LSB Industries, Inc. Reports Operating Results for the 2020 Second Quarter

News Release

LSB Industries, Inc. Reports Operating Results for the 2020 Second Quarter

Operational Performance Partially Offsets Pandemic-Related Headwinds

OKLAHOMA CITY--(BUSINESS WIRE)--Jul. 29, 2020-- 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

 

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

Source: LSB Industries, Inc.