Q4 2019 Earnings Call
Greetings and welcome to be CVR Partners LP fourth quarter 2019 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 systems. 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 Jay Finks, Vice President Finance and Treasurer. Thank you you may begin.
Thank you Michelle good morning, everyone.
We appreciate your participation in today's call will.
With me today are more probably gosh or Chief Executive Officer, Tracy Jackson, our Chief Financial Officer, and other members of management.
Prior to discussing our 2019 full year in fourth quarter results. Let me remind you that this conference call may contain forward looking statement.
That term as defined under federal Securities laws.
For this purpose.
Statements made during this call that are not statements of historical facts, maybe deemed to be forward looking statements.
Moving to foregoing the words outlook believes anticipates plans expects and similar expressions are intended to identify forward looking statements.
You are cautioned that these statements may be affected by important factors set forth in our filings with the Securities and Exchange Commission and then our latest earnings or at least.
As a result actual operations or results may differ materially from the results discussed in the forward looking statements.
We undertake no obligation to publicly update any forward looking statements, whether as a result of new information future events or otherwise like step to the extent required by law.
Well also includes various non-GAAP financial measures.
Disclosure led to such non-GAAP measures, including reconciliations to the most directly comparable GAAP financial measures are included in 2019 fourth quarter earnings release that Weve filed with the as you see yesterday I think most of the market.
That said I'll turn the call remark Pytosh, our Chief Executive Officer Mark.
Thank you Jay good morning, everyone and thank you for joining us for today's call.
Before I got to the highlights I wanted to thank our employees for great Environmental health and safety performance this year.
As process or process safety events declined by 75% and environmental events declined by 64% in 2019 versus 2018.
To summarize financial highlights for the for the 2019 full year included net sales of 404 million a net loss of 35 million and EBITDA of 107 million.
Looking more specifically at the 2019 fourth quarter, we reported net sales of 86 million and that loss of 25 million and EBITDA of 11 million.
There is no cash available for distribution this quarter.
During the fourth quarter 2019, we completed the planned turnaround at East Dubuque in mid October and finished the quarter with strong operating performance at both facilities. Following the completion of the turnaround needs to be if we hit a new record for ammonia production at that facility in December.
At Coffeyville, the ammonia plant operated at 90% utilization for the quarter compared to 96% for the fourth quarter 2018.
At East Dubuque, the ammonia plant operated at 88% utilization adjusted for the planned turnaround compared to 95% for the fourth quarter 2018.
Our combined operations produced approximately 180000 gross tons of ammonia 286000 tons of UN and 55000 tons of ammonia available for sale in the fourth quarter 2019.
This compares to production of 209000 gross tons of ammonia 357000 tons of you weigh in and 59000 tons of ammonia available for sale in the fourth quarter 2018.
We sold a total of approximately 293000 tons are you again during the fourth quarter of 2019 at an average netback price of $176 per tonne, which was a 2% price decrease from the fourth quarter 2018.
In addition.
We sold a total of approximately 62000 tons of ammonia during the fourth quarter 2019 at an average netback price of $324 per tonne, which was consistent with the fourth quarter 2018 price.
The extreme weather conditions in the spring of 2019 cost the late planting season, which in turn led to a delayed grain harvest in the fall.
Continued wet weather in the fall made the environment for nitrogen application less than optimal which led to a week price environment in the fourth quarter 2019, similar to what we saw in the fourth quarter 2018. However, our outlook for 2020 remained optimistic as we expect an increase in planted corn acreage, which I will discuss further.
Works I will now turn the call over to Tracy to discuss our financial results. Thank you Mark turning to our results for the full year 2019, we reported net sales of 404 million an operating income of 27 million compared to net sales of 351 million and operating income of 6 million for the full year 2018 net.
Losses for the full year 2019 were 35 million or 31 cents per common unit and EBITDA was 107 million. This is compared to a net loss of 50 million or 44 cents per common unit and EBITDA of 84 million for the full year 2018, the approximate 27% increase in EBITDA year over year was primarily due to the into.
Netback pricing at 20% of 15% for both ammonia and UAN, respectively, along with a 19% increase in ammonia sales volumes.
For the fourth quarter 2019, we reported net sales for the period of 86 million and an operating loss of 9 million compared to net sales of 98 million an operating income of 8 million in the fourth quarter 2018 net losses for the fourth quarter 2019 were 25 million or 22 cents per common unit and EBITDA was 11.
<unk> million. This comparison, a net loss of 1 million or one cents per common unit and EBITDA of 33 million for the fourth quarter 2018. The decrease in EBITDA was driven primarily by turnaround expenses incurred in the fourth quarter 2019, along with a 20% reduction anyway in sales volumes and a 2% decline and you in pricing as a risk.
Well to the late fall harvest and challenging weather conditions in the quarter.
Direct operating expenses for the fourth quarter 2019 increased to 46 million from 38 million in the prior year period.
Excluding inventory impacts direct operating expenses increased by approximately 2 million year over year, primarily related to turnaround expenses and higher personnel costs, partially offset by benefits from utility cost improvement.
During the fourth quarter 2019, we spent 9 million on primarily maintenance capital for the full year 2019, we spent approximately 20 million of which 18 million was for maintenance capital at our two facilities.
Total capital spending for the year came in at the low end of our expected range of 20 to 25 million as a result of the shift in timing of certain capital project into subsequent years. We currently estimate total capital spending for 2020 to be 23 to 27 million of which $19 million to $21 million is expected to be maintenance capital. This ics.
Let's turn around spending, which we expect will be approximately 8 million.
Looking at the balance sheet as of December 31st we had approximately 62 million of liquidity, which was comprised of 37 million in cash full availability under the ABL facility, a 50 million lift 25 million cash included in our borrowing base within our cash balance of 37 million, we had approximately 9 million related to customer prepayment.
As for the future delivery and product our long term gross debt and finance lease obligations of 647 million, including current portion remains unchanged.
In assessing our cash available for distribution, we generated EBITDA of 11 million for the quarter had total cash leaves a 15 million forget service 7 million for environmental and maintenance capital expenditures and the board of directors of our general partner authorized to release of previously established cash reserves, a 7 million, leaving no cash available for distribution.
We are variable distribution MLP, we will review our previously established reserves evaluate future anticipated cash needs and May reserve amounts for other future cash needs as determined by our general partner forward as a result, our distributions if any will vary from quarter to quarter due to several factors, including but not limited to.
<unk> operating performance fluctuations in the prices received for finished product capital expenditures and cash reserves deem necessary or appropriate by the board of directors of our general partner with that I will turn the call back over to Mark. Thanks Tracy.
As I've mentioned on the past several calls we are focused over the next five years on improving the reliability of our plants and de bottlenecking incremental ways to gain added production for low capital investment.
Since coming out of the turnaround at East Dubuque in October the plan has had record production levels of ammonia due to the work we did on the reformer. The board has approved or urea expansion project at our Coffeyville plant, which is expected to be completed during the turnaround scheduled for the fall of this year.
This project will focus on improved reliability and de bottlenecking of our urea plant.
It should allow for improve utilization rates and higher UAN production.
There were there was a confluence of of weather factors that impacted the transition period from fall to spring and weighed on our fourth quarter results grain harvest was delayed as a result of a late planting season due to extreme weather conditions in the spring of 2009 2019 wet weather in the fall then slow the ammonia application in the northern.
And planes and farmers were not able to apply the desired amounts of ammonia.
Like last year, we expect a portion of the normal fall nitrogen demand to be shifted to the spring of 2020. The late harvest in poor fall ammonia application also slowed the timing of farmers purchases of nitrogen fertilizer for spring application.
Similar to last year ammonia orders that were not fulfilled during the fourth quarter were shifted to our spring order book.
Additionally, in the EU end market, we are in the first planting seeds and after the EU confirm tariffs in October on using an importer from Russia, Trinidad and the U.S. This has created a resetting of the trade flows with more you a intuit tons exported exported to or remaining in the U.S.
This shifting of trade flows commenced watt, while the market with contending with excessive moisture that led to pour application conditions in the spring and fall 2019, while we expect the market to continue to add some near term volatility. We expect the trade flows to normalize over time as they have with new capacity additions in the past.
Offsetting some of the pricing issues has been lower natural gas cost natural gas prices were significantly lower in the fourth quarter 2019, compared to 2018 and they have fallen further since the beginning of this year.
East Dubuque benefits directly from lower natural gas cost for production and Coffeyville benefits through lower electricity cost, we consider our overall production cost to be competitive with the other domestic producers.
Looking to the spring normal weather should allow inventory levels to become balanced after three consecutive application periods with poor weather.
We expect corn planting due increased to 90 to 95 million acres and with slower purchasing by customer. This year in advance of planting we expect to see strong in season purchase of nitrogen fertilizer.
I want to reiterate that the partnership will continue to focus on maximizing free cash flow by safely operating our plants reliably and at high utilization rates prudently managing our costs being judicious with our capital, but selectively investing in reliability projects and incremental additions to production capacity and maximizing our market.
We're going to logistics activities.
In closing I would like to thank all of our employees for their contributions in 2019 to significantly improve our environmental health and safety metrics and safely completing the planned turnaround at east Dubuque.
With that Michelle we are ready to answer any questions.
Thank you will now be conducting a question and answer session.
Ask a question. Please press star one on your telephone keypad, a confirmation telling more indicate your line is in the question in queue. You may prestart too if you'd like to some of your question from the Q for participants you think speaker equipment and may be necessary to pick up your handset before pressing the star Keith one moment, please only poll for questions.
Our first question comes from the line of Adam Samuelson with Goldman Sachs. Please proceed with your question.
Yes, thanks, good morning, everyone.
Morning.
So so I guess first.
On the market side, I mean, you've had a pretty sharp fall in new and values.
Some our sale.
And I'm, just trying to think about how.
Could you characterize especially in all out how far it's fallen.
I don't think about counting the book of business in the first half the year, how much we've done if any of carrying over from summer fill price levels versus kind of at the new lower levels and does the changing and trade flows impact kind of your plant level realizations or should we be thinking about something.
The meeting kind of the Midwest benchmark.
Okay. There there were several questions in that question I'll try to take let's take it in sequence I think from the events.
If you think about in past markets. Adam we typically are trying to sell I wouldn't call perfectly ratably, but we typically sell on a regular basis. So we we don't sell and peaks and valleys and so.
We like we did last year coming into this year, we had already sold.
Decent part of the first quarter tonnage.
Back in the fourth quarter.
That's typical on that when customers are coming in and that was after the Phil.
And and Theres prices have really fall on more at the since the beginning of the year as as producers were trying to sell first quarter tonnage declare inventory to manage and wait for the spring.
And so we had already sold at a good chunk of our our first quarter tonnage.
The I think the no we'll probably talk about that and so I think that the first quarter, we feel very comfortable their position and we're just waiting for spring at this point.
And we've been very selective and participating in when we sell tonnage the NOLA prices quoted a lot, which as I for you a in particular is not a particularly liquid point in the market and I would say, it's kind of an extreme measure compared to if you looked at the inland pricing.
You know in the Midwest or in the Northern Plains, it's very the spread there has been much wider than historically, what's posted a noah.
And obviously theres been some tonnage coming into Noah So I think thats been a little distorted in terms of what's what the pricing appears to be but clearly.
The buyers were were slower to purchase this year as I mentioned in my comments and.
And so producers have been selling here in the first quarter declare the keeper inventory levels comfortable to get to the spring. We're all waiting for the spring, including the buyers to a degree so I feel pretty I feel very good about our position I felt good about the spring I think there's pent up demand in.
The spring for nitrogen because it didnt get on in the fall on the buyers had been kind of slow to come in.
Actually a little more concerned about the logistical parts. It whenever we have these events where people wait.
And then everybody wants to tonnage at the same time, the logistical network in the United States isn't set up for just in time.
Delivery, particularly either rail or barge.
And so and there is theres the high water in the Mississippi, Sobi clearly, our rail system, United States and water in the Mississippi logistics aren't Super easy So long winded answer but.
I do expect conditions to get better here in the spring as demand starts to come in for application.
That's a lot of very helpful color and then just a little bit.
Clarity on the urea.
De bottlenecking sweaters.
Anyway to frame the capital just any income.
Meaningful incremental capital expenditure.
With the turnaround and how much incremental kinda urea.
You to actually be producing could that improve your out you lay it out but thanks.
I'll start with the back end to that question. We're we're not ready to sort of post what we think the incremental production, but Tracy quoted our expectations for capital this year, which should be pretty might be a few million higher than 2019, but we're trying to fit that urea project inside our kind of what I call our normal.
Spending rate of $20 million to $25 million for capital. So it's not it's the turnaround is going to be steered towards that project is a bigger part of the turnaround, but but we're not going to we're not going to be spending really outside of our normal boundary of total capital if that makes sense.
No thats.
Super helpful. I appreciate the color I'll pass it off.
Thank you we have reached the end of our question and answer session I'd like to turn the call back over to management for any closing remarks.
Again I'd like to thank thank.
Thank everybody for joining the call today and your interest in and CVR partners.
And we look forward to talk into next quarter for the first quarter results. Thank you.
Thank you. This concludes today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation and have a wonderful day.