Earnings Call Transcript
LSB INDUSTRIES, INC. (LXU)
Earnings Call Transcript - LXU Q3 2022
Operator, Operator
Good day, everyone, and welcome to the LSB Industries' Third Quarter 2022 Earnings Conference Call. At this time, I am pleased to hand it over to your host, Fred Buonocore. The floor is yours.
Fred Buonocore, Host
Good morning, everyone. Joining me today 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 the 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.
Mark Behrman, CEO
Thank you, Fred. We're happy to have the opportunity to speak with you today about our 2022 third quarter results and our outlook for the final quarter of the year. As summarized on Page 3 of our presentation, we generated strong year-over-year growth aided by a continued strong pricing environment and solid execution. Notably, we delivered these favorable results despite having performed turnarounds on two of our facilities versus only one turnaround in the third quarter of last year. The El Dorado turnaround began in mid-July and was completed in mid-August. While the Pryor turnaround began just at Labor Day and was completed in mid-October. Successfully executing two turnarounds back-to-back was a substantial undertaking, and we completed them both safely. We expect improved plant performance from these activities. I'd like to thank our teams at both facilities for their tremendous efforts. Fortunately, we have no turnaround scheduled for 2023, which would be beneficial to our 2023 production and sales volumes as compared to 2022 and 2021 and allow us to focus on the continued progression of our manufacturing capabilities and growth initiatives. On Page 4 of our presentation, we provide an overview of our end markets. Corn prices remain above multiyear averages, driven by a variety of global factors, including drought conditions in the U.S. and South America and continued strong global demand. Domestic and worldwide stock-to-use ratios for corn remain at multiyear lows. Based on this supply construct, we believe that corn prices will remain elevated for the remainder of 2022 and through 2023 and that farm profitability will remain attractive, pointing to a meaningful increase in planted acres this spring. As we move into November, assuming the weather permits, we expect U.S. farmers will make a heavy fall ammonia application in order to replenish nutrients in the soil to promote higher yields for the 2023 crop. Longer term, we believe that it will take two to three years of good corn growing seasons to bring back the stock-to-use ratios back in line with historical averages. Demand for our industrial products remains largely stable. Industrial product pricing trends continue to be favorable, reflecting the impact of strong demand and continued strength in pricing for nitrogen fertilizers. The mining market has strengthened considerably over the past year as a surge in global coal mining activity has led to an increase in demand and pricing for our mining products. Similar to the industrial markets, the mining markets are currently competing with fertilizer demand lifting prices of these products as well. The demand and pricing trends we're seeing across our business add to our confidence in strong profitability and cash flow for the fourth quarter of 2022, and we remain optimistic about 2023. Now I'll turn over the call to Cheryl, who will discuss our Q3 results and our outlook.
Cheryl Maguire, CFO
Thanks, Mark, and good morning. Our strong performance relative to 2021 reflects the increased pricing across our businesses which, along with solid execution in both our manufacturing and commercial operations, enabled us to overcome the impact of the two planned turnarounds that were performed during the quarter. Our third quarter adjusted EBITDA of $50 million is a record performance for us in the third quarter, which is our seasonally weakest period even in the absence of turnarounds. Additionally, we generated adjusted EPS of $0.27 in the quarter. Turning to Page 5, you'll see a summary of our key balance sheet and cash flow metrics. Our continued profitability enabled us to maintain a strong liquidity position. At the end of the quarter, we had approximately $450 million of total liquidity including approximately $385 million in cash and short-term investments. This is after we repurchased $100 million of our stock at a volume-weighted average price of approximately $13 per share. Regarding the repurchase of our stock. During the quarter, our largest shareholder completed a secondary offering of a portion of their stake in our company. As part of the offering, we took the opportunity to repurchase 5.5 million of our shares under our stock repurchase program. We deemed this an efficient way to repurchase shares while not impacting the liquidity of our stock. Lastly, as we announced earlier this week, our Board increased our stock repurchase program by an additional $75 million, bringing the total repurchase authorization to $175 million. During the quarter, we generated cash flow from operations of $38 million and had capital expenditures of $16 million, translating into $22 million of free cash flow. We are pleased with our ability to strengthen our liquidity even in a seasonally slow quarter and where we lost meaningful production and sales due to turnarounds at two facilities. We ended the third quarter with a net debt to trailing 12-month EBITDA leverage ratio of 0.8x. As I have mentioned before, our target leverage ratio is less than 2.5x what we believe to be our EBITDA generation during a mid-cycle or normalized pricing environment. Meaning Tampa ammonia prices in the $500 to $600 per ton range, UAN prices in the $250 to $300 range and natural gas costs of approximately $5 per MMBtu. Page 6 bridges our third quarter adjusted EBITDA of $50 million to adjusted EBITDA for the third quarter of 2021 of $38 million. The positive selling price impact is shown net of increased variable costs, primarily raw material costs that increased by approximately $36 million versus the third quarter of 2021. Our natural gas costs rose substantially over the course of 2021 and through the third quarter of 2022, but have eased somewhat in the fourth quarter. As the green bar indicates, however, selling prices have exceeded the rising price of natural gas, and we expect to continue to benefit from this dynamic in the fourth quarter of the year. Volume was lower in the third quarter as a result of planned turnaround activity at both our El Dorado and Pryor facilities, which cost us approximately 53,000 tons of ammonia production. Lastly, other costs were higher in the period by approximately $5 million, primarily related to higher costs for supplies, materials, and contractors, the addition of technical talent, and cost for several commercial and corporate initiatives. Page 7 illustrates the strong bottom-line improvement we've delivered over the past several years. This is the result of favorable pricing trends, operational improvements, new customer contracts, and investments we've made to optimize our product distribution and mix. We expect to further benefit from these factors in the fourth quarter of 2022 and into 2023. Looking at the fourth quarter, the Nola UAN benchmark price is currently over $550 a ton. Additionally, the Tampa ammonia benchmark price settled at $1,150 per metric ton in November versus $825 a metric ton last November. Also, we believe that natural gas prices in Europe, which have moderated substantially in recent weeks, will trend back to previous levels, and that continues to impact the ability of UAN and producers to operate economically, translating into a continued supply-demand imbalance for nitrogen products and supporting strong pricing. While U.S. natural gas costs have moderated over the last several weeks, following the natural gas trends in Europe, combined with an extension of warmer weather across the U.S., we do expect some upward pressure on gas costs as we head into winter months. We currently have approximately 70% of our gas needs locked in for the fourth quarter at approximately $7 per MMBtu, but we'll get the advantage of lower spot prices on the remaining 30% if prices remain below that level. Sales volumes in the fourth quarter will be impacted by what remained of the planned turnaround activity at our Pryor facility and the somewhat lower inventory coming into the quarter from the impact of the turnarounds in Q3. Despite the impact of the lost production at Pryor in the early part of Q4 and our lower inventories headed into the quarter as a result of the planned turnarounds, we expect Q4 sales volumes of major products to be consistent with the fourth quarter of 2021. Assuming nitrogen pricing remains at current levels and despite lower volumes from our previously discussed turnarounds, we expect the fourth quarter 2022 adjusted EBITDA to be in the range of $110 million to $120 million above the fourth quarter of 2021 results and our previous outlook that I communicated on our second quarter earnings call back in August. This would put our full-year adjusted EBITDA at approximately $420 million to $430 million with the possibility of both the fourth quarter and full year increasing if pricing firms up in the coming weeks. I look forward to providing further updates on our fourth quarter call. And now I'll turn it back over to Mark.
Mark Behrman, CEO
Thank you, Cheryl. As Cheryl mentioned, natural gas prices are a significant factor in the high selling prices of our products. The spread between U.S. and European natural gas prices widened during 2021 and remained volatile in the first ten months of 2022. The increase in European natural gas prices in August led many European nitrogen facilities to shut down. Recently, European natural gas prices have decreased due to warmer temperatures and an increase in gas inventory from large LNG imports into the region. However, gas prices in Europe are still high enough to result in ammonia production costs exceeding $1,000 per ton. We expect that as we enter the colder winter months, European natural gas prices will rise. Even if that doesn't happen, ammonia production costs in Europe will likely remain significantly higher than domestic production costs, giving U.S. nitrogen producers a substantial advantage. Looking ahead to 2023, we plan to take advantage of what we expect to be a strong pricing environment to generate significant free cash flow, enabling us to explore business expansion and return capital to our shareholders. On Page 9, we show a summary of our key growth priorities. Employee safety is our primary focus every single day, followed by being good stewards of the environment and the reliability of our facilities. We continue to make improvements on all these fronts and have significant opportunities for further progress. As Cheryl mentioned, we recently performed extensive turnarounds at our El Dorado and Pryor facilities. We expect the work we completed at both locations to advance both our safety, environmental and reliability initiatives and move us closer to our goal of being a best-in-class chemical manufacturing company. Additionally, we believe that over the next two years, the capital investments we are making, combined with the manufacturing initiatives we are pursuing should increase the operating rates of our facilities, translating into meaningful incremental contributions to our profitability. On top of that, we believe we can increase the production capacity of our plants through various debottlenecking initiatives. We are currently evaluating multiple potential projects that could significantly increase our production and sales volumes and our profitability while meeting our investment return profile. The increase in nitrogen production capacity would also assist with the USDA's stated goal of increasing domestic fertilizer production to ensure that farmers have an appropriate supply of fertilizer to meet their increasing demands. To that end, we intend to pursue funding on the USDA's fertilizer production expansion program. We look forward to providing an update on those plans in early 2023. With respect to our clean energy initiatives, we continue to advance our blue and green ammonia strategy. The two projects we currently have underway represent compelling opportunities for us to emerge as a leader in decarbonizing our industry. Not only do our blue and green ammonia projects have the potential to result in substantial reduction to our carbon footprint, but additionally, we believe the economics of both could be very attractive. Page 10 is the overview of our blue ammonia project at our El Dorado site that we've shared with you before. Importantly, with the passage of the Inflation Reduction Act, the 45Q credit was raised to $85 per ton of CO2 captured and sequestered that has significantly improved the economics of that project. As I indicated back in August, we completed Phase 1 of the project which consisted of deeper geological studies, well and plume formation modeling and assessing conditions of depleted wells nearby and the findings were as we expected. Our facility sits on an ideal formation for CO2 sequestration. Since completing Phase 1, we have been making good progress with geological modeling and simulation work in preparation for a Class 6 permit application and the engineering design of the capture facility. We anticipate filing the Class 6 permit application with the EPA in late Q1 or early Q2 of 2023. Page 11 summarizes our green ammonia project. We believe that this project will qualify for the full $3 per kilogram of federal incentives for hydrogen production rolled out as part of the Inflation Reduction Act. This would largely cover the cost of operating the electrolyzers at our Pryor facility, ultimately leaving us with approximately 30,000 tons of zero carbon ammonia to sell to our customers. We continue to work on refining our feasibility study and on options for this project, and we would intend to make a final decision regarding how to best proceed in the first half of 2023. As I've mentioned earlier, we have opportunities to improve the reliability of our current manufacturing facilities that will further improve our operating rates, providing additional product for sale and lower our overall product costs. We are exploring opportunities to invest capital into debottlenecking our facilities that would provide us with additional product to sell. We are advancing our clean energy initiatives that will assist with our decarbonization efforts while providing us with what we believe will be high-margin products to sell. And lastly, we are allocating capital to where we believe we have the best long-term value creation opportunities for our shareholders. As you can tell, I'm extremely excited about the progress we are making in our business and about our future prospects, and I look forward to discussing our continued progress with all of you on our Q4 earnings call. That concludes our prepared remarks, and we will now be happy to take any questions.
Operator, Operator
And our first question comes from Josh Spector from UBS.
Joshua Spector, Analyst
Just I guess, Cheryl, you talk about the fourth quarter and your outlook there on the pricing side. What are you assuming in terms of inland pricing just given there's been a little bit of a disconnect there because the U.S. exports have increased? Do you think that normalizes and that helps your pricing in the fourth quarter? Or is that more of a next year-type phenomenon in your view?
Cheryl Maguire, CFO
Yes, I think we would expect to still see the pricing be in line with where it is today with that discount to Tampa. We might see that normalize over the course of 2023. But for the fourth quarter, I would assume it is where it is today.
Joshua Spector, Analyst
Okay. And just on the buyback increase. I mean, you guys have been pretty clear about not wanting to necessarily reduce your flow. So how do you actually execute on that? And I guess, what's in your control there? And if you decide you don't want to go to open market buyback, but you don't get any additional opportunity for secondary repurchases, would you consider a special dividend or some other form of cash return and keep your flow intact?
Mark Behrman, CEO
Josh, when we consider our stock, we definitely have the possibility to purchase shares in the market. However, we also have a major supportive shareholder who has been with us for nearly seven years. We can approach them to see if they are interested in selling shares and negotiate a price. Without that option, I think it may be too soon for us to consider a special dividend or any kind of dividend. We have some projects in mind that could enhance our production capacity, and we believe these projects would yield attractive returns on the capital invested. Therefore, we need to evaluate those projects and the capital they will require before deciding to implement a dividend. Once we initiate a dividend or a special dividend, there is an expectation that it would continue.
Operator, Operator
And our next question comes from Vincent Anderson from Stifel.
Vincent Anderson, Analyst
I understand the demand disruption side on European nitric acid for sure. But I'm just wondering, as you look out through this winter and into next spring, is there a potential for industrial nitrogen products to actually tighten under gas rationing because ammonia gets prioritized for agricultural use? And if so, how would, if at all, that kind of flow through your book of business?
Mark Behrman, CEO
Yes. So it's a great question. I mean, as I mentioned in the prepared remarks, when we were talking about industrial markets and mining markets, all of these markets are interrelated, right? Because they're all using and competing for nitrogen product. So if ammonia were to continue to move up in that scenario, we would expect to see other nitrogen prices move up as well. And obviously, that flows through to us by higher pricing for our non-fertilizer products.
Vincent Anderson, Analyst
Okay. That makes sense. And then I know it's a very different operating and commercial team even compared to last recessions. But can you maybe quantify your ability to flex between industrial and agriculture end markets if we did start seeing domestic softening?
Mark Behrman, CEO
Yes. Like many of our competitors, our facilities have the capability to adjust between markets to optimize production. This is something we currently do, and I don't expect it to change significantly. Our commercial team has insights into the various markets we serve, including an understanding of the pricing environment and customer demand. It’s essential for both our teams to thoroughly comprehend our markets and optimize our operations. If we were to face a recession and notice a decline in industrial demand, we would shift towards increasing fertilizer production where possible or focus on mining markets, which are currently seeing high demand for coal and, consequently, for our low-density ammonium nitrate products and ammonium nitrate solution.
Vincent Anderson, Analyst
Okay. Got you. And then just last one really quick. Can you talk about the USDA initiative and maybe how clear the qualifications are for getting funding and what form that funding would take?
Cheryl Maguire, CFO
Sure. Vincent, yes, so we intend to apply for the grant under that program. The deadline is December 29. The guidance we're absorbing kind of as it comes out. It seems to be as long as you're not one of the top four fertilizer producers in the United States, you can apply for the funding. So we intend to do that. So that's the current...
Mark Behrman, CEO
Yes, there is a detailed grant process with specific requirements, and we are currently in the process of writing a grant proposal for some of the debottlenecking opportunities we are reviewing. It will essentially be a detailed business plan with an investment case, which we will need to submit.
Vincent Anderson, Analyst
Okay. I usually don't see industries like this receiving funding. Can you clarify if this grant involves cash, or would it be structured as some form of tax credit? I'm asking because I believe you already have several years of net operating losses, and I’m trying to understand what that would entail.
Mark Behrman, CEO
Yes. It's in the form of cash. They announced $500 million in funding, which covers about 25% of the project cost, with a maximum of $100 million allocated per project.
Operator, Operator
And our next question comes from Charles Neivert from Piper Sandler.
Charles Neivert, Analyst
A couple of quick questions. One, so far, we're sitting here early November, and you talked about based on the right weather that you would expect a fairly heavy ammonia sell into the ag markets. How much have you seen so far or what kind of interest is already being generated? Obviously, like you said, it will depend on weather as to how much actually gets applied. But are you seeing a strong response to sort of forward sales or near-term sales on that on ammonia right now?
Mark Behrman, CEO
Yes, I believe that in some regions of the country, the harvest has occurred a couple of weeks earlier than normal. This gives us a larger time frame for operations. However, some areas are still in the process of harvesting. Additionally, we've experienced fairly dry conditions overall. Although there has been some recent rain, the preceding dry spell has influenced the market. Consequently, the demand for fall ammonia has been sluggish. Similar to the trend we observed over the summer, farmers seem to be hesitating on purchases, anticipating a drop in prices. Nevertheless, I believe that considering all the information we are receiving, we can expect a strong demand for fall ammonia applications due to the number of acres farmers plan to plant in the spring.
Charles Neivert, Analyst
Got it. I have another question. Clearly, the issues surrounding the Mississippi River are causing problems for some companies. Is that a concern for you? Or does it actually not affect you since you don't rely on the river and all your deliveries are expected to proceed normally under the current conditions?
Mark Behrman, CEO
Yes, I’ll probably stay away from saying it’s a benefit. It’s certainly not hurting us, right, because we don’t use the Mississippi or really any river systems too much to move our product. The thing that makes me probably a little more nervous is the railroad situation. And it’s not just our industry, that’s every industry across the country.
Charles Neivert, Analyst
Right. I mean I don’t want to say benefit, meaning you get business more of, does it seem to be lifting pricing in any of the places that are being, for lack of a better shorted product because they can't get up river?
Mark Behrman, CEO
Yes, I don't think we're seeing that yet. I think it's a little early to see that. What it's doing is putting some pressure on urea because there is urea production and imports coming in the Gulf. If they can't get it upriver and they don't want to hold onto the product, you might see some lower pricing.
Operator, Operator
And our next question comes from Adam Samuelson from Goldman Sachs.
Adam Samuelson, Analyst
Yes. Following up on the question regarding the river and its impact, how would you describe the current state of customer and distributor inventories and their behavior? Are you receiving new inquiries from distributors concerned about securing products due to issues with transport up the river? Additionally, how is this situation affecting inland markets? Is it creating new business opportunities, or is it fostering a more cautious approach throughout the supply chain due to price volatility and uncertainty?
Mark Behrman, CEO
Yes, I believe we are observing new inquiries from inland customers who may have previously sourced products from the Gulf or other locations via the river system. If this situation persists over the next few weeks or months, with the river system restricting the amount of product that can be transported upstream, I would anticipate an increase in demand from customers we haven't engaged with before.
Adam Samuelson, Analyst
Got it. That's helpful. As we consider the scoping of various capital projects related to debottlenecking, can you provide some insights on the scale of the projects being considered? Additionally, how might USDA funding influence the scope and size of those investments, if at all?
Mark Behrman, CEO
Yes, it's a bit early for us to discuss the economics, so I'm hesitant to do that. However, when we consider debottlenecking projects at El Dorado, we're focused on expanding the production capacity of our ammonia plant and our largest nitric acid plant. We're also looking to increase our urea production at both Cherokee and Pryor to produce more UAN. These are likely the four main projects. Regarding USDA funding, we will evaluate options without it, and if the economics are favorable, we would present them to the board for approval to proceed. If we're on the fence about a project and the only way to advance it is through USDA funding, we will need to consider that carefully. I see USDA funding not as a determinant for moving forward, but rather as a way to create opportunities for better returns. There may be projects that are marginal in terms of our investment return profile, and that could influence our decision to move ahead.
Adam Samuelson, Analyst
Okay. And if I could just ask a clarifying question, and Cheryl, I know you gave the expected EBITDA range for the fourth quarter. And I know there's noise quarter-to-quarter with the turnarounds and where inventories were, but can you help us maybe provide some banding on the sales volumes that drive that EBITDA in the fourth quarter?
Cheryl Maguire, CFO
Yes. So I would look to our fourth quarter last year, Adam, and that's going to give you a pretty good overview of where we would expect to see volume this year. So basically, flat to last year, even despite kind of the two turnarounds coming in shorter on inventory and then the Pryor turnaround completing mid-October.
Operator, Operator
And our next question comes from Rob McGuire from Granite Research.
Rob McGuire, Analyst
What portion of fourth quarter 2022 revenue will be at summer field pricing?
Mark Behrman, CEO
Say that again, Rob, I'm sorry.
Rob McGuire, Analyst
Sure. What portion of your fourth quarter 2022 revenue will be at summer field pricing?
Mark Behrman, CEO
None.
Rob McGuire, Analyst
Great. And can you discuss the relative strength that we're seeing in UAN relative to urea? What's driving it? And what do you anticipate UAN to remain strong in the fourth quarter?
Mark Behrman, CEO
Yes. So as I mentioned earlier, the urea market is kind of choppy right now. I mean, every day, it seems to have swings up or down. This morning actually in the Gulf, Gulf pricing was up the last couple of days, $35 a ton. So a lot of pressure on urea, which quite frankly, a lot of these products trade on a nitrogen content basis. So putting a little bit of pressure, I think, on some of the other nitrogen products. But we're really not seeing UAN pricing move down yet. I don't think that will happen as really urea sort of strengthens. I think they’re talking about doing another large tender. And so I think that will help strengthen the market a little bit. And maybe that's why we're seeing some strength in pricing around the world but also in the Gulf for urea. So UAN we think will be in high demand. We think the pricing is really at levels that make a lot of sense for a farmer today given where corn and wheat and other commodity prices are. So we don't anticipate any pull-off in prices.
Rob McGuire, Analyst
And are you seeing an uptick in U.S. nitrogen exports in the marketplace? And if so, can you talk about what products and what producers are participating?
Mark Behrman, CEO
Yes, we are indeed observing exports for those who can utilize the waterways to reach Europe. The primary products being exported are UAN and ammonia, as they are achieving better prices by selling to Europe compared to the United States. Any entity with access to the Gulf is eligible to export these products. There has been a small amount of AN exported, but ammonia and UAN are the main exports.
Rob McGuire, Analyst
Then last question. Can you give us an idea of the tonnage that was lost as a result of the turnarounds in the third quarter?
Cheryl Maguire, CFO
Sure, Rob. It was about 53,000 tons.
Mark Behrman, CEO
Of ammonia production.
Cheryl Maguire, CFO
Ammonia production.
Operator, Operator
And our next question comes from Andrew Wong from RBC Capital.
Andrew Wong, Analyst
Just wanted to maybe ask a little bit on a blue ammonia project. I just want to ask on the blue ammonia project first. Can you just maybe update on the timing? And I think I thought that the Class 6 well permit might be some time in the second half of next year. Does that still kind of line up with getting that project up and running by 2025?
Mark Behrman, CEO
Yes. Actually, I said in the prepared comments, Andrew, that timing has moved up. So we would expect to file the Class 6 permit end of first quarter or early second quarter.
Andrew Wong, Analyst
Okay. Sorry, I missed that. And then just on the contracts with the industrial customers, can you remind us on some of the duration and just the timing of when some of these new contracts might get renewed and expectations on pricing and margin for those contracts relative to what you've seen historically?
Mark Behrman, CEO
The contracts on the industrial side typically range from about two years to seven years. We have contracts that expire at different times, so they don't all roll off simultaneously. However, we haven't disclosed publicly when specific contracts will expire and when new bids will be needed. Over the past year, as contracts have expired and been renewed, we've taken advantage of the current demand for nitrogen products to increase our pricing accordingly, preventing our products from competing with others. The commercial team has effectively informed our clients about the current nitrogen market status and our expectations for the next 18 to 24 months, ensuring that they understand the market conditions.
Andrew Wong, Analyst
Okay. That's great. And then maybe just some questions on production. You mentioned there were some things done during the turnaround that should help on the operating rates. Can you kind of talk about what some of those things were? And some of your maybe preliminary expectations for next year? It sounded like you're pretty positive on the operating rates for next year. And for this year, it looks like maybe production is coming in a little bit lighter than what initially was expected. Like were there any sort of unexpected kind of impact that happened that kind of came up this year? And then just maybe remind us on the cadence of turnarounds going forward? I know 2023, you mentioned that there won't be any, but there's like a certain cadence for the year. If you can just remind us that mix.
Mark Behrman, CEO
Yes. So I'd say on production for this year, I think any time you go three years between turnarounds, you're going to see from coming out of turnaround to going back into that turnaround over that three-year period, you're going to see operating rates deteriorate some over that period of time. So I would say that we certainly saw that at Pryor where we had a bit lower ammonia production rates coming into our turnaround. But we're really excited about the work that we did in the Pryor ammonia plant. The front end of our ammonia plant, the reformer, we did a lot of major work there where we actually re-harped or retubed that whole front end of the ammonia plant. So we think that plus compressor work, plus other piping work that might have caused some vibration issues that we had all resolved. And we have significant expectations for the reliability of that plant and the production of that plant. Our urea plant at Pryor, we started the implementation of DCS system or distributed control systems, so automation in that plant that will allow us to run that urea plant, I'd say, more reliable at more consistent rates, which means we should get more consistent UAN production out of that facility. So again, a lot of work went into Pryor, a lot of planning for that, and we're expecting a significant improvement in the operating rates of actually all the plants at that facility. At El Dorado, we did a lot of inspections that we had to do, but we did some work on our compressors particularly in the ammonia plant that we think will provide more consistency and reliability in the way we operate those plants. Same thing in our nitric acid plants that actually have been running really well. The team has done a really great job there in running those plants full out to meet all the demand that we have. So we're excited about the work and the investment that we made. We think it will pay dividends there. And I would say expectations for next year, I think I've said previously that we're in the low 90s operating rates on our ammonia plants. We would look to increase that at least a couple of percentage points for next year moving towards our goal of 95% over the next 18 to 24 months.
Andrew Wong, Analyst
And so could you remind us on the cadence on the turnarounds?
Mark Behrman, CEO
Yes. So as we mentioned, right, we just did El Dorado and a Pryor turnaround, we won't have any turnarounds in '23. We'll do another two-year turnaround at Pryor. So we'll have a turnaround there in '24 as we really push the automation of that site. So we'll complete the installation of DCS in the urea plant, and we'll either do partial or full DCS implementation in the ammonia plant at Pryor. We'll also have a turnaround in '24 Cherokee. And then prior we'll either be on a two or three year after that. We haven't made a decision yet. And then Cherokee is on a three year turnaround cycle. So '24 and then '27. And then in '25, we'll do a turnaround at El Dorado, and we should be on a three-year turnaround cycle after that.
Operator, Operator
And our next question comes from Roger Spitz from Bank of America.
Roger Spitz, Analyst
I don't know if you said this in the prepared remarks, but do you still expect 2022 CapEx to be $65 million?
Cheryl Maguire, CFO
Yes. I think $60 million to $65 million.
Roger Spitz, Analyst
Great. And any initial guidance on how we should think about 2023 CapEx, same order of magnitude or something different?
Mark Behrman, CEO
We are concluding our budgeting process for the year. I can confirm that it will be between $60 million and $65 million, but as we continue discussions, we may increase that by $10 million to $15 million. Therefore, I would estimate that we will land somewhere between $60 million and $80 million.
Roger Spitz, Analyst
Perfect. And lastly, in terms of Q4 working capital cash inflow or outflow, any thoughts you can provide on that?
Cheryl Maguire, CFO
We are seeing some higher receivables due to the current market conditions, and inventory costs have increased somewhat because of higher gas prices. Additionally, we have slightly elevated payables as we emerge from the turnaround. Overall, there are no significant changes for the quarter compared to what we would typically expect.
Roger Spitz, Analyst
I'm sorry, you're saying it could be a relatively larger swing than normal seasonality for the working capital movement in Q4?
Cheryl Maguire, CFO
No. If I had to put dollars, I'd say, $5 million to $10 million, Roger, nothing material.
Operator, Operator
And that appears to be all the questions at this time. I'd now like to turn it back to management for any closing remarks.
Mark Behrman, CEO
Well, again, I appreciate all the interest in LSB Industries. I think we've got a number of exciting things that we're working on, and we hope to update you next quarter. Thank you so much.
Operator, Operator
Thank you. This does conclude today's conference. We thank you for your participation. You may disconnect your lines at this time, and have a wonderful day.