LSB INDUSTRIES INC 2026 Q3 Earnings Call

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 on Form 10-K and quarterly reports on Form 10-Q. On the call, we will reference non-GAAP results.

Please see the press release in the Investors section of our website, lsbindustries.com, and the appendix of the related investor presentation for further information regarding forward-looking statements and reconciliations of non-GAAP results to GAAP results. At this time, I would like to go ahead and turn the call over to Mark.

Thank you, Kristy, and good morning, everyone. Our teams delivered strong third quarter results, supported by strong demand across both our industrial and agricultural businesses, and continued execution across the organization. This translated into significant year-over-year growth in adjusted EBITDA and EPS and reflected the progress we are making in overall reliability, efficiency, and product mix optimization. We are pleased to see these operational improvements increasingly reflected in our financial performance, while we continue to advance several growth initiatives that we believe can drive additional earnings and cash flow over the next several years. Last quarter, we assumed full ownership of our El Dorado carbon capture and sequestration project from Lapis Carbon Solutions. Construction of the carbon capture facility is in full swing, and we continue to work closely with the EPA to secure approval of our Class VI permit.

I'll provide additional details about the project later on in the call. As we look to the final quarter of 2026 and into 2027, we'll remain focused on continuing to improve our plant reliability and increasing production to meet customer demand. We believe these efforts will help us to generate strong free cash flow and increase shareholder value. Now I'll turn over the call to Damien to provide more detail on the commercial environment.

Thanks, Mark, and good morning, everyone. Supply constraints stemming from continued geopolitical conflicts in the Middle East and Black Sea region continue to challenge global nitrogen and energy markets. Over the last three months, European TTF natural gas prices have risen from about $18 to $30 per MMBtu, pushing European ammonia production costs to over $1,000 per metric ton, well above import parity. In response, European producers are curtailing production and relying more heavily on imports, further tightening already limited global supplies as we head towards winter in the coming months. We estimate that ammonia producers may have either shut down production or reduced production rates to minimum levels, resulting in curtailments of between 20% to 25%, or up to 2 million metric tons of production. In the U.S., natural gas remains around $3 per MMBtu, giving us a significant structural cost advantage.

Turning to our industrial business, fundamentals remain strong. Infrastructure spending continues to grow, driven by AI-related sectors, electrification, power and grid investment, onshoring of manufacturing, and continued spending on roads and highways. As a result, copper prices continue to rise, and gold prices remain elevated despite easing from record highs earlier this year. These market fundamentals and resulting strong prices are driving solid mining activity across North America, and a growing pipeline of mining projects advancing as quickly as permitting allows, supports robust long-term demand for AN. Producer outages and strong demand continue to support both spot and contract AN pricing. During the third quarter, we used the flexibility of our production assets to prioritize higher margin AN production and sales. We expect to continue favoring AN until sometime in the first half of 2027, when shuttered production is expected to return to the market.

Turning to page five, fertilizer market conditions remain firm as global supply conditions continue to evolve. Ongoing supply uncertainty, trade disruptions, and broader macro volatility have kept prices above historical levels, and importantly, demand for our products is strong. Ammonia prices eased during the third quarter, with Tampa settling at $545 per metric ton for October, reflecting lower phosphate demand amid extremely high sulfur prices. Subject to favorable application weather, we continue to expect a strong fall ammonia season because ammonia's significant price discount to other products should encourage application. Confirmed sales position our forward order book well through year-end, while preserving flexibility to capture additional volume if prices rise. Global urea prices strengthened by approximately $100 per metric ton through the third quarter.

Volumes from the Middle East remain limited. While China has increased exports by approximately 4 million metric tons this year after the government eased export restrictions, this has done little to ease the shortage of supply impacting global markets. Strong European import demand is adding further support. We expect this dynamic to continue through Q4. UAN pricing followed higher urea pricing, increasing by $75 per short ton since early July. The September corn rally improved affordability and encouraged growers to book more forward tons and to book earlier than they did last year. This activity drove healthy retailer demand during the quarter. Although we expect a typical lull in fall buying, our order book is well sold through this period, positioning us to capture additional upside as we enter a healthy spring season.

We also expect support for corn prices as the USDA projects 2026-2027 record world corn consumption exceeding production. That would push global stocks to use down to about 21% from 23% last year. Stocks at the major exporters are also shrinking, and Europe's drought-damaged crop is down to 48 million tons. We believe these conditions will keep U.S. grower economics stable and support healthy nitrogen demand into the 2027 planting season. While the path of the geopolitical conflicts is difficult to predict, we expect elevated European gas costs to persist through the winter, supporting a constructive nitrogen market through at least spring 2027. As a domestic low-cost supplier to two critical end markets, agriculture and industrial, we will continue to manage our production flexibility to meet demand and capture the best available margins across both.

Now I'll turn the call over to Cheryl to discuss our third quarter financial results and our outlook.

Cheryl? Thanks, Damian, and good morning.

On page 6, you'll see a summary of our third quarter 2026 financial results. Strong demand across our industrial and agricultural businesses, combined with higher nitric acid and AN solution production and effective commercial execution, drove a 55% increase in adjusted EBITDA compared to the third quarter of last year. As of September 30, we have generated more than $220 million of adjusted EBITDA on a trailing 12-month basis, which remains an important reference point as we evaluate the earnings power of the business across different market environments and cycles. Page 7 bridges our third quarter 2025 adjusted EBITDA of $40 million to our third quarter 2026 adjusted EBITDA of $62 million. Higher selling prices and lower costs more than offset lower sales volumes, primarily driven by the prior turnaround, which was completed in the third quarter.

Part of the lower cost relates to precious metals recoveries received in the quarter, which are a normal part of our operations, although amounts realized can vary based on recovery activities. One other thing worth pointing out is that while we are seeing decreased costs related to our optimization initiatives, SG&A is tracking above 2025 levels, primarily reflecting stock-based compensation relating to a retention arrangement established earlier this year, higher variable compensation, costs associated with the ramp-up of the Leidos trial preparation, as well as professional fees related to the acquisition of the carbon capture project and other investments. The majority of these costs are non-recurring in nature and not expected to continue into 2027. Lastly, on page 8, you can see that our balance sheet remains solid.