CVR Partners Q3 2024 Earnings Report

CVR Partners EPS Results

• Actual EPS: $0.36
• Consensus EPS: N/A
• Beat/Miss: N/A
• One Year Ago EPS: N/A

CVR Partners Revenue Results

• Actual Revenue: $125.20 million
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

CVR Partners Announcement Details

• Quarter: Q3 2024
• Date: 10/28/2024
• Time: After Market Closes
• Conference Call Date: Tuesday, October 29, 2024
• Conference Call Time: 11:00AM ET

CVR Partners (NYSE:UAN) is a publicly traded limited partnership that produces and sells nitrogen fertilizer products for agricultural and industrial customers. Its principal products include ammonia and urea ammonium nitrate (UAN) solution, which are used by farmers to supply nitrogen to crops.

The company operates nitrogen fertilizer manufacturing facilities in Coffeyville, Kansas, and East Dubuque, Illinois. These locations allow CVR Partners to serve agricultural markets primarily in the central United States, including areas within the U.S. Corn Belt and surrounding regions.

CVR Partners was formed by CVR Energy, Inc. and began operating as a publicly traded partnership in 2007. Its business is influenced by agricultural demand, crop economics, natural gas costs and other factors affecting fertilizer production and distribution.

CVR Partners Q3 2024 Earnings Call Transcript

Key Takeaways

• CVR Partners reported Q3 net sales of $125 million, net income of $4 million, adjusted EBITDA of $36 million, and declared a $1.19 per unit distribution for the quarter.
• The company achieved 97% ammonia plant utilization with combined ammonia production of 212,000 gross tons and saw year-over-year price increases of 9% for ammonia and 3% for UAN.
• Direct operating expenses fell by approximately $3 million year-over-year due to lower natural gas and electricity costs, while Q3 maintenance capital spending was $10 million and total 2024 capex is guided at $39–42 million.
• CVR Partners ended Q3 with $150 million of liquidity ($111 million cash plus $39 million ABL availability), generated $36 million EBITDA, and had $13 million of cash available for distribution.
• Looking ahead, the company anticipates a mid-cycle fertilizer price environment with Q4 prices up ~$50/ton for ammonia and $10/ton for UAN, while pursuing a ~$10 million feedstock flexibility project and monitoring geopolitical risks.

Presentation

[Operator]

Greetings, and welcome to the CVR Partners Third Quarter 2024 Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Richard Roberts, of Financial Planning and Analysis and Investor Relations. Thank you, sir. You may begin.

[Richard Roberts, Head of Investor Relations at CVR Partners]

Thank you, Christine. Good morning, everyone. We appreciate your participation in today's call. With me today are Mark Pytosh, our Chief Executive Officer, Dane Neumann, our Chief Financial Officer, and other members of management. Prior to discussing our 2024 third quarter results, let me remind you that this conference call may contain forward-looking statements, as that term is defined under federal securities laws. For this purpose, any statements made during this call that are not statements of historical facts may be deemed to be forward-looking statements. You are cautioned that these statements may be affected by important factors set forth in our filings for the Securities and Exchange Commission and in our latest earnings release. As a result, actual operations or results may differ materially from the results discussed in the forward-looking statements.

[Richard Roberts, Head of Investor Relations at CVR Partners]

We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, public events, or otherwise, except to the extent required by law. This call also includes various non-GAAP financial measures. The disclosures related to such non-GAAP measures, including reconciliation of the most directly comparable GAAP financial measures, are included in our 2024 third quarter earnings release that we filed with the SEC for the period. Let me also remind you that we are a variable distribution MLP. We will review our previously established reserves, current cash usage, evaluate future anticipated cash needs, and may reserve amounts for other future cash needs, as determined by our General Partner's Board.

[Richard Roberts, Head of Investor Relations at CVR Partners]

As a result, our distributions, if any, will vary from quarter to quarter due to several factors, including, but not limited to, operating performance, fluctuations in the prices received for finished products, capital expenditures, and cash reserves deemed necessary or appropriate by the Board of Directors of our General Partner. With that said, I'll turn the call over to Mark Pytosh, our Chief Executive Officer. Mark.

[Mark Pytosh, CEO at CVR Partners]

Thank you, Richard. Good morning, everyone, and thank you for joining us for today's third quarter call. The summarized financial highlights for the third quarter of 2024 include net sales of $125 million, net income of $4 million, EBITDA of $36 million, and the Board of Directors declared a third quarter distribution of $1.19 per common unit, which will be paid on November 18 to unitholders of record at the close of the market on November 8th. Our facilities ran well during the third quarter of 2024, with consolidated ammonia plant utilization of 97%. Combined ammonia production for the third quarter of 2024 was 212,000 gross tons, of which 61,000 net tons were available for sale, and UAN production was 321,000 tons.

[Mark Pytosh, CEO at CVR Partners]

During the quarter, we sold approximately 336,000 tons of UAN at an average price of $229 per ton and approximately 62,000 tons of ammonia at an average price of $399 per ton. Relative to the third quarter of 2023, ammonia sales volumes were in line, and UAN sales volumes were lower as a result of some unplanned downtime at the upgrading units at both facilities. Prices for the third quarter increased from the third quarter last year, with ammonia prices increasing 9% and UAN prices increasing 3%. After the peaks in nitrogen fertilizer pricing we saw over the past few years, we believe we're currently in a more of a mid-cycle type of environment, and we were encouraged to see ammonia and UAN prices for the third quarter increasing relative to the third quarter of last year.

[Mark Pytosh, CEO at CVR Partners]

Demand for summer UAN fill and ammonia fall prepay were strong, and customer inventory levels had been low ahead of fall. As a result, we have seen prices continue to increase for both ammonia and UAN since summer, which I will discuss further in my closing remarks. I will now turn the call over to Dane to discuss our financial results.

[Dane Neumann, CFO at CVR Partners]

Thank you, Mark. For the third quarter of 2024, we reported net sales of $125 million and operating income of $11 million. Net income for the quarter was $4 million, or $0.36 per common unit, and EBITDA was $36 million. Relative to the third quarter of 2023, the increase in EBITDA was primarily due to a combination of higher market prices for ammonia and UAN and lower feedstock and operating expenses. Direct operating expenses for the third quarter of 2024 were $56 million. Excluding inventory impacts, direct operating expenses decreased by approximately $3 million relative to the third quarter of 2023, primarily due to lower natural gas and electricity costs. During the third quarter of 2024, we spent $10 million on capital projects, which was primarily maintenance capital.

[Dane Neumann, CFO at CVR Partners]

We estimate total capital spending for 2024 to be approximately $39-$42 million, of which $31-$33 million is expected to be maintenance capital. We anticipate a significant portion of the profit and growth capital spending planned for 2024 will be funded through cash reserves taken over the past seven quarters. We ended the quarter with total liquidity of $150 million, which consisted of $111 million in cash and availability under the ABL facility of $39 million. Within our cash balance of $111 million, we had $31 million related to customer prepayments for the future delivery of product. In assessing our cash available for distribution, we generated an EBITDA of $36 million and had net cash needs of $23 million for interest costs, maintenance CapEx, and other reserves.

[Dane Neumann, CFO at CVR Partners]

As a result, there was $13 million of cash available for distribution, and the Board of Directors of our General Partner declared a distribution of $1.19 per common unit. Looking ahead to the fourth quarter of 2024, we estimate our ammonia utilization rate to be between 92% and 97%, with some potential downtime at the third-party air separation unit at Coffeyville expected in the quarter. We expect direct operating expenses, excluding inventory impacts, to be between $60 and $70 million, and total capital spending to be between $19 and $23 million. With that, I will turn the call back over to Mark.

[Mark Pytosh, CEO at CVR Partners]

Thanks, Dane. In summary, we had another good quarter operationally with ammonia utilization of 97%, and we were pleased to see pricing for the third quarter of 2024 come in higher for both ammonia and UAN compared to the third quarter of 2023. We saw strong demand for our products over the summer, which, combined with plant disruptions and natural gas issues in certain global markets, has led to fertilizer prices increasing from the levels we saw in early summer. Harvest is nearing completion and ahead of schedule, and corn yields are expected to be the highest in history. The USDA is estimating yields of almost 184 bushels per acre on 91 million planted acres of corn and inventory carryout levels of approximately 13%. Soybean yields are estimated to be at 53 bushels per acre on 87 million acres planted, with inventory carryout levels also estimated around 13%.

[Mark Pytosh, CEO at CVR Partners]

Corn prices have been weaker, with the expectation of a large U.S. crop, and December corn prices are currently at $4.15 per bushel, roughly in line with prices from July. With the early harvest, we believe conditions will be favorable for fall ammonia application, and prices for fourth quarter are up approximately $50 per ton for ammonia and $10 per ton for UAN compared to the fourth quarter of 2023. Geopolitical risks continue to represent a wild card for the nitrogen fertilizer industry, given the significant fertilizer production capacity residing in countries across the Middle East, North Africa, and Russia. We continue to monitor developments in the Middle East that could impact energy and fertilizer markets, and we expect the remainder of 2024 and 2025 will likely be periods of higher than historical volatility in the business.

[Mark Pytosh, CEO at CVR Partners]

Natural gas prices in Europe have increased $1-$2 since our last earnings call, trending around $13 per MMBtu for the fourth quarter, while U.S. prices remain in the $2-$3 per MMBtu range. Although the cost to produce nitrogen fertilizer in Europe has remained lower than in 2023, it is still at the high end of the global cost curve, particularly compared to the U.S. We continue to believe Europe faces structural natural gas market issues that will likely remain in effect over the next two years. At our Coffeyville facility, we're progressing on detailed engineering studies on the potential to utilize natural gas as an alternative feedstock to third-party petcoke, and we expect to have these studies completed later this year.

[Mark Pytosh, CEO at CVR Partners]

If this project is approved by the board and successfully implemented, it could give us the ability to choose the optimal feedstock mix and be the only nitrogen fertilizer plant in the U.S. with that flexibility. As a reminder, if this project were implemented, we would likely continue to utilize the petcoke supplied by the adjacent Coffeyville refinery, while the remainder of the feedstock could be flexed between natural gas and petcoke depending on prevailing prices. With crude oil prices down, we have seen a softening of petcoke prices in the U.S. and expect to see our petcoke cost decline in 2025. We also began implementing certain debottlenecking projects at both plants that are expected to improve reliability and production rates.

[Mark Pytosh, CEO at CVR Partners]

The board elected to continue reserving capital in the third quarter that we expect to spend over the next two to three years, as we focus on improving reliability and redundancy at the two plants in efforts to provide better production rates and lower downtime in the future. We began spending capital on these projects in the third quarter of 2024, with funds coming from reserves taken over the last seven quarters. The third quarter continued to demonstrate the benefits of focusing on reliability and performance. In the quarter, we executed on all of the critical elements of our business plan, which include safely and reliably operating our plants, with a keen focus on the health and safety of our employees, contractors, and communities, prudently managing costs, being judicious with capital, maximizing our marketing and logistics capabilities, and targeting opportunities to reduce our carbon footprint.

[Mark Pytosh, CEO at CVR Partners]

In closing, I'd like to thank our employees for their excellent execution, achieving 97% ammonia utilization and solid delivery on our marketing and logistics plans, resulting in a distribution of $1.19 per common unit for the third quarter. With that, we're ready to take questions, Christine.

[Operator]

Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Thank you. Our first question comes from a line of Brian DiRubbio with Baird. Please proceed with your question.

[Brian DiRubbio, Managing Director and High Yield Corporate Bond Analyst at Baird]

Good morning, gentlemen. A couple of questions for me. First off, just with the river levels on the Mississippi normally low again, is that having a positive impact on Corn Belt prices for UAN and ammonia?

[Mark Pytosh, CEO at CVR Partners]

We haven't seen any major impacts on either of those. A lot of the ammonia was positioned already, and there's a lot of ammonia that moves into the Corn Belt from pipeline. And same on UAN. A lot of what's needed in Corn Belt's moved by rail, so it hasn't had a big impact on the marketplace. We're watching it closely more for grain movements. So as harvest is nearing completion, the ability to move grain could be impacted, and so we're following that closely to see how high storage gets and the ability to move grain from the Midwest to the Gulf.

[Brian DiRubbio, Managing Director and High Yield Corporate Bond Analyst at Baird]

Got it. That's helpful. Thank you. And just with the Coffeyville natural gas project, I know you said you're going to complete some of the front-end engineering studies this quarter, but any rough guesstimates on how much that would cost and how the company would look to fund that investment?

[Mark Pytosh, CEO at CVR Partners]

I'll start with the second question first. We've been setting aside reserves for growth capital, and that capital would be taken out of the reserve if it's approved, and we roughly think it's about a $10 million project is what we think now, but that would be part of the reserve that we've set aside for growth projects for the plant.

[Brian DiRubbio, Managing Director and High Yield Corporate Bond Analyst at Baird]

Got it. I doubt you're going to be able to answer this, but earlier this year, there was a 13D filing on your sister company, CVR Energy, potentially about a large owner evaluating options for CVR Partners. Any developments there that you're able to discuss or comment on?

[Mark Pytosh, CEO at CVR Partners]

We don't really have anything to report on that, the 8-K that was filed, and so no new news this quarter to report on that.

[Brian DiRubbio, Managing Director and High Yield Corporate Bond Analyst at Baird]

Appreciate all the color. Thank you so much.

[Mark Pytosh, CEO at CVR Partners]

Thanks, Brian.

[Operator]

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

[Mark Pytosh, CEO at CVR Partners]

Again, thanks everyone for joining our call today, and we look forward to reviewing our fourth quarter results in February. So thanks and have a good day.

[Operator]

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.

Participants

Executives

• Mark Pytosh, CEO
• Richard Roberts, Head of Investor Relations
• Dane Neumann, CFO

Analysts

• Brian DiRubbio, Managing Director and High Yield Corporate Bond Analyst at Baird