CF Industries Holdings, Inc.

Good day, ladies and gentlemen, and welcome to the first quarter 2021 CF Industries Holdings Earnings Conference Call. My name is Faith. I will be your coordinator for today. At this time, all participants are in the 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 0 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 Industries First Quarter 2021 Earnings Conference Call. I'm Martin Jarosik, Vice President, Investor Relations. With me today are Tony Will, CEO, Chris Bone, CFO, and Bert Frost, Senior Vice President of Sales, Market Development, and Supply Chain. CF Industries reported its first quarter 2021 results yesterday afternoon. On this call, we'll review these 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 your performance may be found in our filings with the SEC, which are available on our website. Also, you'll 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.

Tony Will Thanks, Spartan, and good morning, everyone. Yesterday afternoon, we posted our financial results for the first quarter of 2021, in which we generated adjusted EBITDA of $398 million. These results are really the story of nitrogen prices that increased throughout the quarter, somewhat offset due to lower production and corresponding sales volumes. There were a lot of other things happening during the quarter, such as winter weather driving up LNG demand and corresponding gas prices, and one very large winter storm event in the U.S. But if you take all of these impacts together, they roughly offset each other. Let me provide a bit of color on our response to these events but I'd like to refer you to slide six and seven in our posted materials. Back in February, leading into President's Day weekend, an extreme winter storm hit the U.S. Gas suppliers into several of our locations curtailed gas deliveries, and we were informed that we would likely face force majeure hard shutdowns. Our team mobilized quickly, discussed various options, and decided on the following course of action. Given we were facing the loss of gas delivery into our plants and would be shut down anyway, we opted to effectively sell the gas we had contracted for back to our suppliers by net settling our gas delivery contracts at prevailing market prices. We also reduced operating rates to minimum levels at some plants that were still receiving gas and sold the excess gas above those minimum levels back to suppliers. The result was a gain on sale of gas of $112 million. Slide 6 provides some details of how we mitigate gas price risk and how the February storm affected gas prices. However, there were pretty significant impacts to our operations as a result of the shutdowns and freeze-offs. We experienced some prolonged outages and increased maintenance expense, including fixed cost write-offs as a result of the abrupt disruption and extreme cold. And, of course, gas price rose for that portion of our gas that was not hedged. Because we lost a fair bit of production, we chose to go into the market and purchase urea barges so that we could meet existing customer commitments, which also cost us a small amount. The net result of all of this is shown on slide seven of our materials. Net-net, our sale of gas mitigated our increased costs, so we came out of it basically even. Now, we did lose production and the corresponding positive margins we would have received, so the full picture was a net loss for us, but at least we recovered our out-of-pocket costs. Hopefully that provides some context for the big, unusual moving pieces. Even with all the challenges we faced in the quarter, we feel very positive about where we are at at this point of the year. We had solid results, and BERT is now going to take you through the two main factors of why we are so bullish. First, coarse grain stocks-to-use ratios are extremely low, meaning we expect grain prices to remain strong through several growing cycles and farmers are incented to maximize yield, driving increased demand for nitrogen. Second, global energy spreads have continued to widen, such that production costs for Eastern European plants are actually higher than China now. meaning the nitrogen cost curve is not only steeper, but substantially wider for fourth quartile producers. Therefore, nitrogen pricing is expected to remain quite strong. With that, let me turn it over to Bert.