Earnings call transcript Q2 2023

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Operator

Greetings, and welcome to the LSB Industries Second 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. If anyone should require operator assistance during the conference, please type– on your telephone keypad.

As a reminder, this conference is being recorded. pleasure Investor your Relations. my Vice Fred now of President is to host, introduce Buonocore, It Please ahead. go

Fred Buonocore

Good morning, everyone.

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

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

Mark Behrman

-- at had recordable June are and for you, year, speak trailing of months that to again starts as our rate I'd recordable quarter committed X.X stands everything the team the their of X full safety We're with and XX-month XXXX outstand congratulating on happy and year ensuring you third injury -- our XX, Thank safety. injuries to -- to second have have XXXX, the of X do with by we once our first for to we've start outlook and this results about opportunity we our Fred. quarter like performance today XXXX. we

translated solid in our sales summary Page Looking to teams XXXX. manufacturing and quarter. during at X volume well presentation, into increase QX and very of our commercial a XXXX production compared the which performed both on second quarter the

good coupled our for quarter Reflecting a that ammonia towards we've onstream of implemented ammonia progress and plants our the onstream first reliability the making and our with that indicates I'm pleased half our we goal stated processes operating average are procedures to of second say XXXX and XX% and investments. rate rate.

through turnarounds. We our that year's next improve continue we and rate see to to as mature expect get new programs

As of year's this anticipated, largely industrial the prices due natural in lower weaker pricing products results impact last to to levels, compared -- decline Asia. to The market resulting gas second a in quarter financial from relative was high were for of Europe activity our the prices lower in nitrogen XXXX. and

urea. domestic second expectations during Additionally, comparatively been UAN farmers headed was what a had versus urea this as quarter, for pricing period our attractive more the into year -- below demand opted UAN. to the to apply early

generated and environment. have the flow As pricing to in XX a even nitrogen free significant we last continue lower months generate over cash cash expect free to flow,

during in shareholders. stock have our We we second this and Last return balance year, of with worked the growth to year, of -- million $XXX of of common quarter $XXX repurchased to debt. million repurchased outstanding we investments capital our

$XX common million stock of in $XXX repurchase May. authorized repurchased we program that Additionally, million Board stock our under the

So excess shareholders. ended a $XXX XX-month of collectively, of June XXXX, as million to XX, in we've the period returned

cash flow free maximize We our to use will shareholder the balance to long-term continue of value.

a fertilizer their -- funding for production I expansion as the to capacity we have mentioned site at USDA submitted previously, Dorado El under project Lastly, program. our expansion

and project is the public month. was for for consideration selected funding end until this Our of open comments for

further environmental the review. through EPA continue will we process, Assuming the a conduct

growing X line. the would resources. presentation, into will an the USDA's subject it, expansion this of on third move to continue corn corn we towards trends, Page our On we tight at demand season. demand of remain we and timing end our and taking that decide steps war the Corn consideration expect many overview markets. internal economy, uncertainties ratios. Ukraine regions, global to to we stock-to-use levels to ongoing related above We dry evaluate excited ongoing global multiyear were fertilizer averages, the quarter, and this support solid next our reflecting as sequence strong prices planting project, conditions we While remain hope next about Accordingly, the provide markets, prices in U.S. of the the to time throughout in the would

first In fourth addition year XXXX, incentivize in half costs farm we maximize as quarter they seek and corn in to season. to to prices, steady. of for applications remains business yields lower to for our industrial strong believe XXXX last fertilizer Demand next the relative farmers further input optimize and that should the the growing of

global strong is ammonium acid infrastructure and operations for nitrate increases input in advantage increase international U.S. other is of in demand to mining take quarrying order production projects producers growth vehicles as the demand for applications and facilities production the in U.S. from in shift applications U.S. Demand increasing metals and aggregate costs. for and is Nitric stable as the electric demand to the lower

over second the Cheryl, turn who quarter to I'll discuss results call will Cheryl? outlook. our and our Now

Cheryl Maguire

than and volumes, expectations. had in the lower mentioned $XX slightly second Thanks, EPS with as financial below of and along a because our We sales Mark see million significant UAN Mark, earlier. more of decline largely quarter good anticipated is results. in you'll adjusted generated prices $X.XX in quarter, of On a X, second summary adjusted our quarter we This selling early the Page morning. EBITDA of

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

and free of we of quarter of respectively. expenditures cash $XXX flow into cash million generated we've and capital had XX% free and operations approximately million, flow had and XXXX, cash During capital of the year-to-date, second flow conversion million cash translating and from operations of million expenditures $XX rate million a $XX generated from $XX flow $XX of

generation Our short-term position. continued $XXX At in the free million we to quarter, us second had investments. cash financial end cash maintain strong flow the a of enabled approximately and

under million notes share $XX for senior million our and $XXX This was our that back bought our secured stock million $XXX after program May. in of of we of principal current our buyback Board repurchased authorized $XXX cash amount million

and balances total capital an of capital to Relative As leverage. return level a to ended Xx. disciplined, we and a growth appropriate mentioned, of trailing maintaining EBITDA debt that ratio that, with approach XX-month Mark quarter our million $XXX leverage committed debt the shareholders approximately investment in on are of with we multifaceted in focus to second allocation to net to

were for Page X highest LSB's relative EBITDA. was change XXXX bridges million, EBITDA history. our adjusted year-over-year second $XX to selling of the The the for highs quarter primary products factor in year's last EBITDA $XXX million in quarter adjusted XXXX prices which lower second adjusted EBITDA our quarter from of the the in record

operating at On the sales successful relative our our year in higher coupled initiatives. with quarter positive of volumes facilities rates to side, last result our were second the a commercial stronger ammonia as XXXX

Now, quarter. I'll factors when outline some to about our consider third thinking

the was had to a in program, at $XXX reset product the levels the year. slow summer a during would typically that industry and raised. widely again response we the comes summer during selling it prices, quarter reset In be fertilizer third The approximately was offer of when Having NOLA benchmark offers expected the that tonne round early UAN fill a this first saw sees nitrogen of terms seasonally fill program summer July. out, positive

urea and with prices. of Summerfield rebound well NOLA $XXX At in and That trading this markets trading sub-X.XX initial the as were as urea ton. occurred announcement, the corn persistent per a week aided firmness the time by barges up earlier was ton, the international to September of local August

markets with have the The UAN to $XX continuing a to ton trades latest August, pricing. higher $XX bodes for well AN been September rise. This barge and

first our lower below second benchmark our in for and ammonia per still price of per quarter XXXX. 'XX. are in of monthly AN $XX ton Tampa However, metric metric QX for $XXX current price metric average UAN said, August, realized The $X.XX realized July, of increase prices to October since than that $XXX price a With XXXX. at increased in of by Tampa ton ton settled the the

expect third year. for to XXXX last turnarounds quarter XXXX With of but a El appreciation year, as continued nitrogen quarter and facilities this Dorado the of expect turnarounds material price and at we we the our versus improvement have to measured For quarter, balance no we the in we products. Pryor see respect volume, third the had

note for scheduled weeks the ammonia that El pipeline NuStar use our to I for we down during would from distribute quarter, X that be maintenance. this third Dorado However, facility will

a As a sequential still see a will pretty increase material third decline quarter sizable result, the volumes sales we in but to of XXXX. relative ammonia

outlined, the than the be so by quarter of for feedstock with pricing sold build We volume was of XX% the third decline end expect EBITDA In costs, roughly in QX quarter XXXX, additional of partially our to offset improvement, together, the quarter sales what third substantially in but natural our sequential per the strong gas at line our XXXX. expectations by as and expect of quarter approximately QX $X.XX. second thinking locked similar approximately our are $X.XX XXXX costs all I we adjusted which about year. given that current lower year-over-year a we it see for during MMBtu, Putting in to realized inventory production environment second

the And AN will Mark. it ammonia with over fourth demand to pricing now quarter, to continue beginning turn see to prices to believe I'll that and UAN materialize. we that increase Looking factors and out improve back should

Mark Behrman

the $XX per August Tampa for an excess from prices past significantly European XX on ammonia the equates of one cost curtailing remain provides of high and U.S. this That's downward with inventories in so, MMBtu Asian multiple higher an our of the ton. Thank of production gas to and year a benchmark last after the come to gas The We X temperatures produce drop months. cost of approximately prices low-carbon of you, increased and ammonia initiatives. Europe in Cheryl. the natural storage Page gas than feedstock later to warmer-than-average in $XXX by for producers. European winter, the caused year. imports higher selling at X this the $XXX higher ammonia enabled over Europe in online and factors past the in pointing $X.XX U.S. prices European of ammonia back Page ammonia gas disconnect LNG Even prices approximately is gas to this costs. gas a believe resulting update equivalent, overview combination in prices U.S. depicts significantly largely that combined due ton from production producers per ammonia to trend

substantially ammonia opportunities economics the on believe emerge blue facility at project of potential to We green they off-takers. ammonia projects potential Not into prior and our Dorado decarbonizing our with attractive. do to industry. should reduce but our both the have exciting very we footprint, in a only as leader These carbon be our facility, represent continue to El headway make discussions our project entering at our advancing including

demonstrate ammonia support leverage to companies a the the clean During pleased to second low-carbon for global announcement ammonia a goal our MOU can commercial in as to industry of ammonia emissions. of of to power source expect The to quarter, the and relationship Ultimately, ammonia how marine would major a efforts development COX and with the to activities is fuel we to the developer were partners X with for to which add reduce this technology. with develop combined in low become fuel. to to developing carbon we a on marine collaborate needed our our Amegy, this additional transition, result capabilities primary ecosystem infrastructure work

our a and positioned business been well them that year is trends. a the progress allocation coming initiatives are operations, low-carbon we announcing the the There balance discussions with with to make with time, selling for in that we've headwind are time. we us very our respect forward same prices. XXXX these plant to developments our question sheet in to energy. in our respect from and Lastly, collectively, We the of growth the pleased new challenging years, improvement, declining irrespective has clean made look At additional however, at price capital continued program, no with appropriate commodity believe several company

happy Jefferies like I'd Summer hand Conference back to XXnd. for also will Seaport Conference session, Virtual September The Before events. on And New operator you. on seeing Conference on New forward September to York in the prepared our We you we Vegas I The Conference of questions. we RBC mention look those Xth on the the will XX. in at be that to remarks, any Las to August be in Xth. participating Industrials and concludes UBS in many September Chemicals That take York. now the the Thank Industrial call Q&A

Operator

Please UBS. question first with Spector Your from Josh Instructions] go [Operator comes ahead.

Josh Spector

Thanks question. my Hi. for taking Yeah.

wanted clarify just I some UAN to First, the summer of on I and program. guess, your comments fill

looking effect? plus levels. out August you think and about the further of the pricing $XXX your made is But averaging talked that towards I higher kind the Is last than there realized on an of in comment bar. a still price quarter? chance just any that explain XQ current you Or So spot and there kind below rates, going pricing what at can you realized you what's is you exit

Mark Behrman

How length our for and most think or UAN, not significant. of an It's based out some we late Josh. you? book take when And occurs prices there. particularly reset time. that order it's you about morning, those are mean of Good not a ammonia I I So usually you July. June products, got summer sort really early months of think on

a prices third quarter, realize the of or fourth these early either is during reset the the into in see improvements lot to summer in late going in we're what quarter think third of we'll quarter the a lot and I prices quarter. So

Josh Spector

just than a No, a they it. $XX When year. were you turnaround couple about look cost costs From sense. costs almost over where years despite makes ago are been, generally at the million gas, ex a year like cost question ton. of XX% than no your deal that we this side. looks over our higher gas having Got the last the of have higher that And on ex years looks again, it $XXX quarter, about couple past good would a your math, a almost

can context structural temporary about operational of some on give there gas or if might And you just higher? us any what costs curious going if I'm be there's So with something that? driving

Mark Behrman

have take we'd to Well, at a look that.

can't say that familiar XX% -- So referring to. higher I'm cost the I'm I with not you're

we obviously, cost, maybe tell call. mix, on after right? from up we're an making product impact because So you reason ammonia will But we can margin. upgrade is I that the follow has The more

part less more be could that of it the sold ammonia think as we quarter. I So during UAN and

Josh Spector

I'll back offline. Thanks. queue. over get up follow Thanks. Okay. turn I'll and it the in

Operator

you. Thank

David Begleiter Please with question, Bank. Next Deutsche go ahead.

David Begleiter

you. I have Thank the for expected QX? versus to could year. misheard it on the -- comments clarify was you. just your may guidance what you be Mark, the prior Thank

Mark Behrman

mentioned Cheryl was would saw think we see that I sequential Yeah, that last we to a similar what decline year.

David Begleiter

this the the this expect do last anything months? Got changed in it. for project thinking maximum Got week do Eldorado, on Or that from your on federal amount, the it. again, has And X you over still government the thinking? decision is the current

Mark Behrman

Yes.

that I the comment month. period, another already or us the up selected not. project we've us fund That think, would think so $XXX total to as of looking it's of then USDA our right? at that those or they full I more of $XXX is that, to issues what want by would more NGOs public that comments. as XX% for or we that million. has the of the little we was at expectation it's tribal any hazy And open and little be they would be after review. do selected told things -- on would environmental what cost, of whether about lot make is process less And I projects to that more clarity public a whether going and move this and end that would the that's forward, to have would the end comments like funding the comment which that the So, project fund will to all USDA the a have assuming September, they're for is, a It's review would considering aim I'm right? then then got really projects were they're period, one referring but million, hope So we travel the that. a then to

David Begleiter

good. Thank you. Very

Operator

Next Andrew Wong Capital RBC Please with Markets. question, ahead. go

Andrew Wong

heard guidance? similar think I to Cheryl what year. down morning. good Could will the last clarify QX maybe Hey, EBITDA saw sequentially I QX we that say I be just

range So what is the that to saw thinking sequential of decline that in $XX Or like different EBITDA last similar year? million be in about? there $XX does we might Does I million, a mean what mean? -- that should be QX

Cheryl Maguire

Andrew, QX was move pretty heavy see sequential a sure. because you decline what quarter, to weakest is to so as the Yes, generally referring as know. from we QX is I QX seasonally you

you XX% was at it so decline if ballpark of look to and And was at the year last QX QX and XX%, look decline. what there, you QX

you're quarter year. quarter second a think to compare third I going this similar this you year the of see decline to if the

Andrew Wong

maybe just in then in off following year on seen Okay. bit Maybe expectations maybe versus general, different would up into how That question. been this prior ask levels? sense. a I tracking cost versus little costs year way, you wanted GAAP what your non to like this And have going the makes year a say, or you've

Mark Behrman

that say would just are our reasons. for inflation. several year general higher I is Andrew, One this costs

technical to and in we our actually folks So of at operate better really we're think safety million and million maintain to push make costs. help addition outside forward. contract take the some to better. -- programs I increase, of them how we're supplies talent higher and probably say, to But seeing other bringing talent cost additional in increase or our this and investments for some seeing so reliability costs. think look $XX some and that, It can we $XX I elected programs was outside would year, I have it we was year assets a adding us technical them analyze to also contractor

take to turns rather elected It their expenses. are capital, just a think costs out right? we I So those invest that than

Andrew Wong

Thank of sense. Okay. That you. lot makes a

Operator

Goldman Adam Sachs. Next Samuelson ahead. question, Please with go

Adam Samuelson

you're better about as morning, at of Have for if I everyone. gotten waiting about to guess scope on any kind -- at think think about funding Good helping for contribution kind just a capital could designs and USDA thank try visibility Yes, what proportion the this the debottlenecking. of we juncture represent kind kind that outlay? the engineering cost thinking looking size the project I of you of net of frame potential USDA capital as you.

Mark Behrman

Sure.

UAN. build facility, the the did plant nitric changed actually a our company and if So our all on industry that we're products. where the which the debottlenecking now the urea to products really really and is plant it carbon would vision UAN be of going Originally, acid We're lower thinking we or to than for full and is carbon upgrade we've was then called project. of ammonia based makeup rather carbonated so to -- it's going to project, where produce really

give would and ammonia, would HDAN or conservatively, -- and along that, so we're derivative XX% We the facility it moved granulate acid it and the I granulation be to now, we either project. us at -- it, do they've about USDA. to million products. And they say $XXX of we've -- all once. new nitric so be If the asked So saying did a building $XXX full support that some did debottlenecking would from project full USDA I'd for guess us the right then would million

over a $XXX would X-year So capital million. our capital -- outlay X- period be total to

Adam Samuelson

Okay.

frame quantify the industrial kind not Now of prepared nitric a talked -- of acid have trends pretty industrial stronger that that? in put months. of in X the volume trends by of a help kind some and XX tremendous color. us remarks, been chains of that's to to particular. characterized last demand strong the some Any showing of there's kind really demand now helpful way for about right chemical or and destocking I amount lot mean you in of release And some the

And what for to set frame kind amongst specifically? so nitric of helpful gas you're -- how seeing just customer your

Mark Behrman

a Yes. of number bit. I I I customers are I contracts you have take-or-pay little And think mean we're that provisions. with do customers. are in with a We there some seeing in think agree our customers. our struggling variability contracts, would

our at paid really for commercial we're production way So own back has customer throttle had Having and that, in plant team product, to plants great has the job. other, the one we I a or all avenues seems issues the other found said plant going the a happens. right, which in issues, the done to has to they've -- get some their that We're point have up time. spot product. for everyone really I some in mean team market. or maybe of think stepped

demand have market. think lot to think a I is do just in board. strong solid of it about way think a the we're demand we maybe -- So the I mining And other seeing strong tailwinds the across

upgrade upgrade we have and acid either or could too. capacity it so mining ban as the that production it that the to and can some shift that that we and sell And market, of April to extent nitric do into then AN to solution if we the

So I industrial to nonfertilizer that we've some markets, good straight the think balance us across the pretty board, the some allows when I variability in got and really of market. think about the weather

Adam Samuelson

I Thanks Okay. color as that appreciate well.

Operator

Next Jefferies. Alexander with question, Laurence

Dan Rizzo

early Rizzo Dan are, that past mean, me you Could Laurence. for growers next to near-term more in than could things the seen see and plants tailwind of likely a corn a a in have they is are the play tell provide fourth -- the late This third quarter lot out pre-buying Or how of as to quarter? you wait year. have in more the if I just on

Mark Behrman

is question. say that's what happen historically, a mentioned you I'd great Well, what would really first.

But prices, bit that a the with fair strong time. we're not of of the that. farmer prices aspect down, it bidding pre-buying last ultimately expect are and the a but dynamic a little still -- year, with they're So they would fair on they're going of this for be logistical only having deal also buying, in just a a would bit seeing farmers because is more to and changed amount just-in-time which risk getting -- to amount

we've to we that step particularly still now amount there'll prebuying, locations, back, taken a but as of think fair to order to also product customers additional kind about we storage of be so in take for UAN that we we and time. a the some So think can choice just the customers where easier and closer product in think position to much of be our our handle service

Dan Rizzo

a And up. then follow just

to facilities, So inventory -- with those what additional does levels that capital? your meaningful working storage and does that anything mean

Mark Behrman

I the meaningful. would season sell say is So, does product nothing year to in in allows do price to to you're talking it needs they season us the it higher think to just have allows What optionality No, sometimes do us that. out it product, a And of points about versus of someone willing I course, pay for and are of at really to higher when store time or that.

optionality it think I take anomalies in the pricing. and of advantage some try get again, higher market So ultimately and gives us to

Dan Rizzo

very you Thank much.

Operator

Granite Next McGuire Instructions] comes question go [Operator ahead. Research. Please with from Rob

Rob McGuire

Good what morning. the over are your last in drivers opinion, Mark, the month? behind prices leading stabilizing nitrogen

Mark Behrman

have dramatically, because urea I think traded the of largest this just at around the Urea increased the urea, and used today. sold prices Well, fertilizer you around world $XXX morning, prices is so look is north urea world. at when first, at looking

lot Asia a it in and in the in other morning, Europe. here Middle ton. and it East But of So, the was a $XXX parts, over this drifted States certainly and tons so East,

world have urea. that bit being of a think, on maybe then driven have a are caused at prices around urea I the least today been really, Chinese And there increased demand, exports. shortage lack plant some higher by of issues So

again, on up, moving nitrogen urea equivalent all trade prices a So, extent, everything, and to basis. products with some

we starting demand globally and UAN it's industrial XX% see ammonia And is in so, and Asia Ammonia down is prices. ammonia earlier, to other yet and of post Adam all where a used prices about up industrially, and particularly bit COVID. seeing picked you're we in pickup mentioned are particularly different, not

So, a slow really been recovery. it's

probably think ammonia. on putting is still some that I So, dynamic pressure

Rob McGuire

for And for fall the fill then have relative us summer? the full UAM of a you're in you prices to, do for now? you seeing an where idea can UAN right kind the of formal say, give And loads place program

Mark Behrman

Yes.

offered So, reset all in really summer out, a early program that almost demand. of limited lot the producers once July, came out sold was volume was there unmet the

anywhere moved from location. on depending week, this to pricing up $XX So, a $XX ton

Rob McGuire

then UAN out the Okay. and do from you year-end? farmers Great. us And attractive here urea through just plays to differential comparable tell about more opted Can just the think you UAN apply talked there. how you urea than pricing how

Mark Behrman

are $XXX prices much a right now at with more up UAN attractive Well, urea ton.

I think would would given on side UAN So, we urea bit is more expectation would that the a than where that today. the see And pricing the side. be demand

Rob McGuire

Okay, thank you.

Operator

the would questions. There I further to like closing over no for are turn to floor Mark remarks.

Mark Behrman

amount always, as increase we're Well, like opportunity significant got making appreciate I we've feel of hope the in And you to everyone's a Industries. LSB at interest improvements value. company. really shareholder

day. Investor or have to Relations some at guys attending. and up I of with to see Fred be that you leads if Cheryl or myself, to for hope conferences Bonnie, So, you Thanks, to us a have any going further we're free who follow great call feel the questions, and a

Operator

concludes today's This teleconference.

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

LSB Industries (LXU) 27 Jul 232023 Q2 Earnings call transcript