LSB Industries, Inc. (NYSE: LXU) (“LSB” or the “Company”) today
announced results for the third quarter ended September 30,
2020.
Third Quarter 2020 Summary
- Net sales of $74.0 million reflects an 12% increase from
stronger sales volumes, offset by a 14% decrease from weaker
pricing, relative to the prior year third quarter
- Net loss of $20.4 million
- Adjusted EBITDA(1) of $10.2 million reflects an $8.8 million
benefit from stronger sales volumes, offset by a $10.4 million
impact from weaker pricing, relative to the prior year third
quarter
- Pryor facility achieves record UAN production and sales
- 19% increase in fertilizer sales volumes, including an 33%
increase in UAN sales volumes, versus the third quarter of
2019
- Executed 7-year contract for the sale of between 70,000 –
100,000 tons per year of nitric acid
- Year-to-date cash flow from operations of approximately $25
million and total liquidity of approximately $78 million as of
September 30, 2020
Mark Behrman, LSB Industries’ President and CEO, stated, “Our
third quarter results reflected the ongoing drag from weak
fertilizer pricing and continued headwinds to industrial and mining
demand resulting from the impact of the COVID-19 pandemic on U.S.
economic activity. We remain acutely focused on managing and
executing on the aspects of business under our control. In this
regard, our plants continued to perform well, and we were able to
offset much of the year-over-year declines in pricing with stronger
sales volumes. Notably, had pricing been in line with the 2019
third quarter and industrial and mining demand been consistent with
the pre-pandemic levels of early 2020, we would have posted an
EBITDA increase of over 70% relative to the third quarter of 2019.
Additionally, as we previously announced, we recently signed a
long-term agreement to supply between 70,000 to 100,000 additional
tons of nitric acid on an annual basis, which we expect to yield
meaningful incremental EBITDA in 2021.”
“Our plant operations remained stable during the third quarter.
Our Pryor facility once again delivered a record operating
performance which led to a significant increase in UAN production
and sales volume as a result of the installation of a new urea
reactor in late 2019. We also benefitted from the absence of any
turnaround activity in the 2020 third quarter which translated into
year-over-year volume improvement as we performed turnarounds at
both our Pryor and El Dorado facilities in the 2019 third
quarter.
“The oversupply of ammonia that has persisted for the past 18
months continued to pressure the nitrogen chemical industry in the
third quarter. Pricing for all major fertilizer categories was
impacted by the continued oversupply of ammonia and UAN in our
primary end markets. Pricing for our industrial products was also
impacted by excess ammonia inventory in the U.S. distribution
channel which continues to be impacted by lower demand for
industrial ammonia applications.”
Mr. Behrman continued, “Looking ahead to the fourth quarter of
2020 and into 2021, we are cautiously optimistic that emerging
demand trends point to improving sales volume and pricing in the
coming months. On the agricultural side of our business, the fall
harvest is currently picking up momentum after some delay resulting
from warm weather throughout much of the country. Additionally, we
have seen a recent rise in corn prices as a result of the USDA
making downward adjustments to its corn crop and ending corn stock
forecasts and strong corn exports. We expect stronger corn prices
to result in higher plantings in 2021 which could translate into a
robust fall ammonia application in the coming weeks and boost
demand for orders of UAN and HDAN for the 2021 spring planting
season. In our industrial and mining business, while the effects of
COVID-19 protocols and restrictions continue to weigh on the U.S.
economy, we are seeing gradual improvement in demand for nitric
acid, industrial ammonia and ammonium nitrate as sectors such as
automotive manufacturing, home building, and copper mining have
increased activity. If the situation remains stable, stronger
demand in the agricultural and industrial sectors should drive
greater consumption of ammonia in the U.S. market, reducing the
current inventory buildup and allowing the Tampa ammonia benchmark
to rise, benefitting our selling prices. Our outlook for a
strengthening end market environment, our expectations for
continued operating performance improvement, and our recently
announced new customer agreements makes us cautiously optimistic
about prospects for growth in adjusted EBITDA and free cash flow in
the fourth quarter and in 2021.”
(1) This is a Non-GAAP measure. Refer to
the Non-GAAP Reconciliation section.
Three Months Ended September
30,
2020
2019
(Dollars in thousands)
Net Sales by Market
Sector
Net Sales
Sector Mix
Net Sales
Sector Mix
% Change
Agricultural
$
31,986
43%
$
35,494
47%
(10) %
Industrial
32,372
44%
30,552
40%
6 %
Mining
9,611
13%
9,449
13%
2 %
$
73,969
$
75,495
(2) %
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, HDAN, and UAN. 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 for the
year , the closure of the Magellan Pipeline beginning in September
2019, which kept a significant volume of ammonia 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 but was
instead sold into the agricultural market due to the
pandemic-related slowdown of the industrial market. Additionally,
very hot and dry weather across the Southern Plains delayed the
shipment of HDAN fill tons during the quarter. Partially offsetting
the weaker selling prices and lower HDAN volumes were greater UAN
sales volumes, largely reflecting the upgrades made to the Pryor
facility in late 2019.
- Net sales of our industrial and mining products, other than
Nitric acid, increased as several key end markets for our products,
including automotive, home building, power generation, and mining
markets have started to recover, although not yet reaching
pre-pandemic levels.Nitric Acid sales continue to be impacted by
pandemic related market weakness.
- The year-over-year change in operating loss and adjusted EBITDA
was primarily the result of the weaker selling prices partially
offset by higher volumes and improved fixed cost absorption.
The following tables provide key sales metrics for our
Agricultural products:
Three Months Ended September
30,
Product (tons
sold)
2020
2019
% Change
Urea ammonium nitrate (UAN)
140,524
105,847
33 %
High density ammonium nitrate (HDAN)
27,800
32,248
(14) %
Ammonia
20,181
19,420
4 %
Other
2,824
3,434
(18) %
191,329
160,949
19 %
Average Selling
Prices (price per ton) (A)
UAN
$
130
$
163
(20) %
HDAN
$
201
$
263
(24) %
Ammonia
$
182
$
252
(28) %
(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 September
30,
Product (tons
sold)
2020
2019
% Change
Ammonia
68,366
56,854
20 %
Nitric acid
20,254
25,304
(20) %
Other Industrial Products
13,031
8,046
62 %
101,651
90,204
13 %
Tampa Ammonia Benchmark (price per metric
ton)
$
207
$
221
(6) %
The following table indicates the volumes sold of our major
Mining products:
Three Months Ended September
30,
Product (tons
sold)
2020
2019
% Change
LDAN/HDAN/AN solution
41,469
39,305
6 %
Input
Costs
Average natural gas cost/MMBtu
$
1.98
$
2.35
(16) %
Financial Position and Capital Expenditures
As of September 30, 2020, our total cash position was $42.1
million. Additionally, we had approximately $36.3 million of
borrowing availability under our Working Capital Revolver giving us
total liquidity of approximately $78.4 million. During the third
quarter, we paid off the outstanding Revolver balance in full.
Total long-term debt, including the current portion, was $486.0
million at September 30, 2020 compared to $459.0 million at
December 31, 2019. The increase in long-term debt primarily
reflects the refinance of ammonia storage assets completed during
the third quarter. The aggregate liquidation value of the Series E
Redeemable Preferred at September 30, 2020, inclusive of accrued
dividends of $128.9 million, was $268.7 million.
Interest expense for the third quarter of 2020 was $12.6 million
compared to $12.0 million for the same period in 2019.
Capital expenditures were approximately $4.3 million in the
third 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
for margin enhancement purposes.
Conference Call
LSB’s management will host a conference call covering the third
quarter results on Friday, November 6th, 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 primarily 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 the remainder of
2020 and 2021; 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 Nine Months Ended
September 30,
Three Months Ended
Nine Months Ended
September 30,
September 30,
2020
2019
2020
2019
(In Thousands, Except Per Share
Amounts)
Net sales
$
73,969
$
75,495
$
262,413
$
291,174
Cost of sales
75,028
85,228
241,900
273,912
Gross profit (loss)
(1,059
)
(9,733
)
20,513
17,262
Selling, general and administrative
expense
7,068
9,115
25,578
24,705
Other expense, net
875
383
240
372
Operating loss
(9,002
)
(19,231
)
(5,305
)
(7,815
)
Interest expense, net
12,554
12,007
38,509
34,309
Non-operating other expense (income),
net
216
39
(587
)
(605
)
Loss before benefit for income taxes
(21,772
)
(31,277
)
(43,227
)
(41,519
)
Benefit for income taxes
(1,370
)
(483
)
(3,008
)
(5,816
)
Net loss
(20,402
)
(30,794
)
(40,219
)
(35,703
)
Dividends on convertible preferred
stocks
75
75
225
225
Dividends on Series E redeemable preferred
stock
8,889
7,764
25,885
22,609
Accretion of Series E redeemable preferred
stock
508
500
1,517
1,493
Net loss attributable to common
stockholders
$
(29,874
)
$
(39,133
)
$
(67,846
)
$
(60,030
)
Basic and dilutive net loss per common
share
$
(1.06
)
$
(1.39
)
$
(2.41
)
$
(2.14
)
LSB Industries, Inc.
Consolidated Balance
Sheets
September 30,
December 31,
2020
2019
(In Thousands)
Assets
Current assets:
Cash and cash equivalents
$
42,094
$
22,791
Accounts receivable
39,945
40,203
Allowance for doubtful accounts
(392
)
(261
)
Accounts receivable, net
39,553
39,942
Inventories:
Finished goods
17,637
21,738
Raw materials
1,565
1,573
Total inventories
19,202
23,311
Supplies, prepaid items and other:
Prepaid insurance
1,478
11,837
Precious metals
7,179
5,568
Supplies
25,174
24,689
Other
3,349
2,735
Total supplies, prepaid items and
other
37,180
44,829
Total current assets
138,029
130,873
Property, plant and equipment, net
899,613
936,474
Other assets:
Operating lease assets
25,356
15,330
Intangible and other assets, net
6,927
5,812
32,283
21,142
$
1,069,925
$
1,088,489
LSB Industries, Inc.
Consolidated Balance Sheets
(continued)
September 30,
December 31,
2020
2019
(In Thousands)
Liabilities and Stockholders'
Equity
Current liabilities:
Accounts payable
$
41,192
$
58,477
Short-term financing
751
9,929
Accrued and other liabilities
40,957
25,484
Current portion of long-term debt
15,203
9,410
Total current liabilities
98,103
103,300
Long-term debt, net
470,751
449,634
Noncurrent operating lease liabilities
19,249
11,404
Other noncurrent accrued and other
liabilities
5,596
6,214
Deferred income taxes
32,663
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 $268,685,000
($242,800,000 at December 31, 2019)
262,295
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 $3,205,000
($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 $1,297,000
($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
198,013
196,833
Retained earnings (accumulated
deficit)
(9,989
)
57,632
194,152
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
181,268
247,327
$
1,069,925
$
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 (D&A) (which includes D&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 September
30,
Nine Months Ended September
30,
2020
2019
2020
2019
Net loss
$
($20,402
)
$
($30,794
)
$
(40,219
)
$
(35,703
)
Plus:
Interest expense
12,554
12,007
38,509
34,309
Depreciation and amortization
17,700
17,975
52,903
52,511
Benefit for income taxes
(1,370
)
(483
)
(3,008
)
(5,816
)
EBITDA
$
8,482
$
(1,295
)
$
48,185
$
45,301
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 September
30,
Nine Months Ended September
30,
2020
2019
2020
2019
EBITDA:
$
8,482
$
(1,295
)
$
48,185
$
45,301
Stock-based compensation
447
502
1,627
1,800
Unrealized gain on commodity
contracts
(669
)
-
(538
)
-
Legal fees (Leidos)
901
3,330
5,143
5,758
Loss on disposal of assets
887
425
610
653
Fair market value adjustment on
preferred stock embedded derivatives
141
403
(616
)
(121
)
Consulting costs associated with
reliability and purchasing initiatives
2
494
578
912
Turnaround costs
34
7,232
45
7,836
Adjusted EBITDA
$
10,225
$
11,091
$
55,034
$
62,139
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 September
30,
Nine Months Ended September
30,
2020
2019
2020
2019
Agricultural net sales ($ in
thousands)
$
31,986
$
35,494
$
138,441
$
154,790
Less freight
2,172
2,185
11,638
10,771
Agricultural netback sales
$
29,814
$
33,309
$
126,803
$
144,019
View source
version on businesswire.com: https://www.businesswire.com/news/home/20201105006211/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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