Good day, ladies and gentlemen, and welcome to the CF Industries First Half and Second Quarter of 2025 Earnings Conference Call. Today, all participants will be in a listen-only mode. Should you need assistance during today's call, please signal a conference specialist by pressing the star key, followed by zero. We will facilitate a question and answer session towards the end of today's presentation. To pose a question at any time, please press star, then one, on your touchstone phone. I would now like to turn the presentation over to the host for today, Mr. Martin Jerosek with CF Investor Relations. Please proceed, sir.

Thanks, Martin, and good morning, everyone. Yesterday afternoon, we posted a report in which we generated adjustments. These results reflect outstanding operational performance. Our strategic initiative began operating and is running a design. On the new blueprint, we continue to return substantial goods, repurchase nitrogen industry dynamics.

We continue to differentiate CF Industries' operational excellence to 2025. This is particularly at the end of June, representing a 99% utilization of the full year production volumes in our strategic initiation project, carbon dioxide dehydration and compression unit, and we achieve full first week. In addition to reducing carbon dioxide emissions by up to 2 million metric tons per year, for the Blue Point project, leveraging best-in-class. For example, the joint venture signed an agreement with industry leaders to operate the air separation unit, which will supply nitrogen and oxygen for the ammonia production process. The global nitrogen supply-demand balance and the interest that has been generated in the ultra-low carbon. Let me turn it over to Bert to discuss the global nitrogen market.

The global nitrogen inventories and production disruptions. This included geopolitical events late in the second quarter that temporarily halted production in Egypt and Iran, as well as two facilities in Russia. The team navigated these dynamics exceptionally well, especially as the North American spring application season lasted longer than normal, backed by strong fix and distribution capabilities to capture incremental opportunities well into July. Last month, we continued to make spot resources, which was largely unavailable after the strong spring application. at the end of June until next week, communicate that fill prices will be significantly higher than global supply demand to remain robust. The corn-to-soybean ratio favors when inventory is low, and the global demand is expected to be strong. Brazil and India alone are likely to acquire more than 8 million metric tons of urea import, while the northern hemisphere, which will begin purchasing the global industry, even with the needed urea exports from China, does not have excess. The structural challenges are further exacerbated by the uncertainty created by geopolitical demand growth for traditional fertilizer and industrial applications. We also believe demand for low-carbon ammonia for new applications, such as power generation, will only further tighten the global supply-demand balance. We are seeing this transition now, with the Donaldsonville CCS project for pneumonia in the coming weeks and at a premium. interest in Donaldsonville low-carbon pneumonia volumes for new applications, in addition to the longer-term demand for ultra-low-carbon volumes from $198 million.

EBITDA and adjusted EBITDA were both $386 million. We have begun consolidating into our financial statement. Reflected in both our first 12-month basis, net cash from operations was $2.5 billion and free cash flow was $1.7 billion. This includes a net benefit in the second quarter from the Blue Point Project as capital contributions from our job exceeded the project. This will be the case for some time as we build cash $180 million to shareholders in the second quarter of 2025, including $202 million to repurchase 2.8 million shares. We remain committed to a balanced Bluepoint joint venture while the nitrogen and oxygen agreements with Lindy that Chris mentioned, the cost of the Bluepoint project is expected to be $3.7 billion, dollars, approximately $2 billion over the next four years. Over that same time frame, we have $2.4 billion authorized for share repurchase to complete the $425 million remaining on the current authorization before the end of the year. At that point, we will begin the $2 billion authorization. With the startup of the Donaldsonville CCS project, EBITDA and free cash flow beginning in the third quarter, to be north of $100 million annually The 2030 mid-cycle projections we shared at Investor Day of $3 billion in EBITDA and $2 billion in free cash flow.

Contributions to an outstanding first half. We are delivering world-class. Our Senior Vice President recently announced his amount for almost 80 years. In a couple of days, we'll be marking the 20th of global leader in every year. Executing consistent share reparticipation in our assets and the cash flow they generate. As you can see on slide 13, we have driven a nearly three-fourth. this approach even broader comparison to build on this tracker in the near and medium term industry dynamics remain very low carbon ammonia capacity billion dollars authorized for continued sharing taken together we expect to continue to

drive strong thank you we will now begin the question and answer session to ask a question you may press star then one on your touchdown phone if your question has been addressed and you would like to withdraw it please press star then two We will now pause momentarily to assemble our roster. And today's first question comes from Richard Garchitarina with Wells Fargo. Please proceed. Thanks for taking my question.

You know, you're progressing on the blue points. Obviously, we've consolidated results. My question is on the outlook for returns. Obviously, we had the big, beautiful bill come out. I think there's some, you know, treatment of depreciation, which may be changing. Can you talk about how that impacts potentially, you know, the return calculations and how that may impact taxes for Bluepoint and for CF?

Yeah, so it's Greg. I'll take that one first. So when we look at the joint venture, there's a number of items, P&L, from the tax side that we're going to need to be coordinated with our JV partners on it. Not only will our depreciation of the assets be important, the timing of the earnings to make sure we're maintaining our basis in the assets, as well as the monetization of the 45Q credit. And with our advisors, in particular, too, as we look at the depreciation, what we had in our original expectation within the model was already on an accelerated basis. So if you get to day one, complete amortization depreciation of the asset, we don't expect it to materially change the overall returns of the project that we've shared with you before. But we'll continue to model that out over the next few years and make sure that we understand how all these variables interplay against each other.

And the next question comes from Adlane Rodriguez with Mizuho. Please proceed.

Thank you. Good morning, everyone. I mean, Tony, just kind of like when you look forward into 2026 and beyond, I mean, again, given where crop prices are and where fertilizer prices are, like, what are you thinking there? I mean, again, kind of there's a disconnect between prices and input costs for farmers. So how do you see that develop over the course of next year?

Good morning, Ed Lane. This is Bert. And that is the question in the industry today, is how do planting and planting represent about 25% of the input cost? So nitrogen, even less so. Then you've got diesel, equipment, crop insurance, and land value. The majority of farmers, if some to the play, value products. So we compete for imports and exports with the world. And so the U.S. farmer, in the same vein, there will have to be applied. And I think then farmers...

Bert, I totally agree on that, which is, you know, I think once you've gone through all of the other expenses that you talked about, you are going to go ahead and try to optimize yield. Because, you know, it's the last couple of bushels that will actually make the difference in terms of profitability or not. And so at least with respect to nitrogen, we continue to see and expect full application rates because that's really how you're going to get profitable. It's not trying to save a couple of bucks by reducing your nitrogen application. Now, P&K is a different story, but at least nitrogen we expect to go down.

Okay. Thank you much for your insight.

And the next question is from Joel Jackson with BMO Capital Markets. Please proceed.

Hi, good morning, everyone.

Can you talk about a report that came out yesterday around the time you reported? It seems like maybe if it's true, you've got a few days or a week of no loading happening at D-Ville. Is that about demand that you're – you had a huge quarter, portion Q2, volume's so good, demand's so good, you're out of inventory? Does that speak about the strong dynamic for your sales and the market? Is there any production problems that you can elaborate?

Yeah. So, Joel, this is Chris. I'll start. So, the report was incorrect, and it was an operational issue with our loading. We continue to have full access to loading, production, and utilization there, as you can see in second quarter, continues to be outstanding. I'm going to let Bert talk to some of the inventory levels and some of the customer direction that we've done that was probably more the source of that than it was operational.

We have several figures that for the dynamic nature of this spring application and into summer, we just did not have the inventory due to high demand in some of the previous remarks of being one of the last companies standing with available supplies. So every day we had full. And in Donaldsonville, this is a reflection of team dynamics and discussion and how we work collaboratively. But manager, along with the production and allocation and logistics folks, worked together. We had 2,000 tons of inventory yesterday. We produced 7 1⁄2. We produced about 14,000 tons a day. So to have that low of an inventory and you're loading four to six, you want to have inventory for consistent and reliable loading. So this was just a reflection of the team coming together, making a decision.

And our next question comes from Lucas Bommel with UBS. Please proceed.

Thanks. Yeah, there is this sort of some cost pressure in the first half this year, both like on SG&A and your controllable non-gas production costs, which were both sort of higher year So could you please just kind of talk us through what the drivers were there, if there's anything that was kind of more one time, and kind of think about the trajectory there going forward into the second half of next year.

Yeah, I'll start, and then I'll pass it to Chris. So let's start with SG&A. Listen, I've been here now 13 months and continue to be impressed by the organizational structure we have and the operating efficiencies that the business has. And when I compare our SG&A to any benchmark in the industry, we are a very small movement in the number. A small number will move that number. Specific to the second quarter, there was two discrete items to talk. Around our legal fees associated with us closing our Bluepoint joint venture, not only with a partner, but all the other agreements we had to put in place. That was about half of the difference versus last year. And the second part of the difference was almost all of the employees here at CF are on some type of variable compensation. And given what we're seeing from the operating performance of the company, as well as the market pricing that is there, we made an adjustment within the quarter for our expectation and how that variable item could explain the SG&A difference year over year. And as you think about it going forward, third quarter, fourth quarter will probably look more similar to what we saw within. Now, on the cost side, I'll let Chris talk to it in particular, but just make a couple points as we try to analyze it. One, and you're right to do it ex-gas, when you look at any 90-day period within the company, it's going to be impacted by timing of maintenance, either planned or unplanned. So we tend to look at things over longer periods of time. If I look at it over the first half, in fact, our controllable costs were down minimally low single digits versus last year. If you look at it in particular on the second quarter of last year, we had maintenance events associated with weather that drove an acceleration of our maintenance from the second quarter into the first quarter. So if I look at the variance in the second quarter of 2025, it has more to do with what happened in 2024 than 2025 when you adjust for maintenance events.

As Greg mentioned, we do look at a longer timeframe because it could just be timing when something hits. One was unplanned outages as extended unplanned downtime. What that resulted in, you know, it's logistics and also the logistical movement.

Our next question comes from Jeff Zakoskis with JP Morgan. Please proceed.

Thanks very much. On the DCS project, you talked about $100 million benefits, and I think I get that. You know, there's an $85 a ton tax credit, and maybe it's costing you $35 a ton for various isolations of the CO2, and so that gets you to an annualized rate of $100 million. in. In general, these are tax credits. When does the cash come in and how do you account for it? That is, do you take the tax credits on an ongoing basis? When do you get paid from the government? How does that work?

Yeah. So, Jeff, it's Greg. I'll answer it two ways. One is from our financial statements and then from our tax cash payments. So on In our financial statements, we will begin accruing this into our EBITDA as the gas flows. We've talked about that being an $85.45 Q credit that we'll net about $50 on, up to 2 million tons. You'll begin to see that in our third quarter reported financials as part of our EBITDA calculation. Now, on the cash side, obviously we won't settle. we will begin to withhold our expectations around what we're going to receive back for the 45Q credit as early as our September payments that we make in, our estimated September payments that we make into the IRS. So you'll begin to see the cash benefits of that almost immediately, and then obviously at the end when we file our final return next year.

Great. And just one follow-up. Can you talk about the theoretical relationship relationship between the amount of ammonia made and the amount of CO2 captured. Sometimes, you know, when you read the literature, it seems that CO2 captured should be much more in tonnage than the ammonia made. And what you have is something that's pretty close to one-to-one. Can you describe what's going on?

Yeah, Jeff, let me Let me start off with that, and then I'll turn it over to Chris. But all of our existing ammonia plants today are conventional steam methane reforming. And in general, you end up with about one-third of the natural gas used to drive the process from an energy and heat perspective. and about two-thirds of the natural gas goes into the actual process and the synthesis of ammonia. And so the total amount of gas, you know, about 32 on average MMBTUs per ton of ammonia, will generate about kind of call it 1.8-ish, 1.7, 1.8, 1.9, depending upon the, you know, the plant in question, tons of CO2 per ton of ammonia. With the existing process, though, because we're not doing flue gas capture on SMRs, you can only capture about two-thirds of that, which is related to the process side of the equation. And then, you know, Donaldsonville is one of our large upgrade facilities. And when you're making urea, either as granular or as part of DEF or going into UAN, you have to use a lot of that process CO2 to make urea. So, you know, you actually have to use it downstream in the process, and therefore it's not available for CCS. When we move to Bluepoint, because it's a different process, autothermal reforming, we can capture a much, much higher percentage of the CO2, in that case probably close to like 95% to 98%. Yeah.

I'm not certain there's much I can add to that.

Okay. Thanks very much. That's pretty clear.

And the next question is from Chris Parkinson with Wolf Research. Please proceed.

Great. Thank you so much. I'd love to hear your thoughts on the current supply side dynamics, you know, into the second half and into 26. I mean, there's been essentially everything. There have been, you know, attacks on Russian facilities, geopolitics. gas shortages in Eastern Europe and Trinidad. I mean, there's literally been everything. And ultimately, demand's been stable to solid on the other side of that. But how should investors be thinking about the sustainability of these dynamics into 2026? And have you seen actually anything improve, or are we still essentially at the status quo? Thank you.

Good morning, Chris. This is for gas shortage, high demand. And we've been And in this discussion since March, it's going to be April. And so that ports into north of the United States, in the United States and Canada. And so we are doing our best. Based on price and based on need, 2 million tons, that's the first time they've been able to quarter $20, $530 range. Very attractive. Tons a month for the next several months. And then getting ready for their second crop, Hemisphere, entering 2026. I'd say those during the market with an additional supply of a million tons, it does productively positive the market for Q2026 with the current pricing dynamic that we're experiencing.

And just, you know, if I may parlay that question into another, you know, the second half is setting up pretty well in terms of ASPs. And obviously, we'll have to have our own views on, you know, operations and ultimately volume sold. But, you know, if you set up favorably on the free cash flow side, just even given the historical, you know, 60%, 70% of times, how should investors be thinking about the uses of cash? Because on one hand, obviously, a lot of people are going to be looking for buybacks. At the other, you are entering, you know, a CapEx cycle with Bluepoint, and there's been some debate on basically de-risking at least the beginning of that cycle. So how should we be balancing those two views under the presumption that free cash flow should be a little bit better as we progress throughout the year? Thank you.

Yeah, I would say in general, Chris, you know, we do have $2.4 billion open to buy on share repo. And we have, you know, I think a pretty good view of what expenditures look like for Bluepoint going out initially. And, you know, these kind of projects, they start off a little on the slower side and then start accelerating. And then the big spend is really kind of year three and four as you're paying for all of the deliveries of the large modules and doing the construction work to put them together and get the plant kind of commissioned. But in general, as we're generating kind of more cash than what maybe an LRP would look like or even what the expectation of certain market segments look like, then we will probably go ahead and deploy that capital against the share repurchase more expeditiously than otherwise we might pace it out.

Thank you.

The next question is from Kristen Owen with Oppenheimer. Please proceed.

This is Mason Manwar on for Kristen. I just wanted to follow up on the carbon capture at the Dunsonville question, in particular, the contribution of the credits in 3Q.

Understanding that the 45Q for enhanced oil recovery is different from the permanent sequestration credit, can you just help us understand the economics of the EOR credit and is there any additional cost related to that process or should we just think about the similar flow through just off that lower credit value yeah thanks this is Chris Mason I would store not only the Donaldson bill but also the blue point in our Yazoo City is that it goes to class 6 permanent sequestration and as far as the tax allocation of the 45 Q at 85 dollars per metric ton did not change The EOR did go up from $60 to $85 for metric ton, and as you may know, is in the process of getting their Class 6, the EOR, and putting it permanent geological sequestration through EOR. That does allow us potentially to go from the $60 to $85. However, we don't believe that that's going to really make any type of equivalent economics, whether it's EOR or the Class 6 permit. The one thing I would mention is Exxon was grant Rose CCS project in July, and the comment period for that with the EPA ended earlier this week. And so it's our expectation that, you know, we'll be relatively soon here before the end of the year.

Awesome. Thank you.

The next question is from Vincent Andrews with Morgan Stanley. Please proceed.

Thank you, and good morning, everyone.

I'm wondering, you know, I think the press release talked about an expectation that China will not export further this year, at least, after 3Q. So just curious what's driving that view, if it's anything in particular you're picking up on the ground with your sources in China.

We've been fairly consistent with our Chinese expectations that there is exportable tons available, frilled urea, and frilled urea is not desired by many places outside of India. And so what they offered, the initial volume target was 2 million tons through Q3, and then they start building for their spring season through Q4 and Q1. For that, they announced an additional million tons. And, again, our commentary is that those are tons that are needed in different parts of the world and the high demand position that the world is in, bringing those Chinese tons of an additional million, so they hit 3 million tons. But so far, they've been underperforming. In June and July, there was a rumor that India might be able to buy some Chinese tons. Those were the two Indias. That might still happen in China for both the pearls and the granular product. So we'll see what happens over that.

What about for the fourth quarter? It sounds like you don't expect it for the fourth quarter.

For their announcements, that's all I'm going on is no. Okay.

Thanks very much.

And our next question comes from Matthew Deo with Bank of America. Please proceed.

Yeah, thank you. Look, I know you made some comments about insufficient nitrogen supply additions, but what do you make of some of the larger capacity functions for urea that CRU is kind of noted or flagging coming to the market the next five years in China? It's kind of the prevailing assumption that China won't build that or it just won't get exported given some of the current policies.

You have several factors going on in world supply and demand. And focusing on the supply side, there are plants in Russia, Iran, and Turkey totaling about 2.7 million tons. And then the four plants in China, I think you're referencing, targeting 2.6 million tons that are scheduled to start up in the ensuing, I'd say, this year and next year, and then some ongoing construction. But you've had plants taken offline, and then the gas issues that we've talked about in different parts of the world, both in the one to one and a half that we see in the need for urea. Again, if that's a 200 million ton supply, you need two to three per year to be built, just a 9 million ton. Now, they're talked about with Petrobras bringing several of those plants operating to farming in terms of their total.

It can de-balance from a nitrogen perspective. As we see this tightening of the ammonia market, part of it is just to be challenged. We expect that to continue as well. So I think it's still going to be a very tight market as we move through the end of this decade.

I appreciate that. And one more, I guess, if we think about the blue and green ammonia market, how much do you think ultimately could get moved into, say, Asian energy markets or shipping, right? Like, how much tonnage can that ultimately be?

Yeah, I would say the base case right now, between now and 2030, we're looking at is probably 3 million tons of carbon ammonia would be moving in there. primarily for pouncement actually moving forward, is more parties who are contacting not only BERT and bidding through different areas for low carbon pro in the marine side. I still think the marine side is a bit beginning to see ammonia engine.

And the next question comes from Ben Thurr with Barclays. Please proceed.

Yeah, good morning, and thanks for taking my question. I just wanted to understand a little bit better the sequential dynamics in ammonia. If we take a look at 2Q versus 1Q, it feels like the gas price came down, but at the same time, gross margin was actually significantly worse on a sequential basis. So I just want to understand what's been happening here and how we should think about the back half of the year as it relates to, assuming gas price is where they are right now, what what that should do to your nutrient-adjusted gross margin per ton.

Yes. No, no, as we talked about before, and Chris talked about in particular, with some of the unplanned outages we saw, as well as the distribution costs of moving product around to meet customers' needs, that ran through particularly in the ammonia segment into the second.

More than just on a quarter. And now as we look at the back half of the year, as we mentioned in our prepared remarks, Q3 is generally a little bit of ammonia during that period as well.

And on the movement of the product, Q3 is pricing has been...

Yeah, perfect. Thank you very much.

The next question is from Andrew Wong with RBC Capital Markets. Please proceed.

Hey, good morning. Thanks for taking my questions. Maybe a topical question for today to start. What's your view on how a Russia-Ukraine truce or some sort of peace settlement could impact on the snack gas prices and also on the Nigerian market.

I'd love to see peace break out. It bothers me that we take it. I can understand that it's a reflection of our coming to the United States. They're sending bombs and missiles there but bringing fertilizers here. So the impact on natural gas, that's not going to come back anytime soon, not going to be rebuilt anytime soon. The frustration, I believe, with the European NATO allies and purchasing of Russian product probably is not going to come back anytime soon. There's tariffs and sanctions coming that will only increase on Russian product. And so I think for the world, you're going to see much more North American natural gas moving to Europe and others probably going from 15 in the United States up to the mid-20s in the next several years. On a nitrogen basis, you know, again, it's a world, it's a globally traded commodity. I think that the pricing and the product moves as relation to product needs communicated and still in India. I expect that to continue for a while. And then we'll see what happens with these pieceballs.

The energy front is already in motion, the demand timing as you're building points of the year of demand.

So I think – Okay, I appreciate all that. And then maybe just switching over to Europe with the coming implementation of CBAM. And you just talked about how you see that impacting the markets, both in Europe and globally, and how does that change the role of Europe as a marginal cost center?

Yeah, so I'll start, and I'll see if anybody else wants to add in. But right now, CBAM is in a transitional phase, where right now importers have to report their carbon intensity. So it goes into place in January of next year. And there's quite a few details that are still being worked out that our hope is by the end of the year here, the specific place roughly in $80 per metric producers that we should begin to see with our low-carbon ammonia coming out of Donaldsonville benefit that continues to increase through the years that by 2030 would be equivalent of $100 per metric ton advantage. that's going to be something that, you know, we haven't really worked into all of our models of upsides, and that's why we feel confident that we've been probably overly conservative, but will be something that will be an advantage and almost an opportunity for CF as we're able to move our product in there.

Yeah, I agree with Chris. In terms of how we're looking at CBAM, but also working with our existing operating units in the UK and planning to send low-carbon ammonia to produce low-carbon ammonium nitrate for that market, as well as other customers, industrials, We see a tremendous opportunity in the near term with the product we're already making due to our CCS and longer term with the Blue Point.

And I would just add, you know, we are seeing a, as Bert commented in his remarks, we're seeing demand and a premium for the low-carbon intensity product already today. That's even before you get into the CBAM situation. So, you know, this has been a great kind of initiative for us, not only because the 45Q makes it a really highly accretive investment on the CO2 capture and dehydration compression injection, But also because on top of, you know, the 45Q, we're getting paid incrementally a differentiated product margin for the attribute. So, you know, this is just another step up, as Chris said, which will add to that with the C-band that wasn't worked in or expected in any of the initial calculations around Blueprint.

And maybe just the other part of the question, like just on the nitrogen market itself, like what is the impact there and on EU in its marginal cost role?

The impact, I assume what you're asking for, is what is the impact on low-carbon products to the market?

No, just in general, like EU right now is a marginal cost setter kind of, right, with the high cost and that cost. Does that raise their cost profile? Does it change, like, how the market works? and maybe they're a different part of the market now, like how does that?

Yeah, I think what it's going to do is it is going to raise the cost of the product going into Europe, obviously, as you're having to pay for that carbon. I don't think it changes anything with European production. So as demand grows here and you're seeing that constraint, that's why we're very strongly believe that you're going to have to incent new production globally to be bid in. And what we've seen recently, with the exception of our project, a lot of these other projects that were in FID state have either deferred those FIDs or canceled the projects altogether. So we see the back half of this decade just getting tighter, and that's at the same time that we'll be bringing on our production. So we think the cost curve, from that perspective, given demand growth, will probably move up along with some of these other carbon initiatives globally.

Thank you. And the next question comes from Aaron Ciccarelli with Perenberg. Please proceed.

What is CF's perspective on nitrogen fixation products? Do you see these products as a growing risk to traditional nitrogen producers, or do you expect farmers to adopt them as a complementary solution? And perhaps additionally, would CF be interested in entering the nitrogen fixation market? Thank you.

So this has been a topic, nitrogen fixation, microbials, biologicals, applied products for years, many new entrants, and we have a lot of access, paid attention to the diversities. And I would say today it's a questionable performed as work, and at times they don't, I think because it has an impact on our business. We want to align with the retailers and farmers that are doing best practices.

The other thing I would just add to that is our expectation is that the value associated with any kind of, as Bert said, biological or other approach is really to drive increased yield as opposed to a cost reduction based on nitrogen. You know, if you think about a couple hundred pounds of nitrogen going down per acre, even at, you know, relatively strong values for nitrogen, it's worth a lot more to the grower to increase yield by, you know, 3% or 4% than it is to try to take 5% of the nitrogen off the field. There's just more dollars associated with the end grain. And so we don't really see this necessarily as a competing technology, more of a value enhancement to the grower.

Interesting. Thank you very much.

Ladies and gentlemen, that is all the time we have for questions today. I would now like to turn the call back over to Martin Jerosek for any closing remarks.

Thanks, everyone, for joining us, and we look forward to...

The conference is now concluded. Thank you for attending today's presentation, and you may now disconnect your lines.