Q4 2020 LSB Industries Inc Earnings Call
[music].
Greetings and welcome to L. S. B industries fourth quarter 2020 earnings conference call. At this time all participants are on a 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 of this conference call is being recorded I would now like to turn the call over to your host Kristy Carver Senior Vice President and Treasurer. Thank you you may begin.
Good morning, everyone. Joining me today on the call are Mark Behrman, our Chief Executive Officer, and Cheryl 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 a variety of factors could cause the actual results to differ materially.
As this call will include references to non-GAAP for adult please.
Please see the press release in the investors section of our website L. S. The industries Dot com for further information regarding forward looking statements and reconciliations of non-GAAP result to GAAP result.
At this time I'd like to go ahead and turn the call over to Mark for opening remarks.
Thank you Christie and good morning, everyone. We're glad that you could participate in our call. This morning, and appreciate your interest in OSB industries.
We have a lot to be excited about as we speak to you on the first conference call of 2021 from Covid vaccines being rolled out across the country to our strong operating performance in 2022, the extremely favorable trends in the nitrogen chemical markets. There is much to be optimistic about for the year.
The one I want to thank our entire team for the ex the success, we had last year and achieving a record safety performance and setting several new production and sales volume records all despite the impact of the pandemic.
We're particularly proud of our record safety performance the.
OSB has undergone a fundamental change in the way our team thinks about safety and operations striving for excellence and committed to the best in class performance. Our total recordable injury rate for the full year of 2020 was a record low of one point on six with our prior facility and the Baytown facility, we operate for a partner having operated.
Without a recordable safety incidents for the entire year.
Our employees are dedicated to our goal zero initiatives and have embraced the cultural change that has enabled us to produce these results.
Our team should not only take great pride in our record safety performance, but also in the byproduct of such performance, which is our improved operational results as evidenced by the record production and sales volumes, we generated in 2020.
The song the strong safety and operational performance is particularly impressive when considering the added complications associated with COVID-19.
As the pandemic drags on our entire organization continues to strictly follow the protocols, we've put in place almost a year ago to prevent the virus from spreading within our manufacturing facilities and corporate offices into the homes and families over our employees, while there seems to be of light at the end of the tunnel with the introduction and distribution of vaccines we have.
The planning as if will need to operate in a COVID-19 environment at least through the end of this year.
We generated significant increases in sales volumes compared to the fourth quarter of 2019 of the year over year of volume growth represents a return on the investments we've made in plant reliability and product upgrading capabilities over the last several years as well as our focus on continuous improvement and on manufacturing operations. We also.
Fitted from the absence of turnarounds in the 'twenty 'twenty fourth quarter.
While selling prices, particularly for our AG products remained below last year's already depressed levels and as anticipated demand in prices for our industrial on money products continued to be suppressed due to the impacts of COVID-19, we did a good job focusing on the aspects of our business within our control, particularly with respect to the performance of our <unk>.
Manufacturing facilities, rationalizing, our operating costs and optimizing our product balance.
By focusing on what we can control. We believe we are well positioned to capitalize on the increase in fertilizer prices that we've experienced over the last six weeks and the recovery of industrial demand and pricing the pre pandemic levels, which has been unfolding since the second quarter of 2020.
Slide five provides an update on the state of our agricultural end market and the evolving trends and drivers for commodity pricing and demand we.
We've seen a significant increase in commodity prices since the fall and this includes the price of corn, which has risen nearly 50% from a year ago.
Fueling the strains has been a collection of factors, including a surge in Chinese demand and the weather disruption in South America that is impacting crop yields from that region and reducing ex exports into the global market.
Approximately 91 million acres of corn were planted in the U S. During 2020, which was a slight increase over 2019 Usda's. Most recent forecast is for approximately 92 million acres, which is a robust enough level to drive very healthy demand for fertilizers.
Turning to slide six with respect to our industrial the mining business. Most of our end markets have seen meaningful recovery since last spring one of the primary end markets for the nitric acid. We produce is the auto industry, which was forced to cease production at the onset of the pandemic in mid March.
As of the end of January U S light vehicle sales have rebounded from last april's lows by more than 90%.
Nitric acid is also a major input into a variety of homebuilding products as of the end of January U S. Housing starts of building permit applications have rebounded to near pre pandemic levels.
With respect to the products, we manufacture from mining applications, primarily low density ammonium nitrate favorable indicators have been emerging from the sizable north American copper market, where prices for this metal have risen to the highest levels in almost 10 years.
This could drive an increase in copper mining activity in the foreseeable future, particularly given the relatively new and growing copper demand drivers such as the mass production of electric vehicles.
Collectively we view the current demand trends, we're seeing across the aforementioned key end markets as pointing towards continued increases in sales and prices of our industrial of mining products over the course of 'twenty 'twenty, one and thereafter to the extent that COVID-19 that the COVID-19 vaccine rollout.
Continues to accelerate and new case case rates continue to drop.
Over the last several weeks many areas of the country experienced unprecedented severe cold weather impacting many people and businesses.
The extreme cold temperatures affected much of the natural gas production from Texas to Oklahoma the points North as natural gas producers from their wells frozen, resulting in very limited availability for natural gas.
On top of that in Oklahoma, and Texas, where wind is of significant supplier to the electrical grid. Many wind turbines froze up, forcing the electrical utilities to switch to natural gas to produce power increasing the overall demand for natural gas.
And of course with severely cold temperatures comes much higher than normal demand for fuel predominantly natural gas in our region in order to heat homes and commercial buildings the.
These factors resulted in a shortage of natural gas, causing prices for the commodity to rise significantly and industrial users to be severely curtailed on their requirements.
Many of nitrogen producers were forced to or elected two idled their plants.
The supply of nitrogen products in the U S tight prior to the cold weather. We believe that these recent widespread production disruptions could substantially reduce available supply of nitrogen to the U S market in the coming weeks and further boost the already strong pricing outlook for 2021.
Before I hand, the call over to Sheryl I'd like to provide an update on the litigation that we brought against light of the general contractor of our El Dorado ammonia plant expansion project.
As the pandemic is of course caused many trials to be rescheduled arrows was not immune we.
Now believe that the trial will occur in the fall of 20 of this year.
We are looking forward to having our case heard by the jury and while we can't guarantee any outcome in litigation. We believe our case has serious minute merits.
Now Cheryl will go into more detail about our Q4 financial results Cheryl. Thanks.
Thanks, Mark and good morning.
Page eight.
Our adjusted EBITDA for the fourth quarter 2020 of.
$10 4 million to adjusted EBITDA for the fourth quarter 2019 of 7.2 million. The improvement was due to continued progress and year over year of production and sales volume the.
The absence of any turnarounds this year combined with better overall operating performance allowed us to generate company records for both the ammonia and <unk> production.
Outcomes that are directly attributable to the investments we've made in our facilities over the last several years.
Partially offsetting our operating performance improvement was the impact of pricing headwinds that we fought throughout 'twenty 'twenty.
Lower net selling prices negatively impacted fourth quarter adjusted EBITDA by approximately $9 6 million.
However, with corn prices hovering around $5.25 per bushel and anticipated increase in farmer income is expected to drive higher sales volumes and prices for fertilizers as growers seek to maximize yields.
In fact over the last months, we have seen pricing for our products significantly improve and that makes us very optimistic for the year.
Turning to page nine this chart illustrates the earnings power of our business for comparative purposes, we have normalized for both selling prices of natural gas prices to match. Those we experienced in 2019 and also added back sales volume. We estimate were of lost as a result of the COVID-19 pans.
<unk> related economic slowdown.
We think of this analysis illustrates the true underlying operating improvements we've made to the business with these adjustments adjusted EBITDA would've been approximately $22 million in the fourth quarter of 2020, approximately 200% higher than 2019 fourth quarter adjusted EBITDA of seven.
Point 2 million.
The headwinds on fertilizer pricing and weakness in industrial and mining demand impacted the quarter by almost 12 million as mentioned earlier, we have reason to believe we are well positioned to capitalize on the positive pricing momentum we are seeing in the market today.
Turning to page 10, we have outlined our adjusted gross profit margins for the past three years, which we believe represents the underlying cash margins of our business as you can see from this slide despite the significant drop in the average annual Tampa ammonia benchmark price since 2018, we have been able to.
Maintain consistent margins with higher production and sales volume low.
Our natural gas cost and reduced fixed costs, resulting in a lower fixed cost per ton of product.
With the production improvements made to date, coupled with further upgrading of margins and continued pricing recovery in our agricultural market. We would expect consolidated adjusted gross margin to increase to the low to mid 30% range.
Page 11 outlines our capital structure, we ended the quarter with approximately $16 million of cash and $58 million of total liquidity.
As stated on previous calls we are actively seeking ways to improve our capital structure and lower our overall cost of capital. We believe that operating improvements made to date combined with the with an improved pricing environment for our fertilizer products and continued recovery in our industrial and mining end markets well the Ed.
The benefit in achieving those effort. Additionally, credit markets over the last several months have been what we would call issuer friendly and trends that we will continue to monitor today. Our senior notes are callable at one of 7%. However in may of 'twenty 'twenty, one the call premium declines to one of $3 six.
Percent.
We continue to evaluate several avenues to lower of cost of capital and look forward to discussing these with you in coming months.
On slides 12, and 13, we provided an outlook of how we're thinking about the year ahead on slide 12, you can see our expected of ammonia production and sales volumes for the full year of 2021.
As a result of continued improvement in operating rate, we expect year over year improvement in ammonia production. Despite the loss of approximately 15000 tons of ammonia, resulting from a 30 day turnaround at our Cherokee facility, which is planned for the third quarter of 2021.
It is important to note that the turnaround at Cherokee will also lower downstream production and sales for U a N and other industrial products during this period.
Turnaround expenses are expected to be approximately 10 million for 2021, and Additionally, we of total planned capex across the three sites of approximately $30 million, which includes approximately $25 million in a H N S on maintenance Capex and 5 million related to margin enhancement projects.
Additionally, we continue our focus to upgrade more ammonia into higher value downstream production and in 'twenty and 'twenty. One we expect to begin the ramp up of nitric acid as a result of a new seven year off take agreement that began this first quarter.
We also expect new contract awards, coupled with further recovery from Covid related impact to result in higher volumes of industrial and mining sales volumes in 2021.
Please keep in mind the sales volume outlook is representative of our current view, which will continue to evolve as we seek to optimize our product balance across agricultural industrial and mining end markets.
Slide 13 covers a range of variable and fixed plant expenses as well as SG&A for 2021, one important thing to note is that SG&A includes approximately 4 million of legal fees, leading up to our trial against the Idose, which Mark mentioned, we expect to occur in the fall.
As we think about the first quarter and the first half of 'twenty 'twenty. One there are a couple of key trends underway.
Pricing has moved up dramatically over the past month, and we expect that pricing to be reflected in our sales in the latter part of Q1 and into Q2.
Please keep in mind that January and February orders for U a N H, Dan an ammonia were taken back in Q4, and therefore will be reflective of Q4 of pricing.
The historically cold weather across many parts of the U S. Earlier this month caused disruption to production for us as well as many others across our industry as.
As temperatures have normalized and gas curtailments were fully lifted we are at full production for ammonia at El Dorado and expect to be at full production at our Pryor facility over the next couple of days.
Natural gas trends, excluding the recent unusual spike from the recent weather event has seen pricing rebound off lows experienced back in early 2020, and we expect the cost of gas feedstocks to remain higher in 'twenty 'twenty, one versus 'twenty 'twenty.
Excluding the impact of the recent weather related event natural gas has averaged approximately 82 of dollar higher per M. N V to you thus far in Q1, 'twenty 'twenty, one as compared to the first quarter of 2020.
Putting all of these data points together.
Despite the recent weather events, we expect EBITDA in the first half of 2021 to be approximately 30% to 35% higher than the first half of 2020.
Before I turn the call back to Mark I'd like to point out that we've included an alternative view of our EBITDA sensitivity grid in our appendix on slide 22.
The grid illustrates the earnings power of the company of different selling prices for Tampa ammonia and you a N and assumes the $3 per M btu of natural gas price.
We feel this is more reflective of our current business given that the relationship between Tampa ammonia prices and land prices has proven to not be highly correlated.
And now I'll turn it back over to Mark to wrap up.
Thank you Cheryl.
The pandemic impact on demand has eased somewhat over the past two quarters, but still had an impact on our fourth quarter financial results and we expect it to continue to have an impact on our 2021 first quarter.
What has been of greater pressure on our financial results.
For a sustained period of time, however has been the impact of historically weak fertilizer pricing.
I said on the third quarter call back in October that I believe that there was reason for optimism with respect to the outlook for fertilizer prices in 2021, and this has proven to be true.
As I mentioned earlier current and future corn prices are the highest they've been since 2013 and that should result in approximately 92 million acres of corn planted this spring, which will likely prompt growers to have significant demand for fertilizers as they seek to maximize yields particularly of corn prices remain at levels indicated by the futures market.
Yeah.
Additionally, risa.
The recent data we've been seeing points to a downward trend in imports from several countries that were shipping of meaningful quantity of product to the U S over the past year, which will reduce the overall supply of product in our domestic market.
One particular dynamic that we remained focused on though is the historical relationship between your Ria and you a N.
As you can see on slide 14 over the past 10 years U N has typically traded at or above the price of urea on a nitrogen equivalent basis. However, since mid 2019 U N began selling at a discount to urea from most of the period.
Over the last month, both profit both products have seen products selling prices increased sharply with the U N to urea discount narrowing which we believe represents a reversion to the historical relationship.
Additionally, in recent quarters I've discussed the effect of natural gas prices on the nitrogen market, while they benefit our gross margins. They also encourage less efficient marginal nitrogen chemical producers around the world.
The run facilities that they might not otherwise run which leads the product oversupply and increased imports into the U S. While pressuring product selling prices.
However, with natural gas prices higher in the U S and around the world as you can see on slide 15, we have seen marginal producers reduced production, including Western European and Asian producers, who tend to sit at the high end of the cost curve and that has helped improve product selling prices.
We're very excited about the progress we've made over the course of 2020, which positions us to improve our financial performance in 2021.
The first and foremost is the progress we've made in our operating performance our team operated our plants well throughout the past year and in fact company wide. We had record production volumes for both ammonia and you in for the year as reflected on slide 16.
While we've still got room for improvement.
We were pleased with the increased production volume we delivered in 2020, we expect to continue with strong production volume over the course of 2021.
Along with further improvement of the performance of our manufacturing operations. We have numerous other initiatives that we are focused on that we expect to help us continue to improve our financial performance several of which are summarized on slide 17.
Finally, as mentioned on slide 18, consistent with the global focus on reducing carbon emissions. We are currently working on developing the strategy to enter the clean energy market through the production of Green ammonia.
We view this as a growth platform for our business and believe the current ammonia producers are best positioned to be leaders in this market as it develops due to our ability to leverage our existing knowledge in the ammonium in ammonia manufacturing handling storage and logistics.
2020 will go down as one of the most challenging years in recent history, but thanks to the disciplined focus and commitment of our team we thrived in many ways as our strong full year production and sales records clearly show.
We're very optimistic about 2021 as demand and pricing trends for the global nitrogen markets are the most positive we've seen since 2000 and 2014 and believe that will translate into improved financial results.
That concludes our prepared remarks, and we would now be happy to take your questions. Thank you.
At this time, we'll be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone Keypad, Inc.
Confirmation tone will indicate your line is in the question queue. You May press star two if you'd like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up of your handset before pressing the star keys, one moment, please while we poll for questions.
Our first question comes in the line of Travis Edwards with Goldman Sachs. Please proceed with your question.
Hey, good morning, Thanks for the color and yeah I appreciate the detail. This morning, I just first of all of us on.
Some of the detail you provide around the the disruptions.
Are there last week.
Just on prior in EDC and <unk> I just wanted to confirm any details regarding the impact to EBITDA and then on a related note.
Were you able to get ahead, maybe on any maintenance work there that normally would have been saved for a for a later date.
Good morning Travis.
So yeah, I would say as we've said in both the press releases that we put out related.
The related to the unplanned downtime from the weather event.
It will have a material impact.
We werent.
Forward purchased on gas, we weren't or unhedged on gas, we didn't have to worry about.
Spike in gas prices.
And ultimately we got curtailed on guests at both locations. So.
Coupling that downtime with we were able to sell back some guests that we had forward purchased.
I think the impact as I said will be will be marginal.
Got it so the scaling back of the gas should more or less offset whatever lost you, but the other was from some disruption.
Yes, I don't know if its going to completely offset that but again I think the impact for the first six months will be minimal.
Got it that's helpful. And then maybe thinking about later outages, even this year that you've got planned.
No no on the pass maybe.
With the former team there has been the some tendency to maybe adjust those outages, where there's the timing of the length of those outages because of the strong AG market conditions. So I was just wondering as we see pricing improving early in the year and as you think about the three Q Cherokee outage.
Should we expect I guess is there any variability on the time you got the length of that is there a scenario where you would adjust.
Yes sort of the.
Timing of that outage if market conditions really are.
They are of continued improve or any variability on that front.
Well I mean, if we go back to I guess last quarters earnings call. We indicated that we'd have two outages. This year, one at Cherokee and Pryor, we've actually pushed prior from this year to next year. So basically all of our facilities now on three year cycles.
I think that we would I don't believe that we would push of Cherokee turnarounds. That's scheduled for this year. It is the third year for them and I think it's really important that we make sure that we maintain the facilities. So that they can run at optimal rates. So I really don't see the as we sit here today.
Okay. That's good to know the type of color on maybe one more from me you know we tend to discuss each quarter, but just on some of your comments around the refinancing.
Hey, guys I think you provided helpful color in the release, but just as we think about the go forward now should our expectation be that you know assuming conditions hold you aren't able to hit that sort of 109, EBITDA threshold that you've talked about on the past and so that this could actually be a 2021 of event and all the goodness. So you know again, we've talked about a little bit on the past.
But any scenario where the.
If you do come to market that gets upstart upsized in order to take out a decent chunk of those preferred shares.
Yeah.
Well yeah.
Yeah, I think the conditions of pretty good right now.
As Sheryl mentioned for refinancing so.
Yeah on May the call premium drops down to a little over one of suite. So it becomes much more advantageous in much more economical for us to refi so.
We clearly will.
We'll consider that and look at it I think that.
We could probably improve on weight in terms and I think that's important as far as upsizing it.
You know I think.
We will have to really take a look at the one of the things that.
You know we are focused on is reducing our leverage.
We're not increasing the leverage even though the preferred is.
As the speed at stated a number of times.
You know as expensive and we'd like to take that out I don't want to leave ourselves in a position where were over Levered again. So I think we all working on a number of other.
The ways that we might.
Work with our preferred holder.
To see if.
We can either repay some of the indoor.
You know just the reduce it or maybe even consider.
And of discussing terms so.
I guess long winded answer of saying I think we consider maybe increasing the size slightly but I don't want to get ourselves in an over levered position.
Especially as we're really.
Markets of turning around and we're ramping up the financial performance.
How should we really appreciate the time of this morning. Thank you I'll turn it over.
Thanks, so much.
Yes.
Our next question comes from Steve, Arizona with Sidoti. Please proceed with your question.
Well in terms of I know the nitric acid contract was just kicking off the wanted to get your assessment of the early weeks and how that assessment would affect pursuing more of those cost plus contracts on whether the rise in fertilizer prices after a while.
I know you like to find the right balance between spot and the contracts.
The general what's happened over the last few weeks might affect on.
On the showing of the future cost plus contracts.
Yeah. So.
The contract as Sheryl mentioned has kicked off but.
That particular customer was down in the Gulf region. It's also had some disruption with their plants.
So I'd say, it's in the first few weeks, it's been touch on go a little bit we fully anticipate of ramping back.
Our sales to the customer when their plant is back online and I think of.
The only anticipating no more than a couple of weeks hopefully sooner than that.
As far as you.
The industrial and mining vs.
The agricultural.
Sales.
Look we've got a collection of assets right, we've got a free integrated.
The facilities as.
So theres talk of.
Competitors talk about this we talked about the same thing you've got flexibility.
Within the those manufacturing assets and so at the end of the day I think while we like the industrial and mining business.
We also are looking to.
To maximize our.
Our production to make as much money as we can make so I think we continue to look at that and where we can flex it based on market pricing will do that but we do like the stability of.
And the protection of the downside in our industrial on the industrial and mining business gives us.
And then you commented on the the improvement in UAE on pricing.
The slow.
Covered from that discount are you confident now that that can return to historic levels for a while there it looked like almost of it was becoming a more.
Permanent free pricing, what's your take on your way out right now.
Yeah, I don't know that I would say all of them I'm confident.
I would say that that the discount is has narrowed some of them I don't know that we're going to get back to the full historical relationship where of trades at a premium of lot of that has to do with the.
The amount of domestic production that we have in UAE.
Right now in that that market based on supply demand dynamics is fairly balanced.
But I do think.
We can expect that the.
The U N will not trade as the at it as much of it at a discount as it has you know over the last year and a half or so.
Okay, and then just one last quick one on the guidance on the.
Assuming that given the pricing improvement and the fact that Q2 is generally higher volume I'm, assuming there's a significant ramp to that guidance.
What would you match it up Q1 the Q2.
Essentially would you expect more of a percentage of improvement Q2 versus Q2 compared to Q1 versus Q1.
Yeah. So.
Steve I think that's that's correct I mean as.
As we mentioned in our remarks, 30% to 35% improvement in EBITDA in the first half of the year.
With respect to the pricing.
I did point out that January and February orders were taken back in Q4, So yes, I think you'll see the majority of the upside and in Q2.
Okay, great. Thanks, so much thanks for taking my questions folks.
Thank you.
Our next question comes from J P. Gagan <unk> with global value Investment Corporation. Please proceed with your question.
Hey, good morning, I appreciate your time.
Your 2021 guidance for an nitric acid and other of 410, it's about 105000 tons higher than your 2020 actual production. It shouldn't that's attributable to your nitric acid and all of that contracts, but can you remind us of the economics of those contracts and then along the same line in your prepared comments you mentioned.
Dissipating New contract awards in 2021 on industrial and mining products can you elaborate on which products.
You might expect new contracts in or maybe where you have additional capacity.
Yeah.
Yeah, Good morning J P.
So are.
You're right we are seeing some pretty significant.
Growth in non AG products.
It is a lot of that has to do with of the new contract award that we got.
But we have grown some other.
The customer basis, as well and brought on some other new customers primarily of nitric acid. So I think where we have excess capacity.
Is the and nitric acid and an solution.
And.
We will look to continue.
Continue to grow that business.
But you know as I said.
One of the earlier questions I mean I think.
At this point you know I think we've done a really good job in.
Primarily selling out a lot of our production capacity. So now it's a question of where do we optimize on how can we optimize based on market pricing now obviously, if we take a.
Contracts on the.
The non fertilizer side of our business.
We've got stipulated the terms and conditions that were.
<unk> four so we have a little less flexibility there, but I think we feel like we've got enough flexibility that we could take advantage of changing price is pretty quickly.
Well your growth in the industrial mining volumes materially affect your adjusted gross margins for those markets or what we've.
We've seen historically.
No I don't believe so.
Okay.
Turning to your 2021 guidance on cost of your fixed cost guidance has come down a little bit versus 2020, I'm curious if you see additional room for cost savings on either fixed or variable costs.
Yeah. Good morning, J P. I think I'd say, mark and I of both talked about you know $5 million of savings in fixed costs that we had been working on over the course of 2020.
And into 'twenty 'twenty, one and so I think you're seeing that come out and in the guidance that we provided.
We're continuing to look at a few other areas, where we think we may be able to optimize on cost we are facing some headwinds on insurance costs as I'm sure. Many in our industry are feeling so that's offsetting some of our additional improvements that we're looking for but I would say, yes. There are some some further opportunity.
These that we're looking at.
Okay.
Your response to Travis just the question about your capital structure was informative I'm curious if I might.
Ask one more question around that and that would be issued.
Think about a recapitalization.
Good day.
With the proceeds from that be entirely devoted to retiring debt and or preferred or would you see.
Opportunities to splits.
Splits borrow additional dollars to funds from growth initiatives, recognizing the Murphy said.
The goal is to reduce the leverage.
Well I think capital allocation is clearly an important.
Aspect of the Keno.
How we operate the company write them on for a number of years.
I think we've operated the significant leverage.
It would be nice to the start to bring that down so.
If we had.
The projects that had really great returns.
I think we look at that all the time of <unk>.
Generally speaking, we've been able to fund those projects.
Either from you.
The additional debt that we took on a couple of years ago to fund a few of those projects, but otherwise its really within cash flow because theyre not tremendous dollar projects.
So I think first and foremost, though we'd probably like to look to to deleverage I think that's extremely important for us.
But you know keeping an eye on.
Certainly capital projects that could provide the appropriate returns.
We absolutely would consider those.
Okay, and finally as you think about green ammonia could you provide any sort of additional information about the nature of investment.
The dollar amounts of investment of the timeframe over which we might expect that to take shape.
Yeah.
No I don't think I can give you a dollar of mountain yet I think.
For us one of the priorities that we have as a team.
As we fully intend to participate.
And really take advantage of what we think will be an extremely.
Lucrative and developing market in green ammonia.
So by the end of this year the latest I would expect that we would be able to talk about the strategy.
And how we think we will enter that market.
And maybe what locations and hopefully.
Put some dollars to that but I don't think we're in a position to do that yet.
Okay understandable that's.
That's all from me. Thank you for your time.
Thanks, so much.
Our next question comes from the line of Brian <unk> with Baird. Please proceed with your question.
Good morning, maybe just starting with the insurance of course I did see you noted the $1 2 million headwind on slide eight should we expect that headwind for throughout the year in.
In 2021.
On a quarterly basis.
Yeah, I mean, I think what I would say is we you know we renewed our insurance in November of 2020 and so.
Theres approximately out of 3 million dollar increase year over year for insurance costs.
But we have been able to offset some of that insurance cost in 'twenty and 'twenty one with the the savings that that our we've talked about the 5 million and so year over year I'd say, you know of fixed costs should be lower as compared to last year, which we've kind of identified in our outlook on our in our guidance section.
Mhm.
And then how should we think about expenses for the light OS litigation as you come up with that trial, what one way should we think about I know you take that out of our adjusted EBITDA, but I'm just trying to reconcile the actual cash.
Okay.
Yeah. So the trial as Mark mentioned of is planned for the fall and so that we've got 4 million of spend that we expect you know over the next.
Call It six six months.
No I don't I mean, we haven't spent anything really.
This first.
Quarter Youll see some spend in the latter part of the second quarter with most of that spend being in the third quarter.
Got it understood and then just remind me with prior of getting pushed off to 2022, you're going to have the El Dorado and Pryor in turnarounds next year is that correct.
Oh I think that's on the.
On the.
On the drawing board right now I think will sit and discuss whether it makes sense or can we possibly move El Dorado to the next year. So that we actually would be on the schedule.
One of one of every year as opposed to doubling up on a year.
Okay, and then just finally I'm going through the map of the potential refinance situation day, we'd think about the coal price and fees.
Probably at the bar at least 416, maybe $465 million.
What kind of coupon of you guys looking for in order to make this attractive because even though the 8% coupon given the higher principal of out it would only save you about $5 million of year.
Well you know I, certainly don't do that for a living anymore.
No.
We will have the we've had lots of conversations with the with lots of investment banks about.
And of potential terms that we could issue at and were certainly pretty keen on looking at the you know the markets and what's getting priced.
So.
You know the it could be as much as 200 to 250 basis point savings.
So.
And I think we'll have to see as we get closer.
There's not an exact date, we don't have any deadline to get something done. So I think well you know it will be put ourselves in a position to.
Launch of refi.
The.
Opportune time come up and.
And it makes sense for us.
Understood. Thanks for the time.
Sure.
We've reached the end of the question and answer session I would now like to turn the call back over to Mark Behrman for closing comments.
Well I want to thank everyone for their interest in LSP industries. We appreciate all the questions and if anyone has any further questions feel free to reach out to us. Thank you so much.
This concludes today's conference you may disconnect your lines at this time and we thank you for your participation.