Greetings and welcome to the LSB Industries Second Quarter 2024 Earnings 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 is being recorded. It is now my pleasure to introduce your host, Fred Buonocore, Vice President of Investor Relations. Thank you, sir. You may begin.

Good morning, everyone. Joining me today are Mark Behrman, our Chief Executive Officer; Cheryl Maguire, our Chief Financial Officer; and Damien Renwick, our Chief Commercial Officer. Please note that today's call includes forward-looking statements. 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. On the call, we will reference non-GAAP results. Please see the press release in the Investors section of our website for further information regarding forward-looking statements and reconciliations of non-GAAP results to GAAP results. As a reminder, we have a stockholder rights plan to protect certain tax attributes. Please see the Investors section of our website for further important details. At this time, I'd like to go ahead and turn the call over to Mark.

Thank you, Fred. Turning to Page 4 of our presentation. We took a major step forward with our low-carbon product strategy in the second quarter. In May, we entered into a multiyear agreement with Freeport Minerals to supply low-carbon ammonium nitrate solution or ANS for use in Freeport's copper mining operations. We believe that this agreement is a first of its kind in our industry, and we view it as a validation of our assertion that our industrial customers will value the low-carbon ammonia and derivative products we plan to produce in the coming years as a means of reducing their own CO2 emissions. With respect to our second quarter operating results, I'm very pleased to say that we had no recordable incidents during the quarter, thanks to the strong safety focus of the teams at our facilities. In terms of financial performance, our adjusted EBITDA was in line with our expectations. Pricing was once again down year-over-year. However, we believe we have seen our end market pricing stabilize. And in fact, the fertilizer summer fill pricing clearly supports that. During the second quarter, we generated solid free cash flow, and that combined with our strong cash position allowed us to repurchase our stock and continue to reduce our debt. Lastly, on our low-carbon ammonia initiatives, our two projects remain on track, and I'll provide more color on both later in the call. Now I'll turn over the call to Damien, who will discuss our new ANS contract and review the current market dynamics and pricing trends.

Thanks, Mark, and good morning, everyone. On Page 5, you'll find a summary of our low-carbon ammonium nitrate solution or ANS off-take agreement with Freeport Minerals. This is a five-year agreement for up to 150,000 short tons per year of low-carbon ANS that we'll be producing at our El Dorado facility. Our offtake agreement with Freeport starts at the beginning of 2025, at which time we'll be providing them with conventional ANS. Then we will phase in the low-carbon product upon completion of our El Dorado carbon capture and sequestration project. We expect that low-carbon production to come online in early 2026. We're excited about this agreement because not only does it move us closer towards attaining our vision of becoming a leader in the global energy transition, but it also advances our strategy to shift a greater portion of our sales mix towards more stable, predictable, contractual arrangements in our industrial end markets, further offsetting the volatility of spot pricing prevalent in our agricultural end market. Page 6 provides some key dynamics at play in our industrial end markets. Overall demand remained steady in our industrial business, reflecting the continued strength of the US economy and the contractual nature of our customer relationships. Our nitric acid is a critical input into the production of polyurethane. Polyurethane, in turn, is a primary material in homebuilding and furnishings as well as auto manufacturing. As depicted in the top two charts, trends in US homebuilding and auto production and furniture manufacturing, while having some movement up and down throughout the past year, have been generally stable over the past two years. However, a reduction in interest rates later this year could stimulate consumer demand in both markets, leading to production rate increases and greater demand for nitric acid in 2025. Additionally, we are seeing opportunities develop to support government efforts to increase semiconductor manufacturing in the US, and increased munitions production in the US is also supporting demand for some of our specialized assets. Overall, we find the outlook for nitric acid very encouraging. With respect to the ammonium nitrate that we produce for the North American markets, we are significantly levered to the production of copper and aggregates. As the chart on the bottom right shows, copper production has increased significantly over the past year. Additionally, copper prices have been strong and sit above multiyear average levels, driven in part by demand for electric vehicle production and the build-out of technology infrastructure. Aggregates production is strongly correlated to new housing starts, given the infrastructure required to support housing developments. As I mentioned, we believe that what is now appearing to be a likely reduction in interest rates, possibly before the end of this year, could stimulate new home starts, thus raising demand for aggregates. On Page 7 of our presentation, you'll find information pertaining to nitrogen product prices and natural gas input costs. Ammonia prices sit at healthy levels for this time of year due in part to a healthy summer fill program and natural gas supply issues in Trinidad and Egypt, which constrained global supply. UAN prices have come down since earlier in the year, as is seasonally typical. We saw an early but healthy summer fill campaign, which has positioned us well through to early fall. We believe that steady prices for urea, together with somewhat tight inventory levels due to a number of turnarounds taking place in the coming months, should keep UAN prices relatively stable through the balance of the year. On the input cost side of the equation, the middle chart shows the natural gas price trend for the European TTF relative to the price for US Henry Hub. After rising through the spring, European gas prices retracted somewhat over the past month, but remain at elevated levels. These high European gas prices continue to underpin global ammonia and nitrogen prices and advantaged US producers. On Page 8, we show pricing trends and forecasts for corn and other grain prices, which drive our agricultural business. US corn prices have fallen over the past two years as global demand, particularly from China, has declined. Exacerbating the weakness has been the USDA's forecast for 2024 acres planted of 91.5 million acres, down from last year, but still above the 10-year average, suggesting an increase in corn supply. We believe this estimate could be higher due to wet weather in certain corn-growing regions. Additionally, ethanol production has moved back towards prepandemic levels, providing further support for corn prices. We believe that corn prices should rebound to a level that should motivate farmers to maximize yields through the application of nitrogen fertilizers. Corn futures suggest this is the case with contract prices approaching around $4.50 per bushel by the middle of 2025. As we look to both sides of our business, we expect fundamentals for nitrogen producers to remain attractive and stable for the foreseeable future. Now I'll turn the call over to Cheryl to discuss our second quarter financial results and our outlook.

Thanks, Damien, and good morning. On Page 9, you'll see a summary of our second quarter 2024 financial results. We generated adjusted EBITDA of $41 million and EPS of $0.13 for the second quarter. Page 10 bridges our second quarter 2023 adjusted EBITDA of $47 million to our second quarter 2024 adjusted EBITDA of $41 million. Weaker selling prices relative to the prior year were once again a factor in the year-over-year change in EBITDA. However, the year-over-year decline in selling prices was much smaller in the second quarter than it has been for the previous several quarters. We view this as an indication of a stabilization in our markets, particularly in the ag market. Sales volumes of our products decreased in the second quarter of 2024 as compared to the same quarter of 2023 as a result of lower sales volumes of HCM. This was a result of wet weather in key markets for this product in late May and June. Also impacting our sales volumes was the timing of agricultural ammonia demand, which was heavier than average in the first quarter of 2024, translating into lower orders during the second quarter. The lower pricing and volumes were partially offset by materially lower natural gas costs as compared to last year. Page 11 provides a summary of our key balance sheet and cash flow metrics. We continue to use our strong cash position as an opportunity to further derisk our balance sheet. In the second quarter, we repurchased $64 million of our notes, and year-to-date, we've repurchased $97 million of debt. We also repurchased approximately 800,000 shares of our stock during the second quarter and approximately 1.5 million shares year-to-date. As we move through the second quarter of this year, our capital allocation will be squarely focused on our facilities. As a reminder, we have turnarounds scheduled at our Pryor and Cherokee facilities in the second half of this year. These turnarounds will be integral to our goal to improve plant reliability and efficiency, which we expect to lead to greater production volumes post turnaround. Looking to the third quarter of 2024, Tampa Ammonia increased $60 per ton to $475 per metric ton for August, and NOLA UAN is currently around $205 per ton. We expect prices for both products to be higher than the same quarter last year as a result of relatively tight inventories and ongoing global supply constraints from the impact of turnarounds and unscheduled downtime at plants globally. Additionally, we expect our profitability to benefit from lower natural gas costs, which averaged approximately $2.70 per MMBtu in July, well below last year, and a trend we expect to continue. We expect our third quarter results to reflect the impact of the seasonal slowdown in demand on our sales volumes. Additionally, we have a 30-day turnaround underway at our Pryor facility that will reduce our ammonia and UAN production by approximately 20,000 tons and 35,000 tons respectively. We expect to incur approximately $15 million in turnaround expenses during the third quarter as we execute the Pryor turnaround and gear up for our Cherokee turnaround currently scheduled for the fourth quarter. Despite the lower production during the third quarter resulting from our Pryor turnaround, we expect our third quarter EBITDA, when adjusted to add back turnaround expense, to be materially above our third quarter of 2023 as a result of higher selling prices combined with lower natural gas and other costs. And now I'll turn it back over to Mark.

Thank you, Cheryl. Pages 12 and 13 pertain to the two low-carbon ammonia projects that we currently have underway. Page 12 summarizes the key information related to our project with Lapis Energy at our El Dorado facility. This project remains on track with the timeline we discussed back in early May. We continue to discuss the value of low-carbon products with potential customers and are encouraged by the level of engagement we're experiencing. Page 13 summarizes the key aspects of our Houston Ship Channel project that we currently have under development with several partners. This is a world-scale ammonia plant that will produce approximately 1.1 million metric tons of low-carbon ammonia. We are working with Samsung Engineering and our partner INPEX to complete our pre-FEED, and we expect to receive preliminary results by the end of the third quarter, followed by a detailed review during the fourth quarter. It is anticipated that FEED will begin early in the first quarter of 2025, be completed by the end of next year, with FID in the first quarter of 2026. We are having ongoing conversations with potential customers to secure long-term off-take for the anticipated ammonia production and remain encouraged with those conversations. While Asia remains a target region for off-takers, we've been pleased to find that Europe is emerging as an increasingly fertile market for low-carbon ammonia given the region's challenges in increasing clean energy generation as quickly as initially planned and the impending enactment of the EU's carbon border adjustment mechanism or CBAM. We're very excited about the prospects for driving the growth of our top and bottom line through our participation in the developing low-carbon nitrogen products markets. Our vision is to become one of the leading suppliers of low-carbon ammonia and derivative products to the power generation, marine, and other industries in the coming years, and we believe we have the knowledge, expertise, assets, and relationships to achieve this vision. While our long-term vision is centered around low-carbon product opportunities, from a near-term perspective, we are more focused than ever on our opportunities to improve our current operations, which we expect will lead to higher production and sales volumes, enabling us to capitalize on the operating leverage inherent in our business and drive increased profitability and shareholder value. Combining these enhancements to our core operations with our low-carbon activities, we believe we are well positioned to generate significant value for our shareholders. Before we open it up for questions, I'd like to mention that we will be participating in the following conferences in September: the Jefferies Industrial Conference in New York on September 4th, the UBS Materials Conference also in New York on September 5th, and the RBC Industrials Conference in Las Vegas on September 24th. We look forward to speaking with some of you at those events. That concludes our prepared remarks, and we will now be happy to take your questions. Thank you.

Thank you. We will now be conducting a question-and-answer session. Our first question comes from Joshua Spector with UBS. Please proceed with your question.

Good morning. This is Lucas Beaumont on for Josh. I just wanted to start with the new agreement you signed with Freeport Minerals for the off-take. Did you guys get your premium there on the low-carbon products, or is that sort of in line with the current pricing for the gray product? And if you didn't, is there any mechanisms or adjustments that kind of overtime as the market develops further? Or how are you kind of thinking about that now? Thank you.

Good morning, Lucas. How are you? So, yes, we feel like our customer realized the value of the low-carbon aspect of our product. And so we feel like we've got some premium to what we would consider the gray market today.

Great. Thanks. And then just wanted to talk about the seasonality a little bit, maybe on the gas cost side. So we've had some sort of abnormal seasonality this year with sort of low pricing and then pricing coming up. And you guys obviously saw the benefit of that in the second quarter with your realized costs coming in quite a bit below where the benchmarks were with the lag. Just wondering if you can kind of help frame how you think that dynamic is going to impact the third quarter for us. Thanks.

Yes. Good morning, Lucas. So, yes, with the gas costs specifically, we did see a run-up in gas costs at the end of June, that's going to come through in July. And then gas costs heading into August is, I would say, $0.40 to $0.50 cheaper than the $2.70 that we realized in July. So we are seeing some additional benefit and pick-up of lower gas costs here in the third quarter.

I think we've previously discussed the change in strategy and our thinking regarding gas, focusing on not purchasing forward too much except for forward sales of products. Now, we're able to take advantage of the benefits because we're essentially going month-to-month.

Question comes from Laurence Alexander with Jefferies. Please proceed with your question.

Hi. This is Dan Rizzo on for Lawrence. With the new agreement, you mentioned up to 150,000 short tons. I was wondering, and I'm sorry if this was said, but is there any minimum requirement they have to take each year?

Damien, why don't you answer that?

Yes. Good morning. I can't provide specific details, but there are standard mechanisms in the arrangement that include minimums and off-take tolerances. Therefore, we have a clear understanding of what the offtake will be and our expectations moving forward.

Would you say that it's got traditional take-or-pay terms?

Yes.

Okay. And then for my second question, just in regards to ag. I was just wondering what percentage of your sales is for post-ag, sorry, post-planting application? Like how important is August and September, if at all?

Look, I can't quote you an exact percentage, but the fall ammonia application season is relatively important. We've got a reasonable order book going forward coming out of the summer fill and some full prepay sales. But we've got our turnaround at Pryor at the moment. So our participation is probably a little lower than what it's typically been. But we're pretty comfortable with where we're sitting from an orders perspective.

Our next question comes from Andrew Wong with RBC Capital Markets. Please proceed with your question.

Hey, good morning. So ammonium nitrate prices have performed quite well. So could you just talk about what's happening there? Why the significant premium has come back? And what's your outlook on AN versus some of the other nitrogen products?

Yes. Good morning, Andrew. Yes, look, the premium, we're pretty happy with that and the pricing that we're able to achieve. Look, really, it's probably just driven by typical supply and demand. Demand was pretty reasonable. And at certain times of the year, that premium can push up relative to some of the other products. It can also go the other way, and we can see the premium narrow. And at this time of the year, we will see it narrow closer to the cents per pound for the other products. And again, that is really due to just the timing of the year and where we're at in the cycle.

Okay. And then maybe just switching to the ammonia side of things. I was just curious regarding the Lapis partnership at El Dorado. What happened is due to the payments if there's a change to the 45Q credits either up or down? And do you see any risk of that happening if there's a new administration that comes in with a different view on the clean energy?

Good morning, Andrew. That's a great question, and it's one we hear often as everyone is focused on the election and its potential impacts. Regarding the IRA, portions of it are certainly more at risk than others. When considering the EV incentives surrounding electric vehicles, many believe there is some risk of rollback. For 45Q, the general consensus, including ours, is that it has been established for some time, so it's not new. The IRA mainly did two significant things: it raised the sequestration amount from $50 to $85 per ton of CO2 and changed the first five years of eligibility from a tax credit to cash pay. I doubt those elements will change significantly. If the government aims to promote and support decarbonization, even with $85 per ton, certain volumes are still not economical. If it were to drop back to $50 per ton, I believe many projects would be canceled, if not most. It's possible that the cash pay for the first five years could revert to a tax credit. Additionally, most of the newly announced plants, which lead to new jobs and increased contractor activity, are located in the Gulf region, which consists of states that tend to support Republicans. Lastly, while some aspects of the IRA may not have been bipartisan, it generally received support from both parties. Overall, I don't anticipate dramatic changes to 45Q that would affect our projects, though I do see some vulnerability in the EV area and in 45V, which pertains to green hydrogen and green ammonia.

Our next question comes from Robert McGuire with Granite Research. Please proceed with your question.

Good morning. Thank you for taking my questions.

Hey, Rob.

Good morning.

With regards to your five-year Freeport agreement, can you discuss your existing ANS capacity? Any investments that you might need in order to fill this upcoming agreement?

Good morning, Rob. We've had to make some investments to support this arrangement. We do have the capacity; the capacity already exists, but the investments have been around storage, rail, and loading capacity. So we're making that at the moment, and that will be ready and commissioned ahead of the start-up of the contract.

Thank you. And Damien, does this supply agreement replace a gray nitrogen supply agreement, or is this brand new business?

Well, it's probably both. I mean obviously, it's a brand-new ammonium or AN solution business for us and we will move our product mix around to accommodate it. But, yes, we are transitioning gray product over to low-carbon when the carbon capture project is commissioned.

Great. Thank you. And then the EPA indicating a final decision next spring on the Class 6 application. Can you discuss what the final decision is relative to the permit being issued expected in the second half of this year?

Oh, are you asking me what it will take to get approval, Rob?

Yes. I'm trying to just define what are you looking at in terms of that final decision? I know you're looking for a permit being approved in the second half of this year. I believe that's one of the next milestones, but can you just sort of lay out the milestones and explain that part.

Yes. So I think what we're really looking for by November of this year is a sign-off on the technical review. So once we have that and the EPA signs off on their technical review, then it's actually drafting permits. There's a public comment period. So there's about 60 days of drafting the permit. There's another 45 days of public comment period. And then, of course, there's another 45 to 60 days of drafting final permitting. So what that permit would be in May would be a permit to construct. So that would allow us to drill, and then, of course, they take core samples and as long as those core samples match the work that was done in a technical review, the permit would sign off and allow us to inject into the sequestration well.

No. I appreciate that. I think I got the permit to construct a little confused with the permit to inject. But is the permit to construct still coming in the second half of this year?

No. The technical review would happen in November. And then we're hoping, and we'll see how the EPA's process works, but we're hoping to pull in kind of May permit to construct a little bit forward. We think that given Louisiana got primacy at the end of last year and a lot of the draft permits or the permit applications were in the Class 6 region 6 office of the EPA and then now moved to Louisiana and that was the bulk of the projects that given the now shrinking number of Class 6 permits at the EPA Dallas office, Region 6 office, that will help us out and hopefully speed up the timing a little bit.

Thanks, Mark. I appreciate that. And with regards to deleveraging and repurchasing shares. So, first off, nice job on that. Where does that leave your existing authorization from the Board with regards to repurchasing debt in the shares?

Well, from a debt standpoint, it's really not an authorization that's needed. We will talk to the Board and make a recommendation, and the Board will approve it or not approve it. When it comes to the share buyback authorization.

North of $100 million remaining.

Yes. So we still have plenty of opportunity and plenty of room to buy back stock should that make sense for us.

Okay. I appreciate that. And then also maybe on capital allocation, just can you discuss the M&A environment? And with all your projects in place deleveraging, returning cash to shareholders, are potential acquisitions very high on the priority list at this point?

Well, I don't know about high on the list. I think we look at all opportunities to grow the company, whether that's our internal reliability program that we think adds a lot of value. So we're really focused on that. And then as you mentioned, the two projects and getting them up and running or getting certainly the carbon capture and sequestration project at El Dorado actually up and running and operating, and then our other project, the inflection point for us ultimately will be FID. So looking to get to that point. I do think we are still interested in M&A where we can find strategic assets that make sense for us and support our vision and strategy. So we absolutely will continue to look for those. Owning ammonia assets, we think, is really important. And we want to be a larger player within the industry, having scale, I think, would help us. So I guess overall, we continue to look for opportunities to merge or combine that makes a lot of sense for us.

That's helpful, Mark. Thank you. Just last question. With regards to your ammonia production rates trending higher over the long term in your initiatives there, could there be a stair-step improvement coming out of the turnarounds this year? I know you're always going to bump up in terms of production coming out of turnaround. But can you just talk about what we might see in terms of improved reliability?

Yes. I believe we will see an increase in performance as we complete the turnarounds at Pryor and Cherokee this year. Specifically at Cherokee, going three to four years between turnarounds can lead to lower production rates as the catalyst performance diminishes. So, I anticipate a noticeable uptick in production. While I want to be cautious about predicting a stepwise improvement, I do expect significant enhancements. We are investing over $30 million at Pryor, which we believe will yield substantial returns, and we are making substantial investments at Cherokee in our ammonia plant to enhance its reliability. We have been effective in maintaining our plants, leading to a significant boost in our onstream rates. However, our goal is to maximize output from these facilities. A key focus of our current turnaround is on achieving that. At El Dorado ammonia, we've been operating well but at slightly lower rates due to catalyst degradation. Therefore, we are planning a brief outage to replace the catalyst, which we are looking forward to, as it should lead to improved performance from that plant as well.

That's really helpful. I have one more question. Could you elaborate on what you're seeing in terms of Europe and the shifting demand towards low-carbon initiatives and legislation that might facilitate that change?

Yes. So if you go back 24 months or maybe even as recent as 12 months, I think Europe was very focused on their energy transition being hydrocarbons to zero hydrocarbons, right, so Green. And I think the economics of Green just broadly don't really make sense today. I think the cost of equipment, of course, construction and contractor costs, and then efficiencies put ammonia and hydrogen at a rate that makes it a bit cost prohibitive for people to be okay paying for. So I think what we've seen over the last 12 to 18 months is really a little bit of a shift in Europe where they are now focused on a true transition as opposed to, I'll call it a revolution going from hydrocarbons to no hydrocarbons. And so Blue has become a lot more top of mind in a lot of our conversations with potential European offtakers. And so that's really exciting for us because now we've got a real market. A lot of that is not just from a cost perspective and creating a shift change, but also CBAM, which is their carbon border mechanism. And so that's a real tax that's coming into place starting in 2026. And so it will scale in over time from 2026 to 2030 and we've got a lot of folks that either use ammonia today or are thinking about ammonia as a fuel source to replace coal or even nat gas and looking at that tax and where is the inflection point? Like at some point, there needs to be a switch. So again, I think there is much change in Europe in the way that they're thinking about it and we're waiting to see what the European regulation and incentive programs look like related to Blue versus Green.

Our next question comes from Charles Neivert with Piper Sandler. Please proceed with your question.

Good morning, everyone. I have a quick question regarding the new contract with Freeport and the volume of product they will be taking. I believe this is a positive development, but will it impact the production of other nitrogen products? Specifically, will focusing on the ammonium nitrate side hinder ammonia or urea production? Is there a trade-off as you look to increase output for this?

Good morning, Charles. Look, it certainly won't affect our ammonia production. But from an ammonium nitrate perspective, yes, there will be a shift in tons away from other products and into supporting the contract with Freeport. No, nothing specific. We'll just manage it through the portfolio.

We have now reached the end of our question-and-answer session. I would like to turn the floor back over to Mark Behrman for closing comments.

Well, thank you, everyone, for your interest in LSB Industries. I hope you can see that we continue to make progress quarter-to-quarter and also progressing really our long-range growth prospects for the company. So thanks for your support, and we look forward to speaking to you next quarter.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.