LSB Industries, Inc. Reports Improved Operating Results for the 2018 First Quarter
OKLAHOMA CITY, Okla.–(BUSINESS WIRE)–LSB Industries, Inc. (NYSE:LXU) (ÔÇ£LSBÔÇØ or the ÔÇ£CompanyÔÇØ) today announced
results for the first quarter ended March 31, 2018.
First Quarter Highlights
-
Net sales of $100.5 million for the first quarter of 2018, compared to
adjusted net sales(1) of $102.1 million for the first
quarter of 2017 ($123.3 million originally reported) which excludes
$17.7 million for the comparative impact to revenue from new revenue
recognition standards adopted in 2018 primarily related to the Baytown
facility, that are not reflected in prior year financials, and $3.5
million from businesses sold in the second and third quarters of 2017 -
Net loss of $5.6 million for the first quarter of 2018, an improvement
of $0.4 million from a loss of $6.0 million for the first quarter of
2017 -
Adjusted EBITDA(1) of $21.7 million for the first quarter
of 2018, up from $18.3 million ($20.0 million originally reported)
excluding $1.7 million from businesses sold in 2017
ÔÇ£We were pleased with our first quarter results, which were in-line with
our expectations and showed improvement over the prior year period,
which benefitted from $1.7 million of adjusted EBITDA from a business
that we divested later in 2017,ÔÇØ stated Daniel Greenwell, LSBÔÇÖs
President and CEO. ÔÇ£The favorable year-over-year comparison reflects
stronger pricing across most of our products along with solid operations
by our facilities, particularly El Dorado, along with lower natural gas
input costs.ÔÇØ
ÔÇ£With respect to the operating performance of our facilities, El
DoradoÔÇÖs ammonia plant had a 100% on-stream rate in the first quarter,
up from 77% in the fourth quarter of 2017. The plant continues to
produce at a rate in excess of 1,300 tons per day. CherokeeÔÇÖs ammonia
plant ran at an 85% on-stream rate for the quarter, which included the
impact of some downtime to conduct maintenance work on its primary
reformer. Thus far in the second quarter, Cherokee has been running at a
99% on-stream rate, which approximates its average on-stream rate for
the past six quarters. PryorÔÇÖs 91% on-stream rate in the first quarter
was a meaningful increase from 22% in the fourth quarter of 2017, which
reflects work completed on the facility in the second half of last year
to improve reliability.
Mr. Greenwell continued, ÔÇ£Demand for our agricultural products for
spring applications has been strong despite a slower spring application
due to weather-driven planting delays. We think the late spring and
compressed planting season could shift urea demand to UAN, which could
benefit our second quarter. Pricing for our agricultural products was
materially higher in the first quarter of 2018 relative to the prior
year quarter, except for UAN pricing which was impacted by lower priced
fall fill tons carried over from the fourth quarter of 2017. Demand and
pricing for our industrial products reflected the continued strength in
the broader U.S. economy, while our mining product volumes increased 33%
as compared to the first quarter of 2017 as a result of new contract
awards.ÔÇØ
Mr. Greenwell concluded, ÔÇ£Our outlook for the balance of the year
remains intact, as we expect higher overall pricing relative to 2017 for
the products we sell combined with improvement in plant reliability
translating into stronger profitability and cash flow for 2018. We
remain on track with the technological enhancements we are making to our
company wide maintenance management system and expect to complete these
upgrades by the end of our 2018 second quarter, which we expect to yield
increasing benefits as the year progresses. Finally, the debt
refinancing we completed provides us with greater financial flexibility
as we were able to extend our maturities which we expect to allow us to
execute our strategy aimed at delivering greater and more consistent
profits and increased value for our shareholders.ÔÇØ
|
(1) This is a Non-GAAP measure. Refer to the Non-GAAP Reconciliation section. |
| Three Months Ended March 31, | ||||||||||
| 2018 | 2017 | |||||||||
| (Dollars in millions) | ||||||||||
|
Net Sales by Market Sector |
Net Sales |
Sector Mix |
Adjusted Net Sales(1) |
Sector Mix |
% Change |
|||||
| Agricultural | $ | 52.3 | 52 | % | $ | 63.3 | 62 | % | (17 | ) % |
| Industrial | $ | 38.1 | 38 | % | $ | 31.2 | 31 | % | 22 | % |
| Mining | $ | 10.1 | 10 | % | $ | 7.6 | 7 | % | 33 | % |
| $ | 100.5 | $ | 102.1 | (2 | ) % |
|
(1) Due to the January 1, 2018 adoption of ASC 606, Revenue from Contracts with Customers (ÔÇ£ASC 606ÔÇØ), certain industrial sales are no longer recognized. Since we adopted ASC 606 using the ÔÇ£modified retrospectiveÔÇØ method, the prior periods were not restated. However, if we had applied ASC 606 to these specific arrangements during the first quarter of 2017, net sales for these products would have been reduced by approximately $17.7 million as illustrated above. Additionally, adjusted net sales is adjusted to remove revenue associated with business sold in 2017. See Non ÔÇô GAAP reconciliation section for more information. |
Comparison of 2018 to 2017 periods:
-
Net sales of our agricultural products were down 17% during the
quarter relative to the prior year period. Stronger pricing for HDAN
and ammonia was offset by lower ammonia volumes resulting from a
slower spring application caused by cold and wet weather. UAN sales
volumes were also higher in the first quarter of 2017 due to the
timing of barge shipments that crossed over year-end and landed in the
first quarter of 2017. Additionally, we continue to experience
logistic challenges from the railroads and truck carriers. Rail
service timeliness has continued to decline, and we often see
roundtrip routes taking 15% to 20% longer than a year ago. With each
rail car turn taking longer, we are experiencing delays in getting
product out the gate. UAN volume was also impacted from lower
on-stream rates at Cherokee and Pryor in the first quarter of 2018 as
compared to the first quarter of 2017. Additionally, our realized
pricing for UAN was negatively impacted due to the lag effect of
downtime at our Pryor facility in the fourth quarter of 2017 and the
carry-over of lower priced fall fill orders into the beginning of
March. With respect to our industrial sales, net sales of industrial
ammonia increased as a result of higher volumes from improved
on-stream rates at El Dorado. Low density ammonium nitrate (LDAN)
sales volumes for mining applications also increased as a result of
our sales and marketing efforts and stronger overall demand from this
market. -
Adjusted EBITDA from continuing operations was higher compared to the
prior year period primarily due to improved pricing, lower natural gas
feedstock and improved industrial and mining volumes, offset by lower
agricultural volume.
The following tables provide key sales metrics for our Agricultural
products:
| Three Months Ended March 31, | ||||||
|
Product (tons sold) |
2018 | 2017 | % Change | |||
| Urea ammonium nitrate (UAN) | 102,202 | 157,784 | (35 |
) % |
||
| High density ammonium nitrate (HDAN) | 92,713 | 91,171 | 2 |
% |
||
| Ammonia | 32,996 | 44,242 | (25 |
) % |
||
| Other | 4,183 | 4,911 | (15 | ) % | ||
| 232,094 | 298,108 | (22 | ) % | |||
|
Average Selling Prices (price per ton) |
||||||
| UAN | $ | 138 | $ | 152 | (9 | ) % |
| HDAN | $ | 220 | $ | 182 | 21 |
% |
| Ammonia | $ | 320 | $ | 305 | 5 |
% |
|
(A) Average selling prices represent ÔÇ£net backÔÇØ prices which are calculated as sales less freight expenses divided by product sales volume in tons. |
The following table indicates the volumes sold of our major Industrial
products:
| Three Months Ended March 31, | ||||
|
Product (tons sold) |
2018 | 2017 | % Change | |
| Ammonia | 68,098 | 43,924 | 55 |
% |
| Nitric acid, excluding Baytown | 20,213 | 29,128 | (31 | ) % |
| AN solution | 5,088 | 3,899 | 30 |
% |
| 93,399 | 76,951 | 21 |
% |
|
The following table indicates the volumes sold of our major Mining
products:
| Three Months Ended March 31, | ||||||
|
Product (tons sold) |
2018 | 2017 | % Change | |||
| LDAN/HDAN | 33,513 | 20,214 | 66 |
% |
||
| AN solution | 4,666 | 8,405 | (44 | ) % | ||
| 38,179 | 28,619 | 33 |
% |
|||
|
Input Costs |
||||||
| Average natural gas cost/MMBtu | $ | 2.79 | $ | 3.15 | (11 | ) % |
Financial Position and Capital Expenditures
As of March 31, 2018, our total cash position was $28.7 million.
Additionally, we had approximately $46.3 million of borrowing
availability under our Working Capital Revolver. There were no
borrowings under the Working Capital Revolver at March 31, 2018.
Total long-term debt, including the current portion, was $408.5 million
at March 31, 2018 compared to $409.4 million at December 31, 2017. The
aggregate liquidation value of the Series E Redeemable Preferred at
March 31, 2018, inclusive of accrued dividends of $51.8 million, was
$191.6 million.
On April 25, 2018, we issued $400 million aggregate principal amount of
9.625% Senior Secured Notes due 2023. Interest on the Notes accrues at a
rate of 9.625% per annum and is payable semi-annually in arrears on May
1 and November 1 of each year, beginning on November 1, 2018. We used a
portion of the net proceeds of this offering to repurchase, on April 25,
2018, all of our Senior Secured Notes due 2019.
Interest expense for the first quarter of 2018 was $9.3 million compared
to $9.4 million for the same period in 2017. For the full year of 2018,
we expect interest expense to be approximately $40 million.
Capital expenditures were approximately $6.2 million in the first
quarter of 2018. For the full year of 2018, total capital expenditures,
which are related to maintaining and enhancing safety and reliability at
our facilities, are expected to be approximately $32 million.
Conference Call
LSBÔÇÖs management will host a conference call covering the fourth quarter
results on April 26, 2018 at 10:00 a.m. ET/9:00 a.m. CT to discuss these
results and recent corporate developments. Participating in the call
will be President and CEO, Daniel Greenwell, Executive Vice President
and CFO, Mark Behrman and Executive Vice President, Chemical
Manufacturing, John Diesch. Interested parties may participate in the
call by dialing (201) 493-6739. Please call in 10 minutes before the
conference is scheduled to begin and ask for the LSB conference call. To
coincide with the conference call, LSB will post a slide presentation at www.lsbindustries.com
on the webcast section of the Investor tab of our website.
To listen to a webcast of the call, please go to the CompanyÔÇÖs website
at www.lsbindustries.com
at least 15 minutes prior to the conference call to download and install
any necessary audio software. If you are unable to listen live, the
conference call webcast will be archived on the CompanyÔÇÖs website. We
suggest listeners use Microsoft Explorer as their web browser.
LSB Industries, Inc.
LSB Industries, Inc., headquartered in Oklahoma City, Oklahoma,
manufactures and sells chemical products for the agricultural, mining,
and industrial markets. The Company owns and operates facilities in
Cherokee, Alabama, El Dorado, Arkansas and Pryor, Oklahoma, and operates
a facility for a global chemical company in Baytown, Texas. LSBÔÇÖs
products are sold through distributors and directly to end customers
throughout the United States. Additional information about the Company
can be found on its website at www.lsbindustries.com.
Forward-Looking Statements
This press release contains certain forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995.
These forward-looking statements generally are identifiable by use of
the words ÔÇ£may,ÔÇØ ÔÇ£believe,ÔÇØ ÔÇ£expect,ÔÇØ ÔÇ£intend,ÔÇØ ÔÇ£plan to,ÔÇØ ÔÇ£estimate,ÔÇØ
ÔÇ£projectÔÇØ or similar expressions, and include but are not limited to:
financial performance improvement; view on sales to mining customers;
estimates of consolidated depreciation and amortization and future
turnaround expenses; our expectation of production consistency and
enhanced reliability at our Facilities; our projections of trends in the
fertilizer market; improvement of our financial and operational
performance; our planned capital expenditures for 2018; reduction of
SG&A expenses; volume outlook and our ability to complete plant repairs
as anticipated.
Investors are cautioned that such forward-looking statements are not
guarantees of future performance and involve risk and uncertainties.
Though we believe that expectations reflected in such forward-looking
statements are reasonable, we can give no assurance that such
expectation will prove to be correct. Actual results may differ
materially from the forward-looking statements as a result of various
factors. These and other risk factors are discussed in the CompanyÔÇÖs
filings with the Securities and Exchange Commission (SEC), including
those set forth under ÔÇ£Risk FactorsÔÇØ and ÔÇ£Special Note Regarding
Forward-Looking StatementsÔÇØ in our Form 10-K for the year ended December
31, 2017 and, if applicable, our Quarterly Reports on Form 10-Q and our
Current Reports on Form 8-K. All forward-looking statements included in
this press release are expressly qualified in their entirety by such
cautionary statements. We expressly disclaim any obligation to update,
amend or clarify any forward-looking statement to reflect events, new
information or circumstances occurring after the date of this press
release except as required by applicable law.
See Accompanying Tables
|
LSB Industries, Inc. Financial Highlights Three Months Ended March 31, |
||||||
| Three Months | ||||||
| 2018 | 2017 | |||||
| (In Thousands, Except Per Share Amounts) | ||||||
| Net sales | $ | 100,450 | $ |
123,344 (1 |
) |
|
| Cost of sales | 90,357 |
111,729 (1 |
) |
|||
| Gross profit | 10,093 | 11,615 | ||||
| Selling, general and administrative expense | 8,303 | 10,545 | ||||
| Other income, net | (94 | ) | (1,251 | ) | ||
| Operating income | 1,884 | 2,321 | ||||
| Interest expense, net | 9,306 | 9,358 | ||||
| Non-operating other expense (income), net | (909 | ) | 231 | |||
| Loss before benefit for income taxes | (6,513 | ) | (7,268 | ) | ||
| Benefit for income taxes | (922 | ) | (1,282 | ) | ||
| Net loss | (5,591 | ) | (5,986 | ) | ||
| Dividends on convertible preferred stocks | 75 | 75 | ||||
| Dividends on Series E redeemable preferred stock | 6,338 | 5,536 | ||||
| Accretion of Series E redeemable preferred stock | 1,599 | 1,599 | ||||
| Net loss attributable to common stockholders | $ | (13,603 | ) | $ | (13,196 | ) |
| Basic and diluted net loss per common share: | $ | (0.49 | ) | $ | (0.48 | ) |
|
(1) Due to the January 1, 2018 adoption of ASC 606, Revenue from Contracts with Customers (ÔÇ£ASC 606ÔÇØ), certain industrial sales and associated cost of sales are no longer recognized. Since we adopted ASC 606 using the ÔÇ£modified retrospectiveÔÇØ method, the prior periods were not restated. If we had applied ASC 606 to these specific arrangements during the first quarter of 2017, net sales for these products would have been reduced by approximately $17.7 million. ASC 606 had no net impact on operating income. See Non ÔÇô GAAP reconciliation section for more information. |
|
LSB Industries, Inc. Consolidated Balance Sheets |
||||
| March 31, | December 31, | |||
| 2018 | 2017 | |||
| (In Thousands) | ||||
| Assets | ||||
| Current assets: | ||||
| Cash and cash equivalents | $ | 28,667 | $ | 33,619 |
| Accounts receivable, net | 62,634 | 59,570 | ||
| Inventories: | ||||
| Finished goods | 19,532 | 20,415 | ||
| Raw materials | 1,362 | 1,441 | ||
| Total inventories | 20,894 | 21,856 | ||
| Supplies, prepaid items and other: | ||||
| Prepaid insurance | 7,813 | 10,535 | ||
| Precious metals | 7,269 | 7,411 | ||
| Supplies | 28,649 | 27,729 | ||
| Prepaid and refundable income taxes | 856 | 1,736 | ||
| Other | 2,043 | 1,284 | ||
| Total supplies, prepaid items and other | 46,630 | 48,695 | ||
| Total current assets | 158,825 | 163,740 | ||
| Property, plant and equipment, net | 998,366 | 1,014,038 | ||
| Intangible and other assets, net | 10,958 | 11,404 | ||
| $ | 1,168,149 | $ | 1,189,182 |
|
LSB Industries, Inc. Consolidated Balance Sheets (continued) |
||||
| March 31, | December 31, | |||
| 2018 | 2017 | |||
| (In Thousands) | ||||
| Liabilities and Stockholders' Equity | ||||
| Current liabilities: | ||||
| Accounts payable | $ | 49,047 | $ | 55,992 |
| Short-term financing | 6,137 | 8,585 | ||
| Accrued and other liabilities | 30,590 | 35,573 | ||
| Current portion of long-term debt | 9,065 | 9,146 | ||
| Total current liabilities | 94,839 | 109,296 | ||
| Long-term debt, net | 399,416 | 400,253 | ||
| Noncurrent accrued and other liabilities | 11,173 | 11,691 | ||
| Deferred income taxes | 53,877 | 54,787 | ||
| Commitments and contingencies | ||||
| Redeemable preferred stocks: | ||||
|
Series E 14% cumulative, redeemable Class C preferred stock, no |
182,896 | 174,959 | ||
|
Series F redeemable Class C preferred stock, no par value, 1 share |
ÔÇö | ÔÇö | ||
| Stockholders' equity: | ||||
|
Series B 12% cumulative, convertible preferred stock, $100 par |
2,000 | 2,000 | ||
|
Series D 6% cumulative, convertible Class C preferred stock, no |
1,000 | 1,000 | ||
|
Common stock, $.10 par value; 75,000,000 shares authorized, |
3,128 | 3,128 | ||
| Capital in excess of par value | 195,289 | 193,956 | ||
| Retained earnings | 242,686 | 256,214 | ||
| 444,103 | 456,298 | |||
| Less treasury stock, at cost: | ||||
|
Common stock, 2,666,790 shares (2,662,027 shares at December 31, 2017) |
18,155 | 18,102 | ||
| Total stockholders' equity | 425,948 | 438,196 | ||
| $ | 1,168,149 | $ | 1,189,182 |
|
LSB Industries, Inc. Non-GAAP Reconciliation |
|
This news release includes certain ÔÇ£non-GAAP financial measuresÔÇØ under the rules of the Securities and Exchange Commission, including Regulation G. These non-GAAP measures are calculated using GAAP amounts in our consolidated financial statements. |
|
EBITDA Reconciliation |
|
EBITDA is defined as net income (loss) plus interest expense, depreciation, depletion and amortization (DD&A) (which includes DD&A of property, plant and equipment and amortization of intangible and other assets), less benefit for income taxes. We believe that certain investors consider EBITDA a useful means of measuring our ability to meet our debt service obligations and evaluating our financial performance. EBITDA has limitations and should not be considered in isolation or as a substitute for net income, operating income, cash flow from operations or other consolidated income or cash flow data prepared in accordance with GAAP. Because not all companies use identical calculations, this presentation of EBITDA may not be comparable to a similarly titled measure of other companies. The following table provides a reconciliation of net income (loss) to EBITDA for the periods indicated. |
|
Three Months Ended |
||||
| 2018 | 2017 | |||
|
LSB Consolidated ($ in |
||||
| Net loss | ($5.6 | ) | ($6.0 | ) |
| Plus: | ||||
| Interest expense | 9.3 | 9.4 | ||
| Depreciation, depletion and amortization | 18.3 | 17.6 | ||
| Benefit for income taxes | (0.9 | ) | (1.3 | ) |
| EBITDA | $ | 21.1 | $ | 19.7 |
|
LSB Industries, Inc. Non-GAAP Reconciliation (continued) |
|
Adjusted EBITDA |
|
Adjusted EBITDA is reported to show the impact of one time/non-cash items such as, loss on sale of a business and other property and equipment, one-time income or fees, start-up/commissioning costs, certain fair market value adjustments, non-cash stock-based compensation and severance costs. For comparative purposes 2017 is also adjusted to remove the impact of businesses sold during 2017. We believe that the inclusion of supplementary adjustments to EBITDA is appropriate to provide additional information to investors about certain items. The following tables provide reconciliations of EBITDA excluding the impact of the supplementary adjustments. Our policy is to adjust for non-cash or non-recurring items that are greater than $0.5 million quarterly or cumulatively. |
|
|
Three Months Ended |
|||
| 2018 | 2017 | |||
|
EBITDA: |
$ |
21.1 |
$ |
19.7 |
| Stock-based compensation | 1.4 | 1.2 | ||
| Derecognition of death benefit accrual | – | (1.4 | ) | |
| Loss on sale of a business and other property and equipment | – | 0.5 | ||
| Fair market value adjustment on preferred stock embedded derivatives | (0.8 | ) | – | |
| Adjusted EBITDA | $ | 21.7 | $ | 20.0 |
| EBITDA from businesses sold | – | (1.7 | ) | |
| Adjusted EBITDA excluding businesses sold in 2017 | $ | 21.7 | $ | 18.3 |
|
Net Sales Reconciliation |
|
Since we adopted ASC 606 using the ÔÇ£modified retrospectiveÔÇØ method, the prior periods were not restated. As a result, we are presenting Adjusted Net Sales to show the impact of applying ASC 606 to certain arrangements for the first quarter of 2017 consistent with accounting treatment used for the same period in 2018. ASC had no net impact on operating income. Additionally, net sales is adjusted to remove revenue associated with businesses sold in 2017. |
|
Three Months Ended |
||||
|
2018 |
2017 | |||
| Net sales ($ in millions) | ||||
| Agricultural | $ | 52.3 | $ | 63.3 |
| Industrial | 38.1 | 48.9 | ||
| Mining | 10.1 | 7.6 | ||
| Other | – | 3.5 | ||
| Total net sales | $ | 100.5 | $ | 123.3 |
| Impact of ASC 606 – Industrial | – | (17.7 | ) | |
| Revenue from businesses sold in 2017 | – | (3.5 | ) | |
| Total adjusted net sales | $ | 100.5 | $ | 102.1 |
|
Agricultural Sales Price Reconciliation |
|
The following table provides a reconciliation of total agricultural sales as reported under GAAP in our consolidated financial statement reconciled to ÔÇ£netÔÇØ sales which is calculated as sales less freight expenses. We believe this provides a relevant industry comparison among our peer group. |
|
Three Months Ended |
||||
| 2018 | 2017 | |||
| Agricultural sales ($ in millions) | $ | 52.3 | $ | 63.3 |
| Less freight: | 3.9 | 5.6 | ||
| Net sales | $ | 48.4 | $ | 57.7 |
Contacts
LSB Industries, Inc.
Mark Behrman, 405-235-4546
Chief
Financial Officer
or
Investor Relations:
The
Equity Group Inc.
Fred Buonocore, CFA, 212-836-9607
Kevin
Towle, 212-836-9620
