Q3 2022 LSB Industries Inc Earnings Call
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Good day, ladies and gentlemen, and welcome to the LSP Industries third quarter 2022 earnings Conference call.
All lines have been placed in a listen only mode and the floor will be opened for questions and comments. Following the presentation. If you should require assistance throughout the conference. Please press star zero on your telephone keypad to reach a live operator.
At this time it is my pleasure to turn the floor over to your host Fred von <unk>, Sir the floor is yours.
Everyone. Joining me today 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 results. Please see the press release in the investors section of our website LSP industries Dot com for further information regarding forward looking statements and reconciliations of non-GAAP results to GAAP results.
At this time I'd like to go ahead and turn the call over to Mark.
Thank you Fred.
We're happy to have the opportunity to speak with you today about our 2022 third quarter results and our outlook for the final quarter of the year.
As summarized on page three of our presentation, we generated strong year over year growth aided by continued strong pricing environment and solid execution.
Italy, we deliver these favorable results despite having performed turnarounds on two of our facilities versus only one turnaround in the third quarter of last year.
The El Dorado turnaround began in mid July and was completed in mid August .
The prior turnaround began just after labor day and was completed in mid October .
Successfully executing two turnarounds back to back was a substantial undertaking and we completed them both safely.
We expect improved plant performance from these activities.
To thank our teams at both facilities for their tremendous efforts.
Fortunately, we have no turnaround scheduled for 2023, which would be beneficial to our 2023 production and sales volumes as compared to 2022, and 2021 and allow us to focus on the continued progression of our manufacturing capabilities and growth initiatives.
On page four of our presentation, we provide an overview of our end markets.
Corn prices remain above multiyear averages driven by a variety of global factors, including drought conditions in the U S and South America and continued strong global demand domestic.
<unk> worldwide stock to use ratios for corn remain at multi year lows.
Based on this supply construct we believe that corn prices will remain elevated for the remainder of 2022 and through 2023 and that farm profitability will remain attractive pointing to a meaningful increase in planted acres. This spring.
As we move into November assuming the weather permits we expect U S. Farmers will make a heavy fall ammonia application in order to replenish nutrients in the soil to promote higher yields for the 2023 crop.
Longer term, we believe that it will take two to three years of good corn growing seasons to bring back the stock to use ratios back in line with historical averages.
Demand for our industrial products remains largely stable industrial.
Product pricing trends continue to be favorable reflecting the impact of strong demand and continued strength in pricing for nitrogen fertilizers.
The mining market has strengthened considerably over the past year as a surge in global coal mining activity has led to an increase in demand and pricing for our mining products soon.
Similar to the industrial markets. The money markets are currently competing with fertilizer demand lifting prices of these products as well.
The demand and pricing trends, we're seeing across our business add to our confidence in strong profitability and cash flow for the fourth quarter of 2022, and we remain optimistic about 2023.
Now I'll turn over the call to Cheryl who will discuss our Q3 results and our outlook Cheryl.
Okay.
Thanks, Mark and good morning, our strong performance relative to 2021 reflects the increased pricing across our businesses, which along with solid execution in both our manufacturing and commercial operations enabled us to overcome the impact of the two planned turnarounds that were performed.
During the quarter.
Our third quarter adjusted EBITDA of 50 million is a record performance for us in the third quarter, which is our seasonally weakest period, even in the absence of turnarounds.
Additionally, we generated adjusted EPS at <unk> 27 cents in the quarter.
Turning to page five you'll see a summary of our key balance sheet and cash flow metrics. Our continued profitability enabled us to maintain a strong liquidity position at the end of the quarter, we had approximately $450 million of total liquidity, including approximately $385 million in cash and short.
Term investments.
This is after we repurchased $100 million of our stock at a volume weighted average price of approximately $13 per share.
Regarding the repurchase of our stock during the quarter, our largest shareholder completed a secondary offering of a portion of their stake in our company as part of the offering we took the opportunity to repurchase five 5 million of our shares under our stock repurchase program.
He deemed divest an efficient way to repurchase shares while not impacting the liquidity of our stock.
Lastly, as we announced earlier this week our board increased our stock repurchase program by an additional $75 million, bringing the total repurchase authorization to $175 million.
During the quarter, we generated cash flow from operations of $38 million and had capital expenditures of $16 million translating into $22 million of free cash flow.
We are pleased with our ability to strengthen our liquidity even in a seasonally slow quarter and were realized meaningful production in sales due to turnarounds at two facilities.
We ended the third quarter with a net debt to trailing 12 month EBITDA leverage ratio of 0.8 times as I have mentioned before our target leverage ratio is less than two and a half times, what we believe to be our EBITDA generation during a mid cycle or normalized pricing environment.
Meaning Tampa ammonia prices in the 500 to $600 per ton range UA and prices in the $2 50 to $300 range and natural gas costs of approximately $5 per M N Btu.
Page six bridges, our third quarter, adjusted EBITDA of $50 million to adjusted EBITDA for the third quarter of 2021 of $38 million. The positive selling price impact is shown net of increased variable costs, primarily raw material costs that increased by approximately 36 million.
Versus the third quarter of 2021.
Our natural gas costs rose substantially over the course of 2021 and through the third quarter of 2022, but have eased somewhat in the fourth quarter.
As the Green bar indicates however, selling prices have exceeded the rising price of natural gas and we expect to continue to benefit from this dynamic in the fourth quarter of the year.
Volume was lower in the third quarter as a result of planned turnaround activity at both our El Dorado and Pryor facilities.
Which cost us approximately 53000 tons of ammonia production.
Lastly, other costs were higher in the period by approximately 5 million primarily related to higher costs for supplies materials and contractors, the additional technical talent and costs for several commercial and corporate initiatives.
Page seven illustrates the strong bottom line improvement we have delivered over the past. Several years. This is the result of favorable pricing trends operational improvements new customer contracts and investments we've made to optimize our product distribution and mix, we expect to further benefit.
From these factors in the fourth quarter of 2022 and into 2023.
Looking at the fourth quarter, the NOLA UAS benchmark prices currently over $550 a ton.
Additionally, the Tampa ammonia benchmark price settled at 1100 $50 per metric ton in November versus $825, a metric ton last November .
Also.
We believe that natural gas prices in Europe , which have moderated substantially in recent weeks will trend back to previous levels and that will continue to impact the ability of urine European producers to operate economically translating into a continued supply demand imbalance for nitrogen.
Products and supporting strong pricing.
While U S natural gas costs have moderated over the last several weeks following the natural gas trends in Europe , combined with an ex pension of warmer weather across the U S. We do expect some upward pressure on gas cost as we head into winter months. We currently have approximately 70% of our.
<unk> needs locked in for the fourth quarter at approximately $7 per M M Btu, but well get the advantage of lower spot prices on the remaining 30% if prices remain below that level.
Sales volumes in the fourth quarter will be impacted by what remained of the planned turnaround activity at our Pryor facility and the somewhat lower inventory coming into the quarter from the impact of the turnarounds in Q3 <unk>.
Despite the impact of the lost production at Pryor in the early part of Q4, and our lower inventories headed into the quarter. As a result of the planned turnarounds. We expect Q4 sales volumes of major products to be consistent with the fourth quarter of 2021.
Assuming nitrogen pricing remains at current levels and despite lower volumes from our previously discussed turnarounds.
We expect the fourth quarter 2022, adjusted EBITDA to be in the range of $110 million to $120 million above the fourth quarter of 2021 results and our previous outlook that I communicated on our second quarter earnings call back in August .
This would put our full year adjusted EBITDA at approximately $420 million to $430 million with the possibility of both the fourth quarter and full year, increasing if pricing firms up in the coming weeks.
I look forward to providing further updates on our fourth quarter call.
And now I'll turn it back over to Mark.
Thank you Cheryl as Cheryl indicated natural gas prices continue to play a major role in elevated selling prices for our products.
Page eight illustrates how the spread between U S and European natural gas prices widened over the course of 2021 and continue to be volatile through the first 10 months of 2022.
Despite an European natural gas costs that occurred in August resulted in many European nitrogen facilities being taken offline.
Prices for European natural gas have recently trended lower due to seasonally warmer temperatures throughout Europe , and a related buildup of gas inventory following substantial importing of LNG into the region.
That said gas prices in Europe are still at levels that translate into an ammonia production costs of over $1000 per ton.
We believe that this that as we head into the colder winter months, we will see European natural gas prices move higher.
However, even if that does not occur European ammonia production costs will likely continue to be significantly above the cost to produce domestically representing our continued substantial advantage to use nitrogen producers.
As I look past Q4 into 2023, we intend to capitalize on what we anticipate will be a strong 2023 pricing environment to generate significant free cash flow, allowing us to pursue opportunities to expand our business and return capital to our shareholders.
On page nine we show a summary of our key growth priorities employees.
Employee safety is our primary focus every single day, followed by being good stewards of the environment and the reliability of our facilities.
We continue to make improvements on all these fronts and have significant opportunities for further progress.
As Sheryl mentioned, we recently performed extensive turnarounds at our El Dorado and Pryor facilities.
We expect the work we completed at both locations to advance both our safety environmental and reliability initiatives and move us closer to our goal of being a best in class chemical manufacturing company.
Additionally, we believe that over the next two years the capital investments, we are making combined with the manufacturing initiatives. We are pursuing should increase the operating rates of our facilities translating into meaningful incremental contribution to our profitability.
On top of that we believe we can increase the production capacity of our plants through various debottlenecking initiatives. We are currently evaluating multiple potential projects that could significantly increase our production and sales volumes and our profitability while meeting our investment return profile.
The increase in nitrogen production capacity would also assist with the USDA stated goal of increasing domestic fertilizer production to ensure that farmers have an appropriate supply of fertilizer to meet their increasing demands.
To that end, we intend to pursue funding on the USDA as fertilizer production expansion program, we look forward to providing an update on those plans in early 2023.
With respect to our clean energy initiatives, we continue to advance our blue and Green ammonia strategy.
Two projects. We currently have underway represent compelling opportunities for us to emerge as a leader in Decarbonizing our industry.
Not only do our blue and green ammonia projects have the potential to result in substantial reduction to our carbon footprint, but additionally, we believe the economics of both could be very attractive.
Page 10 is the overview of our Blue ammonia project at our El Dorado site that we've shared with you before.
Importantly, with the passage of the inflation reduction at the 45 to <unk> credit was raised to $85 per ton of Sidoti captured and sequestered that have significantly improved the economics of that project.
As I indicated back in August we completed phase one of the project, which consisted of deeper geological studies will improve formation modeling and assessing conditions of depleted wells nearby and the findings were as we expected our facility sits on an ideal formation for Cotwo sequestration.
Since completing phase one we have been making good progress with geological modeling and simulation work in preparation for a class six permit application and the engineering design of the capture facility we.
We anticipate filing the classics permit application with the EPA in late Q1 or early Q2 of 2023.
Page 11 summarizes our green ammonia project, we believe that this project will qualify for the full $3 per kilogram of federal incentives for hydrogen production rolled out as part of the inflation reduction Act.
This would largely cover the cost of operating the electric losses at our Pryor facility ultimately, leaving us with approximately 30000 tons of zero carbon ammonia to sell to our customers.
We continue to work on refining our feasibility study and on options for this project and we would intend to make a final decision regarding how to best proceed in the first half of 2023.
As I've mentioned earlier.
We have opportunities to improve the reliability of our current manufacturing facilities that will further improve our operating rates.
<unk> additional product for sale and lower our overall product costs.
We are exploring opportunities to invest capital into debottlenecking or facilities that would provide us with additional product to sell.
We are advancing our clean energy initiatives that will assist with our decarbonization efforts, while providing us with what we believe will be a high margin products to sell and lastly, we are allocating capital to where we believe we have the best long term value creation opportunities for our shareholders.
As you can tell I'm extremely excited about the progress we are making in our business and about our future prospects and I look forward to discussing our continued progress with all of you on our Q4 earnings call.
That concludes our prepared remarks, and we will now be happy to take any questions.
Okay.
Thank you.
To ask a question on the phone please press star one.
If your question has been answered you could remove yourself from the queue by pressing one again, ladies and gentlemen, Thats star one to ask a question.
First question comes from Josh <unk> from UBS go ahead, Josh.
Yes, hi, thanks for taking my question.
Cheryl Lee to talk about the fourth quarter and your outlook there on the pricing side.
What are you assuming in terms of inland pricing just given there's been a little bit of a disconnect American and U S. Exports of increase do you think that that normalizes and that helps your pricing in the fourth quarter or is that more of a <unk>.
Next year type phenomenon in your view.
Yes.
Good morning, Josh, Yes, I think we would expect to still see.
The pricing be in line with where it is today with that discount to Tampa, we might see that normalize over the course of 2023, but for 2000 for the fourth quarter I would assume it is where it is today.
Okay. Thanks for that and just on the buyback increase.
We've been pretty clear about not wanting to necessarily reduce your float. So how do you actually execute on that and I guess, what's in your control there and if you decide you don't want to go to open market buyback. So you don't get any additional opportunity for secondary repurchases would you consider a special dividend or some other form of cash.
Return it keeps your flow intact.
Hey, Josh good morning.
No.
And I think.
When we look at our stock.
We certainly have the opportunity to go out in the marketplace and purchase stock.
But we also have a large shareholder.
That.
It was very supportive of us both as being an investor.
<unk> invested in our company for actually six years almost seven years.
And so we always have the opportunity to approach them and see if they would be willing to sell stock and negotiate a price absent that I.
I think it's probably a little early for us to do a special dividend or any kind of dividend I think we've got some projects that we're looking at that could expand production capacity and we think those have really nice returns on.
The capital employed and so I.
I think we need to get through that to determine what projects those are and what capital that would require before we implement a dividend, which I believe once you implement a dividend or even do a special dividend.
This the expectation that that might be ongoing.
That makes sense. Thank you.
And our next question comes from Vincent Anderson from Stifel Go ahead Vincent.
Yes, thanks, and good morning, everyone.
Good morning, I understood Alright.
Morning.
I understand the demand destruction side on European nitric acid for sure, but I'm just wondering as you look out through this winter and into.
Next spring.
Is there a potential for industrial nitrogen products to actually tightened under gas rationing, because ammonia gets prioritized for agricultural use and if so how.
If at all that kind of flow through your book of business.
Yes, so it's a great question I mean.
As I mentioned in the prepared remarks, when we were talking about industrial markets and money markets. All of these markets are interrelated because they were all all using and competing for nitrogen products.
So.
If ammonia were to continue to move up.
In that scenario, we would expect to see other nitrogen prices move up as well.
Obviously.
It flows through to us by higher pricing for our non fertilizer products.
Okay that makes sense.
And then I know, it's a very different operating and commercial team even.
Compared to last recessions, but can you maybe quantify your ability to flex between industrial and agriculture end markets. If we did start seeing domestic softening.
Yes, so like our many of our competitors. These facilities generally have the ability to flex between markets. So you're trying to optimize your production.
So we would we do this currently I don't know that it would change much but.
Our commercial team Hasnt outlook on.
The different markets that we sell into.
We think we understand the pricing environment to the extent that you can in those markets.
And we understand the customer demand so.
I think they'll job as well as our job is to really.
Understand our markets and optimize where we can so if we saw a recession and we saw industrial demand drop we would try and pivot towards other.
Creasing fertilizer production, where we could or the mining markets, where right now they are experiencing high demand for coal and that means there is high demand for our low density ammonium nitrate products.
And ammonium nitrate solution as well.
Okay got you.
And then just last one really quick.
Can you talk about the USDA initiative, and maybe how clear the qualifications are for getting funding and what form that funding would take.
Sure Hi, Vincent yes, so we we intend to.
Apply for the grant under that program. The deadline is December 29.
The guidance, we're absorbing kind of as it comes out it seems to be as long as you're not one of the top four fertilizer producers in the United States you can.
Apply for the funding.
So we intend to do that so.
Yes.
There is a pretty detailed grant process.
What's.
What's required.
So we will have to and we are currently working on writing a grant proposal for a couple of the Debottlenecking opportunities that we're reviewing now.
So think of it as.
A kind of a detailed business plan with our investment case.
Thesis to it and Thats, what we will have to submit.
Okay, and just excuse my ignorance, but I don't normally see industries like this get.
Funding.
Ken can you clarify is the grants and this scenario cash or is it would it come in the form of some kind of like a tax credit and I ask only just because I think you already have quite a few years of Nols.
And so I'm just trying to figure out exactly what that would look like.
Yes, so it's in the form of cash.
As you might remember they announced.
$500 million of funding.
With.
The funding being about 25% no more than 25% of the project.
The project cost and a cap of $100 million.
Per project.
Perfect I really appreciate that.
Great. Thank you.
Okay.
And our next question comes from Charles <unk> from Piper Sandler go ahead Charles.
Good morning, guys couple of quick questions one.
So far we are sitting here early November .
And you talked about based on the rate whether that you would expect a fairly heavy ammonia sell into the AG markets. How much have you seen so far or what kind of interest is already being generated obviously like you said it'll it'll depend on whether its how much actually gets applied but are you seeing a strong response to sort of fall.
<unk> sales or near term sales on that on an ammonia right now.
Yes, I think in certain parts of the country, where we've seen the harvests.
Probably a couple of weeks before what I would call normal.
So I think we will have a big window, but there are certain parts of the country that are still.
In harvest.
And we've also had pretty dry conditions I know, we've had some wet weather recently, but prior to that it's been pretty dry so I would say that the the pull for fall ammonia has been slow.
And I think.
Yes, I think similar to what we saw over the summer where we saw ultimately the farmer.
Maybe holding off on some purchases thinking that pricing would go down I think we're seeing some of that as well.
But I think.
Given everything that we're hearing we do expect.
Ultimately, our really strong fall ammonia application.
Based on the number of acres that we think that farmers will plant in the spring.
Got it.
Another question.
Obviously issues around the Mississippi River are causing at least some companies. Some problems is that an issue for you or is that for lack of a benefit to you guys. Because you don't need deal with the river and all your deliveries would be pretty normal under the current circumstances.
Yeah, I'll, probably stay away from saying, it's a benefit it's certainly not hurting us right because we don't use the Mississippi or really any river systems too much to move our product. The thing that makes me probably a little more nervous is the railroad situation.
And it's not just all industry Thats every industry across the country.
Right I mean, I don't want to say benefit, meaning you get business more of does it does it seem to be lifting pricing and any of the places that are being for lack of there is shortage product because they can't get up forever.
I don't think we're seeing that yet I think it's a little early to see what it is doing is it's causing some pressure on urea since you've got some urea.
Hey go urea production and you've got imports coming in and the goals and so if they can't get it up river.
But they want to not sit on the product you could see some lower pricing.
Got it.
Got it okay alright.
Alright, Thats it for me for today. Thanks.
Thanks Ross.
Thank you and our next question comes from Adam Samuelson from Goldman Sachs Go ahead Adam.
Yes, thanks, good morning, everyone.
Morning, guys good morning.
Hi, So maybe following up on the question on the river in the fall.
How would you characterize kind of customer distributor inventories and behavior right now just the river issue.
Are you seeing new inquiries from from distributors, because who are worried about getting product to their normal course of who can't get it off the river or how is that impacting some of those inland markets.
<unk> is actually creating new opportunities for incremental business or is just creating a bigger kind of risk off attitude on the whole chain.
Because of the price volatility uncertainty it creates.
Yes, I think so I mean, we're certainly seeing new inquiries.
From folks that are inland.
Might have.
Gotten products up from the Gulf or some other location using the river system.
So I think as we if this continues.
Over the next several weeks months couple of months.
The river system is eliminating how much products can come up river.
I would expect to see.
More demand.
From customers that maybe we hadn't had before.
Got it.
That's helpful and then as we think about.
Your some of the scoping.
Some of the capital projects that Youre looking at on the on the on the Debottleneck side.
Any way to.
Maybe put some.
Ring fence, some some dimensions on kind of.
But the magnitude that.
The scale of the projects that are being contemplated and how if at all USDA funding would or would not impact kind of how you would scope and size of those investments.
Yes, I mean, it's a little early for us to talk about economics some of.
A little skittish on doing that what I can tell you is when we think about debottlenecking projects just in general at.
At El Dorado were looking at.
Expansion of production capacity at our ammonia plant down there and our largest nitric acid plant.
We're also looking at <unk>.
Expanding our.
Urea production at both.
Cherokee and Pryor to produce more uhm.
So those are probably the four primary projects.
And as far as USDA funding I think we will.
We will look at it without funding.
And if the economics makes sense there then.
We would present them to the board and hopefully give them green agreement to move forward.
The if we're sort of on the edge on a project.
And the only way that we'll be able to move forward on the project is with USDA funding.
I think we'll have to think long and hard about that and look at the USDA funding is not whether we move forward or not it's just creating.
Opportunities for us to even get better returns there might be a project that sort of.
On the edge of where our investment returns.
The profile is and I guess that could push us forward.
Okay, and if I could.
Just ask a clarifying question on apparel I know you gave the expected EBITDA range for the fourth quarter.
And I know, there's noise quarter to quarter with the turnarounds and where inventories were but it helps us maybe.
Some banding on on the sales volumes.
That drive that EBITDA.
In the fourth quarter.
Yeah.
So I would look to our fourth quarter of last year, Adam and Thats going to give you a pretty good overview of where we would expect to see volume this year. So basically.
That to last year, even despite kind of the two turnarounds coming in charter on inventory and then the prior turnaround completing mid October .
Got it Super helpful I'll pass it on thanks.
Thank you.
And our next question comes from Rob Maguire from Granite Research Research go ahead.
Good morning, what portion of 2022 revenue will be at summer fill pricing.
Say that again, Rob I'm sorry.
Sure.
What portion of your <unk> of your fourth quarter 2022 revenue will be at summer fill pricing.
None.
Great and can you discuss the relative strength that we're seeing in UAS relative to urea, what's driving it and what you do you anticipate you Andrew remains strong in the fourth quarter.
Yes, so as I mentioned earlier that the urea market is kind of choppy right now.
Every day it seems to.
To have swings up or down this morning actually in the Gulf Gulf pricing was up.
The last couple of days 30 to $35 a ton.
So a lot of pressure on urea.
Which quite frankly in a lot of these products trade.
Nitrogen content basis, so putting a little bit of pressure I think in some of the other nitrogen products, but we're really not seeing.
Uhm pricing.
Move down yet.
And I don't think that'll happen is really urea storage strengthens.
I think India is talking about doing another large tender.
So I think that'll help strengthen the market a little bit and maybe thats why were seeing some strength in <unk> and.
And pricing around the world, but also in the Gulf for urea.
So uhm.
We think.
Will.
Be in high demand, we think pricing.
It was really at levels that make a lot of sense for a farmer today, given where corn and wheat and other commodity prices are so we don't anticipate any falloff in prices.
Thank you and are you seeing an uptick in U S nitrogen exports in the marketplace and if so can you talk about what products and what producers are participating.
Yes, we are definitely seeing exports for those that can.
Access.
The waterways and get to Europe .
So it's primarily <unk>.
<unk> and ammonia would be the two products that are getting exported as theyre better pricing.
It's actually getting better net backs by selling it to Europe and they are here in the United States.
Anyone who's got Gulf access would be.
Eligible to be next quarter.
Those products, we've seen a little bit.
Of.
Ann.
Very little bit of a year and Thats got exported, but again ammonia and uhm would be the two main products.
And then last question can you give us an idea of the tonnage that was lost as a result of the turnarounds in the third quarter.
Sure Rob It was about 53000 tons of ammonia per ton of ammonia production.
That's it for me thank you.
Thanks, Rob.
Thank you and our next question comes from Andrew Wong from RBC Capital go ahead Andrew.
Hey, good morning.
Just wanted to maybe ask a little bit on Blue ammonia project.
Just want to ask on the ammonia project first.
Can you just maybe update on the timing and I think it is.
The classic small per minute might be sometime in the second half of next year does that still kind of lineup with getting that project up and running by 2025.
Yes, actually I said in the prepared comments, Andrew that that timings moved up so we would expect to file the class six permit end of first quarter early second quarter.
Okay, I'm, sorry, I missed that.
And just on the contracts with with industrial customers can you remind us on some of the.
Duration and just the timing of when some of these new contracts might get renewed and.
Expectations on pricing and margin for those contracts relative to what you've seen historically.
Well generally speaking the contracts on the industrial side.
Can go on average I don't know.
Two years to as long as seven year contracts.
Somewhere in that range and we've got contracts that roll all the time right. They don't roll Theyre not all expiring at the same time.
So we really haven't released to the public when contracts roll off and new bids for those contracts have to come out.
We have seen.
Over the last year that as contracts have expired and we have renewed them.
Given the <unk>.
Demand for nitrogen products today, we've been able to really <unk>.
Increase our pricing.
Two.
To meet that demand and and not have that product go into.
Competing products so as the commercial team has done a really good job in.
Educating our clients on where the nitrogen markets are today.
Where we think they will be over the next 18 to 24 months.
So that the customers really understand.
Current market conditions.
Okay. That's great and then maybe just some questions on production.
You mentioned there are some things done during the turnaround that that should help on the operating rates can you kind of talk about what some of those things where in some of your maybe.
Preliminary expectations for next year, it sounded like you're pretty positive on the operating rates for next year.
And for this year it looks like maybe production is coming in a little bit lighter than what initially was expecting like were there any sort of unexpected kind of impacts that happened that kind of came up this year and then just maybe remind us on the cadence of turnarounds going forward I know 2023, you mentioned that there won't be any.
But there's like a certain cadence for the year is if you can just remind us that mix.
Yes, so I'd say on production for this year.
I think anytime you go three years between turnarounds.
Youre going to see from.
From coming out of turnaround to going back into that turnaround over the three year period, youre going to see operating rates.
<unk> some over that period of time.
So I would say that we certainly saw that at prior where we had a bit lower ammonia production rates coming into our turnaround.
But we're really excited about the work that we did in the prior ammonia plant.
The front end of our ammonia plant the reformer.
We did a lot of major work, there, where we actually re harp or re tubes.
The whole front end of the ammonia plant so.
We think that plus compressor work.
<unk>.
Piping work that might have caused some vibration issues that we had.
All resolved.
We have significant expectations for.
The reliability of the plant and the production of that plant.
Our urea plant at Pryor.
We.
We started the implementation of a Dcs system were distributed control systems for automation in that plant.
That will allow us to run that urea plant.
I'd say more reliable.
More consistent rates, which means we should get more consistent UA in production out of that facility. So again, a lot of work went into prior a lot of planning for that.
We're expecting significant improvement in the operating.
Rates of actually all of the plants at that facility.
El Dorado.
We did a lot of inspections that we had to do but we did some work on our compressors, particularly in the ammonia plant that we think will provide more consistency and reliability and the way we operate those plants.
Same thing in our nitric acid plants that actually have been running really well the team's done a really great job there.
In running those plants full out to meet all the demand that we have so we're excited about the work and the investments that we made we think that'll pay.
Dividends there.
I would say expectations for next year.
No.
I think I've said previously that we are in the low ninety's operating rates on our ammonia plants, we would look to increase that at least a couple of percentage points for next year moving towards our goal of 95% over the next 18 to 24 months.
And sorry could you remind us on the cadence on.
On the turnarounds.
Yes.
So as we mentioned right. We just did the El Dorado and Pryor turnaround.
We won't have any turnarounds in 'twenty three.
We will do another two year, we'll do a two year turnaround at Pryor.
So we'll have a turnaround there in 'twenty four as we.
Really push the automation of that site. So we will complete the installation.
Installation of Dcs in the urea plant.
And we will either do partial or full dcs implementation and the ammonia plant at Pryor.
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We'll also have a turnaround in 2004 at Cherokee.
And then prior.
Here, we will either be on a two or three year. After that we haven't made a decision yet.
And then Cherokee is on a three year turnaround cycles, so, 24% and 27 and.
And then in 'twenty five we'll do a turnaround at El Dorado.
And we should be on a three year turnaround cycle after that.
That's perfect. Thank you very much.
Sure.
And our next question comes from Roger Spitz from Bank of America go ahead Roger.
Hi, Thank you good morning.
Hey, Roger.
I don't know if you said this in the prepared remarks.
Do you still expect 2022 capex to be $65 million.
Yeah, I think 60% to $65 million.
Great and.
Any any initial guidance at least we should think about 2023, capex same order of magnitude or something.
Different.
Well, we're finishing.
Up our budgeting process for the year.
And I would tell you that.
Certainly it will be 60 to 65, but.
As we go through the conversations in this process you may see us increase that by $10 million to $15 million. So I would say somewhere between 60 and $80 we will land.
Perfect.
And lastly in terms of Q4 working capital.
Cash.
And for all or any.
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Thoughts you can provide on that.
So I mean, we're carrying some higher receivables of course, just given the market we're in.
Inventory cost a little higher given where gas costs are.
Sure.
But.
I guess I would say also some slightly higher payables get given we're coming out of the turnaround. So net net though Roger no really significant swings for the quarter versus.
Well, what we would expect over an average period.
Im sorry, youre, saying it could be a relatively larger swing arden.
Normal seasonality for the working capital movement. Thank you Farha, if I had it but if I had to put dollars I'd say $5 million to $10 million Roger nothing material. Okay. Okay. Great. Okay. Thanks. Thank you very much I appreciate the help.
And that appears.
To be all the questions at this time.
I'd now like to turn it back to management for any closing remarks.
Well again I appreciate all the interest in LSP industries, I think we've got a number of exciting things that we're working on and we hope to update you next quarter on them. Thank you so much.
Okay.
Thank you. This does conclude today's conference. We thank you for your participation you may disconnect. Your lines at this time and have a wonderful day.
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