LSB Industries(US:LXU)2022-07-28 20:06markdown PART I – Financial Information [Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) The company's financial statements for June 30, 2022, reflect significant year-over-year growth in total assets, net sales, and net income, driven by higher cash, new investments, and increased long-term debt [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of June 30, 2022, total assets increased to **$1.51 billion** from **$1.13 billion** at December 31, 2021, primarily due to higher cash, new short-term investments, and increased long-term debt, with stockholders' equity also growing Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $125,231 | $82,144 | | Short-term investments | $325,566 | $— | | Total current assets | $638,026 | $243,136 | | Property, plant and equipment, net | $839,411 | $858,480 | | **Total Assets** | **$1,507,714** | **$1,132,840** | | **Liabilities & Equity** | | | | Total current liabilities | $117,292 | $104,929 | | Long-term debt, net | $704,427 | $518,190 | | Total stockholders' equity | $609,559 | $460,490 | | **Total Liabilities and Stockholders' Equity** | **$1,507,714** | **$1,132,840** | [Condensed Consolidated Statements of Operations](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) For the three and six months ended June 30, 2022, the company reported a significant increase in profitability, with Q2 net sales more than doubling to **$284.8 million**, resulting in **$103.4 million** net income and **$1.15** diluted EPS Consolidated Statements of Operations Highlights (in thousands, except per share amounts) | Metric | Q2 2022 | Q2 2021 | H1 2022 | H1 2021 | | :--- | :--- | :--- | :--- | :--- | | Net sales | $284,803 | $140,696 | $483,784 | $238,812 | | Gross profit | $142,924 | $35,008 | $233,654 | $43,068 | | Operating income | $132,658 | $26,457 | $212,629 | $25,987 | | Net income | $103,399 | $23,670 | $162,165 | $10,391 | | Diluted EPS | $1.15 | $0.32 | $1.81 | $(0.28) | [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) For the six months ended June 30, 2022, net cash from operating activities substantially increased to **$220.8 million**, with **$341.9 million** used in investing for short-term investments, and **$164.2 million** provided by financing activities, mainly from new debt Six Months Ended June 30, Cash Flow Summary (in thousands) | Cash Flow Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $220,813 | $30,581 | | Net cash used by investing activities | $(341,934) | $(14,549) | | Net cash provided (used) by financing activities | $164,208 | $(14,671) | | **Net increase in cash and cash equivalents** | **$43,087** | **$1,361** | [Notes to Condensed Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) The notes provide details on accounting policies, debt structure, and revenue disaggregation, highlighting the issuance of an additional **$200 million** in Senior Secured Notes, a **$50 million** stock repurchase program, and significant net sales increases across all major product categories - The company is engaged in the manufacture and sale of chemical products, including ammonia, fertilizers (HDAN, UAN), and various industrial acids, from four facilities[26](index=26&type=chunk) - In May 2022, the Board authorized a stock repurchase program for up to **$50 million** of outstanding common stock. During Q2 2022, approximately **0.7 million shares** were repurchased at an average cost of **$18 per share**[30](index=30&type=chunk) - In March 2022, the company issued an additional **$200 million** of its 6.25% Senior Secured Notes due 2028, bringing the total outstanding to **$700 million**[46](index=46&type=chunk)[49](index=49&type=chunk) Disaggregated Net Sales by Product (in thousands) | Product | Q2 2022 | Q2 2021 | H1 2022 | H1 2021 | | :--- | :--- | :--- | :--- | :--- | | AN & Nitric Acid | $96,142 | $56,739 | $167,942 | $106,576 | | Urea ammonium nitrate (UAN) | $76,986 | $29,899 | $133,555 | $47,537 | | Ammonia | $89,444 | $38,541 | $148,786 | $59,706 | | Other | $22,231 | $15,517 | $33,501 | $24,993 | | **Total net sales** | **$284,803** | **$140,696** | **$483,784** | **$238,812** | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=19&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management attributes strong Q2 2022 performance to significantly higher selling prices driven by favorable market dynamics, while focusing on operational reliability, product mix optimization, and low-carbon ammonia opportunities, with sufficient liquidity for projected **$65 million** in capital expenditures [Overview and Key Initiatives](index=19&type=section&id=Overview%20and%20Key%20Initiatives) Key initiatives for 2022 focus on EHS, reliability, product mix optimization, and low-carbon ammonia strategy, including agreements for blue ammonia at El Dorado and green ammonia at Pryor, with product selling prices significantly rising due to strong demand - Key strategic initiatives include improving plant safety and reliability, broadening product distribution, and capitalizing on low carbon (blue/green) ammonia and clean energy opportunities[107](index=107&type=chunk) - The company entered an agreement with Lapis Energy to capture and sequester over **450,000 metric tons of CO2 annually** at its El Dorado facility, enabling the production of over **375,000 metric tons of blue ammonia**[110](index=110&type=chunk) - Agreements were signed with Thyssenkrupp Uhde and Bloom Energy to develop a project to produce approximately **30,000 metric tons of green ammonia per year** at the Pryor facility[111](index=111&type=chunk) [Key Industry and Operational Factors](index=21&type=section&id=Key%20Industry%20and%20Operational%20Factors) Fertilizer prices are supported by strong global grain demand, high European natural gas costs, and Russia-Ukraine conflict disruptions, with natural gas feedstock costs rising to **$7.15/MMBtu** in Q2 2022, and the company targeting **750,000 to 780,000 tons** of ammonia production for 2022 - Elevated fertilizer prices are supported by strong corn prices, high natural gas costs in Europe impacting global production, and the Russia-Ukraine conflict constraining global supply[113](index=113&type=chunk)[114](index=114&type=chunk) Natural Gas Purchase Metrics | Metric | Q2 2022 | Q2 2021 | | :--- | :--- | :--- | | Natural gas volumes (MMBtu in millions) | 7.4 | 7.5 | | Natural gas average cost per MMBtu | $7.15 | $2.78 | - The company targets **750,000 to 780,000 tons** of ammonia production for 2022, with planned turnarounds at the El Dorado and Pryor facilities scheduled for Q3 2022[130](index=130&type=chunk)[131](index=131&type=chunk) [Results of Operations](index=23&type=section&id=Results%20of%20Operations) For Q2 2022, net sales increased **102%** to **$284.8 million**, driven by significantly higher average selling prices (up **96% to 160%**) across all key products, which surged gross profit to **$142.9 million** and operating income to **$132.7 million** Q2 2022 vs Q2 2021 Financial Performance (in thousands) | Metric | Q2 2022 | Q2 2021 | Change | | :--- | :--- | :--- | :--- | | Total net sales | $284,803 | $140,696 | $144,107 | | Gross profit | $142,924 | $35,008 | $107,916 | | Operating income | $132,658 | $26,457 | $106,201 | Q2 Average Selling Prices and Sales Volumes | Product | Avg. Selling Price/ton (2022) | Avg. Selling Price/ton (2021) | % Change | Tons Sold (2022) | Tons Sold (2021) | % Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | AN & Nitric Acid | $593 | $303 | 96% | 162,014 | 186,962 | (13)% | | UAN | $590 | $245 | 141% | 130,561 | 121,995 | 7% | | Ammonia | $1,184 | $456 | 160% | 75,526 | 84,540 | (11)% | - The increase in gross profit was primarily driven by higher sales prices, partially offset by lower agricultural product volumes and higher average natural gas costs (**$7.15/MMBtu** in Q2 2022 vs. **$2.78/MMBtu** in Q2 2021)[146](index=146&type=chunk) [Liquidity and Capital Resources](index=28&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintains a strong liquidity position with **$125.2 million** in cash and **$63.4 million** available on its revolving credit facility as of June 30, 2022, supported by **$220.8 million** in operating cash flow for H1 2022, sufficient to fund **$65 million** in projected capital expenditures Capitalization Summary (in millions) | Account | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Cash and cash equivalents | $125.2 | $82.1 | | Total long-term debt, including current portion, net | $715.4 | $527.6 | | Total stockholders' equity | $609.6 | $460.5 | - As of June 30, 2022, the company had approximately **$63.4 million** of availability under its Working Capital Revolver Loan[171](index=171&type=chunk) - For the full year 2022, capital expenditures are expected to be approximately **$65 million**, planned for reliability and maintenance capital projects[171](index=171&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=31&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company faces market risks from fluctuating commodity prices for products and natural gas feedstock, and variable interest rates on its revolving credit facility, though as of June 30, 2022, there were no outstanding natural gas contracts or variable-rate borrowings - The company is exposed to commodity price risk as its products (e.g., ammonia) and raw materials (e.g., natural gas) are commodities with fluctuating prices[190](index=190&type=chunk) - As of June 30, 2022, the company had no outstanding borrowings on its variable-rate revolving credit facility, thus limiting its current exposure to interest rate risk[191](index=191&type=chunk) [Controls and Procedures](index=31&type=section&id=Item%204.%20Controls%20and%20Procedures) As of June 30, 2022, the CEO and CFO concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level - Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of June 30, 2022[192](index=192&type=chunk) PART II – Other Information [Legal Proceedings](index=36&type=section&id=Item%201.%20Legal%20Proceedings) The company is subject to various legal proceedings in the ordinary course of business, with further details provided in Note 5 of the Condensed Consolidated Financial Statements - The company is involved in various legal proceedings and claims arising in the ordinary course of business. Further details are provided in Note 5 to the financial statements[202](index=202&type=chunk) [Risk Factors](index=36&type=section&id=Item%201A.%20Risk%20Factors) Disclosure of risk factors under this item is not required for smaller reporting companies and is therefore not included in this report - Disclosure of risk factors under this item is not required for smaller reporting companies[203](index=203&type=chunk) [Other Part II Items](index=36&type=section&id=Other%20Part%20II%20Items) Items 2, 3, 4, and 5 of Part II are not applicable for this reporting period, while Item 6 provides an index to the exhibits filed with the report - Items 2, 3, 4, and 5 of Part II are not applicable for this reporting period[204](index=204&type=chunk)