LSB Industries(US:LXU)2023-11-02 20:11markdown PART I – Financial Information [Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) Unaudited condensed consolidated financial statements for LSB Industries, Inc. as of September 30, 2023, reveal decreased sales and profitability [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets decreased from **$1.44 billion** to **$1.29 billion**, liabilities from **$924 million** to **$759 million**, and equity slightly increased | Balance Sheet Items | Sep 30, 2023 (In Thousands) | Dec 31, 2022 (In Thousands) | | :--- | :--- | :--- | | **Total Current Assets** | $437,249 | $566,599 | | **Total Assets** | $1,292,206 | $1,439,819 | | **Total Current Liabilities** | $99,684 | $142,308 | | **Long-Term Debt, net** | $577,173 | $702,733 | | **Total Liabilities** | $759,462 | $924,046 | | **Total Stockholders' Equity** | $532,744 | $515,873 | [Condensed Consolidated Statements of Operations](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Q3 2023 reported a **net loss of $7.7 million**, a significant decline from **$2.3 million net income** in Q3 2022, due to lower net sales | Metric (In Thousands, Except Per Share) | Q3 2023 | Q3 2022 | Nine Months 2023 | Nine Months 2022 | | :--- | :--- | :--- | :--- | :--- | | **Net Sales** | $114,287 | $184,273 | $461,096 | $668,057 | | **Gross (Loss) Profit** | $(3,386) | $22,129 | $74,251 | $255,783 | | **Operating (Loss) Income** | $(9,499) | $13,066 | $48,532 | $225,695 | | **Net (Loss) Income** | $(7,726) | $2,312 | $33,270 | $164,477 | | **Diluted EPS** | $(0.10) | $0.03 | $0.44 | $1.86 | [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash from operating activities decreased to **$120.5 million** from **$259.2 million**, with investing activities providing **$21.5 million** | Cash Flow Activity (In Thousands) | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | | **Net cash provided by operating activities** | $120,522 | $259,182 | | **Net cash provided (used) by investing activities** | $21,506 | $(392,948) | | **Net cash (used) provided by financing activities** | $(158,973) | $71,257 | | **Net (decrease) increase in cash** | $(16,945) | $(62,509) | | **Cash and cash equivalents at end of period** | $46,824 | $19,635 | [Notes to Condensed Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) Details accounting policies, debt, and legal matters, including a **$150 million** stock repurchase program and **$125 million** debt repurchase - The company manufactures and sells chemical products including ammonia, ammonium nitrate (AN), urea ammonium nitrate (UAN), and various acids for agricultural, industrial, and mining markets across four facilities[24](index=24&type=chunk) - A **$150 million** stock repurchase program was authorized in May 2023, with **$132 million** remaining as of September 30, 2023, and approximately **60,000 shares** repurchased during Q3 2023[28](index=28&type=chunk) - In Q2 2023, the company repurchased **$125 million** in principal of its Senior Secured Notes for approximately **$114.3 million**, recognizing a gain on debt extinguishment of about **$8.6 million**[50](index=50&type=chunk) | Net Sales by Product (In Thousands) | Q3 2023 | Q3 2022 | Nine Months 2023 | Nine Months 2022 | | :--- | :--- | :--- | :--- | :--- | | AN & Nitric Acid | $46,026 | $66,161 | $173,859 | $234,103 | | Urea ammonium nitrate (UAN) | $30,090 | $50,459 | $117,585 | $184,014 | | Ammonia | $26,823 | $52,075 | $129,850 | $200,861 | | Other | $11,348 | $15,578 | $39,802 | $49,079 | | **Total net sales** | **$114,287** | **$184,273** | **$461,096** | **$668,057** | [Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)](index=18&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) MD&A details operational and financial performance, attributing Q3 decline to lower product selling prices despite stronger volumes [Overview and Key Initiatives](index=18&type=section&id=Overview) Focuses on improving EHS and reliability, optimizing product mix, and developing low-carbon ammonia projects, including a Houston collaboration - Key 2023 initiatives include: - Improving facility reliability towards a **95% ammonia on-stream operating rate** - Broadening product distribution and optimizing product mix - Developing a strategy for low-carbon (blue and green) ammonia opportunities - Evaluating organic capacity expansion and strategic acquisitions[98](index=98&type=chunk) - The company is collaborating on a large-scale, low-carbon ammonia production and export project on the Houston Ship Channel, targeting over **1.1 million metric tons per year** by the end of 2027[100](index=100&type=chunk) - A project to capture and sequester over **450,000 metric tons of CO2 annually** at the El Dorado facility is underway, with a Class VI permit application filed with the EPA, enabling production of over **375,000 metric tons of blue ammonia**[103](index=103&type=chunk) [Results of Operations](index=24&type=section&id=Results%20of%20Operations) Q3 2023 net sales fell **38%** to **$114.3 million**, resulting in an operating loss due to significantly lower average selling prices | Financial Metric (In Thousands) | Q3 2023 | Q3 2022 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | **Total Net Sales** | $114,287 | $184,273 | $(69,986) | (38)% | | **Gross (Loss) Profit** | $(3,386) | $22,129 | $(25,515) | (115)% | | **Operating (Loss) Income** | $(9,499) | $13,066 | $(22,565) | N/A | | **Net (Loss) Income** | $(7,726) | $2,312 | $(10,038) | N/A | | Q3 Sales Volume & Pricing | 2023 | 2022 | % Change | | :--- | :--- | :--- | :--- | | **Ammonia Tons Sold** | 88,986 | 55,825 | 59% | | **Ammonia Avg. Price/Ton** | $301 | $933 | (68)% | | **UAN Tons Sold** | 118,135 | 115,352 | 2% | | **UAN Avg. Price/Ton** | $255 | $437 | (42)% | | Financial Metric (In Thousands) | Nine Months 2023 | Nine Months 2022 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | **Total Net Sales** | $461,096 | $668,057 | $(206,961) | (31)% | | **Gross Profit** | $74,251 | $255,783 | $(181,532) | (71)% | | **Operating Income** | $48,532 | $225,695 | $(177,163) | N/A | | **Net Income** | $33,270 | $164,477 | $(131,207) | N/A | [Liquidity and Capital Resources](index=29&type=section&id=LIQUIDITY%20AND%20CAPITAL%20RESOURCES) As of September 30, 2023, the company had **$317.5 million** in cash and investments, with **$120.5 million** from operations | Capitalization (In Millions) | Sep 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Cash and cash equivalents | $46.8 | $63.8 | | Short-term investments | $270.7 | $330.6 | | **Total cash & investments** | **$317.5** | **$394.4** | | Total long-term debt, net | $582.7 | $712.3 | | Total stockholders' equity | $532.7 | $515.9 | - Expected capital expenditures for the full year 2023 are approximately **$60 million to $65 million**, primarily for reliability and maintenance projects[168](index=168&type=chunk) - During the first nine months of 2023, the company repurchased **$125.0 million** in principal of its Senior Secured Notes and approximately **1.8 million shares** of common stock for **$17.8 million**[170](index=170&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=32&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Exposed to market risks from commodity price fluctuations (ammonia, natural gas) and interest rate changes, with no current variable-rate debt - The company is exposed to commodity price risk for its products and raw materials, particularly ammonia and natural gas, whose prices fluctuate with market supply and demand[187](index=187&type=chunk) - Interest rate risk is primarily related to the variable-rate revolving credit facility, which had no outstanding borrowings as of September 30, 2023[188](index=188&type=chunk) [Controls and Procedures](index=32&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded disclosure controls and procedures were effective as of September 30, 2023, with no material changes - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of September 30, 2023, at a reasonable assurance level[189](index=189&type=chunk) PART II – Other Information [Legal Proceedings](index=38&type=section&id=Item%201.%20Legal%20Proceedings) Refers to Note 5 of the financial statements for detailed information on environmental matters and other litigation - The company refers to Note 5 of the financial statements for a detailed discussion of its legal matters, including commitments and contingencies[200](index=200&type=chunk) [Risk Factors](index=38&type=section&id=Item%201A.%20Risk%20Factors) No material changes from the risk factors previously disclosed in the company's Form 10-K for the year ended December 31, 2022 - There are no material changes from the risk factors disclosed in the company's 2022 Form 10-K[201](index=201&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=38&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) During Q3 2023, **59,911 shares** were repurchased at **$9.78 per share**, with **$132.2 million** remaining in the program | Period | Total Shares Purchased | Average Price Paid per Share | Value Remaining in Program | | :--- | :--- | :--- | :--- | | July 1 – July 31, 2023 | 59,911 | $9.78 | $132,195,998 | | **Total Q3 2023** | **59,911** | **$9.78** | **$132,195,998** | [Other Information](index=38&type=section&id=Item%205.%20Other%20Information) Board member Barry H. Golsen entered a Rule 10b5-1 trading plan to potentially sell up to **576,047 shares** between December 2023 and December 2024 - On September 14, 2023, board member Barry H. Golsen entered into a Rule 10b5-1 trading plan to potentially sell up to **576,047 shares** of common stock, with sales under the plan occurring from December 15, 2023, to December 31, 2024[204](index=204&type=chunk) [Exhibits](index=39&type=section&id=Item%206.%20Exhibits) Lists exhibits filed with the Form 10-Q, including CEO and CFO certifications required by Sarbanes-Oxley Act - This section lists the exhibits filed with the Form 10-Q, including the CEO and CFO certifications pursuant to the Sarbanes-Oxley Act of 2002[206](index=206&type=chunk)