Q1 2020 Earnings Call

of course, we're maintaining appropriate social distance and it's been almost ten weeks since we

Closer headquarters office and although we have a Sandy conference call every day. It's great to be back together again in the same room as a team.

This team has done an amazing job of not only keeping their organizations engaged and executing our business, but also keeping our people safe.

Globally, we're an organization of three thousand people and we've only had a total of four employees test positive for covid-19 at the end of March three of our employees tested positive in our dialogue plant and all spent the month of April at home recovering. I'm delighted to say all three are fully recovered in our back at work. The other individual is a very recent event and works in our dear Faith Ed quarters given this result today. I'm particularly proud of the processes and procedures this team has established to make sure we keep our people safe and our operations running.

Last day we posted our financial results for the first quarter of 2020 in which we generated adjusted ebitda of $318 approximately 4% higher than the same period of years.

These results reflect the impact of higher sales volumes and lower natural gas costs partially offset by lower product prices across all segments the underlying story of the quarter. However, is this team our facilities are part of the critical infrastructure in all regions where we operate because we serve a vital role in helping to feed the world. Our operations employees contribute to come into our facilities and run our plants while are not operations employees are supporting them remotely. The whole team is performing exceptionally well under the difficult circumstances created with the covid-19 pandemic, we produce 2.7 million tons of ammonia in the first quarter. This is the second highest quarterly volume in the company's history and continues to demonstrate our outstanding track record of asset utilization.

Most importantly we are working safely as of March Thirty One. We achieved our lowest ever 12-month recordable incident rate of 0.34 incidents per 200,000 labor hours long as we've said many times. We evaluate the company based on full year and half your performance rather than on individual quarters. This is because whether can significantly shift volume from one quarter to another

those temporary shifts tend to smooth out over longer periods that said we're fortunate that twenty-twenty has started with strong volumes in q1 and good demand in shipments so far through Q2 month. So at this point we have good visibility on the first half of the year as well described. We see strong nitrogen demand for the spring in North America and the UK compared to the last couple years through this point in the calendar. The weather has been significantly better for fieldwork in planting and today. We have not experienced any significant disruption to our business from the pandemic.

We feel good about how the second quarter is progressing and we expect our first half 2020 total product sales volumes to be similar to the previous three years.

Looking forward there is more than the typical amount of uncertainty for the second half of the year and into twenty Twenty-One due to the covid-19 pandemic. Although we have not been impacted directly by the Panthers and we are seeing very strong agricultural demand as the global economy contracts industrial demand does soften. However, I'd like to provide some context for the magnitude of the uncertainty we're talking about first nitrogen is the only non-discretionary plant nutrient unlike potash and phosphate which can be reduced or skipped entirely thousand a year nitrogen must be applied second. Our plants are some of the most efficient lowest-cost operations in the world and we're on the very low end of the global cost curve further wage is an import dependent regions. So our Logistics cost to get our products into Market are lower than Imports 3rd North America has some of the most productive fertile Farmland in the wage.

Additionally, the US government has historically supported agriculture in times of distress in already. There has been nineteen billion dollars of eight approved with more expected to come in the future wage given this we continue to expect our full-year production sales volumes will between will be between 19 and 1/2 + 20 million tonnes. Just like it's been the last several years in a row.

So the uncertainty is not about our sales volume. It tends to be more about price realization. And while it is true that energy prices are generally lower globally chinese-based anthracite coal Remains the highest marginal production in the industry Chinese anthracite coal is currently over $7 per mmbtu on an equivalent basis. So with our gas cost currently trading below to Thursday. We have a significant built-in margin structure. Additionally, we're beginning to see somewhat of a supply-side response with an ounce curtailments in foreclosures home in Europe Asia and South America particularly for those plants that were principally serving industrial demand, which has softened.

I said on our last conference call that we expect 2020 full-year ebitda to come in somewhere between 2018 and 2019 performance.

So far this year our first quarter results are pasted ahead of 2019. As I said, we also expect good volume movement in Q2 this year, but we are comping against a long time record Q2 volume from 2019. Furthermore prevailing prices are lower than last year and given the additional uncertainty for the second half of this year that leads me to Thursday. We are likely to be more in the range of 2018 full year financial performance. Now, there is a lot of the Year still to play for and we are off to a strong start with the business running. Well, so we feel really good about our situation compared to many companies and industries out there today given the uncertainty we face in the second half of the year. We are focusing our efforts on controlling those things we can control

first and foremost as always

Is our top priority is protecting the health and well-being of our employees and contractors at our locations.

Next we remain focused on operating safely and achieving High asset utilization as you can see on slide six of our materials. The CF team has delivered consistently strong performance wage. In fact on a trailing 12-month basis. We have produced 10.3 million tons of ammonia in sales volumes have exceeded twenty million tonnes both of which our company records.

Finally, we continue to manage the company responsibly for both the short and the long term as Chris will describe we are ensuring that our Capital expenditures manufacturing controllable costs and sg&a expense all reflect the broader economic environment with that. Let me turn it over to Bert. He'll discuss the market. Then Chris will talk about our financial position before I return for some closing comments wage. Thanks Tony for the first time in several years weather patterns in North America have been relatively normal for Farmers. This allowed a strong spring ammonia application season to develop at the end of March or April as we noted in our press release. We have moved the highest volume of ammonia for agricultural application for the month of April since 2015.

On this day on one day this past month. We had more than 1,600. Ammonia trucks pick up over 32,000 tons of ammonia from our facilities the highest single-day volume in about five years. We believe that this level of activity and our order book going forward supports our projection for an increase in nitrogen consuming corn and coarse-grained planted acres in North America off in you to anticipate 92-94 million acres of corn will be planted in the United States and twenty twenty. This is lower than the US Department of agricultural estimate of 97 million Acres from March month. It will be about two to four million Acres higher than 2 in 2019.

To meet this demand we've been in constant conversations with our customers and transportation Partners as we collectively navigate the covid-19 pandemic from our perspective. The fertilized by Chain is operating efficiently. This is due to the professionalism and dedication of everyone involved including our Rail and Barge carriers trucking companies and truckers and Distributors and retailers provide these essential materials to Farmers. We believe that Global demand for agricultural use remain strong overall for 2020 growing Seasons led by increased corn of wheat acres here in North America and demand in India and Brazil for urea Imports. India just issued its secondary attender of the year, which we expect results for soon the country like leaves reach last year's your import levels, but we expect it to continue to drive Market sentiment in the second half.

Demand for URI Imports in Brazil should also be positive in 2020 given that domestic production in that country is not expected to operate this year and currency devaluation makes growing corn more profitable.

It's Tony.

There's a great deal of uncertainty ahead due to the negative impact to the global economy of the pandemic. We are monitoring how the pandemic will affect the global nitrogen market and the rest of the year and into 2021.

Some of the impacts are clear today demand for nitrogen for industrial use such as explosives and emission abatement has declined along with economic activity. We expect demand for these products to increase the wage economic activity increases. In the meantime, we can Leverage The flexibility of our system to change our product mix for example producing as much diesel exhaust fluid and you really dead we do today. We can drain the late Maurice Furia. We also watching closely the economic impact on Farmers challenging conditions for ethanol and feed Industries have caused crop future projects to fall. We do not believe the challenge of those Industries face today have affected significantly planting decisions for 2020 should those challenges persist. We would expect an impact on planting decisions for 2021. However, those decisions are at least six to ten months away and we'll be based on conditions then a forecast that would be difficult to make today.

Additionally any government efforts to protect farm income and the impact of crop insurance payments will also factor into farmer planting decisions in the fall.

Because we're seeing such high demand now we expect to end the first half with low inventories. This will give us a great deal of flexibility for Phil programs in the second half based on economic and the mayonnaise considerations as Farmers customers and the industry at large adapt to the challenges caused by the pandemic with that. Let me turn the call over to Chris thanks Bert is the pandemic in early 2020. We constantly evaluated our financial position to ensure. We have the flexibility. We needed to manage the uncertainty that we anticipated ahead as well here today. We feel we are well-positioned for this unprecedented event both operationally and financially this starts with the actions management has taken over the last three years to create a strong and flexible balance sheet. This includes reducing our gross debt by nearly two billion dollars and fixed charges by $190 compared to the beginning of 2017 dead.

We also benefit from our operational instructional advantages that support our cash generation capability for the first quarter of 2020 the company reported earnings attributable to Common stockholders of 68 million dollars or $0.31 per diluted share if it was $314 and adjusted ebitda was $318 billion dollars. It's Tony noted in his remarks these results reflect the positive impact of higher volumes and lower realized natural gas costs that partially offset by lower product prices for the first quarter. Our cost of natural gas in our cost of sales was more than $1 lower than the same period in 2019.

looking ahead to the

Press two 2020 we expect natural gas costs to continue to benefit the company and offset and part. The impact of lower year-over-year product prices are trailing 12 months net cash provided by operating activities was approximately 1.5 billion dollars and free cash flow was $900 million dollars. We Remain the most efficient converter of Sheba ta into free cash flow in the industry and we expect to continue to generate substantial cash flow through the remainder of the year.

We also have the liquidity. We need to manage the company through the pandemic at the end of the quarter the company had about 1 billion dollars of liquidity comprised of cash and cash equivalents to $753 million dollars on the balance sheet and 250 million dollars available on the revolver as we noted in the press release. We drew five hundred million dollars in borrowings Under Armour resolving credit facility. We repaid the revolver in full on April 20th, when it became apparent. The credit markets had stabilized today. Our cash balance is $500 a month and our total liquidity is over one point two billion dollars including the now on Drawn revolver. We also continue to focus on managing our spending during this uncertain time are manufacturing controllable costs per ton or 10% lower in the first quarter of 2020 compared to the first quarter of 2019. Additionally we reduced wage.

Activity in light of the pandemic contributing to lower sg&a spending in the first quarter of 2020 compared to 2019. We expect that Trend to continue throughout the year, We have also adjusted our Capital spending plans in line with our focus on protecting the health and well-being of our employees. We are deferring certain activities scheduled for 2020 that would have brought contractors on to our sites. These activities may also have faced delays in receiving equipment fabricated in areas heavily impacted by the pandemic such as Italy dead.

This is why we lowered our estimated range for Capital expenditures in 2020 from 400 to 450 million to 350 to 400 million dollars. We will offer any activities critical to our ability to operate safely and we expect our Capital expenditures to return to the 400 to $450 range annually in Iraq in 2021 and Beyond.

Our Capital deployment Focus Remains the Same we are committed to Redeeming the remaining $250 million dollars of our 2021 senior secured notes on or before the maturity dead. We also continue to view share repurchases as our primary way of returning excess cash to shareholders is Tony and Bert both pointed out there is uncertainty ahead with our strong capital structure substantial free cash flow generation and ample liquidity. We believe we are well-positioned to continue to do what is best for the long-term health of the company throughout the pandemic with that Tonio provide some closing remarks before we open the call to Q&A.

Thanks, Chris.

Before we move on to your questions. I want to thank everyone at Sea out for a strong quarter and for their commitment and dedication continuing to work safely and responsibly to do what we can do as part of the critical infrastructure in each country where we operate most of all I want to congratulate them for their tremendous safety achievements the CF team brings our do it right value to life everyday which continues to drive our success as a company.

Since I've been with CF we have phase two other periods of challenging conditions first during the financial crisis of 2008 and 9 and then the cyclical Lowe's our industry faced in 2016 and June 17th today c f is better position for the uncertain conditions associated with a pandemic than any other time since I've been here we have the best team in the best assets in the industry would we remain among the lowest cost in most efficient producers in the world and our balance sheet and cash generation is strong by doing the things that make us in the industry leader Thursday. We will serve both our customers and shareholders well in the short term and position ourselves for continued success over the long term.

With that operator, we will now open the call to your questions.

As a reminder to ask a question, you will need to press star one on your touch-tone telephone to withdraw your question, press the pound key as a courtesy to other callers. I ask that you limit your questions to one question.

Did you have additional questions we ask that you re enter the queue and we will answer additional questions as time permits.

Your first question is from the line of Chris Parkinson with Credit Suisse.

Great. Thank you very much. Good to hear from you guys. So you've done a pretty solid job getting the Midwest prices back to attractive levels, especially in fact speak to the current Inland supply and demand Dynamic know that we're in May for both urea and and and also just touch on any additional expectations, um, at least initially 4 a.m. Activity. Thank you very much. So looking at the premiums in the midwest what we achieved the team did a very good job of positioning product and moving product working with our transportation Partners in and terminaling system in q1 to have product in position when it was ready to go and we caught away where the urea price then the end price valued increased in value during that March April time. And we sold into that.

So I do think that there will still be a very healthy carry going into and through Q2 for those Inland positions just because of the logistical difficulties of getting products for this volume of acreage that needs to be planted and fertilized through June. So I would expect that, you know, the normal premiums. We see let's say $30 for the interior would probably be extended and expanded and continue that for the quarter our expectations for film. We've done it on different things in Phil programs over the years in terms of when they'll start duration volume and what when we look at those things, it's it's with the view of an economic value. What is the value to the company? And what is the value and value-at-risk to our customers and try to incorporate many of those questions and and very abilities together to put together a package. It's been a small as a month of volume and as large as 6 months.

and so when we

You get to that point and again depending on our inventory, which we expect to be low, which gives us a lot of flexibility going into that program. If the global price is low, you'll see a smaller program if the global price and then the Nola price is better. You'll see a bigger program and then we'll Flex the production mix accordingly.

Let's just say a little bit more of a longer-term question I'd say so there's obviously been a lot of discussion about the future of global urea cost curve regarding concerns on Thursday is at the low end versus Chinese anthracite at the high ends. Um, do you speak to the current slope of the cost curve how it may change positively or negatively interview and then also touch on your expectation for new Supply as it now appears some construction is now idle and Supply chains up here disrupted. Thank you morning Chris good to hear from you as well. So in terms of the the shape of the you know, the the cost curve of the supply curve, you know, it's pretty clear that there's been some massive dislocations in the energy Market lately when you've got you know for a period of time oil trading at you know on the spot basis negative numbers and you know things just cratering obviously. There's been a lot of

Craziness going on out there, but sort of the longer-term Dynamics that you know, we we firmly believe in is now that oil is back in the $30 range. The l&g based contracts that are linked against oil are well above where Henry Hub is priced today and and then the spot price of LNG on the sort of that extraneous cargos. There's been some sloppiness in there. So we've actually paid believe it or not some days in this last quarter with a gas costs below what we've been paying it Henry Hub and that you know is almost unprecedented from at least from my time in this industry. So, you know, there has been some some strange occurrences, but we think that that's really just sloppiness in terms of inventory working its way through the system on the LG side. So again, the oil index contracts are trading well above where Hub is and dead.

Eventually, the the inventory of LNG Works its way through the system and replacement economics because all of that spot gas is coming from Nola has to trade it. No le plus package. So, you know, our our view is as you see beginnings of the economy on a global basis kind of recovering you'll see Energy prices kind of stabilized and come back up a bit and then the rest of the world from a spot LNG standpoint will be above where Noah is so we'll we'll continue to operate at the very low end and you'll probably see some increase in terms of the slope of the curve. Now, you know that the high end of the curve has been established by Chinese anthracite. As I said in the beginning of my remarks that's above thousand bucks or 7:25 or something today on an equivalent basis, even if it softens a little bit. We still have a really substantial cushion with less than $2 at home.

Day, and then we got basis different.

Angels that put us at lower cost yet still in one and you know in our view is with gas at the $30 range or maybe even strengthening a bit. There's an awful lot of wet gas plays that income back into profitability at that point. So we're not taking a doom-and-gloom view of where natural gas trades and we think wage the rest of the world will like be paying higher prices compared to where we are over the the mid to long-term.

Your next question is from the line is PJ juvekar with Citigroup.

Morning Pooja.

Hello. Yeah, that's better. Good morning. Thank you. So you mentioned about China anthracite coal prices, you know, China call is having to come down but that hasn't stopped the recent urea slide. Is that more of a short-term supply-demand imbalance and then talking about China. What are their expectations for? What are your expectations for X Chinese exports this year for urea. Yes. So morning PJ. So China exports year-to-date are running a fair bit behind where they were last year. I think last year total exports were in the range of about 5 million tonnes this year. We're expecting somewhere in the three to four million tons coming out of China. So we actually think there's going to be you know a reduction in the amount of material coming out of China this year. I think part of what's going on with you know, with the softening and urea pricing is given the fact we've had

Really favorable early spring weather, you know in in the UK and also in the there's been a lot of fieldwork that's happened earlier in the year and what people are afraid of life in the channel is ending up with inventory and and material that Cascades over, you know past planting in into the into the false. I think you're seeing kind of a lot of just-in-time purchases where they can do back-to-back and get it out the door again, cuz they don't want to be holding material on that sled to a little bit of softening, you know, prompt shipments as much stronger than if you're talking about plus 60 days in terms of pricing and I think that that's tended to weigh on things a little bit but we're you know, we're very constructive in terms of on the supply side. You know, we think you're not going to see uh, some of the the new plant startups that had originally been planned for the year as I said you have dead.

Seen some announcements on curtailments or shutdowns particularly on Industrial focused plants around the world and yet you know, our our plants are running off as well as they they do every year day in and day out. So we feel really good about I think the overall S&T balance bird anything else you want to I agree considering where we are in this in the cycle where we are with this with the pandemic where we are with costs. I think it's remarkable what we achieve but also

your question on the

Slide it is that it's a it's a inventory release and then you're going to have to build that back up. So there will be a floor and the Chinese cost money. We expect is going to be expressed in this India tender that you won't see as much participation and the world is not long and so we will eventually recover backup acceptable level.

Thank you. Hit Burt quickly on your answer on summer fill that you expect. You know, there is increased caution and then going back to last year Growers who bought last year, you know ended up losing money who bought early ended up losing money and you think that experience might change their behavior this year. I disagree that they lost money when you if we launched back in August at about $150 Nola, we're above that today and so in the interior values were are below where we are today back to those that purchase right? And then layered in one logistically got a delivered to or prepared for spring and three priced appropriately with retail. Margin that comes with that wage base. So the feedback from our customers on this fertilizer season, which started in July will go through June.

Is there well positioned and especially with these large acres are going to work through all of their inventory. So I think will be positioned and they will also well for the next phase if that off later fine, if that comes earlier we're good with that to PGA. The other thing is retail pricing. The farmers was a lot stickier than wholesale pricing was so even though you saw a little bit of softening in June on the wholesale side or some volatility. The retail price was was pretty sticky. So I'm with Bert on this one, which is, you know, the the retailers that layered in and and went with a sun-filled got a bath really reasonable return on on that purchase.

Your next question is from the line of Jewel Jackson with BMO Capital Market. Hi, good morning. Everyone in the guide first for 20 28 two things on that. So I think on the last call you talked about achieving you saw you could achieve roughly the same free cash flow in twenty-twenty has 2019. You have to keep it was a little bit lower. So I wanted to check in on that. And also me I think you're about twenty million ahead of on the year in q1 versus 1819 you seem to be guiding down maybe fifty or seventy-five million dollars. Now, there's a surprise expectations for you too. We are we seeing at it on pricing the second half of the year that ammonia any granularity you can give a bit on the on the lower guy to be great things. Yeah, you know, it's the the big issue is urine and pass out. Our plant utilization rate is is very high. And so the total tonnage that we produce is very consistent and you know, we can really only sell what we make right off.

our our sales

Volumes don't shift much that the change between, you know, 19.3 19.5 twenty million. A lot of that has to do with product mix because the more money, you know, Ammonia and urea yourself the more nutrient contents going out the door. So the lesson the total number of tons, you're selling the more you you sell the more product tons go out the door. So as you age weeks the dials on what the product mix is, it changes are volumes a little bit but it's very consistent right in that range. So the the, you know change in in expectations for years all being driven off of the price side and you know, that that's if you look at where our pricing is today versus where it was a year ago were softer across the board and even though gas prices down a lot relative to where it was and it's Chris mentioned are controllable costs across all segments or down quite a bit relative to where they were, you know, there's a lot more leverage on the price side than there is the coughing

this equation so when prices are soft or you can't really make all of that back up on you know on the cost side but look you know we feel very good about where we are and even at the 2018 a kind of range we can generate a heck of a lot of free cash flow and we're you know we're in good in a really good position

your next question is from the line of been Isaacson with Scotiabank thank you you talked about weak industrial demand and some closure as you've seen Iraq world what is c s exposure to various industrial and Market centers and are you considering curtailing any qualms

Yeah, so we're not you know, as I mentioned our our expectation is our production in sales volume this year going to be the same as it's been the last three years in a row, so we're not anticipating any kind of curtailments and you know, our operating rates to remain high. We do have a fair bit of industrial business, but a lot of the ideas on contractual basis, whether it's take-or-pay or or you know, indexed off the different things where there's required pattern of movement. And so again, our our expectation is at least for the customers that we tend to serve which isn't a lot of spot business is it's going to be very consistent and are you know for instance two of our bigger industrial chunks of business one is with, you know with Oracle and Nelson Brothers on and off.

And the other one is with Mosaic on ammonia and both of those are kind of Cost Plus based contracts and both of them have take-or-pay requirements associated with them. We feel really good about you know, our ability to continue to run our assets well and to have movement of all of our products for anything that yeah just in terms of the industrial mix in that segment. It's a diverse mix of customers and segments from mining to phosphate to Emissions Control to resons and and then as a feedstock for all material liquor ammonia, and so no one product is dominant in or is no one segment dominant and then as a mix between when we look at our business between a exports and Industrial

we view that as a key component to the 24/7 365

I've offer that with being a a seasonal product helps balance our production and that you know percentage of our business is we think of very good place and I will keep that that size of that segment in our mix. The other thing is the places where you're tending to see shutdowns are ones that don't have the same cost position that we have in the you know, there there's been I think five four or five they gas processing plants in Trinidad and that process wage but you know gas input based plants in Trinidad that have curtailed their shut down and those are you know, based on the fact that the the old caribbean-style. Okay. I was contracted his end the government NGC in the government renegotiated a higher cost. That's frankly not competitive based on where today's cost structure off.

You know, I think what you're seeing is Supply coming out in the regions of the world that are a little bit higher cost which is exactly the places that it should contract.

Your next question is from the line of Steve Byrne with Billy.

Yes, thank you would like to drill into the Fairly significant differences in gross margin between your various nitrogen products is dead differences logical to you or is there something in there that's has to do with how you allocate internal costs, but more importantly the the margin on ammonia is slower than the others is is that driven by your need to move that volume cuz it's counter seasonal in the fall or or is there an option for you to talk to push price there? Because the margins lower and if Growers don't take it you could pick up more volume and your yes, so I want to see that you know, one of the things is the the costs are allocated on a manufacturing cost basis as you know, everything starts with ammonia. So the ammonia cost structure just flows through to the other products suck.

We go from there. So it's not a cost allocation piece. It it really is a couple of things one of which is Agra monia tends to be pretty good pricing off and Industrial ammonia particularly right now. If you look at where the Black Sea price is and even Tampa price is very low price and that's why you're seeing industrial contract, you know based ammonia production around the world shut in because it you know, it's not competitive and so in quarters wage, we're we're doing last ammonia, you'd expect ammonia gross margins to be compressed because it's the sales volume is going to be driven off of the Industrial Sales. And again as we talked about deep water traded, you know industrial kind of ammonia is cheap in in quarters where we have a much higher percentage off.

AR Emoji of business being

Done by a dog then you'll see that margin expand back out again and application of ammonia, you know is a very seasonal thing and so you get a little bit of it in q1 that spreads into Q2 the really big days of shipment the you know was talking about were April days. So we're going to have more egg, you know off shipments of ammonia in the second quarter then we had in the first quarter and then sometimes we see a little bit in Q4 as well. But you know largely Q3 is almost a hundred percent other than a little bit of side dressed here and they're almost a hundred percent industrial and a big chunk of Q one is also industrial. So but the product that's going to have the most variability seasonality across the year is going to be ammonia and that's also one for which you know, the US is really the the biggest and almost only market for direct application for birth.

Agricultural use so there's not a lot of other places to take that product other than here. So we're very fortunate that we've got our big terminaling and distribution Network across the u.s. It represents a great value to Farmers. It's one of the reasons why they put ammonia down because it tends to be the cheapest form of, you know nutrients that they can apply to their fields. So it's a good value to them. And you know, we're we're pleased with it. Yeah. The other thing I would note Steve is if you look at it from an adjusted gross margin, so I'm back to the depreciation is Tony mentioned we produce a lot of ammonia and sold a lot of ammonia. So there's a higher depreciation level. So on an adjusted gross. Margin the percent is the same as q1 of 2019 for all the reasons tell me just talked about. Yeah that that that's also a big piece which is, you know, the diesel plant and the port Neal plant have a lot of depreciation associated with wage.

So when you take out the depreciation portion of clogs and you're really looking at you know, just the manufacturing the cash cost you've got numbers that are you know much better representation the true economics of of operating the assets.

Your next question is from the line and Tunis ox-gard with Bernstein.

Good morning guys morning. I was wondering you said before covid-19 cast was for something around ten million tons of New York City to be built in the next 3 years. Do you have a sense for what that number looks like today or are we seeing cancellations delays or anything of that sort?

Yep Jonas, this is Chris. I think what we're looking at here is largely in line with what Tony and Bert have been talking about that. Not only are you seeing curtailments but probably a shift in the time frame when those particular projects are going to be coming online and that's really, you know, a couple fold their similar to what I talked about with our own capex that being a lot of Fabricators that produce the vessels and the equipment for these particular projects have been in in lockdown mode some of which are beginning to come back on Northern Italy, but then additionally with that it's the amount of contract workers that come on site. So I think our expectations over and above the general delays that we see just box projects running longer than what people estimate is going to be that there's just going to be an overall shift along with probably continued curtailment specifically for those that are oriented towards indulging

Real production. Yeah, I'm not in the longer. You see kind of glow.

Global economic hangover effect, you know, I I think the longer those kinds of supply-side restrictions are going to be and and in that sort of environment. It's really hard to justify, you know new projects or even continuing to put work into things that have started if you're still a long way to go because the you know, the payout based on where I traded ammonia is today just doesn't warrant putting new assets in the ground.

Your next question is from the line of Don Carson with Susquehanna Financial.

Thank you bird question on the outlook for the fall season the US it looks like with an early planting. We could have a early Harvest for the first time in three years which would be positive for demand but not a lot of uncertainties as to the outlook for corn next year given feed and and and ethanol Outlook. So so how do you see those two playing out this year? You think it's going to be a above Trend fall season wage for for ammonia in in the US and then just one cash flow question our our share repurchases off the table in the interim. Just giving some of the uncertainty out there in the market right now.

So first question, I'll take and then I'll take the second regarding the fall season. You're correct where you are seeing and with the planting information that just came out this week. We are ahead over fifty percent. I expect that to that Trend to continue with the weather. We're seeing and so looking towards fall with a good dry out. We would see the beans and I'm coming off those with corn on corn or following beans with corn. We would expect to see you talk about. Uh, the the season what is a healthy fall season? Cuz we've had several be interrupted by bad weather or different circumstances. And so we are looking forward to the fall and we think ammonia will be priced attractively and those who are who have been able to apply to have been rewarded with being able to get in the fields on time and plant for spring. So we expect probably a healthy ammonia season for the birth.

And the outlook for corn I think when you look at where we are today on the board with kind of the Harvest price at 3:30 to 3:35 today. You're getting close to a a a low number with or a number that is you get below $3. It's difficult for any rented land to be profitable when you throw them back in government payments and like Tony said $19 to date were expecting more on top of that when you throw in all of the costs for a farmer and all of the revenue options with Revenue guarantee program. It said in the February at 370. You can make a pretty good case for this year's Harvest and the profitability coming off the farm and then next year with what Acres would be being. Hopefully Above This level. So like we said we're we're structurally positive for this year and then watching but anticipating not as bad as what everybody's thinking or saying.

You're twenty twenty-one.

On the on the show repo question, you know as we we have an open authorization we did report just about a hundred million dollars of shares in in q1 a.m. And our Target really is to make sure we're maintaining at least a billion dollars of liquidity. We think that that's completely ample to be able to support the wrong kind of ups and downs in the business as we move forward. And and as Chris said, you know, we've we've generated some good cash flow here year-to-date where it five hundred million of cash on the balance sheet and an undrawn revolver today and particularly given where the share price is in the fact that that is our preferred method to return cash to shareholders money. You know, it's something that that we're spending a lot of time talking about I will say just given the

Broader uncertain, you know global economic Outlook. We're probably going to are a little bit on the side of caution, but I think it's certainly wage, you know available to us and as the balance of the Year unfolds if you know Phil program comes in and and somewhat of a normal fashion, although that's kind of a an oxymoron give them that every single year and fill is different from the previous year. So I'm not quite sure what normal looks like but you know, as long as we're comfortable in terms of cash flow generation and where the the phone number is trending I think, you know work in a certainly leave ourselves open to Avail ourselves of taking out some prices of some some shares that low prices.

For next question is from the line of Adam Samuelson with Goldman Sachs.

Yes, thank you. Good morning. Everyone morning Alan. Hi, so I was hoping I mean we talked to at this one and I guess U A N A specifically and there I mean the markets had some some changes in demand patterns with the terrorists the last couple of years you got you some reduction in production in the former Soviet Union, but we're still feel like there's some high-cost production out there that doesn't seem particularly economic at these prices. Maybe just your thoughts on how that looks over the next twelve months. Give it an oil changing energy landscape. Yeah, I think you've hit on several components put together for the the complete analysis of u a n and you know, I'm really pleased with the u a n team and what they've done in conjunction with all the disruptions with the EU changes which forced us to move seven eight hundred thousand tons that we're going there back into the US market we

We've moderated production a little bit for increased urea. But what we've done and what we're going to do is continue to expand our terminal operation Thursday. We can reach markets. We probably weren't that focused on like California the pnw and the east coast and plan to continue to do that. So for what we're seeing a new job overall on demand is some positive things in South America and Brazil and Argentina and and it was well as in the United States and production with what a crown is dead dropping in a granulation unit. We anticipate fewer tons coming from the from Russia into North America over time and and that makes sense as we stay around the 90 million acre plus or minus range. The demand for you is about fifteen million. We should be importing about 2 million tons, and we will be an import 2Pac

Market, and that can be supplied by a few of the suppliers that we have.

have today

that's

the next question is on the line of Michael Pitkin with Cleveland research.

Yeah, hi. Just following up on the last question. Is there any update in terms of what's happening in Europe in terms of potentially, you know getting some of the anti-dumping duties reduced or eliminated and you know, how does that sort of play into kind of your longer-term thoughts? Yeah. I I mean, I think those Duties are going to be with us for the foreseeable future. I don't that off the court does not have a history of going back and changing their mind about things once they've put those things in place. So I'd be shocked if that changed that being said, you know, I think like I said the last call we've prepared for what Tony said that eventuality and we have good options available to us with some changes to our system. And I think we're going to look for CSA will be fine and and see a positive Market going forward.

Your next question is from the line of John Roberts with the UBS. Thank you and glad you're all well in the office. You're deferring some maintenance. Are we likely to see a globally being deferred? So that product availability globally is going to be down a few percent and likewise are are extremely up a few percent this year and then like walking down a few percent next year as we get a lot of maintenance done next year. That wasn't going to get done this year. Yeah. Let me you know, let me talk about the the maintenance aspect of it. So for instance mentioned in his, you know remarks earlier, we've got some new vessels replacement vessels on things like high temperature shift and and so forth that are being fabricated in Northern Italy cuz those are some of the Premier shops in the world that do this kind of work and obviously when Northern Italy, you know, when unblocked down they noticed 4

First be sure that all those deliveries were going to get extended out in time. And so part of the part of the issue is critical spares are critical equipment that was coming, you know to us off to be installed during turnaround activity didn't reach us and the other piece was we didn't want to have 500 contractors down in in sort of a relatively Hot Spot area of Noah and the Gulf Coast show up in our facilities and put our you know, our employees at at risk and so, you know for us what we're doing is not really deferring we're just waiting until we get the right equipment and until you know, we feel we can bring people into the facility in a manner that's safe. And I think that that probably more of that is happening than less on a global basis so I I would think now dead

for us because we're very

Much focused on high uptime Highland stream, we do preventive maintenance. We don't run stuff Until It Breaks. You know, I I think we're going to be fine relative to God not having any kind of unusual outages relative to our, you know, our plants and equipment. I think other people that run a little closer to the edge could well see significant downtime and that that's another piece that doesn't always get into the supply-side equation, but there's a lot of companies that you know, don't really run their asset wage no plants on a basis that is really long term thinking about Highland stream. And so as you start deferring some of this maintenance or putting it out your get a lot more kind of break fix issues which tend to lead to a lot of up-and-down time. So overall, I would expect industry operating rates to drop over the next couple of years.

For that reason and it's not obvious, you know that things are going to quote unquote return to normal any time soon. So it could you know, that this trend could push out not just from June twenty and Twenty-One, but it could be sort of a Cascade effect over the next couple of years. I think. Yeah. I was just going to add that. I mean there's a difference between planned outages and unplanned and I think if you'll see is less planned outages but more unplanned outages that being exactly what Tony said where you're going to have some operating rates that are going to be on and off just because of that package hasn't been spent over the years. I'm like what we've done with our program.

The final question is from the line of Mark Connelly with Stephen King.

Thank you. And you just the time we'll just keep it to one your control will cost. We're done a lot more than I expected. Can you just walk us through what happen there? Yeah, controllable costs really there's two elements. Obviously. It's the asset utilization that we had during the quarter that being high producing more tons, but then it's also on the spending so, you know having seen this beginning to go off and and even prior to that we started Jacob focus on really what are the essential projects. We need to be working on and only working on the critical project. So you saw less may be spending because of the asset utilization but less engineering and Professional Services spent because of the focus we had on what what we really needed to be focusing on. So the expectation is that you know will probably continue with a lower control will cost and what we've had in the previous year over the next quarter's in addition to that one of the elements that I talked about also.

And and the remarks was on sg&a to just given the level of travel, you know, as you look at q1, we were down about four million quarter-over-quarter and that is really before any impact of a closed office is Tony mentioned. We didn't close the office until mid-march. So the expectations would be you know, our run rate on q1 STNA maybe a little south of that too that will provide us with some cushion. So everything that we can control back to Tony's comments were focused on controlling the other thing I'd add to that Mark is you know, Chris highlighted a couple of these things but spend really goes along with activity and as you dial back the activity then spend comes down quite a bit and you know, I I don't think our travel expenses going to bounce back anytime soon. You know, we've learned to function pretty well on WebEx and zoom and and teams doing

conference calls and and so forth

So we're going to try to keep that going we have provided our employees that have to go into the facilities every day to keep the plants running a kind of the equivalent of a hazard duty pay. So we provided sort of a monthly bonus to that group of people and we're going to keep that in place here for you know for the foreseeable future. So there's one element of coughing come up but despite that all the other costs have come down and we're running, you know, as a result the net positive and I'm just really proud of the team of the organization that they've continued to wage on and keep everything, you know, operating keep themselves safe. It's really been remarkable given the the conditions were facing out there.

Ladies and gentlemen, that is all the time we have for questions for today. I would now like to turn the call back over to Martin Jurassic for closing remarks. Thanks everyone for joining us, and we look forward to Thursday follow-up calls. Have a great day.

Please include today's conference calls. Thank you for participating you may now disconnect.

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