Q1 2020 Earnings Call
Greetings and welcome to the CVR Partners LP first quarter 2020 conference call.
At this time, all participants are any listen only mode.
A question and answer session will follow the formal presentation.
When you watch require operator assistance during the conference. Please press Star Zero on your telephone Keypad. As reminder, this conference is being recorded.
Now my pleasure to introduce your host Mr., Jay Thanks, Vice President Finance and Treasurer. Thank you you may begin.
Thank you Michelle good morning, everyone.
We appreciate your participation in today's call.
With me today.
Oh, My gosh, or Chief Executive Officer, Tracy Jackson, our Chief Financial Officer, and other members of management.
Pardon disgusting or for 2021st quarter results.
In my view that we are variable distribution MLP.
We will review our previous attempts reserves current cash usage evaluate future anticipated cash needs and memory server amounts for other future cash needs assay to remember our general partners Board.
As a result or distribution, if any will vary from quarter to quarter due to several factors, including but not limited to operating performance fluctuations in prices received for finished goods.
Expenditures cash reserves deemed necessary or appropriate by the board of directors over general partner.
Let me also remind you that this conference call may contain forward looking statements.
That term as 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.
I'm wondering if we're going towards a one 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 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.
We undertake no obligation to publicly update any forward looking statements, whether as a result of new information future 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 reconciliations to the most directly comparable GAAP financial measures are included in our 2021st quarter Granger lease that we filed with the FCC yesterday after the close in the market.
With that said I'll turn the call or more quite popular Chief Executive Officer Mark.
Thank you Jay good morning, everyone and thank you for joining us for today's call.
To summarize financial highlights for the first quarter of 2020 included net sales and 75 million net loss of 21 million.
EBIT da of 11 million and there's no cash available for distribution this quarter.
During the first quarter of 2020, we experienced third party outages at the Coffeyville facility that led to approximately 10 days of unplanned downtime.
During the downtime at Coffeyville, we proactively completed maintenance work at the facility that allows us to move its planned turnaround from the fall 2020 to the summer 2021.
I think these third party issues Coffeyville operated as expected in the quarter. The ammonia plant operated at 86% utilization below the first quarter of 2019 at 96% the unplanned downtime from the third party outages impacted coffeyvilles utilization rate by approximately 9%.
We had strong utilization at east Dubuque facility. Following the completion of its planned turnaround last fall at East Dubuque, the ammonia plant operated at a 101% utilization compared to utilization of 69% in the prior year period.
As a reminder, in the fall, but the fall 2018 was severely impacted by weather, which caused additional ammonia inventory at east Dubuque to be carried into the first quarter 2019.
We manage our storage capacity levels by reducing ammonia utilization during that period last year [noise].
Our combined operations produced approximately 201000 grossed out into the ammonia and 78000 net tons of ammonia available for sale for the first quarter at 2020.
This compares to production of 179000 gross tons of ammonia and 41000 net tons of ammonia available for sale in the prior year period.
We produced 317000 tons of you weigh in on the first quarter 2020, compared to 335000 tons to you and last year.
We sold approximately 284000 times, the UAE and during the first quarter of 2020 at an average price of $166 per ton.
In addition, we sold approximately 54000 tons of ammonia during the first quarter of 2020 at an average price of $264 per ton.
Year over year pricing remained soft for UAN, and ammonia, which are down 25% at 28% respectively.
Okay and pricing continued to be impacted by additional imports into the us from Russia and Trinidad as a result of the tariffs. The ammonia market also remained well supplied with customers having carried over inventories after the poor fall application season, which put pressure on pricing.
Natural gas pricing was lower as well, helping to offset some of the oil price weakness.
In the first quarter, we saw normal activity from our customer base as they prepare for the spring planting season.
So far spring application has been robust and we continue expect a healthy increase to planted corn acreage compared to last year, which I will discuss further in my closing remarks, I will now turn the call over Tracy to discuss our financial results. Thank you Mark turning to our results for the first quarter 2020, we reported net sales of 75 million.
Operating loss of 5 million compared to net sales of 92 million an operating income of 9 million in the first quarter 2019 net losses for the first quarter 2020, or 21 million or 18 cents per common unit and EBITDA was 11 million. This compares to a net loss of 6 million or five cents per common unit and EBITDA.
26 million for the prior year period, a year over year decline in EBITDA was driven predominantly by lower prices for ammonia anyway in [noise].
Direct operating expenses for the first quarter 2020, or 35 million inline with the prior year period, excluding inventory impacts direct operating expenses were 39 million also consistent with the prior year period.
Turning to capital spending during the first quarter 2020, we spent 6 million on capital project, which was primarily maintenance capital. We estimate total capital spending for 2020 to be approximately 19 to 23 million of which 14 to 16 million is expected to be maintenance capital.
Around expenses for the full year are expected to be less than 1 million looking at the balance sheet as of March 31st we had approximately 83 million of liquidity, which was comprised of 58 million in cash availability under the ABL facility, a 50 million less 25 million of cash and put it in our borrowing base.
Within our cash balance of 58 million, we had approximately 37 million related to customer prepayments for the future deliveries product our long term growth that finance lease obligations of 647 million, including the current portion remains unchanged.
In assessing our cash available for distribution, we generated EBITDA of 11 million and had total cash needs a 15 million for debt service and 4 million for maintenance capital expenditures. In addition, we released 3 million a cash reserves from prior quarters for maintenance turnaround in other operating needs.
As a result, there was no cash available for distribution looking ahead, we estimate our ammonia utilization rate for the second quarter 2020 to be between 95% in 100%. We expect direct operating expenses to be approximately 35 to 40 million, excluding inventory impact and total capital spending to be between six and 10 million without trying to called.
Over to Mark [noise].
Thanks Tracy.
The first quarter, we saw normal customer activity levels as customers were preparing for the spring planting season.
During March as a result of Cobot 19, we took measures at our facilities to have non essential employees work remotely and adjusted staffing schedules in locations to maximize social distancing.
We also modified our load out process to protect our employees contract workers and drivers, while allowing the execution of the typical compressed application schedule.
Even with these added measures we were able to ship record levels of ammonia in April from both of our plants, while the fall ammonia application season was below expectations due to wet weather spring ammonia application has been robust throughout the Midwest.
Looking to the spring the U.S. da estimated in its most recent planting intentions report that the U.S.U.S. farmers from plant 97 million acres of corn.
This survey was taken in early March in our opinion did not take into account a significant decline of ethanol and corn prices in the weeks after the survey and before the spring planting season.
We still estimate planted corn acres to be.
Between 90 to 95 million acres, which would be a healthy increase compared to last year. We think it is too early to predict the timing and strength of recovery in demand for gasoline and ethanol, which will be driven by the pace of reopening of the U.S. economy and by ethanol exports.
Ethanol accounts for approximately one third of domestic demand for corn.
Despite these impacts from cobot 19 spring planting a following a normal pattern and we expect to see large private product movements in the second quarter.
During the quarter, we continue to see you weigh on price at a discount to urea on a per pound in nitrogen basis. The dynamics, we discussed on our last call regarding the impact of you tariffs on product from Russia, and Trinidad continued to impact the market. However, as we entered April urea prices strengthened and led to increasing prices for you a.
Although you and is still valued at a discount to urea. We believe on the margin that you and we will be favored versus urea for the remainder of the spring for top dress inside dress nitrogen application.
Continuing to offset some of the pricing issues has been lower natural gas cost natural gas prices youth in production were significantly lower in the first quarter 2020.
Averaging $2.42 per I meant to be to you as compared to $3.83 per mmbtu in the first quarter 2019 [noise].
Hey for the remainder 2020 looks attractive.
Where the forward strip is averaging $2 and 56 per mbps.
Outages caused by the third party air separation plant Coffeyville resulted in downtime at 10 days from December to March during this downtime, we took the opportunity to clean repair replace and inspect vessels and piping replace catalyst and certify equipment. As a result, we determined that the maintenance work that had been done supports our decision to push back call.
For those planned turnaround from the fall 2020 to the summer of 2021.
In addition, we are moving east Dubuque turnaround plan for the fall a 2021 to the second half of 2022.
With the weakness across the stock market from the Cobot 19 pandemic, our unit prices falling below a one dollar and we've received a continued listing notice from the New York, New York Stock Exchange.
We haven't till January onest of 2021 to regain compliance we will consider the appropriate actions to take if necessary as we get closer to that date.
Given the performance of the units recently, we feel they are significantly undervalued and the board has authorized a unit repurchase program of up to $10 million.
The authorization does not obligate the partnership to acquire any common units and may be cancelled or terminated by our general partners Board of directors at any time.
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, while focusing on the health and safety of our employees.
Prudently managing call our cost being judicious with our capital, but selectively investing in reliability project projects and incremental additions to production capacity and maximizing our marketing and logistics activities.
In closing I would like to thank all of our employees for their focus on being healthy unsafe flexible and committed to helping the company executed at a high level at a critical time of the year for our customers.
We all look forward to gradually returning to more normalized conditions with that we are ready to take any questions Michelle.
Thank you we will now be conducting a question and answer session. If you look like now the question. Please press star one on your telephone keypad confirmation Tom will indicate your line is in the question can you May proceed starts to you, but some of your question from the Q.
I just didn't do you think seek work within maybe necessary to pick up your handset before passing the Starkey one moment. Please only Paul for your question.
Our first question comes from the line Adam Samuelson with Goldman Sachs. Please proceed with your question.
Yes. Thank you good morning, everyone up everyone safe.
Thank you.
No.
Thank you so just mark just thinking about the market in a understanding kind of an outlook first first strong spring, but given some of the.
Right and make spacing units actually fit in the market in the second half of the year and potential for lower corn acreage next year, if corn holds where it.
Ethanol demand is what it is.
The only thing or the your view of the new way and cost curve, a and where you sit on it.
Well first of all Adam Let me, let me address the market.
Because were I would say the pretty early days of kind of a experiencing the recovery aspect of it obviously.
We have.
The benefit of our parent companies in the refining business and so we have the ability to kind of watch the dynamics of where gasoline is headed gasoline demand in particular in ethanol and.
Gasoline demand fell about 50% starting in March.
And most of the estimates that had been tossed around here in the last few days by other via by refiners have been that that that has bounced to the maybe 60% or 65% normal.
And so you know I everyone's concern we have we share that concern about where.
Gasoline demand is going to be and the the draw on ethanol, but I think it's pretty early to to make that call on a their first week in may.
But.
There's some encouraging signs about the gasoline demand. So I, just just to put that out there on the cost curve.
Globally ever a pretty much all the producers globally as seen benefit in the last 12 months.
From low natural gas prices LNG prices have gone down offshore.
We've seen obviously you can see in our numbers and the other producers in North America, how low natural gas has been.
What I would tell you there again early days, we don't really know yet, but it appears that some of the what's been driving that down may be taken out of the marketplace. The biggest driver probably globally has been associated natural gas from oil drilling.
And obviously activity there has fallen dramatically in the last month and the associated gas.
Component will be following there and if you can if you look further out on the natural gas curve.
I would say conditions appear to be changing the otherwise, it's not going up dramatically, but I think the benefit globally of what.
Well at low prices have met.
Probably is that bottomed.
The benefit we have begun to you asked is real probably I would expect to use to sustain the lowest natural gas prices in the world. So I would expect Qs producers when you combine natural gas plus a lower transportation costs.
That we will be by far the lowest cost producers in the world as it relates to delivering fertilizer in the Midwest in the U.S.. So I think we will be.
We've retained in fact, probably get a more of a spread in our competitiveness in 2021 as compared to what it's been like later in 2019 in 2020, so I expect it to improve actually.
Thank you we have reached the end of our question and answer session I'd like to turn the call back over management for any closing remarks.
Just one again, thank all our employees for.
Courageous efforts this quarter and the work they've done to support to be healthy unsafe and to support the company and I wish everybody on the call ill be careful and be safe and look forward to talking to you in the summer.
And hopefully in brighter conditions. Thank you very much for participating today.
Thank you. This concludes today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation and have a wonderful.