's turn to Slide 10, so we can provide a preliminary outlook for 2018. So overall, we anticipate a similar supply and demand environment to what we saw in 2017 across our key product lines. In nylon, industry spreads are fluctuating near levels we would associate with marginal producer costs, an improvement we've seen through 2017 following depressed levels for most of 2016 as we've seen market pricing can react very quickly to shifts in supply. On average, however, we've seen Asia benzene to caprolactam spreads continue to firm for the past year.

We're also closely monitoring developments in nitrogen fertilizer markets. Prices for ammonium sulfate and other nitrogen nutrient products have firmed recently, as Erin discussed, but urea demand growth is expected to lag capacity adds in 2018, and we remain cautious on agricultural fundamentals through the 2018 spring planting season. And in the chemical intermediate space, we continue to expect a stable end market environment in 2018, particularly in North America where we primarily sell.

Operationally, we're closing out a very strong 2017 and expect continued high plant operating rates in 2018. For the full year 2018, we expect the impact to pretax income from planned turnarounds across all of our manufacturing sites in total to be in the range of $30 million to $30.5 million. And that's in line with our historical averages and in the range of the impact from 2017.

Now an important linearity consideration for 2018 is that roughly 80% of this turnaround impact is planned for the second quarter, with the remainder scheduled for the fourth quarter of next year. Our maintenance excellence and mechanical integrity programs have been maturing for years now to support those stable and high operating rates, and the organization remains very focused on driving improved uptime and output while continuing to improve safety.

Our maintenance capital investments, which we've targeted on an annual basis at approximately 2% of our total estimated replacement value, helped drive more stable production and, in turn, allow for optimal utilization of our plants, as demonstrated throughout 2017. Beyond investment in our safe and stable operations, we're also nearing completion of our mandated investments in NOx control systems, which will be completed in 2018. As a reminder, we have approximately $11 million left to spend on that program in 2018 over and above our base health, safety and environmental CapEx, which is typically in the range of $8 million to $10 million per year.

In addition, we are very excited to highlight that we have a healthy pipeline of high-return organic growth and cost-savings investment opportunities. We target projects with a 20%-plus internal rate of return, but in some cases, the returns for these projects are well above that bar. From where we sit today, we see the potential for up to $20 million to $30 million of incremental CapEx in 2018 that will address debottlenecking of our plants, improve yield and quality and generate more efficiency.

More specifically, these investments would help debottleneck parts of our caprolactam production in Hopewell, driving higher output and improved quality, as well as investments to make our Hopewell facility more energy efficient, improving consumption and yields while reducing costs. These high-return projects are in the planning process, and we look forward to sharing more with you in 2018.

And lastly, from a cash perspective, we expect continued strong working capital performance next year, and pension cash contributions are expected to be a tailwind year-over-year as we anticipate cash contributions to be more in line with $7 million to $9 million in pension expense. In addition, we expect higher cash taxes in 2018 prior to any tax reform.

Now let me turn the call back to Erin to wrap up before we move to Q&A.

Thanks, Mike. I'm now on Slide 11 for a brief summary.

In just over a year of being a public company, we've demonstrated the strength and value proposition of our operational leverage. We have a focused strategy that we're executing against, built on rigorous commitment to operational excellence, continuous enhancement of research and development capabilities and an emphasis on longer-term growth-oriented investments. We've made a number of strides in 2017, creating a foundation that will position the company for strong operational and financial performance for years to come.

Our leading cost position is serving us well through the dynamics of our end markets, we're highly focused on safe operational output, and we're driving continued strong working capital performance and improved cash flow generation.

In 2018, our priorities are centered on continuing to drive safe and stable operations, enhancing our long-term growth capabilities and making smart investments in the business to drive higher returns. The momentum of 2017 will serve us well, and we remain confident in our ability to drive value creation over the long term.

With that, Adam, let's move to Q&A.

Thanks, Erin. And now Rachel, can you please open the line for Q&A?

(Operator Instructions) The first question comes from Chris Moore with CGS (sic) [CJS].

So maybe just start with, obviously, volume was up 5% year-over-year. From a Q2 to Q3 perspective, can you talk about the volume change?

Sure. We can -- when you think about sort of where we sit by product line, certainly, [sales,] strong demand, robust kind of across all 3 segments, [buying] is going to be up relative in intermediates. When you think about the sales in Q3 as it relates to the Harvey situation -- and we certainly tried to help out everyone there when there were challenges, about 60% of the phenol, acetone capacity was off-line as a result of that. So that's sort of one deeper detail there for you. Seasonally, on ammonium sulfate, Q3 is a weaker quarter relative just to the seasonality. It's a little bit stronger on the export side than it is on the domestic. And on caprolactam and nylon, certainly, that continued as well, just with robust demand in North America and certainly in the export markets as well. So with the ability to continue to drive the output out of the facilities, the sales team did a great job in placing all that material.

Got you. So I mean, looking at Q4, obviously, it's, on a year-over-year basis, hard to do because of all the outages in Q4 '16. So I'm just trying to kind of look at it on a sequential basis. Obviously, you've got the turnaround in Q4. The ammonium sulfate that's sold in Q4 tends to be a little bit lower gross margin because it's sold in South America than sold during previously [in the year] -- is that true?

Well, I think what we -- similar to our commentary and what we want you to walk away with is, right now, we're seeing really the quarter on a sequential basis kind of stable throughout the product lines. In ammonium sulfate, particularly, right, we're entering into seasonally stronger quarters. You've got fall application and then ahead as you enter into the spring season. So overall, from a sort of top line perspective, I think you can kind of look at Q3 and then carry that forward again with certainly some of the commentary around nylon is operating globally and in and around the marginal producer economics. Sulfate is continuing to move into seasonally stronger quarters. So as we think about those dynamics and continued sort of robustness in the intermediate space -- and then just with the consideration for the turnaround.

Got it, got it. Something -- back to something Mike said, so in terms of 2018 turnaround, normally, it's kind of 40-60 Q2, Q4. Next year, it's going to be 80% Q2. Is that what you -- is that what was said?

That's correct.

(Operator Instructions) The next question comes from Chip Saye with AWH Capital.

I have a question as it relates to the annualized plant production. You guys have done a good job of increasing production year-over-year and then over -- as you've shown in Slide 8, over the 2012 to 2015 average. The debottlenecking projects that you have planned potentially for next year, what could we add in terms of capacity to the 3 plants with those projects?

So Chip, that's a great question and one that, candidly, just probably a little bit early to where we're ready to disclose that piece of information. I think as we have shared in the past, relative to sort of underlying operational excellence capabilities, that's sort of that lower single-digit and continuing to, I would say, decrease the variability, shift the mean on -- inside our plants can yield sort of in that low single-digit percent year-on-year. And then when we think about the debottlenecking, that really would be '18 into '19, and so that additional capacity would be a '19 consideration. But as we kind of come to the end of finalizing those projects, we'll be back to disclose more on those terms. But consider that as a -- that really as a '19 consideration.

Okay, I appreciate that. And secondly, on the caprolactam and nylons markets, you have the advantaged cost position in the new plants that are coming on in China. I just want to kind of flesh that out a little more with you. Are -- new plants are coming on, but then they're taking off or reducing capacity at existing plants? Can you just talk about that?

Sure. So when you look at sort of the overall buildout of capacity in China over the last several years, there have been, I would say, across the spectrum on types of operations. There are independent producers with stand-alone caprolactam facilities. There are others that have put up the capacity to integrate [forward] into polymerization and downstream into textile, yarn and fiber. So varying degrees of how that capacity has come onstream. What has been new and we've been observing over the last year has been the consideration around the environmental considerations as China has become -- not just in our value chain but others, looking to address air quality and water quality. And so when you think about where that emphasis is, typically, in the north part of China, about 1/3 of the caprolactam capacity sits in that arena and in that region. And so with that tightened consideration, some of those plants are being asked to shut down, to shutter. There's environmental permitting checks and investments to address those. So I think as we think forward, while new capacity could come online -- and in many cases, the ones we're seeing are those that will be integrated versus stand-alone, so they'll have a natural play going forward. And so as you look at it, there is dynamics to play out relative to those stand-alone caprolactam plants that will be nonintegrated in the future. And then, real question is who will make the necessary investments to meet those forward permitting requirements.

Okay. So the focus seems to be integrated plants going forward and some -- maybe some of the nonintegrated stand-alone plants that are older plants may shutter or require investment to continue to operate because of the permitting cost. Is it fair enough?

That's fair enough. And again, we haven't seen any official announcements of -- I would say, of official closure, if you will. But certainly, they're operating at much lower rates, which is allowing now the dynamic to, as we said, sort of fluctuate in and around the marginal producer economics versus being depressed, which is what we saw in '16. But I think you have dynamics we're watching and will continue to share more as we see things evolve.

Okay. And lastly, can you give an update on some of the newer nylons that you're working on, the higher-margin project -- products. I think you've talked about that in the past and kind of creating products for your customers. Can you just touch on that?

Yes, sure. We're continuing to put an emphasis behind our copolymer capabilities. As we have shared in the past, we've brought on the capability to produce a high Nylon 6 content, 66/6 copolymer. We're seeing success in it being used in engineering plastics with a number of conversion today. Now again, these are small parts, components. And so -- but number of active programs for automotive parts or even additional sort of consumer-oriented parts where plastics can be made. In engineering plastics, it provides the nice benefit of smooth and better surface finish. In glass-filled components, it reduces warpage. So you get better dimensional stability of those parts as they are in use. So our sales teams and technical marketing teams continue to be out to promote that, recognizing that these have longer-term qualification processes, right? So we're out working with customers. They need to qualify it with their end customers and OEMs. But we continue to fill that out as well as work on customer programs in the use for packaging films, right? And packaging films is a smaller, I would say, demand segment for nylon, but one growing on a fast basis vis-à-vis sort of the lightweighting of packaging and, [I'm sure, clean food]. And there, you get higher transparency, higher strength. And again, those customer programs continue on, but those qualification programs are -- can vary in length from 6 to 9 months and sometimes even further than that. So.

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

Thank you. We're pleased to share with you the results of another robust quarter, that, when combined with the first half results, highlight our strong execution, leveraging our operating model and our ability to perform in dynamic market conditions. We've made a number of strides as a public company this past year and have set a solid foundation for future performance. Building upon this foundational year, we'll continue to focus on safe and stable operations, strong working capital results and delivering improved cash flow, all while enhancing our long-term growth capabilities. We're building great momentum and look forward to sharing more with you next quarter. Thank you again for your time and interest this morning.

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