Operational
Performance Partially Offsets Pandemic-Related
Headwinds
LSB Industries, Inc. (NYSE: LXU) (“LSB” or the “Company”) today
announced results for the second quarter ended June 30, 2020.
Second Quarter 2020 Summary
- Net sales of $105.0 million
- Net loss of $0.4 million
- Adjusted EBITDA(1) of $29.2 million
- Pryor facility achieves record UAN and Urea production for the
quarter
- 6% increase in agricultural sales volumes, including an 18%
increase in UAN sales volumes, versus the second quarter of
2019
“We continued to execute well through a challenging second
quarter,” stated Mark Behrman, LSB Industries’ President and CEO.
“Pricing remained an issue, particularly for agricultural products,
and demand for our industrial and mining products was depressed due
to pandemic-related economic disruptions. However, despite the
accelerating spread of COVID-19 throughout the areas where our
plants are located, our facilities continued to operate and
production was solid, which enabled us to partially offset the
multiple headwinds to our business. In fact, had pricing been in
line with the 2019 second quarter, and industrial demand been
consistent with the pre-pandemic levels of just over four months
ago, our EBITDA would have improved approximately 10% versus the
second quarter of 2019. We believe that demonstrates the
improvements we have made in our core operations and is
representative of LSB’s potential in a more normalized environment.
We see significant opportunity to further enhance our operational
efficiency, which we believe will translate into continued
financial improvement and put us in a good position to take
advantage of a recovery in demand and pricing in our end
markets.”
“The nitrogen chemical industry continued to be pressured during
the second quarter. Pricing for all major agricultural product
categories was impacted by the continued oversupply of ammonia in
our primary end markets, along with greater imports and decreased
exports of some of our downstream products. Industrial and mining
product volumes declined as a result of pandemic-related weakness
in demand in several of our end markets.
“Despite this, our facilities once again performed well during
the second quarter. As anticipated, our Pryor facility delivered a
significant increase in UAN production volume as a result of our
installation of a new urea reactor in late 2019. We remain on plan
to surpass our 2019 operating rates in 2020 as a result of the
maintenance and upgrade work that we completed over the past
several years. We expect these improvements to lead to a
significant production volume improvement in 2020 as compared to
2019.”
“With the spread of COVID-19 again increasing throughout much of
the U.S., our top priority remains the health and safety of our
employees. We’ve doubled down on the protocols and procedures we
enacted back in March including: daily health screenings,
temperature checks and questionnaires, use of proper personal
protective equipment, regular disinfections and cleaning of
equipment and workspaces, social distancing, working from home
where appropriate, and quarantining of employees as necessary. Our
efforts have continued to prove successful, and we will maintain
our discipline in this regard for however long the current health
risk persists.”
“Looking ahead to the second half of 2020, while much of the
U.S. economy has at least partially reopened, substantial
uncertainty remains in our end markets for the balance of the year.
On the agricultural side, corn acres planted for the 2020 planting
season are now expected to be approximately 92 million, which is
below the USDA’s previous forecast of 97 million acres, but up from
2019 plantings of 89 million acres. While lower expected corn acres
planted is a positive for expected ending corn inventory, reduced
demand from ethanol-related consumption due to the stay-at-home
orders we experienced in the U.S. combined with strong yields
projected from the 2020 planting season, all point to expected
higher ending corn inventory, which will impact crop pricing and
challenge fertilizer pricing for the balance of 2020. With respect
to industrial and mining products, much hinges on the ability of
the economy to continue to gradually increase levels of activity.
We are seeing pockets of recovery in this part of our business and
expect continued improvement in the second half of 2020.”
Mr. Behrman concluded, “Our primary focus remains on the health
and safety of our employees and all of the people we interact with
in the course of performing our daily business activities. Beyond
that, our top priority is continuing to operate our facilities at
the levels we have delivered in the past several quarters, which
has translated into continued production volume improvement. We
performed well in this regard during the second quarter and thus
far in the third quarter, a trend we expect to continue for the
balance of the year. Despite the headwinds to our industry and our
business created by COVID-19, given our operational improvements,
we continue to project year-over-year improvement in our adjusted
EBITDA and cash flow in 2020.”
(1) This is a Non-GAAP measure. Refer to the Non-GAAP
Reconciliation section.
Three Months Ended June 30,
2020
2019
(Dollars in thousands)
Net Sales by Market
Sector
Net Sales
Sector Mix
Net Sales
Sector Mix
% Change
Agricultural
$
64,997
62
%
$
72,476
60
%
(10
) %
Industrial
29,559
28
%
37,177
31
%
(20
) %
Mining
10,477
10
%
11,874
10
%
(12
) %
$
105,033
$
121,527
(14
) %
Comparison of 2020 to 2019 quarterly periods:
- Net sales of our agricultural products were down during the
quarter relative to the prior year period driven by weaker pricing
for agricultural ammonia, UAN, and HDAN. UAN and HDAN price
weakness reflected delayed purchases by farmers for the spring
planting season, which resulted in significant price reductions by
major fertilizer producers. Agricultural ammonia prices continued
to be negatively affected by a buildup of inventory in our primary
geographies, resulting from a combination of factors including: the
impact of extremely wet weather over the course of 2019 that
reduced ammonia fertilizer application over the course of the year,
the closure of the Magellan Pipeline in September 2019, which kept
a significant volume of product in our Pryor facility’s market that
would normally be transported to other areas, and the impact of
ammonia producers selling ammonia that would otherwise have been
sold into the industrial market into the agricultural market due to
the pandemic-related slowdown in the industrial market. Partially
offsetting the weaker selling prices was higher sales volume of
UAN, largely reflecting the upgrades made to the Pryor facility in
late 2019.
- Net sales of our industrial and mining products decreased due
to weaker demand as the COVID-19 pandemic diminished the business
activity of several key end markets for our products including the
automotive, home building, power generation, and mining markets.
Additionally, a large portion of our mining sales contracts are
linked to natural gas indexes, and as the cost of natural gas
declines, the pricing for these products declines accordingly.
- The year-over-year change in operating income and adjusted
EBITDA was primarily the result of the weaker selling prices
partially offset by lower fixed and variable costs as well as
favorable settlements with vendors related to recovery of certain
costs associated with a nitric acid plant at our El Dorado facility
where the negative impact to our results was recognized in a prior
year.
The following tables provide key sales metrics for our
Agricultural products:
Three Months Ended June 30,
Product (tons
sold)
2020
2019
% Change
Urea ammonium nitrate (UAN)
111,860
95,183
18
%
High density ammonium nitrate (HDAN)
128,018
127,124
1
%
Ammonia
28,383
28,228
1
%
Other
9,257
10,377
(11
) %
277,518
260,912
6
%
Average Selling
Prices (price per ton) (A)
UAN
$149
$198
(25
) %
HDAN
$232
$248
(7
) %
Ammonia
$250
$357
(30
) %
(A) Average selling prices represent “net
back” prices which are calculated as sales less freight expenses
divided by product sales volume in tons.
The following table indicates the volumes sold of our major
Industrial products:
Three Months Ended June 30,
Product (tons
sold)
2020
2019
% Change
Ammonia
62,108
78,697
(21
) %
Nitric acid
19,048
22,271
(14
) %
Other Industrial Products
9,587
8,948
7
%
90,743
109,916
(17
) %
Tampa Ammonia Benchmark (price per metric
ton)
$
234
$
237
(1
) %
The following table indicates the volumes sold of our major
Mining products:
Three Months Ended June 30,
Product (tons
sold)
2020
2019
% Change
LDAN/HDAN/AN solution
44,354
47,000
(6
) %
Input
Costs
Average natural gas cost/MMBtu
$
1.810
$
2.422
(25
) %
Financial Position and Capital Expenditures
As of June 30, 2020, our total cash position was $56.5 million.
Additionally, we had approximately $12.6 million of borrowing
availability under our Working Capital Revolver giving us total
liquidity of approximately $69.1 million. Total long-term debt,
including the current portion, was $499.0 million at June 30, 2020
compared to $459.0 million at December 31, 2019. The increase in
long-term debt largely reflects a use of funds from our revolver as
we preemptively borrowed on the revolver to ensure access to
liquidity given the uncertainty surrounding COVID-19. Additionally,
during the second quarter of 2020, we received $10.0 million under
the Paycheck Protection Program established by the federal
government’s CARES Act. The aggregate liquidation value of the
Series E Redeemable Preferred at June 30, 2020, inclusive of
accrued dividends of $120.0 million, was $259.8 million.
Interest expense for the second quarter of 2020 was $12.5
million compared to $11.3 million for the same period in 2019.
Capital expenditures were approximately $7.2 million in the
second quarter of 2020. For the full year of 2020, total capital
expenditures related to capital work performed in 2020 are expected
to be between $25 million and $30 million, inclusive of investments
to be made for margin enhancement purposes.
Conference Call LSB’s
management will host a conference call covering the second quarter
results on Thursday, July 30, 2020 at 10:00 a.m. ET/9:00 a.m. CT to
discuss these results and recent corporate developments.
Participating in the call will be President & Chief Executive
Officer, Mark Behrman and Executive Vice President & Chief
Financial Officer, Cheryl Maguire. Interested parties may
participate in the call by dialing (201) 493-6739. Please call in
10 minutes before the conference is scheduled to begin and ask for
the LSB conference call. To coincide with the conference call, LSB
will post a slide presentation at www.lsbindustries.com on the
webcast section of the Investor tab of our website.
To listen to a webcast of the call, please go to the Company’s
website at www.lsbindustries.com at least 15 minutes prior to the
conference call to download and install any necessary audio
software. If you are unable to listen live, the conference call
webcast will be archived on the Company’s website. We suggest
listeners use Microsoft Explorer as their web browser.
LSB Industries, Inc. LSB
Industries, Inc., headquartered in Oklahoma City, Oklahoma,
manufactures and sells chemical products for the agricultural,
mining, and industrial markets. The Company owns and operates
facilities in Cherokee, Alabama, El Dorado, Arkansas and Pryor,
Oklahoma, and operates a facility for a global chemical company in
Baytown, Texas. LSB’s products are sold through distributors and
directly to end customers throughout the United States. Additional
information about the Company can be found on its website at
www.lsbindustries.com.
Forward-Looking Statements
This press release contains certain forward-looking statements
within the meaning of the Private Securities Litigation Reform Act
of 1995. These forward-looking statements generally are
identifiable by use of the words “may,” “believe,” “expect,”
“intend,” “plan to,” “estimate,” “project” or similar expressions,
and include but are not limited to: financial performance
improvement; view on sales to mining customers; estimates of
consolidated depreciation and amortization and future Turnaround
expenses; our expectation of production consistency and enhanced
reliability at our Facilities; our projections of trends in the
fertilizer market; improvement of our financial and operational
performance; our planned capital expenditures for 2020; volume
outlook and our ability to complete plant repairs as
anticipated.
Investors are cautioned that such forward-looking statements are
not guarantees of future performance and involve risk and
uncertainties. Though we believe that expectations reflected in
such forward-looking statements are reasonable, we can give no
assurance that such expectation will prove to be correct. Actual
results may differ materially from the forward-looking statements
as a result of various factors. These and other risk factors are
discussed in the Company’s filings with the Securities and Exchange
Commission (SEC), including those set forth under “Risk Factors”
and “Special Note Regarding Forward-Looking Statements” in our Form
10-K for the year ended December 31, 2019 and, if applicable, our
Quarterly Reports on Form 10-Q and our Current Reports on Form 8-K.
All forward-looking statements included in this press release are
expressly qualified in their entirety by such cautionary
statements. We expressly disclaim any obligation to update, amend
or clarify any forward-looking statement to reflect events, new
information or circumstances occurring after the date of this press
release except as required by applicable law.
See Accompanying Tables
LSB Industries, Inc.
Financial Highlights
Three and Six Months Ended
June 30,
Three Months Ended
Six Months Ended
June 30,
June 30,
2020
2019
2020
2019
(In Thousands, Except Per Share
Amounts)
Net sales
$
105,033
$
121,527
$
188,444
$
215,679
Cost of sales
86,012
101,850
166,872
188,684
Gross profit
19,021
19,677
21,572
26,995
Selling, general and administrative
expense
8,504
8,366
18,510
15,590
Other income, net
(167
)
(34
)
(635
)
(11
)
Operating income
10,684
11,345
3,697
11,416
Interest expense, net
12,476
11,315
25,955
22,302
Non-operating other income, net
(128
)
(868
)
(803
)
(644
)
Income (loss) before benefit for income
taxes
(1,664
)
898
(21,455
)
(10,242
)
Benefit for income taxes
(1,299
)
(5,733
)
(1,638
)
(5,333
)
Net income (loss)
(365
)
6,631
(19,817
)
(4,909
)
Dividends on convertible preferred
stocks
75
75
150
150
Dividends on Series E redeemable preferred
stock
8,689
7,589
16,996
14,845
Accretion of Series E redeemable preferred
stock
505
497
1,009
993
Net loss attributable to common
stockholders
$
(9,634
)
$
(1,530
)
$
(37,972
)
$
(20,897
)
Basic and dilutive net loss per common
share
$
(0.34
)
$
(0.05
)
$
(1.35
)
$
(0.75
)
LSB Industries, Inc.
Consolidated Balance
Sheets
June 30,
December 31,
2020
2019
(In Thousands)
Assets
Current assets:
Cash and cash equivalents
$
56,513
$
22,791
Accounts receivable
42,569
40,203
Allowance for doubtful accounts
(397
)
(261
)
Accounts receivable, net
42,172
39,942
Inventories:
Finished goods
12,968
21,738
Raw materials
1,364
1,573
Total inventories
14,332
23,311
Supplies, prepaid items and other:
Prepaid insurance
5,195
11,837
Supplies
25,221
24,689
Other
9,342
8,303
Total supplies, prepaid items and
other
39,758
44,829
Total current assets
152,775
130,873
Property, plant and equipment, net
913,441
936,474
Other assets:
Operating lease assets
20,895
15,330
Intangible and other assets, net
7,554
5,812
28,449
21,142
$
1,094,665
$
1,088,489
LSB Industries, Inc.
Consolidated Balance Sheets
(continued)
June 30,
December 31,
2020
2019
(In Thousands)
Liabilities and Stockholders'
Equity
Current liabilities:
Accounts payable
$
45,245
$
58,477
Short-term financing
3,834
9,929
Accrued and other liabilities
27,768
25,484
Current portion of long-term debt
11,492
9,410
Total current liabilities
88,339
103,300
Long-term debt, net
487,552
449,634
Noncurrent operating lease liabilities
15,956
11,404
Other noncurrent accrued and other
liabilities
5,244
6,214
Deferred income taxes
34,056
35,717
Commitments and contingencies (Note 5)
Redeemable preferred stocks:
Series E 14% cumulative, redeemable Class
C preferred stock, no par value,
210,000 shares issued; 139,768
outstanding; aggregate liquidation preference
of $259,796,000 ($242,800,000 at December
31, 2019)
252,898
234,893
Series F redeemable Class C preferred
stock, no par value, 1 share issued and
outstanding; aggregate liquidation
preference of $100
—
—
Stockholders' equity:
Series B 12% cumulative, convertible
preferred stock, $100 par value; 20,000
shares issued and outstanding; aggregate
liquidation preference
of $3,145,000 ($3,025,000 at December 31,
2019)
2,000
2,000
Series D 6% cumulative, convertible Class
C preferred stock, no par value;
1,000,000 shares issued and outstanding;
aggregate liquidation preference
of $1,282,000 ($1,252,000 at December 31,
2019)
1,000
1,000
Common stock, $.10 par value; 75,000,000
shares authorized,
31,283,210 shares issued
3,128
3,128
Capital in excess of par value
197,566
196,833
Retained earnings
19,810
57,632
223,504
260,593
Less treasury stock, at cost:
Common stock, 1,966,042 shares (2,009,566
shares at December 31, 2019)
12,884
13,266
Total stockholders' equity
210,620
247,327
$
1,094,665
$
1,088,489
LSB Industries,
Inc. Non-GAAP Reconciliation
This news release includes certain “non-GAAP financial measures”
under the rules of the Securities and Exchange Commission,
including Regulation G. These non-GAAP measures are calculated
using GAAP amounts in our consolidated financial statements.
EBITDA Reconciliation EBITDA
is defined as net income (loss) plus interest expense, plus loss on
extinguishment of debt, plus depreciation and amortization
(DD&A) (which includes DD&A of property, plant and
equipment and amortization of intangible and other assets), plus
provision for income taxes. We believe that certain investors
consider EBITDA a useful means of measuring our ability to meet our
debt service obligations and evaluating our financial performance.
EBITDA has limitations and should not be considered in isolation or
as a substitute for net income, operating income, cash flow from
operations or other consolidated income or cash flow data prepared
in accordance with GAAP. Because not all companies use identical
calculations, this presentation of EBITDA may not be comparable to
a similarly titled measure of other companies. The following table
provides a reconciliation of net income (loss) to EBITDA for the
periods indicated.
LSB
Consolidated ($ in thousands)
Three Months Ended June 30,
Six Months Ended June 30,
2020
2019
2020
2019
Net income (loss)
$
(365
)
$
6,631
$
(19,817
)
$
(4,909
)
Plus:
Interest expense
12,476
11,315
25,955
22,302
Depreciation and amortization
17,295
17,397
35,202
34,536
Benefit for income taxes
(1,299
)
(5,733
)
(1,638
)
(5,333
)
EBITDA
$
28,107
$
29,610
$
39,702
$
46,596
LSB Industries, Inc. Non-GAAP
Reconciliation (continued)
Adjusted EBITDA Adjusted
EBITDA is reported to show the impact of one time/non-cash or
non-operating items-such as, loss (gain) on sale of a business and
other property and equipment, one-time income or fees, certain fair
market value adjustments, non-cash stock-based compensation, and
consulting costs associated with reliability and purchasing
initiatives. We historically have performed Turnaround activities
on an annual basis; however, we have moved towards extending
Turnarounds to a two or three-year cycle. Rather than being
capitalized and amortized over the period of benefit, our
accounting policy is to recognize the costs as incurred. Given
these Turnarounds are essentially investments that provide benefits
over multiple years, they are not reflective of our operating
performance in a given year. As a result, we believe it is more
meaningful for investors to exclude them from our calculation of
adjusted EBITDA used to assess our performance. We believe that the
inclusion of supplementary adjustments to EBITDA is appropriate to
provide additional information to investors about certain items.
The following tables provide reconciliations of EBITDA excluding
the impact of the supplementary adjustments.
LSB
Consolidated ($ in thousands)
Three Months Ended June 30,
Six Months Ended June 30,
2020
2019
2020
2019
EBITDA:
$
28,107
$
29,610
$
39,702
$
46,596
Stock-based compensation
685
686
1,180
1,298
Unrealized loss (gain) on
commodity contracts
(396
)
-
131
-
Legal fees (Leidos)
955
1,496
4,242
2,428
Loss (gain) on disposal of
assets
(54
)
-
(277
)
228
Fair market value adjustment on
preferred stock embedded derivatives
(120
)
(725
)
(757
)
(524
)
Consulting costs associated with
reliability and purchasing initiatives
-
313
576
418
Turnaround costs
11
604
11
604
Adjusted EBITDA
$
29,188
$
31,984
$
44,808
$
51,048
Agricultural Sales Price
Reconciliation The following table provides a
reconciliation of total agricultural net sales as reported under
GAAP in our consolidated financial statement reconciled to netback
sales which is calculated as net sales less freight expenses. We
believe this provides a relevant industry comparison among our peer
group.
Three Months Ended June 30,
Six Months Ended June 30,
2020
2019
2020
2019
Agricultural net sales ($ in
thousands)
$
64,997
$
72,476
$
106,455
$
119,296
Less freight
5,530
5,398
9,466
8,587
Agricultural netback sales
$
59,467
$
67,078
$
96,989
$
110,709
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200729005914/en/
Company Contact: Mark Behrman, President & CEO Cheryl
Maguire, Executive Vice President & CFO (405) 235-4546
Investor Relations Contact: The Equity Group Inc.
Fred Buonocore, CFA (212) 836-9607 Mike Gaudreau (212) 836-9620
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