LSB Industries, Inc. Aktie

Greetings, and welcome to the LSB Industries' First Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce Kristy Carver, Senior Vice President and Treasurer. Please go ahead.

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 on Form 10-K.

On the call, we will reference 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.

Thank you, Kristy, and good morning, everyone. I'm pleased with our first quarter 2026 results. They were in line with our overall expectations, and reflect the growing contribution from the impact of the operational discipline we have been building and executing over the past several years.

Our progress has become increasingly evident over the past 2 quarters, driving improved operating and financial performance. The investments we've made to increase the safety, reliability, efficiency, and output at our facilities continues to bear fruit in the form of improving overall EH&S performance and significant year-over-year growth in net sales, adjusted EBITDA, and EPS. Our results reflect the progress we've made so far, and we expect to see additional improvement going forward.

Our emphasis on production performance improvement, optimizing our product mix and disciplined commercial execution reinforce our ability to maximize profitability. This will become even more important as current market dynamics begin to be reflected in pricing over the coming quarters.

Regarding the progress of our CCS project at our El Dorado site, we feel good about meeting our projected timeline. I will provide an update later on in this call.

Lastly, as we previously discussed, we have been involved in litigation with respect to engineering and procurement contracts related to the construction of the ammonia plant at our El Dorado, Arkansas facility. Earlier this month, we entered into a settlement agreement with Benham Constructors, one of the 2 defendants in the case.

Pursuant to the terms of the settlement agreement, Benham agreed to pay us approximately $20.9 million. The settlement agreement does not release or otherwise discharge any claims, rights, or remedies we have against Leidos, including our claims for fraud and breach of contract. We plan to continue the vigorous prosecution of our filed claims against Leidos, and continue to seek actual and punitive damages in excess of $300 million. The trial against Leidos is scheduled to begin in October of this year.

Now I'll turn the call over to Damien to provide more detail on the commercial environment.

Thank you, Mark. And good morning, everyone. Let me start by discussing the ongoing conflict in the Middle East and the impact that is having on our industry. This is one of the most significant and prolonged supply disruptions that we have experienced. The Strait of Hormuz alone represents 20% of global ammonia seaborne trade and 30% of global urea seaborne trade.

While the situation remains fluid, these dynamics are creating meaningful supply constraints across both markets. We are seeing this manifest in 2 primary ways. The first is the disruption to shipping through the Strait and the ability to move product globally. Second, and potentially more significant, is the impact to existing fertilizer production facilities in the Middle East, the full extent of which is not yet fully known.

These dynamics are additive to the existing supply challenges across global markets, including the reduced ammonia production in Trinidad, gas curtailments in India, outages in Australia, increasingly frequent drone strikes on Russian nitrogen plants, the potential export restriction of ammonia from China, as well as the ongoing export restriction of urea from China.

While supply disruptions have been significant to date, global demand for ammonia and urea has remained consistent. Despite some demand destruction in phosphates globally, fertilizer and industrial demand have been reasonably strong, supported by Indian domestic consumption and fertilizer and industrial upgrades globally.

Moving to natural gas. Approximately 20% of the world's LNG transits through the Strait. Obviously, this has been severely disrupted, and there is very little alternative supply of LNG that can offset this.

We expect European natural gas prices to be increasingly elevated as they work to fill up their storage ahead of next winter. During this time, we expect to be advantaged on U.S. natural gas prices, which has been incredibly resilient and affordable. Today, it trades well below $3 per MMBtu.

We also believe that the implications for the market will not be short-lived. Even when the Strait is fully opened, it will take some time before normality is restored. We expect elevated pricing throughout 2026 and even into early 2027.

Turning to Page 4. Our industrial business is in a sold-out position, even with our improved production volumes. During the first quarter, we optimized our production mix to maximize ammonium nitrate spot sales at above typical market prices. This allowed us to support customers whose AN supply has been disrupted.

The U.S. AN market continues to be under pressure with significantly lower domestic production available while demand is strong. We expect these constructive market dynamics to continue to impact market prices with supply interruptions expected to continue through most of 2026.

As we think about the mining market segment, we are encouraged to see a renaissance in mining. What we are seeing is not temporal, but structural. Copper demand is strongly outpacing supply and record gold prices are also incentivizing new supply. Much of this activity is taking place in the Western U.S.

Quarry and aggregate production has also been growing. Lower demand in residential construction is being offset by higher demand in private and public construction. Even coal remains resilient, supported by policy changes and insatiable demand for electricity.

The chemical segment has also been positive. The antidumping duties on imported methylene diphenyl diisocyanate, MDI, has been positively finalized for 5 years. Generally, the chemical producers in the U.S. are feedstock advantaged with U.S. natural gas liquids, while international peers are paying much higher naphtha inputs, which have been disrupted from the Strait of Hormuz.

Turning to Page 5. Let's move to the domestic ammonia market. We had a good spring ammonia campaign and exited with minimal inventories. Inland prices continue to track with international prices, so we expect this to carry through to summer fuel. New domestic supply in the U.S. Gulf continues to ramp up, albeit with some delays. However, this new supply is nowhere near the extent of the supply that is disrupted globally and would only approximately offset the loss of production in Trinidad.

Favorable weather windows during the first quarter allowed growers to apply ammonia, resulting in higher-than-expected shipments out of our Pryor facility and low inventory levels at the end of the quarter. Ammonia supply appeared to be constrained during the last half of March with many customers seemingly dealing with allocations and the inability to secure enough supply to meet growers' application demand.

Ag demand for ammonia is being supported by nitrogen pricing spreads with ammonia trading at a significant discount to urea and UAN. Growers are especially incentivized this year to minimize input costs given the current challenging grain economics.

While [indiscernible] ammonia demand is a relatively modest percentage of total nitrogen demand, we would expect this pricing relationship to persist and growers to be incentivized to maximize ammonia purchases and application during the second quarter.

Turning to UAN. Grower economics, as previously mentioned, are challenging for the upcoming crop year. We believe the difficult margin environment for growers is resulting in limited risk taking and positioning of product throughout the supply chain.

We currently believe that the North American market is at risk of being short in nitrogen due to uncertainty around forward urea imports. Urea pricing has strengthened since the end of February due to the Iranian conflict and the Strait of Hormuz issues. And the U.S. has consistently priced at a discount relative to the rest of the world, putting import volumes for late April and May at risk.

UAN demand has been steady throughout 2026, and we expect that to continue through the second quarter and into July. We believe that current supply chain inventory levels are low and that demand may attempt to switch away from urea if pricing spreads or availability of urea become an issue during Q2.

We are currently estimating a very low carryout to UAN inventories on June 30, at around 2025 levels. Urea shortages, unplanned downtime across the U.S. production system or reduced imports could reduce carryout even further than currently expected.

Lastly, the USDA recently projected 95 million planted corn acres for the 2026 crop season, and we anticipate robust nitrogen demand through the full fertilizer application season.

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

Thanks, Damien, and good morning. On Page 6, you'll see a summary of our first quarter 2026 financial results. As Mark mentioned earlier, we focus consistently on improving the reliability and efficiency of our assets, and we believe these results, as with last quarter's results, reflect those efforts and the progress we continue to make, which is contributing to our ability to capitalize on tight market conditions.

As shown on Page 7, Q1 adjusted EBITDA grew 44% year-over-year from $29 million in Q1 last year to $52 million this year. This increase reflects higher pricing, coupled with stronger volumes and product mix, which were partly offset by higher natural gas and other operating costs.

On Page 8, you can see that our balance sheet remains solid with approximately $180 million in cash at the end of the first quarter and net leverage at 1.4x. Operating cash flow for the quarter was $52 million. After subtracting $15 million of sustaining capital, which is the capital required to maintain our operations, our free cash flow was approximately $37 million.

This reflects strong free cash flow generation in the quarter, and we're encouraged by these results. Looking ahead, we remain focused on sustaining a high level of free cash flow generation, and our strong balance sheet gives us meaningful flexibility to invest in growth opportunities and drive long-term value creation.

Looking ahead to the second quarter, we expect demand for our products to remain strong as we operate in a sold-out position. We also expect pricing to remain elevated. Tampa ammonia and NOLA UAN have averaged approximately $775 per metric ton and $480 per ton, respectively, while natural gas costs have averaged below $3 per MMBtu thus far in the second quarter.

Our planned turnaround at our El Dorado facility is underway and is a key step to continued operational improvement. The outage is expected to impact ammonia production by approximately 35,000 tons. Additionally, we expect to incur approximately $15 million to $20 million of turnaround-related expenses during the period.

As discussed on our last call, we did build ammonia inventory heading into the turnaround and therefore, expect to operate our downstream production during the majority of the ammonia outage.

Putting it all together, despite the turnaround, we expect Q2 adjusted EBITDA to be meaningfully higher as compared to the first quarter of 2026 and the second quarter of last year, driven by strong market fundamentals and continued improvement in downstream production.

And now, I'll turn it back over to Mark.

Thank you, Cheryl. Turning to Page 9. Our El Dorado low carbon project is progressing, and we continue to work closely with senior officials from the EPA's Region 6 with a goal of sequestering CO2 by the end of this year or early next year.

In addition to the previously drilled injection well, this quarter, we completed the drilling of the underground horizontal pipeline that will transport CO2 from the capture equipment area to the injection well that will sequester the CO2.

The next step is to complete the capture civil -- capture area civil work and prepare the area for delivery of the capture equipment this summer. The assembly and connection of the different pieces of capture equipment is expected to be completed in late fall this year.

On the commercial front, our team continues to pursue low-carbon product supply opportunities where we can generate premiums for those products as well as evaluate the potential to sell environmental attributes generated. We are excited as we're getting closer to completing our project and realizing our vision of decarbonizing ammonia.

As I mentioned earlier, we've been highly focused over the last several years on increasing the reliability of our facilities, which has translated into higher production rates, improved product mix, and lower costs. During this time, we've often been asked about when we will begin to see the results of these investments. I think I can safely say that after 2 consecutive quarters of $50 million plus in EBITDA, led by significantly improved production performance, we're beginning to see the fruits of all the hard work our teams have accomplished over the last 3 years.

And we're not done. As we continue to invest in our business, including the El Dorado turnaround Cheryl mentioned, along with the scheduled turnaround at our Pryor, Oklahoma facility in the third quarter, we expect continued improvement in our overall production performance.

In previous calls, we've laid out a path to an additional $50 million of annual EBITDA through specific initiatives, including production targets, process efficiencies, and our El Dorado carbon capture project. A good portion of this is expected to be realized by the end of this year, with the balance coming by the end of next year.

We ended the quarter with a strong cash position, having generated significant free cash flow for the quarter. We also believe we will generate meaningful free cash flow for the remainder of this year. This, plus the approximately $21 million settlement payment I mentioned earlier, will provide us with financial flexibility and numerous options as we consider the best way to create value for our shareholders.

We are currently reviewing several opportunities to invest capital into projects that would enable us to expand both our fertilizer and industrial production capacity. These include debottlenecking activities as well as evaluating potential acquisition or partnership opportunities that offer the ability to increase our production while gaining meaningful scale.

There's no question that the evolving geopolitical landscape, including the conflict in the Middle East, and associated disruption of production facilities there, as well as the ongoing impact of important trade channels is having a significant impact on the global availability of nitrogen fertilizers. We expect this will continue throughout the remainder of 2026 and into 2027.

Our improved operating performance is enabling us to maximize fertilizer production and support U.S. farmers with an additional supply in this difficult time. We are encouraged by our continued execution across the business and believe it positions us to continue supporting our customers and deliver sustainable growth and long-term value creation.

Before we open it up for questions, I'd like to mention that Cheryl will be participating in the Barclays Leveraged Finance Conference in Austin on May 18th and the Wolfe Research Materials Future Conference on June 16th and 17th in New York City. Additionally, Damien and I will be participating in the Granite Research Virtual Conference Series on June 30th and July 1st. We look forward to speaking with some of you at these events.

That concludes our prepared remarks, and we will now be happy to take your questions. Thank you.

[Operator Instructions] And our first question comes from the line of Lucas Beaumont with UBS.

So I mean, I just want to get your view, I guess, on where the nitrogen market is going. So I mean, it seems like there's been a bit of a disconnect between, I guess, what's happening in the physical market and the degree of the disruptions that we're seeing. So I mean, prices have moved up a lot in certain areas, urea, UAN, the cost curve kind of not as much so far, but I mean, we haven't seen any resumption yet in trade flows. And I think even if things were to sort of prove that they are credibly resuming kind of tomorrow, we probably still have like 4-plus weeks before production would restart over there and then 2 to 3 months before we're going to start seeing deliveries again into import markets.

So I guess just from where we stand today, I guess, how do you kind of see market dynamics sort of evolving over the next couple of months? And what that sort of means for pricing and I guess, demand and demand destruction ultimately?

Good morning, Lucas. What I would say is, I think you're right. I think that there's the perception that if there was a permanent ceasefire that things would go back to normal relatively quickly. And I think that's a misnomer. I think there's so much -- first off, there's so much supply that's been taken out of the marketplace. It will take us a relatively long time to make that up. And part of the reason that it will take us longer to make that up is there's been damage to facilities in the Middle East. And I think most of us don't really understand what type of damage to facilities -- production facilities have occurred. And so we don't know how long it will be before some of those plants that were damaged come back online.

I also think people maybe are miscalculating the backup of vessels that are waiting to get out of the Strait and how long that will take and the coordination of that and who get -- which vessels get priority. So I think big picture, we think that it's going to take certainly through the end of this year and I believe into next year until we see us back to normal again.

As far as our view on pricing and what do we think supply/demand, I'm going to pass it over to Damien, and he can give you a more current view on the ground.

Yes. Good morning, Lucas. I think you're right, it's been interesting to observe just how the market has responded. I think the U.S., particularly with urea, we're pricing in at, I think, you'd call a fairly significant discount to market prices, and ships are being -- India bid very heavily on the basis of the government support for tons. So I think they're in a reasonably good position now following their latest tender. And then you've also got Brazil trading upwards of where NOLA urea is at the moment. So I think there's some concern on product availability here in the U.S. that may materialize over the next 4, 6, 8 weeks as we work through the full season. And that's where I think it will all bear out.

Also, you'll probably see, I mean, Tampa ammonia hasn't settled yet. That will or should go upwards from where it is today. And as Mark said, we've got probably months before you see anything calm down after the Strait has reopened, and then the world gets a sense of what plants have been damaged or what the restart profile looks like for that, notwithstanding all of the other issues that you've got throughout the world with damage to Russian plants, Trinidad production being out probably for the long term, and then the typical interruptions you're seeing like with Burrup in Australia being out for many weeks. So we're pretty positive, optimistic on pricing.

That's helpful. And then I guess just -- I guess on the industrial side, I know a large sort of portion of your book there is contracted. So -- but I guess just how is like industrial demand responding more broadly and pricing there? I guess, one, sort of what are you guys doing initiative-wise to try and capitalize most on the current market. And then secondly, I just had a question about like the difference between industrial versus fertilizer mix and sort of where we think the demand destruction in the industry is going to come from to equilibrate like demand with the lower supply that's available this year?

So our portfolio, I guess, is weighted pretty nicely, I would say, to mining. And as I said in my earlier comments, mining activity globally, but particularly here in the U.S. is very strong, and there's a very strong pipeline for new projects. And so that's really underpinning very strong demand for ammonium nitrate for explosives. And we're leaning into that as best we can and optimizing our production mix to take advantage of the current situation, particularly here in the U.S. with some supply being out of the market. So we're certainly optimizing that and maximizing our spot sales into that market.

In terms of other industrial demand, it's been pretty steady. We've talked about nitric demand and what we see through polyurethane and MDI and that is still strong here in the U.S., and the fundamentals around that industry continue to hold true, and U.S. producers are well shielded from some of the issues that you're seeing in the Middle East that other global producers are experiencing. And we're seeing them maximize production, which is maintaining very strong levels of demand for our products.

In terms of demand destruction, as you talked about, look, you are going to see buyers opt out when their economics start to get too strained. And you've already seen that in phosphates with those producers experiencing a double whammy with both ammonia and also sulfur. I mean, sulfur prices are at extremely high levels and sulfuric acid prices have followed. So you're seeing that happen.

You'll also see through the nitrogen molecule, some regions of the world just simply decide not to apply nitrogen, particularly through parts like Africa or Asia, et cetera, and even countries that can't get their hands on product, they just simply won't have a choice. So you'll see that start to happen and the market will act rationally and efficiently as it tends to always do.

I think one of the -- just to add kind of one side. It's not that security of supply wasn't thought about, but I think given all the activities that have happened around the world, and not just in this particular conflict, but going back to the beginning of the Russia-Ukraine conflict, I think people are now really focused on security of supply. So when we think about our industrial business, industrial customers need that product because usually, it's either a feedstock for another product, as Damien talked about nitric acid, or you want to mine copper or gold or something else. I mean, you need AN to do that, right, because you need, obviously, to use some explosive to do your mining. So I think what it's really got people focused on, as I said, is security of supply, which is really, I think, creating some really interesting opportunities for us because we do have customers that are really desiring product long term and want to know that they have the product. So we may have some opportunities to really expand on our sites, right, so some brownfield expansion or debottlenecking, supported by customer contracts and customer demand.

I think just another point to make on that. Mark talked about security of supply. It is something that we're focused on as a supplier. And with our 3 facilities, we have the ability to support our customer base through each of the 3 facilities with the core industrial products. And that's a huge strength of our business, and our customers certainly appreciate that and value that security of supply. And I think that that will be -- continue to be reflected in what we do going forward as well and customers being attracted to that value proposition that we provide.

Great. And then just lastly, on the free cash flow side. I mean, it looks like you guys could easily do an extra $100 million this year, maybe $200 million more in free cash flow than last year, but you're going to have the $20 million from the legal settlement that you called out. You mentioned sort of looking at new projects to kind of deploy that too. I guess, is there any more detail you could kind of share there? I mean, should we go back and refer back to the last sort of Investor Day where you sort of outlined kind of incremental margin improvement or sort of debottlenecking projects? Or is there anything else that's under consideration going forward?

Well, we've talked about -- on previous calls about the ability to expand the ammonia plant production at El Dorado. So that is -- and we do have a USDA grant to provide some capital for that. So while we haven't FID-ed that project, we are doing our last -- we will do our last stage of engineering before FID. And I think there's a high probability that we would move forward with that project.

With the current administration really focused on increasing domestic fertilizer production, we are thinking about how can we expand other parts of El Dorado and maybe even some new products at El Dorado with the support of the administration plus, as you mentioned, certainly the capital that we have available to invest in that project. So I think that would be -- at El Dorado, that would be -- the plan is to try and figure out how do we expand given the current environment and the capital that we're -- we have and we're going to generate.

At our other 2 facilities, there are some things at our Pryor facility that we are looking at again whether it's debottlenecking, whether it's increasing like a nitric acid production or other things. So I think we have the ability with our current assets to really invest that capital to get a really attractive return. And so we're currently focused on doing the work to make sure that our assumptions are correct before we move forward, obviously. But I think, again, the administration is really looking towards onshoring or increasing domestic fertilizer production, and we want to take advantage of that and support that.

The next question comes from the line of Andrew Wong with RBC Capital Markets.

Actually, I just wanted to follow up on that comment, Mark, around the administration support for fertilizers. I know that there was that funding from the USDA earlier. Is there anything else that has come up or maybe more recently? And is there anything that's larger that maybe the administration will look at that LSB could participate in?

Good morning, Andrew. Yes, look, I don't know that there's another USDA funding program like the original one that came out during the Biden administration. What I can tell you is I was in D.C. a couple of weeks ago as part of an industry trade group talking with the administration, and yes, there's a fair amount of capital that the administration has and would like to commit to increasing domestic fertilizer production. And so I think they want to support that. I think -- I mean, they've done a number of press releases. I think they're in [ print a lot ] talking about the abundance of natural gas that we have here in the United States and the cheap cost of that natural gas and nitrogen fertilizers just being a derivative of natural gas. And so I think they'd like to not import and depend on other countries to provide fertilizer that's -- they look at it as food security, which is extremely important, and even to the point of if we ever got there to be an exporter versus an importer. So I do think that there is capital available. And I think for the right projects, they would support that -- the new projects with capital.

That would be great. And then just for this year, I understand there's a heavier turnaround schedule. Can you just talk about how flexible that is? Are you able to hold off on some of the work and maybe have the plants come on faster just given the current price environment? Or is that maybe just too disruptive to the plans that you already have in place?

Yes. So we're currently in our turnaround at El Dorado. And we did have a conversation prior to going into that turnaround. But honestly, we pushed off that turnaround from last year. And when you do major project work like a turnaround, to line up the contractors and get the right contractors and the right people at those contractors, if you start pushing things around, you run the risk of either not having the desired contractor or the people. So we elected not to push off that turnaround.

I do think we're going to come out of it in great shape. I'm really excited about that because I think not only will we increase reliability, we've done a lot of work on the site that set us up for the expansion that I talked about going forward, so whether it's electrical work, whether it's other infrastructure on the site that allow us to really lever that to do some expansion.

The work at Pryor, so we have a turnaround in Pryor in July, on that one, I think we've got specifically one item that we need to address. And so what we'll do is we'll try and get through that turnaround as quick as we can. But I think we would run the risk of having some extended downtime if we don't go through that turnaround. So we're focused on that. I think we'll get through these turnarounds. And as I said, I don't think we're going to see pricing fall off a cliff later on in the fall. And so I think we'll get an opportunity to really take advantage of the pricing market since I think it will last a lot longer.

[Operator Instructions] And the next question comes from the line of Rob McGuire with Granite Research.

Congratulations on the quarter.

Hi, Rob.

Hi, Mark. So MDI tariffs and countervailing duties, have the -- how are the MDI tariffs and duties affecting nitric acid demand and LSB debottlenecking plans? And how do you think that the tariffs and countervailing duties will shape the market from here?

Hi, Rob. It's a very positive story for U.S. domestic producers of MDI. So we've got -- certainly, our customer base is running flat out. They are also contemplating their own expansions going forward, and we're in some early discussions with them about what that might look like from a supply perspective. So I think there's a very positive tailwind here in the U.S. because of that. And we're also seeing it more broadly with some of our other producers that we don't supply and then bringing on additional capacity. So it's a very positive story.

And then with regards to the projects, what should we be looking for just exiting the turnarounds this year that relate to the progress with your value creation projects?

Well, I think as I mentioned in the prepared comments, we expect to see a good portion of that $50 million in value creation as we come out of this year. So run rate. And then we expect the balance of it to occur by the end of next year. So I would say, again, we'll end this year having done -- I think Cheryl put together a chart last quarter or last earnings call talking about where we are and sort of the steps that we're going through. So I don't know, about half of it by the end of this year and the balance by the end of next year, right? And I'm talking run rate by the end of the year.

And then on AN, should we be looking for a similar mix of AN, UAN in the second quarter that we saw in the first quarter? And is there room for further AN production there?

Yes, you'll see the same mix. We're probably at our limit of what we can really lean in on. So that will continue through -- at least through to the end of the year, Rob.

And then just last. Sulfuric acid, do you still produce and sell on a commercial basis? Or is that -- in other words, can you benefit from the recent increased prices here? Or is that really not a product at this point?

Yes. Look, we are still in that market, although it's pretty immaterial to the profile. And yes, sulfuric prices are going up, but so too are sulfur cost. So the margins are pretty stable.

Thank you. This concludes the question-and-answer session. I'll hand the call back over to Mark Behrman for closing remarks.

I appreciate everyone's interest in LSB Industries. I hope you can see that we're making progress. We're excited about the progress that we have going forward. And I hope to talk to some of you guys at the conferences that we have coming forward. So thanks, and have a great day.

Thank you. This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.

Greetings, and welcome to the LSB Industries Fourth Quarter Full Year 2025 Earnings Conference Call. [Operator Instructions]. 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 on Form 10-K. On the call, we will reference 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.

Thank you, Kristy, and good morning, everyone. Turning to the 2025 Highlights. I first want to recognize our teams for their continued focus on safety and operational discipline, which drove further improvement in our safety performance during the year. Our 12-month rolling total reportable incident rate of 0.40 incidents per 200,000 work hours as of December 31, 2025, was a record low, and 3 of our 4 sites operated injury-free for the full year, quite an accomplishment. That represents a meaningful improvement over 2024, and we're proud of the progress our teams have made.

We delivered significant year-over-year growth in net sales, adjusted EBITDA and EPS in both the fourth quarter and the full year of 2025. Our strategies to improve our operational performance, combined with disciplined commercial execution, yielded strong financial results. The operational progress we achieved during the year enabled us to fully capitalize on favorable pricing momentum across our key products.

We delivered record nitric acid and ammonium nitrate solution production in 2025, reflecting the progress we've made in plant reliability, throughput and operational efficiency. We believe this positions us well going forward, and we are ready to take advantage of current favorable market conditions. While we have been able to capture value with the operational and commercial improvements we've made, there remains significant value to capture, and we have ongoing initiatives intended to do just that. Cheryl will provide more color on that later in the call.

Lastly, we are making good progress on our CCS project at our El Dorado site, and we feel good about meeting our projected time line. I will provide an update later on the call.

Now I'll turn the call over to Damien to provide more detail on the commercial environment.

Thanks, Mark, and good morning, everyone.

Turning to Page 5. Our Industrial business remains well positioned with demonstrated performance across the board. During the fourth quarter, we optimized our production balance by reducing UAN production volumes to maximize ammonium nitrate spot sales at above typical market prices. This was to support existing customers whose regular AN supply was constrained by some supplier issues.

Demand for AN for explosives in mining is strong across all commodities, but particularly with copper and gold miners who are maximizing production volumes to take advantage of record prices. AN demand for explosives for quarrying and aggregate production for infrastructure also remains steady. Demand for coal production remains resilient as the U.S. continues to generate more power from coal. Preliminary antidumping duties on imported methylene diphenyl diisocyanate, or MDI, combined with tariffs has increased U.S. production, leading to increasing demand for nitric acid.

Turning to Page 6. Pricing for UAN averaged $320 per ton on a NOLA basis in Q4, up 39% over Q4 2024. UAN prices dipped slightly in November and December, but have recently improved. This reflects continued low levels of domestic inventory, constrained supply and a strengthening in urea prices.

We began the 2026 fertilizer year with the lowest carryout inventory of UAN in several years. Together with the late start to summer fill, this has created a tight domestic supply situation, and we expect this to continue through midyear. We saw strong full ammonia sales, supported by favorable weather conditions, and we continue to see strong demand domestically with ongoing favorable application weather and higher prices for upgrades supporting demand.

The Tampa ammonia benchmark price remains above year ago levels. Ammonia prices currently reflect reduced supply from the Middle East and Trinidad, higher cost of production in Europe and delays in new production capacity coming online. This is constraining global supply availability. In terms of the outlook for global ammonia, we see prices trending back to mid-cycle levels as new production comes online during 2026. But like the last couple of years, the market remains finely balanced and sensitive to any production interruptions.

Finally, we believe broader ag market dynamics remain supportive of nitrogen fertilizer demand. The USDA recently projected 94 million planted acres for corn for the 2027 season, and we anticipate nitrogen demand to track closely with recent years.

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

Thanks, Damien, and good morning.

On Page 7, you'll see a summary of our fourth quarter and full year 2025 financial performance. Our results reflect the impact of the reliability improvements we've implemented across our operations. These gains, combined with the absence of planned turnarounds, positioned us to capitalize on strong market conditions. As a result, full year 2025 adjusted EBITDA was $162 million compared to $130 million in 2024, representing a 25% year-over-year increase.

As shown on Page 8, Q4 adjusted EBITDA grew 42% year-over-year from $38 million in Q4 last year to $54 million this year. This increase reflects higher pricing, coupled with stronger volumes and product mix, which were partially offset by higher natural gas and other operating costs.

Operating costs were elevated this period due to timing of expenses, along with increased maintenance and contractor support as we advance towards our production targets. We expect contractor-related costs to decline toward the end of 2026 as this work is completed.

On Page 9, you can see that our balance sheet remains solid with approximately $150 million in cash at year-end and net leverage of 1.8x for the period ending December 2025. Operating cash flow for the full year of 2025 was $96 million. After subtracting $53 million of sustaining capital, the capital required to maintain our operations, free cash flow was $44 million. The remaining $25 million of CapEx relates to investments made to support growth in our business, which is discretionary and not included in free cash flow. While free cash flow looks lower than EBITDA might suggest, the shortfall is largely timing related. Working capital grew by over $30 million during the period, driven by the rollover of certain 2024 payables that were paid early in '25 as well as strong end of the quarter sales falling into receivables at year-end.

Adjusting for the timing of these items, free cash flow generation was consistent with our expectations. In addition to investing in our manufacturing assets in 2025, we also derisked our balance sheet by repurchasing approximately $40 million in principal amount of our senior secured notes while also repurchasing approximately 300,000 shares of stock during the same period.

Page 10 outlines the key considerations behind our full year 2026 expectations with the table on the upper left showing our estimated ammonia production and sales volumes. These estimates reflect planned turnaround activity, including the previously communicated El Dorado turnaround, which we have scheduled for the second quarter. In addition, we are accelerating a turnaround at our Pryor location, originally scheduled for 2027, so we can proactively perform work needed to improve reliability at that site. We are targeting the third quarter for this turnaround. This proactive step reinforces our focus on improved plant reliability and positions the business for sustainable production performance.

The impact of both turnarounds is expected to result in lost ammonia and UAN production tons in 2026 of approximately 60,000 and 50,000 tons, respectively. Despite these planned outages, we continue to expect strong underlying volume momentum, reflecting the operational improvements we've made across our facilities. The slide also covers our estimates of variable and fixed plant expenses as well as SG&A and other expenses for 2026.

Our expectations for costs reflect investments we are making to achieve our production volume goals. We expect to see costs trend down towards the end of 2026. We expect our effective tax rate for the year to be approximately 25%. However, we do not expect to be a material cash taxpayer in 2026 as we continue to utilize our NOLs. In the table at the bottom right of the slide, you'll see that we expect to invest approximately $75 million of CapEx in our facilities during 2026.

That includes $55 million for annual EH&S and reliability CapEx and $20 million earmarked for investments, including enhanced logistics and storage capabilities for our growing AN business. Turning to the first quarter, a few notables. We expect strong selling prices for our products, roughly in line with the fourth quarter of 2025. Winter storm burn drove short-term gas volatility in late January and into February settlements and resulted in elevated gas prices for February.

However, gas prices have moderated back to around $3 per MMBtu, and therefore, we expect much lower realized pricing in the second quarter. As a result of the inflated February natural gas prices, our average gas cost for the first quarter is expected to be approximately $5.50 per MMBtu. From a Q1 sales volume standpoint, we may opportunistically shift some production towards ammonium nitrate solution where market conditions warrant. As a result, UAN sales volumes could be lower with a corresponding increase in AN volume. This reflects our ability to optimize product mix based on market conditions.

Ahead of the scheduled turnaround at our El Dorado facility planned for the second quarter, we plan to build ammonia inventory to support continued operation of our downstream plants during the majority of the turnaround. As a result, first quarter ammonia sales volumes will be impacted by approximately 15,000 tons. Overall, we expect a meaningful uplift in our first quarter earnings compared to the first quarter of 2025 and expect the earnings power of the first quarter to mirror that of the fourth quarter of 2025, adjusted for the temporary run-up of gas costs I previously mentioned.

We have discussed our focus on upgrading an increasing amount of ammonia to capture additional margins on previous calls. Page 11 illustrates the favorable sales volume trends we're driving in our major product group adjusted for the impact of turnarounds. The first chart shows the increase in AN and nitric acid sales volumes recognized in 2025 as a result of our reliability improvements to our downstream operations and the full year volume impact we expect in 2026.

Similarly, the middle chart shows UAN sales volumes, which are on a steady trajectory upward after normalizing for turnaround activity in certain years. The chart on the far right shows a downward trend in ammonia sales as we continue to upgrade ammonia into higher-value products. In this case, a down and to the right trend is a good thing as it results in improved margins.

Page 12 highlights the value creation we've delivered over the last 24 months. Since 2023, we've captured approximately $20 million of annual EBITDA uplift, driven primarily by higher downstream production as outlined on the previous slide. Additionally, we expect to achieve approximately $15 million of annual EBITDA improvement beginning in early 2027 related to our carbon capture and sequestration project at El Dorado. Mark will provide an update on that later in the call.

As we continue our focus on best-in-class operations, we see an additional $35 million of incremental annual EBITDA uplift ahead of us, primarily from higher production rates, numerous efficiency gains and the continued cost optimization. In total, when complete, these efforts should yield a total of $70 million of annual EBITDA with $20 million already captured and a further $50 million that is planned and underway. We've demonstrated our ability to deliver on these initiatives, and we see a clear path to capturing the remaining value through continued execution of numerous initiatives.

And now I'll turn it back over to Mark.

Thank you, Cheryl. Page 13 is a time line for our low-carbon project at our El Dorado facility for the year. We and our partners met with senior officials from the EPA's Region 6 office in mid-December to discuss the status and timing of our Class 6 permit application. Based on that conversation and the EPA's stated support for our project, we remain on track to begin sequestering CO2 by the end of this year or at the latest early next year. The milestones we expect are first for the technical review of the permit to be completed in April of this year, followed by the permit to construct in August of this year. And lastly, the permit to inject CO2 by year-end.

We're excited to get strong support for our project from the EPA and look forward to partnering with them to complete the milestones this year and getting into operation. Our commercial team continues to pursue low-carbon product supply opportunities where we can generate premiums for those products as well as the potential to sell environmental attributes that we generate. 2025 was a year of meaningful progress across several fronts.

Improved production, strong commercial execution and solid financial performance drove strong results, while our continued shift towards industrial business has reduced the earnings volatility of our business. We also took important steps to strengthen our balance sheet, including reducing our debt, all while continuing to invest in our assets and the growth of our business and returning capital to shareholders through share repurchases.

We ended the year with a healthy cash position and significant financial flexibility, allowing us optionality when thinking about how we allocate capital and how we grow our business. While we've captured meaningful margin uplift over the last several years, we are keenly focused on executing on specific initiatives that will generate an additional $50 million of annual EBITDA when complete, giving us clear line of sight to continued value creation.

I am excited about the future of our business and the opportunity for value creation. I'm encouraged by a healthy market backdrop, and I am confident that we have the right team to continue executing and creating long-lasting shareholder value. Before we open it up for questions, I'd like to mention that Cheryl will be participating in the Gabelli Specialty Chemicals Conference on March 19 in New York City, and I will be participating in a virtual conference with Granite Research on March 16 and 17. We look forward to speaking with some of you at these events. That concludes our prepared remarks, and we will now be happy to take your questions.

[Operator Instructions]. Our first question comes from Lucas Beaumont with UBS.

I just wanted to talk about the gross ammonia production. I mean that's sort of -- it's been somewhat volatile just sort of with the turnaround timing. But when we look at it on a multiyear view, it's up kind of maybe 5% on a 2-year stack. So I just wanted to get your thoughts on how we should think about your ability to kind of continue to lift productivity from here going forward and just sort of how that flows through into the remaining kind of $35 million in production improvement initiatives that you called out?

Good morning, Lucas. So I think we have a chart in our earnings presentation that is showing sales volumes, but we don't really put in a production volume chart. But having said that, I think if you look year-over-year and you normalize for any turnarounds and you think -- look at the outlook for this year that Cheryl presented, I think you can see that we're continuing to go up. So what we would really -- what we're really focused on is getting to about 875,000 to 880,000 tons of gross ammonia production without any turnaround. So we're confident that we're on the path to get there. We're seeing that year-over-year. And as far as how should we think about that and how much of the $35 million really represents that, I'd probably say maybe about 30% to 40% of that $35 million is by having higher ammonia production rates and getting to the targets that I've outlined.

And I guess then just looking at your non-gas cost assumptions that you sort of put out today for 2026. I mean, in aggregate, it looks like you're sort of targeting to hold those basically flat year-on-year, maybe even slightly down, so which is a much more attractive outcome for you guys than the inflationary pressure that we've seen over the last couple of years. So I guess, is that sort of inflation abating? Is it work you're doing to kind of keep your costs down? And where you kind of see any swing factors there that could push you sort of higher or lower on those non-gas costs?

Yes. So I think what you're seeing is just a lot more efficiency with the business. And also when we become more -- as we become more reliable, there's less maintenance costs, and so we're driving our maintenance costs down. that should continue. And there is a continued expense reduction in the $35 million that we expect to capture.

Great. And then maybe just one last one on the AN market, I just wanted to get your thoughts on how, I guess, the market is responding to the supply disruption from CF at Yazoo City. What's kind of supply availability like? And is that sort of flowing through to pricing in your P&L? Or how would you expect that given the -- I mean, the market is more contracted. So I assume there's more of sort of a lag there, and it's not as quick a transmission but would be interested in your views.

Damien, do you want to handle that?

Good morning, Lucas. Look, I think it's really fair to say that the market is pretty tight at the moment. I mean that's a significant production capacity that's out. And I think the players in the market are flexing production where they can, including ourselves. So where it makes sense for us, we're optimizing our plants and reducing UAN production to make more AN available. And we're certainly doing that where it's financially viable as well. So pricing for those sales is definitely above typical contract rates. So how long will that go on for?

Look, market intel sort of suggests that, that will go through to the end of the year and we'll continue to try and optimize our production and capture some of those sales. But also against that, you've got the backdrop of the market being pretty buoyant for AN. So as I said in the remarks, you've got gold and copper miners really trying to maximize their production as much as they can, and that is drawing on explosives demand, and we're seeing that in our day-to-day business. So the market is really well set up this year, and we're really well positioned to take advantage of it.

Our next question comes from Laurence Alexander with Jefferies.

This is Kevin Estok on for Laurence. So I have a few end market questions. Just curious to get your thoughts on basically how much of a potential tailwind in demand you could expect to receive from rising U.S. coal production? I guess, or more simply whether you expect U.S. coal production to basically drive a growing share of demand for the company?

Yes, hi, Kevin. Look, I think coal is probably more holding steady than increasing. It's -- I mean, there are months where you are seeing some increases in production, but that's really just a power generation mix decision that's happening with potentially higher natural gas prices. So I think what we're seeing this year and what we saw through the end of last year is that there's a lot of support at the moment to keep coal-fired power stations running, and that's providing a pretty solid demand backdrop for coal producers and therefore, for AN. So I think it's pretty constructive the way it's set up at the moment.

Okay. Understood. And then just on fertilizers, Obviously, supply continues to be broadly constrained, but I'm just curious to get more detail on maybe what you're hearing on the ground, like how you expect the demand to basically evolve in '27 and maybe if you're hearing demand being crimped by elevated pricing?

Yes, great question. Certainly correct in the market is tight, and we're seeing that for our ammonia and UAN products and pricing is reflecting that. And we would expect that to continue through the season. upgrades, urea prices are getting high. Will that cause some demand destruction? Possibly around the edges. But I think with the corn acres being forecast for this year, I think demand is going to be pretty solid, and I would expect the supply and demand balance to be really tight through the end of the year. And also the global dynamics also support that.

In ammonia at the moment, it's a very tight market. Urea, we've had sort of unseasonal unexpected Indian tender. Brazil demand is strong. You've got supply constraints in the Middle East and Trinidad. So I think the market from a nitrogen perspective is really constructive and tight, and we expect that to continue through the fertilizer season.

[Operator Instructions]. Our next question comes from Andrew Wong with RBC Capital Markets.

So just maybe just broader, in 2025, we saw some good progress on your main strategic priorities, better production, reliability, more upgrade capacity. There was a transition to industrial sales. So a lot was done in 2025. Like can you just talk about what your main strategic priorities are for 2026?

Sure. Good morning. Andrew. So we have a real focus to continue that momentum on the manufacturing side. While we've made a lot of improvements, our real goal is to be an upper quartile manufacturer. So what does that mean? I mean we want to run our ammonia plants at 95% capacity utilization. And so that's the real goal. In order to do that, we've got to mature a lot of our maintenance practices and operating practices, but we've also got to continue to invest some selected capital within our capital plan. But a lot of the time, you really need extended downtime, and that really comes to turnaround. So we expect some real improvements in our operating rates down at our El Dorado facility after this extended turnaround that we have in April.

And then again, as Cheryl mentioned, we pulled forward our prior turnaround to proactively make significant improvements there as well. So we should see some real reliability improvement coming out of that turnaround. And then at the Cherokee facility, of course, we have a turnaround next year where we'll do some work there. So that's always going to be a priority as we try and continuously improve. And then really, once we eventually get to the level of reliability that we're really looking for and that we think we can attain, then you're sort of continuing to look at efficiencies.

In addition to the manufacturing side, we've still got some optimization that we'd like to do throughout our commercial operations. And we've got some opportunities that we need to look at with some customers. And so that's going to be a big focus this year as to how do we take advantage of those opportunities and where can we selectively invest capital in the future to really take advantage of some of that demand that we can't meet today. The last thing I would say is Cheryl talked about profit optimization.

One thing that we've done is we've probably spent a little bit more. And so I think the question earlier by Lucas about expenses and seeing it sort of flatten out this year or slightly down. I think we've got to take more cost out of the business, and I think we've got some plans to do that. And we've spent to improve the reliability. But once you get that reliability, now you can pare back some of the expense, and that's what we'll look to do.

So those probably would be the 3 main sort of operating priorities. And then from a strategic standpoint, I think we've -- I think I'm really proud of my team that they've really done a great job in turning around this business. And I think we're at a point now where it's time to grow. And whether that's organically through some debottlenecking opportunities or some just other growth initiatives or that's through some combination of assets or company, I think we're really focused on that.

Okay. That's great. Then just on the blue ammonia front, as the Lapis project is kind of coming into focus and hopefully start production by the end of this year, I'm assuming you're having some discussions on blue ammonia with potential customers. What are you seeing from a willingness to pay standpoint for that blue ammonia? And are you seeing customers willing to pay a premium for low-carbon product?

I'm going to start with an answer, and then I'm sure Damien is going to chime in on this. I think we're -- the market is really slow to pay a premium. So I think you got to work really hard to find the right customers that are willing -- that it becomes important too. If you're able to export like some of our competitors, you might be able to -- or you can send low-carbon ammonia to Europe. And then depending on what happens with CBAM, you might see a premium paid for that. And there's still an if on what's going to happen with CBAM as we sit here today.

So domestically, the fact that we have a pretty large industrial business, I think, gives us an advantage when we're talking to customers that are using our products or upgraded products as a feedstock for some other product. And so they need to work through what's the ultimate cost increase for the value that they'll receive by having a lower carbon product.

So a long-winded way of saying, I think that the market -- it's slower to develop -- to pay a premium for a low-carbon product, but there are niche opportunities that we're pursuing. And I think we do believe that over time, people -- and the market will develop and people will pay a premium, but I don't think it's going to happen as fast as everyone thought if the question was asked a couple of years ago.

Yes, I would concur with that. I mean, certainly, domestically, it's been slower going, particularly as you've seen some uncertainty around decarbonization and the energy transition here in the U.S. But the story still is positive, I think, globally. And as Mark said, you've got opportunities if you can export to secure premiums, be it into Europe under the CBAM regulation or even into other emerging markets. But it is -- the market, I think, is still immature and has been slower to develop than we'd all want and expect. So yes, that's where we stand today.

Given there's more opportunities in the export market, is it possible for you to do some sort of swapping maybe to access that export market?

Yes. Look, we continue to evaluate all opportunities for us to be able to export our product, including swaps or some sort of physical transactions. So yes, it's all on the table.

Our next question comes from Rob McGuire with Granite Research.

Two questions. One is on AN. Can you give us an idea of how much your sales volume was under contract exiting in 2025? And if you do ship production towards AN this year, will you try to lock that up under contract?

Good morning, Rob. Look, our stable, steady AN business, the base business is all under contract, and we work to make sure that that's the case. And only a small amount really is spot. But what we're doing at the moment is really tweaking the product balance to maximize and produce more AN, and we're doing that by reducing our UAN production and putting it into the AN market. So -- and that's all under spot. And there's a multitude of conversations going on with customers around whether they turn into longer-term arrangements or not. I mean it's a very fluid market.

And then shifting to the turnarounds. Can you tell us when you expect Cherokee to take place in 2027? And then on El Dorado, will you be able to build inventory and continue downstream production during the April turnaround this year?

Yes. So on the El Dorado turnaround, the plan is to build ammonia in the first quarter so that we are ramped up on ammonia in inventory heading into that turnaround, which, yes, should allow us, for the most part, to run all downstream plants through that turnaround. With respect to Cherokee, the Cherokee turnaround right now, I believe, is slated for the third quarter of 2027.

And then on import volumes, have U.S. import volumes or buying patterns shifted since fertilizer tariffs were lifted in the fourth quarter?

I think it's too early to tell, Rob. I mean, the market is short here, and you're going to see some import tons come into the market to try and correct for that. But I think that's more just a response to the U.S. market per se rather than tariffs.

I would say that imports have never stopped coming in here, right? So there's the demand and people have different production points have found a home into the U.S. I think with the tariffs being lifted, I don't know that you're necessarily going to see more imports coming in. I think you could see different imports from different locations coming in.

And then I'm not sure who can answer this question, but on farmer economics, there's been a lot of media focus on just the stress in the ag sector. And I'm just wondering how you view the current farmer economics? And do you anticipate that softer farm incomes impacting demand or ordering behavior this year?

Yes. So good question. And there's no doubt that when you look at farm economics and you look at lots of folks that are smart than us that really understand the economics that the farmer is under some level of stress today. And therefore, you saw the U.S. government do a $12 billion sort of payment package. I think when you take a step back and we spend a lot of time really thinking about this and talking about it. And the industry really focuses on what do we -- what can we do to help the situation. But the reality is it's really a supply and demand for commodities.

And so right now, we had a record corn crop that was planted and inventories are pretty high. And why did that happen? That happened because demand for soybeans, particularly soybeans that are exported, has gone down pretty dramatically. And so when you think about the demand for both of those crops, which are the 2 largest crops for nitrogen use and 2 largest crops that are planted here in the U.S. there needs to be more demand created, one for soy.

And so the U.S. government needs to help probably with that to create more demand. But also demand is going to drive corn prices as well. And so there's a lot of talk about permanently going to E15. And if that were to happen, that obviously would increase ethanol demand for corn pretty dramatically. And so I think ultimately, we need to figure out a way to create more demand for our 2 largest commodities. And therefore, that will lift some of the pricing for those products and then put less stress on the farmer.

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

Thank you. I want to thank everyone for participating on the call. I'm really proud of the quarter and the year that we just posted. And we're really excited about 2026 and think we'll make a lot of great progress. So again, if there's any follow-up questions, feel free to call Cheryl or myself. Thanks so much.

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

Greetings, and welcome to the LSB Industries Third Quarter 2025 Earnings Conference Call. [Operator Instructions] 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 on Form 10-K.

On the call, we will reference non-GAAP results. Please see the press release posted yesterday 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 turn the call over to Mark.

Thank you, Kristy, and good morning, everyone.

As a company, we pride ourselves on safety first. And while our teams continue to focus on safe operations, as evidenced by our first 9 months of the injury-free performance, it is with great sadness that I have to report that in early October, a contractor working on our Pryor facility was fatally injured. Our hearts go out to his family and colleagues. This is a tragic reminder about why we put safety first and the importance of the need to remain focused on safety in everything we do. I am confident that our team will learn from this tragedy as we work together to ensure that everyone on our sites remains safe every day.

With respect to third quarter financial results, market conditions remain constructive in both our industrial and fertilizer businesses. After increased CapEx spending in 2024 and through the first half of 2025, where we elected to execute on several growth projects, we are back to generating free cash flow. We expect to finish the year having generated solid free cash flow, and we're well positioned to keep investing in our strategic priorities. We recognize that there's more work to do and we see opportunities to continue to enhance our performance across the business.

Now I'll turn over the call to Damien to review current market dynamics and pricing trends. Damien?

Thanks, Mark, and good morning, everyone.

Turning to Page 5. During the third quarter, we completed our transition out of high-density AN for fertilizers and into AN solution for explosives. This moves us towards our stated goal of optimizing our sales mix. As a result, we are now supplying 100% of our AN solution contractual obligations to our customers.

We continue to see strength in our industrial markets. Demand for AN for explosives is robust, particularly in the mining sector where strong gold and copper prices are boosting activity worldwide. Demand is also benefiting from quarrying aggregate production for infrastructure upgrade and expansion activity.

We are seeing continued increases in domestic production of methylene diphenyl diisocyanate, or MDI, as a result of tariffs and antidumping duties on imported MDI. As a result, our nitric acid sales remain strong.

Turning to Page 6. Pricing for UAN averaged $336 per ton on a NOLA basis in Q3, up 65% over Q3 2024. Prices continue to be supported by steady exports, lower imports and strong demand leading to below average inventory levels throughout the U.S. We expect these favorable dynamics to continue in the near term and position us well as we head into 2026.

Urea prices moderated somewhat during the quarter driven by the resumption of Chinese exports. However, with the results of the latest India urea tender now known, Chinese participation was minimal and it appears that future exports will once again be restricted, supporting tight supply and higher prices.

The ammonia market is healthy and pricing remains at attractive levels. Tampa ammonia increased by $60 to $650 per metric ton for the November settlement. Tampa ammonia has now increased by almost $260 per ton or 65% since hitting its 2025 low of $392 per ton in June.

The market continues to be dictated by ongoing unplanned supply disruptions from the Middle East, the higher cost of production in Europe and continued delays in the start-up of new production capacity in the U.S. Increased natural gas curtailments and other issues in Trinidad are also maintaining the pressure on global supply. In the U.S., we expect to see a typical fall ammonia application season, subject to seasonal weather outcomes.

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

Thanks, Damien, and good morning. On Page 7, you'll see a summary of our third quarter 2025 financial results. Solid third quarter volumes and net sales reflect the progress we are making on our reliability journey along with the absence of no planned turnaround activity during the quarter.

Page 8 bridges our third quarter 2024 adjusted EBITDA of $17 million to our third quarter 2025 adjusted EBITDA of $40 million. Higher pricing and increased sales volumes were somewhat offset by higher natural gas and other costs. Costs were higher in the third quarter, primarily related to the transition out of the HDAN business, along with higher maintenance and operating costs.

On Page 9, you can see that our balance sheet remains solid with approximately $150 million in cash and net leverage at approximately 2x. After several quarters of heavy investment, we are back to generating free cash flow with approximately $20 million of free cash flow generated year-to-date and approximately $36 million in the third quarter. And we expect to continue to build on that in the fourth quarter.

Turning to the fourth quarter outlook. Tampa ammonia settled at $650 per metric ton for November, up from $590 per ton for October, and NOLA UAN has averaged above $300 per ton so far this quarter. Additionally, Henry Hub natural gas cost is averaging approximately $3.45 per MMBtu but is expected to trend higher as we approach seasonally cooler temperatures.

With the transition of our HDAN business into industrial grade AN, approximately 35% of our natural gas costs are passed through in our selling price to customers. This provides improved visibility into our earnings profile. Overall, we'd expect the fourth quarter of 2025 to be higher than the prior year fourth quarter due to higher selling prices and higher production, somewhat offset by higher variable and other costs.

And now I'll turn it back over to Mark.

Thank you, Cheryl.

Page 10 is an overview of our low carbon project at our El Dorado facility. We continue to expect the technical review of our permit to be completed in the first quarter of next year with operations to then begin by the end of 2026. We're excited about this opportunity as we expect to generate approximately $15 million in annual EBITDA from the project, with the majority of it beginning in 2027. Our El Dorado CCS project is a good example of how our industry can decarbonize and provide customers with low-carbon ammonia and derivative products in a cost-effective manner.

We have made strong progress in the first 9 months of 2025 driven by increased production volumes of ammonia, UAN and AN and expect to end the year in line with our total sales volume targets set out at the beginning of the year. We've also continued to successfully shift our sales mix towards more contractual industrial sales, which allows us to pass through natural gas cost to our customers and provides us with greater earnings stability and visibility.

At the same time, we've reduced our outstanding debt, continue to maintain a healthy cash balance while we evaluate several growth opportunities and continue to invest in the reliability and efficiency of our plants. I remain extremely optimistic about the future of our company, both for the remainder of the year and looking ahead to 2026. The market outlook remains robust, and we are well positioned to continue to improve our operational and financial performance while delivering sustainable growth and profitability.

Before we open it up for questions, I'd like to mention that we will be participating in the NYSE Industrials Virtual Conference on November 18 and 19. We look forward to speaking with some of you at this event.

That concludes our prepared remarks, and we will now be happy to take your questions. Thanks.

[Operator Instructions] Our first question comes from the line of Lucas Beaumont with UBS.

So I just wanted to sort of start on the ammonia market. I mean it's been tight sort of with the limited supply and the ammonia contracts continue to kind of move higher. I mean sort of depending on what we assume there for December, it looks like pricing could be up $130 sequentially, if not more into the fourth quarter.

So I guess just kind of what's your view on the market there generally to begin with. And then assuming we see sort of a large kind of increase somewhere in that range, how should we think about that flowing through to your fourth quarter pricing?

Lucas, so at a high level, it is a tight supply and demand market globally. On top of that, clearly, we've got some issues going on in Trinidad that are affecting the market today and could have long-term effects on the market. I think also, while it's a little early, we feel like we're going to have a really healthy fall ammonia application season. So I think everything is really setting up to have good demand certainly in the United States and globally. A bit tighter supply, and that's why you're seeing pricing move up. But I'll let Damien give a little bit more color on the market itself.

Yes. Lucas, again, like Mark said, this is a story about lack of supply more than anything else. You've got issues in the Middle East with the Ma'aden plant in Saudi Arabia having a very extended outage for a significant volume of tons, other issues as well. And then you've got the news coming out of Trinidad with production coming out of the market for who knows how long. And the market is just reacting to that.

So how long does that continue for? Well, look, it will continue for as long as that supply is out of the market. And then the wild card is when does the new capacity come online in the U.S. Gulf. And there's indications that some of that could be up later this year or early next year. But who knows? The proof will be in the pudding when that happens.

And I think just to add on to that, I mean, while it has been well known that, that production is coming online and we can have some more supply in the marketplace, I think the wild card now is Trinidad and what happens there and could that offset all or just partial some of that new supply coming on.

Yes. And Lucas, in terms of how that pulls through in the financial results, as you know, we are tied to Tampa ammonia. And so you will see that pull through in our pricing for the fourth quarter.

Right. And then I guess just thinking about UAN as we're kind of headed into the spring here. So I mean, we've sort of been seeing some sort of softness in pricing there a bit as urea has sort of come off and we're out at a kind of high period of seasonal demand so far. So I mean, it seems like that's probably going to continue to soften here a bit through the fourth quarter.

But last year, we had pretty strong price increases and tight local supply-demand conditions as we sort of got into the spring. So I was just wondering if you guys could talk us through how you see that set up the 2026 there.

Well, look, Lucas, I think we're a little more optimistic on UAN. We're well sold forward. Are prices softening at the moment? I mean, yes, sure, urea has softened a little bit. But I think that's set up for a recovery shortly as that market tightens as Chinese exports exit their short entry in the last few months.

And then the UAN market, I think, producers are pretty comfortable here in the U.S. We all came out of last season with very little inventory and there's been turnarounds, et cetera, in the last few months. And I think that tight supply is set up to continue. And we're confident that prices will be pretty healthy heading into Q1 and then into Q2 into the application season.

Right. And just wanted to ask one on the volume side. So there's a bit of noise this year sort of with the shift in the turnaround timing and kind of just the impact on sort of volume and the product mix between 3Q and 4Q. It seemed that was probably like flowing through to sort of costs in a few different ways as well.

So I was just wondering if you could kind of help us understand sort of the impact that you saw there in the third quarter and how you see the set up for the fourth quarter on the sort of the volume and the cost side due to that.

Yes. So I mean, if we're thinking about the third quarter, we did have some mix changes flowing through with the transition of HDAN into AN solution for the industrial markets. We did see some higher costs related to that. I believe that's what you're alluding to. Part of that is, look, we're switching railcars and with that comes higher maintenance costs as we move and change out the fleet. We've got to restore the other cars to original state, which does lead to some higher maintenance costs. And you do see that pull through in the third quarter.

As we're thinking about the fourth quarter, I think we would expect to see our ammonium nitrate, nitric acid volumes kind of in line with the third quarter. Ammonia as well and UAN, I would suspect, would be a bit higher in the fourth quarter as compared to the third quarter.

[Operator Instructions] Our next question comes from the line of Andrew Wong with RBC.

With the stronger industrial demand which appears to be continuing, how does that impact your negotiating position for contracts and the margins you're able to secure?

That's a tough question, that one, Andrew. Look, I think it's really going to depend on when those particular contracts expire and what's happening at the time. I mean, at any one time, we do have contracts rolling off, but they are typically smaller than some of our more substantial ones which are under longer-term duration. So again, it would just come down to the specific situation. I think at the moment, prices are healthy and the broader happenings with Tampa ammonia and natural gas makes the environment well set up to maintain or even increase prices if and when contracts expire.

Yes. I would just say that healthy overall nitrogen prices certainly help negotiating new contracts or renewal of new contracts when they come up for sale.

Okay. Great. That's helpful. And then just in terms of growth for LSB, just given that stronger industrial backdrop, is that a path that we can expect to see LSB take in terms of spending on more upgrade capacity? And if you were to take that path, do you maybe need to have some sort of backstop on like longer-term contracts to guarantee a certain return on those projects?

Yes. Andrew, we're constantly looking at ways that we can increase our production capacity. So we did a urea expansion up at our Pryor facility. There is a second urea expansion that is in the early stages of evaluation. And that might not necessarily just go to UAN. We could enter the DEF market, which would be an industrial product. So I think we're evaluating whether we want to do that or not.

At El Dorado, we've talked in the past about an ammonia expansion there, and that ammonia expansion would probably add in the neighborhood of 100,000 tons. So we are down the pathway to evaluate and really do our engineering studies to see if that really makes sense for us. Would we backstop that? I think at 100,000 tons, we're probably pretty comfortable. If we did a big expansion, I think we would want to backstop it as is a lot of our risk aversion for trying to lock in some returns for the investment of capital.

So I think we're not prepared yet to talk about the expansion. I think we'll wait until we get through our engineering studies. And then if it makes sense and the Board supports it, then we'll certainly announce it.

Our next question comes from the line of Laurence Alexander with Jefferies.

Two, if I may. First, on the industrial market side of your business, can you just give a baseline for your seasonality going into next year with the current mix of contracts? And then how do you think about extending the amount of preselling if there is any sort of fly up in ammonium nitrate prices?

And secondly, with El Dorado, what's your current thoughts around changing your offtake structure or signing more offtake agreements as the project gets closer to completion?

Well, Damien, I'll let you handle the first one.

Yes. Okay. So seasonality, Laurence, most of the offtake through the year is fairly ratable. We do see some seasonality in our AN industrial business for explosives. And that's simply related to weather. I mean, we've got sales up into the northern parts of the U.S. and into Canada. And when it gets cold, it becomes more difficult for those miners to blast. And so that does mitigate some of that demand. But we're well set up to manage that with our current infrastructure and arrangements with our customers.

As far as the project at El Dorado, Laurence, are you referring to the carbon capture and sequestration project? Or are you referring to if we were to expand our ammonia production capacity?

Sticking to the CCS project.

Yes. So the CCS project, we've already got a negotiated per ton of CO2 sequestered rate with our partner, Lapis Energy. So that's already locked in. And as you know, we're generating the CO2 today. We're just venting it in the air. So the project here is to capture it, dehydrate it, compress it and then sequester it in a well that is actually already drilled on our property.

So the real gating item here is just the permit, the Class VI permit from the EPA to allow Lapis to really sequester the CO2. Obviously, once we get that, we need to build a compression facility. But again, there are lots of those around the world and so that's not complicated technology. So whether we sign additional AN solution contracts or nitric acid customer contracts for those products at a premium, the team is working on that and certainly engaged in conversations with customers.

The other thing that we could do, and we spent a fair amount of time looking at, is you could sell in the interim the environmental attribute. And there's a value to that as well. So I think we're looking at all avenues to monetize the low-carbon ammonia and the environmental attribute that is associated with that.

[Operator Instructions] Our next question comes from the line of Rob McGuire with Granite Research.

Could you please talk about UAN volumes? It looks like they're down around from 150,000 to about 135,000 year-over-year.

Yes, Rob. So we did have a bit of miss on our UAN production in the third quarter. I would say we didn't quite meet our expectations. We would expect to be in line with our expectations in the fourth quarter.

Okay. Great. And then can you talk -- what's your revenue mix of ag versus industrial now that your HDAN is being sold as ANS into the mining markets?

Hard to look at it on a revenue basis, Rob, because revenue is really going to be driven by what the pricing looks like at any given time. I think it's probably better to look at it from a volume or a tons perspective. And so I think from the industrial side, we're probably 40% to 45% with the balance being on the ag market side.

And then you talked about the proposed antidumping duties on imported MDI. Can you just give us a little more color around the dynamics around that topic?

Yes. Rob, so that evaluation is currently working its way through all the typical formal proceedings here in the U.S. I think there's a preliminary determination that's out there and we're awaiting the formal determination. And that will then officially put in place the antidumping duties on Chinese MDI.

And so the effect of that is we're seeing domestic producers ramp up their MDI production as much as possible. And nitric acid is a raw material into that production chain, which is pretty complex so I won't try and explain it to you. But yes, so we're seeing some pull-through there and certainly efforts to increase production where possible.

Wonderful. And then just one last question. Can you give us an update on your value creation initiatives? Mark, you told us about what may be up and coming, but just of what's left, where you're at in terms of your progress?

Oh boy, we have a lot left. So I would say on our reliability and maintenance efforts, we've still got a fair amount of opportunity out there. So maybe we're somewhere between 25% and 50% complete with that. But I think I really do believe we have a lot of opportunity to not only improve our reliability and therefore the production tons, but do it in a much more efficient manner, so lower cost. And so we're focused on both of those.

When it comes to profit optimization. I think we outlined that there was probably $20 million or so that we expect to come from that. And we're somewhere, again, between 40% and 50% when it comes to that.

As far as some of the other initiatives that we have, I think the greatest thing about all of this is we're like kids in a candy store here. I mean, every day, we're trying to solve for issues or improve the overall profitability of the company. And you sort of peel that onion back and then you find two other things that you can work on to really create value.

So I think it's a never-ending process, to be honest. But I think we'll give a lot more color, Rob, on our fourth quarter conference call, our year-end conference call of exactly where we are and what we expect to achieve in 2026.

Mr. Behrman, we have no further questions at this time. I'd like to turn the floor back over to you for closing comments.

Great. Well, as always, thank you, everyone on the call, for their interest and great questions. As you can tell, we're really excited about the business and where the markets are today. And so stay tuned. Thanks so much.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.

Greetings, and welcome to the LSB Industries Second Quarter 2025 Earnings Conference Call. [Operator Instructions] 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 McGuire, 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 and 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 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 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 plans. 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 0 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. And during the quarter, we not only invested in supporting the growth and improvement in our business but we 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. Damien?

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 1/3 of our sales under cost-plus contracts, further utilizing 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 A&S 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. In addition, we believe that the proposed countervailing duties on Chinese imports of MDI, a polyurethane feedstock could drive the favorable structural change 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 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 tonne 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. Cheryl?

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 will reduce debt by an additional $5 million in the third quarter.

Our second quarter 2025 CapEx reflects investments in A&S loading and storage capabilities at our El Dorado facility. This will enable us to meet the strong demand for the product that Damian 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 $5.25 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 and 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 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 as compared to the third quarter of last year.

And now I'll turn it back over to Mark.

Thank you, Cheryl. Page 10 is 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. Let us continue to gather data from this well to support the EPA in its continuing technical review of our Class V permit application with technical review expected to be complete in the first quarter of next year. We are expecting 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 were 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're 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 multiyear visibility. As I mentioned at the start, our safety performance was excellent with 0 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 of 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.

[Operator Instructions]

Our first question comes from Lucas Beaumont with UBS.

Just wanted to start on UAN. So the first half volumes were up sort of about 30,000 tons year-on-year. Coming into the year, you were looking to kind of potentially lift volumes up to 150,000 tons initially. How do you see sort of 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 kind of doing to maximize that and capitalize on the really strong relative UAN pricing that we're seeing at the moment?

So we -- as you probably remember, we did an expansion of our UAN production back in September of last year, up at our prior facility. And while we're getting the maximum rates that we expected, we're still working out some kinks to do it consistently. So 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. So I think we have expectations that the second half of the year should have higher UAN production out of that facility and then therefore, higher sales. Remember, though, we do have seasonality that we'll have to deal with, right, the first half of the year. Usually, 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. So I mean, typically, that has a lot more sort of industrial sort of mix, less a mix and it's usually sort of the smallest quarter for the year seasonally. Just this year, though, we've sort of got some divergent dynamics compared to normal. So UAN pricing has been really strong. It's continued to increase into July. Ammonia pricing has sort of been stable and you should sort of get it sort of also some volume uplift. So I mean it seems to me the combination of those factors could have potentially even like flat sequentially on the second quarter or at least seeing a much less of a decline than you would normally get. How are you guys kind of thinking about things there?

I think you're spot on.

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

So we've seen an improvement in production and operating rates now, and I think you're pretty far down the path for outgrowth improvements, which is great. Maybe can you just talk about more like on the cost side of things as those operating rates stabilize, where do you see costs trending over time? And I think there are some costs that are tied to the improved programs as well like contractors and consultants and things like that. So as those require costs kind of fall off, like what can we expect on the overall cost side?

So first off, yes, we've made a lot of improvements on the operational side, but we still have a lot of initiatives going on that we believe can still add significant to our annual EBITDA to where we are today, right? I mean, the goal for ammonia plant is 95% consistently, right? Reliability is really key. The goal for our upgrading plants is, generally speaking, improve from where we are today.

So I do think we still have some significant improvement that we can make that should translate into a meaningful increase in EBITDA. On the cost side, I'm going to turn it over to Cheryl. We have a lot of initiatives going on because we are now focused on not only just pulling costs out, but really creating efficiencies throughout the business that by themselves will create cost decreases.

We had said coming into this year that we would expect our costs to 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. So we should be we're starting to work on that now. I think by the end of the year, we'll probably be I would say, 25% complete towards the $15 million to $20 million target that we're looking for. So we'll see the balance of that come out across '26 and maybe a bit into '27.

And I would say 1 thing to add to that. Keep in mind that when you make some changes now, we're not going to see the annualized benefit obviously until next year. So while we pull -- we're working on those initiatives today, we'll probably be able to report at the end of the year what the annualized effect is going into 2026.

Okay. Got it. That makes sense. And yes, obviously, I appreciate there are still certain levers you can pull to improve operating rates here. And then just going on to the tariffs, what's your sense on impact from tariffs on U.S. nitrogen prices so far this year versus just how tight the market was with the turn demand and some of the supply issues and then just as you touched on in your prepared remarks, with the insuring on some of the industrial businesses, that's definitely impacted demand domestically. Can you just talk about what that might mean for pricing and margins for LSB, if you can help quantify it, that would be great or in any way you can?

Damian, do you want to answer that?

Yes. Andrew. So in terms of the tariffs, I think it's honestly been a little hard to discern some of the impacts given some of the more the market dynamics around supply and also being in the peak season of demand. But I think from a urea perspective, there's been, I think, some impact for the other products, probably not so much. Going forward, I think we're closely monitoring what happens with Russia if there's any sort of tariff there and then any adjacent tariffs for other countries doing business with Russia. That's likely to have a more meaningful impact on nitrogen. So we're closely monitoring that.

In terms of the onshoring of production here in the U.S., look, that's going to have a long runway until we start seeing anything material -- I think in the in the shorter term, there are opportunities for the U.S. domestic market to take advantage of the current environment. We're seeing that a little bit with copper at the moment, right, like the support for U.S. copper domestically is seeing producers like Freeport and others, really focus on driving their efforts there and exploring with some priority expansion activities there. So I think that's certainly a tailwind for us and something that we're looking forward to seeing realized in the future.

I would add on to that, that those activities make us really look at some 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. I guess my first 1 has to do with fertilizer prices. They've been pretty elevated like UAN. And I guess there's been some deterioration of pharma economics and that's I think, largely because of lower corn prices. Are you seeing any signs of demand destruction, let's say, as of July from the pharma perspective of UAM?

Yes. Kevin, really through -- as we got through spring season, we really didn't see much demand destruction at all but moving through to fill, I think given where prices are, there's certainly some hesitancy from a retailer's perspective, to buy. But I think that's really been consistent with what we've seen for the last 3 or 4 years. So it's probably more the new normal that we're seeing. And we're in a comfortable position coming out of spring with our inventory, and we're comfortable with where our forward sales are sitting. So -- but we're monitoring it. Corn prices, we'd like to see a little higher and that would help support pharma economics. But that you might see a bit of an impact on the edges and that marginal corn plantings for next year. So Yes. And I think the USDA is already sort of indicating some of that in its outlook.

I think 1 thing that could possibly help corn prices. So we just negotiated a deal with the EU for them to purchase a lot of energy as part of that I think the hope is that we'll see some ethanol being exported over to Europe, which will increase demand for ethanol in turn demand for corn. So again, I think that plus there's the continued conversation going from E10 to E15 and gasoline could support some more demand from the ethanol industry and then supporting demand for corn.

Okay. Great. And my second question, so I asked about this on last quarter's call on the administration's regulation push. I guess I was wondering whether or not your views have changed on, let's say, over the last 3 months and basically how big of a tailwind it could or could not be. Have you noticed any substantial changes yet like in terms of permitting, for example?

Well, we've seen much more dialogue with the federal agencies, particularly the EPA and then state agencies that maybe we're a little hesitant given the actions of the EPA and the government -- the federal government oversight. I think both state agencies and federal agencies have been more user-friendly. And so that's actually helped us in some of our conversations just on environmental conversations at the sites and with projects, things like that.

[Operator Instructions]

Our next question comes from Rob McGuire with Granite Research.

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

Damien, do you want to take that?

Rob, so in terms of the import trend this year, fertilizer year imports for UAN were below last year. And I think that contributed to some of the tightness that we saw overall in the market. In terms of the drone strikes, et cetera, we haven't seen any immediate impact just yet. And maybe that's because of where we're at seasonally, transiting into the next year and the full period.

And of course, there's still been no field programs announced in the market. So that is an indication of how well balance or comfortable the producers are at this stage. But it's clearly something that we're monitoring, but I think the bigger factor will be those tariffs that I talked about earlier. That's something that will have a more material impact going forward.

And I also think -- don't you think that the European tariffs on Russia as they gain some momentum. And of course, the tariff rates and amounts go up, will have a huge impact.

Yes, it will certainly see a redistribution of global trade routes for UAN. So I think it will just see a shuffling. You might see some pricing impact as freight rates are impacted on the global trade. But yes, we've yet to see any immediate impact from that.

And then totally different topic. Leidos -- any changes with Leidos at this point in time that you could share with us the lawsuit?

No. We are at least currently scheduled to go to trial start the trial in late October, subject to our judiciary system making any changes.

[Operator Instructions]

Great. Well, hearing no other questions. I want to thank everyone for participating on 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.