Itafos earns $44.3-million (U.S.) in Q2 2022 ITAFOS REPORTS RECORD Q2 AND H1 2022 RESULTS, UPDATES FULL-YEAR 2022 GUIDANCE
Itafos Inc. has released its Q2 and H1 2022 financial and operational highlights. The Company's financial statements and management's discussion and analysis and annual information form for the three and six months ended June 30, 2022 are available under the Company's profile at www.sedar.com and on the Company's website. All figures are in thousands of US Dollars except as otherwise noted.
Q2 2022 key highlights:
- revenues of $155.0 million;
- adjusted EBITDA of $63.6 million;
- net income of $44.3 million;
- basic earnings of C$0.30/share;
- free cash flow of $41.3 million.
H1 2022 key highlights:
- revenues of $304.9 million;
- adjusted EBITDA of $124.0 million;;
- net income of $77.3 million;
- basic earnings of C$0.52/share;
- free cash flow of $95.7 million.
June 30, 2022, key highlights:
- trailing 12 months adjusted EBITDA of $213.1 million;
- net debt of $146.2 million;
- net leverage ratio of 0.7x.
Revised FY 2022 Guidance:
- adjusted EBITDA guidance of $210-230 million (maintained);
- net income guidance of $100-105 million (previously $80-95 million);
- basic earnings guidance of C$0.69-0.72/share (previously C$0.55-0.65/share);
- maintenance capex guidance of $18-22 million (previously $15-23 million);
- growth capex guidance of $18-21 million (previously $15-22 million);
- free cash flow guidance of $150-165 million (maintained).
CEO Commentary
"We are pleased to report record performance during the second quarter and first half of 2022 in terms of safety and financial results along with continued strong operational performance. Our trailing 12 months adjusted EBITDA of $213 million represents a new Company record and has allowed us to make significant progress toward deleveraging our balance sheet, resulting in a net leverage ratio of 0.7x at the end of the period," said G. David Delaney, CEO of Itafos.
"For the quarter, we recorded $155.0 million of revenues and $63.6 million of adjusted EBITDA on the back of continued strong production out of our Conda facility and positive contributions from running our sulfuric acid plant at Arraias."
"We have also updated our full-year guidance for 2022 to reflect the continued strength of the business and market fundamentals. Finally, we remain focused on our key objectives, including extending Conda's current mine life through permitting and development of H1/NDR and evaluating strategic alternatives for our non-North American assets."
Q2 and H1 market highlights
DAP NOLA prices averaged $860/short ton ("st") in Q2 2022 compared to $571/st in Q2 2021, up 51% year-over-year driven by strong agriculture and phosphate fertilizer market supply and demand dynamics. Similarly, DAP NOLA prices averaged $827/st in H1 2022 compared to $536/st in H1 2021, up 54% year-over-year.
Specific factors driving the year-over-year improvements in DAP NOLA were as follows:
- limited supply additions;
- global coarse grains and oilseeds at multi-year low stocks-to-use ratios supporting fertilizer relative affordability;
- continued drawdown of inventory levels;
- increased restrictions and controls on exports from China;
- disruptions to fertilizer and raw materials supply from Russia due to sanctions imposed by certain countries following Russia's invasion of Ukraine.
Q2 2022 financial highlights
The company's revenues, adjusted EBITDA, net income, basic earnings per share and free cash flow were all up in Q2 2022 compared to Q2 2021 as follows:
- revenues of $155.0 million in Q2 2022 compared to $103.3 million in Q2 2021;
- adjusted EBITDA of $63.6 million in Q2 2022 compared to $33.7 million in Q2 2021;
- net income of $44.3 million in Q2 2022 compared to $9.6 million in Q2 2021;
- basic earnings of C$0.30/share in Q2 2022 compared to C$0.06/share in Q2 2021;
- free cash flow of $41.3 million in Q2 2022 compared to $25.4 million in Q2 2021.
The increase in the Company's Q2 2022 financial performance compared to Q2 2021 was primarily due to higher realized prices at Conda, which were partially offset by higher input costs, and the restart of the sulfuric acid plant at Arraias.
The Company's total capex spend in Q2 2022 was $16.0 million compared to $18.2 million in Q2 2021 with the decrease primarily due to a shorter turnaround at Conda in 2022 compared to 2021, which was partially offset by activities related to the initiative to produce and sell HFSA at Conda and maintenance activities at Arraias related to the restart of the sulfuric acid plant.
H1 2022 Financial Highlights
The Company's revenues, adjusted EBITDA, net income, basic earnings per share and free cash flow were all up in H1 2022 compared to H1 2021 as follows:
- revenues of $304.9 million in H1 2022 compared to $193.5 million in H1 2021;
- adjusted EBITDA of $124.0 million in H1 2022 compared to $54.3 million in H1 2021;
- net income of $77.3 million in H1 2022 compared to $11.5 million in H1 2021;
- basic earnings of C$0.52/share in H1 2022 compared to C$0.08/share in H1 2021;
- free cash flow of $95.7 million in H1 2022 compared to $40.1 million in H1 2021.
The increase in the Company's H1 2022 financial performance compared to H1 2021 was primarily due to higher realized prices at Conda, which were partially offset by higher input costs, and the restart of the sulfuric acid plant at Arraias.
The Company's total capex spend in H1 2022 was $21.3 million compared to $21.0 million in H1 2021 with the increase primarily due to activities related to the initiative to produce and sell HFSA at Conda and maintenance activities at Arraias related to the restart of the sulfuric acid plant, which were partially offset by a shorter turnaround at Conda in 2022 compared to 2021.
June 30, 2022, Highlights
As at June 30, 2022, the Company had trailing 12 months adjusted EBITDA of $213.1 million compared to $143.4 million at the end of 2021 with the increase primarily due to the same factors that resulted in higher adjusted EBITDA in H1 2022.
Also as at June 30, 2022, the Company had net debt of $146.2 million compared to $217.7 million at the end of 2021 with the decrease primarily due to principal payments under the Company's secured term loan (the "Term Loan") and Conda's secured working capital facility (the "Conda ABL") higher cash and cash equivalents. The Company's net debt as at June 30, 2022 was comprised of $61.5 million in cash and $207.7 million in debt (gross of deferred financing costs). For the six months ended June 30, 2022, the Company repaid $47.6 million of debt, including $42.3 million of principal under the Term Loan and $5.0 million cash drawn under the Conda ABL. As at June 30, 2022, the Company's net leverage ratio was 0.7x compared to 1.5x at the end of 2021.
As at June 30, 2022, the Company had liquidity of $68.7 million comprised of $61.5 million in cash and $7.2 million in Conda ABL undrawn borrowing capacity.
Q2 2022 Operational Highlights
EHS
- continued corporate-wide risk mitigation measures to address potential impacts to employees, contractors and operations as a result of the COVID-19 pandemic, which resulted in no material impact to operations;
- sustained EHS excellence, including no reportable environmental releases and no recordable incidents, which resulted in a consolidated TRIFR of 0.26, representing a new Company record;
- received a notice of violation ("NOV") at Conda from the from the Idaho Department of Environmental Quality ("DEQ") related to a failed air stack emissions test in May 2021. Conda investigated and corrected the issues during 2021. The NOV was formally received from the DEQ in May 2022 and resolved in July 2022.
Conda
- completed a scheduled plant turnaround at Conda and returned to full production capacity;
- produced 80,297 tonnes P2O5 at Conda in Q2 2022 compared to 67,835 tonnes P2O5 in Q2 2021 with the increase primarily due to a shorter turnaround in 2022 compared to 2021;
- generated revenues of $148,940 at Conda in Q2 2022 compared to $103,316 in Q2 2021 with the increase primarily due to higher realized prices;
- generated adjusted EBITDA at Conda of $66,716 in Q2 2022 compared to $37,747 in Q2 2021 with the increase primarily due to the same factors that resulted in higher revenues, which were partially offset by higher input costs;
- reached a settlement agreement related to shared environmental and asset retirement obligations at Conda's Lanes Creek mine;
- purchased mining equipment at Conda in exchange for a note payable of $3,930;
- advanced activities related to the extension of Conda's mine life through permitting and development of H1/NDR, including progression of the NEPA EIS preparation and public engagement process;
- advanced activities related to the optimization of Conda's EBITDA generation, including beginning production and sales of HFSA.
H1 2022 Operational Highlights
EHS
- continued corporate-wide risk mitigation measures to address potential impacts to employees, contractors and operations as a result of the COVID-19 pandemic, which resulted in no material impact to operations;
- sustained EHS excellence, including no reportable environmental releases and one recordable incident, which resulted in a consolidated TRIFR of 0.26, representing a new Company record;
- received national recognition during the 87th North American Wildlife and Natural Resources Conference as the BLM awarded the Conservation Leadership Partner Award to the Southeast Idaho Habitat Mitigation Fund, which was developed and funded by Conda;
- received a NOV at Conda from the DEQ related to a failed air stack emissions test in May 2021. Conda investigated and corrected the issues during 2021. The NOV was formally received from the DEQ in May 2022 and resolved in July 2022.
Conda
- completed a scheduled plant turnaround at Conda and returned to full production capacity;
- produced 169,393 tonnes P2O5 at Conda in H1 2022 compared to 157,191 tonnes P2O5 in H1 2021 with the increase primarily due to a shorter turnaround in 2022 compared to 2021;
- generated revenues of $296,470 at Conda in H1 2022 compared to $193,458 in H1 2021 primarily due to higher realized prices;
- generated adjusted EBITDA at Conda of $131,104 in H1 2022 compared to $61,869 in H1 2021 primarily due to the same factors that resulted in higher revenues, which were partially offset by higher input costs;
- reached a settlement with insurers on a business interruption claim related to the 2020 disruption in sulfuric acid supply to Conda, which resulted in receipt of net insurance proceeds of $8,675;
- reached a settlement agreement related to shared environmental and asset retirement obligations at Conda's Lanes Creek mine;
- posted incremental letters of credit of $3,663 under the Conda ABL as collateral for Conda's surety bonds that guarantee Conda's obligations under existing operating and environmental permits;
- purchased mining equipment at Conda in exchange for a note payable of $3,930;
- advanced activities related to the extension of Conda's mine life through permitting and development of H1/NDR, including progression of the NEPA EIS preparation and public engagement process;
- advanced activities related to the optimization of Conda's EBITDA generation, including beginning production and sales of HFSA.
Q2 Other Highlights
- produced 20,549 tonnes of sulfuric acid at Arraias in Q2 2022 compared to no production in Q2 2021;
- generated adjusted EBITDA at Arraias of $405 in Q2 2022 compared to $(938) in Q2 2021 with the increase due to the restart of the sulfuric acid plant;
- continued evaluation of strategic alternatives for non-North American assets;
- announced the appointment of Stephen Shapiro and Isaiah Toback to the Company's Board of Directors. Mr. Toback replaced Rory O'Neill as a nominee to the Company's Board of Directors by its principal shareholder, CLF.
H1 2022 Other Highlights
- produced 30,200 tonnes of sulfuric acid at Arraias in H1 2022 compared to no production in H1 2021;
- generated adjusted EBITDA at Arraias of $(248) in H1 2022 compared to $(1,772) in H1 2021 with the reduced deficit due to the restart of the sulfuric acid plant;
- continued evaluation of strategic alternatives for non-North American assets;
- announced the appointment of Stephen Shapiro and Isaiah Toback to the Company's Board of Directors. Mr. Toback replaced Rory O'Neill as a nominee to the Company's Board of Directors by its principal shareholder, CLF.
Subsequent Events
Subsequent to June 30, 2022, the Company:
- announced the appointment of Matthew O'Neill as CFO. Mr. O'Neill succeeds George Burdette who served as CFO since April 2018;
- granted 82,230 restricted share unites ("RSUs") to management under its RSU plan.
Market Outlook
The Company expects the current strength in the global agriculture and phosphate fertilizer fundamentals to continue. Accordingly, the Company expects continued strength in pricing and volume fundamentals in the phosphate fertilizer markets with a moderate softening of prices during H2 2022 relative to H1 2022.
Specific factors the Company expects to support the continued strength in the global phosphate fertilizer markets during H2 2022 are as follows:
- no significant supply capacity additions;
- reduced exports from China.
Specific factors the Company expects to influence the moderate softening of the global phosphate fertilizer markets during H2 2022 relative to H1 2022 are as follows:
- higher inventory levels;
- softening crop prices;
- moderated demand;
- increased supply from maximizing existing capacity run-rates.
The Company expects sulfur and sulfuric acid prices to decrease globally due to increased refinery activity and softer demand from phosphates and metals consumers.
Financial Outlook
The Company's revised guidance for 2022 is as follows:
The Company revised its guidance for 2022 as follows:
- adjusted EBITDA guidance of $210-230 million (maintained) to reflect the Company's view of H2 2021 prices and input costs at Conda, including the current DAP NOLA prices (100% of Conda's MAP is sold under a long-term offtake agreement with pricing indexed to DAP NOLA on an average three-month trailing basis) and continued production and sales of sulfuric acid at Arraias;
- net income guidance of $100-105 million (increased from previous guidance of $80-95 million) to reflect tax efficiencies resulting from the Company's redomiciliation from the Cayman Islands to the US;
- basic earnings guidance of C$0.69-0.72/share (increased from previous guidance of C$/0.55-0.65/share) to reflect the revised net income guidance;
- maintenance capex guidance of $18-22 million (tightened from previous guidance of $15-23 million);
- growth capex guidance of $18-21 million (tightened from previous guidance of $15-22 million);
- free cash flow guidance of $150-165 million (maintained).
In preparing its revised guidance for 2022, the Company maintained is prior assumption for expected average DAP NOLA during H2 2022 of $690-750/st.
Business Outlook
The Company continues to focus on the following key objectives to drive long-term value and shareholder returns:
- improving financial and operational performance;
- deleveraging the balance sheet;
- extending Conda's current mine life through permitting and development of H1/NDR;
- evaluating strategic alternatives for non-North American assets;
- maintaining capital-lite investment approach.