Q1 2024 LSB Industries Inc Earnings Call
[music].
Hello, and welcome to the LSP industries first quarter 'twenty 'twenty four earnings conference call.
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It's now my pleasure to turn the call over to Fred Barnhart, Vice President Investor Relations. Please go ahead.
Fred Barnhart: Good morning, everyone. Joining me today are Mark Behrman, our Chief Executive Officer, and Cheryl Maguire, our Chief Financial Officer.
Fred Barnhart: Also joining us today as Damien Renwick, our chief commercial officer.
Fred Barnhart: Please note that today's call includes forward looking statements. 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.
Damien Renwick: On the call we will reference non-GAAP results. Please see the press release in the investors section of our website L. S. B industries Dot com for further information regarding forward looking statements and reconciliations of non-GAAP results to GAAP results.
Damien Renwick: As a reminder, we have a stockholder rights plan to protect certain tax attributes.
Damien Renwick: Please see the investors section of our website at L. S. B industries Dot com for further important details.
At this time I'd like to go ahead and turn the call over to Mark.
Mark T. Behrman: Thank you for it.
Mark T. Behrman: Turning to page four of our presentation first quarter results were in line with our expectations.
Mark: Pricing was down year over year, but this was offset somewhat by stronger sales volumes and lower natural gas costs.
Mark T. Behrman: We continued to generate positive free cash flow in the first quarter and used our strong cash position to repurchase our stock returning capital to our shareholders.
Mark: We also reduced our debt by repurchasing notes during the quarter further derisking our balance sheet.
Mark: On page father that presentation, you'll see a nice view of the agricultural end market.
Mark: The USDA recently reduced 2023 'twenty four global stuck estimates the key grains, including cone, providing some price support.
Mark: In addition, the a P. I recently extended the sale of 15% ethanol gasoline already 15 during the summer, which should provide further support for Colm process.
Mark: We believe that families will remain motivated to maximize corn yields through the application of nitrogen fertilizers for the balance of the spring planting season and again in the fall after the harvest.
Mark: Ammonia prices have been underpinned by robust demand over the past several months with a strong pre plant application season in the U S.
Mark: We also saw a variety of factors constraining global supply.
Mark: This includes a number of cold weather related events in the U S impacting domestic production.
Mark: The disruption of shipping through the Suez Canal.
Mark: The delayed startup of new ammonia production capacity that was expected to come online early this year.
Mark: And natural gas supply issues in Trinidad.
Mark: We also saw improved U I N pricing developed through Q1, as we continued to successfully execute our direct to customer marketing strategy.
Mark: This allowed us to target pockets of demand where supply was limited as the U I N input pies continued below previous years.
Mark: Urea prices were volatile in the quarter due to expectations of a resumption of Chinese exports. A dynamic that is has historically had a negative impact on global urea prices.
Mark: However, the Chinese government recently implemented further restrictions on urea exports delaying the infusion of additional supply into the global market.
Speaker Change: Well, we don't sell urea, we do pay close attention to its pricing dynamics. Since you reapply seen can impact pricing for our U I N and nightstand products.
Speaker Change: As we look forward through the remainder of the third largest season, our order book is well positioned to close out products to support and market perspectives on pricing and demand through may and early June we.
Speaker Change: We have a good balance of forward orders with room to take advantage of spot sales through the application period, depending on the product.
Speaker Change: On page six we show pricing trends and forecast for the key commodities that drive our agricultural business.
Speaker Change: The upper left hand chart shows the cross trained food, it's a T S.
Speaker Change: European natural gas pricing benchmark relative to the price of the Henry hub, the benchmark price for U S natural gas pricing.
Speaker Change: European gas prices have increased over the last month as the instability in the middle East has offset some of the prostate cray, saying through.
Speaker Change: Through the end of 2023 and through Q1, following a warm winter and heavy LNG imports.
Speaker Change: Gas prices in the U S remains a fraction of dies in Europe, representing significant competitive advantage to U S producers.
Speaker Change: We believe the U S cost advantage will persist in the coming years as the chart indicates.
Speaker Change: Page seven summarizes some key dynamics at play in our industrial and mining end markets.
Speaker Change: Overall demand remained steady and now industrial business, reflecting the resilience of the U S economy.
Speaker Change: A significant amount of the natural gas that we sell is used to produce polyurethane.
Speaker Change: Polyurethane used to make science is a major important to both wood and furniture manufacturing.
Speaker Change: As such we closely track data related to U S production and furniture waters.
Speaker Change: The first two charts on the right hand side.
Speaker Change: So trends in U S auto production and furniture manufacturing.
Speaker Change: <unk> depicted on these two charts reflect the solid level of demand remaining generally stable over the past year that we experienced and that nitric acid sales.
Speaker Change: As the third chart on slide seven indicates mining production activity also remained relatively stable over the past several years.
Speaker Change: The recent decline in activity shown in the chart is largely due to a reduction in coal production volumes reflected in the steep drop in the process of coal over the past year.
Speaker Change: We have very little exposure to the coal market. So this weakness had minimal impact on our business.
Speaker Change: On the country, we've experienced strong demand for ammonium nitrite driven impart by healthy metals mining activity in support of electric vehicle production and other applications.
Speaker Change: The strong demand for metals is reflected in recent price trends for gold and copper both of which are up significantly this year.
Speaker Change: As we look at both sides of that business, we expect fundamentals for nitrogen producers to remain attractive and stable for the foreseeable future.
Speaker Change: Now I'll turn the call over to Cheryl to discuss our first quarter financial results and outlook Cheryl.
Cheryl A. Maguire: Thanks, Damien and good morning on page eight you'll see a summary of our first quarter 'twenty 'twenty four financial results, we generated adjusted EBITDA of 33 million and E. P. S. At eight cents for the first quarter.
Cheryl A. Maguire: Page nine bridges are $33 million of adjusted EBITDA to our first quarter 2023, adjusted EBITDA of 51 million weaker selling prices relative to the prior year were once again the primary factor in the year over year change in EBITDA.
Cheryl A. Maguire: The weaker pricing was partially offset by stronger sales volumes and lower natural gas costs.
Cheryl A. Maguire: Page 10 provides a summary of our key balance sheet and cash flow metrics. We continue to use our strong cash position as an opportunity to further derisk our balance sheet in the first quarter, we repurchased $33 million of our notes and year to date, we've repurchased $75 million of debt.
Cheryl A. Maguire: We also repurchased approximately 700000 shares of our stock during the first quarter and approximately one 5 million shares year to date, we expect to Opportunistically repurchase stock as the year progresses, while continuing to invest in our assets to improve their performance as a reminder.
Cheryl A. Maguire: We have turnaround scheduled at our Pryor and Cherokee facilities during the second half of this year.
Cheryl A. Maguire: These turnarounds will be integral to our goal to improve plant reliability and efficiency.
Cheryl A. Maguire: Looking forward the second quarter of 'twenty 'twenty four Tampa ammonia currently sits at $450 per metric ton and NOLA U a N is currently around $270 per ton.
Cheryl A. Maguire: We expect some weakening in pricing for both products in the second quarter as we move into the normal seasonal slowdown as the spring planting season closes.
Cheryl A. Maguire: Specifically, we expect a sequential decline in our realized pricing for ammonia and urea ammonia sales volumes given the strong spring ammonia run in the latter part of the first quarter.
Cheryl A. Maguire: Additionally, the second quarter typically marks the transition away from ammonia fertilizer application, which is usually done prior to planting to the application of other fertilizers, such as U I N, which are typically applied post planting.
Cheryl A. Maguire: As a result, we expect higher <unk> sales volumes, both sequentially and year over year.
Cheryl A. Maguire: Furthermore, although we anticipate lower realized fertilizer selling prices compared to last year's second quarter, we do expect that impact to be largely offset by lower natural gas costs.
Cheryl A. Maguire: Which we expect will be approximately $2.10 per M. N V to you in the second quarter inclusive of transportation.
Cheryl A. Maguire: With respect to costs, we are ramping up our preparation for our Pryor and Cherokee turnarounds planned for the second half of 'twenty 'twenty four we expect to incur approximately two to 3 million of expense related to this prep work during the second quarter.
Cheryl A. Maguire: Putting it all together, we expect our second quarter adjusted EBITDA to be lower than the second quarter of 2023, primarily due to lower realized selling prices. However, we expect a meaningful sequential increase in adjusted EBITDA over the 'twenty 'twenty four first quarter as a result of higher sales.
Cheryl A. Maguire: And lower natural gas costs.
Cheryl A. Maguire: Looking beyond the second quarter after six consecutive quarters of year over year declines in product selling prices, we expect pricing to be more in line with prior year quarters. During the second half of this year and now I'll turn it back over to Mark.
Mark T. Behrman: Thank you Cheryl.
Mark T. Behrman: Pages, 11, and 12 pertained to the two low carbon ammonia projects that we currently have underway.
Mark T. Behrman: Page 11 summarizes the key information relating to our project with lap of synergy at our El Dorado facility.
Mark T. Behrman: This project remains on track with the timeline, we discussed in early March.
Mark T. Behrman: The main gating factor remains the approval of our classics permit application from the E. P. A.
Mark T. Behrman: Receiving the class six approval well enable LAPIS to commence construction and then begin capturing and permanently sequestering more than 450000 tons metric tons per year of C. O. Two that we produce at El Dorado.
Cheryl A. Maguire: We are in regular contact with the EPA about the permit application.
Cheryl A. Maguire: We've been encouraged by the recent feedback indicating that the timeline for approval could be accelerated to mid twenties 2020, 2025 relative to our previous expectations at the end of 2025.
Cheryl A. Maguire: As a reminder, we expect LAPIS to receive the 45 Q tax credit of $85 per ton of C. O. Two sequestered since they will own the capture facility, but they will buy the C. O two from US at the same time, we will be producing more than 375000 tons of low carbon ammonia annually <unk>.
Cheryl A. Maguire: Collectively we expect this to yield approximately $15 million to $20 million in annual incremental EBITDA for L. S. P.
Cheryl A. Maguire: As we indicated last quarter, our commercial team is actively pursuing markets for low carbon products that we will be producing at El Dorado and our conversations to date have been very productive.
Cheryl A. Maguire: Page 12 summarizes the key aspects of our Houston ship channel low carbon ammonia project.
Cheryl A. Maguire: As a reminder, the project entails the design and construction of a world scale ammonia plant that will produce approximately $1 1 million metric tons of low carbon ammonia.
Cheryl A. Maguire: Samsung Engineering is performing or pre feed and that is expected to be completed during the third quarter of this year at which point, we expect to feed to begin with.
Cheryl A. Maguire: We anticipate a final investment decision in the second half of next year.
Cheryl A. Maguire: Regarding long term offtake, we continue to work with potential customers to secure long term offtake for the anticipated ammonia production.
Cheryl A. Maguire: Based on our ongoing conversations we expect off takers to come from Asia, Europe, and the U S.
Cheryl A. Maguire: The markets for low carbon ammonia continue to take shape with many positive developments emerging in recent months.
Cheryl A. Maguire: Jarrod Japan's largest power company has a three month trial underway using 20% ammonia to co fire one of its coal burning power plants with the goal of eventually using 100% ammonia and its plants as a means of dramatically reducing its C O two emissions.
Cheryl A. Maguire: The success of this trial would be groundbreaking in terms of providing the viability of ammonia use for large scale power generation.
Cheryl A. Maguire: Japan has a first mover in this regard Europe, which has previously been entirely focused on green zero carbon power generation is increasingly considering blue or low carbon ammonia as a more practical emission reduction option. This is largely due to the currently prohibitive high costs of producing green fuels.
Cheryl A. Maguire: European governments are currently working on legislation intended to make low carbon ammonia eligible for the incentives that now cover only green products. If this legislation passes the global market for Blue ammonia would be considerably larger than anticipated. When we initially began the process of developing our projects.
Cheryl A. Maguire: The marine industry is also keenly focused on ammonia as a potential fuel for large ships instead of high C. O two of meeting diesel or bunker fuel.
Cheryl A. Maguire: Fortescue, and Australia materials, and Industrials company successfully used ammonia in combination with diesel as a marine fuel on one of its Singapore based vessels.
Cheryl A. Maguire: Interest in ammonia as a fuel continues to grow and there are numerous ammonia powered vessels on order and scheduled for delivery and entry into service as soon as 2026.
Cheryl A. Maguire: We're very excited to be involved in this emerging clean fuel trend and expect to be one of the leading suppliers of low carbon ammonia to these and other industries in the coming years.
Cheryl A. Maguire: We have a lot of initiatives ongoing to approve our current operations that we believe will provide a meaningful increase in profitability and in turn shareholder value.
Cheryl A. Maguire: Combining those with our low carbon activities. We believe we're on our way to creating a profitable play on the energy transition I'm excited about our future.
Speaker Change: Before we open it up for questions I'd like to mention that we'll be participating in the following conferences in June the.
Speaker Change: The Stifel Cross sector insight conference in Boston on June 5th.
Speaker Change: The Deutsche Bank Industrials Conference in New York on June six.
Speaker Change: The Wells Fargo Industrial conference in Chicago on June 12.
Speaker Change: And the Jefferies Virtual ESG conference on June 20th.
Speaker Change: We look forward to speaking with some of you at those events.
Speaker Change: That concludes our prepared remarks, and we will now be happy to take your questions. Thanks.
Speaker Change: Thank you, we'll now be conducting a question and answer session if you'd like to replace in the question queue. Please press star one on your telephone keypad.
Speaker Change: 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. As a reminder, we ask you. Please ask one question and one follow up and that's far wanted to be placed in the question queue.
Speaker Change: Our first question today is coming from Josh Spector from UBS. Your line is that life.
Speaker Change: Thanks.
Joshua David Spector: Yeah, Hi, good morning, So I wanted to ask how many of your prepared comments when you talked about U a N prices higher cause the supply to ban it tighter than in the U S. Through the second quarter. If you can kind of compare that to your comments about pricing moving down through the quarter. Obviously, there's seasonal factors as a part of that but when do you think the supply demand in north.
Speaker Change: Barrick has become maybe more balanced than it links back to the cost curve versus a tighter dynamic.
Speaker Change: They've been willing to take that one yeah, Hey, Josh How're you doing.
Josh: Look I think there's a couple of elements to your to your question say fair.
Josh: First of all where we're saying I'm pretty pretty stable U I N prices I mean, they took a turn up through through Q1 and the early part of Q2.
Josh: And really what we are saying one of the key dynamics playing out here in the U S is U I N imports had been tracking much lower than in prior years and so that's created some pockets of opportunity as I said in my.
Josh: Earlier remarks, where we've been able to sort of take advantage of that.
Josh: Yeah.
Josh: Other factors that are going to come into play we've got your Ria.
Josh: At the moment, that's the volatility in your reader has I guess crowded a little bit of uncertainty for pharma is in boys and sizes. There's forward buying to a limited extent, but yeah, we should see stable prices.
Josh: Up until we start to see the race it and you know at this stage, we're not sure when that will be but it'll be towards the end of Q2.
Josh: There's a bunch of pent up demand over it.
Josh: I think size.
Josh: In terms of the retailers and co ops that they are buying closer to hand to mouth. So yeah there'll be a time when that application really starts and kicks in in and there'll be a surge of buying activity in and that'll that'll support pricing.
Josh: Brought through until we get to the end of season.
Josh: Okay.
Speaker Change: Thanks, Damien and I appreciate that and I wanted to follow up on some of the guidance.
Speaker Change: Cheryl need.
Speaker Change: I'll skip QQ, but it seemed like when you were walking through the rest of the year you were talking about I don't know if I heard you in terms of flat EBITDA for three Q4, Q versus prior year or Youre talking about flat volumes.
Speaker Change: And if it's flat EBITDA I guess four key would be surprising that you'd be calling that this early when I think your guidance on volumes is that volumes would be higher and I expect prices would probably seasonal lift so could you maybe clarify and talk through some of that.
Josh: Yeah sure Josh I think let me just clarify your question I did say in the script that you know after six consecutive quarters of.
Joshua David Spector: Lower pricing on a comparative basis that you know post Q2, two we would start to see you know normalization of pricing against the prior years. So we wouldn't have that big decline versus prior year comparative periods.
Josh: Periods is that the point that you were referring to.
Joshua David Spector: Yeah, maybe I misheard pricing versus EBITDA.
Speaker Change: I thought you were starting to guide towards second half EBITDA flat year over year, So if I heard that wrong with that.
Speaker Change: Good luck with it.
Speaker Change: Yeah, just in relation to pricing not EBITDA.
Speaker Change: Alright, thank you.
Speaker Change: Thank you.
Speaker Change: The next question today is coming from Adam Samuelson from Goldman Sachs. Your line is now live.
Adam L. Samuelson: Yes, Thank you and good morning, everyone.
Adam L. Samuelson: Hey, good morning, good morning.
Adam L. Samuelson: Maybe picking up on that last kind of line of questioning is we obviously, there's kind of gave us some framework on EBITDA for the second quarter.
Adam L. Samuelson: No longer thinking pricing would be a year on year headwind in the second half of the year. I guess is what you would think about what that would not too from a full year earnings perspective, and then bridging too.
Adam L. Samuelson: Kind of the normalized EBITDA performance the framed it back at the analyst day, a little over a year ago help us think about the operational uplift still to be realized after this year as we think about operating rates in the air at the plants obviously.
Adam L. Samuelson: Obviously, there would be the incremental uplift from carbon sequestration and the clean ammonia, but just.
Adam L. Samuelson: Just on the on the plant plant reliability point, what what what can that contribute kind of 25 and 26.
Adam L. Samuelson: What what's your confidence level and actually getting there.
Speaker Change: Yeah, sure Adam and I think what I would I would probably do is is bridge from 2023, which we were around 133 million of EBITDA.
Adam L. Samuelson: We've spoken to in the past about you know call it $35 million to $40 million of uplift from improved reliability and I think what I would point out there is when we're talking about you know going to 95%. That's not just on ammonia. We also are assuming that we're not going to sell that product doesn't ammonia we've got.
Adam L. Samuelson: Capacity to go downstream and nitric acid and solution and you out and so theres additional uplift there on that impact from the down stream production.
Adam L. Samuelson: So if you take the 133 add another 35 to 40 million from improved production, we are carrying some higher costs right now as we try to accelerate some of these initiatives that we have an on the go that's another call. It 10 to 15 million of EBITDA. You know we've got the urea expansion that we're doing at prior here in the third quarter some of those margin.
Adam L. Samuelson: Enhancement projects should add another $5 million to $7 million of EBITDA and then we've talked about the lap this agreement and that's another call it $15 million of some carbon sequestration coming online in 2020 six so.
Adam L. Samuelson: So that's how we think about the EBITDA uplift as we go through the next call. It 24 months as Adam as far as confidence in our ability to do it.
Speaker Change: It's a great question actually and so we.
Speaker Change: Spent probably the last months I'm really spending time with our sites and our manufacturing leadership to create a roadmap on how we get to 95% of what it will take and so I would say that we're highly confident that we can get there.
Speaker Change: Okay. That's helpful. And then maybe another one for shareholders on the balance sheet you bought back some stock you also bought back.
Speaker Change: Some of the some of the notes in the quarter and seemingly further and in April.
Speaker Change: Do you have a total target in mind for what you would be looking at it from a capital deployment perspective in terms of buyback and debt repurchase this year.
Speaker Change: Okay.
Speaker Change: Yeah, I think that.
Speaker Change: We bought back $75 million of debt to date and we've bought back another 10.
Speaker Change: 10 to 12 million of stuff off yeah. So I think we've allocated about $125 million to buyback a combination of debt and stock and then we'll kind of take a breather there see where we are and see where some of our projects are and what our cash needs are and then we'll make a decision on whether we move forward with continued purchases or not.
Speaker Change: Alright.
Speaker Change: That's really helpful. I'll pass it on thank you.
Speaker Change: Yeah.
Speaker Change: Thank you. Your next question is coming from David Begleiter from Deutsche Bank. Your line is now live.
David L. Begleiter: Thank you and good morning, I'm, Mark just looking at natural gas prices. How are you thinking about taking advantage of these lower prices over the longer term.
David L. Begleiter: Well, that's a great question.
David L. Begleiter: We debate this internally and we debated it for the last five years.
David L. Begleiter: We seem to.
David L. Begleiter: You don't want to take some which we've tried taking some.
David L. Begleiter: I'd call it forward purchases, because they're not really hedges.
David L. Begleiter: And you know we've won some of them in last year. Unfortunately, we actually lost in a big way right we lost.
David L. Begleiter: The potential for call it $40 million based on locking in at higher prices when the actual prices were somewhat lower so I think we're taking the position right now is that we lock in we make sure that we have enough gas at the beginning of every month to lock in 90% of our gas needs and that's you know combined with if we have any.
David L. Begleiter: A word purchases of product you know primarily on the fertilizer side, where we lock into gas to lock in a margin there.
David L. Begleiter: If we've got any customers on the industrial side since they're primarily gas pass through that want a lot more or less locked it in which doesn't happen very often very infrequent actually we'll lock that in as well.
David L. Begleiter: But going in and purchasing forward.
David L. Begleiter: To really make a bet on where natural gas prices are going to be.
David L. Begleiter: There's a lot of conflicting views in the marketplace on prices going up.
David L. Begleiter: Hum towards the end of this year and into next year, and then you read a whole lot of other conflicting views on how much natural gas is actually coming out of the ground and of course, we've got LNG issues and what's going on there. So I think our strategy right now.
David L. Begleiter: To continue to buy.
David L. Begleiter: Primarily first of the month to lock in that gas and then we're starting to think about the winter and do we actually hedge or buy buy forward some gas in the winter where it can be somewhat more volatile.
Speaker Change: Understood and just on the us buying debt versus stock how do you decide you know the use of what's part were beneficial to us to your guys' stock with data at any point any time. Thank you.
Speaker Change: Well I think first we've you know sherrell has been pretty public in saying that.
Speaker Change: Our target is two and a half times leverage right.
Speaker Change: And so we say two five times leverage on mid market EBITDA, which is the $200 million that Cheryl referred to earlier.
Speaker Change: So that would be 500 million. So we're pretty much at 500 million with that $75 million.
Speaker Change: We purchase of debt.
Speaker Change: You know.
Speaker Change: To make ourselves a bit more bulletproof and to allow us to continue to weather any storms and also fund capital projects.
Speaker Change: I think we would consider delivering somewhat more.
David L. Begleiter: Just to give more comfort right, we're not somewhat volatile industry, where pricing can move relatively.
David L. Begleiter: Relatively quickly and the last thing we want to do is ever being in over Levered positions. So I think that's the first thing we think about you know when we think about that.
David L. Begleiter: We're lucky enough that we certainly have enough cash and liquidity that we can do both that in stock and right now I hope I'm not going out there on a limb, but I think we all believe that our stock is a pretty undervalued. So I think that you know.
David L. Begleiter: Buying back some stock at these levels. It makes a lot of sense for us.
Speaker Change: Thank you very much.
Speaker Change: Thank you next question today is coming from Andrew Wong from RBC capital markets. Your line is now live.
Andrew D. Wong: Hey, good morning, Thanks for taking my questions.
Andrew D. Wong: Could you just maybe talk about your view on ammonium nitrate prices and going forward. It seems like the premiums have come down a little bit versus urea, maybe just what's driving that.
Andrew D. Wong: Could we see that rebound going forward.
Andrew D. Wong: Yeah. Good morning, Andrew I think you'll see a little bit of rebound going forward as we get into more more application and some of that natural demand for ion comes through.
Andrew D. Wong: But in terms of some of those those trends you know I think there's been some some changes in demand and are in the market place them.
Andrew D. Wong: Okay.
Andrew D. Wong: What we tend to say is that if pricing for iron gets gets too high.
Andrew D. Wong: And then you'll start to incentivize some switching.
Andrew D. Wong: So urea side, we're constantly sort of working against some of those dynamics, but.
Andrew D. Wong: You know I think where we're happy with where things are at right at this very minute.
Speaker Change: Okay. Thank you and then.
Speaker Change: Can you just talk about the collaboration with <unk>.
Speaker Change: Alright.
Speaker Change: It looks like your initial testing is in Q3.
Speaker Change: What is the what is the opportunity for LSP around that.
Speaker Change: It's a successful test.
Speaker Change: Yeah.
Speaker Change: Well look I think.
Speaker Change: One of the things that <unk>.
Speaker Change: People are now starting to really talk about when we're talking about.
Speaker Change: Low carbon.
Speaker Change: Development.
Speaker Change: Development in this whole energy transition.
Speaker Change: Is we can build all the facilities, we want but its really going to be demand driven.
Speaker Change: And I think when we started our conversations with them are G and and talking about how we can work together so they've got them.
Speaker Change: In our system power to X that allows people to.
Speaker Change: Basically convert.
Speaker Change: The existing engines to run.
Speaker Change: Ron on ammonia, because they've got ammonia to fuel cells, you saw the hydrogen and hydrogen into the to the engine.
Speaker Change: So part of what we talked about was really working together to develop the inland marine marketplace here in the United States, That's a big market a lot of vessels going up and down the rivers.
Speaker Change: A lot of of Dirty fuel used and so for them to sell systems, there needs to be the availability of low carbon pneumonia.
Speaker Change: And for us to sell low carbon ammonia into that marketplace. There needs to be engines that can run on that so it really it's kind of like hand in glove and the way that it fits so we're really working with them to try and develop that market and really work with Washington to really understand the opportunity and work with the U S coast.
Speaker Change: Hard to get them to understand what it would take and get the right permitting and I think that's why I believe that's why they are tests has been delayed.
Speaker Change:
Speaker Change: Which was supposed to happen towards the end of last year is that it's taken longer to educate.
Speaker Change: You know.
Speaker Change: The political scene and as well as coast guard, but I think they've made a lot of progress. So we're excited about that.
Speaker Change: That's great. Thank you.
Speaker Change: Thank you as a reminder, that's far wants to be placed in the question queue. Our next question is coming from Rob Maguire from Granite Research. Your line is now live.
Robert Miles McGuire: Rob perhaps your phone is on mute.
Robert Miles McGuire: Thanks, So much good morning could you. Please talk about your healthy increase in downstream production volumes, perhaps just elaborate on whats behind that and if you think it could.
Robert Miles McGuire: Could continue on a year over year basis.
Robert Miles McGuire: For the remainder of 2024.
Robert Miles McGuire: Yeah, Good morning, Rob.
Robert Miles McGuire: Basically with we're sold out on all of that downstream plan. So as we get improved performance from those assets. Then we're in a good position to sell them and increase the volumes and that's exactly what we've been doing a lot across the board, it's pretty simple and in that aspect.
Speaker Change: Yes, I think in fact, we've got.
Speaker Change: About 200000 tons of ammonia that we sell.
Speaker Change: In El Dorado.
Speaker Change: And inject into the pipeline to a customer that we'd love to find a way and we're working diligently to find a way to upgrade so I think we still got some more upgrading capabilities will take some more capital to do that.
Speaker Change: Like an expansion that we've talked about in the past, but we think that there is certainly margin enhancement as we move forward and the other bit of margin enhancement that we continually revise he's he's basically wants to make stride and how do we optimize that mix and what's the position on pricing or.
Speaker Change: 10 of contract or whatever we take on that is upright so I.
Speaker Change: Yeah.
Speaker Change: Yeah, and I think one other thing I would point out Rob as you see when Youre thinking about Q1 to Q2.
Speaker Change: I kind of alluded to it in the script, we expect to see further increase in volumes on all of our downstream production for U a N a N and nitric acid and then of course, you'll see a corresponding decrease in ammonia sales and as we look to continue to upgrade further.
Speaker Change: So that's helpful from all three of you. Thank you.
Speaker Change: Moving on how would you characterize the strength of the spring application and what does that tell you about future demand.
Speaker Change: In other words.
Speaker Change: And could you also talk about it if you think there was some pull forward from <unk> into two into Q1, you kind of touched on it in your comments, but if you could elaborate I'd appreciate it.
Speaker Change: Yeah look I think the way the season is setting up it's it's looking pretty good.
Speaker Change: Planting is running ahead of the five year average I think in the last report we would've been at about 27% versus 22% on average so that's all pointing to two a good season, but clearly we had a really strong a pre plant run on ammonia.
Speaker Change: But we're now really focused on what that means for you I N and some of the other nitrogen products and and we think with you know, we're well positioned to take advantage of whatever the season throws at us and we're confident that it'll be a pretty healthy.
Speaker Change: Spring this year.
Speaker Change: Yeah.
Speaker Change: Okay. I appreciate that and then lastly can you kind of touched on this in the past, but can you discuss the mining industry has pushed us decrease or its carbon footprint are they under different pressure than the rest of corporate America or is it just simply they're keeping up with everyone else.
Speaker Change: That's an interesting question is probably a bit of a bit of Bally thought think yeah I did.
Speaker Change: The the mining industries, he's trying to decarbonize and some of the big producers have.
Speaker Change: I have a really strong effort on that you know they've all got sustainability reports and.
Speaker Change: And people responsible.
Speaker Change: For driving improvements there Sai.
Speaker Change: You know when we were saying some of that come through in some of their discussions with them on an out of low carbon offerings. As we look to commission a project at El Dorado Eisai.
Speaker Change: We're well placed to take advantage of that and yeah. We hope that they continue to try and pushed to decarbonize their supply chains.
Speaker Change: But just to follow on do you think that there is more demand for low carbon ammonia in the next few years when you start producing coming from mining our industrial is it probably going to look about the same.
Speaker Change: Well I think it will look about the same it's hard to split that.
Speaker Change: Okay.
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Joe Paul: I believe Rob you were your online for a question Rob.
Joe Paul: Yeah.
Robert Miles McGuire: Yes, Indeed, just touching base on.
Speaker Change: Sorry about that.
Joe Paul: All right.
Speaker Change: I'm just going to move on if you don't mind are there any meaningful upgrades taking place in the turnarounds to uptick your onstream rate.
Speaker Change: Yeah, Rob we've got a urea expansion that we're pursuing and implementing it at Pryor and that'll that'll.
Speaker Change: That'll help us produce another 60 to 70000 tons of U I N two year.
Speaker Change: And the rest of the turnaround Scott's really for both sides Pryor and Cherokee is really going to be focused on improving reliability. Yes. So we expect to come out of the turnarounds.
Joe Paul: With much higher operating rates and.
Joe Paul: And that obviously will just improve product for sale. So yeah. We're looking for these are major turnarounds for us we're very focused on them and actually it's a fair amount of capital that we're deploying to into the turnarounds.
Speaker Change: Thank you.
Joe Paul: Yes.
Joe Paul: Thank you. Our next question today is coming from Charles <unk> from Piper Sandler Your line is now live.
Charles: Good morning, guys. Just one quick question the SG&A percentage seems to be on the rise lately is there any particular reason for it should we expect it to stay at the higher level or is that going to come back to where it had been over the last couple of years.
Speaker Change: Yeah, Charlie I think youre going to see us carry an extra.
Charlie: $10 million to $15 million in SG&A.
Speaker Change: For the next well.
Speaker Change: <unk> to 18 months, maybe 24 months as we.
Speaker Change: Push.
Speaker Change: We're liability programs some of that is obviously rolling up to them.
Speaker Change: The cost of sales, but some of it will carry in.
Speaker Change: Corporate overheads so.
Speaker Change: We would see once we achieve the reliability routes that we've outlined we definitely should see some reduction in expense.
Speaker Change: And then in terms of.
Speaker Change: The net debt to EBITDA multiple.
Speaker Change: You guys have a target in mind, I mean, admittedly EBITDA has been moving around a little bit over the last year.
Speaker Change: Trailing 12 months, there's been some big movement, but when things begin.
Joe Paul: Begin to level off and get.
Joe Paul: Less volatile do you guys have a target in mind as to where you'd like the D. When it all worked its way through.
Speaker Change: Yeah, no more than two five times levered.
Speaker Change: Okay.
Speaker Change: That's all for me thanks.
Speaker Change: Okay.
Speaker Change: Gas has come down quite a bit obviously, it's still much higher than the U S. But have you seen where it won.
Joe Paul: We're getting the obviously incredibly high numbers, but where it is now does it seem like youre going to see some of that European production come back online.
Joe Paul: $450 for ammonia.
Joe Paul: That being exceptionally profitable, but it might be enough to keep them in the game considering they've got the protection of somebody having to move product into the area.
Joe Paul: I guess it might be easier for them that like do you see any increase in European production because of the lower gas numbers coming out of there.
Speaker Change: Look I think.
Speaker Change: The European producers will probably want to see some more sustained pricing levels in order to get some confidence to raise that operations.
Speaker Change: I think there's still a lot of.
Speaker Change: What are the passed under the bridge in that aspect I think that at plants that have restarted will continue on and I think we'll say a little bit of the status quo continue for some months now.
Speaker Change: So I think it depends on.
Speaker Change: Import prices versus cost of production right and so those levels are and so I think if gas is low here.
Speaker Change: Gases.
Speaker Change: Much higher in Europe, but relatively low compared to where it's been over the last several years.
Speaker Change: That puts a cap sort of on ammonia prices in general might be still cheaper for them to inputs. So I think it's really just a total economic decision.
Speaker Change: Do you see anyone trailing into power completely sort of like in the Lake Charles said closed the U K ammonia operation, but supply ammonia from the outside any of those any of the current players around Europe might consider closing any of their substitution or just outright closure of the facility.
Speaker Change: Look not that that we've heard of light I think.
Speaker Change: Most of the producers like like CF and M. P. I S F.
Speaker Change: Yeah.
Speaker Change: <unk> already made their moves couple of VAT and Europeans are close down facilities, yeah, but I think the.
Speaker Change: Yeah, the the rest of it probably.
Speaker Change: Does that are operating are happy to do so and.
Speaker Change: Size of the suspended or shut down.
Speaker Change: We haven't heard anything of that journey into a permanent closure.
Speaker Change: I think the only thing that.
Speaker Change: People will start to face after some period of time is you can't just shut down our facilities.
Speaker Change: It's expensive to maintain it right because you have to be able to maintain it. So that you can turn it back on so at some point.
Speaker Change: I think the cost of maintenance will forced some decisions.
Speaker Change: Okay. That's it from me Thanks, Dan.
Speaker Change: Yeah.
Speaker Change: Thank you we reached end of our question and answer session I'd like to turn the floor back over to management for any further or closing comments.
Speaker Change: Thank you as always thanks, so much for your interest in and LSP industries, and if you have any follow up calls or follow up questions feel free to call us and we'll be happy to answer them. Thank you and have a great day.
Speaker Change: Thank you that does conclude today's teleconference. You may disconnect. Your line at this time and have a wonderful day, we thank you for your participation today.
Speaker Change: Yeah.