LSB Industries Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
August 1, 2024

There are 10 speakers on the call.

Operator

Greetings, and welcome to the LSB Industries Second Quarter 2024 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. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Fred Bonacore, Vice President of Investor Relations.

Operator

Thank you, sir. You may begin.

Speaker 1

Good morning, everyone. Joining me today are Mark Behrman, our Chief Executive Officer Sharon McGuire, our Chief Financial Officer and Damian Renwick, our Chief Commercial Officer. Please note that today's call includes forward looking statements. These statements are based on the company's current intent, expectations and projections. They are not guarantees of future performance and a variety of factors could cause the actual results to differ materially.

Speaker 1

On the call, we will reference non GAAP results. Please see the press release in the Investors section of our website, lsbindustries.com, for further information regarding forward looking statements and reconciliations of non GAAP results to GAAP results. As a reminder, we have a stockholder rights plan to protect certain tax attributes. Please see the Investors section of our website at lsbindustries.com for further important details. At this time, I'd like to go ahead and turn the call over to Mark.

Speaker 2

Thank you, Fred. Turning to Page 4 of our presentation, we took a major step forward with our low carbon product strategy in the Q2. In May, we entered into a multi year agreement with Freeport Minerals to supply low carbon ammonium nitrate solution or ANS for use in Freeport's copper mining operations. We believe that this agreement is a first of its kind in our industry and we view it as a validation of our assertion that our industrial customers will value the low carbon ammonia and derivative products we plan to produce in the coming years as a means of reducing their own CO2 emissions. With respect to our Q2 operating results, I'm very pleased to say that we had no recordable incidents during the quarter, thanks to the strong safety focus of the teams at our facilities.

Speaker 2

In terms of financial performance, our adjusted EBITDA was in line with our expectations. Pricing was once again down year over year. However, we believe we have seen our end market pricing stabilize and in fact the fertilizer summit fill pricing clearly supports that. During the Q2, we generated solid free cash flow and that combined with our strong cash position allowed us to repurchase our stock and continue to reduce our debt. Lastly, on our low carbon ammonia initiatives, our 2 projects remain on track and I'll provide more color on both later in the call.

Speaker 2

Now I'll turn over the call to Damian who will discuss our new ANS contract and review the current market dynamics and pricing trends. Damian?

Speaker 3

Thanks, Mark, and good morning, everyone. On Page 5, you'll find a summary of our low carbon ammonium nitrate solution or ANS offtake agreement with Freeport Minerals. This is a 5 year agreement for up to 150,000 short tonnes per year of low carbon ANS that we'll be producing at El Dorado facility. Our offtake agreement with Freeport starts at the beginning of 2025, at which time we'll be providing them with conventional ANS. Then we will phase in the low carbon product upon completion of our El Dorado carbon capture and sequestration project.

Speaker 3

We expect that low carbon production to come online in early 2026. We're excited about this agreement because not only does it move us closer towards attaining our vision of becoming a leader in the global energy transition, but it also advances our strategy to shift a greater portion of our sales mix towards more stable, predictable contractual arrangements in our industrial end markets, further offsetting the volatility of spot pricing prevalent in our agricultural end markets. Page 6 provides some key dynamics at play in our industrial end markets. Overall demand remains steady in our industrial business, reflecting the continued strength of the U. S.

Speaker 3

Economy and the contractual nature of our customer relationships. Our nitric acid is a critical input into the production of polyurethane. Polyurethane in turn is a primary material in homebuilding and furnishings as well as auto manufacturing. As depicted in the top two charts, trends in U. S.

Speaker 3

Homebuilding and auto production and furniture manufacturing, while having some movement up and down throughout the past year, have been generally stable over the past 2 years. However, a reduction in interest rates later this year could stimulate consumer demand in both markets, leading to production rate increases and greater demand for nitric acid in 2025. Additionally, we are seeing opportunities develop to support government efforts to increase semiconductor manufacturing in the U. S. Increased munitions production in the U.

Speaker 3

S. Is also supporting demand for some of our specialized assets. Overall, we find the outlook for nitric acid very encouraging. With respect to the ammonium nitrate that we produce for the North American markets, we are significantly levered to the production of copper and aggregates. As the chart on the bottom right shows, copper production has increased significantly over the past year.

Speaker 3

Additionally, copper prices have been strong and sit above multiyear average levels, driven in part by demand for electric vehicle production

Speaker 4

and the build out

Speaker 3

of technology infrastructure. Aggregates production is strongly correlated to new housing starts, given the infrastructure required to support housing developments. As I mentioned, we believe that what is now appearing to be a likely reduction in interest rates, possibly before the end of this year could stimulate new home starts thus raising demand for aggregates. On Page 7 of our presentation, you'll find information pertaining to nitrogen product prices and natural gas input costs. Ammonia prices sit at healthy levels for this time of year due in part to a healthy summer global supply.

Speaker 3

UAN prices have come down since earlier in the year as is seasonally typical. We saw an early but healthy summer fill campaign, which has positioned us well through the early fall. We believe that steady prices for urea together with somewhat tight inventory levels due to a number of turnarounds taking place in the coming months should keep UAN prices relatively stable through the balance of the year. On the input cost side of the equation, the middle chart shows the natural gas price trend for the European TTF relative to the price for U. S.

Speaker 3

Henry Hub. After rising through the spring, European gas prices retracted somewhat over the past month, but remain at elevated levels. These high European gas prices continue to underpin global ammonia and nitrogen prices and advantaged U. S. Producers.

Speaker 3

On Page 8, we show pricing trends and forecasts for corn and other grain prices, which drive our agricultural business. U. S. Corn prices have fallen over the past 2 years as global demand, particularly from China, has declined. Exacerbating the weakness has been the USDA's forecast for 2024 acres planted of 91,500,000 acres, down from last year, but still above the 10 year average, suggesting an increase in corn supply.

Speaker 3

We believe this estimate could be high due to wet weather in certain corn growing regions. Additionally, ethanol production has moved back towards pre pandemic levels, providing further support for corn prices. We believe that corn prices should rebound to a level that should motivate farmers to maximize yields through the application of nitrogen fertilizers. Corn futures suggest this is the case with contract prices approaching around $4.50 per bushel by the middle of 2025. As we look to both sides of our business, we expect fundamentals for nitrogen producers to remain attractive and stable for the foreseeable future.

Speaker 3

Now I'll turn the call over to Cheryl to discuss our Q2 financial results and our outlook. Cheryl?

Speaker 5

Thanks, Damian, and good morning. On Page 9, you'll see a summary of our Q2 2024 financial results. We generated adjusted EBITDA of $41,000,000 and EPS of $0.13 for the 2nd quarter. Page 10 bridges our Q2 2023 adjusted EBITDA of $7,000,000 to our Q2 2024 adjusted EBITDA of $41,000,000 Weaker selling prices relative to the prior year were once again a factor in the year over year change in EBITDA. However, the year over year decline in selling prices was much smaller in the Q2 than it has been for the previous several quarters.

Speaker 5

We view this as an indication of a stabilization in our markets, particularly in the ag market. Sales volumes of our products decreased in the Q2 of 2024 as compared to the same quarter of 2023 as a result of lower sales volumes of HJAN. This was a result of wet weather in key markets for this product in late May June. Also impacting our sales volumes was the timing of agricultural ammonia demand, which was heavier than average in the Q1 of 2024, translating into lower orders during the Q2. The lower pricing and volumes were partially offset by materially lower natural gas cost as compared to last year.

Speaker 5

Page 11 provides a summary of our key balance sheet and cash flow metrics. We continue to use our strong cash position as an opportunity to further de risk our balance sheet. In the Q2, we repurchased $64,000,000 of our notes and year to date we repurchased $97,000,000 of debt. We also repurchased approximately 800,000 shares of our stock during the Q2 and approximately 1 point 5,000,000 shares year to date. As we move through the Q2 of this year, our capital allocation will be squarely focused on our facilities.

Speaker 5

As a reminder, we have turnaround scheduled at our Pryor and Cherokee facilities in the second half of this year. These turnarounds will be integral to our goal to improve plant reliability and efficiency, which we expect to lead to greater production volumes post turnaround. Looking to the Q3 of 2024, Tampa ammonia increased $60 per ton to $4.75 per metric ton for August and NOLA UAN is currently around $205 per ton. We expect prices for both products to be higher than the same quarter last year as a result of relatively tight inventories and ongoing global supply constraints from the impact of turnarounds and unscheduled downtime at plants globally. Additionally, we expect our profitability to benefit from lower natural gas costs, which averaged approximately $2.70 per MMBtu in July, well below last year and a trend we expect to continue.

Speaker 5

We expect our Q3 results to reflect the impact of the seasonal slowdown in demand on our sales volumes. Additionally, we have a 30 day turnaround underway at our Pryor facility that will reduce our ammonia and UAN production by approximately 20,000 tons and 35,000 tons respectively. We expect to incur approximately $15,000,000 in turnaround expense during the Q3 as we quarter resulting from our prior turnaround, we expect our 3rd quarter EBITDA when adjusted to add back turnaround expense to be materially above our Q3 of 2023 as a result of higher selling prices combined with lower natural gas and other costs. And now, I'll turn it back over to Mark.

Speaker 2

Thank you, Cheryl. Pages 1213 pertain to the 2 low carbon ammonia projects that we currently have underway. Page 12 summarizes the key information related to our project with Labrys Energy at our El Dorado facility. This project remains on track with the timeline we discussed back in early May. We continue to discuss the value of low carbon products with potential customers and are encouraged by the level of engagement we're experiencing.

Speaker 2

Page 13 summarizes the key aspects of our Houston Ship Channel project that we currently have under development with several partners. This is a world scale ammonia plant that will produce approximately 1,100,000 metric tons of low carbon ammonia. We are working with Samsung Engineering and our partner Impex to complete our pre feed and we expect to receive preliminary results by the end of the third quarter followed by a detailed review during the Q4. It is anticipated that FEED will begin early in the Q1 of 2025, be completed by the end of next year with FID in the Q1 of 2026. We are having ongoing conversations with potential customers to secure long term offtake for the anticipated ammonia production and remain encouraged with those conversations.

Speaker 2

While Asia remains a target region for offtakers, we've been pleased to find that Europe is emerging as an increasingly fertile market for low carbon ammonia given the region's challenges in increasing clean energy generation as quickly as initially planned and the impending enactment of the EU's Carbon Border Adjustment Mechanism or CBAM. We're very excited about the prospects for driving the growth of our top and bottom line through our participation in the developing low carbon nitrogen products markets. Our vision is to become one of the leading suppliers of low carbon ammonia and derivative products to the power generation, marine and other industries in the coming years and we believe we have the knowledge, expertise, assets and relationships to achieve this vision. While our long term vision is set at around low carbon product opportunities, from a nearer term perspective, we are more focused than ever on our opportunities to improve our current operations, which we expect will lead to higher production and sales volumes, enabling us to capitalize on the operating leverage inherent in our business and drive increased profitability and shareholder value. Combining these enhancements to our core operations with our low carbon activities, we believe we are well positioned to generate significant value for our shareholders.

Speaker 2

Before we open it up for questions, I'd like to mention that we will be participating in the following conferences in September. The Jefferies Industrial Conference in New York on September 4th the UBS Materials Conference also in New York on September 5th, and the RBC Industrials Conference in Las Vegas on September 24th. We look forward to speaking with some of you at those events. That concludes our prepared remarks and we will now be happy to take your questions. Thank you.

Operator

Thank you. We will now be conducting a question and answer Our first question comes from Joshua Spector with UBS. Please proceed with your question.

Speaker 6

Good morning. This is Lucas Beaumont on for Josh. I just wanted to start with the new agreement you signed with Freeport Minerals for the uptake. Did you guys did you get any premium there on the low carbon products? Or was that sort of in line with sort of the current pricing for the great product?

Speaker 6

And if sort of if you didn't, is there any mechanism to adjust that kind of over time as the market develops further? Or how are you kind of thinking about that now? Thank you.

Speaker 2

Good morning Lucas. How are you? So yes, we feel like our customer realized the value of the low carbon aspect of our product. And so, we feel like we've got some premium to what we would consider to be the gray market today.

Speaker 6

Great. Thanks. And then just I just wanted to talk about the seasonality a little bit, maybe on the gas cost side. So we've had some sort of abnormal seasonality this year with sort of low pricing and then pricing coming up. And you guys obviously saw the benefit of that in the Q2 with your realized costs coming in quite a bit below where the benchmarks were with the lag.

Speaker 6

So I was just wondering if you can kind of help frame how you think that dynamic is going to impact the Q3 for us? Thanks.

Speaker 5

Yes. Good morning, Lucas. So, yes, so with the gas cost specifically, we did see a run up in gas cost at the end of June. That's going to come through in July. And then gas costs heading into August is, I would say, $0.40 to $0.50 cheaper than the $2.70 that we realized in July.

Speaker 5

So we are seeing some additional benefit and pickup of lower gas cost here in the Q3.

Speaker 2

Yes, I think it actually, we've talked about this previously about the change in strategy and really thought process when it comes to gas and not really purchasing forward too much other than for forward sales of products. So, we are now able to realize the benefits because we are basically going month to month.

Speaker 6

All right. Thank you.

Operator

Question comes from Laurence Alexander with Jefferies. Please proceed with your question.

Speaker 7

Hi, this is Dan Rizzo on for Laurence. With the new agreement, you mentioned up to 150,000 short tons. I was wondering and I'm sorry if this was said, but is there any minimum requirement they have to take each year?

Speaker 2

Damian, why don't you answer that?

Speaker 3

Yes. Good morning. Look, I can't go into the specifics, but there are sort of traditional mechanisms in the arrangement that where there's minimums and offtake tolerances etcetera. So yes, we've got a pretty clear line of sight as to what the offtake will be and what we'd expect going forward. Would you

Speaker 2

say that it's got traditional take or pay terms? Yes.

Speaker 7

Okay. And then for my second question just in regards to ag, I was just wondering what percentage of your sales is for post ag sorry, post planting application? Like how important is August September if at all?

Speaker 3

Look, I can't quote you an exact percentage, but the full ammonia application season is relatively important. We've got a reasonable book going order book going forward coming out of the summer fill and some full prepay sales. But we've got our turnaround at Pryor at the moment. So our participation is probably a little lower than what it's typically been. But we're pretty comfortable with where we're sitting from an orders perspective.

Speaker 7

Thank you very much.

Operator

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

Speaker 4

Hey, good morning. So, ammonium nitrate prices have performed quite well. So, you just talk about what's happening there? Why the significant premium has come back? And what's your outlook on AN versus some of the other nitrogen products?

Speaker 3

Yes. Good morning, Andrew. Yes, look, the premium, we're pretty happy with that and the pricing that we're able to achieve. Look, really it's probably just driven by typical supply demand. Demand was pretty reasonable.

Speaker 3

And at certain times of the year that premium can push up relative to some of the other products. It can also go the other way and we can see the premium narrow. And at this time of the year, we will see it narrow closer to the cents per pound for the other products. So and that again is really due to just the timing of the year and where we're at in the cycle.

Speaker 4

Okay. And then maybe just switching to the pneumonia side of things. I was just curious regarding the Lapis partnership at Eldorado. What happens if through the payments if there's a change to the 45Q credits either up or down? And do you see any risk of that happening if there's a new administration that comes in with a different view on clean energy?

Speaker 2

Good morning, Andrew. So, it's a great question. We get that question all the time. Everyone's really focused on the election and some implications of that. When you think about the IRA, I think our view is there are definitely parts of the IRA that are more at risk than others.

Speaker 2

And so when you start thinking about the EV incentives and things around electric vehicles, I think most people think that there is definitely some risk of rollback there. When it comes to 45Q, I think the conventional thought and certainly, our thoughts as well, 45Q has been around for a while. So it's not something that's new. What the IRA did is really 2 main things. It increased it for sequestration from $50 a ton to $85 a ton of CO2 And then it also changed the 1st 5 years of eligibility from a tax credit to cash pay.

Speaker 2

So I don't know that I see those really changing. If they really if the government really wants to incentivize and continue to support decarbonization, even at $85 a ton of cash pay or tax credit, it certain volumes below certain volumes are just not economical. And so now if you $50 a ton, I think you'd see a number of projects. In fact, I would venture to say most of the projects that are canceled. So, I don't see that happening.

Speaker 2

Could they change the So, I don't see that happening. Could they change cash pay in the 1st 5 years back to a tax credit? Possibly, You could see that. The other thing to keep in mind is most of the activity, most of the new plants that have been announced and new plants equate to new jobs and lots of contractors coming in and lots of equipment being bought are all in the Gulf region. And so those are 2 Republican supported states.

Speaker 2

And the last thing I would say is the IRA in general maybe there are certain parts of it that weren't bipartisan, but generally speaking the IRA was pretty supported by both parties. So I think when you take a step back, I don't see 45Q having dramatic changes that would impact our project. I do think that there is some vulnerability on EV as I said and then 45V which is for green hydrogen and green ammonia.

Speaker 4

Okay, great. That's really good color. Thank you.

Operator

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

Speaker 8

Good morning. Thank you for taking my questions.

Speaker 2

Hi, Rob.

Speaker 5

Good morning.

Speaker 8

With regards to your 5 year Freeport agreement, can you discuss your existing ANS capacity, any investments that you might need in order to fill this upcoming agreement?

Speaker 3

Yes. Good morning, Rob. We've had to make some investments to support this arrangement. Storage, rail and loading capacity. So we're making that at the moment and that will all be ready and commissioned ahead of the start up of the contract.

Speaker 8

Thank you. And Damian does this supply agreement replace a gray nitrogen supply agreement? Or is this brand new business?

Speaker 3

Well, it's probably both. I mean, obviously, it's brand new Ammonium or AN solution business for us and we will move our product mix around to accommodate it. But yes, we are transitioning a great product over to low carbon when the carbon capture project is commissioned.

Speaker 8

Great. Thank you. And then the EPA indicating a final decision next spring on the Class 6 application. Can you discuss what the final decision is relative to the permit being issued expected in the second half of this year?

Speaker 2

Are you asking me what it will take to get approval, Rob?

Speaker 8

Yes. I'm trying to just define what are you looking at in terms of that final decision? I know you're looking for a permit being approved in the second half of this year. And I believe that's one of the next milestones. But can you just sort of lay out the milestones and explain that part?

Speaker 2

Yes. So I think what we are really looking for by November of this year is a sign off on the technical review. So, once we have that and the EPA signed off on their technical review, then it's actually, drafting permits. There's a public comment period. So, there's about 60 days of drafting the permit.

Speaker 2

There is another 45 days of public comment period. And then of course there is another 45 to 60 days of drafting final permitting. So what that permit would be in May would be a permit to construct. So that would allow us to drill and then of course they take core samples and as long as those core samples match the work that was done in the technical review, then Epay would sign off and allow us to inject into the sequestration well.

Speaker 8

I appreciate that. I think I got the permit to construct a little confused with permit to inject. But is the permit to instruct still in the second half of this year?

Speaker 2

No, the technical review would happen in November. Okay. And then we're hoping and we'll see how the EPA's process works, but we're hoping to pull in May permit to construct a little bit forward. We think that given Louisiana got primacy at the end of last year and a lot of the draft permits or the permit applications were in the class, the region 6 office of the EPA and then now moved to Louisiana and that was the bulk of the projects. That given the now shrinking number of Class 6 permits at the EPA Dallas office, Region 6 office that will help us out and hopefully speed up the timing a little bit.

Speaker 8

Thanks Mark. I appreciate that. And with regards to deleveraging and repurchasing shares, first off, nice job on that. Where does that leave your existing authorization from the Board with regards to repurchasing debt and the shares?

Speaker 2

Well, from a debt standpoint, it's really not an authorization that's needed. We will talk to the Board and make a recommendation and the Board will approve it or not approve it. When it comes to the share buyback authorization.

Speaker 5

It's north of $100,000,000 remaining.

Speaker 2

Yes. So we still have plenty of opportunity and plenty of room to buy back stock should that make sense for us.

Speaker 8

Okay. I appreciate that. And then also maybe on capital allocation, just can you discuss the M and A environment? And with all your projects in place deleveraging and returning cash to shareholders, are potential acquisitions very high on the priority list at this point?

Speaker 2

I don't know about high on the list. I think we look at all opportunities to grow the company and whether that's our internal reliability program that we think adds a lot of value. So we're really focused on that and then as you mentioned the 2 projects and getting them up and running or getting certainly the carbon capture and sequestration project at El Dorado actually up and running and operating and then our other project, the inflection point for us ultimately will be FID. So looking at getting to that point. I do think we are still interested in M and A, where we can find strategic assets that make sense for us and support our vision and strategy.

Speaker 2

So we absolutely will continue to look for those. Owning ammonia assets we think is really important, and we want to be a larger player within the industry and having scale I think would help us. So I guess overall we continue to look for opportunities that to merge or combine and that makes a lot of sense for us.

Speaker 8

That's helpful, Mark. Thank you. Just last question, with regards to your ammonia production rates trending higher over the long term and your initiatives there, could there be a stair step improvement coming out of the turnarounds this year? I know you always get a bump up in terms of production coming out of turnarounds, but can you just talk about what we might see in terms of improved reliability?

Speaker 2

Yes. Look, I think that we're going to get a bump from going through our Pryor and Cherokee turnarounds this year. Anytime when you go particularly at Cherokee when you go 3 years or stretching even to 4 years between turnarounds, you definitely trained into those turnarounds at some lower rates particularly as catalyst starts to degrade and you get some lower rates. So, I think that we should see absolutely a bump there. Stair step, I'm probably a little trying to be a little cautious on whether it's going to be stair step or not.

Speaker 2

We expect to be significantly improved and we're doing a lot of work at both of those sites to really improve the reliability. I think the investment that we are making at Pryor is north of $30,000,000 So it's a large investment for us and we think it's got significant returns. Same thing down or at Cherokee later this year, We're making big investments in our ammonia plant and we think that we'll actually run much more reliably. We have done a really good the teams have done a really good job in keeping our plants running. So the on stream rate has improved dramatically.

Speaker 2

But the one thing that we need to focus on is getting every ton out of the plants. And so I think that's a lot of the turnaround that we are in now is really focused on that. We are also, we have run really well from an on stream standpoint at El Dorado ammonia, but probably at a little bit lower rates due to the degradation of our catalyst there. And so we are taking a small plant outage to replace the catalyst to get back up to maximum rates. And so we're excited about that to see the improvements that we'll get out of that plant as well.

Speaker 8

That's really helpful. And it seems like there's a little more time today, Mark. I wonder one more question. If you could elaborate on what you're seeing in terms of Europe and kind of shifting demand towards low carbon and legislation that might help move that along?

Speaker 2

Yes. So if you go back 24 months or maybe even as recent as 12 months, I think Europe was very focused on their energy transition being hydrocarbons to 0 hydrocarbons, right, so green. And I think the economics of green just broadly don't really make sense today. I think the cost of equipment, of course construction and contractor costs and then efficiencies put ammonia and hydrogen at a rate that makes it a bit cost prohibitive for people to be okay paying for. So I think what we've seen over the last 12 months to 18 months is really a little bit of a shift in Europe where they are now focused on a true transition as opposed to I'll call it a revolution going from hydrocarbons to no hydrocarbons.

Speaker 2

And so Blue has become a lot more of top of mind in a lot of our conversations with European potential European off takers. And so that's really exciting for us because now we've got a real market. And a lot of that, not just in from a cost perspective and creating a shift change, but also CBAM, which is their carbon border mechanism. And so that's a real tax that's coming into play starting in 2026. And so it will scale in over time from 26 to 30 and we've got a lot of folks that either use ammonia today or are thinking about ammonia as a fuel source to replace coal or even net gas.

Speaker 2

And looking at that tax and where is the inflection point like at some point there needs to be a switch. So again, I think much change in Europe in the way that they're thinking about it and we're waiting to see what the European regulation and incentive programs look like related to Blue versus Green.

Operator

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

Speaker 9

Good morning, guys. Just a quick question. In terms of the new contract and the deal with Freeport, etcetera, and the amount of product they're going to be taking and I'm assuming overall that it's obviously that's a good thing. But is that going to hint is that going to take away from any other nitrogen product production because you're going to have to be sort of focused more on that on the AN side or that shouldn't be a problem at all? It won't affect ammonia production, it won't affect urea or anything else.

Speaker 9

Is there a sort of a trade off so to speak in trying to ramp up production for that?

Speaker 3

Yes. Good morning, Charles. Look, it certainly won't affect our ammonia production, but from an ammonium nitrate perspective, yes, there'll be a shift in tons away from other products and into supporting the contract with Freeport.

Speaker 9

Anything specific on which products get most affected by the ship?

Speaker 3

No, nothing specific. We'll just manage it through the portfolio.

Speaker 9

Okay.

Operator

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

Speaker 2

Well, thank you everyone for your interest in LSB Industries. Hope you can see that we continue to make progress quarter to quarter and also progress in really our long range growth prospects for the company. So thanks for your support and we look forward to speaking to you next quarter.

Powered by Quartr

Key Takeaways

  • Secured multi-year low-carbon ANS agreement with Freeport Minerals for up to 150,000 short tonnes annually, marking a first-of-its-kind validation of LSB’s low-carbon product strategy.
  • Q2 adjusted EBITDA of $41 million and solid free cash flow enabled the repurchase of $64 million of debt and 800,000 shares, further de-risking the balance sheet.
  • Both El Dorado carbon capture project and Houston Ship Channel low-carbon ammonia project remain on track, targeting early 2026 low-carbon production and a 2026 final investment decision respectively.
  • Nitrogen pricing trends show year-over-year declines have narrowed and market pricing appears to have stabilized, supported by a healthy summer fill campaign and tight inventories.
  • Scheduled Pryor and Cherokee plant turnarounds in H2 will reduce Q3 production and incur ≈$15 million in expenses, but higher selling prices and lower natural gas costs are expected to drive adjusted EBITDA above last year’s Q3 on an adjusted basis.
AI Generated. May Contain Errors.
Earnings Conference Call
LSB Industries Q2 2024
00:00 / 00:00