LSB Industries, Inc. — 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. This is an annual filing, not a standalone fourth-quarter report. LSB manufactures ammonia and related products for agricultural, industrial and mining markets at three owned facilities and operates a Baytown facility for Covestro. Ernst & Young issued an unqualified opinion on the financial statements and internal controls.
Financial performance and liquidity
| Metric | 2023 | 2022 |
|---|---|---|
| Net sales | $593.7 million | $901.7 million |
| Gross profit / margin | $86.3 million / 14.5% | $348.4 million / 38.6% |
| Operating income | $51.8 million | $308.4 million |
| Net income | $27.9 million | $230.3 million |
| Diluted earnings per share | $0.37 | $2.68 |
| Cash provided by operating activities | $137.5 million | $345.7 million |
| Capital expenditures | $67.6 million | $45.8 million |
At year-end, cash and cash equivalents were $98.5 million and short-term investments were $207.4 million; restricted cash was $2.5 million. The company reported $44.5 million available under its undrawn revolving facility and approximately $353 million of combined cash, restricted cash, short-term investments and borrowing capacity.
Reported long-term debt, including current maturities and net of issuance costs, was $581.7 million, compared with $712.3 million a year earlier. This included $575 million principal amount of 6.25% senior secured notes due in 2028. During 2023, LSB repurchased $125 million principal amount of notes for approximately $114.3 million and recognized an $8.6 million gain on extinguishment. Net interest expense was $41.1 million.
Material changes versus 2022
- Revenue fell 34%; operating income declined 83% and net income fell 88%. Lower selling prices across major products outweighed higher agricultural volumes.
- Average selling prices declined 22% for AN and nitric acid, 40% for UAN and 57% for ammonia. The Tampa ammonia benchmark fell 56%.
- Total sales volume for the three principal product groups rose 6%, to 1.39 million tons. UAN volume increased 8% and ammonia volume 36%, while AN and nitric acid volume decreased 10%.
- Average natural gas cost fell to $4.16 per MMBtu from $6.58; purchased volume increased to 29.8 million MMBtus from 27.8 million.
- Operating cash flow decreased by $208.1 million. The company attributed the decline primarily to lower sales, partly offset by working-capital movements and other factors.
- No ammonia plant turnarounds occurred in 2023; turnarounds at Pryor and Cherokee are planned for the third quarter of 2024.
Outlook, commentary and significant items
- Management expects 2024 ammonia production of approximately 790,000–810,000 tons, below 2023 production of 816,000 tons, mainly due to planned turnarounds. Its reliability objective is a 95% ammonia on-stream operating rate.
- Management expects ammonia prices to moderate from late-2023 levels; it sees potential support for urea and UAN prices from Chinese urea export limitations, and anticipates healthy fertilizer demand for the 2024 planting season. These are expectations, not formal earnings guidance.
- Management expects 2024 capital expenditures of approximately $60–$80 million. El Dorado capacity-expansion projects were put on hold for 2024 for reevaluation in 2025; smaller projects include additional Pryor UAN capacity and El Dorado storage and rail-loading improvements.
- Low-carbon initiatives include an El Dorado carbon-capture project with Lapis Energy, subject to a pending EPA Class VI permit, and a Houston Ship Channel project under pre-FEED with partners. The latter’s proposed first phase targets more than 1.1 million metric tons of annual production by end-2027. The Pryor green-ammonia project was put on hold after tax-credit guidance and project costs changed its economics; redesign discussions continue.
- The Arkansas Court of Appeals reversed and remanded the Global Industrial judgment; LSB reversed approximately $9.8 million of payables and accrued liabilities, including related interest and depreciation impacts. LSB plans to pursue its separate claims against Leidos, with trial expected in late summer 2024.
- The West Fertilizer litigation remains unresolved; the company reported no reserve and said it could not estimate a possible loss. Environmental matters include an unresolved Pryor wastewater-disposal alternative with costs not yet estimable, and an EPA notice of potential violations at Cherokee for which a proposed penalty arrangement was accepted and accrued. Environmental liabilities accrued were approximately $0.4 million.
- Key risks include nitrogen-price and natural-gas volatility, seasonal and weather-sensitive demand, facility outages, customer concentration (five customers represented about 32% of 2023 sales), environmental and safety obligations, project execution and permitting, and substantial debt and covenant restrictions. LSB does not anticipate common cash dividends in the near term.
Important facts for investors to verify
- Review the audited statements and notes for the drivers of the sharp price-related earnings decline, cash-flow conversion and inventory or working-capital effects.
- Confirm debt balances, borrowing-base availability, covenant conditions and the maturity and refinancing implications of the 2028 notes.
- Track 2024 production, turnaround execution, capital spending and the anticipated margin contribution from downstream-product and distribution projects.
- Check permitting, partner commitments, financing, offtake arrangements and economics for the low-carbon projects, particularly El Dorado and the Houston Ship Channel.
- Follow the Global/Leidos proceedings, West Fertilizer litigation, Pryor wastewater matter and Cherokee environmental settlement for changes in exposure or cash obligations.