LSB Industries, Inc. (NYSE: LXU) (“LSB” or the “Company”) today
announced results for the first quarter ended March 31, 2020.
First Quarter 2020 Summary
- Net sales of $83.4 million
- Net loss of $19.5 million
- Adjusted EBITDA(1) of $15.6 million, which includes an
adjustment for certain legal fees of $3.3 million
- El Dorado facility achieves record ammonia production for the
quarter
- 8% increase in overall sales volumes including a 21% increase
in UAN sales volumes versus the first quarter of 2019
“We were pleased with the performance of our chemical
manufacturing facilities in the first quarter as we continue to see
improvements in on-stream rates and overall production from the
investments that we made over the last several years,” stated Mark
Behrman, LSB Industries’ President and CEO. “Despite the impacts of
the COVID-19 pandemic on the U.S. economy, our facilities remain
fully operational and we expect a material year-over-year
improvement in results for full year 2020. While we operated well
for the quarter, our financial results reflected lower selling
prices for both our agricultural and industrial products, partially
offset by stronger sales volumes and lower natural gas prices.”
“Pricing was down for all of our major agricultural product
categories during the first quarter reflecting the continued
oversupply of ammonia in our primary end markets, increased imports
of some of our downstream products, and a slow start to the
pre-spring fertilizer application season due to wet weather.
Pricing for our industrial products was also impacted by the excess
ammonia inventory in the U.S. distribution channel, a condition we
believe will be at least partially alleviated in the coming
quarters.”
Mr. Behrman continued, “As I mentioned, our facilities operated
well during the first quarter. El Dorado delivered a particularly
strong performance, with a 99% ammonia plant on-stream rate and
record ammonia production volume averaging 1,350 tons per day for
the quarter. Cherokee and Baytown continued their consistent
performance and Pryor had a noteworthy year-over-year increase in
UAN production volume, which helped to partially offset the weaker
pricing. The strong operations at all our facilities were the
direct result of the extensive maintenance and upgrade work that we
completed during the last several years that we expect will lead to
strong production volume improvement throughout 2020."
“Even more importantly than our focus on operating efficiency is
our top priority of safe operations, which has a new meaning during
the current global health crisis. As such, we have implemented an
array of protocols and procedures to ensure the health of our
employees and personnel. These include daily health screening,
including temperature checks and questionnaires, use of proper
personal protection equipment, regular disinfection and cleaning of
equipment and workspaces, social distancing, working from home
where appropriate and quarantining of employees according to
specific protocols. Thus far, our efforts have been successful as
we have had no employees contract the virus. We will maintain our
discipline in this regard for however long the current health risk
persists. Our overall increased focus on safety led us to achieve
no recordable injuries for the quarter.”
“With respect to our outlook for 2020, COVID-19 has placed the
entire U.S. and global economy in an unprecedented situation and
resulted in various levels of uncertainty across our end markets.
On the agricultural side, in late February, the USDA increased its
2020 forecast for total corn acres to be planted in 2020 to 97
million, up from an expected 94 million acres, and 2019 plantings
of 90 million. Over the past month, we have seen a strong pickup in
orders and shipments of all our fertilizer products that is
consistent with an upswing in planting activity. Potentially
impacting our agricultural business in the second half of the year
is the current drop in demand for ethanol, a corn-based fuel
additive, due to significantly reduced vehicle use as people remain
at home. We are monitoring this situation closely. On the
industrial and mining side of our business, over the last month we
have seen some pull back in demand for various products that are
ultimately used in the auto manufacturing, home building, power
generation, water treatment and coal and metals mining industries.
We are working hard to at least partially offset some of this lost
demand with new business and are shifting some of our production
towards agricultural products, given the current high level of
demand.”
“In response to the uncertainties and demand headwinds being
caused by the pandemic crisis, we have taken several decisive
actions to control our costs and maintain liquidity until the
business environment stabilizes and visibility improves.
Specifically, we have halted spending of certain plant expenses and
SG&A until the impacts of the crisis have abated. Additionally,
we have deferred between $5 million and $6 million of capital
expenditures not related to Environmental, Health and Safety
investments until the fourth quarter of 2020. Finally, we have
received $10 million under the Paycheck Protection Program
established by the federal government’s CARES act. We believe our
liquidity as of the end of the first quarter, coupled with the
funds from the PPP loan in April, provide us with ample liquidity
needed to maintain the continuity of our business and hedge against
the uncertainty of the impact of Covid-19 on our markets while
fully maintaining our skilled employee base and operating our
facilities at high production rates.”
Mr. Behrman concluded, “Our primary focus at this time is on the
health and safety of our employees and all of the people we come in
contact with on a day-to-day basis as we run our business. After
that, our goal is to achieve and maintain the operational targets
we have set out for our facilities. We performed well in this
regard during the first quarter and thus far in the second quarter
and expect to continue to do so for the balance of the year. As a
result, despite the headwinds to our industry and our business
created by COVID-19, we continue to believe in our ability to
deliver year-over-year improvement in EBITDA and cash flow in
2020.”
(1) This is a Non-GAAP measure. Refer to the Non-GAAP
Reconciliation section.
Three Months Ended March 31,
2020
2019
(Dollars in thousands)
Net Sales by Market
Sector
Net Sales
Sector Mix
Net
Sales
Sector Mix
% Change
Agricultural
$ 41,458
50
%
$ 46,820
50
%
(11
) %
Industrial
35,206
42
%
37,850
40
%
(7
) %
Mining
6,747
8
%
9,482
10
%
(29
) %
$ 83,411
$ 94,152
(11
) %
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. The weaker pricing for
these products reflects a buildup of ammonia inventory in our
primary markets over the course of 2019 resulting from extremely
wet weather that negatively impacted both the planting and
harvesting seasons, imports of certain products, and closure of the
Magellan Pipeline in September 2019. Partially offsetting the
weaker selling prices were higher sales volumes of all three
products, largely attributable to improved production from our
facilities resulting from our extensive turnarounds and other
maintenance and upgrades performed over the last several
years.
- Net sales of our industrial and mining products decreased due
to lower selling prices. Industrial product selling prices are
principally indexed to the benchmark Tampa ammonia contract price
which reflects the aforementioned factors resulting in the excess
ammonia inventory in the U.S. market. 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 loss and adjusted EBITDA
was primarily the result of the weaker selling prices partially
offset by lower gas cost and higher production.
The following tables provide key sales metrics for our
Agricultural products:
Three Months Ended March 31,
Product (tons
sold)
2020
2019
% Change
Urea ammonium nitrate (UAN)
114,689
94,577
21
%
High density ammonium nitrate (HDAN)
65,874
59,845
10
%
Ammonia
20,510
19,205
7
%
Other
2,946
3,328
(11
) %
204,019
176,955
15
%
Average Selling
Prices (price per ton) (A)
UAN
$
150
$
213
(30
) %
HDAN
$
198
$
232
(15
) %
Ammonia
$
235
$
357
(34
) %
(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 March 31,
Product (tons
sold)
2020
2019
% Change
Ammonia
70,528
74,834
(6
) %
Nitric acid
25,823
22,375
15
%
Other Industrial Products
10,888
8,274
32
%
107,239
105,483
2
%
Tampa Ammonia Benchmark (price per metric
ton)
$
250
$
280
(11
) %
The following table indicates the volumes sold of our major
Mining products:
Three Months Ended March 31,
Product (tons
sold)
2020
2019
% Change
LDAN/HDAN/AN solution
30,723
36,615
(16
) %
Input
Costs
Average natural gas cost/MMBtu
$
2.09
$
2.91
(28
) %
Financial Position and Capital Expenditures
As of March 31, 2020, our total cash position was $37.5 million.
Additionally, we had approximately $20.5 million of borrowing
availability under our Working Capital Revolver giving us total
liquidity of approximately $58 million. Total long-term debt,
including the current portion, was $490.5 million at March 31, 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. The aggregate
liquidation value of the Series E Redeemable Preferred at March 31,
2020, inclusive of accrued dividends of $111.3 million, was $251.1
million.
Interest expense for the first quarter of 2020 was $13.5 million
compared to $11.0 million for the same period in 2019.
Capital expenditures were approximately $10.7 million in the
first quarter of 2020 of which approximately half relates to
capital costs incurred in the fourth quarter of 2019 but paid
during the first 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 first
quarter results on Thursday, May 7, 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
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 Months Ended March
31,
Three Months Ended
March 31,
2020
2019
(In Thousands, Except Per Share
Amounts)
Net sales
$
83,411
$
94,152
Cost of sales
80,860
86,834
Gross profit
2,551
7,318
Selling, general and administrative
expense
10,006
7,224
Other expense (income), net
(468)
23
Operating income (loss)
(6,987)
71
Interest expense, net
13,479
10,987
Non-operating other expense (income),
net
(675)
224
Loss before provision (benefit) for income
taxes
(19,791)
(11,140)
Provision for income taxes
(339)
400
Net loss
(19,452)
(11,540)
Dividends on convertible preferred
stocks
75
75
Dividends on Series E redeemable preferred
stock
8,307
7,256
Accretion of Series E redeemable preferred
stock
504
496
Net loss attributable to common
stockholders
$
(28,338)
$
(19,367)
Basic and dilutive net loss per common
share
$
(1.01)
$
(0.69)
LSB Industries, Inc.
Consolidated Balance
Sheets
March 31,
December 31,
2020
2019
(In Thousands)
Assets
Current assets:
Cash and cash equivalents
$
37,483
$
22,791
Accounts receivable
51,060
40,203
Allowance for doubtful accounts
(328)
(261)
Accounts receivable, net
50,732
39,942
Inventories:
Finished goods
24,632
21,738
Raw materials
1,671
1,573
Total inventories
26,303
23,311
Supplies, prepaid items and other:
Prepaid insurance
8,722
11,837
Supplies
25,162
24,689
Other
8,833
8,303
Total supplies, prepaid items and
other
42,717
44,829
Total current assets
157,235
130,873
Property, plant and equipment, net
928,393
936,474
Other assets:
Operating lease assets
19,149
15,330
Intangible and other assets, net
5,374
5,812
24,523
21,142
$
1,110,151
$
1,088,489
LSB Industries, Inc.
Consolidated Balance Sheets
(continued)
March 31,
December 31,
2020
2019
(In Thousands)
Liabilities and Stockholders'
Equity
Current liabilities:
Accounts payable
$
54,010
$
58,477
Short-term financing
6,893
9,929
Accrued and other liabilities
40,544
25,484
Current portion of long-term debt
9,665
9,410
Total current liabilities
111,112
103,300
Long-term debt, net
480,837
449,634
Noncurrent operating lease liabilities
14,506
11,404
Other noncurrent accrued and other
liabilities
5,154
6,214
Deferred income taxes
35,343
35,717
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 $251,108,000 ($242,800,000 at December
31, 2019)
243,704
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 $3,085,000 ($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 $1,267,000 ($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
196,972
196,833
Retained earnings
29,369
57,632
232,469
260,593
Less treasury stock, at cost:
Common stock, 1,979,994 shares (2,009,566
shares at December 31, 2019)
12,974
13,266
Total stockholders' equity
219,495
247,327
$
1,110,151
$
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, 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.
Three Months Ended March 31,
2020
2019
LSB
Consolidated ($ in thousands)
Net loss
($19,452)
($11,540)
Plus:
Interest expense
13,479
10,987
Depreciation and amortization
17,907
17,139
Provision (benefit) for income taxes
(339)
400
EBITDA
$11,595
$16,986
LSB Industries, Inc. Non-GAAP
Reconciliation (continued)
Adjusted EBITDA
Adjusted EBITDA is reported to show the impact of one
time/non-cash or non-operating items-such as, loss (gain) on sale
of a business and other property and equipment, one-time income or
fees, certain fair market value adjustments, non-cash stock-based
compensation, and consulting costs associated with reliability and
purchasing initiatives. We historically have performed Turnaround
activities on an annual basis; however, we have moved towards
extending Turnarounds to a two or three-year cycle. Rather than
being capitalized and amortized over the period of benefit, our
accounting policy is to recognize the costs as incurred. Given
these Turnarounds are essentially investments that provide benefits
over multiple years, they are not reflective of our operating
performance in a given year. As a result, we believe it is more
meaningful for investors to exclude them from our calculation of
adjusted EBITDA used to assess our performance. We believe that the
inclusion of supplementary adjustments to EBITDA is appropriate to
provide additional information to investors about certain items.
The following tables provide reconciliations of EBITDA excluding
the impact of the supplementary adjustments.
LSB
Consolidated ($ in thousands)
Three Months Ended March 31,
2020
2019
EBITDA:
$11,595
$16,986
Stock-based compensation
495
612
Loss (gain) on disposal of assets
(223)
228
Fair market value adjustment on preferred
stock embedded derivatives
(637)
201
Consulting costs associated with
reliability and purchasing initiatives
576
105
Unrealized loss on commodity contracts
527
-
Legal fees (Leidos)
3,287
932
Adjusted EBITDA
$15,620
$19,064
Agricultural Sales Price
Reconciliation
The following table provides a reconciliation of total
agricultural sales as reported under GAAP in our consolidated
financial statement reconciled to netback which is calculated as
sales less freight expenses. We believe this provides a relevant
industry comparison among our peer group.
Three Months Ended March 31,
2020
2019
Agricultural sales ($ in thousands)
$41,458
$46,820
Less freight
3,970
3,198
Net sales
$37,488
$43,622
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200506006047/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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