LSB Industries(LXU) - 2023 Q1 - Quarterly Report

PART I – Financial Information Financial Statements Unaudited condensed consolidated financial statements for Q1 2023, showing decreased net sales and net income Condensed Consolidated Balance Sheets (Unaudited) | (In Thousands) | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total current assets | $579,827 | $566,599 | | Total assets | $1,445,770 | $1,439,819 | | Total current liabilities | $130,670 | $142,308 | | Long-term debt, net | $702,071 | $702,733 | | Total stockholders' equity | $529,952 | $515,873 | Condensed Consolidated Statements of Operations (Unaudited) | (In Thousands, Except Per Share) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Net sales | $180,964 | $198,981 | | Gross profit | $41,605 | $90,730 | | Operating income | $30,535 | $79,971 | | Net income | $15,901 | $58,766 | | Diluted EPS | $0.21 | $0.65 | Condensed Consolidated Statements of Cash Flows (Unaudited) | (In Thousands) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $59,247 | $85,492 | | Net cash used by investing activities | ($63,379) | ($97,514) | | Net cash (used) provided by financing activities | ($10,688) | $184,177 | | Net (decrease) increase in cash | ($14,820) | $172,155 | - The company manufactures and sells chemical products including ammonia, ammonium nitrate (AN), urea ammonium nitrate (UAN), and various acids for agricultural, industrial, and mining applications[24] Disaggregated Net Sales by Product Type (Unaudited) | (In Thousands) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | AN & Nitric Acid | $58,272 | $71,800 | | Urea ammonium nitrate (UAN) | $46,590 | $56,569 | | Ammonia | $63,415 | $59,342 | | Other | $12,687 | $11,270 | | Total net sales | $180,964 | $198,981 | Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) MD&A for Q1 2023, discussing lower prices, higher volumes, natural gas cost impacts, and key strategic initiatives Overview and Key Initiatives Key initiatives for 2023 focus on EHS, plant reliability, product distribution, mix, and low-carbon ammonia - Key initiatives include improving EHS and reliability, broadening product distribution, optimizing product mix, and developing a strategy for low-carbon ammonia[94] - The company is evaluating debottlenecking projects to increase production capacity and is continuously assessing strategic acquisition opportunities[99] Recent Business Developments LSB signed agreements for low/no-carbon ammonia projects, with Q1 2023 sales volumes offset by lower selling prices - Entered an agreement with Lapis Energy to develop a carbon capture project at the El Dorado facility to produce over 375,000 metric tons of blue ammonia annually The EPA accepted the pre-construction Class VI permit application in March 2023[96] - Partnered with Thyssenkrupp and Bloom Energy to develop a project to produce approximately 30,000 metric tons of green ammonia per year at the Pryor facility[97] - In Q1 2023, higher sales volumes were more than offset by lower selling prices, primarily due to a decline in European natural gas costs which allowed European ammonia facilities to resume operations[98][99] Consolidated Results of Operations Q1 2023 net sales decreased 9% to $181.0 million, operating income fell 62% to $30.5 million, due to lower prices and higher gas costs Q1 2023 vs Q1 2022 Financial Performance | (In Thousands) | Q1 2023 | Q1 2022 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Total net sales | $180,964 | $198,981 | ($18,017) | (9%) | | Gross profit | $41,605 | $90,730 | ($49,125) | (54%) | | Operating income | $30,535 | $79,971 | ($49,436) | (62%) | | Net income | $15,901 | $58,766 | ($42,865) | (73%) | Q1 Sales Volume and Average Selling Prices (YoY Change) | Product | Sales Volume Change | Avg. Selling Price Change | | :--- | :--- | :--- | | AN & Nitric Acid | (15%) | (4%) | | UAN | +13% | (27%) | | Ammonia | +47% | (27%) | - The decrease in gross profit was primarily driven by lower sales prices, partially offset by higher sales volumes of ammonia and UAN Profitability was also negatively impacted by higher average natural gas costs ($5.66/MMBtu in Q1 2023 vs. $4.74/MMBtu in Q1 2022)[115][133] Liquidity and Capital Resources As of March 31, 2023, company held $425.8 million cash/investments, Q1 operating cash flow $59.2 million, expects $60-80 million capex Capitalization Summary | (In Millions) | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Cash and cash equivalents | $48.9 | $63.8 | | Short-term investments | $376.9 | $330.6 | | Total cash & investments | $425.8 | $394.4 | | Total long-term debt, net | $710.6 | $712.3 | | Total stockholders' equity | $530.0 | $515.9 | - Expected capital expenditures for the full year 2023 are approximately $60 million to $80 million, mainly for reliability and maintenance capital projects[148] - The company believes that cash on hand, short-term investments, availability on its revolving credit facility, and cash flow from operations will be sufficient to fund liquidity needs for the next twelve months[149] Quantitative and Qualitative Disclosures About Market Risk Market risks include commodity price fluctuations (natural gas, ammonia), forward sales, and interest rates - The company is exposed to commodity price risk as a substantial portion of its products and raw materials are commodities whose prices fluctuate with market supply and demand[167] - As of March 31, 2023, there were no embedded losses associated with forward sales commitments with firm sales prices[166] - Interest rate risk is limited as there were no outstanding borrowings on the variable-rate revolving credit facility as of March 31, 2023[168] Controls and Procedures CEO/CFO concluded disclosure controls effective as of March 31, 2023, with no material changes to internal controls - The CEO and CFO concluded that the Company's disclosure controls and procedures were effective as of March 31, 2023[169] - No changes to internal control over financial reporting occurred during the quarter ended March 31, 2023, that have materially affected, or are reasonably likely to materially affect, internal controls[169] PART II – Other Information Legal Proceedings Company subject to various legal proceedings, including environmental, West Fertilizer explosion, and contractual disputes - For a detailed discussion of legal matters, the report refers to Note 5—Commitments and Contingencies—Legal Matters in the Notes to the Condensed Consolidated Financial Statements[180] - Key legal matters discussed in Note 5 include ongoing environmental compliance and remediation, litigation related to the West Fertilizer Co explosion in 2013, and a dispute with contractor Leidos over the El Dorado Ammonia Plant expansion[50][65][69] Risk Factors No material changes to risk factors previously disclosed in the company's 2022 Form 10-K - There are no material changes from the risk factors disclosed in the company's 2022 Form 10-K[181] Unregistered Sales of Equity Securities and Use of Proceeds This item is reported as not applicable for the period - Not applicable[182] Exhibits Index of exhibits filed with Form 10-Q, including corporate governance documents and CEO/CFO certifications - The report includes an index of exhibits, listing documents such as the Restated Certificate of Incorporation, Bylaws, and CEO/CFO certifications pursuant to the Sarbanes-Oxley Act[184]