LSB Industries, Inc. (NYSE:LXU) (“LSB” or the “Company”) today
announced results for the second quarter ended June 30, 2018.
Second Quarter Highlights
- Net sales of $103.2 million for the
second quarter of 2018, compared to adjusted net sales(1) of $105.2
million for the second quarter of 2017 ($122.9 million originally
reported) which excludes $15.6 million for the comparative impact
to revenue from new revenue recognition standards adopted in 2018
primarily related to the Baytown facility, that are not reflected
in prior year financials, and $2.1 million from businesses sold in
the second and third quarters of 2017
- Net loss of $27.5 million for the
second quarter of 2018, compared to a loss of $7.0 million for the
second quarter of 2017
- Adjusted EBITDA(1) of $17.8 million for
the second quarter of 2018, compared to $21.7 million ($22.2
million originally reported) excluding $0.5 million from businesses
sold in 2017
“Our second quarter performance was disappointing relative to
our expectations headed into the period,” stated Daniel Greenwell,
LSB’s President and CEO. “As we previously announced, our results
were impacted by unplanned downtime at our El Dorado facility and,
to a lesser extent, our Pryor facility. As a result, we had lower
production volume of both our agricultural and industrial products
resulting in reduced sales, lower fixed cost absorption and
additional costs, which offset a material year-over-year
improvement in pricing for our agricultural products along with
lower natural gas feedstock costs and stronger sales volumes of our
industrial and mining products.”
Mr. Greenwell continued, “We recognized year-over-year pricing
improvement for all of our major agricultural product categories
during the second quarter, with net pricing per ton for UAN, HDAN,
and agricultural ammonia, rising 14%, 13%, and 10% respectively,
reflecting a more favorable alignment of demand with market
capacity for these products relative to last year. While the third
quarter is typically our seasonally weakest quarter for
agricultural products due to the conclusion of the spring
fertilizer season, based on third quarter presales of UAN and
ammonia, we expect a continued trend towards stronger pricing
relative to 2017 for the balance of this year. Pricing for our
industrial products was lower than the prior year’s second quarter
as a result of the lower Tampa ammonia pricing quarter over quarter
which averaged $265 a metric ton for the second quarter of 2018, as
compared to $295 a metric ton for the second quarter of 2017. Our
industrial ammonia sales volumes declined due to the aforementioned
downtime at El Dorado, however, our nitric acid and other
industrial products volumes increased 35% and 15% respectively
driven by the continued strength of the U.S. economy. Favorable
trends in our mining products business also continued, with our
mining product volumes increasing 20% as compared to the second
quarter of 2017 as we continue to gain momentum in these
markets.”
“On the operations front, Cherokee’s ammonia plant once again
ran at a 100% on-stream rate for the quarter, which was the sixth
out of the last seven quarters of running at this level. After
delivering a 100% on-stream rate in the first quarter, El Dorado’s
ammonia plant ran at a 62% on-stream rate during the second quarter
after a power outage resulted in tube failures in the ammonia
plant’s boiler. While this disruption was an impediment to what
would have otherwise been a very good quarter, it did provide us
with the opportunity to pull forward maintenance work previously
planned for the facility’s September 2018 Turnaround. As a result,
we expect increased production volume and lower Turnaround expense
at El Dorado in the third quarter. Pryor’s ammonia plant ran at a
65% on-stream rate for the second quarter, which included the
impact of downtime to repair leaks to its waste heat boiler. In the
second half of 2018, we expect on-stream rates to average
approximately 94% across all facilities.”
__________________________________________________________________
(1) This is a Non-GAAP measure. Refer to the Non-GAAP
Reconciliation section.
Mr. Greenwell concluded, “Our outlook for the second half of the
year calls for significant improvement in Adjusted EBITDA and free
cash flow as compared to the same period last year as a result of
anticipated higher overall pricing relative to 2017 for the
products we sell, combined with our expectations for more
consistent plant operating rates. The technological enhancements we
have been making to our company-wide maintenance management system
are largely complete and we expect to yield increasing benefits as
the year progresses. We are confident that we have the financial
flexibility to execute our strategy aimed at delivering greater and
more consistent profits and increased value for our
shareholders.”
Three Months Ended June 30, 2018 2017
(Dollars in millions)
Net
Sector
Adjusted Net Sector
%
Net Sales by Market
Sector
Sales
Mix
Sales(1)
Mix
Change
Agricultural $ 58.0 56 % $ 57.2 54 % 1 % Industrial 32.8 32 % 37.6
36 % (13) % Mining 12.4 12 % 10.4 10 % 19 % $ 103.2 $ 105.2 (2) %
(1) Due to the January 1, 2018 adoption of ASC 606, Revenue from
Contracts with Customers (“ASC 606”), certain industrial sales are
no longer recognized. Since we adopted ASC 606 using the “modified
retrospective” method, the prior periods were not restated.
However, if we had applied ASC 606 to these specific arrangements
during the second quarter of 2017, net sales for these products
would have been reduced by approximately $15.6 million as
illustrated above. Additionally, adjusted net sales are adjusted to
remove revenue associated with businesses sold in 2017. See Non –
GAAP reconciliation section for more information.
Comparison of 2018 to 2017 periods:
- Net sales of our agricultural products
were up slightly during the quarter relative to the prior year
period. Stronger pricing for UAN, HDAN and agricultural ammonia was
offset by lower sales volumes for these products as a result of
lower on-stream rates at the El Dorado and Pryor facilities. With
respect to industrial sales, net sales of industrial ammonia were
also impacted by lower on-stream rates at El Dorado. However,
nitric acid and AN solution sales were strong for the quarter and
low density ammonium nitrate (LDAN) sales volumes for mining
applications also increased as a result of our sales and marketing
efforts and stronger overall demand from this market.
- Adjusted EBITDA from continuing
operations was lower compared to the prior year period primarily
due to reduced agricultural and industrial product volumes,
partially offset by improved pricing as discussed above, lower
natural gas feedstock costs and improved mining volumes.
The following tables provide key sales
metrics for our Agricultural products:
Three Months Ended June 30,
Product (tons
sold)
2018 2017 % Change Urea ammonium
nitrate (UAN) 110,336 118,488 (7
)
%
High density ammonium nitrate (HDAN) 93,126 105,115 (11
)
%
Ammonia 12,956 12,248 6
%
Other 12,822 12,829 0
%
229,240 248,680 (8
)
%
Average Selling
Prices (price per ton) (A)
UAN $ 178 $ 156 14
%
HDAN $ 254 $ 224 13
%
Ammonia $ 316 $ 288 10
%
(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)
2018 2017 % Change Ammonia 41,194
66,313
(38
)
%
Nitric acid, excluding Baytown 33,504 24,806
35
%
Other Industrial Products 9,224 8,015
15
%
83,922 99,134
(15
)
%
The following table indicates the volumes
sold of our major Mining products:
Three Months Ended June 30,
Product (tons
sold)
2018 2017 % Change
LDAN/HDAN/AN solution 48,001 39,940
20
%
Input
Costs
Average natural gas cost/MMBtu $ 2.60 $ 3.09
(16
)
%
Financial Position and Capital Expenditures
As of June 30, 2018, our total cash position was $47.2 million.
Additionally, we had approximately $34.3 million of borrowing
availability under our Working Capital Revolver. There were no
borrowings under the Working Capital Revolver at June 30, 2018.
Total long-term debt, including the current portion, was $416.4
million at June 30, 2018 compared to $409.4 million at December 31,
2017. The aggregate liquidation value of the Series E Redeemable
Preferred at June 30, 2018, inclusive of accrued dividends of $58.4
million, was $198.2 million.
Interest expense for the second quarter of 2018 was $11.7
million compared to $9.3 million for the same period in 2017. For
the full year of 2018, we expect interest expense to be
approximately $43 million.
Capital expenditures were approximately $9.2 million in the
second quarter of 2018 and $15.4 million for the first six months
of 2018. For the full year of 2018, total capital expenditures,
which are related to maintaining and enhancing safety and
reliability at our facilities, are expected to be approximately
$31.0 million.
Volume Outlook
The Company’s revised outlook for sales volumes for the second
half and full year of 2018 (including lost sales related to El
Dorado and Cherokee Turnarounds) are as follows:
Products
Second Half 2018
Sales
Full Year 2018
Sales
(tons) (tons) Agriculture:
UAN 235,000
– 245,000 445,000 – 455,000 HDAN 90,000
– 95,000 275,000 – 285,000 Ammonia
45,000 – 55,000 90,000 – 100,000
Industrial, Mining and Other:
Ammonia
115,000 – 125,000 220,000 – 230,000 LDAN/HDAN and AN
solution 85,000 – 95,000 180,000 –
190,000 Nitric Acid and Other Mixed Acids 50,000 –
60,000 100,000 – 110,000 Sulfuric Acid
60,000 – 70,000 125,000 – 135,000 DEF
6,000 – 12,000 14,000 – 19,000
Conference Call
LSB’s management will host a conference call covering the second
quarter results on July 26, 2018 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 and CEO, Daniel
Greenwell, Executive Vice President and CFO, Mark Behrman and
Executive Vice President, Chemical Manufacturing, John Diesch.
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 2018; reduction
of SG&A expenses; 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, 2017 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,
June 30, June 30, Three Months Ended Six Months Ended 2018
2017 2018 2017 (In Thousands, Except Per Share
Amounts) Net sales $ 103,199 $ 122,853 (1) $ 203,649 $ 246,197 (1)
Cost of sales 100,126 111,513 (1) 190,483
223,242 (1) Gross profit 3,073 11,340 13,166 22,955
Selling, general and administrative expense 8,397 8,232 16,700
18,777 Other expense, net 545 3,406 451
2,155 Operating income (loss) (5,869 ) (298 ) (3,985 ) 2,023
Interest expense, net 11,693 9,292 20,999 18,650 Loss on
extinguishment of debt 5,951 — 5,951 — Non-operating other expense
(income), net (331 ) 204 (1,240 ) 435
Loss before provision (benefit) for income taxes (23,182 ) (9,794 )
(29,695 ) (17,062 ) Provision (benefit) for income taxes
4,324 (2) (2,761 ) 3,402 (4,043 ) Net loss
(27,506 ) (7,033 ) (33,097 ) (13,019 ) Dividends on
convertible preferred stocks 75 75 150 150 Dividends on Series E
redeemable preferred stock 6,628 5,789 12,966 11,325 Accretion of
Series E redeemable preferred stock 802 1,618
2,401 3,217 Net loss attributable to common stockholders $
(35,011 ) $ (14,515 ) $ (48,614 ) $ (27,711 ) Basic and
dilutive net loss per common share: $ (1.27 ) $ (0.53 ) $ (1.77 ) $
(1.02 )
(1) Due to the January 1, 2018 adoption of ASC 606, Revenue from
Contracts with Customers (“ASC 606”), certain industrial sales and
associated cost of sales are no longer recognized. Since we adopted
ASC 606 using the “modified retrospective” method, the prior
periods were not restated. If we had applied ASC 606 to these
specific arrangements during the second quarter and first half of
2017, net sales for these products would have been reduced by
approximately $15.6 million and $33.3 million, respectively. ASC
606 had no net impact on operating income. See Non – GAAP
reconciliation section for more information.
(2) During the second quarter of 2018, we established a
valuation allowance on a portion of our federal deferred tax assets
(resulting in an income tax provision) since we currently believe
that it is more-likely-than not that a portion of our federal
deferred tax assets will not be able to be utilized.
LSB Industries, Inc.
Consolidated Balance Sheets
June 30, December 31, 2018 2017 (In Thousands)
Assets
Current assets: Cash and cash equivalents $ 47,216 $ 33,619
Accounts receivable, net 39,208 59,570 Inventories: Finished goods
13,327 20,415 Raw materials 1,552 1,441 Total
inventories 14,879 21,856 Supplies, prepaid items and other:
Prepaid insurance 4,763 10,535 Precious metals 6,640 7,411 Supplies
28,939 27,729 Prepaid and refundable income taxes 792 1,736 Other
1,434 1,284 Total supplies, prepaid items and other
42,568 48,695 Total current assets 143,871 163,740
Property, plant and equipment, net 986,737 1,014,038
Intangible and other assets, net 9,728 11,404
$ 1,140,336 $ 1,189,182
LSB Industries, Inc.
Consolidated Balance Sheets
(continued)
June 30, December 31, 2018 2017 (In Thousands)
Liabilities and Stockholders' Equity Current liabilities:
Accounts payable $ 51,278 $ 55,992 Short-term financing 2,480 8,585
Accrued and other liabilities 21,387 35,573 Current portion of
long-term debt 12,899 9,146 Total current liabilities
88,044 109,296 Long-term debt, net 403,464 400,253
Noncurrent accrued and other liabilities 10,656 11,691
Deferred income taxes 58,229 54,787 Commitments and
contingencies 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 $198,197,000
($185,231,000 at December 31, 2017)
187,421 174,959
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
2,000 2,000
Series D 6% cumulative, convertible Class
C preferred stock, no par value; 1,000,000 shares issued and
outstanding
1,000 1,000
Common stock, $.10 par value; 75,000,000
shares authorized, 31,280,685 shares issued
3,128 3,128 Capital in excess of par value 196,792 193,956 Retained
earnings 207,750 256,214 410,670 456,298 Less
treasury stock, at cost: Common stock, 2,667,122 shares (2,662,027
shares at December 31, 2017) 18,148 18,102 Total
stockholders' equity 392,522 438,196 $ 1,140,336 $
1,189,182
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, depletion
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 millions)
Three Months Ended June 30, Six Months
Ended June 30, 2018 2017 2018 2017
Net loss $ (27.5 ) $
(7.0 ) $ (33.1 ) $ (13.0
) Plus: Interest expense 11.7 9.3 21.0 18.7 Loss on
extinguishment of debt 6.0 - 6.0 - Depreciation, depletion and
amortization 19.5 17.5 37.8 35.1 Provision (benefit) for income
taxes 4.3 (2.8 ) 3.4 (4.1 )
EBITDA $ 14.0 $ 17.0 $
35.1 $ 36.7
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 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 our 2018
reliability and purchasing initiatives. Consulting costs associated
with our 2018 reliability and purchasing initiatives were not
adjusted in the first quarter of 2018 and as a result this was
updated in the six months ended as shown below. For comparative
purposes, 2017 is also adjusted to remove the impact of businesses
sold during 2017. We historically have performed Turnaround
activities on an annual basis, however we are moving 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. Our policy is to
adjust for non-cash, non-recurring, non-operating items that are
greater than $0.5 million quarterly or cumulatively.
LSB
Consolidated ($ in millions)
Three Months Ended June 30, Six Months
Ended June 30, 2018 2017 2018 2017
EBITDA: $ 14.0 $ 17.0 $ 35.1 $ 36.7
Stock-based compensation 1.6 1.6 3.0 2.8 Derecognition of death
benefit accrual - - - (1.4 ) Loss on sale of a business and other
property and equipment 0.5 3.6 0.5 4.1 Fair market value adjustment
on preferred stock embedded derivatives (0.3 ) - (1.1 ) 0.6
Consulting costs associated with reliability and purchasing
initiatives 0.6 - 1.7
-
Adjusted EBITDA $ 16.4 $ 22.2 $ 39.2 $ 42.8
EBITDA from businesses sold - (0.5 ) -
(2.2 )
Adjusted EBITDA excluding businesses sold
in 2017 $ 16.4 $ 21.7 $ 39.2 $ 40.6
Turnaround costs 1.4 - 1.7
-
Adjusted EBITDA excluding Turnaround
costs $ 17.8 $ 21.7 $ 40.9 $ 40.6
Net Sales Reconciliation
Since we adopted ASC 606 using the “modified retrospective”
method, the prior periods were not restated. As a result, we are
presenting Adjusted Net Sales to show the impact of applying ASC
606 to certain arrangements for the first quarter of 2017
consistent with accounting treatment used for the same period in
2018. ASC had no net impact on operating income. Additionally, net
sales are adjusted to remove revenue associated with businesses
sold in 2017.
Three Months Ended June 30, Six Months
Ended June 30, 2018 2017 2018 2017 Net
sales ($ in millions) Agricultural $ 58.0 $ 57.2 $ 110.3 $ 120.5
Industrial 32.8 53.2 70.9 102.1 Mining 12.4 10.4 22.4 18.0 Other
- 2.1 - 5.6 Total net
sales $ 103.2 $ 122.9 $ 203.6 $ 246.2 Impact
of ASC 606 – Industrial - (15.6 ) - (33.3 ) Revenue from businesses
sold in 2017 - (2.1 ) - (5.6 ) Total
adjusted net sales $ 103.2 $ 105.2 $ 203.6 $ 207.3
Agricultural Sales Price
Reconciliation
The following table provides a reconciliation of total
agricultural sales as reported under GAAP in our consolidated
financial statement reconciled to “net” sales which is calculated
as 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, 2018 2017 2018 2017
Agricultural sales ($ in millions) $ 58.0 $ 57.2 $ 110.3 $
120.5 Less freight: 3.9 4.3 7.8 9.9 Net
sales $ 54.1 $ 52.9 $ 102.5 $ 110.6
View source
version on businesswire.com: https://www.businesswire.com/news/home/20180725005791/en/
LSB Industries, Inc.Mark Behrman, 405-235-4546Chief
Financial OfficerorInvestor Relations:The Equity Group
Inc.Fred Buonocore, CFA, 212-836-9607Kevin Towle,
212-836-9620
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