Q4 2019 Earnings Call
Greetings and welcome to the LSB industries fourth quarter 2019 conference call at this time, all participants Arnold listen only mode. A question and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad. As a reminder, this conference is being recorded I would now like your turn the conference over to your host Ms. Kristy Carver Senior Vice President and Treasurer for LSB industries. Thank you you may begin.
Thank you Melissa and good morning, everyone.
Joining me on the call today are Mark Behrman, our Chief Executive Officer, and Sheryl Maguire, our Chief Financial Officer.
Please note that today's call will include forward looking statements and because these statements are based on the company's current intent expectations and projections. They are not guarantees of future performance and ever Rieti of factors could cause actual results to differ materially.
Ask this call will include references to non-GAAP results.
Please refer to the press release in the Investor section of our website LSB industries Dotcom for further information regarding forward looking statements and reconciliations of non-GAAP results to GAAP results.
At this time I'd like to go ahead and turn the call over to Mark for opening remarks.
Thank you Chris Good morning, everyone. We're glad that could participate you know cold. This morning I appreciate your interest in LSB industries.
We concluded 2019, having made great progress throughout New York and put ourselves in position to deliver stronger EBITDA and cash flow 2025 years bomb beyond.
Hi, I'm pleased that despite the unplanned downtime we experienced in the fourth quarter. We increased the operating rates were ammonia plants for the third consecutive year, an indication that the measures we take into improved plant reliability, hoping yielding results.
We also had a significant focus on increasing more sales volumes to match or full production capacities, which included a review of all park balance with a goal of shifted more production and sales mix towards the products that carry the most attractive margins.
Our marketing and sales teams did a good jobs well to your couples increased volumes and put us in a position to further grow and sure broader balanced will prove our margins to that point. We recently agreed to provide one of our existing marni customers additional significant low density ammonium nitrate volume annually for three years to support it.
New contract award there we're seeing.
This new volume is included in our outlook on slide 11.
Sales under this agreement or expected to begin next month. Additionally, we're in the final stages of contract negotiation on sort of cigarettes significant new industrial business. Beginning in 2021 will provide further details in a couple of months.
To further emphasize the improvement in our ammonia on story much. Please turn to slide four for 29 team, we improved our average ammonia onstream right of course or once facilities by an additional two percentage points over 20, 80% to 91%.
Relative to 2016. This represents a more than 10 percentage point improvement, which would you as a significant accomplishment.
That's the bar and the fight hard right of this chart indicates we expect further progress in the current year and expect to meet our targeted not mid ninetys ammonia onstream waits for the full year of 20 Twond.
[noise] as I've said on past earnings calls our goal is to be a best in class chemical manufacturer Wonder It operates with a leading environmental health and safety culture and with the strong safety performance record and consistent plant operating performance. This performance.
Every day, our employees so their commitment to that goal, particularly those at the plant level and I want to thank them all once again for their dedication and their efforts.
Relative to our best in Class School I'd like to take this opportunity to welcome John Burns, What's gonna took over the role as executive Vice President of manufacturing for less <unk>.
John has extensive experience in driving operational excellence, which include nitrogen chemical manufacturing plants and we're pleased to have the opportunity to work with them as we make our push towards it soon or targeted safety and operational goals on assistant business.
At the same time I'd like to thank John <unk>, who served as our executive Vice President of manufacturing since mid 2016 during which started he drove our efforts to instead of course, that's been improvement and plant Onstream rates, we wish John do swell in his retirement.
Operationally during the fourth quarter, we completed the turnaround or Pryor facility that began in September.
This turnaround was the most extensive turnaround at prior in its history.
We now feel that we have materially improved or ability to Warner Pryor facility, a consistently higher operating words, allowing us to generate more product with would lose production costs.
As part of the tournament a prior we installed a news release, Dr., which will significantly increase the reliability of that plant and boost production, allowing us to increase production absorption by approximately 30000 tons per year, one fully optimized and allow us to take advantage of originally low natural gas prices.
We also made a decision to tick down the ammonia plant at our El Dorado facilities in November in order to perform upgrades and enhanced ammonia production volume. In addition, we completed the installation and startup of a new sulfuric acid converter.
El Dorado secure to acid plant, which will not only supposed to could be approved the reliability of the plant, but also provide us with incremental sulfuric acid production capacity of about 20000 tons per year, which we expect to sell beginning this year.
Importantly.
We have no scheduled turnarounds at any of our facilities for 2020 with the extensive work we completed at Pryor facility during the third and fourth quarter of 2019.
This facilities next turnarounds are scheduled for 2021 further.
Our Cherokee an el Dorado facilities on three year turnaround cycles, what the next turnaround scheduled in 2021 20 to 22, respectively.
This positions us very well to increase our overall production volumes this year.
Keep our highest levels relative to any other your and Ellis Muesli story.
We believe that investments we've made in our plants and the investments that we consider to make that our people and processes will allow us to operate more reliably and efficiently this year and going forward.
With respect to our fourth quarter 2019 financial results. In addition to the fewer production days was that as the result of our extended turnaround at Pryor facility and the work, we did at or El Dorado facility.
Our sales and adjusted EBITDA for the period also reflect weaker selling prices for essentially all of our products relative to a year ago.
These headwinds were partially offset by lower natural gas feedstock costs, but overall, our fourth quarter was a challenge of one due in large part to market conditions.
So we'll talk about that more momentarily and I'll come back later to talk about our outlook.
Before I turn the call over to Sheryl I just wanted to give a quick update on the litigation we brought against lighthouse general contractor of our El Dorado ammonia plant expansion project that span from 2013 between 16.
In which we incurred substantial cost overruns as I mentioned on our third quarter call. We are seeking more than $100 million and damages as compensation for leidos is wrong doing which involve breach of contract fraud gross negligence professional negligence and negligence.
The trial is scheduled to begin next month, well, we can't guarantee any outcome in litigation, we're vigorously pursuing this matter and will provide updates as appropriate.
Now Cheryl will go over more detail Obrador Q4 financial results show.
Thanks, Mark and good morning page five of the presentation provides a consolidated summary statement of operations for the fourth quarter of 2019 as compared to the fourth quarter of 2018 in reviewing our operations for the fourth quarter total net sales in Q4 2019 decrease.
22% to 73.9 million from 94.7 million in Q4 2018.
Gross profit declined by 24.7 million I'm, a profit of 12.4 million in the fourth quarter of 2018 to a loss of 12.3 million in the fourth quarter of 2019 on lower overall selling prices, particularly for ammonia following a delayed corn harvest leading to an overall.
I'll fall ammonia application season that fell short of our expectations.
In addition, lower ammonia operating rates due to the extended turnaround at Pryor and downtime at El Dorado, as well as higher turnaround costs and higher legal costs relating to our lawsuit against Leidos contributed to the year over year variance. Additionally, in the fourth quarter of 2018, we received a 4.4.
1 million favorable settlement with a subcontractor.
Possible for past faulty work at our prior facility.
During the fourth quarter of 2019, we recognized a noncash write down of noncore assets of 9.7 million. This equipment was determined to be obsolete. After completion of the extensive updates and upgrades we've made to our facilities combined with a review of our strategic direction moving forward does not.
Noncash charge is reflected in other expense on our income statement adjusted EBITDA for the fourth quarter of 2019, excluding the noncash write down was lower than last year and I will bridge EBITDA for you on the next slide.
As mentioned on previous calls with respect to legal costs related to our case against Leidos given the significance of the cost and our expectation of ongoing similar cost as we prepare for trial, we have adjusted EBITDA to reflect the add back of these onetime costs.
Which we believe as a true reflection of ongoing operations.
Please refer to a reconciliation of non-GAAP measures beginning on slide 14 for further information on noncash and one time costs incurred during the period.
Page six bridges, our consolidated adjusted EBITDA for Q4, 2018 of 25.1 million to adjusted EBITDA for Q4 2019 of 7.2 million.
Excluding the 4.4 million contractor settlement the fourth quarter 2018, EBITDA was 20.7 million as compared to 7.2 million in the fourth quarter of 2019 year over year decline as a result of lower selling prices due in large part to a decline in the Tampa ammonia benchmark price as the.
Camber price declined approximately $90 per metric ton year over year from an approximate price of $345 per metric ton in the fourth quarter of 2018 to approximately $255 a metric ton in the fourth quarter 2019.
Furthermore, the extended prior turnaround and additional maintenance at our El Dorado facility resulted in lower sales volumes year over year.
On a positive note natural gas costs were approximately 29% lower than the fourth quarter of last year.
Turning to page seven we had outlined the growth the full year gross profit margins for each of our market segments.
Presentation excludes depreciation amortization and turnaround expenses and therefore should represent the true underlying cash margins of each of our businesses.
We reconcile this back to gross profit as presented on the financial statements on slide 15 and 16.
Our AG business, that's profit margins increased from 3% for full year, 2017% to 15% for full year 2019, despite ammonia oversupplying or end markets and increased competition from imports on new land in each Dan.
Gross profit margins arent in our industrial in mining markets remain robust. Despite continued price pressure on the Tampa ammonia benchmark price, which averaged $248 per metric ton in 2019, as compared to $313 per metric ton and $277 per metric ton.
In 2018, and 2017, respectively. This shows the resiliency of that business.
In both of our markets, we continue to optimize our production and pull costs out of the business our cost per ton will continue to decrease helping to support or improve our margins.
Moving to page eight we outline our free cash flow.
Cash provided from operations for the 12 months of 2019 was approximately 2.1 million compared to 17.6 million in 2018 due to the aforementioned factors affecting adjusted EBITDA.
Capital expenditures predominantly related to release reliability and maintenance investments were approximately 36.1 million for the full year of 2019, reflecting the two turnarounds that were performed in 2019.
Page nine outlines our capital structure at the end of Q4 2019, we ended the quarter with approximately 23 million in cash in over 42 million of availability on our revolving credit facility, giving us total liquidity of approximately 65 million total outstanding debt at quarter end was approximately 400.
And 59 million. We also ended the quarter with outstanding preferred stock of approximately 243 million, including accrued and unpaid dividends.
With respect to the pricing environment for the first quarter of 2020, Please turn to page 10.
This page illustrates the average Tampa ammonia price our average realized net selling prices for you and an eight stand in our average cost of natural gas for the first quarter of 2019 and can bear compared that to the current Tampa ammonia price an average selling prices based on forward sales of product or currency.
Spot market sales prices and the current average natural gas prices, we are paying or have hedged.
As you can see from this slide we are facing some headwinds with respect to pricing, reflecting a combination of factors, including the continued oversupply of ammonia and our primary end markets and increased imports of our downstream products.
As a result, you land pricing is averaging around 150 per ton in the first quarter 2020, as compared to approximately $215 per metric ton in the first quarter of 2019, and Tampa ammonia pricing. So far in the first quarter of 2020 has averaged 250 per metric ton, which.
Is approximately $30 a metric ton lower than the same period last year on a positive note. We have approximately 60% of our gas needs locked in for Q1 and $215 per NBT, you, which is approximately 75% 75 cents below the first quarter of 2019.
Additionally, as Mark mentioned, we are expecting material volume growth over the course of 2020 from a combination of improving ammonia onstream rates improve reliability of our downstream production and no planned turnarounds. This year. However, when thinking about the first quarter of 2020, we expect adjusted EBITDA.
To be approximately 10% to 15% lower than the first quarter of 2019, as a lower gas and higher volumes cannot offset the current pricing headwinds. We are currently seeing in the market.
Looking forward to the full year of 2020 metrics on pages 11, and 12, our mental service points of reference for how we currently think about our targets for the year.
Well, we expect lower pricing to persist through the first half of 2020, we are excited about the parts of the business that we can control.
We have worked hard I continuously improving our business and 20, Tony will show that product sales volumes for the full year of 2020 are presented at the top half of page 11.
We expect material growth in the sales of most of our products as a result of our expectation that we will achieve average ammonia onstream time of 94% across our facilities.
Coupled with our ability to sell additional upgraded product by utilizing excess production capacity and taking advantage of the improved production from the new urea reactor at our prior facility and the new sulfuric acid converter, we installed at our El Dorado facility.
Additionally, we have no planned turnarounds and 2020, which we expect to lead to significantly more production days in 2020 as compared to 2019.
Also as Mark mentioned, we have several new new sales contract awards that will add volume growth 2020.
Page 12 covers a range of variable and fixed plant expenses as well as S. DNA. One important thing to note is that SGN. A includes approximately 5 million of legal fees expected in the first half of 2020, leading up to our trial against Leidos.
Additionally, we have planned capex of approximately 25 to 30 million, representing approximately 20 million in maintenance Capex and between five to 10 million for margin enhancement project.
Now I'll turn it back over to Mark to wrap up.
Thank you Sheryl.
29 team was a difficult year for farmers and as a result coming on for fertilizers. The root cause of the challenges was weather, which was very cold in with throughout much of the matrix. The was formulations beginning in the fourth quarter of 28.
And persistent too much of 29.
The weather related issues culminated with 70 range and only snows in this past fourth quarter, which dilute the already low corn August prevented farmers from having a meaningful fall ammonia applications.
As it relates to our outlook.
This past year plus period of whether it was this provides us with a tailwind sick when situation for 2020 with respect to the agricultural market.
The tailwind do is with all the wet weather and the absence of a meaningful fall ammonia application season, the soil and the major corn, forming wilsons is depleted of nutrients relative to what would be considered ideal soil conditions getting into the spring planting season.
Additionally, with the week corn harvest.
The U.S. do those estimates of approximately 89 million planted acres corn stalks or at multiyear lows that combined with the current soybean corn futures wish you. All supported includes some plan to corn acres for 2020 with various industry sources projecting as many as 96 million acres planted.
While the demand picture looks good the headwind is that the current supply situation. This is my deal from a partial perspective.
More specifically due to the reduced amount of fertilizer that was consumed in 2019, because the poor planting conditions inventories of various agricultural products, particularly ammonia and urea or Han which has selling prices currently backs to well below 27 two levels.
Exacerbating the pressure on ammonia selling prices in our southern plains market is the closure of the Magellan ammonia pipeline with several of our competitors had used to transport product all the regions either stores still on the spot doses.
The closure has forced them to distribute their product primarily by the talk to customers elevating supply in the markets and closer proximity to their facilities.
Sure and selling prices, increasing logistics costs as a result of increased trucking demand.
With a robust spring ammonia application Susan.
You can fill took a phosphate sector of the U.S.. We believe we will see an increase in demand that will help rebalance ammonia inventories.
With respect to your way yeah, well, we have indications that former and retail was storage levels are currently very low as they both appear to be delaying their purchases for spring and hopes of getting better selling prices, which coupled with the increase in imports as trade flows adjust to the impact of European Union Terrors has depressed you already on prices to levels not schools.
Since 2017.
The good news for this product as we believe that there will be a meaningful growth in demand the 2020.
And there is a most will price differential with urea, helping to improve former economics and the anticipated growth planted corn acres, the increased demand might not be Toby realized until mid two too.
Well, we're currently seeing pressure on nitrogen silver prices believed that the global demand for nitrogen over the next three to four years will help because the capacity additions and hope to increase overall selling prices.
As it relates to our industrial products.
As we've stated on the past several orders calls due to the elevated inventories of ammonia, resulting from the week agricultural demand over the past year, coupled with the additional ammonia production in the Gulf region coming from producer plant expansions in recent years.
Tampa ammonia prices depressed.
This translates into weaker pricing for industrial ammonia sales out of for El Dorado and Shirky facilities. Since it goes through ammonia pricing in their markets is index to the Tampa Index gross.
Pricing for the balance of our industrial products, such as nitric acid and all of our mining products such as low density ammonium nitrate.
Well linked to natural gas prices.
Since the vast majority of these contracts or cost plus arrangements or margins for this quarter from unstable regardless of the change of feedstock cost.
Fortunately, while market dynamics, such as weather in pricing right or control.
We view our ability to deliver a growth year on 2020 as very much in our control.
As I stated in my remarks earlier in the Cold we anticipate further improvements to our operating rates this year, which when combined with our expanded production capacities for urea and sulfuric acid and the absence of finished goods will turnarounds at our facilities.
Positions us very well to collect increased production and sales volumes in 2020.
As I stated earlier in the coal to capitalize on higher production volumes, we've been ramping up our sales and marketing efforts in recent quarters and have already secured continuously pursuing new business opportunities for our industrial amani products, including the two that I previously mentioned.
Additionally, with with more reliable and greater you William production. We would expect includes sales of that agricultural products.
Finally, as Sheryl indicated earlier prices for natural gas to partners feedstock for all of our products.
Continue to trend lower and appears unlikely to rise meaningfully for the foreseeable future, it's close well for our production close.
Collectively these factors makes us make us confident in our ability to deliver significant year over your growth in adjusted EBITDA and free cash flow in 2020.
Before I pass the call back to the operator could you give much you went in session.
I'd like to mention that I hope the timing of launching New York on March 16th hosted by Bank of America that is targeted to high yield investors and shareholders will be participating in the Sidoti and company Spring Conference in New York on March 26, we hope to see someone through there.
That concludes our prepared remarks, we will now be happy to take your questions. Thanks.
Thank you at this time will be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation Tony will indicate your line is into question too.
You mean prestart too if you like to remove your question from the Q for participants using speaker equipment. It may be necessary to pick up your handset before pressing the starkey.
Our first question comes from line of Joe Mondillo with Sidoti and company. Please proceed with your question.
Hi, Good morning, Mark Cheryl warning Joe.
So bark I was wondering just regarding the oversupply that we're seeing in the channel.
How how abnormally high is the supply.
And.
Is your sort of sense of how long you know I think demand has been a little light to start the year, but.
Certainly as we get closer to the planting season demand should pick up for multiple different factors that you actually pointed out how how quickly relative to the high supply that you see how how quickly does that sort of resolve and do we start to see maybe pricing.
Start to improve given.
Ranging of supply and demand.
[noise] well I think you've got to look at different products Joe.
When you think about you weigh in.
I do think it's been slow.
So far for the start of this year and I think as I mentioned there is a.
Stand off a little bit between buyers and sellers to producers.
Hey pricing has.
Tended to trend down and you weigh in as they've been more imports.
From Russia Trinidad.
Particularly into the United States.
Due to the European tariffs I'm, so you're seeing some extra supply you're seeing pricing move down and I think you know retailers distributors for himself, but really holding off on buying no one wants to.
<unk> volumes, either price go lower but I.
I think the good news is.
There will be buying.
As I mentioned retailer and distributor storage is is unusually low.
For this time of the year, we are expecting more corn acres planted.
And I think there's a real as I mentioned, a noticeable price differential with urea.
So you know you re is continuing to increase in price actually March barges treating over $250 a ton.
So Gulf you weigh in has now started to move up a bit on what's going to recent $10 per ton increase and Gulf Union pricing. So.
I think what'll happen is as we get closer to season there'll be a frenzy for buying.
You'll see a first round of buying and then you know could should see a second and third when the buying metric logistics will come into play.
There I mean there'll be a lot of just in time buying so if you position your product properly.
To the end user.
Whether that's ultimately sell into the distributor the retail or the former himself.
I think you'll you see prices rising and you'll be able to take advantage of debt.
On the ammonia side.
I think if we have a heavy spring application season.
Say heavy because we had.
Yeah.
Less than normalized fall application season.
Plus the additional corn acres planted and as I mentioned phosphate markets phosphate.
Producers are a big big user of ammonia those markets are improving I think you'll see demand really pick up.
And you could see and should see ammonia prices start to move up.
Throughout the spring.
How much on you know I can't really.
Say at this point I think the other thing on ammonia is.
Cost from ammonia being produced in Trinidad I've gotten a little bit more expensive as there's higher freight as a result of higher bunker prices. This year. So again those costs are moving up and.
You know, they're going to want to see a certain profitability and that's that allows the market to move up here in United States.
And one does that pre planting ammonia application period.
It's probably starting maybe now.
What's your sense of that pre planting application, how that's trending so far.
Moving to Mark.
He has spent a little slow going I mean, you've heard a lot of wet weather.
You know and particularly in certain ways.
Regions of the Western corn belt, but you know we've also seen a lot of wet weather in the eastern corn belt.
So I think you're gonna have to have to see that.
Stop for ammonia to go down we have seen some areas that have started to to apply ammonia but.
But it's a little bit slow going right now.
Okay, and then regarding the contracts. So you mentioned in terms of your mining and industrial customers.
Could you give us an idea of how that how significant that is.
Relative to profit for the company I know you know your your contract into more of an on a cost plus basis.
And that the business.
Anyway, you can give a sense of.
I don't know how impactful that is.
[noise] well I think if you go back to page 11 in the presentation.
You know, we look at our mining business as a low density ammonium nitrate.
Hey in solution and then actually high density in some applications.
And where we did 171000 tons combined in 2019.
We're really looking for range at two of five to 25 and send the midpoint today, that's 26% increase yeah.
About.
You know for 40000 tons increase so.
You could say that most of that's attributable to a new contract award.
Okay, and then the industrial I think you made a mention that you have potentially.
An upcoming industrial contract that you may be awarded that included into the page 11.
No those volumes wouldn't start it would be a significant awards and it wouldn't start until I'm 2021.
And then it this is probably nitpicking, but.
I I know your goal has been sort of 95% plus.
Oh Onstream rates and you have a goal for 2020 at 94%.
I don't know if that's if I'm just nitpicking there but.
You know with what the work that you did at Pryor and Eldorado at the end of last year.
Are you position right now to potentially hit 95% Paul.
Well I think we're realistic in that you know, we're we're slowly inching up so you know I'd love to tell you that 95% does the target for this year, but I think were slightly below that with 2021 being at 95%. So we're not quite there yet.
Could we hit it okay and I'm sure I mean, it's possible, but that's not really what our expectations or.
Okay and regarding I guess more so prior but I guess Eldorado too.
Where are we.
In regard to I mean, I guess to your answer to that prior question.
Yes, we need to do some more work on them.
Facilities could you just update us on.
Future plans in terms of what you need to do to get to 95% block.
Hallmark.
I think it's just a progression I'm in I don't know that it's any major equipment or anything like that I think we're certainly.
The expectation at El Dorado is certainly to be above 95% at Cherokee We've run really will at around 95% I don't think they'd be any.
Difference there and then so we're talking about prior and as I said not a lot of equipment. You know we will it's more processes procedures you know.
Proactiveness things like that that we've been working on over the last few years and we'll continue to develop.
Okay regarding the cap on the balance sheet in terms of Cat Oh.
Yeah.
Sure.
Jeff Miller.
Yeah, Joe I'm, sorry, we didn't hear you you're breaking up can you go like can you say that again.
Yeah, I'm sorry, I was just wondering do you anticipate any me uses of cash for working capital whether its inventory in the beginning the year.
Or what.
No Joe I mean, nothing outside the ordinary no weve guided to interested you know 45 to 50 million and that Capex 25 to 30 million, so really nothing outside of the normal business.
Okay, and what what was the Capex that you did and 29 team.
[noise], a 36 million running it a bit a bit higher in 19 related to the two turnarounds that we had plus I point out and also includes the out that's sulfuric acid converter down at El Dorado, which lets financed.
Okay and.
And that's that's regarding the noncash factor of the cutbacks.
Yes.
And so the cash Capex for 2020 will be 25 to 30.
Yes.
Okay, and then just regarding the balance he just could you update us on what your thoughts are on liquidity I think you said $65 million pick out the cash and revolver.
How you're thinking about that and then probably more importantly, what your updated thoughts are on opportunity of refinancing.
<unk>, including the preferred.
Sure. So you know with respect to liquidity you know we're in a lower price environment. So we think about Tampa sitting around 250 today I mean, you know, although we don't expect it to be the case, let's assume it stays there for the full year gas has been.
Being lower and so and looking at various industry sources, most forecasts gas next year to be in the 250 range are lower so you know we I'll point you to our grid you know in the back of our earnings presentation. So at 250 gas into 50, Tampa you know were around 100 million in each.
But are now that assumes 97% SDDC and 95% at Cherokee and and 95% or prior so as Mark mentioned I'm not sure we'll get all the way there in 2020. So lets say you know 90 to 100 million.
So given no planned turnarounds in 2020, and we'd also assumed the lower maintenance capex, because it's a non turnaround year. So.
So, let's say 90 to 100 million it and a 45 to 50 million of interest and 25 to 30 million of Capex, we would expect to generate some positive free cash flow even in a downside case.
Now with respect to you know refinancing the balance sheet as you know the first call date is.
May have 2020, and I think you know what weve normally what we how we think about that is you know it becomes a math exercise and what's the call premium versus the reduction in rate that we think we could get and some of that is going to depend on pricing and the overall AG environment as well, so we'll be evaluating that through the year.
Okay, Great and then last question that I have with the loss on the sale of property in the quarter could you.
And what that was.
Sure. So you know as you.
As you probably have heard us talk about we've been making some a significant investments in the business and some updates and some upgrades and so there's a couple of some assets that we've.
Basically determined that will no longer be needed and you know given the work that we've done to date and where our strategy is going forward. So some noncore assets that we just didn't feel where you need it going forward.
It's like totally random assets that go back you know years and years.
You know the foundering family or is this.
Whitman or stuff that's on the facility property is that.
So we need anymore.
I would say a combination a combination of both Joe I mean, you know we put in a new some new nitric acid plants down at El Dorado back in 2015. These were some other nitric acid plants that we had on the balance sheet no.
Which we decided that we weren't going to need going forward and some of it is some older carry assets that we that have been around for a while and we just decided it we're not needed going forward.
Okay, well, thanks for the quarter incident free should it.
Thanks you.
Thank you. Our next question comes on line MTP Gagan with global value Investment Corp. Please proceed with your question.
Good morning, I congratulations on the Salesman's, you announced today out it's great news.
Wondering if you might elaborate on the statement you make on slide 13, if you back about your sales marketing programs. How this might represent a shift in your process. If at all if you can quantify the additional opportunity or not I'm sure that relative to your production capacity and then talk about any additional investment that you might proceed making.
[noise] sure well you know I think as I said on previous calls I mean, one of the goals is certainly to to run our plants at higher production or onstream levels. So that's going to give you some more production capacity.
But also to work with our sales and marketing teams to.
Figure out how we can actually utilize I'm older production capacity that we have and what's the right product mix and I think that's been a key for about 29 team.
He is really working as a team on product balance and were where do we have the best margins.
You know with a lot of these facilities and you've got the ability to.
Switch product production.
Based on market pricing and so we certainly look at that closely every day.
The other thing I think that we've really done a good job answers we are.
The largest merchant market are up nitric acid.
In North America, we're known for that its not a sideline product for us and so the team the industrial sales and marketing team have done a really great job and focusing on finding opportunities for us to increase sales of that product. So I think it's an ongoing.
Exercise I don't think it's something that.
You know is unique I think it's something that we're taking just a more aggressive approach on and how we think about the business.
Okay.
You mentioned in your prepared remarks that your cost per tonne has continued or will continue to decrease can you provide some more color around that statement, especially given that you've previously talked about taking costs out of business and if you can provide.
The magnitude of.
I see a cost per ton decreasing.
Well I mean, I can talk generally about that we don't publish a cost per ton a metric, but we have continued to pull costs out of the business. We're always looking for opportunities that are much more.
Focused effort on.
I call, it procurement and really cooling or procurement and looking at opportunities where.
We think we can reduce cost so.
Cost per ton really is focused on two things right its reducing costs and increasing production times I'm. So you know in combination we're able to continue to lower costs were certainly not at the point where.
We think we've pulled all the costs out of the business nor are we at a point, where we think we've maximized ore production.
Okay.
Borrowed an additional $35 million during 2019 for some margin enhancement projects you've talked about some of those on slide 13 of your presentation, including additional storage capacity.
And loading capacity.
Can you provide an update on.
Progress on some of your margin enhancement projects and what we might look for in 2020 of the effect of those projects on the business.
Thank you sure I'm. So we've we've actually completed one project.
Up at Pryor facility and we are in the process of.
Working to fine tune.
Some additional equipment that we put in which would actually lower costs second project.
I would is to build a new.
20000 tonne.
Storage Dom for high density ammonium nitrate.
We're in the final stages of the within a few weeks I think we should be completed with that product.
And really loading product into that facility, which will allow us to.
Increase overall production.
That product from our facility and also position product to sell at a more advantageous times of the year.
No. There was a there are couple of other projects, where we've done engineering.
And we're waiting for Finalization of of agreements I think I refer to those are some newer industrial contracts. So.
Once those contracts are signed and their greenlighted will actually start doing they are the work and that would include loading in additional storage or for some product down at El Dorado facility. So I think we're making progress on those and you know we should see some results of that this year I'm pretty later on this year.
And some of the full results starting in 2021.
Great that does it for me. Thank you for your time. Thank you.
Thank you. Our next question comes from line of Travis Edwards with Goldman Sachs. Please proceed with your question.
Hi, Good morning, just high level as we are thinking about the earnings power of the business.
You always provide the helpful matrix the ammonia Nat gas prices, which you pointed out earlier, that's one of the check if I'm thinking about this correctly should we assume that those baseline real share numbers should start to go up now that you've got some incremental production that you've got your contract wins storage capacity.
Cetera, or you should diminish initiatives, just helping to target sort of the ideal onstream rates are the 90 790 595.
Yeah, I would say a man in the Onstream rates that we portray on that slide 90, 790, 595, we're working up towards that so any additional capacity production capacity would be captured in this grid.
And as far as storage or reduction of costs or even some of the margin enhancement projects.
They should be somewhat additive to this.
But new contract awards would be included in this grid as well, we're just selling the added production capacity that we have.
I appreciate that clarification, and then real quick on the margin enhancement projects I think you'd mentioned the passion of kind of 67 million EBITDA.
It's just that still consistent with how you're thinking yes.
Hi, Great and lastly, if I may I appreciate that maybe not willing to share but on the.
On the math exercise with refinancing [laughter] again, we can.
Estimate what new rates might be but have you are you willing to share any sort of target as far as what they like the ideal payback period would be for you to engage in a transaction or refinancing transaction.
I mean, I think it's a little early for the.
No. That's Cheryl mentioned I mean, I think one of the things, we really need to take a look at it is you know where.
Where are we in the AG cycle, I mean, I'd like to see that from up a bit.
So that you know, we and potential investors are comfortable with no certainly the AG markets and what do they are.
But I don't.
I don't think that this is a complicated exercise right I mean.
We're going to sit down we're going to figure out kind of we certainly know what the call premium as and then we'll have to see what the reduction in rate is and you.
You know what is that for five years seven years and what are the terms of a new refinancing and so we're in the process of starting to look at that since our first call date is not until may.
Got it awesome. Thank you very much the time thank you.
[noise] thinking our next question comes from line of Brian to Rubio with Baird. Please proceed with your question.
Good morning, but just as we think about the cadence of results for this year I know you, but I know it's correct. You said you going to be down about 10 or 15% of EBIT up for the first quarter.
Do you expect similar a drag on results for the second quarter.
I think if I knew what pricing would look like I could answer that [laughter], that's fair to be yeah, I'm not trying to be funny about it I. Just you know I think it's too early for us to tell what the second quarter pricing is gonna look like.
Okay, I guess, what I'm driving at is is that you're really looking for a hockey stick sort of rebound and the second half, particularly in the fourth quarter of this year in order to meet that goal love exceeding your adjusted EBITDA number.
Yeah, I think in the second half is probably a good characterization I mean, you know we had.
Turnarounds that started in the third quarter or <unk>.
Or started or completed or just started in the third quarter 2019, and then of course, we had the extended turnaround at Pryor.
And ER and took the plant down at the older rated the ammonia plant done at El Dorado in the fourth quarter. So I would tell you that the second half of 2020 should be significantly better than.
The second half 29 10.
Okay, and as we think about sort of up but you know just even just one thing, but kashi EBITDA has been slightly different the last couple of years.
What expenses you know, we're going to one through cash flow. If you will you know that's not going to be part of your adjusted EBITDA as we can try to fine tune our models on what cash is going to look like.
I know, there's 5 billion up 5 billion of legal for the lightest litigation.
Yeah.
You know you want to answer that.
Yeah, No I, that's what I was thinking as well, it's really just a 5 million of that the lightest fees and you know with there's no other turnaround expenses or anything this year, so that about covers that.
Okay, and then we're looking at somewhere between cash interest and Capex of around 75 million.
Yes.
Excellent.
Thanks for your time I appreciate it thank you.
Thank you, ladies and gentlemen, as a reminder, if you'd like to join the question could you. Please press star one at this time. Our next question is involved from the line and Joe Mondello with Sidoti and company. Please proceed with your question.
Hi, everyone I'd I just wanted to ask.
What your expectation of the timeline of how long that like dose trial will last if you have any idea.
Well I think it's a [noise].
Scheduled for a three to four weeks.
Okay, Great that's all I had.
Thank you.
Thank you ladies and gentlemen, this concludes our question and answer session I'll turn the floor back to management for any final comments.
Well I'd like to thank everyone for listening in on the call them participating and of course, all your interest or as I mentioned, both sherlund itll be in New York and we hope to see some of you there and Oh. Thank you so much.
Thank you. This concludes today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation.