Earnings call transcript Q1 2023

Due to licensing restrictions, you must log in to view earnings call transcripts.

Operator

Greetings and welcome to the LSB Industries First Quarter 2023 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 Fred Buonocore, Vice President of Investor Relations. sir. you, Thank

begin. You may

Fred Buonocore

everyone. morning, Good

the Joining the not me and note Chief Officer; a factors and and Behrman, today’s company’s of on current variety intent, results of are Maguire, our future to Mark expectations differ because statements, Cheryl forward-looking Please they will our are Chief materially. based call the actual are Executive projections, include today cause statements guarantees Financial that and could Officer. performance

references to release to include and results, please section As our press will this non-GAAP for GAAP statements non-GAAP see the regarding in of results call reconciliations of forward-looking Investors the results. further website, lsbindustries.com, information

At to the ahead this over turn I’d and go like to time, call Mark.

Mark Behrman

Thank you, Fred.

speak first second our safety our today by to We’re of team with full you quarter start their and the for happy I’d XXXX to quarter outlook and XXXX. congratulating on our year about the to results have like performance. opportunity

our total recordable incidents our is As goal zero corporate that trailing of of most important. zero the XX goals, all rate March recordable was and one. of month XXst, our Out below injury injuries

continue had We’re expect to would improvement to very drive we’ve and it lower. pleased the with I

high presentation, our prices for summary nitrogen quarter Page at XXXX levels a market in XXXX to benefited pricing our inordinately decline we year. to Looking first first products financial down the to X as of compared on from were the anticipated, results quarter the last due relative

that dividends. efforts, generated improve trends, and in the last to our quarter. our paying and are we our sales increase year’s market operate compared the efforts can’t these both investments products, control our way we to pricing pleased are ongoing volume facilities in While facilities of can’t we These reliability solid production plants the and control we first a we and through

of provide markets. X On an our our of Page end we presentation, overview

including at Domestic three ratios worldwide remain drought corn global conditions by in multi-year historical years that and demand. South believe for in we Foreign America bring and stock-to-use averages. ratios a U.S. in averages the line the and will above two good variety of stock-to-use to driven take global prices parts factors of remain growing with strong corn and continue seasons back multi-year back to to lows of it continued

prices coupled believe corn We in increase costs in planting the planted with This near relative make expect U.S. levels last should XXXX. corn will farmers. to year will high that lower acres an attractive into through input stay economics to this We the spring. translate this current of very

estimates USDA the year. acres and an demand there fertilizers, be of should an we The to that X.X that approximately for wheat with nitrogen million increasing XX orders nitrogen increase further increase million will increase season of this are approximately will be getting in demand in stronger is XX.X planting acres corn underway. corn It in that and An lead seeing XXXX, expected almost planted fertilizers. for in acres million in planted planted were acres XXXX planted also

increased Nitric the of steady. for growth and the U.S. the facilities demand stable as impacts input in demand is inflation as offset electric infrastructure high production vehicles metals for applications applications of other the is is for costs. to growing the U.S. AN strong operations aggregate acid mining increasing business industrial demand U.S. acquiring in order Demand international to in in in and U.S. for and producers our global for Demand take use has from production build by advantage is shifting are the lower

by production. season. in Pricing in for the natural the start as lower as decline phosphate with fertilizer largely to for been a Asia, demand U.S. come a has gas to particularly products well prices, in use Pricing in slow impacted reduced industrial months, down applications, due for demand application recent coupled European national has ammonia nitrogen also

their However, attractive business production trend pricing a from turnaround solid facilities in for our lockdown, year-over-year should to the with levels. we start across to China Even continues and at reverse. and this reopening and well we be With remains sales at continued trend improvement COVID our see no year operations, volume. scheduled so, strong our demand positioned that increase in are

cash expect As – a continue healthy of XXXX and to to we such, be flow. year profitability

to our Now quarter our Cheryl I’ll discuss results QX over outlook. second who would turn the and Cheryl? call

Cheryl Maguire

of than in quarter, Thanks we headed million largely start the in and fertilizer Mark. slightly in of prices had decline $X.XX quarter, more generated selling season. quarter, below first $XX And good our a early morning. with adjusted anticipated coupled slow because EBITDA the the adjusted expectations the application the to of We EPS significant into

our to of summary you cash Turning Page metrics. X, balance see key a will sheet flow and

the profitability improve first our $XXX cash had million approximately short end continued of us further quarter, the and term At investments. Our enabled we financial position. in to

capital and During generated than flow $XX quarter $XX cash a cash free of and we XXXX, into first conversion million of the of of XX%. million flow rate had free flow expenditures operations from translating more of cash $XX million

times, to normalized one EBITDA mid-cycle less ratio leverage ended of trailing below we below the quarter than or X.X target a Additionally, of leverage first XX-month environment with well our times. a debt pricing in net ratio

change X first of relative our the to lower for Page the EBITDA. first $XXX our bridges The prices year’s adjusted of $XX quarter last million. million factor quarter, EBITDA is record XXXX products in selling the XXXX year-over-year for in EBITDA highs from driving adjusted

year, the freeze due previously late the at facility Cherokee at quarter our operating of first coupled were side, our rates last XXXX in despite with to our sales in successful is commercial announced to facilities the stronger relative the On of impact increase January production event. higher the loss The result positive the initiatives. volumes our December

for currently lower at $XXX approximately QX ton, pricing second which XXXX. is benchmark prices is at our the quarter, UAN Looking realized the a NOLA than

settled benchmark Tampa metric per versus price for per in ammonia a average $XXX an $XXX May of ton QX the metric ton Additionally, XXXX.

declines, prices previously. a will stated bottom, some are QX our factors do, Offsetting XXXX approximately are of the reflect support per $X.XX XX% locked which that near in natural forward. of think price which We however, for the Mark of QX costs per views XXXX materially at feedstock than ammonia, particularly going or our changes MMBtu, that $X.XX gas at is lower MMBtu. The

quarter With offsetting of planting some fertilizer price our to underway, running higher XXXX, we as well the sales the second spring second the XXXX as selling in further overall season recent declines. facilities compared pickup the the of demand, volumes of quarter for gets expect and

book EBITDA prices, order of $XX natural further gas cash current and flow strengthening of our be healthy the to range the our of sheet. expect our million Given quarter generation adjusted balance in our free forward locked and second $XX resulting additional in to we market million view prices in and costs,

now turn back And over to I’ll it Mark.

Mark Behrman

Page Europe X advantage Europe producers. illustrates Asian the a averages multiple average as globally. of narrowed U.S., European eight for months, $XX above a demand past in how lower and temperatures winter gas result a MMBtu over the the prices between U.S., we’re gas in XX-year continued largely to natural what throughout paying European $XX equivalent, at natural U.S. industrial Still, over of and remain giving spread an producers prices warmer than

is primary being summary a every followed day, reliability stewards our of key good our growth of X, Employees environment Page initiatives. we focus On of and single our facilities. show the safety the by

of utilization our cash for XX% We goals ammonia progress provide significant capacity have plants continue zero a total releases on that environmental our and and and flow. for meaningful opportunities these improvements to on further and to for make profitability year meet fronts average recordable injuries annual and would incremental spills,

believe of of increase our ability the the through have we that, plants debottlenecking capacity we initiatives. to top On various production

flow. increase and and evaluate projects We that our and significantly production volumes would continue to cash profitability potential our multiple sales

As last submitted a in debottlenecking would several fertilizer XXX expansion call program under opportunities. federal an grant we that discussed production support USDA’s our application million for December, the on we

months. potential move we plans, with or to are the this to of projects investments, We I inquiries Relative we funds will of more cash regarding number received the debottlenecking we forward awarded our have expect timing one evaluating. learn program in next a of be under should the several if

take how project we the summarize process of the to moment development I’ll cadence see a going So forward.

projects we studies no much being of We XXXX. whether for merits the for expect decide in as to than the or studies second more XXXX. considering Should At performed the move of receive feed or one we forward end pre-feed being year reevaluate later decide with studies one that for the of with with completed findings quarter. second the one second with take being commencing studies in of projects of pre-feed projects currently pre-feed half of studies completed and largest of the to move the will feasibility half we of could point, them the – forward as more we anticipate those studies are to the

that expected Once global cost would we view at met of of that on our projects and updated forward on our we and the performed market studies, the overall the projects will consideration, we all reassess Only return or its with into economy. of any time expectations. move outlook nitrogen proceed any the project, studies received utilizing take we return, each and multi-year that projects

in decisions. any the would of global certainly half second views XXXX it the decisions a kind project we to economy start will on before be So make investment of and factor capital in in those spending short, of not markets any would nitrogen be us our and meaningful the driving when

and very Not ammonia additionally green of ammonia our of exciting have substantial of both opportunities emerge to projects X as believe do represent our only footprint, our update blue we Page in industry. the overview The a leader our reduction should carbon attractive. but green decarbonizing and we have be potential in the a an projects underway result two economics provides to blue, projects.

in come volume into expecting while full rest sales should allow generate year are year flow since turnarounds sum have increases free down with solid up, the for production To and selling beginning and no to of scheduled cash moving prices year. that us we in year-over-year the the the product the significant XXXX, profitability of

and Industries no of becoming a production transition of leader same to continue carbon world. our build products the LSB vision the feed achieve through low industry the position in and the chemical the that in power At to we energy time,

these of will in expect our forward you look as and come. of profitability all our milestones value the increased our in with progress to discussing the development I to critical lead years initiatives greater for initiatives. shareholders reach We to we

mention Sachs Goldman Rancho Leveraged the the Before operator Finance like back I Q&A to on for Palos that participating XX I’d we call session, June on and Fargo Industrial in June Conference be in the Boston to California, the the look We XX. hand May the those at in X Stifel Sector to Verdes, Chicago Cross you on seeing Insight Conference forward events. Conference in will Wells of many

our concludes happy and will now take be to remarks any prepared questions. we Thank That you.

Operator

time, with your session. proceed question-and-answer comes this [Operator Spector with be question. from first Joshua At Please conducting question we’ll Instructions] UBS. a Our

Unidentified Analyst

This is just Good bit pricing I morning. of on understand for sort better. want to comments a Lucas the calling outlook Josh.

mean, looks with to it mean, spot of get XQ if rise prices first I kind So where rates difficult be going like above quarter. to pricing I currently, realized be sort the even of spot mathematically it’s to the are

is quarter seems pricing’s before third declined on and – a year. up going demand your mean, moves with into pick expectations like it up seasonally in to it consistent mean it of Is that XQand getting then I what around you’re again comments I later realized be bottoming, mean, prices is your maybe sort outlook sort weak the are? I of that more something for it’s sequentially the that do than probably Or So that? the assuming the

Mark Behrman

Yes.

you’ve well. think categorized it I pretty

season – we and in later the But if maybe we’re will the the almost And two-thirds can a going into the we’ve I reminder, end think quarter. second some got quarter. kind hard uplift it’s second quarter typically of in realize I the into as spring think June. to price, even in be some halfway

and seeing not through we’re I an kind spring planting think unusual rise spring the season. that it’s of prices

as So we don’t summer if have the see historically as know we’ll much seen. a I of would drop over

half prices So the stabilizing I year. second us absolutely the think the in in help of will

Unidentified Analyst

lighter kind the funds with start And the to thanks. on about the impacting probably for the the Are of season? of in year? delayed, Or so of see targets volume that I shift sort little of volumes in $X.X up the for late expected you obviously kind of do of you expecting product just start then million than came All was on been first that the the volume into in year your make season’s mean, a May quarter. the side, right, everybody full just

Mark Behrman

impact Actually, our we volume. to see any don’t

there spot you’re of on switching think I late products. might season means be

think it planting. as the It So for the and spring spring. maybe tons the light right, both total a view think fall the you combined, XXX,XXX fall we ammonia in prior because if about probably to was and I for XXX,XXX, little by total application actually

So need XXX,XXX farmers that tons UAN. assuming will or theoretically – theoretically need the urea make that the nitrogen to up farmer of another shortfall, either need

last or we see why pickup in those of one month has pickup up should a think the urea are see that’s pricing products starting substantially and to both So we so. I or moved over and fairly a in

Unidentified Analyst

Thank Right. you.

Mark Behrman

Sure.

Operator

with question. proceed Adam Please Goldman next Sachs. comes Our Samuelson your from with question

Adam Samuelson

Good you. everyone. Yes. Thank morning,

Mark Behrman

Adam. morning, Good

Adam Samuelson

Good morning.

guess, guidance in pieces moving about takes you’ve we second and and between want the spot lot and I versus gas obviously clarify, So just quarter, what’s obviously a the product to hedge think the or prices. how the there’s I as of moving –

As can kind to and remind price year, how what you to contracts? UAN about of the of linked – the the to the lower of open the ammonia second industrial versus back in are gas half you doing much have sensitivity then half of kind and a plus ammonia prices cost year. think and nitrate of Just gas of kind fixed kind natural we move versus versus hedged into us

Cheryl Maguire

think hedged way simplest MMBtu Hey year. that half to second Adam, to put of we’re XXX XXX at about XX% be would for per the the I the

Mark Behrman

of through that’s I would customers. aren’t And needs our to passed add that XX% our gas that

Adam Samuelson

the needs your gas me about that total through percentage consumption. remind And gas to to are passed think just of customers

Cheryl Maguire

XX%. the Depending XX%, mix, probably on

Adam Samuelson

it. Got

Okay.

in on of the move the U.S. customers side, seeing kind ammonia seemingly very Are that’s markets kind of I prices Now demand. kind on Gulf off go the interesting ammonia year. I trying are have how think Europe activity your about as seen in And that levels then ammonia lower and is market seems pushed the where second surpluses to you’ve half and evidence from market helpful. to improving? rebalances for the, in cost industrial to from place into international it mean, and mean, of kind react that industrial curve – just high lower we through an the of producers your kind of total any the the of

Mark Behrman

kind I what’s question. and think, sit try I great frankly out, at a of mean and That’s as not production we Europe. prices cost are on the figure back quite of Gulf going and of why,

importer in have for And for I was was Asia throughout we’ve importantly, closed a to think all keep industrial we ammonia more and net that. important, a demand drop. that just mind China while to maybe as prior seen China

of so the And up, half in pick year. the expect would to maybe second that

demand back more to to the see, that of second strengthening of imports half, into would industrial see come see some in we ammonia we we start for and the if demand some so expect And market from China pricing.

Adam Samuelson

I’ll all on. is helpful. you. Thank That it Okay. very pass

Mark Behrman

Thank you.

Operator

next question Andrew Capital proceed question. Our RBC with from with Markets. Wong comes Please your

Andrew Wong

good morning. Hey,

there So looks just healthy over $XXX like But aren’t of so to timing HX you’ve major capital sounds sheet going like until pretty any balance it a million. your got potentially back spending of decisions now, right the XXXX. decisions really

are that So then? in for now any there like cash and between plans

Cheryl Maguire

single great day. Yes, one we of every think kind a and that about it’s question

about think bought So year. stock $XXX We last back I guess of I this it worth way. would million

balance to and that with say additional then of rest generated quarter. first between the to year. a and expect And $XXX of cash at it throughout end healthy this We we additional we’ve suffice the generate cash now are sitting cash the

we’ll have and we next buyback. another So be absolutely putting the week our annual in discussing, board with meeting stock be we’ll

Andrew Wong

Okay. thought like And there? debt – how versus buyback, the what’s would

Cheryl Maguire

debt our a leverage some normalized reduce to want we clearly market. bring Well, down the of more to in

call our next of date is first So year. October

allocation in forward capital. think So, of move something with of our definitely we’ll that’s I sort we mind that keep as

Andrew Wong

just Cheryl the for seemed were QX. you’re being gas and gas think up bit little a what guiding up Investor then follow numbers think hedge some nat there QX the I and than they And higher to hedging, Day, by back on I on Okay. nat ended what provided

could some costs? gas so of And you the kind talk what just about are lowered rest there Thanks. of year? offset that the of for the positions some was maybe those And

Cheryl Maguire

just back to the earlier. so I year. – mentioned XX% that hedged we’re QX the That’s and for so around Yes, of just XXX-ish Andrew, at then, XXX half reiterate the for

we think question I’m what not that’s if though. Investor provided with sure I Day. that your in answers at the line

Andrew Wong

no, Okay, yes. that’s just, fine. It

Mark Behrman

going we’re one to was I XX% Cheryl that mentioned thing in say to hedge. keep mind.

open have XX% to lower do we spot So prices.

as may closer be the brought has a what pricing So dropped that you down bit little to gas $X. know,

Andrew Wong

Okay, thanks.

Operator

Rob with proceed question next question. Our Please from Granite with your comes Research. McGuire

Rob McGuire

us just pre-sold could Good was so and product you heading you that did if pre-selling? product a got period you read a have And was morning. on product or you were XQ? read pre-sold what of from give that Have time into

Mark Behrman

calls, competitors We of how buying sell standoff late don’t give the to to of we start producers coming think months. earlier, I couple Rob, of we some sort talked wanting or we certainly But spring. about did a buying had And pre-sold the customers pre-selling as of a their pre-sell. people into for timeframes on quarter. the the our the of versus of and some have it tons second exactly usually was Yes, kind out mentioned much

what spot more So, seeing. pricing. now whole it’s right it’s in I I and And just of is that’s think industry time think the lot a

Rob McGuire

discuss a levels volumes and lower the in to perhaps on be appear on where inventory your sit you your basis. producers U.S.? Can Thanks, inventory Mark. perspective other with inventory year-over-year And the then your

Cheryl Maguire

Yes. Good morning, Rob.

cost our course inventory of of – lower. is a bit So our quite

looking from you’d inventory a balance been volume perspective with this in time just So line see that last much pretty sheet, year. the where we at today would’ve

different. So nothing really

Mark Behrman

urea don’t competitors combined spring are. ammonia talk about with application or – tons. or application where Again, is XXX,XXX being I UAN. we’ve care know not I’m not sure the ammonia still even that got I length There length inventories of would into off a much fall really as length some market, to I spring or that in would say know but their I’m couple any

markets. pretty those I Thank think tight are

Rob McGuire

Thank I’ll in the around back you. circle queue.

Mark Behrman

Thanks Rob.

Operator

next proceed Our Please from Instructions] Laurence [Operator with question Jefferies. comes Alexander your with question.

Dan Rizzo

morning. Dan actually for you for Rizzo Good on Thank my Laurence. It’s question. taking

there’ll You spacing that for turnarounds mentioned Or the more I that for we need turnarounds – should lot between this year, next for downtime that? about how that be there’s long the no a is think year? guess

Mark Behrman

Yes.

Cherokee We So for do is following – don’t don’t El Cherokee then this Dorado for at scheduled we cycle. is three-year two still as have year, and turn you prior on El facility our cycle. our facility. And Pryor our turnarounds for have have – Dorado any one with year. we same one on facility. and said have year the turnarounds two-year one scheduled a The turnaround turnaround next at we a

Dan Rizzo

below or your low, low guess your what are net-debt-EBITDA relatively things a Thanks clarity. it should wondering we is we where to cycle And kind turn I – lot. or as expect just next mid-cycle the was if more and you know so range. we in don’t of I your Alright. remain term we then fairly where until up year for there’s I given the

Mark Behrman

million quarter Cheryl we quarter, expect I for second quarter. in $XX of normalized – first that I beat EBITDA, the quarter Well, about I what in and guess a would second how to $XX clearly the that million to gave range number. we million $XX did first the answer

of pricing think average. to million, even drop million So don’t on half for in a back $XX at that going of that’s front the the midpoint $XXX see and half is the much we

despite in the normalized think a be going with that prices I normalized EBITDA prices still than So albeit ammonia that average million than $XXX we’re of more year [ph] the $XXX less $XXX on to bit are of too. for million assumption the right lower likely gas

higher we’re know, how yes, EBITDA mid-cycle are So I really levels levels, long at can’t don’t on you I comfortable and with or these last prices will unfortunately. tell where we

Dan Rizzo

Thank you very much.

Operator

Charles question. Our next with comes proceed Piper your Neivert question from Please Sandler. with

Charles Neivert

guys. morning Good

in through late one, Just a got based bit a early a the best into we think this pace and crops, right but we’re of picking year, wipe going obviously is depending June the fall you going rebuild even leftover, application, that little into a do so its is now. to industry on, up the estimates inventories PACE the up continues that moving and fall, you anticipate got If the May when now. basically or quick most of we on out we can the we your start on PACE summer right for spring at finish

Mark Behrman

I would of out expect that inventories would the be really low season. coming

Charles Neivert

it’s the Because indicator there’s yes, certainly Also corn the be of it of wipe, that going in quarter on side-dressing year the lot a to or of fact you wiped think if into in, a big holding application and got here, going crop, some the wheat they then better particularly through to chance would indicator but going late, get like that’s cases? price much season. the of there’s the be nitrogen inventory can a rest looks that going on through I high a some if raising where chance do given even big the has again, you of third to clean, you fairly mean, pricing through a

Mark Behrman

Yes.

Charles Neivert

help bring That’s All down that I right. much. Again, all Thanks got. numbers. Okay. very should

Mark Behrman

Thanks, Charles.

Operator

question. with from comes proceed Research. question Please your McGuire next Our Rob Granite with

Rob McGuire

very to bounced result or the fields Urea does logistical a point, this a you’re just asking higher the season? I’m question. like or as at occurring bottlenecks. UAN heading look with if out this follow-up nitrogen of – to ammonia that this And one your Just distribution orderly seeing of

Mark Behrman

application ammonia done. much would season is right pretty I say Yes, the

pre-plant, that much. are even pockets point. everything’s not ground in at much really still this planting mean, small pretty certain I have the or but may You

on don’t have at So I all. season’s prices planting impact the going think spring much to ammonia

about going it’s that the globally. think factors talked I to I be of some

As UAN as moving far up. moved have up urea already as, prices pricing

would nitrogen UAN a basis a was in buyers look really basis. or say pound per large, pricing pretty the I that, differential for at low urea at there premium ton prices. the on per the And

So that spread to on, see traditional price is demand the up, if we appreciation see to and appreciation goes more spring will or some really for as narrowed continues some pick price should But spreads. UAN.

Operator

We have reached the Mr. Behrman back to end of over like closing I to our would question-and-answer for session. now comments. And the floor turn

Mark Behrman

to thank I Thanks participating us. for Appreciate out our follow-up please any anyone if everyone’s quarter interest first want on reach to so everyone questions, earnings call. has much. and

Operator

This teleconference. concludes today’s

may your this participation. disconnect lines Thank time. You for you at your

LSB Industries (LXU) 3 May 232023 Q1 Earnings call transcript