LSB Industries, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; financial statements are unaudited. LSB manufactures and sells nitrogen-based chemicals for agricultural, industrial and mining markets. Results are seasonal and affected by planting schedules and plant maintenance.
Financial performance
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Net sales | $199.0 million | $98.1 million |
| Gross profit / gross margin | $90.7 million / 45.6% | $8.1 million / 8.2% |
| Adjusted gross profit / margin (non-GAAP) | $110.4 million / 55.5% | $24.9 million / 25.4% |
| Operating income (loss) | $80.0 million | $(0.5) million |
| Net income (loss) | $58.8 million | $(13.3) million |
| Diluted earnings (loss) per share | $0.65 | $(0.63) |
| Operating cash flow | $85.5 million | $12.7 million |
| Capital expenditures | $8.3 million | $6.1 million |
Revenue rose 103%, principally on sharply higher selling prices; total tons sold across the listed major products fell 15%. Average selling prices increased 85% for AN and nitric acid, 251% for UAN, and 202% for ammonia. Sales by product were $71.8 million for AN and nitric acid, $56.6 million for UAN, and $59.3 million for ammonia. Gross profit benefited from pricing and comparison with Q1 2021, which was affected by Winter Storm Uri; higher natural gas costs and lower agricultural-product volumes partly offset the improvement. Natural gas averaged $4.74/MMBtu, versus $3.15/MMBtu.
Net cash increased $172.2 million to $254.3 million. Cash from operations was partly offset by $89.3 million of purchases of short-term investments and $8.3 million of capital expenditures; financing provided $184.2 million, mainly from the March debt issuance. Short-term investments were $89.3 million at quarter-end.
Debt and liquidity
At March 31, 2022, total long-term debt, including current maturities and net of discounts and issuance costs, was $716.5 million; stockholders’ equity was $518.2 million. LSB issued $200 million of additional 6.25% senior secured notes due 2028 in March, bringing their principal outstanding to $700 million. The company reported $62.4 million of revolver availability and no revolver borrowings; no springing covenant trigger had occurred. Management said cash, revolver availability and operating cash flow should cover anticipated needs for the next 12 months.
Outlook and management commentary
- Management targeted 2022 ammonia production of approximately 770,000–790,000 tons, including an estimated 55,000–65,000-ton production reduction during planned third-quarter turnarounds at El Dorado and Pryor.
- Expected 2022 capital expenditures were approximately $65 million, including about $15 million for margin-enhancement projects; management separately described targeting $10–$15 million in capital projects focused on storage and distribution.
- Management expected favorable nitrogen-product pricing to continue through the balance of 2022, citing tight supply, robust demand, higher feedstock costs, and disruption from Russia’s invasion of Ukraine. This outlook is subject to significant market, weather, cost and operating uncertainty.
- Initiatives include plant safety and reliability improvements, product-mix optimization, potential capacity debottlenecking, and evaluation of blue- and green-ammonia opportunities. These are plans or evaluations, not assured results.
- Q1 SG&A included approximately $2.2 million of nonrecurring transaction fees. Interest expense was $10.0 million versus $12.4 million a year earlier, reflecting the refinancing to lower-coupon notes; management expected interest expense to increase compared with 2021 overall.
Risks, contingencies and notable items
- Key exposures include volatile ammonia and natural-gas prices, the ability to pass through costs, seasonal demand, weather, freight and truck-driver constraints, and plant reliability. El Dorado and Pryor turnarounds were scheduled for Q3 2022.
- Environmental obligations include ongoing permitting and groundwater matters; accrued environmental liabilities were approximately $0.5 million. Management expected $0.7–$0.9 million of environmental-project expenses for the rest of 2022.
- LSB continues to face litigation related to the 2013 West Fertilizer explosion and said it could not estimate a possible loss range; no reserve was recorded for that matter. In a separate Global Industrial dispute, a judgment of approximately $7.4 million plus $1.3 million of prejudgment interest was accrued and stayed pending appeal.
- Natural-gas contracts with fixed-cost commitments covered approximately 1.8 million MMBtu through April 2022; the filing reported no outstanding mark-to-market natural-gas contracts at quarter-end.
- Management reported disclosure controls and procedures were effective as of March 31, 2022. The filing notes results for this seasonal quarter are not necessarily indicative of full-year results.
Important facts for investors to verify
- Whether elevated nitrogen prices and margins persist, and how price changes compare with movements in natural-gas and other input costs.
- Whether planned Q3 turnarounds and reliability initiatives affect production, costs or the 770,000–790,000-ton ammonia target.
- Execution and funding of the approximately $65 million 2022 capital plan, including the anticipated returns from margin-enhancement projects.
- Debt-service capacity, use of the $200 million note proceeds, and ongoing revolver availability and covenant status.
- Developments in West Fertilizer and Global Industrial litigation, environmental matters and permitting, including any change to recorded reserves or expected costs.