Greetings and welcome to the LSB Industries Second Quarter 2025 Earnings Conference Call. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Kristy Carver, Senior Vice President and Treasurer. Thank you. You may begin.

Good morning, everyone. Joining me today are Mark Behrman, our Chairman and 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. For more information about the risks and uncertainties that could cause actual results to differ materially from those projected or implied by forward-looking statements, please see the risk factors set forth in the company's most recent annual report Form 10. On the call today, we will reference non-GAAP results. Please see the press release posted yesterday in the Investor's 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 turn the call over to Mark.

Thank you, Kristy, and good morning, everyone. Page 4 of our presentation summarizes highlights from the second quarter. Sales volumes increased 6% year-over-year, driven by solid improvement in sales volumes of AN and UAN. These gains are the result of higher ammonia production and better performance by our upgrading plants. We're pleased that our efforts to improve the reliability and efficiency of our facilities are yielding results, and we expect to make further progress in the second half of 2025. We achieved our increase in production and sales volumes during the second quarter while having zero recordable injuries across the organization. I want to congratulate our entire team for embracing our Protect What Matters core value and demonstrating that Goal Zero is achievable. Lastly, we continue to focus on our allocation of capital. During the quarter, we not only invested in supporting growth and improvement in our business, but we also bought back $32 million of debt. Cheryl will provide a few more details on our leverage. Now I'll turn the call over to Damien to review current market dynamics and pricing trends.

Thanks, Mark, and good morning, everyone. Turning to Page 5, demand for our industrial products remains robust. We continue to ramp up our ammonium nitrate solution volumes as we expand our industrial business. Copper and gold mining activity remained strong, with pricing for both near all-time highs. We continue making progress optimizing our sales mix, targeting one-third of our sales under cost-plus contracts, further neutralizing the volatility of natural gas and fertilizer price swings. To achieve this mix shift, in early July, we began transitioning our sales of HDAN, a spot price fertilizer product, to ANS used in industrial and mining applications. We expect to wrap up our production of HDAN later in the third quarter. We believe this shift will improve stability and predictability in our financial performance. Nitric acid demand remains strong, supported by the resilience of the U.S. economy. Additionally, we believe that the proposed countervailing duties on Chinese imports of MDI, a polyurethane feedstock, could drive favorable structural changes in the domestic MDI market leading to higher nitric acid demand. On Page 6, we continue to see strong prices for our fertilizer products. The Spring 2025 planting season resulted in strong demand and pricing for nitrogen fertilizers. This was due in part to the expected increase in planted corn acres, driven by continued low corn stocks-to-use ratios. The USDA estimates that U.S. producers planted 95.2 million acres of corn this year compared to 90.6 million planted acres last year. UAN prices are up significantly from a year ago. The current NOLA UAN price of $350 per ton is more than 70% higher than this time last year. The Tampa ammonia price for August is $487 per ton, slightly above year-ago levels. This increase reflects reduced supply from the Middle East, North Africa, and Russia and higher European production costs. Tight global supply is expected to continue in the short term. 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 7, you'll see a summary of our second quarter 2025 financial results. You can see the early benefits of our investments in plant reliability and efficiency through increased net sales and stronger volumes. Page 8 bridges our second quarter 2024 adjusted EBITDA of $42 million to our second quarter 2025 adjusted EBITDA of $38 million. Higher pricing for UAN, higher sales volumes, and a reduction in our fixed plant costs were offset by materially higher natural gas costs. Page 9 provides a summary of our key balance sheet and cash flow metrics. Our cash balance remains strong. During the quarter, we repurchased approximately $32 million of our Senior Secured Notes, and additionally, we have an equipment loan coming due in August and we will reduce debt by an additional $5 million in the third quarter. Our second quarter 2025 CapEx reflects investments in ANS loading and storage capabilities at our El Dorado facility. This will enable us to meet the strong demand for the product that Damien mentioned earlier. We will continue to make investments in the reliability of our facilities while also investing in storage and logistics capabilities to support our growing industrial business. Turning to the third quarter outlook. The Tampa ammonia price settled at $487 for August, an increase of $70 a ton over July's price, and NOLA UAN is currently trading around $350 per ton. Our natural gas costs have averaged approximately $3.25 per MMBtu quarter-to-date, higher than our average gas cost of $2.40 in the third quarter of last year. However, we expect third quarter gas prices to be less of a headwind to our year-over-year comparison relative to what we experienced in the first half of 2025 based on pricing we are seeing thus far in the third quarter. From a volume perspective, we continue to expect meaningful increases in both UAN and AN sales volumes compared to the prior year. This will result in lower sales volumes of ammonia, as we forgo ammonia sales in favor of upgrading into higher-margin products. Collectively, we expect these favorable dynamics to result in a healthy year-over-year increase in adjusted EBITDA compared to the third quarter of last year. And now I'll turn it back over to Mark.

Thank you, Cheryl. Page 10 provides an overview of the low carbon project at El Dorado. Our partner, Lapis Carbon Solutions, completed the drilling of a stratigraphic injection well in June. Lapis continues to gather data from this well to support the EPA in its continuing technical review of our Class VI permit application, with technical review expected to be complete in the first quarter of next year. We expect to use the same well for our CO2 injections when in operation. We continue to expect to begin CO2 injections by the end of next year. We are pleased with the progress that we made in the first half of 2025 towards meeting our goals for the full year. We continue to generate increasing ammonia, UAN, and AN volumes, and we achieved higher sales volumes of our higher-margin products. We are successfully shifting our sales mix to an increasing percentage of contractual industrial sales, which enables us to pass through our natural gas costs and provides us with a more stable base of earnings with multi-year visibility. As I mentioned at the start, our safety performance was excellent with zero recordable incidents so far this year, and we expect that to continue. Lastly, we reduced our debt further and maintained a healthy liquidity position while continuing to invest in plant reliability and strategic projects. I am enthusiastic about our prospects for the remainder of the year and look forward to our continued progress in improving our business and generating improved financial results. Before we open it up for questions, I'd like to mention that we will be participating in the following events in the coming months, the Jefferies Industrial Conference in New York on September 3 and the UBS Global Materials Conference also in New York on September 4. We look forward to seeing some of you at those events. That concludes our prepared remarks, and we will now be happy to take your questions. Thank you.

Our first question comes from Lucas Beaumont with UBS.

Just wanted to start on UAN. So the first half volumes were up about 30,000 tons year-on-year. Coming into the year, you were looking to potentially lift volumes up to 150,000 tons initially. How do you see the outlook there for the second half now in terms of the size of the growth that you think you can generate? And what are you doing to maximize that and capitalize on the really strong relative UAN pricing that we're seeing at the moment?

As you probably remember, we did an expansion of our UAN production back in September of last year at our prior facility. While we're getting the maximum rates that we expected, we are still working out some kinks to do it consistently. I think we're pleased that the plant itself operates at the higher rate and it's been fairly consistent, but we're still working on that. We have expectations that the second half of the year should have higher UAN production out of that facility and therefore, higher sales. Remember, though, we do have seasonality that we'll have to deal with; typically, you're going to see more products sold in the second half of the year.

Great. And then I just wanted to ask about the setup for the third quarter. Typically, that has a lot more industrial mix, less agricultural mix. It's usually the smallest quarter for the year seasonally. This year, though, we've got some divergence dynamics compared to normal. UAN pricing has been really strong, continued to increase into July. Ammonia pricing has been stable, and you should also see some volume uplift. It seems to me the combination of those factors could have EBITDA potentially even flat sequentially on the second quarter or at least seeing a much less decline than you would normally get. How are you guys thinking about things there?

I think you're spot on.

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

We've seen an improvement in production and operating rates now, and I think you're pretty far down the path for operational improvements, which is great. Can you just talk about the cost side of things as those operating rates stabilize? Where do you see costs trending over time? Some costs are tied to the improvement programs such as contractors and consultants. As those required costs fall off, what can we expect on the overall cost side?

First off, yes, we've made a lot of improvements on the operational side, but we still have a lot of initiatives ongoing that we believe can still add significant annual EBITDA to where we are today. The goal for ammonia plants is 95% consistently; reliability is really key. The upgrading plants should improve from where we are today. I think there is still considerable improvement that we can make, translating to a meaningful increase in EBITDA. On the cost side, I'll turn it over to Cheryl. We have a lot of initiatives ongoing because we are now focused on pulling costs out and creating efficiencies throughout the business, which should result in cost decreases.

Andrew, we had said coming into this year that we would expect our costs to reach an inflection point in 2025 and then start trending down from there. In addition to that, we talked about $15 million to $20 million of cost reduction through efficiencies, as Mark just mentioned. We are starting to work on that now. By the end of the year, I would say we will be about 25% complete towards the $15 million to $20 million target. We'll see the balance of that come out across '26 and maybe a bit into '27.

One thing to add, keep in mind that when you make some changes now, we won't see the annualized benefit until next year. So while we work on those initiatives today, we will likely report at the end of the year what the annualized effect is going into 2026.

Okay, got it. That makes sense. I appreciate that there are still certain levers you can pull to improve operating rates here. On the tariffs, what's your sense of the impact from tariffs on U.S. nitrogen prices so far this year versus how tight the market was with the demand and supply issues? You mentioned in your prepared remarks that onshoring some of the industrial businesses has impacted demand domestically. Can you discuss what that might mean for pricing and margins for LSB?

Damien, do you want to answer that?

In terms of tariffs, it has been a bit hard to discern some of the impacts given the more pertinent market dynamics around supply and the peak demand season. I think, from a urea perspective, there has been some impact for other products, probably not so much. Going forward, we're closely monitoring what happens with Russia and any potential tariffs there, along with adjacent tariffs for other countries doing business with Russia. That could have a more meaningful impact on nitrogen. Regarding the onshoring of production in the U.S., that's likely to have a long runway until we start seeing anything material. However, there are opportunities for the U.S. domestic market to take advantage of the current environment, evidenced by the support for U.S. copper domestically.

I would add that those activities prompt us to consider potential debottlenecking or expansion because they underpin some of those expansions.

Our next question comes from Laurence Alexander with Jefferies.

This is Kevin on for Laurence. My first question has to do with fertilizer prices. They've been elevated like UAN, and there seems to be some deterioration of farmer economics largely because of lower corn prices. Are you seeing any signs of demand destruction as of July from the farmer perspective of UAN?

Yes. Kevin, really through the Spring season, we didn't see much demand destruction at all. However, moving through to fall, I think given where prices are, there's certainly some hesitancy from a retailer's perspective to buy. This trend has been consistent for the last 3 to 4 years, so it's probably more of the new normal. We are comfortable coming out of Spring with our inventory and our forward sales position. We'd like to see corn prices a bit higher to support farmer economics, but there may be an impact on the edges in that marginal corn plantings for next year. The USDA has indicated some of that in its outlook.

I think one thing that could help corn prices is our recent negotiation with the EU for them to purchase energy, which may lead to exporting some ethanol to Europe. This could increase demand for ethanol, and in turn, demand for corn. Additionally, the discussion around moving from E10 to E15 in gasoline could help bolster demand for the corn industry.

Okay, great. My second question is about the administration's deregulation push. Have your views changed over the last 3 months regarding how much of a tailwind that could be? Have you noticed any substantial changes with things like permitting?

We have seen much more dialogue with federal agencies, particularly the EPA, as well as state agencies that might have previously hesitated due to the EPA and federal government oversight. Both state and federal agencies have become more user-friendly, which has helped us in discussions regarding environmental considerations at sites and projects.

Our next question comes from Rob McGuire with Granite Research. We have seen much more dialogue with federal agencies, particularly the EPA, as well as state agencies that might have previously hesitated due to the EPA and federal government oversight. Both state and federal agencies have become more user-friendly, which has helped us in discussions regarding environmental considerations at sites and projects.

Mark, UAN, can you tell us what you're seeing in terms of UAN import trends? Do you have any comments on the June and July Ukrainian strikes on Russian fertilizer plants? Has there been any discussion on how that's impacting Russian export volumes?

Damien, do you want to take that?

In terms of the import trend this year, fertilizer imports for UAN were below last year, contributing to some of the market tightness we saw overall. Regarding the drone strikes, we have not seen any immediate impact just yet, likely due to where we are seasonally with the transition to the next year and fill period. There have not been any announced fill programs in the market, indicating how balanced or comfortable producers are currently. However, it’s something we are monitoring closely; I believe tariffs will have a more significant impact moving forward.

Don't you think that the European tariffs on Russia will gain momentum, and as these tariff rates and amounts increase, there will be a substantial impact?

Yes, there will certainly be a redistribution of global trade routes for UAN, resulting in a shuffle. There may be some pricing impacts as freight rates adjust in global trade. But as of now, we have not seen immediate effects.

Totally different topic, Leidos. Any updates about Leidos and the lawsuit?

No. We are currently scheduled to start the trial in late October, subject to any changes from our judicial system.

Great. Well, hearing no other questions, I want to thank everyone for participating in our Q2 earnings call and your interest in LSB Industries. Thanks. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.