LSB Industries, Inc. Reports Operating Results for the 2017 Fourth Quarter

News Release

LSB Industries, Inc. Reports Operating Results for the 2017 Fourth Quarter

Provides Outlook for 2018 Product Volumes

OKLAHOMA CITY--(BUSINESS WIRE)--Feb. 26, 2018-- LSB Industries, Inc. (NYSE:LXU) (“LSB” or the “Company”) today announced results for the fourth quarter and full year ended December 31, 2017.

Fourth Quarter Highlights

  • Net sales of $88.9 million for the fourth quarter of 2017, up from $85.4 million for the fourth quarter of 2016
  • Net loss from continuing operations of $0.2 million for the fourth quarter of 2017, compared to a loss of $25.2 million for the fourth quarter of 2016
  • Adjusted EBITDA(1) from continuing operations of $0.3 million for the fourth quarter of 2017, compared to Adjusted EBITDA of $2.8 million for the fourth quarter of 2016

“Our sales increased while adjusted EBITDA declined modestly relative to the fourth quarter of last year as increased production from our El Dorado facility, higher product pricing and improved demand for mining products was offset by the impact of downtime at our Pryor facility,” stated Daniel Greenwell, LSB’s President and CEO.

“With respect to the operating performance of our facilities, Cherokee’s ammonia plant once again ran at a 99% on-stream rate for the quarter, which was its fifth consecutive quarter of running at this level. El Dorado had an ammonia plant on-stream rate of approximately 77% in the fourth quarter, which was an improvement over the fourth quarter of the previous year, but lower than the 90% rate it operated at through the first three quarters 2017 as a result of nineteen days of downtime necessary to address mechanical issues on a boiler and a heat exchanger as discussed on our third quarter call. Since returning to service in late October, El Dorado’s ammonia plant has been producing at a rate in excess of 1,300 tons per day with an on-stream rate from that point to date of 99%. As previously announced, Pryor resumed production in early December after being taken out of service towards the end of September to repair damage to electrical controls, wiring and piping that resulted from a minor fire at its ammonia plant. In addition to those repairs, we completed more extensive maintenance work during the downtime which we expect to allow Pryor to forgo a full turnaround later in 2018 and consistently operate at significantly higher on-stream rates, thus enabling us to better capitalize on the improving pricing environment for ammonia. While we were disappointed with how Pryor operated for the fourth quarter, we believe that the significant work that we have done during the third and fourth quarters of 2017 combined with the enhanced maintenance programs we are implementing, will allow us to operate at improved on-stream rates.”

Mr. Greenwell concluded, “So far in the first quarter of 2018, prices for several of the products we produce and sell, particularly ammonia, and high density ammonium nitrate (HDAN) have been strengthening and are currently above their levels from the first quarter of last year. Pricing in 2017 was negatively impacted by excess inventory in the distribution channel from new capacity brought online by several of our competitors. We believe the market has largely absorbed this excess capacity at this point and do not anticipate product pricing to return to the trough levels we experienced in the second half of 2017 that depressed our full year 2017 results. Additionally, we are focused on the significant technological enhancements we are making to our company wide maintenance management system, which will improve our ability to proactively address potential downtime causing issues and improve the overall reliability of all our plants. We are on track to complete these enhancements by the end of our 2018 second quarter and should start to see the benefit in the second half of 2018. We expect that the improved maintenance system and practices, coupled with the higher selling prices for our products should result in materially improved financial results.”

 
(1)   This is a Non-GAAP measure. Refer to the Non-GAAP Reconciliation section.
 
     
Three Months Ended December 31,
2017   2016  
(Dollars in millions)
 

Sales by Market Sector

Sales

 

Sector
Mix

Sales

 

Sector
Mix

% Change
Agricultural $ 32.4 36 % $ 32.8 38 % (1

) %

Industrial, Mining and Other   56.5 64 %   52.6 62 % 7 %
$ 88.9 $ 85.4 4 %
 

Comparison of 2017 to 2016 periods:

  • Net sales of our agricultural products were essentially flat during the quarter relative to the prior year period. Stronger pricing for HDAN was offset by lower ammonia volumes resulting from downtime at our Pryor facility as well as weaker market pricing for ammonia. Urea ammonium nitrate (UAN) sales included approximately 32,955 tons purchased from third parties to meet customer obligations during the Pryor downtime. UAN selling prices were negatively impacted by forward orders taken during the summer months at lower selling prices. Net sales of industrial ammonia increased as a result of higher volumes from improved on-stream rates at El Dorado. 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. Sales of nitric acid from the Baytown facility increased as a result of rising levels of industrial manufacturing throughout the U.S.
  • Adjusted EBITDA from continuing operations was lower compared to the prior year period primarily due to the aforementioned downtime at the Pryor facility, partially offset by improved on-stream rates and lower fixed costs at El Dorado as compared to the fourth quarter of 2016.

The following tables provide key sales metrics for our Agricultural products:

      Three Months Ended December 31,

Product (tons sold)

  2017     2016   % Change
UAN 97,852 87,662 12 %
HDAN 48,782 49,086 (1 ) %
Ammonia 13,821 22,770 (39 ) %
Other   4,801   4,264 13 %
  165,256   163,782 1 %
 

Average Selling Prices (price per ton) (A)

UAN $ 124 $ 135 (8 ) %
HDAN $ 203 $ 168 21 %
Ammonia $ 215 $ 284 (24 ) %
 
(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 and Other Chemical products:

     
Three Months Ended December 31,

Product (tons sold)

2017   2016   % Change
Nitric acid – Baytown 115,599 99,055 17 %
Nitric acid – All Other 25,375 27,399 (7 ) %
AN solution 4,498 8,272 (46 ) %
Ammonia 51,572 43,876 18 %
197,044 178,602 10 %
 

The following table indicates the volumes sold of our major Mining products:

     
Three Months Ended December 31,

Product (tons sold)

  2017     2016   % Change
LDAN/HDAN 35,074 31,095 13 %
AN solution   3,916   11,267 (65 ) %
  38,990   42,362 (8 ) %

Input Costs

Average natural gas cost/MMBtu $ 3.00 $ 3.01 - %
 

Financial Position and Capital Expenditures

As of December 31, 2017, our total cash position was $33.6 million. Additionally, we had approximately $41.2 million of borrowing availability under our Working Capital Revolver. There were no borrowings under the Working Capital Revolver at December 31, 2017.

Total long-term debt, including the current portion, was $409.4 million at December 31, 2017 compared to $420.2 million at December 31, 2016. The aggregate liquidation value of the Series E Redeemable Preferred at December 31, 2017, inclusive of accrued dividends of $45.5 million, was $185.2 million.

Interest expense, net of capitalized interest, for the fourth quarter of 2017 was $9.3 million compared to $9.8 million for the same period in 2016. For the full year of 2018, we expect interest expense to be approximately $35 - $40 million.

Capital expenditures were approximately $10.3 million in the fourth quarter of 2017. 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 $35 million.

Volume Outlook

Our outlook for sales volumes for the full year 2018 (including lost sales related to El Dorado and Cherokee turnarounds) and our actual sales volumes for the full year 2017 are as follows:

             

Products

     

Full Year 2018 Sales
(tons)

 

Full Year Actual 2017 Sales
(tons)

Agriculture:            
UAN       480,000 – 490,000   489,000
HDAN       290,000 – 310,000   280,000
Ammonia       115,000 – 125,000   94,000
             
Industrial, Mining and Other:            
Ammonia       220,000 – 230,000   229,000
LDAN/HDAN and AN solution       180,000 – 190,000   166,000
Nitric Acid and Other Mixed Acids       90,000 – 100,000   101,000
Sulfuric Acid       120,000 – 130,000   133,000
DEF       15,000 – 20,000   15,000
       

Conference Call

LSB’s management will host a conference call covering the fourth quarter results on February 27, 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 Months and Twelve Months Ended December 31,
 
Three Months Ended Twelve Months Ended
2017   2016 2017   2016
(In Thousands, Except Per Share Amounts)
Net sales $ 88,917 $ 85,369 $ 427,504 $ 374,585
Cost of sales   99,121   94,261   422,038   423,891
Gross profit (loss) (10,204 ) (8,892 ) 5,466 (49,306 )
 
Selling, general and administrative expense 8,238 8,438 34,990 40,168
Impairment of goodwill 1,621 1,621
Other expense (income), net   2,309   (852 )   4,567   (872 )
Operating loss (20,751 ) (18,099 ) (34,091 ) (90,223 )
 
Interest expense, net 9,326 9,816 37,267 30,945
Loss on extinguishment of debt 8,703 8,703
Non-operating other expense (income), net   103   (219 )   (306 )   218
Loss from continuing operations before benefit

for income taxes

(30,180 ) (36,399 ) (71,052 ) (130,089 )
Benefit for income taxes   (30,018 )   (11,209 )   (40,759 )   (41,956 )
Loss from continuing operations (162) (25,190 ) (30,293 ) (88,133 )
 
Income from discontinued operations, net of taxes   1,076   3,657   1,076   200,301
Net income (loss) 914 (21,533 ) (29,217 ) 112,168
 
Dividends on convertible preferred stocks 75 75 300 300
Dividends on Series E redeemable preferred stock 6,195 5,410 23,443 27,761
Accretion of Series E redeemable preferred stock 1,635 1,636 6,487 18,256
Net income attributable to participating securities         1,091
Net income (loss) attributable to common stockholders $ (6,991 ) $ (28,654 ) $ (59,447 ) $ 64,760
 
Income (loss) per common share:
Basic:
Loss from continuing operations $ (0.30) $ (1.19 ) $ (2.22) $ (5.28 )
Income from discontinued operations, net of taxes   0.04   0.13   0.04   7.82
Net income (loss) $ (0.26) $ (1.06 ) $ (2.18) $ 2.54
 
Diluted:
Loss from continuing operations $ (0.30) $ (1.19 ) $ (2.22) $ (5.28 )
Income from discontinued operations, net of taxes   0.04   0.13   0.04   7.82
Net income (loss) $ (0.26) $ (1.06 ) $ (2.18) $ 2.54
       
LSB Industries, Inc.
Consolidated Balance Sheets
 
December 31, December 31,
2017 2016
(In Thousands)
Assets  
Current assets:
Cash and cash equivalents $ 33,619 $ 60,017
Accounts receivable, net 59,570 51,299
Inventories 21,856 22,939
Supplies, prepaid items and other:
Prepaid insurance 10,535 11,217
Precious metals 7,411 8,648
Supplies 27,729 24,100
Prepaid and refundable income taxes 1,736 1,193
Other   1,284   1,733
Total supplies, prepaid items and other   48,695   46,891
Total current assets 163,740 181,146
 
Property, plant and equipment, net 1,014,038 1,078,958
 
Intangible and other assets, net 11,404 10,316
       
$ 1,189,182 $ 1,270,420
 
         
LSB Industries, Inc.
Consolidated Balance Sheets (continued)
 
December 31, December 31,
2017 2016
(In Thousands)
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 55,992 $ 54,246
Short-term financing 8,585 8,218
Accrued and other liabilities 35,573 44,037
Current portion of long-term debt   9,146   13,745
Total current liabilities 109,296 120,246
 
Long-term debt, net 400,253 406,475
 
Noncurrent accrued and other liabilities 11,691 12,326
 
Deferred income taxes 54,787 93,831
 
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 $185,231,000 ($161,788,000 at December 31, 2016)

174,959 145,029
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 193,956 192,172
Retained earnings   256,214   314,301
456,298 512,601
Less treasury stock, at cost:
Common stock, 2,662,027 shares (3,004,855 shares at December 31, 2016)   18,102   20,088
Total stockholders' equity   438,196   492,513
$ 1,189,182 $ 1,270,420
 

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, depreciation, depletion and amortization (DD&A) (which includes DD&A of property, plant and equipment and amortization of intangible and other assets), less benefit for income taxes and income from discontinued operations, net of 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
December 31,

Twelve Months Ended
December 31,

2017   2016 2017   2016
($ in millions)
 

LSB Consolidated

 
Net income (loss) $ 0.9 ($21.5 ) ($29.2 ) $ 112.2
Plus:
Interest expense 9.3 9.8 37.3 30.9
Loss on extinguishment of debt - 8.7 - 8.7
Provision for impairment - 1.6 - 1.6
Depreciation, depletion and amortization 17.3 18.4 69.2 61.3
Benefit for income taxes (30.0 ) (11.2 ) (40.8 ) (41.9 )
Income from discontinued operations   (1.1 )   (3.7 )   (1.1 )   (200.3 )
EBITDA   ($3.6 ) $ 2.1   $ 35.4     ($27.5 )
 

LSB Industries, Inc.
Non-GAAP Reconciliation (continued)

Adjusted EBITDA

Adjusted EBITDA is reported to show the impact of one time/non-cash items such as, loss on sale of a business and other property and equipment, one-time income or fees, start-up/commissioning costs, certain fair market value adjustments, non-cash stock-based compensation and severance costs. 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 or non-recurring items that are greater than $0.5 million quarterly or cumulatively.

       

LSB Consolidated ($ in millions)

Three Months Ended
December 31,

Twelve Months Ended
December 31,

2017   2016 2017   2016
 
EBITDA: ($3.6 ) $ 2.1 $ 35.4 ($27.5 )
Consulting fee - Negotiated property tax savings at El Dorado - - - 12.1
Stock-based compensation 1.3 0.8 5.2 4.0
Start-up/Commissioning costs at El Dorado - - - 5.1
Severance costs - 0.2 - 0.9
Derecognition of death benefit accrual - - (1.4 ) -
Loss on sale of a business and other property and equipment 2.6 (0.3 ) 7.0 0.3
Fair market value adjustment on preferred stock embedded derivatives - - - 1.0
Delaware unclaimed property liability - - - 0.3
Life insurance recovery   -     -     -   (0.7 )
Adjusted EBITDA $ 0.3   $ 2.8   $ 46.2   ($4.5 )
 

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
December 31,

Twelve Months Ended
December 31,

2017   2016 2017   2016
 
Agricultural sales ($ in millions) $ 32.4 $ 32.8 $ 184.1 $ 166.2
 
Less freight:   2.7   3.0   15.2   12.2
 
Net sales $ 29.7   29.8 $ 168.9 $ 154.0

Source: LSB Industries, Inc.

Company:
LSB Industries, Inc.
Mark Behrman, (405) 235-4546
Chief Financial Officer
or
Investor Relations:
The Equity Group Inc.
Fred Buonocore, CFA, (212) 836-9607
or
Kevin Towle, (212) 836-9620