Q2 2020 LSB Industries Inc Earnings Call
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Good morning, Thank you.
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Good morning, Thank you for standing by welcome to the LSB industries to Q 20 conference call.
At this time, all participants Sarnia listen only mode. A question answer session will follow the formal presentation should you require operator assistance during the conference. Please press star zero to say on operator. Please note. This conference is being recorded I.
Ill now turn the conference over to your hosts Kristy Carver Senior Vice President Treasurer for LSB industries. Thank you you may begin.
Thank you David and good morning to everyone.
Joining me on the call today are Mark Behrman, ARD, Chief Executive Officer, and Sheryl Mcguire, 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 a variety of factors could cause actual results to differ materially.
This call will include references to non-GAAP result.
Please reference the press release in the Investor section of our website L. S. The industry's dot com for further information regarding forward looking statements and reconciliations of non-GAAP results to GAAP results.
This time I'd like to go ahead and turn the call over to Mark for opening remarks.
Thank you Christine and good morning, everyone.
Whether you could participate in our call. This morning, and appreciate your interest in LSB industries.
I'd like to once again begin by thanking all of our employees for their efforts in enabling us to continue to run our business in the midst of the pandemic crisis.
Your hard work and commitment enabled us to continue to deliver improved safety performance and to sustain our operations at a high level of efficiency during the second quarter.
We continue to focus on improving our safety performance, which currently stands at a 1.7 recordable injury rate for the last 12 months.
I'm extremely proud of what team for this accomplishment and their focus on continuous improvement in both safety and operating efficiency that's come to define lsbs corporate culture over the last several years.
Well the work never stops to reach our safety goal of zero and our targeted long term ammonia onstream rates up 96% you are well underway.
Slide three summarizes the main takeaways for a second quarter.
In short, but pricing on the AG side of our business was not cooperative and as anticipated demand for our industrial of money products weakened due to the impacts of Cobiz 19.
We did a good job a focus on the aspects of our business within our control, particularly with respect to the performance of our manufacturing facilities rationalizing, our upward and cost and maximizing our product balance in fact at pricing being in line with a 2019 second quarter, which wasn't robust itself.
And industrial demand, but consistent with the pre pandemic levels of just over four months ago.
It would have resulted in an adjusted EBITDA that was approximately 10% higher than the second quarter of last year.
This demonstrates the improvements that we are making in the business that will allow us to capitalize on the return of industrial demand to pre pandemic levels.
And on improvement in nitrogen prices.
Sure I will provide more detail around this analysis later in the coal.
We were particularly pleased with our 6% year over year increase in total agricultural sales volumes for the quarter.
This was driven by an 18% year over year increase in total you weigh in sales for the quarter with our prior facility achieving record urea and UAN production for the quarter.
The improvement at all prior facility was the direct result of the installation of the new you real reactor in other work that was performed on that plant during the 2019 fourth quarter.
We also had strong h., Dan sales for the second quarter.
Looking at the performance of our three facilities collectively remain on track to exceed our 2019 production and sales volumes for the full year of 2020, which would result in record ammonia and certain other downstream product production records.
Unfortunately, as I mentioned earlier selling prices for our agricultural products were significantly lower in the second quarter compared to the same period last year and they also and also declined relative to the first quarter of this year.
The weakness was a function of continued excess ammonia inventory carried over from 29 team along with the closure of the Magellan pipeline last fall, which continues to disrupt ammonia movement, particularly in the southern Plains market Randall Pryor facility.
You land prices also weakened does we experienced a year over year increase in imports and a year over year decrease in exports, resulting in more supply of product available to meet U.S. demand.
Lower overall fertilizer prices also reflected the Cline and corn prices over the course of 2020, which I'll discuss in more detail shortly.
As you know natural gas is the primary raw material for most of our products. So the lower year over near year over year natural gas cost we experienced was a positive for gross margins.
It's worth pointing out however that the vote very low natural gas costs can be a double edged sword.
While we read the benefit of the lower costs to produce all products.
Gas costs at the levels Weve seen worldwide for the past two quarters tends to allow marginal nitrogen chemical producers around the world to operate the manufacturing operations, leading to higher product supply, which puts pest pressure on product sales prices, which was another contributing factor to the fertilizer price weakness we experienced in the second call.
Order.
So low natural gas prices are good for our cost of manufacturing, but at some level the cost benefit is more than offset by a deterioration of product selling prices.
On slide four we discuss the actions we have been taking to protect our team from covert 19.
Mandatory masks, social distancing and regular health monitoring for personnel extra cleaning and disinfecting of equipment and Workspaces working from home for employees not necessary to be onsite at our plans.
<unk> to the manner in which are personnel indirect with delivery drivers.
And restrictions and guidelines around travel among other measures.
These procedures have proven very effective as to date, we have had no known cases of covered 19, among our workforce.
With no inside as to when we will see this and enter this crisis. We will continue doing what we have been doing and continue to review and enhance our contingency plans. So that we are prepared for changes as the pathetic continues to evolve.
Slide five provides an update on the state of our end markets and have demand trends have evolved as various aspects of the economy have reopened since our last earnings call in early may.
On the agricultural side of our business the spring planting season unfolded much as we expected it to.
<unk> estimates for the 2020 planting season now indicate that approximately approximately 92 million acres of corn were planted in the U S.
While this was below their initial forecast of 97 million acres, which we in most industry participants viewed as aggressive.
It's still represents a 3% increase as compared to 2019.
This increase supported a solid ryzen demand for fertilizers, although as I indicated previously it was not enough to boost product selling prices.
Throughout this past spring is U S citizens sheltered in place under stay at home orders and most aspects of the U S economy, where shut down automotive usage across the nation dropped dramatically, which significantly reduce the consumption of gasoline.
This is important as the production of ethanol gasoline additive accounts for approximately 40% of totaled U S corn demand.
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Lower gasoline consumption has led to reduced ethanol demand.
Which has a significant impact on corn demand expected corn inventories and corn pricing.
Since hitting of 2020 low April ethanol production has rebounded sharply returning to near pre pandemic levels as various aspects of the economy have reopened.
While the disruption to the corn market has already been realized and may continue to be filled into 2020 122 expected elevated cornstalks.
<unk> market situations turned out to be better then we had initially anticipated.
With respect to our industrial and mining markets, we experienced a drop in demand that we had anticipated for several of our products that are used by industries Hartford by the pandemic.
After halting production in mid March the auto industry, which is a major consumer of nitric acid reactivated their assembly lines during the second half of me.
This coincided with a rebound and U S light vehicle sales and will not back the pre pandemic levels.
Is a favorable indicator for nitric acid demand <unk>.
Homebuilding sector is also a sizeable and market for nitric acid.
Since bottoming out in April key indicators of new home construction and demand for new homes has been making a steady recovery.
Considering these favorable trends in to the extent to which you S. Economic activity continues to gradually increase in the coming months.
We are cautiously optimistic that we will see some sequential improvement in our industrial volumes and the third quarter.
I'll hand, the call over to Cheryl momentarily, but first I'd like to provide a brief update on the litigation that we brought against lighthouse general contractor of our El Dorado ammonia plant expansion project. That's banned from 2013th 2016 in which we encouraged substantial cost overruns.
We continue to seek more than 100 million and damages as compensation for <unk> wrongdoing, which involved breach of contract fraud gross negligence professional negligence negligence.
As we indicated on a call back in May due to the onset of cope with 19 and the related court closures historical trial was delayed from April until late September.
As of today due to the ongoing pandemic the trial has been delayed again.
We are awaiting a new trial date.
And we are looking forward to having a case heard by a jury.
While we can't guarantee any outcome in litigation, we believe our case is serious merits, we will continue to provide updates as appropriate.
Now Cheryl will go into more detail about are cute too financial results Cheryl.
Thanks, Mark and good morning.
Paid seven branches are adjusted EBITDA for Q2, 2020 at 29 $2 million to adjust that EBITDA for 222019 at $32 million a year over year decline is the result of flowers falling prices, particularly in our agricultural market as marks data.
Persistent elevated inventory levels for ammonia combined with increased imports and decreased export WAM over the last 12 months have continued to lay on pricing.
Sales volume for our industrial and mining products decreased year over year, largely due to the weaker demand as a result of Cove at 19 impacts on our end market.
Overall, the impact to EBITDA from Covet 19 related lost volume with approximately three $5 million for the second quarter and approximately $5 million for the first six months from a volume perspective, we were able to offset some of this last industrial and mining sales volume with higher production in sales of agriculture.
Sure all products, primarily U I N as a result of record production from our prior facility.
Additionally, these declined for partially offset by favorable natural gas costs, which averaged approximately 25% below the second quarter of 2019.
Furthermore, and the second quarter of 2020, we recognized five $7 million a settlements from vendors to recover certain expenses associated with the start up an operation of our new nitric acid plant constructed constructed are El Dorado facility in 2016, while the negative impact to our EBITDA was previously recorded.
Lastly, we continue to closely monitored expenses and lemonade or different spend where possible and as such plant cost for approximately one 2 million lower than the same period last year.
As Mark stated earlier or second quarter operating performance was obscured by the depress demand for our industrial and mining products as a result of the pandemic, coupled with a very low pricing environment for agricultural products.
<unk> eight is intended to illustrate the improvements we are making in our business for comparative purposes, we have normalized for both selling prices and natural gas prices to match those we experienced in 2019.
Can also added back lower sales volumes from lower demand directly resulting from the Cove at 19 economic slowdown.
This allows us to view the operational improvement in our underlying business with these adjustments adjusted EBITDA would've been 34 $9 million in the second quarter of 2020, almost 10% higher than 2019 second quarter adjusted EBITDA.
We believe that this illustrates the improvements in our business from the many initiatives that we have completed over the last several years.
Also keep in mind that selling prices in 2019, we're not what we would consider to be robust.
Turning to page nine we have outlined gross profit margins for each of our market segments, which represented Q underlying cash margin of each of our businesses.
As you can see from this slide our industrial and mining margins remain robust averaging approximately 40% as we've been able to offset lower selling prices with lower natural gas costs, lower fixed costs and higher production volumes.
Although AG margins have been impacted by the very low selling prices. The experienced primarily for you an and ammonia we would expect MS, 30% EBITDA margins and a more normalized mid cycle pricing environment.
Given the future uncertainty around cover 19, and the likelihood of continued act pricing weakness, we have taken a number of actions to preserve liquidity, which are summarized on page 10.
We ended the quarter with approximately $69 million of liquidity and we continue to closely monitor all non essential spend until further notice.
In April we received a 10 million PPP loan under the cares Act. The loan has allowed us to avoid laying off our for allowing any employees and we're maintaining our full employee base and keeping our plans fully operational during the pandemic.
Additionally, we have been exploring the sale of certain non-core assets that could generate additional cash after the repayment of that of approximately $20 million to $25 million that process has been put on hold due to the pandemic. However, we intend to resume exploring the sale of those assets when market conditions become more favorable.
Lastly, we have additional levers depaul such as that refinancing refinance a existing equipment loans that would add additional liquidity.
We remain acutely focused on managing that downside risk to our business and maintaining adequate liquidity to operate through a protracted period of market headwinds hopefully this will not be the case, but we believe it to be prudent to plan as if it will.
One final note on liquidity as we move into the second half of 2020 hour outlook for sustained low pricing for agricultural products as well as natural gas has implications for working capital and therefore, the availability on a revolver.
Lower selling prices lead to lower receivables and low natural gas costs means our cost of inventories lower both factors lead to a lower borrowing base.
However, since natural gas is a major input to our production cost our overall working capital requirements are lower and therefore, our overall liquidity needs to manage the business are also lower.
So at $69 $69 million of liquidity at the end of June we remain very comfortable heading into the second half of the year.
Pedro 11 outlines R capital structure at the end of Q too.
We are actively seeking ways to improve our capital structure and lower our overall cost a capital.
We believe that continued improvement in operating performance combined with economic recovery from the Cove at 19 pandemic and improved pricing for our products will be will be a benefit and achieving those efforts.
Today, our senior announced R. Callable at one O seven and in May of 2021, the call premium declines to one O three 6%.
In the near term, we remain focused on preserving liquidity and managing through the pandemic. However, we see several avenues to lowering our cost a capital and continue to work with our board of directors on a path forward.
With respect to the pricing environment for the third quarter.
Please turn to page 12, as you can see from this slide you an eight stand in Tampa ammonia are expected to remain materially lower as compared to 2019 as a result of increase supply from the variety of factors discussed earlier. However, we do expect to offset a portion of the lower self.
[noise] price with favorable gas dynamics.
From a volume perspective, we expect continued pressure on demand related to cover it 19, although to a lesser extent and what we experienced in the second quarter.
That being said, we would expect lost volume associated with Cove at 19 to impact third quarter EBITDA by between two and $3 million.
On a positive note, though we expect continued increased ammonia you an end sulphuric acid production in sales as a result of the reliability investments made in 2019 and from no plan turnaround work in the quarter and soda some up our view for the third quarter. Despite the Max lower.
Selling price environment, we expect higher production in sales combined with lower costs to drive a 15% to 20% improvement in EBITDA as compared to the third quarter of 2019.
And now I will turn it back over to Mark to wrap up.
Thank you sure.
Between the pandemic crisis, and the Rickwood rainfalls in the Midwest throughout 2019, the past six quarters of filled this year of challenges for industry in our company.
While these significant obstacles are outside of our control.
We have been successfully managing will continue to manage all the aspects of our business that we can control.
These include our safety performance or manufacturing operations sales of our products.
Business development initiatives in our costs.
With respect to our plant operations, we expect to deliver another year are improved onstream rates across our facilities for 2020 that would result in record annual production for many of our products.
This success reflects the combination of the hard work and discipline of our teams to implement enhanced processes and procedures that are facilities, coupled with the investments we've made and reliability over the past several years.
Beyond the increased sales volumes, we expect to generate from further improvement in our plant operating and daily production roots.
We have secured and are actively pursuing business development and margin enhancement opportunities that when combined with several cost production initiatives. We believe will yield 10 to 15 million of annual incremental EBITDA when fully implemented.
We should see these opportunities and initiatives begin to yield results starting in early 2021.
None of these improvements are reliant on increased selling prices for our products and all of course. In addition to the last EBITDA from the impact of cope with 19 that we expect to recover.
We have discussed several of these opportunities on previous calls such as our intensified sales and marketing efforts aimed at filling out or higher expected production volumes.
During the first quarter, we secured to new contracts with a <unk>.
Both beginning in the second quarter and although currently impacted by cope with 19 when fully implemented should represent between 40000 50000 tons of new volume.
We also executed a new contract to sell approximately 100000 tonnes per year of C. O two out of our El Dorado facility, where our customer is building a guest plan.
You expect to begin sales under this agreement in the fourth quarter of 2021.
In addition to these contracts we have several other dialogues underway regarding potential long term supply agreements that we're excited about.
As we discussed on our Q1 call in April we've completed a key storage project that will allow us to further maximize our production of high density ammonium nitrate at our El Dorado facility, which we expect to enable us to achieve higher production, a lower cost per ton and increased sales of the product throughout the year, particularly during periods of.
More attractive pricing.
We're very excited about the expected returns on this investment and have identified several other similar opportunities we expect to address over the next several quarters that would enhance both production in sales volumes and lead to increase in our margins.
Also included in our plan to bolster our profitability regardless of the product pricing environment are identified fixed cost reduction actions that we believe will result in approximately $5 million an annual savings.
So.
To sum it up.
C a clear path to an additional $15 million to $20 million a incremental EBITDA by continuing to focus on what is within our control. The goal is to implement these actions over the next 12 months.
With all of that said, while we are constantly focused on improving our EBITA in cash flow and maximizing value for shareholders. A number one priority remains the health and safety of our employees there families friends coworkers and everyone in our communities.
The pandemic continues on and while everyday we learn of the accelerating spread of the virus in certain areas of the country in the World. We also learn of progress and hope and the battle to control cope with 19.
In the midst of all of it the U S economy carries on albeit hampered and many <unk> sectors, but also strongly rebounding and others.
The products, we make an important part of that economy, and we believe that along with our strong operating performance evidenced by a solid financial performance and the second quarter in the face of a historically challenging environment.
This performance makes us more confident in ever in our ability to deliver year over year improvement in EBITDA in cash flow for the full year of 2020.
With the various actions we are taking.
Ah well positioned to continue that improvement in 2021.
Our goal is continuous improvement so that we can emerge from the pandemic of more efficient company and capitalize on the opportunities to grow our business that we expect to present themselves.
Before I pass the call back to the operator to begin the Q&A session I'd like to mention that we will be participating in the Jeffries virtual Industrials conference on August 5th and sixth.
We hope to speak with some of you over the course of that event.
That concludes our prepared remarks, and we will now be happy to take your questions. Thank you.
Thank you.
At this time, we will be conducting a question and answer session. If you would like to ask a question. Please press star one of your telephone keypad confirmation Tom will indicate your line as in the question Q. If at any time you wish to remove your question from the queue. Please press start to for participants you the speaker equipment, maybe necessarily pick up your headset before pressing the star keys.
One moment, while we pull for questions.
Our first question is from Travis Edwards with Goldman Sachs.
Hey, good morning, Thanks for the time and thanks for the color.
Quarter.
See the progress on operations in the plants.
She had a question kind of on that front.
Alright, one historically.
Sure the entree rates by player I was wondering if you would be interested are willing to giving that.
Commentary color.
Now and then secondly, just talked about differing some of the central costs. Two later this year. We're just wondering if that changes anything as far as the turnaround scheduled going forward it to next year.
Okay Travis thanks for the interest it's more famine.
So operating performance across the plants the ammonia on-stream.
Was about 90% for the quarter.
As you know.
Downtime or unexpected downtime doesn't come ratably throughout the year, usually get it in.
And then you have a great room going forward. So we're still focused on.
The 94% Onstream right for the year, we think that's very achievable as far as turnaround schedule. No. We have no plans change any of the turnaround schedules, we don't have a turnaround.
Any turnarounds.
Plan for this year. However, we do have to plan for next year.
Got it. Thanks. So it's really helpful. You talked a little bit about the capital structure, which I know tends to come up on those calls, but with the call price slipping down next year, just wondering again, you'll have to necessarily give specifics, but as you think about addressing a capital structure.
Reducing finance cost dealing with us preferred shares are you thinking about.
Potential refinancing from the perspective of we want to hit a certain run right EBITA before we come to market, obviously, you're dependent on March conditions, or whether hypermarkets are open but more just wondering what kinds of conversations are you having a totally.
What you're hearing from for shareholders bondholders about addressing the manufacturers no to the preferred notes.
Well I certainly don't like 95 days interest rate on our notes.
And I don't like R.
Credit rating.
So we are very focused on.
Ultimately improving are the cost of our debt.
And part of that will be <unk>.
Improving the credit rating.
And becoming a single B.
And so I'm one of the things were really focused on.
As I said earlier in my prepared comments is.
The things that we can control to really drives improvement in the business and obviously that translates to better financial performance. So with some of the efforts that I outlined we're really focused on.
Target of $100 million, an annual EBITDA irrespective of an improvement in price.
So part of.
US addressing R capital structure is clearly to refinance the notes and I believe if we continue to operate well.
Continue to become more efficient.
That certainly would be probably prudent given subject to market credit market conditions to.
To refinance the notes.
Sometime next year.
Got it maybe a quick follow up I'll, just stick with more on that note regarding.
Getting the single be rating.
As far as the conversations you are happy with the agencies, a day given sort of indication as far as.
Any of these metrics, obviously, we have access to their reports too but it was just curious are those conversations ongoing or have you I guess I'll <unk>, what's the frequency of those conversations to agency.
Talks to get to that so it'll be right.
Yeah, So I can't comment on what the agencies thoughts are aren't I think.
C as in never definitive nor do I expect them dirty.
Markets change.
Both credit markets and agricultural markets or industrial markets change.
Thoughts and feelings change but.
We've had a pretty proactive.
Relationship with both Moody's and S&P.
Either meet with them or talk to them every quarter.
And so I think.
They understand sort of our metrics when we were going but we will continue to have these conversations.
I think there.
Well aware that we're improving our business and that should lead to improvement in creditworthy.
Got a really appreciate the times, where it takes again on the back in Q.
Sure. Thanks.
Our next question is from Joe Mondello with Sidoti Company.
Good morning, Mark Cheryl.
Good morning, Joe.
So the loss.
Full of fertilizer application seasons have been really weak and I know this year started off on us all star, but now that we're sort of through the whole season I'm wondering what your how it how you describe.
The spring season.
Yeah, I think we actually.
Had a really good.
Spring fertilizer, Susan demand was up obviously with.
More acres planted this year versus last year. So.
I think to demand was there.
But as we mentioned.
The pricing Unfortunately wasn't what we had anticipated.
And when we look towards the end of the year.
USPA estimates, even though they brought down the plant that acreage estimate.
Stock to use ratio is still expected to be multi decade hi.
Which I think is one of the reasons why.
Corn prices are so low and maybe indirectly wise fertilizer prices are.
Hello as well.
Just curious on what you're.
Just general thoughts.
In regard.
Demand an application season later this fall and maybe go in the next year.
Well I think you're right I think we're going to have some pretty high cornstalks.
I can't.
Look back to see if they're referred or not but they're certainly.
Some of the highest stocks that we've had over the list.
10 years and so.
I think that'll have some impact on certainly corn pricing and torn pricing always has an impact on fertilizer and.
And the price of Horn will have an impact on how many acres supplanted so you could see some acres rotated.
Out of corn and into beans, depending on the price of beans.
I think that remains to be seen.
I think on our first quarter call.
That's in all with something that we were a little nervous about in the return of ethanol demand, but as we pointed out in a prepared comments ethanol.
Demand has really come back fairly strong.
And I think the more people you talk to.
About taking vacations this year, there's a lot of driving and a lot less flying so.
I'll be interested to see.
Certainly into this summer and into the fall.
What the gasoline usage would be whether it's up year over year because people are just driving Moore.
So I think we'll have.
We'll certainly matched what we had last year's as far as number of acres planted and you could see slightly more but I don't think it'll be a robust year for.
Corn acres planted in.
And the next.
And the next spring.
Okay.
Any thoughts on the U S dollar.
Made a pretty drastic move over the last several months.
And how the effects just the overall industry as far as corn, and then I guess maybe.
Even more directly as far as maybe fertilizer imports and just wondering what your thoughts on her and how significant that could.
Probably I would think b a positive.
Yeah, I think you're right I mean, what's going to drive.
Imports more.
Is just pricing here and.
And the U S in North America.
And so we're seeing some of the lowest pricing.
Throughout the world for fertilizer products here in the states and I think we've seen some pullbacks.
Certainly.
With imports I mean.
This.
This summer.
We had an earlier than expected.
And I'll feel program for <unk> started about a month earlier than we would normally see.
And the pricing.
Was was fairly low.
I don't think it makes it very attractive for imports to come into the U S and at some point.
If you don't get imports into the U S.
To a certain date, let's say.
Mid October.
Then the prospects of imports coming in.
Really don't shut off and you don't have imports coming in until sometime in the early spring.
So.
And I think more than the dollar.
Exchange rate or anything like.
It's just the dynamics of where pricing is.
So.
I think we are seeing some less imports.
Particularly.
With.
We're also seeing some less importance with ammonium nitrate as well.
Okay, and then I wanted to follow up.
Gardening.
The question that was asked before perform me on the on screen right.
I was just going back to what you did second quarter of last year and I think.
Around 94% compared to the 90 per cent you did hear you mentioned in the press release that prior I think was that a record high so I assume.
I'll Dorado in Turkey didn't run.
As well as last year just curious.
How the quarter when in terms of Onstream right.
Maybe specifically Cherokee in El Dorado, and how you're thinking and the third quarter going forward.
Yeah, so I'm not going to comment on which plant ran well or not well.
Pink.
We have tended to report.
An average onstream right across the plants.
The one thing I'll say about onstream rates and even production is and I think I said this Travis earlier on the call you don't get unplanned downtime that happens Ratably every month right. So reporting on a quarterly basis tends to skew things I think you really need to <unk>.
Think about on a on a 12 months basis.
Or on an annual business.
Because you can have.
Some downtime that affects a quarter and then you won't really well for two quarters higher than.
Any targeted right and so the average tends to be where you.
Overall target is for the year.
So far we're running well this quarter, we would anticipate nothing different.
And so we anticipate having a really good.
Hi, Onstream in high.
Production and hope to be able to report that for a third quarter.
Okay, and then regarding your preferred equity holders.
I haven't asked this question then at least over a year, but I'm just wondering.
The accruals of the dividend.
What is the.
Relationship there or the ability to continue doing.
Well, we have the opportunity to.
Either pay cash or.
Pay in-kind and until we.
Start to have some significant excess cash flow.
We'll wind up.
Paying in-kind on the dividend, but as we start to get.
EBITDA up to 100 million or higher than that my expectation would be to start paying that dividend in cash.
And is there.
Correct.
Is there something in writing or in the.
In terms of the level of EBITA were.
You have to be more disciplined nonpaying that or is it says.
<unk>.
No I mean, I think that's an option that we have <unk>.
We have the ability and our bond indenture to use any excess liquidity over $65 million.
To repay.
Either bonds into a preferred and I would just encourage you to go through and look at the details of our indenture review one more detail.
My last question the non-core asset sales can you remind us what that is.
What you're thinking on timing is Alice.
I think the timings up kind of unknown right.
I think is Cheryl said we.
Already.
When we think the markets.
Tractive for us to so.
An asset and the asset is.
Natural gas pipeline.
That we owned down at our El Dorado, Arkansas facility.
Okay, alright, thanks, a lot I appreciate it have a grandmother.
You too.
Our next question is from J P Gagen with global value investment Court.
Good morning, Ah you've done a very nice job controlling costs.
From a cost of sales perspective, which shows on your robust adjusted gross margins in a difficult environment, but also from an SG&A perspective, you press release makes a statement that there are significant opportunities to further enhance operational efficiency can you put some more color around that.
Sure.
Talked about.
With some of the initiatives that we have whether their business development initiatives.
Operating initiatives or even cost saving initiatives that we've got.
Identified about.
Through those initiatives.
An incremental $15 million to $20 million of annual EBITDA.
So they would be a combination of.
Business development opportunities like.
The new.
Storage facility or dome that we built for high density ammonium nitrate and the ability position product.
And also one higher production.
<unk> also talked about.
C O two sales out of El Dorado to date.
We do not cell C O two we actually vented.
And.
Product that we sell it over there to plan so through really good efforts from our industrial sales and marketing folks.
We secured a 20 year agreement.
With a customer where they can build a guest plant and bill by about 100000 tons of <unk>.
C O two out of their facility.
Bitter onstream rates, obviously, you're going to give us more production in.
And bedroom absorption of costs.
And then as we mentioned we've got some.
Fixed cost savings identified.
That we think can be anywhere from.
46 $47 million of of annual savings, so kind of going through all of those.
We're really focused on achieving their $15 million to $20 million of incremental EBITDA from those initiatives and when you add the cove it impact back to that which we wouldn't expect to see.
Once depend demick.
Was either over or.
Or lessened in the economy gets back to.
Some level of normalcy, the real focus is getting to $100 million of EBITDA.
Without any pricing improvement from where we are today.
And the pricing improvement, obviously will just be on top of the.
Thanks.
You've done a good job putting.
Some numbers around your margin enhancement projects in terms of earnings $15 million to $20 million range and I think we understand.
Timing of those projects and when we would expect to see the results come through to EBITDA, but can you talk a bit about how you are working capital situation might develop particularly.
As you look at storage projects like this age stand storage them.
Presumably make.
Product to build inventory throughout the year with the incentive showing it in season.
J P as a question.
Does it will require any additional working capital.
Essentially and can you give us an idea for how much are how that fluctuates throughout the year.
Sure JP I'll take that one.
Yeah, I mean, we generally see some higher working capital needs as we head into the the fourth quarter and into the first quarter sewer producing product in the summer months, putting it in storage and then selling it in season and so.
Well see a little bit more working capital Carrie.
And that December January February timeframe.
Okay. Thank you.
And then as you talked about.
Bringing on new customers in developing existing customers I'm, a little curious, there's obviously some sort of capacity constraint given that finite production resources and I realized that conversation is nuanced given your ability to shift between products, but can you give us an idea for how much additional capacity you could.
Produce.
Well, obviously is going to be different at each plant throats.
And.
Yeah I mean.
I think I'm, probably not in a position.
To say that today and being a better position.
The third quarter on our third quarter call after.
We get through some of the additional conversations that we're having.
Okay, great. Thank you for your time.
Sure.
Our next question is from Brian to rebel with bird.
Good morning, a couple of questions for you the PPP loan to $10 million do you have to repeat that.
Our expectation is that we that should be forgiven.
Okay.
And when are you going to have funnel determination on that.
We're working through kind of rules and regulations and.
I suspect over the course of the next six months, we said no more on that.
Okay got it and then.
The non-core assets addition to the natural gas pipeline you have to Khodzhent facility at El Dorado.
Is that something also that you consider possibly selling.
Well, that's a great question in we've looked at that.
And we have spoken to <unk>.
Several parties that focus on either acquiring or.
Building khodzhent facilities on industrial sites.
It's not something that we're focused on today, but.
If there was someone that was interested in.
Buying the code Jen facility.
And it made economic sense for us I think we would consider it.
Understood and just as you think about these targeted non-core asset sales.
Obviously, you're going to get the cash proceeds in but.
What cap right or the buyers buying it or put it in otherwise would be the head to EBITDA that you would probably have to experience offsetting those proceeds.
Yeah, I think we're not in a position to talk about the.
Okay understood.
Just two more for me.
You have two turnaround scheduled for next year can you remind me sort of what's been the average hit the EBITDA with those turnarounds.
Okay.
Well generally from a.
Maintenance costs perspective.
Probably five to 6 million for each.
Turn around and we generally add that back in adjusted EBITDA.
A lot of are are peer group.
Capital I as in amortize, though so.
That would be one of the main parts and then generally those turnarounds <unk>.
30 to 35 days.
For each facility.
So you think about prior that.
Call at 675 tons of ammonia day over 35 days and then Cherokee runs about 515 tons of ammonia. So about 30 to 35 days of lost production.
Okay got it and then your next one is not until 2000.
One of 2022 is that now 2023.
So we've got Cherokee and Pryor, both and turn around and the third quarter of next year and then we've got El Dorado and 2022.
And then Cherokee in El Dorado are on three year turnaround cycles and.
Prior.
We will make a determination after next year's turnaround.
And just Mark maybe just more of a border question I know that the plants are wanting well let's.
String of years with a word but given the oversupplied nature of the industry right now why one the plants allow.
When you sort of contributing to the price decline and that's not view specifically, it's obviously it industry question, but just love your thoughts there.
Yeah, I mean so.
First off we're pretty small player in the industry.
So I think even if we ran our plants lower.
I don't believe it have much of an impact in the industry.
Again from our perspective.
If you can run the plants in in each incremental ton that you produce you can make money on within it makes sense to run the plants and I think that's probably the <unk>.
General feeling in the industry I can't speak for others you'd have to ask them, but.
As long as you are making money.
People are going to run at higher operating rates because once you lower production right and you don't produce those tons their loss forever.
Aren't you can't make them back up.
Understood.
Great. Thank you.
Sure.
Ladies and gentlemen, we have reached the end of the question and answer session I would like to turn the call back to Mark Bearman for closing remarks.
Thank you I appreciate the everyone's interest in LSP industries I Hope you see that we're making progress and is there any follow up calls before you feel free to give us a call in.
We'll be happy to answer any questions. Thanks, so much.
This concludes today's conference. Thank you for your participation you may disconnect your lines at this time.
Three.