LSB Industries, Inc. Reports Operating Results for the 2024 Second Quarter

Rhea-AI Summary

LSB Industries (NYSE: LXU) reported Q2 2024 results with net sales of $140 million, down from $166 million in Q2 2023. Net income decreased to $10 million from $25 million, and diluted EPS fell to $0.13 from $0.33 year-over-year. Adjusted EBITDA was $41 million, compared to $47 million in Q2 2023.

The company highlighted a five-year agreement to supply low carbon ammonium nitrate solution to Freeport Minerals LSB Industries continued its share repurchase program, buying back 0.8 million shares in Q2 and 1.5 million year-to-date. The company also repurchased $64 million in principal amount of Senior Secured Notes during Q2, reducing total debt to approximately $486 million.

LSB Industries is progressing on two clean ammonia projects, with the EPA expected to make a final decision on the El Dorado carbon capture and sequestration project by Spring 2025. The company remains focused on becoming a leader in low carbon ammonia production.

Positive

• Signed five-year agreement to supply low carbon ammonium nitrate solution to Freeport Minerals
• Generated solid cash flow in Q2, enabling stock repurchases and debt reduction
• Total cash of approximately $216 million as of June 30, 2024
• Progressing on two clean ammonia projects with potential production start in early 2026
• Repurchased $64 million in principal amount of Senior Secured Notes during Q2, reducing total debt

Negative

• Net sales decreased to $140 million from $166 million in Q2 2023
• Net income declined to $10 million from $25 million year-over-year
• Diluted EPS fell to $0.13 from $0.33 in Q2 2023
• Adjusted EBITDA decreased to $41 million from $47 million in Q2 2023
• Lower pricing for UAN, AN, and nitric products, coupled with lower sales volumes for HDAN and ammonia

Insights

Financial Analyst

LSB Industries' Q2 2024 results present a mixed picture with some concerning trends but also positive developments. Net sales decreased by 15.6% year-over-year to $140 million, while net income fell by 60% to $10 million. This decline in financial performance is primarily attributed to lower pricing for key products and reduced sales volumes for HDAN and ammonia.

However, there are several positive aspects to consider:

• The company generated strong operating cash flow of $41 million, demonstrating solid cash generation ability.
• LSB continues to strengthen its balance sheet, repurchasing $64 million in principal amount of Senior Secured Notes during Q2, reducing total debt to $486 million.
• The company maintains a healthy cash position of $216 million, providing financial flexibility.

The five-year agreement to supply low carbon ammonium nitrate solution to Freeport Minerals is a significant development, potentially opening up new revenue streams in the growing market for environmentally friendly products. This aligns well with LSB's ongoing clean ammonia projects, which could position the company as a leader in the energy transition.

While the current financial performance shows some weakness, LSB's strategic initiatives and market positioning suggest potential for future growth. Investors should closely monitor the progress of the company's low-carbon projects and the impact of recent turnarounds on production efficiency.

Market Research Analyst

The market outlook for LSB Industries presents a complex landscape with both challenges and opportunities. In the industrial sector, demand remains stable, supported by robust consumer spending and infrastructure development. The metals market, particularly copper, is showing strength due to demand from data centers and electric vehicles, which bodes well for LSB's ammonium nitrate products.

The ammonia market is currently healthy, with pricing supported by several factors:

• A balanced U.S. supply-demand dynamic
• Global supply constraints due to facility turnarounds and natural gas curtailments
• Shipping disruptions affecting imports into Europe

UAN pricing remains solid, benefiting from low inventories and the strong ammonia market. However, corn futures prices have weakened, which could potentially impact demand for agricultural products.

The company's focus on low-carbon ammonia projects is particularly noteworthy. With the Houston Ship Channel Blue Ammonia project and the El Dorado Carbon Capture and Sequestration project, LSB is positioning itself at the forefront of the energy transition. The recent agreement with Freeport Minerals for low carbon ANS supply validates the market demand for these products.

While current financial results show some pressure, LSB's strategic initiatives align well with emerging market trends, particularly in sustainable and low-carbon products. This positioning could provide a competitive advantage as industries increasingly prioritize decarbonization efforts.

OKLAHOMA CITY--(BUSINESS WIRE)-- LSB Industries, Inc. (NYSE: LXU) (“LSB” or the “Company”) today announced results for the second quarter ended June 30, 2024.

Second Quarter 2024 Results and Recent Highlights

• Net sales of $140 million compared to $166 million in the second quarter of 2023
• Net income of $10 million compared to $25 million in the second quarter of 2023
• Diluted EPS of $0.13 compared to $0.33 for the second quarter of 2023
• Adjusted EBITDA⁽¹⁾ of $41 million compared to $47 million in the second quarter of 2023
• Cash Flow from Operations of $41 million with Capital Expenditures of $15 million
• Repurchased approximately 0.8 million shares of common stock during the second quarter of 2024, and approximately 1.5 million shares year-to-date
• Repurchased $64 million in principal amount of Senior Secured Notes during the second quarter of 2024, and $97 million in principal amount year-to-date; total debt of approximately $486 million as of June 30, 2024
• Total cash of approximately $216 million as of June 30, 2024
• Signed five-year agreement to supply low carbon ammonium nitrate solution (ANS) to Freeport Minerals Corporation ("Freeport")

______________________________
(1)	This is a Non-GAAP measure. Refer to the Non-GAAP Reconciliation section.

“Our second quarter was highlighted by our landmark agreement to supply Freeport Minerals with low carbon ANS for use in their copper mining operations," stated Mark Behrman, LSB Industries' President and CEO. "This agreement validates our belief that industrial customers will identify low carbon nitrogen products as a critical pathway toward achieving their decarbonization initiatives."

"Our second quarter profitability improved sequentially due largely to improved pricing relative to the first quarter of this year. While selling prices were down compared to the second quarter of last year, the year-over-year pricing decline was much less significant than the declines experienced over the previous several quarters. We view this as indicative of a stabilization of our markets after a period of downward volatility following the spike in nitrogen prices experienced in 2022.”

"We generated solid cash flow in the second quarter, contributing to our ability to return value to shareholders through stock repurchases, while further de-risking our balance sheet by repurchasing bonds at a discount to their principal value. We continue to make investments in the reliability and safety of our facilities which we expect to lead to greater production volumes. We have recently commenced a Turnaround at our Pryor facility and plan to conduct a Turnaround at our Cherokee facility in the fourth quarter. When combined with the multiple smaller projects we have underway, we expect these Turnarounds to lead to increased reliability and incremental EBITDA and cash flow."

"We continue to make progress on our two clean ammonia projects. The EPA is currently indicating a final decision next Spring on the Class VI permit application submitted by our partner, Lapis Energy, for our El Dorado carbon capture and sequestration project. This timeline would position us to begin producing low carbon ammonia by early 2026. Our contract with Freeport makes a strong statement about the demand by large U.S. industrial companies for low carbon ammonia and its derivative products. With respect to our Houston Ship Channel project, we are excited to complete our Pre-FEED study over the next few months and anticipate proceeding to a full FEED study, which we expect to provide us with a better sense of the economics for the project. Concurrently, we continue to have productive conversations with potential off-take parties for the low carbon product from this facility. We are encouraged by the positive developments with both of our projects and remain committed to our vision of becoming a leader in the global energy transition through the production of low carbon ammonia and downstream products over the next several years."

Market Outlook

• Industrial business remains stable reflecting:
  • Steady demand for nitric acid supported by the strength of the U.S. economy and robust consumer spending levels
  • Demand for ammonium nitrate (AN) bolstered by U.S. production of metals, including copper for data centers and electric vehicles, as well as quarrying/aggregate production for infrastructure upgrade and expansion
  • Metals commodity prices are very supportive of maximizing production

• Ammonia market is healthy and pricing has been strong driven by:
  • Healthy summer fill program, suggesting balanced U.S. supply-demand dynamics
  • Extended turnaround at a large Saudi Arabian facility and natural gas curtailments in Trinidad and Egypt, limiting global supply
  • Constrained ammonia imports into Europe from the Middle East due to the ongoing disruption of shipping through the Suez Canal
  • Delayed startup of new production capacity

• UAN pricing remains solid due to:
  • Low inventories in the distribution channel following the Spring application season
  • Updraft from strong ammonia and, to a lesser extent, urea markets, both of which are benefiting from global supply constraints

• Corn futures prices have weakened as a result of:
  • Increased stocks-to-use ratios
  • USDA forecasts for U.S. corn acres planted in 2024 higher than historical average
  • Potentially offsetting the above factors could be the impact of wet weather in certain growing regions resulting in reduced yields

Low-Carbon Ammonia Projects Summary

• Houston Ship Channel Blue Ammonia project with INPEX, Air Liquide and Vopak Exolum Houston
  • 1.1 million metric ton per year blue ammonia plant utilizing blue hydrogen provided by Air Liquide/INPEX (JV)
  • Pre-FEED is underway with expected completion in Q4'24
  • FEED study expected to begin in Q1'25 with expected completion during Q4'25; final investment decision in Q1'26

• El Dorado Carbon Capture and Sequestration (CCS) Project with Lapis Energy
  • Capture and sequester between 400,000 and 500,000 metric tons of CO₂ per year, which would reduce our Scope 1 emissions by 25%, yielding between 305,000 and 380,0000 metric tons per year of low carbon ammonia
  • Awaiting approval of Class VI permit to construct application by the EPA
  • Focused on beginning operations in Q1'26

• MOU with Amogy to Develop Ammonia as a Marine Fuel
  • Collaborating on the evaluation and development of pilot program that would combine LSB's low-carbon ammonia and Amogy's ammonia-to-power engine solution
  • Amogy to test tugboat retrofitted with power unit using ammonia as a fuel during Q3'24

Second Quarter Results Overview

		Three Months Ended
		June 30,
		2024			2023			% Change
Product Sales ($ in Thousands)
AN & Nitric Acid		$	58,442		$	69,561			(16	)%
Urea ammonium nitrate (UAN)			42,808			40,905			5	%
Ammonia			28,448			39,612			(28	)%
Other			10,375			15,767			(34	)%
Total net sales		$	140,073		$	165,845

Comparison of 2024 to 2023 quarterly periods:

• Net sales and operating income declined during the quarter driven by lower pricing for UAN and our AN and nitric products coupled with lower sales volumes for HDAN and ammonia. These headwinds were partially offset by lower natural gas prices.

The following tables provide key sales metrics for our products:

		Three Months Ended
		June 30,
Key Product Volumes (short tons sold)		2024			2023			% Change
AN & Nitric Acid			147,619			161,987			(9	)%
Urea ammonium nitrate (UAN)			137,499			126,010			9	%
Ammonia			72,294			102,047			(29	)%
			357,412			390,044			(8	)%

Average Selling Prices (price per short ton) (A)
AN & Nitric Acid		$	337		$	381			(12	)%
Urea ammonium nitrate (UAN)		$	271		$	285			(5	)%
Ammonia		$	368		$	367			0	%

(A)	Average selling prices represent “net back” prices which are calculated as sales less freight expenses divided by product sales volume in tons.

		Three Months Ended June 30,
		2024			2023			% Change
Average Benchmark Prices (price per ton)
Tampa Ammonia (MT) Benchmark		$	440		$	370			19	%
NOLA UAN		$	246		$	251			(2	)%
Input Costs
Average natural gas cost/MMBtu in cost of materials and other		$	1.70		$	3.59			(53	)%
Average natural gas cost/MMBtu used in production		$	1.92		$	3.39			(43	)%

Conference Call

LSB’s management will host a conference call covering the second quarter results on Thursday, August 1, 2024 at 10:00 am ET / 9:00 am CT to discuss these results and recent corporate developments. Participating in the call will be President & Chief Executive Officer, Mark Behrman, Executive Vice President & Chief Financial Officer, Cheryl Maguire and Executive Vice President & Chief Commercial Officer, Damien Renwick. Interested parties may participate in the call by dialing (877) 407-6176 / (201) 689-8451. Please call in 10 minutes before the conference is scheduled to begin and ask for the LSB conference call. To coincide with the conference call, LSB will post a slide presentation at www.lsbindustries.com on the webcast section of the Investor tab of our website.

To listen to a webcast of the call, please go to the Company’s website at www.lsbindustries.com at least 15 minutes prior to the conference call to download and install any necessary audio software. If you are unable to listen live, the conference call webcast will be archived on the Company’s website.

LSB Industries, Inc.

LSB Industries, Inc., headquartered in Oklahoma City, Oklahoma, is committed to playing a leadership role in the energy transition through the production of low and no carbon products that build, feed and power the world. The LSB team is dedicated to building a culture of excellence in customer experiences as we currently deliver essential products across the agricultural, industrial, and mining end markets and, in the future, the energy markets. The company manufactures ammonia and ammonia-related products at facilities in Cherokee, Alabama, El Dorado, Arkansas and Pryor, Oklahoma and operates a facility for a global chemical company in Baytown, Texas. Additional information about LSB can be found on our website at www.lsbindustries.com.

Forward-Looking Statements

Statements in this release that are not historical are forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements, which are subject to known and unknown risks, uncertainties and assumptions about us, may include projections of our future financial performance and anticipated performance based on our growth and other strategies and anticipated trends in our business. These statements are only predictions based on our current expectations and projections about future events. There are important factors that could cause our actual results, level of activity, performance or actual achievements to differ materially from the results, level of activity, performance or anticipated achievements expressed or implied by the forward-looking statements. Significant risks and uncertainties may relate to, but are not limited to, business and market disruptions, market conditions and price volatility for our products and feedstocks, as well as global and regional economic downturns that adversely affect the demand for our end-use products; disruptions in production at our manufacturing facilities and other financial, economic, competitive, environmental, political, legal and regulatory factors. These and other risk factors are discussed in the Company’s filings with the Securities and Exchange Commission (SEC).

Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for our management to predict all risks and uncertainties, nor can management assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Although we believe the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, level of activity, performance or achievements. Neither we nor any other person assumes responsibility for the accuracy or completeness of any of these forward-looking statements. You should not rely upon forward-looking statements as predictions of future events. Unless otherwise required by applicable laws, we undertake no obligation to update or revise any forward-looking statements, whether because of new information or future developments.

See Accompanying Tables

LSB Industries, Inc. Consolidated Statements of Operations
		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2024				2023				2024				2023
		(In Thousands, Except Per Share Amounts)
Net sales		$	140,073			$	165,845			$	278,277			$	346,809
Cost of sales			112,658				129,813				228,584				269,172
Gross profit			27,415				36,032				49,693				77,637
Selling, general and administrative expense			11,547				9,436				21,841				19,303
Other expense (income), net			1,465				(900	)			2,189				303
Operating income			14,403				27,496				25,663				58,031
Interest expense, net			8,385				11,836				18,114				24,048
Gain on extinguishment of debt			(1,879	)			(8,644	)			(3,013	)			(8,644	)
Non-operating other income, net			(2,908	)			(3,764	)			(6,469	)			(7,240	)
Income before provision for income taxes			10,805				28,068				17,031				49,867
Provision for income taxes			1,250				2,973				1,853				8,871
Net income		$	9,555			$	25,095			$	15,178			$	40,996
Income per common share:
Basic:
Net income		$	0.13			$	0.33			$	0.21			$	0.54
Diluted:
Net income		$	0.13			$	0.33			$	0.21			$	0.54

LSB Industries, Inc. Consolidated Balance Sheets
		June 30,				December 31,
		2024				2023
		(In Thousands)
Assets
Current assets:
Cash and cash equivalents		$	216,257			$	98,500
Restricted cash			77				2,532
Short-term investments			—				207,434
Accounts receivable			42,242				40,749
Allowance for doubtful accounts			(327	)			(364	)
Accounts receivable, net			41,915				40,385
Inventories:
Finished goods			19,202				26,329
Raw materials			2,068				1,799
Total inventories			21,270				28,128
Supplies, prepaid items and other:
Prepaid insurance			6,153				14,846
Precious metals			12,447				12,094
Supplies			31,257				30,486
Other			2,627				2,337
Total supplies, prepaid items and other			52,484				59,763
Total current assets			332,003				436,742
Property, plant and equipment, net			830,077				835,298
Other assets:
Operating lease assets			25,602				24,852
Intangible and other assets, net			1,376				1,292
			26,978				26,144
		$	1,189,058			$	1,298,184

LSB Industries, Inc. Consolidated Balance Sheets (continued)
		June 30,				December 31,
		2024				2023
		(In Thousands)
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable		$	61,343			$	68,323
Short-term financing			4,551				13,398
Accrued and other liabilities			25,543				30,961
Current portion of long-term debt			5,871				5,847
Total current liabilities			97,308				118,529
Long-term debt, net			479,769				575,874
Noncurrent operating lease liabilities			17,491				16,074
Other noncurrent accrued and other liabilities			523				523
Deferred income taxes			71,174				68,853
Commitments and contingencies
Stockholders' equity:
Common stock, $.10 par value; 150 million shares authorized, 91.2 million shares issued			9,117				9,117
Capital in excess of par value			501,422				501,026
Retained earnings			242,193				227,015
			752,732				737,158
Less treasury stock, at cost:
Common stock, 19.5 million shares (18.1 million shares at December 31, 2023)			229,939				218,827
Total stockholders' equity			522,793				518,331
		$	1,189,058			$	1,298,184

Non-GAAP Reconciliations

This news release includes certain “non-GAAP financial measures” under the rules of the Securities and Exchange Commission, including Regulation G. These non-GAAP measures are calculated using GAAP amounts in our consolidated financial statements.

EBITDA and Adjusted EBITDA Reconciliation

EBITDA is defined as net income (loss) plus interest expense and interest income, net, less gain on extinguishment of debt, plus depreciation and amortization (D&A) (which includes D&A of property, plant and equipment and amortization of intangible and other assets), plus provision (benefit) for income taxes. Adjusted EBITDA is reported to show the impact of non-cash stock-based compensation, one time/non-cash or non-operating items-such as, one-time income or fees, loss (gain) on sale of a business and/or other property and equipment, certain fair market value (FMV) adjustments, and consulting costs associated with reliability and purchasing initiatives (Initiatives). We historically have performed turnaround activities on an annual basis; however, we have moved towards extending turnarounds to a two or three-year cycle. Rather than being capitalized and amortized over the period of benefit, our accounting policy is to recognize the costs as incurred. Given these turnarounds are essentially investments that provide benefits over multiple years, they are not reflective of our operating performance in a given year.

We believe that certain investors consider EBITDA a useful means of measuring our ability to meet our debt service obligations and evaluating our financial performance. In addition, we believe that certain investors consider adjusted EBITDA as more meaningful to further assess our performance. We believe that the inclusion of supplementary adjustments to EBITDA is appropriate to provide additional information to investors about certain items.

EBITDA and adjusted EBITDA have limitations and should not be considered in isolation or as a substitute for net income, operating income, cash flow from operations or other consolidated income or cash flow data prepared in accordance with GAAP. Because not all companies use identical calculations, this presentation of EBITDA and adjusted EBITDA may not be comparable to a similarly titled measure of other companies. The following table provides a reconciliation of net income (loss) to EBITDA and adjusted EBITDA for the periods indicated.

Non-GAAP Reconciliations (continued)
LSB Consolidated ($ In Thousands)		Three Months Ended June 30,
		2024				2023
Net income		$	9,555			$	25,095
Plus:
Interest expense and interest income, net			5,445				8,065
Net (gain) on extinguishment of debt			(1,879	)			(8,644	)
Depreciation and amortization			18,784				17,103
Provision for income taxes			1,250				2,973
EBITDA		$	33,155			$	44,592
Stock-based compensation			2,099				1,927
Legal fees (Leidos)			479				91
Loss on disposal and impairment of assets			1,489				550
Turnaround costs			3,439				(39	)
Growth Initiatives			485
Adjusted EBITDA		$	41,146			$	47,121

Ammonia, AN, Nitric Acid, UAN Sales Price Reconciliation

The following table provides a reconciliation of total identified net sales as reported under GAAP in our consolidated financial statements reconciled to netback sales which is calculated as net sales less freight and other non-netback costs. We believe this provides a relevant industry comparison among our peer group.

		Three Months Ended June 30,
		2024				2023
		(In Thousands)
Ammonia, AN, Nitric Acid, UAN net sales		$	129,698			$	150,079
Less freight and other			16,074				14,881
Ammonia, AN, Nitric Acid, UAN netback sales		$	113,624			$	135,198

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20240731920854/en/

Company Contact:

Cheryl Maguire, Executive Vice President & CFO

(405) 510-3524

Fred Buonocore, CFA, Vice President of Investor Relations

(405) 510-3550

fbuonocore@lsbindustries.com

Source: LSB Industries, Inc.

FAQ

What were LSB Industries' (LXU) key financial results for Q2 2024?

LSB Industries reported net sales of $140 million, net income of $10 million, diluted EPS of $0.13, and Adjusted EBITDA of $41 million for Q2 2024.

How did LSB Industries' (LXU) Q2 2024 results compare to Q2 2023?

Compared to Q2 2023, net sales decreased from $166 million, net income fell from $25 million, diluted EPS declined from $0.33, and Adjusted EBITDA decreased from $47 million.

What significant agreement did LSB Industries (LXU) sign in Q2 2024?

LSB Industries signed a five-year agreement to supply low carbon ammonium nitrate solution (ANS) to Freeport Minerals

How much debt did LSB Industries (LXU) repurchase in Q2 2024?

LSB Industries repurchased $64 million in principal amount of Senior Secured Notes during Q2 2024, and $97 million in principal amount year-to-date.

What is the status of LSB Industries' (LXU) clean ammonia projects as of Q2 2024?

LSB Industries is progressing on two clean ammonia projects. The EPA is expected to make a final decision on the El Dorado carbon capture and sequestration project by Spring 2025, with potential production start in early 2026.