LXU - Earnings call transcript Q4 2017

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Operator

Greetings and welcome to the LSB Industries' Fourth Quarter 2017 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Kristy Carver, Vice President and Treasurer. you. Thank

begin. may You

Kristy Carver

guarantees Please differ because today's on these expectations, cause are current Christine. variety and forward-looking factors of the will statements, intent, could not they projections, and statements results and future note you, performance call a to that actual include company's of materially. Thank are based

information and this will to include remarks. our reference of in release press section to call At references of please GAAP statements go call opening As this would the lsbindustries.com, and website, regarding non-GAAP results further time, over for the the for turn reconciliations like to non-GAAP forward-looking ahead Investors results. Dan results, to I

Dan Greenwell

this morning everyone. time. have and your pleased Kristy good you, Thank to and morning appreciate our We're call to you on

this production our cover Behrman cost us markets in improving On-stream the our plans. commitment for on fourth our both Diesch John rates our early share discuss morning, rates, and nitrogen our discuss and During focus further will also Mark XXXX significant our and reduction some We'll cost we results quarter initiatives action thoughts key on-stream to for XXXX XXXX. at facilities. will discussion savings are and

focus key six our for recap I’ll XXXX. items Finally,

both million $XX $X fourth shipped or in compared industrial to approximately prices. the in Our The million $XX higher in product revenues of overall quarter increase X%. were was million an volumes quarter, prior approximately the of to attributed increase selling XXXX and year the increase fourth

the quarter. quarter. in will for as fourth downtime carry the quarter the the at approximately by reduced was XXXX. EBITDA by of volumes by $X was during Fourth to over Dorado, the his discuss order impact Mark quarter remarks. million compared first quarter EBITDA the Pryor of sales to and which El delivery XXXX hampered declined production fourth led for expensive book million XXXX impacted $X was and lower XXXX Our unplanned downtime opportunities This approximately quarter fourth

alone to service of seeing logistic competitors railroads we to many the taking not to and timeliness as many challenges routes longer Rail carriers. a We're rail roundtrip XX% year are than continued see ago. has continued We and our decline service. industries experience often from XX% the poor and truck other

our to service delays, We have from is enhanced to management seeing a tracking rail still experiencing driver and car Truck slow railroads. mitigate we availability. capabilities tightening the also due help general are but the availability

has maintain know, of this logs and X starting that significant As impact on industry. carriers the electronic January many had of required year, now on a to you are

Our rates in and challenge schedules closely are will continue to a us to in keep costs this however, XXXX. be being managed transportation check, for

to number Pryor focus a is one our goal the operations improve Our on year significantly plant particular for with our of reliability this facility.

million maintenance facility, that an we and fully in improvement savings million reliability are companywide are XXXX. the enhanced procurement and Specific We review work outside of and actively to the plan in a fourth achieve X half beginning and of believe technology engaged have efforts our Their annual start implementing conference reduction further we deep further art at enhancements. at on-stream We with the implementing studies will improving which be very work well management to assessing, executing We're our have maintenance Pryor. quarter all will activities. improve system, the provide X We our of the operated repairs, we these quarter Since us second use in or state managing, in end mentioned second last to should focused XXXX facilities. by Veatch early our opportunities. achieve completed and have on & cost rates quarter Energy call, savings also Pryor first engineering of our both of the BD between review as however, the further our to in done facility, XXXX. of Black to I to internal on engaged

to new have selling, a and we a We US net produce administrative general will During are tax the expenses. and not currently tax payer. The approximately law the $XXX XXXX tax significant on cash losses quarter, impact have operating current million fourth of continued company. cash not

are While expect no is purposes, nor to we we did experience there the recognize That’s a an years do until away. several tax benefit NOLs impact for fully cash utilized. impact book

the Gulf nitrogen currently of customers We and We coming XXXX. nitrogen suggests past price been Global are America prices significant we remain urea data and anticipate continue product US as place prices with the will be new drill be second year's American half have prices we into in and North effectively reductions. We below year stronger incurring price experienced capabilities of that into see believe level online XXXX. we first XXXX firm not efficiently Current distribution demand will to those than the the America. the international to more XXXX. to believe and quarter without volumes. higher progress pricing North imports half a We improving have the to added driven firm. the channels first required integrating second during and significant selling import will the same competitive of last the experienced see remains remain XXXX import volumes important for at the of North the will market weakness market to the period the in

We're to XXXX. fourth for discussion prices As continues for John to over volatility positive will mature, will reduced XXXX on I'll our now as product cover channel who pricing quarter. both pricing Diesch product the distribution and compared operations we John? outlook to anticipate the will demand turn the plant improve. be and the

John Diesch

morning, you, everyone. Dan. Good Thank

during continues facility with quarter operate urea time Cherokee well. UAN plan. on-stream had plant ammonia above XX% Our production to and The the

heat and previously quarter. HDAN The plants fourth time how the continues meet currently expected delivery as also will upgrade the the abatement with under Dorado our new related a fabrication installed replacement that this outage are all the of with during I plant yet the LDAN warranty. The XX% fall, ammonia has shell outage ran costs time of a early Our a plant The vessel this of and This well Since for downtime and is to reminder, auxiliary demand. El El boiler repair were repairs due XX% set its been September. on-stream at NXO covered made, of had planned replacement am nitric acid has and to be was to facility plant those for pleased XX the exchanger. the not nitric Dorado a October ammonia in and on-stream date acid run announced operating.

make repairs section and disappointing upgrades reformer the to a ammonia at and the for Its performance was incident. majority on-stream Our the operating in November replaced Pryor downtime quarter. and XX% The plant during fourth quarter primary coil higher of September around due to XX October after the facility upgraded unplanned time announced has mix the had convection gas piping of previously high and temperature and to had materials. the

that a replaced were heat the at during compressor In a turnaround plant, this overhaul urea in urea we the and work of ammonia exchangers have addition, Because next in not outage, completed in well in turnaround. our now slated The has will now we next for acid that running the plant scheduled January well. expect The been the I The and be scheduled turnaround in is also February to Baytown mid-XXXX. XXXX. running Pryor continue. nitric facility and plant completed

this kicked operations a ROI. reliability planning improvement in of are incur plant. turnaround we early We mind in call for In operating facility in for the all Keep year. for and process. we the operate midst and since capital December, We costs of they this off it [indiscernible], October the that

As part we process, friendly. make of more the system are upgrading maintenance it user this management to

and process are and of new implementing criticality risk and assessment a instrumentation. equipment We are doing maintenance workflow

are PM and metrics cause to in progress upgrading programs We for equipment on failures defining of equipment track accountability. a drive critical leading with root also focus our

centralizing operational to purchasing assist have consultants improve We allow our our assist They buying costs, to stores also and us will hired process. outside us reduce this in power. in to

our plants We implementation by mid-XXXX. across expect all full

improving are with the reliability an on and of improving modernize BD urea, As reformers looking leading ammonia, in design reliability is Veatch call, is reduce risks, identifying ammonia a & on systems. acid to nitric and I identify and Pryor. other specialist performance. mentioned Energy plant or analyzing we emphasis efficiency secondary Systems, on infrastructure and in risks This Black our upgrade the to those risks last primary focusing and on reliability opportunities methods will at study the electrical utility across heat systems. conference balances material plants, risks reliability

second equipment early process We first by confirm internal the & expect year. our and Energy completion quarter believe this reliability will facility. the and that or studies BD We the end Black and assessments quarter of of enhance of may the identify will Veatch initial both improvements of

So well. far performed plants four have XXXX, all of our in

difficult. ROI benefits Our importantly and only accepting capital happy changes. and am about change the most just are safety, is say people but I are changing The these procedures, to in expenditures process and on culture improvement. maintenance XXXX culture. the environmental reliability not the focused changing compliance is see methodologies actively our Often as

our El they years. performance. more pleased safe I a was with for our us of I about performance now performance continuous reliable. improvement laid In that our Cherokee, at the and issues Dorado, for as in to we that ammonia at groundwork plant, four Pryor. have operated feel XXXX That the almost improving allows well are good past shakedown facilities have challenging Although the am facility’s making focus on attention we at plant year, more

to the Now, I turn the fourth quarter. will financial results discuss to for Mark call

Mark Behrman

compared prices sales of In XXXX a fourth quarter, $XXX operations, for our related of for continuing XX of to averaged quarter to as ’XX. fourth higher Page of compared Tampa selling a presentation morning. reviewing primarily quarter for ton the as ammonia summary a provides XXXX. total good statement fourth operations the quarter net of ton and John Thanks, metric metric to increased $XXX the the consolidated the

volumes increased Additionally, down marketing sales volumes as increased applications from rates UAN by result our while quarter. quarter-over-quarter. Partially El facility, industrial sales demand ammonia that, the of volumes on-stream a overall stronger and overall driven efforts volumes of and facility Dorado market. sales ammonia negatively our Sales improved were by for our in were sales impacted was of offsetting most several improved Pryor lower at for as this products and mining LDAN

we decreased Gross purchase fourth of approximately the of quarter of offset at third-parties Pryor for customer and X.X produced of result, sales cost are in from versus sales costs, aforementioned an higher purchased ammonia XX,XXX cost UAN the higher by costs operating the operated to UAN a improved fourth due quarter. at tons the These versus XXXX, facility, were our obligations which fourth XX% fixed the Dorado XX% rate net absorption sales As profit despite in El on-stream somewhat versus included and of approximately to of costs product loss million purchase meet year. quarter last and the facility. at performance higher our

information was you stronger volumes further indicated call. on our improvement non-GAAP Lastly, $XX ton, our adjusted in out as clear EBITDA. bridges business, these million XXXX pricing QX XX outlook on and the Tampa of the essentially give tons UAN to Pryor improved which was a our UAN measures, slide. largely downtime, adjusted program ammonia of Please to the period. contributed XX,XXX of approximately ammonia our XXXX. not ago EBITDA negatively months selling for clarity Higher and EBITDA of the a metric for quarter, page result Tampa bridge the costs results beginning significant one-time flat will industrial versus quarter benefited on consolidated EBITDA I $X refer our quarter, of result pricing for were as to of taken LDAN quarter, next late the unplanned for impacted last negative the incurred earnings sales facility in over resale. the reconciliation improvement the for non-cash Despite prices well further on ammonia XX QX an to slide orders I our as improvement To fill of approximately during for purchasing able moderately The during summer. orders despite pricing. the fourth the Unfortunately, during for we on the expectation by EBITDA priced three to lower was marginal a that

on-stream call were of El early XX%. as in to time mentioned of production plant. you John as UAN. we compared are than at on-stream quarter due almost to starting these indicated EBITDA rate impact first experience facility million downtime orders approximately is expected that loss slightly of at that than operated originally Pryor I downtime issues in will began December, of forward past we the the ammonia XXXX, our to$X produced we the the Dorado $X QX negatively quarter more an shakedown detail of Additionally, -- longer our new experienced XXXX issues to we impact resulting negative that a discuss of as unplanned generally XXXX, cost will from purchased which This plant higher during unfulfilled impact continues the absorption believe that cost down two million minor facility higher and weeks improve Pryor had fourth of $X of at the million later. in had fixed costs, at on the I is ammonia Unplanned that earlier. versus plan compressor Since a our

produce tons day. XXXX As XX% The in on-stream at and a fourth into compared at October following a $X approximately the coming the million continues plant back to mentioned, between XXXX. outage on-stream plant last an the of previously quarter by the as discussed rate improvement benefited production continued rate John operated rates is ammonia earnings to that of call. since XXXX quarter ammonia of we average daily The

would for Excluding $XX the the impact to facility from been the downtime, closer Pryor EBITDA quarter million. have

and a our believe Pryor will underway Dan the significant of ammonia Sales fourth the first industrial price, higher quarter Tampa than metric for will to $XXX metric to EBITDA. our XXXX metric $XXX metric have the As related yesterday's overall ton facility Despite downtime higher of products, unplanned than $XX are ton mentioned ammonia and that which we same quarter Tampa is and of average improved XXXX, avoid last of and suit. ammonia ton reliability several the Tampa a John impact of announcement to a the of to ton of for of quarter lead previously, we March, ammonia follow the which initiatives a indexed many year. will $XX pricing

expect ag this of to translate the for our facility into out ammonia pricing also higher Pryor sector. We into

of and to carryover As we mentioned, fourth I of into have Pryor quarter the UANs our on the full orders previously is of sold effect lag will out a that downtime related facility the fill March. beginning

quarter to expect by EBITDA impact negatively We the $X.X approximately first this for million.

working of note approximately however XXXX. assisting of million one-time the of included that use with third-party first shale, of first quarter million and $X.X we will the the maintenance to lower the include included The first quarter XXXX during structure also system which several operational our or related expanding at to EBITDA our important at engineering studies additional EBITDA maintenance $XX XXXX our $X outside enhancement that in with QX, Also the the of quarter approximately is first Marcellus of the priced of at the above We and XX accelerating management in of the quarter quarter in ended sold and was efforts. costs are Despite costs facility. these firms Also procurement by UAN, centralizing associated outlines of of consultants reliability and be us Page expect management cost our over and to procedures that carryover is XXXX. being performed XXXX. inventory interest million with end cash. capital

giving of at Additionally, year us was $XX and approximately total undrawn had availability million our ABL $XX of liquidity over facility end, million.

receivable was ABL $XXX Total approximately and the our with costs on our unamortized base million, debt. associated the outstanding issuance levels. inventory and discount based end at accounts reminder, will quarter excluding a debt As borrowing vary

make half we refinance restricted currently coverage quarter, charge preferred first $XX notes would We needed to to also X year. indicated ratio on in had stock of secured Last we $XXX seek to million this in approximately not dividends outstanding do our preferred accrued stock that senior approximately We our and of including million, meet to continue the fixed accrue dividends. unpaid to the we as X payments. expect the

and options We our to advisors are review lenders. continuing our with

the free million. Moving from XXXX our we $X operations page approximately XX, of cash for to outline XX provided Cash was months flow.

a from and payment that were first Capital Additionally, every operations occurs million. our flow on third senior includes cash of interest XXXX notes each year. semiannual in secured quarter $XX approximately expenditures

I million used XXXX. Additionally, financing in as gross Net debt $X.X our non-core previously approximately several that discussed, assets $XX payments, generated sale during payoff associated off and we financing. non-core cash of assets for insurance premium with reflects primarily including million scheduled just of debt the that proceeds discussed sold

months cash For decrease of XX $XX in XXXX, we had the a million.

year be a exception the view both XX-day if sales sales top half impacted of substantial or one presented Dorado XXXX by volumes turnaround be the turnaround schedules. in page now about is of to El in XXXX. to do the as basis to With tried XX to points We’ve on variation we by such demand, serve said, for updates Looking on change capture are volumes to year and on-stream on XX. which the of that as will our there Volumes three of turnaround reference rates full metrics other forward for full Cherokee, we're and our plan for the XXXX, items. meant the XX year to with metrics levels how of on are pages at ranges. in providing Product a a think of the will targets provide using these all XXXX not XX-day potential we and currently quarterly of cost factors on

Dorado turnaround do costs despite of HDAN, are LDAN for of not improved rates operating sales of do include during marketing turnarounds. of the of nitric associated combined and represents These production year, approximate with XXXX. with you our aggressive out in contractors, result that El the and two XX-day XX and as not cost any projected XXXX our we includes can volumes expenses of not costs scheduled the absorption acid actual the margin, XX-day for approximately product and turnarounds bottom Pryor and and mixed repairs page acids, million, lost are at loss lost from $XX capitalized. a facilities, as those expect supplies The to see, which contribution or pocket produced However,

As current as million may expensed peers incurred, which the expenses policy, aware, be accounting our different capitalizing be you full between are our some amortizing turnarounds. $XX who will are these under from of and

We impact majority plant to cost this covers fixed during expense of a Page as during lost expect with for and our will contribution XXXX. inclusive results. absorption year all capital of the will expenses well along the the at spent variable quarter third as downtime the and the and that margin XX you million note $XX two CapEx for Also, turnarounds. between million, remain SG&A $XX of range

to Now, I'll turn it up. back to Dan wrap over

Dan Greenwell

Mark. Thanks,

an As operating plant We're Mark market on demand, ability optimistic improved just and described, market our improve rates. do pricing our XXXX. to expect we

improve to cash compared We also XXXX. significantly flow our expect in XXXX to as

As on-stream of six one, to Number key improving we we're rates the forward chemical our XXXX, look undertaking plants. in business the strengthening initiatives.

work technology the expediting to and assist to that through earlier lowering facilities. programs outside we production. our to in enhancements sale while decision the several at made initiatives in have made maintenance reliability implementation us upgrade our will We decision about predictive preventive to experts and assist system In its its existing processes our and cost produce XXXX, we engage underway we our At also of talked and products allows use. improve for improving management more maintenance time, the us our overall plants of that to that maintenance

year. the system the see we in As XXXX expect be end we'll by the of begin and will the we this second said of of earlier, implemented second quarter that to benefits half

for will Additionally, firms to plant specific assist reliability engaged several plan to outside us overall that used the study, be Pryor reliability enhance which facility, to our we improvement facility. in engineering

the expect second first We the end toward of at or quarter. complete early to in the quarter study the

ammonium to approximately XXXX. marketing distributing and us XX,XXX Cherokee approximately facility of out those at XXXX. growers performance. Our benefit critical those or XXX,XXX XXXX. The continued focus reducing these customers In ammonium tons improve density are improvement effort allows to This training these activities annual our nitrate. is we our various focus plant on second safety we XX% our continue sell over the that to facilities. in storing continue of sales We compared rates. the a nitrate increased continue that educating enhanced nitrate applications broadening performance. implementation facilities for safety will overall accomplished with products. tons additional our on we distribution standards volume nitrate believe nitric mind, and three, at programs to the new by high to of tons which in XXXX ammonium in risk safety focus to will acid continue Number in It to that of programs volume XXXX, of high safety sales and and XXXX our total density includes key that culture initiatives and included improving was in also on and high With on-stream our and Pryor for and high XXX,XXX our grow markets expect initiatives, an will density ammonium to of implemented other We

tons increased our addition, tons Number XXXX. products. nitric on for America. nitric XXX,XXX in or to four, efforts, by In our market the efforts XXXX margins approximately through focus We'll we our continue North volumes in XX% in of XX,XXX to improving sales from acid to our increased on marketing marketing expand tons of products increasing XX,XXX

structure. reducing are sales opportunities. there to and to customers continue if volumes cost our there XXXX, margins In increasing to are review of explore and we’ll cost ton to improve last if per our product an lower we’ve at to on the further to determine the optimal sales these five, years, rates on manufacturing customers Over our Number all opportunities controlling to on-stream produce sales several upgrading focused product. and

centralizing We and assist with have wide our us to experts company expanding engaged procurement outside efforts.

will the to $X believe in this implemented to an million quarter end that spend these by the of second million expect efforts on the aggregate $X result in reduction capital of We expenses and between be basis. amount a annualized XXXX and in

capital our million over With Over to markets believe our Christine? improving and expenses annually an combined We in on improve there our discussions. capital. for $XX of ways plant reduced our six, operating discussed the our in our last reduce and overall addition open be XX expenses. capital. overall end our the reducing cost SG&A months, those still actively we structure procurement believe structure capital to of seeking to initiative is opportunity and the up further Number benefit focusing and that have above, and with of cost remarks capital. conclude prepared of improving performance it products, improved cost that, for reduce I’ll our will We're

Operator

with Mondillo comes [Operator Joe of the line first from question Instructions] Sidoti. Our

Joe Mondillo

does include analysis first the question, items sensitivity was you sort Mark, one-time off, that of not end the type That correct? the at my any So of presentation. listed the

Mark Behrman

price representative What the the remember, and of No. be fertilizer ammonia about because just it assumes we three doesn't on no plants obviously Cherokee we’ll the as and the power facilities, different assets, other include, year so is a turnaround cycles. natural Dorado talked is it as El sensitivity analysis, gas The levels price proxy for earnings and Tampa of serving products. just levels turnarounds,

we So and year. no we’ll In ‘XX ’XX, turnarounds. this have have turnarounds

one-time account take items doesn't like or it any things that. into So

Joe Mondillo

Okay.

bridge So I that you sort was between table and just wondering the if gap items. could the time one of

could the you items So through just if go one onetime time. more

of that would just the those, turnarounds. by million, $X helpful. effect be I a was think it $XX was through could if It Pryor, you million lag go the

Mark Behrman

Sure.

So will sales run we've we program impact took got fulfill the the first EBITDA fulfill in from -- quarter. into carryover actually during UAN $X.X million that the of orders that

of, studies doing $X of that. course then and that's not outlined, and kind consultants the million that the $XX costs significant at turnaround. million XX-day the got operational impact XX of Cherokee And additional sell. items lost Pryor. but expense we're and the $X.X that that of the that of of the year, and XX-XX product that between that's So including then from production related got million to obviously, for El we from matters some And turnaround actual Dorado to There's sales it and won’t lost have we've outside the much, pretty I you've

Joe Mondillo

I'm much that How was again? sorry.

Mark Behrman

associated We that. a amount dollar with didn't put

Joe Mondillo

Okay. And what right? the with about guess, guess, I turnaround I right, comparable, probably to actually difficulties and was XXXX costs, hard that, Pryor not really in the that, because it's it's just all think

Mark Behrman

Yeah.

only think about was about you If expense. $X turnaround one million really we just which turnaround, and had turnaround, Pryor there of was

Joe Mondillo

sort prices, sort sort given out a of dynamics I Okay. the track I helpful. price also I relative and and just realization there's of to on about and know where That's play Gulf wanted to should expectations ask of variables? Gulf of realization prices just wondering lot you your think

Mark Behrman

the obviously is around is of out is of which a Tampa large sold Dorado think out the for ammonia well, UAN to then can into to that the Well, was And indexed. next of taking XXX I of currently at we Tampa the we and we're that of be El months, XXX but get the remember out product. pretty Cherokee, in and indexed range probably industrial delivered XXX orders premium ton over ammonia ammonia marketplace as couple Pryor per say now kind

Joe Mondillo

just prices, bit. general, regardless of of prices are Okay. to to And like Gulf mentioned like those that, in looks sort you it but quite prices UAN UAN, just ammonia similar in a UAN, regard are up

I downish, of because quite talk to the think, was up could bit. about are if sort sort of dynamics flat actually, UAN those but wondering Just guess, you ammonia of a I flattish

the strong seasonal in as you would on just Given I ammonia why that UAN year-over-year of sort comp. of UAN the, think, not as we're strength is guess, prices

Dan Greenwell

Dan. is during you I This significant time. the I had UAN of think period mean capacity additions last

seeing of online. UAN the season with facilities you're coming full a So really all

upgraded. that lot of result, seen excess now upgraded earlier being As being you’ve ammonia a wasn't that's a

not and there that a the you And you some lot seeing that the saw you're of have market excess of on market. out upgrading right in that come urea that, online out So addition ammonia on now. free have consuming ammonia facilities of it's

So is of I UAN. a think a price combination pressure of bit on generally causing those little what's

John Diesch

outlook, going the the talked it in back It that remember, about grid are so Hey, Joe, operating sort turnarounds. and to gap, averaging rates assumes the you talked about of Cherokee second of respectively assumes factors grid Dorado, the XX% that bridging also XX%. on no under just and bullet key and XX% point that El page for we our Pryor. in XXXX the XX%, And

The is UAN we sort other also North between back, which ammonia thing believe and marketplace. said relationship comes Dan when between production America that you is in would disconnect hit and the the will UAN UAN new of assumes absorbed it natural as That I pricing, the prices prices. ammonia of into UAN say

Joe Mondillo

more to of that I plant I of sort taken the was Pryor, been get in color. state on was wanted that early question just know back dormant out since XXXXs. about much little comment a problem to it pretty has the this a

much of we your utilization of you projects period, an on the you over this it is higher idea a seems company last, the there. work and much that done guys be there have some working sort of, So been you know been sort feeling production sort guys period like years, plant work only this how plant. on on to time in rates Could of guidance itself I been give certain that close us how how needs that be color the -- would has XX that but time Any of year. will more helpful? confidence consistent plant, are Obviously, has

Dan Greenwell

Well, done even and in significant couple has I was plant the mean, to done been last some of a the work work years prior that.

I in now our point reactor We're to do we're on some systems like to at internal think rear a before. we DCS We're a right we that putting the where know about we need we view to upgrading that plant what is, uptime. it. feel talked get new

most the we items. feel identifying identified we're we've -- So like of

we as quarter, engineering sustenance or talked We done those our we second we from are first firms work to said, expect that outside confirming be quarter. the quarter this internal And into with about. the

continue will facilities. to look, we that upgrade So

Clearly, we've Our XX% up the need at going that of not We've to but to the XX% is a some to plant. think there realistic that we significant made rate we operate of the other goal. view I rates, of management is the on-stream. investment that get upgraded most reliability it's achievable be make

the maintenance and engineering activities upgrade to continue up there. We

last year I bear to a last start is starting So on Diesch going to efforts things. the and are really half impact here here then John undertaken for to have an couple having and the obviously charge in we've the fruit years think

Sure. like I shape So feel we're there in future? the in good on path. Will right or surprises pretty be the

this it described fall. we that go and surgery have they're where now. be that's I've As we but we're major require people, will basis, hope don't that There And we sutures. on to skinned we a saw we think don't items often just forward minor and knees right hopeful things are

John Diesch

this Joe, John is Diesch.

plant to so we're because looking so issues found, this addition built make and those enhancements, identify are if -- XXs, originally improvements. in changed we as in easily In that those not of was risks is to construction, the to such technologies identify you have materials all what

Joe Mondillo

Is and that, there consistent there maintenance outdated levels trying possible. it the years to just it of Is remember at production there there this now? sort plant? see I what I was right on in it wasn't of maintain so just correctly, was production time? that talk think any any point if possibility sort know of you like a increasing Is capacity it sort that at many more ago, even but of capacity that about I

Dan Greenwell

sell really that out sell remind We products. of then of really two tougher ammonia we and ammonia, ammonia a are product what Joe, to just that out Well, the out is plant. agricultural plant UAN market Clearly, that folks, agricultural of market.

that to move in to area. demand typically a to have not that product there's east the west, or We of the ammonia lot

which more upgrade this is going has So more urea us with urea reactor installing, be what to to UAN UAN. produce additional to new will we're that to trying do capacity, allow we're that

reactor are plant to as urea to anticipate we in, tighter highest but far ammonia the there the levels on we that other changes plant, the would fundamentally, any production changes operational to be control volumes. to systems increase putting fundamental not As ammonia run the able should significant get that the than making major of some at we're there, no

John Diesch

they half marketplace company referring in to two Joe, in weren't about excess you're We comfortable ammonia. the think all year of restarting, coupled a we that previously the great ammonia the were had up spoken I extremely shape in restarting year that about would those. had that past, ammo determination ago, with not and and ones packs it makes at Pryor feel sell they additional and about a possibly we that that ago hard made

non-core packs sold those ammo part we as sales. So the of asset off

Joe Mondillo

relative term flex ton the have guidance vice depending I'm you much just you your just contracts on, a products, considering me, guided, improves provided, of, up that industrial or your that you market production wondering the versa. within ag if do to flexibility have sort the long for to how production I question the Last the guess, product

Dan Greenwell

rate. Let I density. density comments, agricultural we And our sales prepared increase refrigeration Pryor, look ammonia where we've a is of industrial most both Dorado the in we’re of and/or product that is into upgrading nitrate, El El sell around of the and there and low it market have to addressed There ammonia as Dorado, of is we indicated as but nitric ag the sold me lot to all high product flexibility that ammonium have increased to would there. Out high a significantly. just stable. density is both grow. marketing to the I don't two small have continuing mean density out agricultural we up At and fairly produce has to, production of the relatively mining at volumes we essentially we for of market most We over low sold, where markets the gone last those that think years sort Cherokee, market see address. significantly acid

currently can merchant agricultural upgraded expect products, the on sales we would extent pipeline increase products. So to and upgraded those ammonia three ammonia for volumes, product we that that the to decrease the we sell upgraded we with increase both of

upgrade to over more increasing both anticipate flexibility XXXX, acid. in nitric have more those opportunity sales upgrade more to provide upgraded. nitrate of to ammonium We XXXX which product and product would we for product So lines

operating ammonia. additional additional However, expecting that Dorado XXXX out rates El the in of merchant us get to to we're will produce still allow

So Dorado. lift an I have chance really El think all volumes in of XXXX out we expect is we to what the overall

we're The reasonably balanced. think, plants, other two I

John Diesch

design, enough mean, and of decision have in our think and business industrial keep a that We stable sales at by have leaves into rebound. between attractive our with mind. the protects a healthy sectors made balance really business. through significant fairly and just has us having I gives still to Joe, really pricing when start to business we, mining downside markets ag our ag the base mining industrial us that and a and margins return upside and

Joe Mondillo

Right.

so just industrial guidance production in terms contracts. volume contracts, And based clarify, products to on the your long-term of that's

Dan Greenwell

Most two are to contracts of year contracts. those three

Joe Mondillo

Okay.

roof. pricing market, say, are the exploded, ag So this went all through the if

that take going instead of really for of to UAN, the prices. selling to flexibility have of flexibility density high sort There's advantage don't You to go – not that we're to density much much say low UAN

Dan Greenwell

El it – a would we problem we solution, reach pretty solution nitrate believe if have them, some ammonium approximately -- combined density. do being for at I or nitrate we us That's between bump XXX mean, flexibility that. is Dorado. XXX,XXX is into class of into capacity, a There We down tons. upgrade high we problem. that's high ammonium that product density the a I two once where reasonable low more at could have

do market, So do up, ag more we'd to would extent picks that be that for and mining we to the well. high we the that upgrade density as could happy market to to be happy

I So less ammonia going that. to Obviously, flexibility the did we pipeline, do we've into think if there the merchant down got it.

Mark Behrman

Hey some and not maybe but product move let's Tampa and perspective if it's $XX. saw UAN prices, Joe, prices, we let me give just mix, HDAN trying you ammonia say change prices to

only variable have that. cost against We

$XX $XX just increase from we've to So movement. large million pretty million margins. EBITDA, That's got $XX about contribution in

Operator

Fargo. David Our of next Wells question Deterding with comes the from line

David Deterding

being guidance think I EBITDA your QX on for in ‘XX greater mentioned asset QX Mark, $X.X Just million proceeds. ’XX, than sale you

Just model being it roughly that that, X.X including greater of that $XX million ‘XX. a million the clarifying quarter like you're looks first has in than my

Mark Behrman

Yes.

had that it XXXX. million working Marcellus first the Shale $XX from the ’XX, includes right. in actually of you're quarter $X.X So sold during EBITDA of and million we It’s that we the about interest

today. don't that we clearly, have So

David Deterding

How then working do then working as about prices year. are about of a here and obviously, bit. think QX we the And think as up capital, you capital you kind throughout move

Mark Behrman

some inventory selling Probably up building up and we’re QX, building we some are as receivables the product. certainly

of say, would working $X an I the $X quarter. probably increase So during first to capital of million million

David Deterding

of in would liquidity, your it capital liquidity low And $XX sounds any then as have offset EBITDA It you mean, is about than think we’re call and build the you probably more point like generation at roughly then this I working QX the that million would today. expect. you

Mark Behrman

Yeah.

up and first payment that spring X, end we've from spring going we the made an liquidity and cycle build the we're then the interest liquidity the start hit point really to and we a additional season on at and You're season in a ramp At right. the for probably high of low months. quarter, to due up Feb obviously point the the make through summer absolutely got always

David Deterding

pretty with cadence spread the out XX, evenly you Is it ’XX? guidance CapEx of to the there then be maintenance think in we're think about through your much CapEx? pretty just XX guess. And quarters getting of How close probably would that to my I do

Mark Behrman

a quarter, because at be probably third to during spending those of to turnarounds. the and No. weighted El Dorado Cherokee heavily remember, It's bunch going capital, both we're

during that So spent being I'd capital say, you quarter. million million the of to probably maybe $XX have $XX third

David Deterding

that my that $XX of of million. year? look XX we fixed it charges and of on need there million this a kind looks $XX to push be of to of would cash higher anything need here CapEx you're cash else items aware XX Is interest XX, perspective I And at then just guiding question, to kind flow expense XX to cash of last as and of like

Mark Behrman

No.

Operator

of from W. Robert Douglas next Baird. the with Owen Our question comes line

Owen Douglas

this. Just got question, am a sure to just I make quick want of aware

said that ’XX, UAN. XQ there you orders is were unfulfilled think in that some I for

Mark Behrman

Yes.

Owen Douglas

an of in customers shortfall pressure having you be a expect more little about so those pricing as Okay. back curiosity, XXXX? to And do how try kind just bit to out orders. the impact you of think win Do gave you that there perhaps that

Mark Behrman

This orders. of is those just a carryover

in was it view first Our -- a the impact $X.X million about was quarter.

orders in the have those deliver price quarter, manufacturing the first quarter. we'd market. we higher fourth first manufacture the and to -- orders delivering in deliver and those been So to be orders a in those fulfilled Had

carryover a items reducing first quarter. just for -- product sales in effectively our that lag we manufacture our the it's reducing that's So

Owen Douglas

get I it.

So receiving customers, opposed it's Is really later to just a actually way it? of timing that originally to fair I a material guess, think about kind the thing as than they ordered. customers well, were

Mark Behrman

said, Dan in in yes. at first here have that some year some we're they September In the the the In would cases, year fourth in for in first that selling product rather higher orders have late late cases, quarter prices clearly actually delivered delivery, so August, quarter. early -- the placed product but or in as the in we

Owen Douglas

And XX, include and fixed to expenses is understand, the plant slide that this also salary wages, on wanted Baytown? XXXX numbers, including does just also

Mark Behrman

Yes. It does.

Owen Douglas

Okay. I see.

bit to about down those you that expenses just at what’s be understand we're plant $XX plant driving being better lower help expenses? fixed little year-over-year. So million me a looking Can going

Dan Greenwell

has Baytown than me -- clarify, to Let just less XX employees.

a it's So -- significant significant that. on a not impact it's not

I watched maintenance going down are over be to we got we expenses cost MRO We've expect looking materials that a well from items. cost of headcount, clearly, we've this purchasing as think of maintenance to the all of be down and year. way time variety at obviously reduced

and of the expenses, tighter plant variety a significant operations. whole it's to individually management I it's think, driving it. point not be can really anything will a better you really So that But

Owen Douglas

on And just is year is no into year. maintenance to CapEx stuff this to being compared understand there is apples over which the number, shift an basis, apples maintenance

Dan Greenwell

correct. That’s

Owen Douglas

or plant that where $XX should expenses? in? that CapEx $XX So turnaround in the be typically would run higher million expenses? Where that million fixed turnaround, incremental factored

Mark Behrman

No. It’s going to run through cost sales. of

cost plant that up So, roll expenses to ultimately of six sales.

Owen Douglas

I Okay. see.

million $XX think right we that to Is expenses about way it? So plant the have actually six year-over-year. down

Mark Behrman

here. No. back reconcile I'd look I think I truth. don't don't tell have I go something the to can and you that have to so,

Owen Douglas

Okay. of that you just the follow-up wanted on for wondering was cost And most sort understand XXXX finally, cost the the offline. comment think made terms the up lower capital typically sense as capital, that We that to in me equity so expensive objectives are that reducing you and give of decrease. Can cost can of to of for structure some higher to for to you capital capital the debt, it the of company? of move going all how secure way you're tends thinking being about

Mark Behrman

we're a as to I outstanding think is the and we the to step. that going $XXX don't outstanding. that so only senior we we clearly preferred to of essence secured and that that do talk stock how first that to the order what would intend first be that's got notes in about we're reduce refinance need we've of capital prepared have business is been million transparent I and and about we've pretty open think

Owen Douglas

Okay.

that. understand I think I

capital? talk from equity about cost excluding you that You’re So can of comment.

Mark Behrman

our would than less lists. clearly That Yeah. be

Operator

Mr. to Greenwell, further you I no we now have floor questions to this like back for time. closing over turn at the would comments.

Dan Greenwell

so we this call the day. Great. Thank Thanks a quarterly We look much participating. have you. call. on next your appreciate and Well, great for thanks, to our forward everyone time and morning

Operator

this conclude today's teleconference. gentlemen, and does Ladies

day. disconnect this your time. lines participation and wonderful may a for your have Thank You at you

LSB Industries (LXU) 27 Feb 182017 Q4 Earnings call transcript