LSB Industries Q1 2025 Earnings Report

LSB Industries EPS Results

• Actual EPS: -$0.02
• Consensus EPS: $0.02
• Beat/Miss: Missed by -$0.04
• One Year Ago EPS: N/A

LSB Industries Revenue Results

• Actual Revenue: $143.43 million
• Expected Revenue: $139.79 million
• Beat/Miss: Beat by +$3.65 million
• YoY Revenue Growth: N/A

LSB Industries Announcement Details

• Quarter: Q1 2025
• Date: 4/29/2025
• Time: Before Market Opens
• Conference Call Date: Wednesday, April 30, 2025
• Conference Call Time: 10:00AM ET

LSB Industries (NYSE:LXU) engages in the manufacture, marketing, and sale of chemical products. The company provides nitrogen-based fertilizers, such as ammonia, fertilizer grade high density ammonium nitrate (HDAN), and urea ammonia nitrate for fertilizer for corn, pastures, and other crops, as well as nitrogen, phosphorus, and potassium (NPK) fertilizer blends application. It also offers high purity and commercial grade ammonia, high purity ammonium nitrate, sulfuric acids, mixed nitrating acids, carbon dioxide, and diesel exhaust fluids, as well as concentrated, and blended and regular nitric acids for various applications, including semiconductor, nylon, and polyurethane intermediates, ammonium nitrate, and metal processing; chemical feedstocks, emissions abatement, water treatments, and refrigerants; pulp and paper, aluminum, water treatment, metals, and vanadium processing; abatement for diesel vehicles; and food refrigeration, dry ice, and enhanced oil recovery. In addition, the company provides industrial grade and low density ammonium nitrate, and ammonium nitrate for explosives mining, quarries, and other blasting activities. It sells its products through distributors, as well as directly to end customers in the United States and other parts of North America. The company serves to the agricultural, industrial, and mining markets. LSB Industries, Inc. was incorporated in 1968 and is headquartered in Oklahoma City, Oklahoma.

LSB Industries Q1 2025 Earnings Call Transcript

Key Takeaways

• First-quarter sales volumes rose 4% quarter-over-quarter, driven by higher ammonia production and improved plant reliability, with the company achieving zero recordable injuries.
• Adjusted EBITDA came in at $29 million versus $33 million last year, as volume and pricing gains were offset by materially higher natural gas costs.
• Fertilizer pricing remains strong, with UAN at $350/ton (up 73% from last fall) and urea above $500/ton, fueled by tight U.S. inventories, tariff-induced import constraints and a 5 million-acre increase in corn plantings.
• About 30% of industrial sales are now on cost-plus contracts that pass through natural gas costs, a mix expected to grow to 35% by year-end to stabilize earnings volatility.
• The El Dorado decarbonization project achieved precertification under the Fertilizer Institute’s Carbon Intensity Program, with CO₂ injection on track for late 2026, while the Houston Ship Channel low-carbon ammonia project is paused.

Presentation

[Operator]

Greetings, and welcome to the LSB Industries First Quarter twenty twenty five Earnings Conference Call. At this time, participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It's now my pleasure to introduce your host, Fred Boenicore, Vice President, Investor Relations.

[Operator]

Fred, please go ahead.

[Fred Buonocore, VP - Investor Relations at LSB Industries]

Good morning, everyone. Joining me today are Mark Behrman, our Chairman and Chief Executive Officer Cheryl Maguire, 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.

[Fred Buonocore, VP - Investor Relations at LSB Industries]

For more information about these risks and uncertainties that could cause actual results to differ materially from those projected or implied by forward looking statements, please see the risk factors set forth in the company's most recent annual report on Form 10 ks. On the call, we will reference non GAAP results. Please see the press release posted yesterday 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. At this time, I'd like to go ahead and turn the call over to Mark.

[Mark Behrman, Chairman & Chief Executive Officer at LSB Industries]

Thank you, Fred, and good morning, everyone. The global economy has a lot of moving parts right now, not the least of which is the impact that U. S. Tariffs could have on our business. While we don't anticipate a big impact to our business, it has created a lot of uncertainty for both planned spending and potential capital projects.

[Mark Behrman, Chairman & Chief Executive Officer at LSB Industries]

We'll provide more color on this later in our comments. Turning our attention to the first quarter. On Page four of our presentation, we highlight some achievements during the quarter. Overall sales volumes improved 4% quarter over quarter, driven by solid improvement in sales volumes for ammonium nitrate and UAN. These gains are the result of higher ammonia production and better performance by our upgrading plants.

[Mark Behrman, Chairman & Chief Executive Officer at LSB Industries]

We're pleased that the work to improve the reliability and efficiency of our facilities is yielding results, and we expect to see continued improvement as 2025 progresses. Not only did we increase our production and sales volumes during the first quarter, but we did so with zero recordable injuries across the organization. Congratulations to the entire team for embracing our protect what matters core value and demonstrating that our goal zero is achievable. Lastly, we continue to make progress with our decarbonization project at our El Dorado facility, which I'll discuss later in the call. Now, I'll turn the call over to Damian, who will review current market dynamics and pricing trends.

[Mark Behrman, Chairman & Chief Executive Officer at LSB Industries]

Damian?

[Damien Renwick, EVP & Chief Commercial Officer at LSB Industries]

Thanks, Mark, and good morning, everyone. I'll begin my remarks today by addressing the tariff situation. You'll find a summary of key points on this matter on page five. Much remains to be seen as to how The US tariffs on imports will affect our business. So far, we've seen a significant uplift in domestic pricing for prompt delivery of urea due to tariffs and other factors.

[Damien Renwick, EVP & Chief Commercial Officer at LSB Industries]

We expect this to persist through the current spring planting season. We believe our market exposure to retaliatory tariffs from other countries is limited. We export less than 10% of our sales, with all our exports to Mexico and Canada. We also believe the impact to ag markets we serve will not be significant. Only 2% of U.

[Damien Renwick, EVP & Chief Commercial Officer at LSB Industries]

S. Corn exports were to China in 2024. Lastly, some of the parts, components and equipment we use to maintain our plants are imported, mainly from Europe. We are evaluating any potential tariff implications for these imports, but we have already seen some pricing pressure from suppliers. We are also looking to source domestically wherever possible.

[Damien Renwick, EVP & Chief Commercial Officer at LSB Industries]

Moving to page six. Demand for our industrial products remains robust. We continue to ramp up our ammonium nitrate solution volumes as we expand our industrial business. Copper mining activity and pricing remains strong. Global demand for copper has surged over the past year.

[Damien Renwick, EVP & Chief Commercial Officer at LSB Industries]

Additionally, gold prices have continued to move higher. This price increase is driven by global economic uncertainty. As a result, U. S. Gold mining activity continues to be strong.

[Damien Renwick, EVP & Chief Commercial Officer at LSB Industries]

Nitric acid continues to see healthy demand and pricing. We remain sold out. We also continue to see opportunities for growth with existing and new customers. Our primary constraint at this point is production capacity, and we are continually evaluating opportunities to increase our production capacity in both nitric acid and ammonium nitrate. On Page seven, we continue to see strong prices for our products.

[Damien Renwick, EVP & Chief Commercial Officer at LSB Industries]

UAN prices continue to increase significantly. The current NOLA UAN price of $350 per ton is 73% higher than the low price of fall twenty twenty four. We are seeing strong demand along with insufficient import volumes, which has resulted in tight US inventories. Urea prices have also strengthened considerably with noble prices now above $500 per ton. This increase is due to seasonal demand, lack of imports, tariff pressures, robust demand from India, and the continued ban on urea exports from China.

[Damien Renwick, EVP & Chief Commercial Officer at LSB Industries]

The tamper ammonia price has declined since the start of the year. This decline has followed falling natural gas prices in Europe. Europe continues to be the marginal cost producer for ammonia. This dynamic is underpinning ammonia prices globally. But despite this decline, ammonia prices remain attractive due to a globally tight supply and demand balance.

[Damien Renwick, EVP & Chief Commercial Officer at LSB Industries]

US ammonia producers continue to enjoy a significant cost advantage to those in Europe. We expect that spread to persist through the entirety of this year. The spring twenty twenty five planting season is shaping up strongly, with a significant increase in planted corn acres expected. The USDA reported in its prospective plantings report that producers intend to plant 95,300,000 acres of corn this year compared to 90,600,000 planted acres last year. This significant increase is driving very strong fertilizer demand and is driving pricing for our products up significantly.

[Damien Renwick, EVP & Chief Commercial Officer at LSB Industries]

On page eight, the USDA has lowered its forecast for corn ending stocks. This forecast has provided support for corn prices. US corn prices sit solidly above $4 per bushel, supporting favorable farmer economics. Now I'll turn the call over to Cheryl to discuss our first quarter financial results and our outlook. Cheryl?

[Cheryl Maguire, EVP & CFO at LSB Industries]

Thanks, Damian, and good morning. On page nine, you'll see a summary of our first quarter twenty twenty five financial results. You can see the early benefits of the investments we've made in plant reliability and efficiency in our increase in net sales, driven in part by stronger volumes. Page 10 bridges our first quarter twenty twenty four adjusted EBITDA of $33,000,000 to our first quarter twenty twenty five adjusted EBITDA of $29,000,000 Improved sales volumes, along with higher pricing for ammonia and AN, were offset by materially higher natural gas costs. As we've discussed on previous calls, we like the contractual nature of our industrial business and the benefits this provides to our overall performance.

[Cheryl Maguire, EVP & CFO at LSB Industries]

On page 11, we illustrate that many of our industrial contracts are cost plus arrangements where we pass through the cost of the natural gas used to make products like nitric acid or AN and earn a fixed margin. This type of arrangement allows us to contract out the volatility of natural gas prices, is nonseasonal and provides stability to our business. In 2021, less than 20% of our sales volumes were cost plus contracts. As we've grown our industrial business, we've grown this cost pass through business to approximately 30% as of the end of Q1 twenty twenty five, and we expect this to grow to 35% by the end of the year as we continue to optimize our product mix. Page 12 provides a summary of our key balance sheet and cash flow metrics.

[Cheryl Maguire, EVP & CFO at LSB Industries]

Our cash balance remains strong, and our leverage ratio remains in line with our target level for a mid cycle pricing environment. We will continue to make investments in the reliability of our facilities while also investing in storage and logistics capability to support our growing industrial business. Turning to the second quarter outlook. The Tampa ammonia price currently sits at $435 a ton. NOLA UAN pricing rose through April and is currently at its highest level in more than two years.

[Cheryl Maguire, EVP & CFO at LSB Industries]

While much of our UAN volume for April was sold ahead of this increase, we expect to capitalize on the pricing strength for sales in May and June. Our natural gas cost settled just under $4 per MMBtu for April. However, US gas costs have trended downward closer to $3 per MMBtu as we move toward May settlement, and we look forward to benefiting from that. From a volume perspective, we expect meaningful increases in both UAN and AN volumes compared to prior year. This will come with lower sales volumes of ammonia as we forgo ammonia sales in favor of upgrading into higher margin products.

[Cheryl Maguire, EVP & CFO at LSB Industries]

One change to the full year outlook that we discussed on our Q4 twenty twenty four call relates to the turnaround that was scheduled for our El Dorado site for the second half of this year. We have elected to push this turnaround into the first half of twenty twenty six as we have experienced delays in the delivery of key equipment we were planning to replace during the turnaround. As a result, we are increasing our ammonia production outlook for 2025 by approximately 30,000 tons. We are also lowering our estimated turnaround expense for the full year by approximately $15,000,000 And now I'll turn it back over to Mark.

[Mark Behrman, Chairman & Chief Executive Officer at LSB Industries]

Thank you, Cheryl. Page 13 summarizes a key development with our El Dorado ammonia project. We are excited that in January, we achieved precertification status under the Fertilizer Institute's Verified Ammonia Carbon Intensity Program. This is a voluntary certification of the carbon footprint of ammonia production at a specific facility from well to production gate. The program utilizes a standard methodology to calculate the carbon intensity of a facility's ammonia production.

[Mark Behrman, Chairman & Chief Executive Officer at LSB Industries]

The program has been developed by industry experts, and the results are audited by a third party. Once the auditor provides a written report confirming that the carbon intensity was calculated by the facility according to the methodology, verified ammonia carbon intensity certifies the facility. Our ammonia plant at El Dorado is one of four North American plants to have received such a status. We expect this certification to be integral in our ability to secure sales agreements for our low carbon ammonia and upgraded product output. Page 14 is an overview of the project at El Dorado.

[Mark Behrman, Chairman & Chief Executive Officer at LSB Industries]

Our partner, Lapis Carbon Solutions, is completing the drilling of a stratigraphic injection well. Lapis is now gathering data to support the EPA in their continuing technical review of our class six permit application. Once our project receives EPA approval, we will use the same well for CO two injections, allowing us to be very efficient. Based on our ongoing dialogue with the EPA, we continue to expect to begin CO two injections by the end of twenty twenty six. Given the impact of US tariff related price increases and other global economic uncertainties on project costs, coupled with a slower than anticipated ramp up of low carbon ammonia demand, we have decided to put a pause on our Houston Ship Channel project.

[Mark Behrman, Chairman & Chief Executive Officer at LSB Industries]

While disappointing, we are excited that we will have approximately 250,000 tons of low carbon ammonia available for sale out of our El Dorado site by the end of next year. We're off to a good start in 2025. While we're making meaningful production and sales volume improvements, we are continuing to grow and optimize our industrial business in order to increase the stability and predict predictability of our earnings stream. And as I mentioned, we're on track to begin producing low carbon ammonia at our El Dorado facility late next year. We plan to continue to invest in our core business to achieve our plant reliability goals.

[Mark Behrman, Chairman & Chief Executive Officer at LSB Industries]

Additionally, we have a number of opportunities within our existing portfolio of assets to grow our profits while maintaining a strong balance sheet. We will look to make investments in projects that increase our profits and cash flow while managing our leverage at a level appropriate for the uncertain economic environment. Collectively, we believe that these initiatives will translate into significant incremental EBITDA and shareholder value. Before we open it up for questions, I'd like to mention that we will be participating in the following events in the coming months. The UBS Energy Transition and Decarbonization Conference in New York on May 14, and the Deutsche Bank Industrials Materials and Building Products Conference in New York on June 5.

[Mark Behrman, Chairman & Chief Executive Officer at LSB Industries]

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. Thanks.

[Operator]

Thank you. We'll now be conducting a question and answer session. Our first question is coming from Lucas Palma from UBS. Your line is now live.

[Lucas Beaumont, Director Equity Research Analyst at UBS Group]

Good morning. So I guess as we head into May, we're seeing very strong derivative pricing sort of including UAN. That looks sort of set to peak here in the second quarter. On the other hand, ammonia has sort of been weakening and there's expectations that the Tampa contract is probably going to shift a fair bit lower for May as well. So I guess with these diverging trends and just considering some of the timings in the order book that you mentioned earlier, Cheryl, I was just wondering if you could give us a bit more color on how we should think about the setup for LXUs realized pricing here in the second quarter?

[Damien Renwick, EVP & Chief Commercial Officer at LSB Industries]

Hi, Lucas. I'll take that one. So look, we're seeing, as you said, good price increases for our UAN products. We're well positioned to take advantage of that. We're not fully sold out deliberately so through the end of second quarter, so we can capitalize on that pricing and that will reflect in our results.

[Lucas Beaumont, Director Equity Research Analyst at UBS Group]

Right. And then I guess just given that you've decided to sort of pause the Houston Ship Channel projects, I I was just wondering if you could kind of give us your thoughts now on your updated capital allocation priorities. Is there anything else on the CapEx side that you guys will look to do now to maybe drive an earnings improvement there? Or is it more back to repurchases and that sort of thing?

[Mark Behrman, Chairman & Chief Executive Officer at LSB Industries]

Yes. Good morning, Lucas. Yes, I think there's nothing not a project on the horizon as we sit here today that we've committed capital to. We continually look at projects on our existing assets that we can do that will improve the operating results. But as we sit here today, we haven't FID ed any of those projects.

[Mark Behrman, Chairman & Chief Executive Officer at LSB Industries]

From a capital allocation standpoint, as always, we're going to focus on improving the reliability and the and S of our existing facilities. And so we'll continue to do that, which I think, as we stated before, is somewhere in the neighborhood of 60,000,000 to $65,000,000 of capital a year. And then after that, I think we will take a step back and look at investments in other projects, stock buyback and, of course, debt reduction.

[Lucas Beaumont, Director Equity Research Analyst at UBS Group]

Right. Thank you.

[Operator]

Thank you. Next question is coming from Kevin Estok from Jefferies. Your line is now live.

[Kevin Estok, Equity Research Senior Associate at Jefferies LLC]

Hey. Good morning. This is Kevin Estok on for Laurence Alexander. Thank you for taking my questions. So my first one is just, so there's been obviously quite a bit of talk around deregulation by the administration.

[Kevin Estok, Equity Research Senior Associate at Jefferies LLC]

And I guess I was wondering whether or not you guys have sketched out or maybe thought about how big of

[Kevin Estok, Equity Research Senior Associate at Jefferies LLC]

a tailwind or how it

[Kevin Estok, Equity Research Senior Associate at Jefferies LLC]

could help you guys. I guess, let's say, like, related to permitting, etcetera. I guess many companies that we're covering are actually saying that the impact is gonna be quite minimal. And I guess I was wondering if if you guys were thinking about it in the same way.

[Mark Behrman, Chairman & Chief Executive Officer at LSB Industries]

Yeah. Good morning. I would say it is going to be quite minimal with the exception of the EPA where we're having numerous conversations. We did see, you know, I'd say a slow process before you know, the change in the administration and the change in the head of the EPA and the regional offices, and we certainly saw a pause for a couple of months while they put new people in place to lead all those efforts. But since that since the time that Lee Zeldin took over the EPA and our new head of the Region six office in Dallas of the EPA took over, we've seen a lot more activity and a lot more conversations, which is encouraging for us on our low carbon ammonia project at El Dorado.

[Mark Behrman, Chairman & Chief Executive Officer at LSB Industries]

Other than that, though, I don't think we're going to see much change.

[Kevin Estok, Equity Research Senior Associate at Jefferies LLC]

Got it. Okay. Thank you. Just, I guess, as a second question, you guys mentioned in the release that there's potential pent up demand, I guess, to UAN at the retailer and producer level. And I guess I was wondering if you could give a little bit more color there, the certain specific dynamics there.

[Kevin Estok, Equity Research Senior Associate at Jefferies LLC]

And I guess, it's related to, I guess, higher corn acreage just planting season? Just any color there would be helpful. Thank you.

[Damien Renwick, EVP & Chief Commercial Officer at LSB Industries]

Yeah, hi Kevin. Absolutely it's down to the higher corn acres forecast. We talked about it in the prepared remarks around the USDA in the prospective plantings report forecasting over 95,000,000 acres and that's a significant increase compared to last year. But the other compounding factor that we're seeing in both urea and UAN is the fact that there haven't been enough imports into the country to satisfy that demand and so that's putting strain on logistics, on river movements, demand on rail as well and we're all just working as hard as we can to satisfy that demand and that's also having an impact on pricing as well.

[Kevin Estok, Equity Research Senior Associate at Jefferies LLC]

Thank you very much.

[Operator]

Thank you. Our next question is coming from Andrew Wong from RBC Capital Markets. Your line is now live.

[Andrew Wong, Equity Research Analyst at RBC Capital Markets]

Hey, good morning. So as you're considering some of these potential upgrade capacity projects, can you just I know nothing's been committed, but can you just talk about what those projects might look like from a tax basis, like how large that they might be? And what kind of margin benefits do you anticipate generally from a project that might increase your nitric acid or AN capacity?

[Mark Behrman, Chairman & Chief Executive Officer at LSB Industries]

Good morning, Andrew. Look, I think that while we're doing some work to explore some of the expansion capabilities or potentials that we have, I think it's probably too early for us to talk about, you know, the actual cost. We wanna finish engineering studies before we sort of give you a gut number. I think that would be the most prudent. And, you know, with that, once we get a a final or at least a a more finalized capital number, then we can sit down and and figure out, you know, what kind of EBITDA generation and returns there are and does the project even make sense.

[Mark Behrman, Chairman & Chief Executive Officer at LSB Industries]

So, we have the capability, and I think we've mentioned this in the past, to expand our urea production up at Pryor, which would be great because we'll upgrade more free ammonia, which, we're always interested in doing, capture more margin. We have the ability to expand our ammonia plant down at El Dorado to give us more ammonia, which hopefully then allows us to look at, possibly expanding nitric acid or AN solution, because we think there's demand, particularly in AN solution. But I think it's a bit too early for us to be talking about the capital cost to do that.

[Andrew Wong, Equity Research Analyst at RBC Capital Markets]

Okay. That's fair.

[Andrew Wong, Equity Research Analyst at RBC Capital Markets]

And

[Andrew Wong, Equity Research Analyst at RBC Capital Markets]

then on the Houston Ship Channel project, the decision to delay there makes sense everything you've laid out. Is there potential for revisiting that project in the future and what might need to change for that to happen?

[Mark Behrman, Chairman & Chief Executive Officer at LSB Industries]

Yes. Look, I think overall, we still believe that over time, there'll be new demand generation for low carbon ammonia. So, I think for us, it's really about uncertainty in capital costs right now as things are moving around and, you know, one day we have tariffs and the next day we don't. And, you know, this whole situation, I think it's, you know, I think everyone's going through that and you'll see lots of projects being put on hold. In addition to that, I think there, still is, an unwillingness from some, from many actually buyers to actually transact at a cost that I think supports the returns on a facility.

[Mark Behrman, Chairman & Chief Executive Officer at LSB Industries]

Now I believe that changes over time. But today, I think, you know, we're not comfortable with that. So, I guess the answer would be, we'd like to participate either in, the current project that we're in and revisit that if the economics could make sense and we could certainly put a deal together that would make sense Or to actually participate in another project that's maybe being developed and we can, you know, make an investment and maybe even operate or have some off take or something like that. So, I think we're open to that but I think we've just got to be very prudent about, what project we get involved in and what's the right timing. So today, I think it doesn't make sense for us.

[Lucas Beaumont, Director Equity Research Analyst at UBS Group]

Great. Thanks, Mark. Sure.

[Operator]

Thank you. Next question today is coming from Rob McGuire from Granite Research. Your line is now live.

[Rob McGuire, Equity Research Analyst at Granite Research]

Good morning. Just a couple of, big picture, topics. So Bloomberg reported a couple weeks ago that China halted US LNG purchases due to the trade war, and it's boosting supply, and lowering gas prices over in Europe. Do you have a view and if so, you just kind of share it with regards to is it better for Europe to import ammonia or LNG from The US and maybe, you know, reasons why behind that?

[Damien Renwick, EVP & Chief Commercial Officer at LSB Industries]

Hi Rob, that's a tricky question I guess. From an ammonia perspective, European ammonia producers will really just be evaluating, okay, what's the forward outlook on the natural gas purchases and pricing and then they'll weigh that up against their own landed price for an import, right? So it's really a make versus buy decision and we've been in that realm now for a number of years particularly as Russian natural gas has disappeared from Europe and I don't see that sort of changing at all anytime in the future unless there's some resolution between Russia and Ukraine and then back to Russian natural gas supply into Europe. In terms of LNG, think it's much the same really. You've got the Europeans trying to import sufficient natural gas to keep the lights on and make sure they've got enough gas in the system for power for residential and industrial use.

[Damien Renwick, EVP & Chief Commercial Officer at LSB Industries]

I'm sure they'll look to transact upon that at the best possible price.

[Rob McGuire, Equity Research Analyst at Granite Research]

Thanks, Damian. And then any further color on potential legislation over in Europe supporting the use of blue ammonia or CBAM updates that you guys are seeing on the ground?

[Damien Renwick, EVP & Chief Commercial Officer at LSB Industries]

No, we've seen some positive developments with the IMO recently where they outlined their sort of carbon incentivetax program as it relates to marine fuels. And so we think that that once everyone's it's rather complex so once everyone's had the time to digest what that means, think we'll see a continued shift there targeting low carbon fuels. In terms of CBAM, look, I think we're still on track for the start up of the transition into CBAM next year. And we hear rumors about potential delays or changes but nothing firm that we're aware of.

[Mark Behrman, Chairman & Chief Executive Officer at LSB Industries]

And while there's conversation in Europe, certainly the EU with what what would the carbon intensity scores of the low carbon ammonia versus a zero carbon ammonia look like? There's not been anything

[Mark Behrman, Chairman & Chief Executive Officer at LSB Industries]

finalized.

[Damien Renwick, EVP & Chief Commercial Officer at LSB Industries]

Yeah.

[Rob McGuire, Equity Research Analyst at Granite Research]

That's great. I really appreciate it. Just one other last quick one. Are you seeing a bigger disparity in what you're selling your ammonia at inland relative to Tampa?

[Damien Renwick, EVP & Chief Commercial Officer at LSB Industries]

I think we're seeing pricing that's consistent with what you'd expect to see in the middle of season or just after application for ammonia, Rob. So nothing really too far out of the ordinary there.

[Rob McGuire, Equity Research Analyst at Granite Research]

Thanks, guys.

[Operator]

Thank you. Our next question today is coming from Charles Neibert from Piper Sandler. Your line is now live.

[Charles Neivert, Senior Research Analyst at Piper Sandler Companies]

Morning, guys. You've, you know, you mentioned already that you're delaying some some scheduled turnarounds because of, you know, equipment and things like that, you know, delays there. Is there is there any chance that the some of these delays also leak out into carbon projects at El Dorado? I mean, you're talking about second half of twenty twenty six with all the and there's a lot still going on. But is there any risk to the equipment and needs that are there that might get that might push it out any further?

[Mark Behrman, Chairman & Chief Executive Officer at LSB Industries]

Good morning, Charlie. No, I don't think so. Know, we're talking about some of the main things we're talking about on the compression facility are compressors. So, we've actually, our partner Lapis has already had discussions about the timing of delivery of equipment and they're on the precipice basically of making orders for long lead time items. So, I think based on delivery times and if they get ordered over the next couple of weeks, I think we're really comfortable that we have no problem meeting the timeline that we talked about, which is the end of next year.

[Charles Neivert, Senior Research Analyst at Piper Sandler Companies]

Yeah. And also, I mean, I know that they're obviously foot they're footing the bill for all of the equipment and the and the build out. Is there any risk to deal that you guys have struck between the two of you in terms of what the payout would look like going forward? Or is it really it's strictly based on the payments from the government for the carbon, and you're just getting that whatever piece that you're gonna be getting, and that won't change. Obviously, their profit does if if their costs get higher.

[Mark Behrman, Chairman & Chief Executive Officer at LSB Industries]

Yeah. We have a a c o two sales agreement in place with them. That's been heavily negotiated. So, we're really comfortable with us being able to receive the dollar per ton of CO2 that we've agreed to.

[Charles Neivert, Senior Research Analyst at Piper Sandler Companies]

Thanks very much.

[Damien Renwick, EVP & Chief Commercial Officer at LSB Industries]

Sure.

[Operator]

Thank you. Our next question today is a follow-up from Lucas Beaumont from UBS. Your line is now live.

[Lucas Beaumont, Director Equity Research Analyst at UBS Group]

Thank you. So just with the shift that you've outlined going more towards cost plus kind of pricing on contracts. So I just wanted to I mean, you're targeting 35% by the end of this year. I guess two things. I just wanted to understand, where would you like to kind of get that to, I guess, over the medium term?

[Lucas Beaumont, Director Equity Research Analyst at UBS Group]

And then secondly, sort of what has your assessment been on how that's going to kind of impact your margins over the cycle? So I mean, I'm sure it's going to reduce the volatility in your earnings year to year. But I guess you haven't given anything up over the cycle, do you think, from a margin perspective to get that? Or, would it be similar? Yes.

[Mark Behrman, Chairman & Chief Executive Officer at LSB Industries]

I think our commercial team does a really good job of trying to optimize our production. So you will see swings year to year in contracts, even on the industrial side where we have contracts. I mean, they roll off and we've got to make a decision on whether we want to re up a contract for a longer term or do we think the spot market and the ag markets, based on our views, are a better play, at least for the next twelve months, eighteen months, whatever it might be. You know, if I had to think about what would be an optimal mix, certainly fifty-fifty is something that you know, so that 35% moving up to 50% is probably something that would make sense for us. I think in in any given year or over a given couple of years, you could see that move up to 60% or you could see it move down to 40%.

[Mark Behrman, Chairman & Chief Executive Officer at LSB Industries]

So probably somewhere between 4060%, you know, industrial, with the balance obviously being added. From a margin perspective, you know, absolutely, you're right. It's gonna give us much more stability and and, you know, comfortability on what our earnings profile looks like. And from a margin perspective, it really just depends. I mean, it's, you know, if you look over a ten year period on some of the products, you know, send conversations at some point, you know, that customers who were used to maybe pricing off of a Tampa index or something like that, and we'd like them to now price off of a gas, you know, gas plus contract.

[Mark Behrman, Chairman & Chief Executive Officer at LSB Industries]

And the commercial team again does a really good job and, let's go back over the last ten years and look at how pricing has the actual pricing was over the last ten years versus if you went gas backed or cost plus and what that might look like. So, I think we'll margins overall over a period of time should actually be relatively similar. We will lose where there's a huge spike in fertilizer pricing since we like we saw in 2022, but we are trading that off for a lot of downside protection in our earnings.

[Lucas Beaumont, Director Equity Research Analyst at UBS Group]

Great. Thanks. And then I just wanted to follow-up with one more on the cost increases on the equipment side and for maintenance that you sort of called out. I guess just maybe I don't know if you're able to size that for us relative to your cost base in 2024. I mean, if the tariffs that were I'm assuming there's a tariff driven, if they were in place today, I guess how much of a cost impact would you expect kind of on that base?

[Cheryl Maguire, EVP & CFO at LSB Industries]

Yes. Hey, Lucas, we took a look at that. On the expense side, when water treatment chemicals, things like that, probably looking at maybe $1,000,000 over the year on the expense side. On the capital side, we've got the majority of our equipment kind of ordered. And so thinking maybe could see $2,000,000 there.

[Cheryl Maguire, EVP & CFO at LSB Industries]

That's best guess today. It's a moving target.

[Lucas Beaumont, Director Equity Research Analyst at UBS Group]

Great. Thank you.

[Operator]

Thank you. We've reached the end of our question and answer session. I'd like to turn the floor back over to Mark for any further or closing comments.

[Mark Behrman, Chairman & Chief Executive Officer at LSB Industries]

Great. Appreciate everyone joining the call today and appreciate everyone's support. So if there are any other questions, feel free to give us a shout and, we'll have a conversation and hopefully answer your questions. Thanks and have a great day.

[Operator]

Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.

Participants

Executives

• Fred Buonocore, VP - Investor Relations
• Mark Behrman, Chairman & Chief Executive Officer
• Damien Renwick, EVP & Chief Commercial Officer
• Cheryl Maguire, EVP & CFO

Analysts

• Lucas Beaumont, Director Equity Research Analyst at UBS Group
• Kevin Estok, Equity Research Senior Associate at Jefferies LLC
• Andrew Wong, Equity Research Analyst at RBC Capital Markets
• Rob McGuire, Equity Research Analyst at Granite Research
• Charles Neivert, Senior Research Analyst at Piper Sandler Companies