CF Industries Holdings, Inc.

Good day, ladies and gentlemen, and welcome to the CF Industries holding first half and second quarter 2020 results and conference call. My name is Jenny. I'll be your coordinator for today. At this time, all participants are in a listen-only mode. We will facilitate a question and answer session towards the end of the presentation. To pose a question at any time, please press star 1 on your touchtone telephone keypad. If at any time during this call you require assistance, please press star zero and a coordinator will be happy to assist you. I would now like to turn the presentation over to the host for today, Mr. Martin Jarosik with CF Investor Relations. Sir, please proceed.

Good morning and thanks for joining the CF industry's first half and second quarter 2020 earnings conference call. I'm Martin Jarosik, Vice President of Investor Relations for CF. With me today are Tony Will, CEO, Chris Bone, CFO, and Bert Frost, Senior Vice President of Sales, Market Development, and Supply Chains. CF Industries reported its first half 2020 results yesterday afternoon. On this call, we'll review the CF Industries results in detail, discuss our outlook, and then host a question and answer session. Statements made on this call and in the presentation on our website that are not historical facts are forward-looking statements. These statements are not guarantees of future performance and involve risks, uncertainties, and assumptions that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or implied in any statements. More detailed information about factors that may affect our performance may be found in our filings with the SEC, which are available on our website. Also, you will find reconciliations between GAAP and non-GAAP measures in the press release and presentation posted on our website. Now let me introduce Tony Will, our President and CEO.

Thanks, Martin, and good morning, everyone. Last night, we posted our financial results for the first half of 2020, in which we generated adjusted EBITDA of $808 million. These results underscore the resilience of our business model and the outstanding performance of the CF team. In the midst of a difficult and uncertain environment, we maintained our focus on safe and reliable operations, worked closely with all of our partners to avoid disruptions due to the pandemic, and delivered company record first half sales volumes. These efforts exemplify our team's sustained operational excellence, which, along with our position on the low end of the global cost curve, drives our cash generation. On a trailing 12-month basis, we have produced more than 10 million tons of gross ammonia, sold roughly 20 million product tons, and generated $973 million in free cash flow. Most importantly, we have done all of this safely. Our rolling recordable incident rate at the end of June was 0.31 incidents per 200,000 labor hours, which is a new record low for the company. Protecting the health and wellbeing of our employees, particularly during the COVID-19 pandemic, remains our top focus. Our safety culture, along with the safety protocols we've put in place, have kept the number of employees who have tested positive for the virus to a small number. and we have not experienced any known transmission within a CF location. We continue to have in place numerous precautionary measures across our network to protect our employees and those critical contractors who come into our facilities. In contrast to the uncertainty and challenges facing much of the broader economy, the nitrogen industry has performed well, driven by robust demand and low energy costs. And over the past few months, our outlook for the next 6 to 12 months has become both clearer and much more positive. As you will hear from Bert, strong demand in India and Brazil is supporting the global nitrogen market, with urea prices rising significantly in recent weeks. We are also more confident that 2021 corn plantings in the U.S. will be within a normal range. Chinese anthracite-based production remains the high-cost marginal ton. And despite all the doom and gloom prognostication over the past 12 months suggesting coal prices in China will fall, that hasn't happened. As you can see on slide 13, the cost advantage per metric ton of urea remains robust for North American producers compared to the marginal production. Additionally, we expect that the cost curve, which had flattened due to lower energy costs for many producers, will steepen again going forward. Since the beginning of the year, U.S. LNG exports have declined significantly. As this works its way through the market, production costs for Europe and Asian producers should rise. As you can see on slide 14, futures prices suggest a return to a more normal energy differential in Europe and Asia. As this occurs, we expect margins for North American nitrogen production to increase compared to producers in these regions, which is particularly important during periods when China isn't exporting. Longer term, we expect to remain on the low end of the global cost curve due to our access to low-cost and abundant North American natural gas. That, combined with the fact that we operate in regions which are import-dependent, should enable us to continue to generate substantial free cash flow in both the short and the long term. With that, let me turn it over to Bert, who will discuss the market. Then Chris will follow to talk about our financial position and capital allocation outlook, before I return for some closing comments. Bert?