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), Inc. (NYSE: LXU) is an Oklahoma City–based manufacturer of chemical products serving the agricultural, industrial and defense markets. The company operates primarily through two segments: Fertilizer Solutions and Commodities Solutions. Through its Fertilizer Solutions segment, LSB produces primary nitrogen products—including anhydrous ammonia and technical-grade ammonium nitrate—that are sold to fertilizer distributors and agricultural retailers across North America. Its Commodities Solutions segment manufactures and sells nitric acid, sodium nitrate and other nitrate-based compounds for industrial applications such as mining, water treatment and specialty chemical production, as well as defense-related formulations used in munitions and pyrotechnics.

Incorporated in 1969, LSB Industries has grown from a single production site to multiple manufacturing facilities strategically located in the central United States. These locations are chosen to provide access to key feedstocks, rail networks and customer distribution channels. By leveraging integrated production processes, the company seeks to optimize raw‐material use and control costs, helping to mitigate the effects of commodity price fluctuations. LSB’s footprint in states such as Oklahoma, Arkansas and Wyoming supports its ability to serve both domestic markets and export customers in Latin America.

LSB’s management team combines industry veterans with technical experts in chemical engineering, plant operations and supply‐chain management. The company emphasizes safety and environmental stewardship at each facility, maintaining compliance with federal regulations and pursuing initiatives to reduce energy consumption and emissions. As a publicly traded company on the New York Stock Exchange, LSB Industries provides updates on operational milestones and capital projects through regular filings and investor communications, focusing on strategic growth in its core product lines.

Lsb Industries Q1 2025 Earnings Call Transcript

Key Takeaways

• Overall sales volumes rose 4% sequentially driven by higher ammonium nitrate and UAN output, while the company reported zero recordable injuries, reflecting improved plant reliability and safety.
• First-quarter adjusted EBITDA declined to $29 million from $33 million a year ago, as gains from increased volumes and pricing were offset by materially higher natural gas costs.
• US import tariffs on fertilizers and plant equipment have introduced supply chain uncertainty and pricing pressure on imported parts, though management expects limited direct impact on core operations.
• The El Dorado facility achieved precertification under the Fertilizer Institute’s Verified Ammonia Carbon Intensity Program and plans to begin CO₂ injection by end-2026, securing capacity to produce 250,000 tons of low carbon ammonia.
• Market pricing remains strong with UAN prices up 73% from last fall and urea above $500/ton, supported by tighter imports, spring planting demand, and limited global supply.

Presentation

[Operator]

Greetings and welcome to the LSB Industries first quarter 2025 earnings conference call. At this time all participants are in listen only mode. If anyone should require operator assistance, please press Star zero on your telephone keypad. A question and answer session will follow the formal presentation. You may be placed into question queue at any time by pressing star one on your telephone keypad and we ask you please ask one question, one follow up, then return to the queue. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Fred Boonocore, Vice President, Investor Relations. Fred, please go ahead.

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

Good morning everyone. Joining me today are Mark Behrman, our Chairman and 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. 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-K. On the call, we will reference non-GAAP results.

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

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 and CEO 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 do not anticipate a big impact to our business, it has created a lot of uncertainty for both planned spending and potential capital projects. We will 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 and CEO 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.

[Damien Renwick, Chief Commercial Officer at LSB Industries]

Damien, 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 U.S. 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. 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.S. corn exports were to China in 2024.

[Damien Renwick, Chief Commercial Officer at LSB Industries]

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

[Damien Renwick, Chief Commercial Officer at LSB Industries]

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. UAN prices continue to increase significantly. The current NOLA UAN price of $350 per tonne is 73% higher than the low price of fall 2024. We are seeing strong demand along with insufficient import volumes, which has resulted in tight U.S. inventories. Urea prices have also strengthened considerably with NOLA prices now above $500 per tonne. 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. The Tampa ammonia price has declined since the start of the year. This decline has followed falling natural gas prices in Europe.

[Damien Renwick, Chief Commercial Officer at LSB Industries]

Europe continues to be the marginal cost producer for ammonia. This dynamic is underpinning ammonia prices globally. Despite this decline, ammonia prices remain attractive due to a globally tight supply and demand balance. U.S. 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 2025 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 95.3 million acres of corn this year compared to 90.6 million planted acres last year. This significant increase is driving very strong fertilizer demand and is driving pricing for our products up significantly. On page eight the USDA has lowered its forecast for corn ending stocks. This forecast has provided support for corn prices.

[Damien Renwick, Chief Commercial Officer at LSB Industries]

US corn prices sit solidly above $4 per bushel, supporting favourable farmer economics. Now I'll turn the call over to Cheryl to discuss our first quarter financial results and our outlook.

[Cheryl Maguire, CFO at LSB Industries]

Cheryl, thanks Damian, and good morning. On page nine you'll see a summary of our first quarter 2025 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 2024 adjusted EBITDA of $33 million to our first quarter 2025 adjusted EBITDA of $29 million. 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, 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 non-seasonal, 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 2025, 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, 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. 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 costs 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.

[Cheryl Maguire, CFO at LSB Industries]

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 forego ammonia sales in favor of upgrading into higher margin products. One change to the full year outlook that we discussed on our Q4 2024 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 2026 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 million. Now I'll turn it back over to Mark.

[Mark Behrman, Chairman and CEO 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 pre certification 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. 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.

[Mark Behrman, Chairman and CEO at LSB Industries]

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. 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 VI permit application. Once our project receives EPA approval, we will use the same well for CO2 injections, allowing us to be very efficient. Based on our ongoing dialogue with the EPA, we continue to expect to begin CO2 injections by the end of 2026.

[Mark Behrman, Chairman and CEO at LSB Industries]

Given the impact of U.S. 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. 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 predictability of our earnings stream. 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 and CEO 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. 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.

[Mark Behrman, Chairman and CEO at LSB Industries]

Thanks.

[Operator]

Thank you.

[Operator]

will now be conducting a question and answer session. If you would like to be placed in the question queue, please press star one on your telephone keypad. As a reminder, please ask one question, one follow-up, then return to the queue. Once again, that is star one to be placed in the question queue. Our first question is coming from Lucas Beaumont from UBS. Your line is now live.

[Lucas Beaumont, Director Equity Research Analyst at UBS]

Good morning.

[Lucas Beaumont, Director Equity Research Analyst at UBS]

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's probably going to shift a fair bit lower for May as well. 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 how we should think about the setup for LXU's realised pricing here in the second quarter.

[Damien Renwick, Chief Commercial Officer at LSB Industries]

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

[Lucas Beaumont, Director Equity Research Analyst at UBS]

Right.

[Lucas Beaumont, Director Equity Research Analyst at UBS]

I guess just given that you've decided to sort of pause the Houston Ship Channel project, 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 and CEO at LSB Industries]

Yeah, good morning, Lucas. 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. As we sit here today, we haven't filled any of those projects from a capital allocation standpoint. As always, we're going to focus on improving the reliability and the EHS of our existing facilities. We'll continue to do that, which I think, as we stated before, somewhere in the neighborhood of, you know, $60-$65 million of capital a year. After that, I think we will take a step back and look.

[Mark Behrman, Chairman and CEO at LSB Industries]

At.

[Mark Behrman, Chairman and CEO at LSB Industries]

Investments in other projects, stock buyback and of course, debt reduction.

[Lucas Beaumont, Analyst at UBS Investment Bank]

Right. Thank you.

[Mark Behrman, Chairman and CEO at LSB Industries]

Thank you.

[Operator]

Next question is coming from Kevin Estock from Jefferies. Your line is now live.

[Kevin Estok, Equity Research Analyst at Jefferies]

Hey, good morning, this is Kevin Estok on for Lawrence Alexander. Thank you for taking my questions. My first one is just there's been obviously quite a bit of talk around deregulation by the administration. I guess I was wondering whether or not you guys have sketched out.

[Kevin Estok, Equity Research Analyst at Jefferies]

Or maybe thought about how, you know.

[Kevin Estok, Equity Research Analyst at Jefferies]

How big of a tailwind or how it could help you guys, I guess, let's say, related to permitting, et cetera. I guess many companies that we're covering are actually saying that the impact is going to be quite minimal. I guess I was wondering if you guys were thinking about it in the same way.

[Mark Behrman, Chairman and CEO at LSB Industries]

Yeah. Good morning.

[Mark Behrman, Chairman and CEO at LSB Industries]

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. We certainly saw a pause for a couple of months while they put new people in place to lead all those efforts. 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. Other than that though, I don't think we're going to see much change.

[Kevin Estok, Equity Research Analyst at Jefferies]

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 related to UAN at the retailer and producer level. I guess I was wondering if.

[Kevin Estok, Equity Research Analyst at Jefferies]

You could give a little bit more.

[Kevin Estok, Equity Research Analyst at Jefferies]

Color there, the certain specific dynamics there. I guess it's related to, I guess, you know, higher corn acreage, just planting season, just any color that would be helpful.

[Kevin Estok, Equity Research Analyst at Jefferies]

Thank you.

[Damien Renwick, Chief Commercial Officer at LSB Industries]

Yes, 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 million acres. That's a significant increase compared to last year. 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. That's putting strain on logistics, on river movements, demand, on rail as well. You know, 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 Analyst at Jefferies]

Thank you very much.

[Mark Behrman, Chairman and CEO at LSB Industries]

Thank you.

[Operator]

As a reminder that star one to be placed into question queue, our next question is coming from Andrew Wen from RBC Capital Markets. Your line is now live.

[Andrew Wen, Senior Consultant at RBC Capital Markets]

Hey, good morning. As you're considering some of these.

[Andrew Wen, Senior Consultant at RBC Capital Markets]

Potential upgrade capacity projects, can you just.

[Andrew Wen, Senior Consultant at RBC Capital Markets]

I know nothing's been committed, but can.

[Andrew Wen, Senior Consultant at RBC Capital Markets]

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 and CEO at LSB Industries]

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 the actual cost. We want to finish engineering studies before we sort of give you a gut number. I think that would be the most prudent. You know, with that, once we get a final or at least a more finalized capital number, then we can sit down and figure out, you know, what kind of EBITDA generation and returns there are and if the project even makes sense.

[Mark Behrman, Chairman and CEO at LSB Industries]

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 from 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, you know, allows us to look at possibly expanding nitric acid or AN solution, because we think there's demand, particularly in AN solution. I think it's a bit too early for us to be talking about, you know, the capital cost to do that. Okay, that's fair. On the Houston Ship Channel project, the decision to delay there makes sense. Everything you've laid out is there the potential for revisiting that project in the future and what might need to change for that?

[Mark Behrman, Chairman and CEO at LSB Industries]

Yeah, look, I think overall we still believe that over time there'll be new demand generation for low carbon ammonia. I think for us, it's really about uncertainty and capital costs right now as things are moving around. You know, one day we have tariffs and the next day we don't. You know, this whole situation, I think it's, you know, I think everyone's going through that and you 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. Now, I believe that changes over time, but today I think, you know, we're not comfortable with that.

[Mark Behrman, Chairman and CEO at LSB Industries]

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 offtake or something like that. I think we're open to that, but I think we've just got to be very prudent about, you know, what project we get involved in and what's the right timing. Today I think it doesn't make sense for us.

[Andrew Wen, Senior Consultant at RBC Capital Markets]

Great. Thanks, Mark.

[Mark Behrman, Chairman and CEO at LSB Industries]

Sure.

[Operator]

Thank you.

[Operator]

Next question today is coming from Rob McGuire from Granite Research. Our line is now live. Good morning.

[Rob McGuire, Equity Research Analyst at Granite Research]

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

[Damien Renwick, Chief Commercial Officer at LSB Industries]

Hey, Rob, that's a tricky question. I guess, you know, from an ammonia.

[Damien Renwick, Chief Commercial Officer at LSB Industries]

Perspective.

[Damien Renwick, Chief Commercial Officer at LSB Industries]

European ammonia producers will really just be evaluating, okay, what's the forward outlook on their natural gas purchases and pricing, and then they'll weigh that up against their own landed price for an import.

[Damien Renwick, Chief Commercial Officer at LSB Industries]

Right.

[Damien Renwick, Chief Commercial Officer at LSB Industries]

It is really a make versus buy decision. We have been in that realm now, you know, for a number of years, particularly as Russian natural gas has disappeared from Europe. I do not see that sort of changing at all anytime in the future unless there is some resolution between Russia and Ukraine and then back to Russian natural gas supply into Europe. In terms of LNG, I think it is much the same really. You have got the Europeans trying to import sufficient natural gas to keep the lights on and make sure they have got enough gas in the system for power for residential and industrial use. I am sure they will look to transact upon that at the best possible price.

[Rob McGuire, Equity Research Analyst at Granite Research]

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

[Damien Renwick, Chief Commercial Officer at LSB Industries]

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

[Damien Renwick, Chief Commercial Officer at LSB Industries]

While there's conversation in Europe, certainly the EU with what would the carbon intensity scores of a low carbon ammonia versus a zero carbon ammonia look like, there's not been anything finalized.

[Damien Renwick, 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, 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. Nothing really too far out of the ordinary there.

[Rob McGuire, Equity Research Analyst at Granite Research]

Thanks guys.

[Operator]

Thank you. As a reminder, star one to be placed into the question queue. Our next question today is coming from Charles Nievert from Piper Sandler.

[Operator]

Your line is now live.

[Charles Neivert, Senior Research Analyst at Piper Sandler]

Morning guys. You mentioned already that you're delaying some scheduled turnarounds because of equipment and things like that. Delays there. Is there any chance that some of these delays also leak out into the carbon projects at El Dorado? I mean, you're talking about second half of 2026 with all the. And there's a lot still going on. 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 and CEO at LSB Industries]

Morning, Charlie. No, I do not think so. You know, we are talking about, I mean some of the main things we are talking about on the compression facility are compressors. You know, our partner Lapis has already had discussions about the timing of delivery of equipment and, you know, they are on the precipice basically of making orders for long lead time items. I think based on delivery times and if they get ordered over the next couple of weeks, I think we are 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]

I mean, I know that they're obviously, they're footing the bill for all of the equipment and, you know, and the build out. Is there any risk to the 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, you know, the payments from the government for the carbon and you're just getting that whatever piece that you're going to be getting and that won't change. Obviously their profit does if their costs get higher.

[Mark Behrman, Chairman and CEO at LSB Industries]

Yeah, we have a CO2 sales agreement in place with them that's been heavily negotiated. We are 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]

Okay, thanks very much.

[Mark Behrman, Chairman and CEO 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, Analyst at UBS Investment Bank]

Thank you. Just with the shift that you've outlined going more towards cost plus kind of pricing on contracts, 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? Then secondly, sort of what has your assessment been on how that's going to kind of impact your margins over the cycle? I mean I'm sure it's going to reduce the volatility in your earnings year to year, but I guess are you having to give anything up over the cycle do you think from a margin perspective to get that or would it be similar?

[Mark Behrman, Chairman and CEO at LSB Industries]

Yeah, you know, I think our commercial team does a really good job of trying to optimize our production. 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 in the AG markets, based on our views, are a better play at least for the next 12 months, 18 months, whatever it might be. You know, if I had to think about what would be an optimal mix, certainly 50-50 is something that, you know, so that 35% moving up to 50% is probably something that would make sense for us.

[Mark Behrman, Chairman and CEO at LSB Industries]

I think 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%. Probably somewhere between 40-60%, you know, industrial with the balance obviously being ag. From a margin perspective, you know, absolutely, you're right. It's going to give us much more stability and, and you know, comfortability on what our earnings profile looks like. From a margin perspective it really just depends.

[Mark Behrman, Chairman and CEO at LSB Industries]

I mean it's, you know, if you look over a 10 year period on some of the products, you know, same 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 and the commercial team again does a really good job in, you know, let's go back over the last 10 years and look at how pricing has the actual pricing was.

[Mark Behrman, Chairman and CEO at LSB Industries]

Over the last 10 years versus if.

[Mark Behrman, Chairman and CEO at LSB Industries]

You went, you know, gas backed or cost plus and what that might look like. I think margins overall over a period of time should actually be relatively similar.

[Mark Behrman, Chairman and CEO at LSB Industries]

We will lose where there's a huge.

[Mark Behrman, Chairman and CEO at LSB Industries]

Spike in fertilizer pricing since, like we saw in 2022. We are trading that off for a lot of downside protection in our earnings.

[Charles Neivert, Senior Research Analyst at Piper Sandler]

Great, thanks.

[Charles Neivert, Senior Research Analyst at Piper Sandler]

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 this is tariff driven, if they were in place today, I guess how much of a cost impact would you expect kind of on that basis?

[Cheryl Maguire, CFO at LSB Industries]

Yeah. Hey, Lucas, we took a look at that on the expense side when, you know, water treatment, chemicals, things like that, probably looking at maybe $1 million 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 million there. That's best guess today. It's a moving target.

[Charles Neivert, Senior Research Analyst at Piper Sandler]

All right. 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 closing comments.

[Mark Behrman, Chairman and CEO at LSB Industries]

Great.

[Mark Behrman, Chairman and CEO at LSB Industries]

Appreciate everyone joining the call today and appreciate everyone's support. 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.

[Mark Behrman, Chairman and CEO at LSB Industries]

Thank you.

[Operator]

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

• Cheryl Maguire, CFO

Analysts

• Andrew Wen, Senior Consultant at RBC Capital Markets
• Fred Buonocore, VP of Investor Relations at LSB Industries
• Mark Behrman, Chairman and CEO at LSB Industries
• Kevin Estok, Equity Research Analyst at Jefferies
• Damien Renwick, Chief Commercial Officer at LSB Industries
• Rob McGuire, Equity Research Analyst at Granite Research
• Lucas Beaumont, Director Equity Research Analyst at UBS
• Lucas Beaumont, Analyst at UBS Investment Bank
• Charles Neivert, Senior Research Analyst at Piper Sandler