Greetings and welcome to LSB Industries' First Quarter Fiscal Year 2020 Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference call is being recorded. It is now my pleasure to introduce your host, Kristy Carver, Senior Vice President and Treasurer. Thank you, Kristy, you may begin.

Good morning everyone. Joining me today on the call are Mark Behrman, our Chief Executive Officer; and Cheryl Maguire, our Chief Financial Officer. Please note that today's call will include forward-looking statements, and because these statements are based on the company's current intent, expectations, and projections, they are not guarantees of future performance and a variety of factors could cause the actual results to differ materially. As this call will include references to non-GAAP results, please see the press release in the Investors section of our website, lsbindustries.com for further information regarding forward-looking statements and reconciliations of non-GAAP results to GAAP results. At this time, I'd like to go ahead and turn the call over to Mark for opening remarks.

Thank you, Kristy, and good morning everyone. As always, we appreciate your interest in LSB Industries and are happy that you can join our call this morning. What a difference a year makes. At this time last year, we were staring into the unknown of the unfolding COVID-19 crisis. The onset of the pandemic required us to rapidly implement protocols and procedures to keep our employees and their families healthy while enabling us as an essential business to continue to run our facilities. It also caused a significant slowdown, and in some areas, in some cases, a full shutdown of our industrial end markets and much of the U.S. economy in general. At the same time, pricing of our agricultural products declined further from the already low levels of 2019. The level of uncertainty we faced as individuals, as a company, and as a nation was historical in nature and daunting to say the least. In the face of these challenges, our team more than rose to the occasion, integrating our COVID mitigation procedures into our overall health and safety program to achieve outstanding results, and they did this while remaining focused on our goal of continuous improvement in our manufacturing operations. In doing so, our people capitalized on the investments we made in plant reliability and product upgrading capabilities over the previous several years and ultimately delivered company record production volumes across our portfolios of facilities. Flash-forward to today, with the widespread rollout of vaccines, emerging treatments, and greater overall knowledge and experience as to how to run our business and live our lives on a day-to-day basis amidst a pandemic, has come a rebound in much of the U.S. economy, including our key industrial end markets. On the agricultural side of our business, a combination of factors has aligned to spark a surge in demand and pricing for the products we produce and sell. We believe that these favorable trends are likely to persist throughout 2021 and into 2022, and because of the variety of actions we've taken over the past several years, we think we are well-positioned to capitalize on them. Our first quarter was not without its challenges. As widely documented in the news, and as we discussed in our last earnings call, historically cold weather across the regions in which we operate and the related impact on natural gas pricing and availability during February caused temporary shutdowns at two of our facilities and impacted our results for the period. Despite these headwinds, however, by focusing on the aspects of our business within our control and executing well, coupled with the improving demand and pricing trends in our end markets, we generated double-digit year-over-year growth in net sales and adjusted EBITDA. Overall, it was a solid start to the year, and we believe it sets the stage for significant improvement in our 2021 financial performance relative to that of 2020. On slide four, we summarized the key drivers of our agricultural markets. Commodity prices have continued on an upward trajectory since hitting an inflection point last fall. Most importantly for our business, the price of corn has more than doubled from 2020 lows and is now at levels not seen since 2013. As discussed on our last call, strong demand for U.S. corn is being fueled by a combination of factors, with the most prominent being a surge in exports led by increased demand from China and a rebound in ethanol production as driving and related fuel consumption have increased as the vaccines have rolled out, enabling many people to get back to a more normal lifestyle. In addition to the impact from the increased demand, the price of corn has also been impacted by global supply concerns being caused from drought conditions in Brazil and the Western United States, which could reduce overall corn production. Additionally, we have seen steep increases in the price of other agricultural commodities including beans, wheat, and cotton, all creating a competitive environment for the finite number of acres we have available for planting in the U.S. Approximately 91 million acres of corn were planted in the U.S. during 2020, which was a slight increase over 2019. The USDA's most recent forecast for 2021 is for approximately 91 million acres, which we view as more than ample to drive very healthy demand for fertilizers. With strong corn market fundamentals has come a commensurate rebound in demand and pricing for fertilizer products. As you can see on slide five, Tampa ammonia pricing has more than doubled over the past 12 months and expected UAN and HDAN pricing have both increased substantially compared to the second quarter of 2020. Corn and fertilizers are not the only commodities that have been experiencing rising prices. As the economy has been recovering and the outlook for economic expansion continues to improve, energy prices have been increasing significantly as well, including natural gas. Since natural gas is the primary input to our manufacturing process, the higher prices over the past several months were, and we expect will continue to be, a partial offset to the gains we are recognizing from higher product selling prices. But importantly, we expect it to be less of a headwind to profitability improvement as we begin to fully benefit from the higher agricultural product prices. Cheryl will discuss this in more detail shortly. Turning to slide six, with respect to our Industrial and Mining business, most of our end markets have seen meaningful recovery since last spring. One of the primary end markets for the nitric acid we produce is the auto industry, which was forced to cease production at the onset of the pandemic in mid-March of last year. As of the end of last month, U.S. light vehicle sales rebounded from last April's lows by more than 100% and were actually above the pre-pandemic level of the end of February 2020 by more than 5%. Nitric acid is also a major input to a variety of home building products. Based on preliminary estimates, as of the end of March, U.S. housing starts and building permit applications have rebounded to above pre-pandemic levels and were at the highest in several years. With respect to the products we manufacture for mining applications, primarily low-density ammonium nitrate, favorable indicators have been emerging from the sizeable North American copper market, where prices for this metal have risen to the highest levels in almost 10 years, and the expectation is for pricing to continue at these levels, which could drive an increase in copper mining activity in the foreseeable future, particularly given relatively new and growing copper demand drivers such as mass production of electric vehicles. We view the current demand trends we're seeing across our key markets as pointing towards continued increases in sales and prices of our Industrial and Mining products over the course of 2021 and thereafter. Before I hand the call over to Cheryl, I'd like to provide an update on the litigation that we brought against Lidos, the general contractor of our Eldorado ammonia plant expansion project. As the pandemic has caused many trials to be rescheduled, ours was not immune. However, the Arkansas Supreme Court has begun scheduling trials beginning in June. And based on that, we continue to believe that our trial will occur sometime this fall. We are looking forward to having our case heard by a jury and while we can't guarantee any outcome in the litigation, we believe our case has serious merits. Now, Cheryl will go into more detail about our Q1 financial results.

Thanks Mark and good morning. Page eight bridges our adjusted EBITDA for the first quarter 2021 of $17.3 million to adjusted EBITDA for the first quarter of 2020 of $15.6. This improvement was due to greater sales volumes and improved pricing, stemming from a multitude of factors that Mark spoke about earlier. Partially offsetting our operating performance and the improved demand and pricing environment was the impact of higher natural gas costs, increased insurance costs, and a small impact from the extreme cold weather event we experienced in February of this year. With respect to the weather event, as you might recall, we generally lock in a portion of our natural gas usage at a fixed price and therefore, despite the significant impact of loss production, sales, and higher costs caused by the natural gas disruptions at both our El Dorado and prior facilities, we were able to mitigate a big part of the loss with a sell-back of natural gas and related contracts. Turning to page nine, we have outlined our adjusted gross profit margins for the past three years, which we believe represent the underlying cash margins of our business. As you can see from this slide, despite the significant drop in the average annual Tampa ammonia benchmark price from 2018 to 2020, our adjusted gross margins remained in the 23% to 24% range, as we were able to largely offset weaker pricing with higher production and sales volumes and reductions in fixed costs. Looking at the first quarter of 2021, we see the positive impact of these factors, plus the benefit of improved product pricing, which provided us with some healthy margin expansion during the period. With the recovery of the Tampa ammonia benchmark, we believe that as the year progresses, we will be able to improve our gross margin even further. Page 10 outlines our current capital structure; we ended the quarter with approximately $14.2 million of cash and $56 million of total liquidity. As stated on previous calls, we continue to actively seek ways to improve our capital structure and lower our overall cost of capital. We believe that operating improvements made to date, combined with the improved pricing environment for our fertilizer products and robust industrial and mining end markets will be a benefit in achieving those results. As we highlighted on our call in February, credit markets remain issuer-friendly. And with that in mind, we continue to evaluate several avenues to lower our cost of capital and look forward to discussing these with you in the coming months. Before I turn the call back to Mark, I'll review a few important considerations as to how to think about the second quarter of 2021. As Mark covered on slide five, pricing has moved up dramatically over the last several months and we expect that pricing to be reflected more significantly in the second quarter. Keep in mind that while pricing improvement did help our first quarter, orders for UAN, HDAN, and agricultural ammonia in the first two months of Q1 were taken back in Q4, and therefore were reflective of Q4 pricing. In other words, due to order timing, Q1 benefited from products selling price improvement to only a relatively minimal degree. During Q2, we expect we will benefit to a much greater degree. We expect ammonia production for the second quarter to be at or better than the second quarter of 2020 and for that to translate into margin expansion as we execute on our strategy to upgrade into downstream consumers of nitric acid, LABN, and UAN. Natural gas trends, excluding the unusual spike from the cold weather in February, have seen pricing rebound off lows experienced back in early 2020 and we expect the cost of gas feedstocks to be approximately 50% higher than the second quarter of 2020. Putting this all together, we expect EBITDA in the second quarter to be approximately 70% to 90% higher than the second quarter of 2020.

Thank you Cheryl. The beginning three months of 2021 was the first quarter that we would say we experienced little to no impact from the pandemic. It was also the first quarter in more than two years, where we saw meaningful price increases for our agricultural products. We have seen further price increases in the second quarter and we believe that these can be maintained on a year-over-year comparative basis for the remainder of the year and into 2022. As I mentioned earlier, current and future corn prices are at the highest they've been since 2013 and forecasts call for approximately 91 million acres of corn planted this spring. In recent weeks, we've seen this translate into significant demand for fertilizers, as growers strive to maximize yields at the anticipated favorable market prices for corn. Slide 11 illustrates an important market dynamic that we've been talking about on our past two conference calls. The top chart shows the historical relationship between urea and UAN. For the better part of the past 10 years, UAN traded at or above the price of urea on a nitrogen equivalent basis. Beginning in mid-2019, however, UAN began selling at a discount to urea for the balance of that year and for most of 2020. This led us to believe, as we indicated on past conference calls, that we would see a reversion to the historical relationship with the UAN to urea discount ultimately narrowing or disappearing. This is exactly what we've seen in the last month. In fact, on a nitrogen equivalent basis, as you can see in the right-hand end of the upper chart on slide 11, UAN is again trading at a premium to urea on a nitrogen equivalent basis, which bodes well for us as we are a seller of UAN. On slide 12, we summarized our strategy for improving our EBITDA and cash flow, which is comprised of three main elements. First, optimizing the investments that we've made to improve reliability and production capacity, which allows us to capitalize on the strong pricing fundamentals we are seeing in the near to intermediate term and continuing to evaluate further investments. Second, continue to focus on upgrading our margins by maximizing our downstream capacity and expanding our relationships with new and existing customers to increase sales of those higher-margin products. And lastly, evaluating additional investments at our facilities that would expand our production, storage, or logistics capabilities to take advantage of our expanding customer relationships or other marketing opportunities. As you heard from us over the past several quarters, we've been successful on all three of these fronts and we expect to continue to realize meaningful benefits from the progress we've made throughout the remainder of 2021 and going forward. Our operating performance has been yielding solid production volumes and is enabling us to lower our protocols and realize margin expansion by optimizing our product mix to take advantage of higher selling prices. Sales under the new nitric acid contract we signed in late 2020 commenced in Q1 will allow us to recognize better capacity utilization at our El Dorado manufacturing facility going forward. Looking ahead over the remainder of this year and beyond, we expect to make further progress with our operational effectiveness, as well as in our sales and marketing and business development initiatives. As it relates to our focus on other growth initiatives, we are actively pursuing growth opportunities that we believe will enhance the overall value of the company. Given the diversity of the products that we sell and the markets that we sell into, we are open to opportunities that would expand the production and sales of existing products while adding additional regional presence or opportunities that would add production of new products to our portfolio that we can sell into our existing end markets. As I discussed last quarter, a major new business development initiative that we've embarked on is the addition of a green ammonia element to our overall strategy. We believe that green ammonia will be a compelling growth opportunity for us given the role it can play in reducing global carbon emissions through the many new potential applications that have been identified and our ability to capitalize on existing knowledge in ammonia manufacturing, handling, storage, and logistics. We're excited about the role we can play in creating a more sustainable, environmentally-friendly world, and for the long-term value that this could create both financially and socially. In order to become more focused and effective in pursuing this opportunity, we've recently hired Hector Miravete, a highly experienced business development executive in the chemical industry as a Director of Clean Energy, where he will look to assist us in developing and executing on our green ammonia strategy. We look forward to providing you with further developments on this exciting opportunity in future quarters. Before turning over the call to the operator to begin the Q&A session, I'd note we will be participating in the following virtual investor conferences in the coming weeks. The Goldman Sachs Credit and Leveraged Finance conference on May 17th; Sidoti Microcap Conference on May 20th; the KeyBanc Capital Markets Industrial and Basic Materials Conference on June 4th; and the Stifel Cross Sector Insight Conference on June 9th. We look forward to speaking with some of you during these events. That concludes our prepared remarks, and we will now be happy to take any questions. Thank you.

Thank you. We will now be conducting a question-and-answer session. Thank you. Our first question comes from Travis Edwards with Goldman Sachs. Please proceed with your question.

Hi, good morning. This is Bertie Ray on for Travis. Thanks for taking my question. We're still at elevated pricing. I know you've talked previously about a traditional set down in ammonia and other nitrogen prices in the back half of the year. But can you give us any commentary on what you're expecting for full year EBITDA? Based on your price matrix chart, it looks like you could be eclipsing about $100 million of EBITDA this year. Is that a reasonable assumption or how should we think about that?

I think about the only thing we can say on full year EBITDA is we're pretty comfortable with the grid that we put out there. And so based on a level of UAN and ammonia prices, you could land somewhere on that grid.

Got it. Thanks. That's helpful. And then as a follow-up, you mentioned the impacts from the winter storm, could you provide the operating rates for the quarter or some quantification regarding the outages in the quarter?

No, we don't usually provide operating rates on individual clients, so we're going to stay away from that. It's not something that we typically answer or disclose.

Okay, got it. Thanks very much for your time.

Thank you. Our next question comes from Steve Ferazani with Sidoti & Company. Please proceed with your question.

Hi. Morning everyone. I have to follow up on a brief commentary on tackling capital structure. We know that certainly next month call option price declines. How are you thinking about it? But it seems like you open the door to other possibilities, is there any kind of color you can provide? And how you're thinking about given the way the market conditions are? How you're thinking about the capital structure? And what you might do in the next couple of months?

Yes, so we absolutely believe that there's an opportunity for us to refinance. That opportunity has been present for some months now. As you mentioned, our call premium does step down on May 1st. So, that's this weekend. And suffice it to say that we've had some active conversations with investment banks about refinancing. So, I would suggest that between now and the end of the third quarter, there's a strong possibility that we would be refinancing our existing senior secured notes and looking at that as part of potentially lowering our overall cost of capital.

Okay. I understand you’re not providing full year guidance, but how are you preparing internally for the second half of the year, especially considering that Q2 is expected to have very strong agricultural sales and there might be additional ammonia capacity coming back to the market in the second half? How do you view your agricultural products compared to industrial and mining pellets, given that the industrial side is getting stronger?

We actively manage our product balance, although it's not something we can control on a daily basis. At the start of the year, we assess it. Much of our industrial business is contracted, meaning we are committed to supplying products to customers. There are also opportunities for spot sales. In the agricultural markets, fertilizer prices typically reset over the summer, and we anticipate that prices will adjust from current levels. However, I don't foresee a summer reset for UAN prices dropping as low as they have in the past couple of years. We expect to see better fertilizer pricing in the second half of the year compared to what we experienced in 2019.

Okay, that’s helpful. I just have one last question about modeling. I found the information regarding the insurance costs to be useful. Is that the main reason for the sequential change in SG&A for the quarter, aside from the obvious increase in sales? And how should we approach SG&A going forward with the higher insurance premiums?

Yes, that is the main reason. It is the insurance costs, and I believe we can expect that to continue over the next three quarters.

That was very helpful. Thanks everyone.

Sure.

Thank you. Our next question comes from Rob McGuire with Granite Research. Please proceed with your question.

Mark and Cheryl.

Good morning.

Can you help us understand to what degree stronger pricing in the ag market is reflected in your first quarter?

Rob, we can't hear you.

I'll try this differently, one moment. Apologize for that. Can you hear me now?

Yes.

Very good. Can you help us understand to what degree stronger pricing in the ag market is reflected in your first quarter results, just considering that you have pre-sold some product in Q4 and then early Q1? And then as it relates to second quarter sales, how much product was pre-sold at late Q1 prices and will likely be reflected in the second quarter?

Yes, great question. So, I'd say most of the first quarter was pre-sold back late in 2020 or early 2021. So, we really didn't see much benefit from higher pricing. I'd say when it comes to second quarter; we're going to see significant benefit from a bump up in fertilizer prices. Having the weather outage, though, affect several of our facilities will have us probably roll a little bit of lower pricing into the second quarter, but overall, I think we'll be able to take advantage of the higher pricing in Q2.

That's helpful. On the impact of the prior in El Dorado during the quarter, can you kind of quantify the financial impact of those shutdowns?

Part of managing our manufacturing facilities involves overseeing our gas purchasing. The net impact from selling back some gas this quarter was about $1.5 million. We are not able to clearly separate the manufacturing impact from the benefits we gained through the gas sell-back. In our view, it all tends to blend together.

Okay, great. And then green ammonia, just anecdotally, it's gained a lot of traction recently, how quickly can you enter that market? And how significant can that become?

That's a really great question. I believe our aim is to establish a solid strategy by the end of the year and then execute it. When entering a nascent market like this, we plan to take a cautious approach. We intend to modify one of our facilities to produce between 15,000 and 20,000 tons of green ammonia, which is our current thinking. We want to participate in the market and have the potential to scale up if it grows significantly. Right now, this market doesn't really exist, and while there's a lot of discussion, announcements, and intentions around it, the high costs of manufacturing green ammonia create challenges. We'll likely need government support, either through capital to enter the market or credits for reducing CO2 emissions. Additionally, we must have customers willing to pay premium prices for carbon-free products. We are genuinely excited about this opportunity, recognizing its potential. Globally, around 180 million tons of ammonia are produced today, and with the shift to green applications in industries like marine and power, that figure could double to over 300 million tons of annual production needed. There is significant market potential, but I believe the development will be gradual.

Thank you. I've no further questions.

Thank you. There are no further questions at this time. I would like to turn the floor back over to Mark Behrman for closing comments.

I want to thank everyone for their interest in LSB Industries and if there are any follow-up questions, please feel free to give either Cheryl or me a call. Thanks so much.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation. Have a wonderful day.