Q3 2025 LSB Industries Inc Earnings Call
Speaker #2: Greetings and welcome to the LSB industries . Third quarter 2020 Earnings Conference Call . At this time , all participants are in a listen only mode .
Speaker #2: A brief 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 .
Speaker #2: As a reminder , this conference is being recorded . It is now my pleasure to introduce your host Kristy Carver Senior Vice President and Treasurer .
Speaker #2: Thank you . You may begin .
Speaker #3: Good morning everyone . today are Mark Behrman , our chairman and Chief executive officer . Cheryl Maguire . Our chief financial officer . And Damien Renwick , our chief commercial officer .
Speaker #3: 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 .
Speaker #3: For more information about the risks and uncertainties that could cause actual results to differ materially from those projected or implied by forward looking statements Joining me , please see the risk factors set forth in the company's most recent annual report on Form 10-K .
Speaker #3: On the call , we will reference non-GAAP results . Please see the press release posted yesterday in the investors section of our website , LSB INDUSTRIES, INC. .
Speaker #3: For further information regarding forward looking statements and reconciliations of non-GAAP results to GAAP results . At this time , I'd like to turn the call over to Mark .
Speaker #4: Thank you , Christi , and good morning , everyone . As a company , we pride ourselves on safety first . And while our teams continue to focus on safe operations , as evidenced by our first nine months of injury free performance , it is with great sadness that I have to report that in early October , a contractor working on our prior facility was fatally injured .
Speaker #4: Our hearts go out to his family and colleagues . This is a tragic reminder about why we put safety first and the importance of the need to remain focused on safety in everything we do .
Speaker #4: I am confident that our team will learn from this tragedy as we work together to ensure that everyone on our sites remains safe every day .
Speaker #4: With respect to third quarter financial results . Market conditions remain constructive in both our industrial and fertilizer businesses . After increased CapEx spending in 2024 and through the first half of 2025 , where we elected to execute on several growth projects .
Speaker #4: We are back to generating free cash flow . We expect to finish the year having generated solid free cash flow and were well positioned to keep investing in our strategic priorities .
Speaker #4: We recognize that there's more work to do , and we see opportunities to continue to enhance our performance across the business . Now I'll turn over the call to Damien to to review current market dynamics and pricing trends .
Speaker #4: Damian .
Speaker #5: Thanks , Mark , and good morning , everyone . Turning to page five . During the third quarter , we completed our transition out of high density .
Speaker #5: And for fertilizers and into an solution for explosives . This moves us towards our stated goal of optimizing our sales mix . As a result , we are now supplying 100% of our an solution .
Speaker #5: Contractual obligations to our customers . We continue to see strength in our industrial markets . Demand for Am for explosives is robust , particularly in the mining sector , where strong gold and copper prices are boosting activity worldwide .
Speaker #5: Demand is also benefiting from quarrying aggregate production for infrastructure upgrade and expansion activity . We are seeing continued increases in domestic production of methylene diphenyl diisocyanate or MDI , as a result of tariffs and anti-dumping duties on imported MDI .
Speaker #5: As a result , our nitric acid sales remain strong . Turning to page six pricing for UAN averaged $336 per ton on a hourly basis in Q3 , up 65% over Q3 2020 .
Speaker #5: For prices continue to be supported by steady exports , lower imports and strong demand , leading to below average inventory levels throughout the US .
Speaker #5: We expect these favorable dynamics to continue in the near term and position us well as we head into 2026 . Urea prices moderated somewhat during the quarter , driven by the resumption of Chinese exports .
Speaker #5: However , with the results of the latest India urea tender now known Chinese participation was minimal and it appears that future exports will once again be restricted , supporting tight supply and higher prices .
Speaker #5: The ammonia market is healthy and pricing remains at attractive levels . Tamper ammonia increased by $60 to $650 per metric ton for the November settlement .
Speaker #5: Tampa ammonia has now increased by almost $260 per ton , or 65% , since hitting its 2025 low of $392 per ton in June .
Speaker #5: The market continues to be dictated by ongoing , unplanned supply disruptions from the Middle East . The higher cost of production in Europe and continued delays in the start up of new production capacity in the US , increased natural gas ailments and other issues in Trinidad are also maintaining the pressure on global supply in the US .
Speaker #5: We expect to see a typical fall ammonia application season subject to seasonal weather outcomes . Now I'll turn the call over to Cheryl to discuss our third quarter financial results and our outlook .
Speaker #6: Thanks , Damian , and good morning . On page seven , you'll see a summary of our third quarter 2020 financial results . Solid third quarter volumes and net sales reflect the progress we are making on our reliability journey , along with the absence of no planned turnaround activity during the quarter .
Speaker #6: Page eight . Bridges our third quarter 2024 adjusted EBITDA of $17 million to our third quarter 2025 adjusted EBITDA of 40 million . Higher pricing and increased sales volumes were somewhat offset by higher natural gas and other costs .
Speaker #6: Costs were higher in the third quarter, primarily related to the transition out of the Howden business, along with higher maintenance and operating costs.
Speaker #6: On page nine, you can see that our balance sheet remains solid, with approximately $150 million in cash and net leverage at approximately two times.
Speaker #6: After several quarters of heavy investment , we are back to generating free cash flow with approximately $20 million of free cash flow generated .
Speaker #6: Year to date and approximately 36 million in the third quarter . And we expect to continue to build on that in the fourth quarter .
Speaker #6: Turning to the fourth quarter outlook . Tampa ammonia settled at $650 per metric ton for November , up from 5.90 per ton for October .
Speaker #6: And Nola UAN has averaged above $300 per ton so far this quarter . Additionally , Henry Hub Natural Gas cost is averaging approximately $3.45 per MMBtu , but is expected to trend higher as we approach seasonally cooler temperatures with the transition of our business into industrial grade an , approximately 35% of our natural gas costs are passed through and our selling price to customers .
Speaker #6: This provides improved visibility into our earnings profile . Overall , we'd expect the fourth quarter of 2025 to be higher than the prior year .
Speaker #6: Fourth quarter due to higher selling prices and higher production . Somewhat offset by higher variable and other costs . And now I'll turn it back over to Mark .
Speaker #4: Thank you Cheryl . Page ten is an overview of our low carbon project at our El Dorado facility . We continue to expect the technical review of our permit to be completed in the first quarter of next year , with operations to then begin by the end of 2026 .
Speaker #4: We're excited about this opportunity as we expect to generate approximately $15 million in annual EBITDA from the with the majority of it beginning in 2027 .
Speaker #4: project , We have made strong progress in the first nine months of 2025 , driven by increased production volumes of ammonia , UAN and an and expect to end the year in line with our total sales volume targets set out at the beginning of the year .
Speaker #4: Our El Dorado project is a good example of how our industry can decarbonize and provide customers with low carbon ammonia and derivative products in a cost effective manner .
Speaker #4: We've also continued to successfully shift our sales mix towards more contractual industrial sales , which allows us to pass through natural gas costs to our customers and provides us with greater earnings stability and visibility .
Speaker #4: At the same time , we've reduced our outstanding debt , continue to maintain a healthy cash balance while we evaluate several growth opportunities , and continue to invest in the reliability and efficiency of our plants .
Speaker #4: I remain extremely optimistic about the future of our company , both for the remainder of the year and looking ahead to 2026 . The market outlook remains robust and we are well positioned to continue to improve our operational and financial performance while delivering sustainable growth and profitability .
Speaker #4: Before we open it up for questions , I'd like to mention that we will be participating in the NYSE Industrials Virtual Conference on November 18th and 19th .
Speaker #4: We look forward to speaking with some of you at this event . That concludes our prepared remarks , and we will now be happy to take your questions .
Speaker #4: Thanks .
Speaker #2: Thank you . We will now be conducting a question and answer session . If you would like to ask a question , please press star one on your telephone keypad .
Speaker #2: A confirmation tone will indicate your line is in the question queue . You may press star two if you would like to remove your question from the queue .
Speaker #2: For participants using speaker equipment , it may be necessary to pick up your handset before pressing the star key . One moment please .
Speaker #2: While we pull for questions . Thank you . Our first question comes from the line of Lucas Beaumont with UBS . Please proceed with your question .
Speaker #7: Thank you . Good morning . So I just wanted to sort of start on the ammonia market . I mean , it's been tight with the limited supply and the ammonia contracts continue to kind of move higher up .
Speaker #7: I mean , sort of depending on what we assume there for December , it looks like pricing could be up $130 sequentially , if not more , into the fourth quarter .
Speaker #7: So I guess just kind of what's your view on the market there generally to begin with ? And then assuming we see sort of a large kind of increase somewhere in that range .
Speaker #7: How should we think about that flowing through to your fourth quarter pricing ?
Speaker #8: Lucas . So at a high level , it is a tight supply and demand market . Globally . On top of that , clearly we've got some issues going on in Trinidad that are affecting the market today and could have long term effects on the market .
Speaker #8: You know , I think also , while it's a little early , we feel like we're going to have a really healthy fall ammonia application season .
Speaker #8: So I think the , you know , everything's really setting up to have good demand . Certainly in the United States . And globally a bit tighter supply .
Speaker #8: And that's why you're seeing pricing move up . But I'll let Damien give give a little bit more color on , you know , the market itself .
Speaker #5: Yeah . Good morning Lucas . You know again like Mark said , this is a story about lack of supply more than anything else .
Speaker #5: You've got issues in the in the Middle East with the the modern plant in Saudi Arabia . Arabia having a very extended outage for a significant volume of tons .
Speaker #5: Other issues as well . And then you've got the news coming out of of Trinidad with production coming , coming out of the market for , you know , who knows how long and and the market is just reacting to that .
Speaker #5: So how long does that continue for ? Well , look , it'll continue for as long as that supply is is out of the market .
Speaker #5: And then the wildcard is is when does the new capacity come online in the in the US Gulf . And you know there's there's indications that some of that could be up you know later this year .
Speaker #5: And or early next year . But you know , who knows . That's the proof will be in the pudding when that happens .
Speaker #8: And I think just to add on to that , I mean , while that has been well known that that production is coming online and we can have some more supply in the marketplace , I think the wild card now is Trinidad .
Speaker #8: And what happens there , and could that offset all or some all or just partial some of that new demand , a new supply coming on .
Speaker #6: Yeah . And Lucas , in terms of how that pulls through in the financial results , as you know , we are tied to Tampa ammonia .
Speaker #6: And so you will see that pull through in our pricing for the fourth quarter .
Speaker #7: Great . Thanks . And then I guess just thinking about You.in , as we're kind of headed into the spring here . So , I mean , we've sort of been seeing some sort of softness in pricing there a bit as you sort of come off and we're out of the kind of high period of seasonal demand .
Speaker #7: So far . So I mean , it seems like that's probably going to continue to soften here a bit through the fourth quarter .
Speaker #7: But last year we had pretty strong price increases and tight local supply demand conditions as we sort of got into the spring . So I was just wondering if you guys could talk us through how you see the set up for 2026 .
Speaker #7: Then . ?
Speaker #5: Well , look , Lucas , I think we're a little more optimistic on on UAN . We're well sold forward . So I think our prices softening at the moment .
Speaker #5: I mean , yeah , sure . You Ria has softened a little bit , but I think that set up for a recovery shortly as , as that market tightens as Chinese exports exit their short entry in the last few months .
Speaker #5: And then the UAN market , I think produces a pretty comfortable here in the US . We all came out of last season with with very little inventory .
Speaker #5: And you know , there's been turnarounds etc. in the last few months . And I think that that tight supply is , is set up to continue .
Speaker #5: And , you know , we're confident that prices will be pretty healthy heading into Q1 and then into Q2 , into the application season .
Speaker #7: Great . Thanks . And just wanted to ask one on the volume side . So there's been a bit of a noise this year , sort of with the shift in the turnaround timing and kind of just the impact on sort of volume and the product mix between three Q and four Q , it seemed that was probably like flowing through to sort of costs in a few different ways as well .
Speaker #7: So I was wondering if you could kind of help us understand sort of the impacts that you saw there in the third quarter .
Speaker #7: And how you see the set up for the fourth quarter on the sort of the volume and the cost side due to that .
Um so we are down a pathway to to evaluate and really do our engineering studies to see if that really makes sense for us. Um would we backs stop that I think at a 100,000 tons
Um, we're probably pretty comfortable. If we did a big expansion, I think we would want to back. Stop it as is, you know, um, a lot of our risk aversion uh, for uh, trying to
Lock in some returns for the investment of capital. So,
I think we're not prepared yet to talk about the expansion. I think we'll wait until we get through our engineering studies and then
If it makes sense and the board supports it, then we'll we'll certainly announce it.
Okay, great. I appreciate that. Thank you.
Yeah.
Our next question comes from the line of Lawrence Alexander with Jefferies. Please proceed with your question.
Good morning. Uh, 2. If I met, uh, first on the industrial Market, uh, side of your business, can you just give a baseline for your seasonality going into next year? Um, with the current mix.
Of contracts. And then how do you think about extending the amount of pre-selling if there is any sort of fly up in ammonium? Nitrate prices?
And secondly with El Dorado, you know, what's your current thoughts around?
Changing your offtake structure or signing more offtake agreements as the project gets closer to completion.
Do you mean? I'll let you handle the first 1? Yeah, okay. So so seasonality Lauren, um,
Most of the offtake through the year is, is fairly readable. We, we do see some seasonality in our, an industrial business for explosives and that's simply related to to whether I mean we've got sales, um, up into
The Northern parts of the US and into Canada. And, uh, you know, when it gets cold it, it becomes more difficult for for those miners to, to blast and so that does mitigate, um, some of that demand. But, um,
you know, we're we're well set up to to manage that with our current infrastructure and and arrangements with our customers.
As far as the project at El Dorado, Lawrence are you referring to the carbon capture and sequestration project or are you referring to? If we were to expand, uh uh, our ammonia production capacity?
As as sticking to the uh, CCS uh, project.
yes, so the CCS project, um,
We've already got a negotiated um per ton of CO2, sequestered rate with our partner, lapis energy so that's already locked in.
Um, and as you know, we're generating the CO2 today, we're just venting it in the air.
So the project here is to capture it.
Um, dehydrated compress it and then sequester it. In a well that is actually already drilled on our property.
Um, so the real gating item here is just the permit. The class 6 permit from the EPA to allow us to
um, we saw in additional um, a end solution contracts or
Um, nitric acid. A customer contracts for those products at a premium. You know the team is working on that and is certainly engaged in conversations with customers. The other thing that we could do, and um, you know, we spent a fair amount of time looking at.
If you could sell in the interim, um,
You know, the the environmental attribute and there's a a value to that as well. So um, I think we're looking at all avenues to monetize. Um, the low carbon ammonia and the environmental attribute that is associated with that.
Thank you.
a final reminder, if you would like to ask a question press star 1 on your telephone keypad,
Our next question comes from the line of Rob Maguire with granite research, please receive with your question.
Good morning, uh, could you please talk about uan volumes. It looks like they're down around.
50,000 to about 135,000 year-over-year.
So we are we did have a bit of a mess on our uan production in the third quarter. Um, I would say, you know, we didn't quite meet our expectations. Um, we would expect to be in line with our expectations in the fourth quarter.
Okay, great. And then can you talk? Um,
What's your your Revenue mix of egg versus industrial and now that your your H stands being sold as ANS into the mining markets?
Hard to look at it on a revenue basis, Rob because revenue is really going to be driven by what the pricing looks like at any given time. I think it's probably better to look at it from a volume or a tons perspective. And so I think from the industrial side, we're probably 40 to 45 with the balance being um on the a market side.
Thank you. And then, um, you you talked about the proposed anti-dumping duties on imported MDI, can you just give us a little more color around the Dynamics and uh, around that topic.
Yeah, hi Rob. So um that uh evaluation is currently working its way through the the typical formal proceedings here in the US. I think there's a preliminary determination um that's out there and we're awaiting the the formal um determination
and that will then officially put in place the the anti-dumping duties on Chinese MDI and and so the effect of of that is
And we're saying, domestic producers uh, ramp up their MDI production as much as possible. Um, and nitric acid is a raw material into that that production chain, which is pretty complex. So I won't try and explain it to you. But um, yeah. So we're we're seeing some some pull through there and and certainly efforts
um, to increase production where possible
Wonderful, and then, uh, just 1 last question. Can you give us an update on your value creation initiative. Um, Mark you told us about what, what may be up and coming, but just, you know, what's left? Where you got where you're at, in terms of your progress,
Oh boy. We have a lot left.
um,
so, I would say, um, on our
Reliability and maintenance efforts. Um, you know, we still got a fair amount of opportunity out there so, you know, maybe we're
You know, somewhere between 25% and 50% complete with that. But, um, I think you know, I really do believe we have a lot of opportunity to not only improve our reliability and therefore, the production tons, but do it in a much more efficient manner, so lower costs. And so we're focused on both of those.
um, when it comes to
Uh profit optimization. Um I think we're, you know, I think we outline that there was probably 20 million dollars or so that um, we expect to come from that. And, you know, we're somewhere again, um, between, you know, 40 and 50% when it comes to that. Um, as far as some of the other initiatives that we have,
Um I think you know the the greatest thing about all of this is we're like kids in a candy store here. I mean, like there's every day, you know, we're trying to solve for issues or um,
You know, I think we'll give a lot more color on our fourth quarter conference, call a year in conference, call of exactly where we are. And, um, what we expect, uh, to achieve in 2026.
Thank you.
Mr. Baron we have no further questions at this time. I'd like to turn the floor back over to you for closing comments.
Alright. Well as always uh thank you. Uh everyone on the call for their interests and great questions. As you can tell, we're really excited about the business and we're the markets are today and so stay tuned. Thanks so much.
Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.