Business Wire | Jul 28, 2021 04:06PM EDT

LSB Industries, Inc. Reports Operating Results for the 2021 Second Quarter

Jul. 28, 2021

OKLAHOMA CITY--(BUSINESS WIRE)--Jul. 28, 2021--LSB Industries, Inc. (NYSE: LXU) ("LSB" or the "Company") today announced results for the second quarter ended June 30, 2021.

Second Quarter Highlights

* Net sales of $140.7 million compared to $105.0 million in the second quarter of 2020 * Adjusted EBITDA(1) of $46.0 million compared to $29.2 million in the second quarter of 2020 * Adjusted EBITDA(1) margin of 32.7% compared to 27.8% in the second quarter of 2020 * Total liquidity of approximately $68 million as of June 30, 2021 * Initiated process of exchanging outstanding preferred stock into shares of common stock in order to provide Company with lower cost of capital and unlock growth opportunities

"We delivered significant year-over-year growth in both our top and bottom line in the second quarter," stated Mark Behrman, LSB Industries' President and CEO. "Our net sales increased 34% while adjusted EBITDA, which reached an all-time record level for our chemical operations, was up almost 60% versus the same period last year. These outstanding results reflect robust demand and pricing trends for both our agricultural and industrial products coupled with continued solid operating performance by our facilities and the operating leverage inherent in our business model."

"In addition to the strong improvement in our financial performance, which we expect to persist through the balance of the year and into 2022, we recently announced that we signed an agreement with the holder of our outstanding preferred stock to exchange their preferred stock for shares of LSB common stock. If our shareholders approve the exchange transaction, we expect this transformative transaction to simplify our capital structure, lower our cost of capital and provide us with greater financial flexibility to pursue growth initiatives. Given the favorable nitrogen industry dynamics we are currently experiencing, we believe that now is an opportune time to execute this transaction, particularly given our intention to refinance our senior secured notes and opportunities we believe exist to drive organic growth, including our entry into the rapidly emerging blue/green ammonia and clean energy markets. Additionally, we regularly evaluate M&A prospects that we believe could be accretive to earnings as a result of the increased scale and expanded production capabilities that they would provide us. We believe that the exchange of this preferred stock into common stock and the overall simplification of our capital structure, including the potential refinancing of our senior secured notes, will enhance our ability to generate profitable growth and greater long-term value for our shareholders."

Second Quarter Results Overview

Three Months Ended June 30,

2021 2020

(Dollars in thousands)

Net Sales by Market Net Sector Net Sector %Sector Sales Mix Sales Mix Change

Agricultural $ 66,508 47% $ 64,997 62% 2%

Industrial 60,608 43% 29,559 28% 105%

Mining 13,580 10% 10,477 10% 30%

$ $105,033 34% 140,696

Comparison of 2021 to 2020 quarterly periods:

* Net sales of our agricultural products increased during the quarter relative to the prior year period driven by stronger pricing for UAN, ammonia and HDAN. Partially offsetting the benefit of stronger pricing was the impact from winter storm Uri in February 2021. Our El Dorado and Pryor facilities were shut down as our natural gas supply was curtailed during the very cold weather conditions that were experienced throughout the central United States. This shutdown, resulted in a drawdown of inventory, particularly of HDAN, given increased sales in the first quarter, reducing our inventory available for sale in the second quarter. Also depressing agricultural volumes during the second quarter was the impact of wet weather across the Southern Plains throughout much of May which delayed the application of fertilizer products. Agricultural sales were also impacted by a shift in product mix as we continue our focus on the Industrial business. * Net sales of our industrial and mining products increased as a result of higher pricing related to a rise in the Tampa ammonia benchmark price, to which many of our industrial contracts are tied. Also benefitting industrial sales was the ramp up of a new nitric acid offtake agreement along with the continued recovery of demand from several key end markets including automotive, home building and power generation, which have now exceeded pre-pandemic levels of demand.

* The year-over-year improvement in operating income and adjusted EBITDA was primarily the result of the higher selling prices along with stronger Industrial and Mining volumes partially offset by higher natural gas prices as well as the impact of the weather issues that reduced our inventory headed into the second quarter.

The following tables provide key sales metrics for our Agricultural products:

Three Months Ended June 30,

Product (tons sold) 2021 2020 % Change

Urea ammonium nitrate (UAN) 121,995 111,860 9 %

High density ammonium nitrate (HDAN) 76,539 128,018 (40 ) %

Ammonia 17,038 28,383 (40 ) %

Other 6,628 9,257 (28 ) %

222,200 277,518 (20 ) %

Average Selling Prices (price per ton) ^(A)

UAN $ 231 $ 149 55 %

HDAN $ 286 $ 232 23 %

Ammonia $ 395 $ 250 58 %

(A) Average selling prices represent "net back" 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 and Mining products:

Three Months Ended June 30,

Product (tons sold) 2021 2020 % Change

Ammonia 67,503 62,108 9 %

AN, Nitric Acid, Other 118,327 72,990 62 %

185,830 135,098 38 %



Tampa Ammonia Benchmark (price per metric $ 545 $ 234 133 %ton)



Input Costs

Average natural gas cost/MMBtu $ 2.78 $ 1.81 54 %

Financial Position and Capital Expenditures

As of June 30, 2021, our total cash position was $17.6 million. Additionally, LSB had approximately $50.3 million of borrowing availability under its Working Capital Revolver resulting in total liquidity of approximately $68 million. Total long-term debt, including the current portion, was $470.5 million on June 30, 2021 compared to $484.2 million on December 31, 2020. The aggregate liquidation value of the Series E-! Redeemable Preferred at June 30, 2021, inclusive of accrued dividends of $157.9 million, was $297.7 million.

Interest expense for the second quarter of 2021 was $12.3 million compared to $12.5 million for the same period in 2020.

In June 2021, the entire principal balance and interest of the Company's Paycheck Protection Program ("PPP") loan was forgiven in the amount of $10.0 million plus interest. The loan was originally issued to the Company in April 2020 under the CARES Act.

Capital expenditures were approximately $14.8 million for the first half of 2021. For the full year of 2021, total capital expenditures related to capital work to be performed in 2021 are expected to be approximately $30-$35 million, inclusive of investments for margin enhancement purposes.

Outlook

The environment for U.S. agricultural markets is significantly more favorable relative to this point last year due to a combination of stronger farmer incomes in 2020, increased demand for corn from China and other countries, and dry conditions in South America, which have led to the highest corn prices in eight years. This has translated into strong demand and a significant increase in pricing for fertilizers. Tampa ammonia, based on its second quarter 2021 average selling price, increased by over $300/MT, or 133% relative to the same period in 2020, while UAN and HDAN, increased by approximately $80 per ton and $50 per ton, or nearly 55% and 25%, respectively, compared to the same period last year. Our industrial business also continues to benefit from positive trends in its key end markets including automotive, homebuilding and power generation, which have recovered to above pre-pandemic levels reflecting the beneficial impact of widespread COVID vaccination throughout the U.S. Economic forecasts point to continued expansion, including those from The International Monetary Fund, that predict 7% year-over-year GDP growth for the U.S. in 2021, the largest percentage increase since 1984. The strength in the Tampa ammonia price also has positive ramifications for our industrial business as many industrial chemical contracts are indexed to the Tampa ammonia price. With the market trends on both sides of our business expected to continue through 2021, we continued to anticipate significant growth in net sales and adjusted EBITDA for the full year relative to 2020.

Conference Call

LSB's management will host a conference call covering the second quarter results on Thursday, July 29, 2021 at 10:00 am ET / 9:00 am CT to discuss these results and recent corporate developments. Participating in the call will be President & Chief Executive Officer, Mark Behrman and Executive Vice President & Chief Financial Officer, Cheryl Maguire. 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 Company's 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 Company's website.

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. LSB's products are sold through distributors and directly to end customers primarily throughout the United States and parts of Mexico and Canada. Additional information about the Company can be found on its website at www.lsbindustries.com.

Forward-Looking Statements

Statements in this release that are not historical are forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements, which are subject to known and unknown risks, uncertainties and assumptions about us, may include projections of our future financial performance including the effects of the COVID-19 pandemic and anticipated performance based on our growth and other strategies and anticipated trends in our business. These statements are only predictions based on our current expectations and projections about future events. There are important factors that could cause our actual results, level of activity, performance or actual achievements to differ materially from the results, level of activity, performance or anticipated achievements expressed or implied by the forward-looking statements. Significant risks and uncertainties may relate to, but are not limited to, business and market disruptions related to the COVID-19 pandemic, market conditions and price volatility for our products and feedstocks, as well as global and regional economic downturns, including as a result of the COVID-19 pandemic, that adversely affect the demand for our end-use products; disruptions in production at our manufacturing facilities; our ability to complete the preferred stock exchange transaction on the terms disclosed or at all and other financial, economic, competitive, environmental, political, legal and regulatory factors. These and other risk factors are discussed in the Company's filings with the Securities and Exchange Commission (SEC).

Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for our management to predict all risks and uncertainties, nor can management assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Although we believe the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, level of activity, performance or achievements. Neither we nor any other person assumes responsibility for the accuracy or completeness of any of these forward-looking statements. You should not rely upon forward-looking statements as predictions of future events. Unless otherwise required by applicable laws, we undertake no obligation to update or revise any forward-looking statements, whether because of new information or future developments.

See Accompanying Tables

LSB Industries, Inc.

Condensed Consolidated Statement of Operations

Three Months Ended Six Months Ended

June 30, June 30,

2021 2020 2021 2020

(In Thousands, Except Per Share Amounts)

Net sales $ 140,696 $ 105,033 $ 238,812 $ 188,444

Cost of sales 105,688 86,012 195,744 166,872

Gross profit 35,008 19,021 43,068 21,572



Selling, general and 8,545 8,504 17,338 18,510 administrative expense

Other expense (income), net 6 (167 ) (257 ) (635 )

Operating income 26,457 10,684 25,987 3,697



Interest expense, net 12,290 12,476 24,662 25,955

Gain on extinguishment of (10,000 ) - (10,000 ) - debt

Non-operating other expense 745 (128 ) 1,140 (803 )(income), net

Income (loss) before benefit 23,422 (1,664 ) 10,185 (21,455 )for income taxes

Benefit for income taxes (248) (1,299 ) (206) (1,638 )

Net income (loss) 23,670 (365 ) 10,391 (19,817 )



Dividends on convertible 75 75 150 150 preferred stocks

Dividends on Series E 10,213 8,689 19,724 16,996 redeemable preferred stock

Accretion of Series E 513 505 1,024 1,009 redeemable preferred stock

Net income attributable to 223 - - - participating securities

Net income (loss)attributable to common $ 12,646 $ (9,634 ) $ (10,507 ) $ (37,972 )stockholders





Income (loss) per Common share:

Basic:

Net income (loss) $ 0.44 $ (0.34 ) $ (0.37) $ (1.35 )



Diluted:

Net income (loss) $ 0.42 $ (0.34 ) $ (0.37) $ (1.35 )

LSB Industries, Inc.

Consolidated Balance Sheets

June 30,

December 31,

2021

2020

(In Thousands)

Assets

Current assets:

Cash and cash equivalents

$

17,625

$

16,264

Accounts receivable

67,431

42,929

Allowance for doubtful accounts

(377

)

(378

)

Accounts receivable, net

67,054

42,551

Inventories:

Finished goods

12,781

17,778

Raw materials

1,521

1,795

Total inventories

14,302

19,573

Supplies, prepaid items and other:

Prepaid insurance

5,682

12,315

Precious metals

7,801

6,787

Supplies

25,878

25,288

Other

4,757

6,802

Total supplies, prepaid items and other

44,118

51,192

Total current assets

143,099

129,580

Property, plant and equipment, net

871,780

891,198

Other assets:

Operating lease assets

27,854

26,403

Intangible and other assets, net

6,752

6,121

34,606

32,524

$

1,049,485

$

1,053,302

LSB Industries, Inc.

Consolidated Balance Sheets

June 30, December 31,

2021 2020

(In Thousands)

Assets

Current assets:

Cash and cash equivalents $ 17,625 $ 16,264

Accounts receivable 67,431 42,929

Allowance for doubtful accounts (377 ) (378 )

Accounts receivable, net 67,054 42,551

Inventories:

Finished goods 12,781 17,778

Raw materials 1,521 1,795

Total inventories 14,302 19,573

Supplies, prepaid items and other:

Prepaid insurance 5,682 12,315

Precious metals 7,801 6,787

Supplies 25,878 25,288

Other 4,757 6,802

Total supplies, prepaid items and other 44,118 51,192

Total current assets 143,099 129,580



Property, plant and equipment, net 871,780 891,198



Other assets:

Operating lease assets 27,854 26,403

Intangible and other assets, net 6,752 6,121

34,606 32,524



$ 1,049,485 $ 1,053,302

LSB Industries, Inc.

Consolidated Balance Sheets (continued)

June 30,

December 31,

2021

2020

(In Thousands)

Liabilities and Stockholders' Equity

Current liabilities:

Accounts payable

$

51,212

$

46,551

Short-term financing

4,516

13,576

Accrued and other liabilities

30,541

30,367

Current portion of long-term debt

9,049

16,801

Total current liabilities

95,318

107,295

Long-term debt, net

461,459

467,389

Noncurrent operating lease liabilities

20,277

19,845

Other noncurrent accrued and other liabilities

7,372

6,090

Deferred income taxes

31,195

30,939

Commitments and contingencies

Redeemable preferred stocks:

Series E 14% cumulative, redeemable Class C preferred stock, no par value,

210,000 shares issued; 139,768 outstanding; aggregate liquidation preference

of $297,706,000 ($277,982,000 at December 31, 2020)

292,849

272,101

Series F redeemable Class C preferred stock, no par value, 1 share issued and

outstanding; aggregate liquidation preference of $100

-

-

Stockholders' equity:

Series B 12% cumulative, convertible preferred stock, $100 par value; 20,000

shares issued and outstanding; aggregate liquidation preference

of $3,385,000 ($3,265,000 at December 31, 2020)

2,000

2,000

Series D 6% cumulative, convertible Class C preferred stock, no par value;

1,000,000 shares issued and outstanding; aggregate liquidation preference

of $1,342,000 ($1,312,000 at December 31, 2020)

1,000

1,000

Common stock, $.10 par value; 75,000,000 shares authorized,

31,283,210 shares issued

3,128

3,128

Capital in excess of par value

192,980

198,215

Accumulated deficit

(51,844

)

(41,487

)

147,264

162,856

Less treasury stock, at cost:

Common stock, 982,639 shares (2,074,565 shares at December 31, 2020)

6,249

13,213

Total stockholders' equity

141,015

149,643

$

1,049,485

$

1,053,302

LSB Industries, Inc. Non-GAAP Reconciliations

This news release includes certain "non-GAAP financial measures" 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 and Adjusted EBITDA Reconciliation

EBITDA is defined as net income (loss) plus interest expense, less gain on extinguishment of debt, plus depreciation and amortization (D&A) (which includes D&A of property, plant and equipment and amortization of intangible and other assets), plus provision for income taxes. Adjusted EBITDA is reported to show the impact of one time/non-cash or non-operating items-such as, loss (gain) on sale of a business and other property and equipment, one-time income or fees, certain fair market value (FMV) adjustments, non-cash stock-based compensation, and consulting costs associated with reliability and purchasing initiatives (Initiatives). We historically have performed turnaround activities on an annual basis; however, we have moved towards extending Turnarounds to a two or three-year cycle. Rather than being capitalized and amortized over the period of benefit, our accounting policy is to recognize the costs as incurred. Given these Turnarounds are essentially investments that provide benefits over multiple years, they are not reflective of our operating performance in a given year.

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. In addition, we believe that certain investors consider adjusted EBITDA as more meaningful to further assess our performance. We believe that the inclusion of supplementary adjustments to EBITDA is appropriate to provide additional information to investors about certain items.

EBITDA and adjusted EBITDA have 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 and adjusted 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 and adjusted EBITDA for the periods indicated. Adjusted EBITDA margin is calculated by taking adjusted EBITDA divided by Net Sales.

LSB Industries, Inc.

Consolidated Balance Sheets (continued)

June 30, December 31,

2021 2020

(In Thousands)

Liabilities and Stockholders' Equity

Current liabilities:

Accounts payable $ 51,212 $ 46,551

Short-term financing 4,516 13,576

Accrued and other liabilities 30,541 30,367

Current portion of long-term debt 9,049 16,801

Total current liabilities 95,318 107,295



Long-term debt, net 461,459 467,389



Noncurrent operating lease liabilities 20,277 19,845



Other noncurrent accrued and other liabilities 7,372 6,090



Deferred income taxes 31,195 30,939



Commitments and contingencies



Redeemable preferred stocks:

Series E 14% cumulative, redeemable Class Cpreferred stock, no par value,

210,000 shares issued; 139,768 outstanding; 292,849 272,101 aggregate liquidation preference

of $297,706,000 ($277,982,000 at December 31,2020)

Series F redeemable Class C preferred stock, nopar value, 1 share issued and - - outstanding; aggregate liquidation preference of$100



Stockholders' equity:

Series B 12% cumulative, convertible preferredstock, $100 par value; 20,000

shares issued and outstanding; aggregate 2,000 2,000 liquidation preference

of $3,385,000 ($3,265,000 at December 31, 2020)

Series D 6% cumulative, convertible Class Cpreferred stock, no par value;

1,000,000 shares issued and outstanding; 1,000 1,000 aggregate liquidation preference

of $1,342,000 ($1,312,000 at December 31, 2020)

Common stock, $.10 par value; 75,000,000 sharesauthorized, 3,128 3,128

31,283,210 shares issued

Capital in excess of par value 192,980 198,215

Accumulated deficit (51,844 ) (41,487 )

147,264 162,856

Less treasury stock, at cost:

Common stock, 982,639 shares (2,074,565 shares at 6,249 13,213 December 31, 2020)

Total stockholders' equity 141,015 149,643

$ 1,049,485 $ 1,053,302

LSB Industries, Inc. Non-GAAP Reconciliations

This news release includes certain "non-GAAP financial measures" 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 and Adjusted EBITDA Reconciliation

EBITDA is defined as net income (loss) plus interest expense, less gain on extinguishment of debt, plus depreciation and amortization (D&A) (which includes D&A of property, plant and equipment and amortization of intangible and other assets), plus provision for income taxes. Adjusted EBITDA is reported to show the impact of one time/non-cash or non-operating items-such as, loss (gain) on sale of a business and other property and equipment, one-time income or fees, certain fair market value (FMV) adjustments, non-cash stock-based compensation, and consulting costs associated with reliability and purchasing initiatives (Initiatives). We historically have performed turnaround activities on an annual basis; however, we have moved towards extending Turnarounds to a two or three-year cycle. Rather than being capitalized and amortized over the period of benefit, our accounting policy is to recognize the costs as incurred. Given these Turnarounds are essentially investments that provide benefits over multiple years, they are not reflective of our operating performance in a given year.

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. In addition, we believe that certain investors consider adjusted EBITDA as more meaningful to further assess our performance. We believe that the inclusion of supplementary adjustments to EBITDA is appropriate to provide additional information to investors about certain items.

EBITDA and adjusted EBITDA have 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 and adjusted 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 and adjusted EBITDA for the periods indicated. Adjusted EBITDA margin is calculated by taking adjusted EBITDA divided by Net Sales.

LSB Industries, Inc.

Non-GAAP Reconciliations (continued)

Three Months Ended Six Months Ended June 30, June 30,LSB Consolidated ($ in thousands) 2021 2020 2021 2020



Net income (loss) $ 23,670 $ (365) $ 10,391 $ (19,817)

Plus:

Interest expense 12,290 12,476 24,662 25,955

Depreciation and amortization 17,277 17,295 34,354 35,202

Gain on Extinguishment of debt-PPP (10,000) - (10,000) -loan

Benefit for income taxes (248) (1,299) (206) (1,638)

EBITDA $ 42,989 $ 28,107 $ 59,201 $ 39,702

Stock-based compensation 1,063 685 1,776 1,180

Noncash loss (gain) on natural gas - (396) (1,205) 131contracts

Legal fees (Leidos) 441 955 1,327 4,242

Loss (gain) on disposal of assets 91 (54) 174 (277)

FMV adjustment on preferred

stock embedded derivatives 716 (120) 1,152 (757)

Consulting costs associated with - - - 576Initiatives

Turnaround costs 707 11 847 11

Adjusted EBITDA $ 46,007 $ 29,188 $ 63,272 $ 44,808



Adjusted EBITDA Margin 32.7 % 27.8 % 26.5 % 23.8 %



Agricultural Sales Price Reconciliation

The following table provides a reconciliation of total agricultural net sales as reported under GAAP in our consolidated financial statement reconciled to netback sales which is calculated as net sales less freight expenses. We believe this provides a relevant industry comparison among our peer group.

Three Months Ended Six Months Ended June June 30, 30,

2021 2020 2021 2020



Agricultural net sales ($ in $ 66,508 $ 64,997 $ 111,421 $ 106,455thousands)



Less freight 4,089 5,530 7,715 9,466



Agricultural netback sales $ 62,419 $ 59,467 $ 103,706 $ 96,989

View source version on businesswire.com: https://www.businesswire.com/news/home/20210728005992/en/

CONTACT: Company Contact: Mark Behrman, President & CEO Cheryl Maguire, Executive Vice President & CFO (405) 235-4546

CONTACT: Investor Contact: The Equity Group Inc. Fred Buonocore, CFA (212) 836-9607 Mike Gaudreau (212) 836-9620