Management's Discussion and Analysis of Financial Condition and Results of Operations
This discussion is intended to provide a reader of our financial statements with management's perspective on our financial condition, results of operations, liquidity, and certain other factors that may affect our future results. Investors should read the following discussion and analysis in conjunction with the consolidated financial statements and related notes included in "Item 1. Financial Statements." Notes referenced in this discussion and analysis refer to the notes to consolidated financial statements that are found in "Item 1. Financial Statements-Notes to Condensed Consolidated Financial Statements." Certain statements contained in this discussion may be deemed to be forward-looking statements. See "Special Note Regarding Forward-Looking Statements." Actual results could differ materially from those discussed in or implied by forward-looking statements as a result of various factors, including those discussed below and in our Annual Report on Form 10-K for the year ended December 31, 2025, particularly in the section entitled "Risk Factors." Unless we state otherwise or the context otherwise requires, the terms "LSB," "we," "us," "our" and the "Company" refer to LSB Industries, Inc. and its consolidated subsidiaries.
Overview
General
LSB is headquartered in Oklahoma City, Oklahoma and we manufacture and sell chemical products for the agricultural and industrial markets. We own and operate three multi-plant facilities in Cherokee, Alabama (the "Cherokee Facility"), El Dorado, Arkansas (the "El Dorado Facility") and Pryor, Oklahoma (the "Pryor Facility") and operate a facility on behalf of Covestro LLC in Baytown, Texas. Our products are sold through distributors and directly to end customers primarily throughout the United States and other parts of North America.
Key Operating Initiatives for 2026
We expect our future results of operations and financial condition to benefit from the following key initiatives:
Summary of Low Carbon Ammonia Initiatives
In May 2024, we announced an agreement to supply, for a five-year period commencing January 1, 2025, up to 150,000 short tons per year of low carbon ammonium nitrate solution ("ANS") to Freeport Minerals Corporation ("Freeport"). In early 2025 we began supplying conventional ANS to Freeport from our El Dorado Facility and expect to phase in the low carbon contracted volume in late 2026. Freeport intends to use the low carbon ANS purchased from us for its United States copper mining operations.
In April 2022, we entered into an agreement with Lapis Carbon Solutions ("Lapis") to develop a project to capture and sequester CO2 at our El Dorado Facility. Lapis, backed by Cresta Fund Management, a Dallas-based middle-market infrastructure investment firm, will invest the majority of the capital required for project development. The project is expected to be completed and operational late in the fourth quarter of 2026 or the first quarter of 2027, subject to the approval of a Class VI permit, at which time CO2 injections are expected to begin. Once operational, the project at the El Dorado site will initially capture and sequester approximately 400,000 to 500,000 metric tons of CO2 per year in underground saline aquifers.
The sequestered CO2 generated from the facility's ammonia production is expected to qualify for federal tax credits under Internal Revenue Code Section 45Q, which are $85 per metric ton of CO2 captured and sequestered. Lapis, as the majority owner of the carbon capture and sequestration equipment, will earn the 45Q tax credits and will pay us a fee for each ton of CO2 captured and sequestered. Once in operation, the sequestered CO2 is expected to reduce our overall scope 1 GHG emissions by approximately 25% from current levels. In addition, sequestering approximately 400,000 to 500,000 metric tons of CO2 annually is expected to enable us to produce approximately 305,000 to 380,000 metric tons of low carbon ammonia annually, a product that could potentially be sold at higher price levels than conventional ammonia. In February 2023, a key milestone was achieved in the advancement of our low carbon ammonia project at El Dorado by filing a pre-construction Class VI permit application with the United States Environmental Protection Agency (the "EPA"). The EPA recognized the application as complete in March 2023 and is currently in the review process. In June 2025, Lapis completed the drilling of a stratigraphic injection well at the El Dorado site and has been gathering data to support the EPA in its continuing technical review of our Class VI application. Lapis resubmitted the pre-construction Class VI permit application to the EPA in December 2025. Once the project receives EPA approval, we intend to use this well for CO2 injections.
Market Outlook
Demand for our industrial products remains consistent, including demand for AN for use in mining applications, which is robust across all commodities, particularly with copper and gold miners as they maximize production to take advantage of strong supply and demand fundamentals. Supply of AN is constrained in North America due, in part, to producer outages. These factors should continue to support AN demand well into 2026. Demand for nitric acid is robust domestically, where it is supported by tariffs and countervailing duties on imports of methylene diphenyl diisocyanate (MDI) for five years, which was recently finalized on April 8, 2026.
While economic uncertainty remains a risk due to tariffs, the U.S.-Iran conflict, higher oil prices, and concerns about inflation, we believe that we have a meaningful degree of downside protection in our industrial business. A significant portion of our volumes are already contracted, our customer base is diverse and almost entirely located in the U.S., and we have the ability to optimize our product mix. In addition, we expect European marginal cost of production to be higher throughout the remainder of 2026, driven by elevated natural gas costs and a tight global market for nitrogen products, particularly as demand for fertilizers in India remains strong and export capacity from China and other sources continues to be limited.
Ammonia prices currently reflect significantly reduced ammonia supplies due to ammonia carrying vessels being unable to transit through the Strait of Hormuz, higher costs of production in Europe, ongoing curtailment of ammonia production in Trinidad and new production outages in Australia, increased import demand in India and potential export controls in China, gas supply disruptions in North Africa reducing ammonia production and the slow ramp up in new U.S. production capacity which are constraining global supply availability.
Pricing for ammonia derivative fertilizer products remains strong. Urea Ammonium Nitrate ("UAN") prices recently improved, reflecting increased demand during the application season and constrained supply and a strengthening in urea prices. Like ammonia,
urea prices have strengthened due to vessels being unable to transit through the Strait of Hormuz, leading to a tightening of urea supply and customers switching from urea to UAN, thereby driving up UAN demand.
Channel inventories remain on the tighter end of the range and are expected to remain so until late in the second quarter of 2026.
The outlook for U.S. corn calls for demand to keep stocks-to-use only modestly above historical levels. We are currently expecting approximately 95 million planted acres of corn for the 2027 season, underpinning nitrogen fertilizer demand levels in line with recent years.
Key Industry Factors
Supply and Demand
Industrial Products
Our industrial products sales volumes are dependent upon general economic conditions, primarily in the housing, automotive, mining and paper industries. Demand for our industrial products is robust across all commodities, particularly with copper and gold miners as they maximize production to take advantage of strong supply and demand fundamentals.
Our LDAN and AN solutions are primarily used to produce AN fuel oil and specialty emulsions for use in explosives in the quarry and the construction industries, for metals mining and to a lesser extent, for coal. AN demand for explosives for quarrying/aggregate production for infrastructure upgrade and expansion remains steady. Demand for nitric acid is robust domestically, supported in part by anticipated antidumping duties on imports of methylene diphenyl diisocyanate (MDI) from China, a downstream product of nitric acid. On April 8, 2026, the U.S. Department of Commerce issued a final affirmative antidumping determination on Chinese MDI, where duties were established for a period of five years. The International Trade Commission's final injury determination remains pending.
Fertilizer
The price at which our agricultural products are ultimately sold depends on numerous factors, including the supply and demand for nitrogen fertilizers which, in turn, depends upon world grain demand and production levels, the cost and availability of transportation and storage, weather conditions, competitive pricing and the availability of imports. Additionally, expansions or upgrades of competitors' facilities and international and domestic political and economic developments continue to play an important role in the global nitrogen fertilizer industry economics. These factors can affect, in addition to selling prices, the level of inventories in the market which can cause price volatility and affect product margins.
From a farmer's perspective, the demand for fertilizer is affected by the aggregate crop planting decisions including farm economics, weather and fertilizer application rate decisions of individual farmers. Individual farmers make planting decisions based largely on prospective profitability of a harvest, while the specific varieties and amounts of fertilizer they apply depend on factors such as their financial resources, soil conditions, weather patterns and the types of crops planted.
Additionally, changes in corn prices, as well as soybean, cotton and wheat prices, can affect the number of acres of corn planted in a given year and the number of acres planted will drive the level of nitrogen fertilizer consumption, likely affecting fertilizer prices.
According to the World Agricultural Supply and Demand Estimates Report dated April 9, 2026 (the "April Report"), farmers planted approximately 98.8 million acres of corn in the 2025 planting season, up 8.7% compared to the 2024 planting season. According to the April Report, the U.S. Department of Agriculture ("USDA") estimates the U.S. ending stocks for the 2025 Harvest will be approximately 54.0 million metric tons, a 37.1% increase from the 2024 Harvest. The USDA's expected yield per acre for the 2025 Harvest is 186.5 bushels, up approximately 4.0% from a year ago.
The following April 2026 estimates are associated with the corn market:
2026 Crop | 2025 Crop | 2024 Crop | |||||||||||||||||
(2025 Harvest) | (2024 Harvest) | Percentage | (2023 Harvest) | Percentage | |||||||||||||||
April Report (1) | April Report (1) | Change (2) | April Report (1) | Change (3) | |||||||||||||||
U.S. Area Planted (Million acres) | 98.8 | 90.9 | 8.7 | % | 94.6 | 4.4 | % | ||||||||||||
U.S. Yield per Acre (Bushels) | 186.5 | 179.3 | 4.0 | % | 177.3 | 5.2 | % | ||||||||||||
U.S. Production (Million bushels) | 17,021 | 14,892 | 14.3 | % | 15,341 | 11.0 | % | ||||||||||||
U.S. Ending Stocks (Million metric tons) | 54.0 | 39.4 | 37.1 | % | 44.8 | 20.5 | % | ||||||||||||
World Ending Stocks (Million metric tons) | 294.8 | 296.3 | (0.5 | %) | 315.3 | (6.5 | %) | ||||||||||||
The current USDA corn outlook for the U.S. is unchanged relative to the last month report. U.S. ending stocks remain at 54.0 million metric tons, up 14.3% from the 2024 harvest. Both acres planted and yields are up from the 2024 Harvest, 8.7% and 4.0%, respectively. Corn production for the 2025 Harvest is forecast at 17.0 billion bushels. If realized, harvested area would be the highest since 1933 and planted area of 98.8 million acres the highest since 1936.
Natural Gas Prices
Natural gas is the primary resource for conversion and manufacturing production of our nitrogen products. In recent years, U.S. natural gas reserves have increased significantly due to, among other factors, advances in extracting shale gas, which has reduced and stabilized natural gas prices, providing North America with a cost advantage over certain imports. As a result, our competitive position and that of other North American nitrogen fertilizer producers has been positively affected.
Historically, we have purchased natural gas either on the spot market, through forward purchase contracts, or a combination of both and have used forward purchase contracts to lock in pricing for a portion of our natural gas requirements. These forward purchase contracts are generally either fixed-price or index-price, short-term in nature and for a fixed supply quantity. We are able to purchase natural gas at competitive prices due to our connections to large distribution systems and their proximity to interstate pipeline systems.
Natural gas costs increased during the February settlement period primarily due to elevated market prices driven by Winter Storm Fern, which caused significant weather-related supply constraints and heightened regional demand, resulting in a higher average cost of natural gas for the period. Since that time, natural gas prices have moderated as market conditions normalized and weather-related constraints eased.
The following table shows the volume of natural gas utilized to produce the goods we sold and the associated average cost per MMBtu:
Three Months Ended March 31, | ||||||||
2026 | 2025 | |||||||
Natural gas volumes (MMBtu in millions) | 7.2 | 7.5 | ||||||
Natural gas average cost per MMBtu | $ | 5.26 | $ | 3.78 | ||||
Transportation Costs
Costs for transporting nitrogen-based products can be significant relative to their selling price. We continue to evaluate the rising costs of freight domestically. As a result of increases in demand for available rail, truck and barge options to transport product, primarily during the spring and fall planting seasons, higher transportation costs have and could continue to impact our margins, where we are unable to fully pass through these costs to our customers. Additionally, truck driver shortages could impact our ability to fulfill customer demand. As a result, we continue to evaluate supply chain efficiencies to reduce or counter the impact of higher logistics costs.
Key Operational Factors
Facility Reliability
Consistent, reliable and safe operations at our chemical plants are critical to our financial performance and results of operations. Planned downtime, including a planned major maintenance activity (each such activity, a "Turnaround"), and unplanned downtime can adversely affect results of operations through reduced sales volumes, lower fixed cost absorption, and increased repair and maintenance costs, which are expensed as incurred.
We performed major Turnaround activities at our Pryor Facility during the third quarter of 2024 and at our Cherokee Facility during the fourth quarter of 2024. Minor planned outages were executed at our El Dorado Facility in July 2024 to replace the ammonia primary reformer catalyst. We did not perform any major planned ammonia Turnaround events during 2025 at the El Dorado Facility, although a minor Turnaround was completed on our nitric acid plants at our El Dorado Facility during 2025.
Based on our current maintenance schedule, Turnaround activities in 2026 are expected to include an ammonia plant Turnaround at our El Dorado Facility during the second quarter and a full-site Turnaround at our Pryor Facility during the third quarter. Additionally, a minor Turnaround on the urea plant at our Cherokee Facility is planned for the third quarter of 2026.
Ammonia Production
Ammonia is the basic product used to produce all of our upgraded products. The ammonia production rates of our plants affect the total cost per ton of each product produced and the overall sales of our products.
For 2026, we are targeting total ammonia production of approximately 780,000 tons to 810,000 tons, which reflects planned Turnaround work at our El Dorado and Pryor Facilities during 2026.
Forward Sales Contracts
In certain instances, we may use forward sales of our fertilizer products to optimize our asset utilization, planning process and production scheduling. These sales are made by offering customers the opportunity to purchase product on a forward basis at prices and delivery dates that are agreed upon, with dates typically occurring within 12 months. We use this program to varying degrees during the year depending on market conditions and our view of changing price environments. Fixing the selling prices of our products months in advance of their ultimate delivery to customers typically causes our reported selling prices and margins to differ from spot market prices and margins available at the time of shipment.
Consolidated Results of the First Quarter of 2026
Our consolidated net sales for the first quarter of 2026 were $169.5 million compared to $143.4 million for the same period in 2025. Our consolidated operating income for the first quarter of 2026 was $23.2 million compared to $4.5 million for the same period in 2025. The items impacting our operating results are discussed in more detail below and under "Results of Operations."
Items Affecting Comparability of Results of the First Quarter
Stock Based Compensation
During the first quarter of 2026, we modified certain equity awards held by our Chief Executive Officer to allow for accelerated vesting in the event of a qualifying retirement. As a result, we accelerated recognition of the remaining compensation cost associated with those grants in the amount of $3.1 million during the quarter. See our discussion in "Equity Awards" in Note 1.
Shift in Production Mix
In 2025, we transitioned our production from fertilizer grade ammonium nitrate ("HDAN"), an agricultural product, to ANS, a product used in industrial and mining applications. The transition was completed during the third quarter of 2025, at which time we ceased production of HDAN. This shift in production mix is consistent with our strategy to transition a portion of our sales from agricultural sales made at spot market pricing, which can be volatile, to sales under multi-year contracts that provide the pass-through of natural gas feedstock costs.
Selling Prices
For the first quarter of 2026, average selling prices for all of our major products increased compared to the first quarter of 2025.
Results of Operations
The following is a discussion and analysis of our condensed consolidated results of operations for the three months ended March 31, 2026 and 2025.
Net sales to unaffiliated customers are reported in the condensed consolidated financial statements and gross profit represents net sales less cost of sales. Net sales are reported on a gross basis with the cost of freight being recorded in cost of sales.
Three Months Ended March 31, 2026 Compared to Three Months Ended March 31, 2025
The following table sets forth certain financial information for the three months ended March 31, 2026 and 2025, the increase or decrease between those periods, and the percentage increase or decrease between those periods with respect to each line item:
Three Months Ended March 31, | Percentage | |||||||||||||||
2026 | 2025 | Change | Change | |||||||||||||
(Dollars In Thousands) | ||||||||||||||||
Net sales: | ||||||||||||||||
AN & Nitric Acid | $ | 75,347 | $ | 57,618 | $ | 17,729 | 31 | % | ||||||||
Urea ammonium nitrate (UAN) | 49,171 | 43,865 | 5,306 | 12 | % | |||||||||||
Ammonia | 36,814 | 33,272 | 3,542 | 11 | % | |||||||||||
Other | 8,155 | 8,677 | (522 | ) | (6 | )% | ||||||||||
Total net sales | $ | 169,487 | $ | 143,432 | $ | 26,055 | 18 | % | ||||||||
Gross profit | $ | 35,794 | $ | 14,384 | $ | 21,410 | 149 | % | ||||||||
Depreciation and amortization (1) | 20,847 | 20,063 | 784 | 4 | % | |||||||||||
Turnaround expense | 3,894 | 1,995 | 1,899 | 95 | % | |||||||||||
Adjusted gross profit (2) | $ | 60,535 | $ | 36,442 | $ | 24,093 | 66 | % | ||||||||
Selling, general and administrative expense | $ | 13,825 | $ | 10,153 | 3,672 | 36 | % | |||||||||
Other income, net | (1,187 | ) | (237 | ) | (950 | ) | 401 | % | ||||||||
Operating income | 23,156 | 4,468 | 18,688 | 418 | % | |||||||||||
Interest expense, net | 7,117 | 8,064 | (947 | ) | (12 | )% | ||||||||||
Non-operating other income, net | (1,516 | ) | (1,673 | ) | 157 | (9 | )% | |||||||||
Benefit for income taxes | (2,130 | ) | (283 | ) | (1,847 | ) | 653 | % | ||||||||
Net income (loss) | $ | 19,685 | $ | (1,640 | ) | $ | 21,325 | N/M | ||||||||
Other information: | ||||||||||||||||
Gross profit percentage (3) | 21.1 | % | 10.0 | % | 11.1 | % | ||||||||||
Adjusted gross profit percentage (3) | 35.7 | % | 25.4 | % | 10.3 | % | ||||||||||
Property, plant and equipment expenditures | $ | 16,976 | $ | 20,867 | $ | (3,891 | ) | |||||||||
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N/M-Not meaningful.
The following tables provide key operating metrics for the fertilizer and major industrial products, the increase or decrease between those periods, and the percentage increase or decrease between those periods with respect to each line item:
Three Months Ended March 31, | Percentage | |||||||||||||||
Product (tons sold) | 2026 | 2025 | Change | Change | ||||||||||||
AN & Nitric Acid | 177,862 | 150,531 | 27,331 | 18 | % | |||||||||||
Urea ammonium nitrate (UAN) | 128,623 | 148,565 | (19,942 | ) | (13 | )% | ||||||||||
Ammonia | 66,040 | 73,403 | (7,363 | ) | (10 | )% | ||||||||||
Total | 372,525 | 372,499 | 26 | 0 | % | |||||||||||
Three Months Ended March 31, | Percentage | |||||||||||||||
Gross Average Selling Prices (price per ton) | 2026 | 2025 | Change | Change | ||||||||||||
AN & Nitric Acid | $ | 424 | $ | 383 | $ | 41 | 11 | % | ||||||||
Urea ammonium nitrate (UAN) | $ | 382 | $ | 295 | $ | 87 | 29 | % | ||||||||
Ammonia | $ | 557 | $ | 453 | $ | 104 | 23 | % | ||||||||
Three Months Ended March 31, | Percentage | |||||||||||||||
Average Benchmark Prices (price per ton) | 2026 | 2025 | Change | Change | ||||||||||||
Tampa Ammonia Benchmark | $ | 621 | $ | 491 | $ | 130 | 26 | % | ||||||||
NOLA UAN | $ | 347 | $ | 276 | $ | 71 | 26 | % | ||||||||
Net Sales
We recorded net sales of $169.5 million during the first quarter of 2026 compared to $143.4 million for the first quarter of 2025, representing an increase of $26.1 million. The increase was primarily driven by higher sales prices on all our products. Decreases in ammonia and UAN sales volumes were offset by an increase in AN and Nitric Acid volumes as part of our product mix strategy, which includes upgrading ammonia to maximize higher value downstream products.
Gross Profit
We recognized a gross profit of $35.8 million for the first quarter of 2026 compared to $14.4 million for the same period in 2025, or a $21.4 million increase. Overall, our gross profit percentage for the first quarter of 2026 was 21.1% compared to 10.0% for the same period in 2025. Our adjusted gross profit percentage increased to 35.7% for the first quarter of 2026 from 25.4% for the first quarter of 2025. Our gross profit for the first quarter of 2026 was higher compared to the same period of 2025 primarily due to higher selling prices and improved product mix partially offset by increased cost of sales stemming from higher natural gas and sulfur costs.
Selling, General and Administrative
Our SG&A expenses were higher for the first quarter of 2026 compared to the same period of 2025, primarily due to an increase in stock based compensation from the acceleration of expense recognition for certain executive grants (see "Equity Awards" in Note 1) and an increase in short-term incentive compensation, which were partially offset by decreases in insurance and other miscellaneous expenses.
Other income, net
Other income, net for the first quarter of 2026 includes gains from the sale of real estate and tangible property for a former agricultural retail location that had ceased operations, partially offset by asset write-downs. Other income, net, was higher in 2026 compared to 2025 due to the disposal gain discussed above.
Interest Expense
Interest expense for the first quarter of 2026 was $7.1 million compared to $8.1 million for the same period in 2025. The decrease was primarily due to a lower outstanding balance on our Senior Secured Notes as a result of repurchases in the second and fourth quarters of 2025.
Non-operating Other Income, net
Non-operating other income, net for the first quarter of 2026 was $1.5 million compared to $1.7 million for the same period of 2025, primarily related to interest income earned during both periods from our short-term investments. Our average short-term investments balance including cash equivalents, was higher during the first quarter of 2026 but interest rates were lower during this period compared to the first quarter of 2025.
Benefit for Income Taxes
The benefit for income taxes for the first quarter of 2026 was $2.1 million compared to a benefit for income taxes of $0.3 million for the same period of 2025. The resulting effective tax rate for the first quarter of 2026 was a benefit on pre-tax income of 12.1% compared to a benefit on pre-tax loss of 14.7% for the same period of 2025. For the first quarter of 2026, the effective tax rate was lower than the statutory rate primarily due to the release of state valuation allowances, partially offset by nondeductible compensation expense. For the first quarter of 2025, the effective tax rate was lower than the statutory rate primarily due to changes in valuation allowance and nondeductible compensation, partially offset by state taxes. See discussion in Note 7.
LIQUIDITY AND CAPITAL RESOURCES
The following table summarizes our cash flow activities for the three months ended March 31:
2026 | 2025 | Change | ||||||||||
(In Thousands) | ||||||||||||
Net cash flows from operating activities | $ | 51,797 | $ | 6,836 | $ | 44,961 | ||||||
Net cash flows from investing activities | $ | (45,480 | ) | $ | (5,271 | ) | $ | (40,209 | ) | |||
Net cash flows from financing activities | $ | (5,187 | ) | $ | (6,765 | ) | $ | 1,578 | ||||
Net Cash Flow from Operating Activities
Net cash provided by operating activities was $51.8 million for the first three months of 2026 compared to $6.8 million for the same period of 2025, a change of $45.0 million. The increase was primarily a result of improved operating income and changes in working capital.
Net Cash Flow from Investing Activities
Net cash used by investing activities was $45.5 million for the first three months of 2026 compared to $5.3 million for the same period of 2025, a change of $40.2 million.
For the first three months of 2026, the net cash used by investing activities primarily related to purchases of short-term investments of $105.7 million and expenditures for property, plant and equipment of $17.0 million partially offset by proceeds from short-term investments and proceeds from sales of property, plant and equipment totaling $77.2 million.
For the first three months of 2025, the net cash used by investing activities primarily related to purchases of short-term investments of $49.0 million and expenditures for property, plant and equipment of $20.9 million, partially offset by proceeds from short-term investments of $64.5 million.
Net Cash Flow from Financing Activities
Net cash used by financing activities was $5.2 million for the first three months of 2026 compared to $6.8 million for the same period of 2025, a change of $1.6 million.
For the first three months of 2026, the net cash used by financing activities primarily consisted of payments on short-term financing and finance leases of $3.7 million and $1.5 million for tax withholding obligations related to the vesting of equity awards.
For the first three months of 2025, the net cash used by financing activities primarily consisted of payments on other long-term debt and short-term financing of $5.6 million and $1.2 million for tax withholding obligations related to the vesting of equity awards.
Capitalization
The following table summarizes our total cash and cash equivalents, short-term investments, long-term debt and stockholders' equity as of March 31, 2026 and December 31, 2025:
March 31, 2026 | December 31, 2025 | |||||||
(In Millions) | ||||||||
Cash and cash equivalents | $ | 20.6 | $ | 19.5 | ||||
Short-term investments | 161.0 | 129.0 | ||||||
Total cash, cash equivalents and short-term investments | $ | 181.6 | $ | 148.5 | ||||
Long-term debt: | ||||||||
Revolving Credit Facility | $ | - | $ | - | ||||
Senior Secured Notes due 2028 (1) | 438.6 | 438.6 | ||||||
Finance Leases | 6.0 | 6.2 | ||||||
Unamortized debt issuance costs (2) | (3.4 | ) | (3.8 | ) | ||||
Total long-term debt, including current portion, net | $ | 441.2 | $ | 441.0 | ||||
Total stockholders' equity | $ | 542.9 | $ | 520.0 | ||||
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We currently have a revolving credit facility pursuant to a credit agreement, dated December 21, 2023, between us and the lenders identified on the signature pages thereof and JPMorgan Chase Bank, N.A, as administrative agent (the "Revolving Credit Facility"), with a borrowing base up to an initial maximum of $75 million, with an option to increase the maximum by an additional $25 million (which amount is uncommitted). Availability under the Revolving Credit Facility is subject to a borrowing base and an availability block of $7.5 million which is applied against the $75 million initially reducing the maximum (which can be removed by us at our sole discretion, subject to the satisfaction of certain conditions). The Revolving Credit Facility provides for a sub-facility for the issuance of letters of credit in an aggregate amount not to exceed $10 million, with the outstanding amount of any such letters of credit reducing availability for borrowings. As of March 31, 2026, our Revolving Credit Facility was undrawn and had approximately $59 million of availability. See Note 4 for further discussion of the Revolving Credit Facility.
For the full year of 2026, we expect capital expenditures to be approximately $75 million, of which $55 million is expected to be spent on sustaining production with the remainder spent on growth initiatives.
As of March 31, 2026, we had approximately $181.6 million of cash and short-term investments. From time to time, we may seek to deploy capital through common stock repurchases or the repurchase of outstanding debt. Such repurchases may be made in open market purchases, privately negotiated transactions or otherwise and will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.
We believe that the combination of our cash and cash equivalents, short-term investments, the availability under our Revolving Credit Facility and our cash flow from operations will be sufficient to fund our anticipated liquidity needs for the next twelve months. Additionally, we expect our long-term liquidity position will be sufficient to meet our long-term liquidity needs with cash flows from operations and financing arrangements. However, in the event of changes in business conditions or other developments, including a sustained market deterioration, unanticipated regulatory developments, significant acquisitions, competitive pressures, or to the extent our liquidity needs prove to be greater than expected or cash generated from operations is less than anticipated, we may need additional liquidity. To the extent we elect to finance our long-term liquidity needs, we believe that the potential financing capital available to us in the future will be sufficient.
Compliance with Long-Term Debt Covenants
As discussed in Note 4, the Revolving Credit Facility does not include financial covenant requirements unless a defined covenant trigger event has occurred and is continuing. As of March 31, 2026, no trigger event had occurred.
Loan Agreements
Senior Secured Notes due 2028 - We had $438.6 million aggregate principal amount of Senior Secured Notes outstanding as of March 31, 2026. Interest is to be paid semiannually in arrears on May 15th and October 15th. The Senior Secured Notes mature on October 15, 2028.
Revolving Credit Facility - At March 31, 2026, our Revolving Credit Facility was undrawn and had approximately $59 million of availability, based on our eligible collateral, less outstanding letters of credit as of that date. Also see discussion above under "Compliance with Long-Term Debt Covenants."
Finance Leases - Our finance leases consist primarily of leases on railcars. Most of our railcar leases are classified as operating leases.
Capital Expenditures - First Three Months of 2026
For the first three months of 2026, capital expenditures relating to property, plant and equipment were $17.0 million. Of the expenditures for the first three months of 2026, approximately $14.8 million was spent on projects to sustain our production capacity while approximately $2.2 million was spent on growth initiatives. The capital expenditures were funded primarily from cash and working capital.
See discussion above under "Capitalization" for our total expected capital expenditures for the remainder of 2026.
Expenses Associated with Environmental Regulatory Compliance
We are subject to specific federal and state environmental compliance laws, regulations and guidelines. As a result, our expenses were $1.5 million for the first three months ended March 31, 2026 in connection with environmental projects. For the remainder of 2026, we expect to incur expenses ranging from $4.0 million to $4.4 million in connection with additional environmental projects. However, it is possible that the actual costs could be significantly different than our estimates.
Seasonality
We believe sales of fertilizer products to the agricultural industry are seasonal, while sales into the industrial sectors generally are less susceptible to seasonal fluctuations. The selling seasons for fertilizer products are primarily during the spring and fall planting seasons, which typically extend from March through June and from September through November in the geographical markets where we distribute the majority of our fertilizer products. As a result, we typically increase our inventory of fertilizer products prior to the beginning of each planting season in order to meet the demand for our products. In addition, the amount and timing of sales to the agricultural markets depend upon weather conditions and other circumstances beyond our control.
Performance and Payment Bonds
We are contingently liable to sureties in respect of insurance bonds issued by the sureties in connection with certain contracts entered into by subsidiaries in the normal course of business. These insurance bonds primarily represent guarantees of future performance of our subsidiaries. As of March 31, 2026, we have agreed to indemnify the sureties for payments, up to $10.2 million, made by them in respect of such bonds.
New Accounting Pronouncements
Refer to Note 1 for recently issued accounting standards.
Critical Accounting Policies and Estimates
See "Critical Accounting Policies and Estimates," Item 7 of our Form 10-K for the year ended December 31, 2025, filed with the SEC on February 26, 2026 (the "2025 Form 10-K"). In addition, the preparation of financial statements requires us to make estimates and assumptions that affect the reported amount of assets, liabilities, revenues and expenses and disclosures of contingencies and fair values, including, but not limited to, various environmental and legal matters, including matters discussed under footnote A of Note 5.
Income Taxes - Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those differences are expected to be recovered or settled. We establish valuation allowances if we believe it is more-likely-than-not that some or all of deferred tax assets will not be realized. Significant judgment is applied in evaluating the need for and the magnitude of appropriate valuation allowances against deferred tax assets.
It is also reasonably possible that the estimates and assumptions utilized as of March 31, 2026, could change in the near term. Actual results could differ materially from these estimates and judgments, as additional information becomes known.
Non-GAAP Financial Measures
Management uses adjusted gross profit as a supplemental measure to review and assess the performance of our core business operations and for planning purposes. We define adjusted gross profit as gross profit (loss) excluding depreciation and amortization and Turnaround expenses included in our cost of sales, which we believe are not reflective of our operating performance in a given period.
Adjusted gross profit is a metric that provides investors with greater transparency to the information used by management in its financial and operational decision-making. We believe this metric is useful to investors because it facilitates comparisons of our core business operations across periods on a consistent basis. Management believes that the non-GAAP measure presented in this Form 10-Q, when viewed in combination with our results prepared in accordance with United States generally accepted accounting principles ("U.S. GAAP"), provides a more complete understanding of the factors and trends affecting our business and performance.
Adjusted gross profit is not a measure of financial performance under U.S. GAAP, and should not be considered a substitute for gross profit, which we consider to be the most directly comparable U.S. GAAP measure. Adjusted gross profit has limitations as an analytical tool, and when assessing our operating performance, investors should not consider adjusted gross profit in isolation, or as a substitute for gross profit prepared in accordance with U.S. GAAP. Adjusted gross profit may not be comparable to similarly titled measures of other companies and other companies may not calculate such measure in the same manner as we do.
The following table reconciles gross profit to adjusted gross profit.
Three Months Ended March 31, | ||||
2026 | 2025 | |||
(In Thousands) | ||||
Reconciliation of Gross Profit to Adjusted Gross Profit: | ||||
Gross profit | $35,794 | $14,384 | ||
Depreciation and amortization | 20,847 | 20,063 | ||
Turnaround expenses | 3,894 | 1,995 | ||
Adjusted gross profit | $60,535 | $36,442 | ||
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K under the Securities Exchange Act of 1934, as amended (the "Exchange Act").