Q2 2020 CVR Partners LP Earnings Call

Hello, and welcome to the CVR Partners LP second quarter, net 20 conference call.

Oh I.

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The answer session.

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If anyone should require operator assistance during the conference. Please press Star zero.

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Being recorded it does not my pleasure to introduce your host Mr., Richard Roberts Investor Relations manager. Thank you Sir you may begin.

Thank you Michelle good morning, everyone.

We appreciate your participation in today's call.

With me today are Mark <unk>, our Chief Executive Officer, Tracy Jackson, our Chief Financial Officer, and other members of management.

Prior to discussing our 2022nd quarter results. Let me remind you that this conference call may contain forward looking statements as that term as defined under federal Securities law.

For this purpose any statements made during this call but are not statements of historical facts may be deemed to be forward. Looking statements. You are cautioned that these statements maybe affected by important factors set forth in our filings with Securities Exchange Commission and in our latest Springs really.

The result.

We'll operations or results may differ materially from the results discussed in the forward looking statements.

Undertake no obligation to publicly update any forward looking statements whether as a result, the new information future events or otherwise except to the extent required by law.

This call also includes various non-GAAP financial measures disclosures related to such non-GAAP measures, including reconciliations to the most directly comparable GAAP financial measures ARQ <unk> 2022nd quarter earnings release, we filed with the FCC yesterday after the close of the market.

Let me also remind you that we are favorable distribution and LP.

You are previously established reserves current cash usage, you evaluate future anticipated cash needs and they reserve amounts for other future cash needs as determined by our general partner sport.

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 or our general partner.

That said I'll turn the call over to Mark <unk>, Our Chief Executive Officer Mark.

Thank you Richard Good morning, everyone and thank you for joining us for today's call.

Summarized financial highlights for the second quarter or 2020 included net sales of 105 million.

Net loss of 42 million.

EBITDA of negative 2 million, which included a non cash goodwill impairment 41 million.

We repurchased approximately 890000 CVR partners common units for approximately 1 million.

There's no cash available for distribution this quarter.

During the second quarter 2020, we had strong utilization at both facilities at Coffeyville. The ammonia plant operated at 98% utilization above the second quarter of 2019 at 97% at East Dubuque, the ammonia plant operated at 101% utilization compared to 98% in the prior year period.

Our combined operations produced approximately 216000 gross tons of ammonia of which 79000 that tons were available for sale to the second quarter 2020.

This compares to the production of 211000 gross tons of ammonia of which 71000 tons were available for sale in the prior year period.

We produced 321000 tons are you I am the second quarter and 2020 as compared to 316000 tons in the prior year period. We sold approximately 337000 tons are you and during the second quarter 2020 at an average price of $165 proton.

In addition, we sold approximately 111000 tons of ammonia during the second quarter 2020 at an average price of $332 per ton.

Year over year pricing softened for UAN, and ammonia, which were down 24% in 27%, respectively natural gas pricing was lower as well helping to offset some of the you add an ammonia price with us.

For the first time in several years, we saw normal weather conditions for spring fertilizer application, resulting in approximately 92 million acres, a corn planted an increase of over 2 million acres versus last year.

Nitrogen fertilizer prices remain soft however, as producers take advantage of the low natural gas price environment. It continue running at high utilization.

We have a good order book for the coming months following the summer fill at fault prepay for UAN and ammonia, which I will discuss further in my closing remarks, well now turn the call over to Tracy to discuss our financial results. Thank you Mark turning to our results for the second quarter 2020, we reported net sales of 105 million and an operating loss of two.

Many 6 million compared to net sales of 138 million at the operating income of 35 million in the second quarter 2019, as a result of the decline in ammonia and UAN prices and overall challenging business environment. We recorded a non cash goodwill impairment of 41 million and our second quarter 2020 results, including this noncash.

Cash charge net losses for the second quarter 2020 were 42 million or 37 cents per common unit, an EBITDA was negative 2 million. This compares to net income of 19 million or 17 cents per common unit and EBITDA of 60 million for the prior year period, a year over year decline was driven by the goodwill impairment and lower prices for ammonia.

Van direct operating expenses for the second quarter 2020 decreased to 40 million from 46 million in the prior year period, excluding inventory impacts direct operating expenses decreased by approximately 3 million compared to the same agreed last year as he phased in our cost reduction efforts, primarily due to lower utilities on late breaker.

Fences.

Turning to capital spending during the second quarter 2020, we spent 3 million on capital projects, 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.

Turnaround expenses for the full year are expected to be less than 1 million.

Looking at the balance sheet as of June Thirtyth, we had approximately 53 million in liquidity, which is comprised of approximately 33 million in cash availability under the ATM facility of approximately 46 million less 25 million any cash included in our borrowing base within our cash balance of 33 million, we had approximately 1 million related costs.

From a pre payments for the future delivery of product total debt on the balance sheet remains at 647 million, which is comprised of 645 million a senior notes due in 2023 and 2 million of senior notes due in April 2021 to 2 million of senior notes due next year I've been reclassified to the current liability on the balance sheet.

In assessing our cash available for distribution, we generated EBITDA negative 2 million, which includes the 41 million noncash goodwill impairment. We had current cash needs a 15 million for debt service and 2 million for maintenance capital expenditures. In addition, during the quarter, we repurchased approximately 890000 common units for.

Total cash consideration of approximately 1 million and recaptured 5.9 million of cash used for operating losses in the first quarter.

The board of directors of our general partner established reserves, a 14.5 million for a portion of the unplanned for for the plans turnaround at Coffeyville and 2021 repayment of the senior notes due April 2021 for future operating needs of the business. As a result, there was no cash available for distribution.

Looking ahead, we estimate our ammonia utilization rate for the third quarter 2020 to be between 95% in 100%. We expect direct operating expenses to be approximately 37 to 42 million, excluding inventory impact and total capital spending to be between three and 6 million without I turn the call back over to Mark.

Thanks, Tracy [noise] weather conditions for spring fertilizer application and planting work largely normal in 2020, except in the northern Plains.

Our employees and customers took measures to address health and safety concerns with Kobin 19, but we're able to operate normally and deliver under the tight time French implanted.

We shipped record levels of ammonia April from East Dubuque facility and maintained consistent you weigh in shipments from both plants throughout the quarter.

We also shipped our first unit train from Coffeyville and May have sold additional unit trains to ship in the fall.

As at the end of June the U.S.D.A. Davidson planting intentions report to lower the estimated planted corn acres for U.S. farmers for 97 million acres to 92 million. This is consistent with our estimates from the first quarter call and what the demand we experience from customers during the spring.

The next important data point will be some are growing conditions, so far as temperatures this summer, but hotter than normal, causing some to debate some debate around the plausibility of Ustašas estimated yield per acre of 178 half bushels of corn.

With the lower planted corn acres inventory carry out will be higher than last year, but much lower than the market was expecting three months ago.

Fortunately corn prices remain at the lower end of the range. This year because of demand concerns demand for gasoline and ethanol. It's improved since our last call, but it's looking like more of an elongated recovery than a V shaped recovery.

Between the yield experience on the corn harvest and the continued recovery in gasoline and ethanol demand, which accounts for approximately one third of domestic.

Foreign demand, we expect the corn markets to continue to be volatile in the coming months.

However, the reduction and plan to corn acreage has provided some cushion against the downside in 2021.

Yeah wage in early July the summer you and Phil was completed and we have good volume in our order book for the coming months customers also bought ammonia for the summer fill in fall pre paid during June and July we're seeing higher prices from various markets sources for fourth quarter 2020 in first quarter 2021, So we think that the summer.

Bill should represent the bottom in nitrogen fertilizer fertilizer prices in the near future.

What prices were lower in the fill season compared to last year demand was strong and lower fertilizer prices were partially offset by lower natural gas prices. This summer as compared to last summer.

Since March natural gas prices have been trending between 50 cents on a dollar parameter beats you are lower than last year and the curve shows lower natural gas prices for the rest of the year compared 2019.

Since we have no turnarounds planned for the second half a 2020, our current role is to run at full capacity for the balance of year.

As Tracy mentioned, we repurchased approximately 890000 units in the month in June given the performance of the units in 2020, we continue to fill their significantly undervalued.

I want to reiterate this 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.

We will prudently manage our costs and be judicious with our capital, but selectively invest in reliability projects and incremental additions to production capacity and maximize our marketing logistics activities.

In closing I'd like to thank our employees for their commitment to being healthy safe flexible and helping the company executed at a high level, while managing the impact to covert 19th we all look forward to returning to more normalized conditions with that ready to take questions.

Thank you, we'll now be conducting quick question and answer session. It feels like that's the question. Please press star one on your telephone Pete.

Information total indicate your line is in the question to.

You May proceed starts to you, but you have your question from the yeah.

Well I just since you didn't see correctly, maybe necessary to pick up your hands that before passing the stocks to use one only play but we thought for your question.

Our first question comes from the line Adam Samuelson with Goldman Sachs. Please proceed with your question.

Hi, everybody. This is actually getting for Adam that's normal.

Yeah, we cast good morning. Good morning. So the first question as requested Universal It's really quick could you provide some more details on the impairment and then what that was for exactly.

I Didnt can you repeat the question did I understand that.

Because we just provide more color there on the details of the impairment and what was actually being imported.

Sure it be we had $41 million of goodwill recorded on our books from the farmland acquisition, because we normally do our valuation assessment towards the end of the year, but with significant decline in prices towards the ended the quarter. We felt like we had a triggering event that required us to pull our or.

Celebrate our valuation into the second quarter that was completed by an external from and indicated that an impairment was necessary, it's only related to goodwill.

Okay. That's it.

And then two more questions.

The first one which he could provide some color on you weigh on inventory segment in the spring and into this and that they'll programmable how it differs from the past several years.

Sure.

What I would say it or system, our inventories were quite low coming through at the end of June.

There was a good pretty plant and then the side dress about dress were good so and I think generally the feeling was that the inventory levels were.

Normal too.

I think it a good shape maybe.

Lower than normal just because of the season, but to them.

Yeah, we've got good going into the summer on on new way and in terms of inventory level.

Oh no final question be <unk>.

Thank you have any.

That's on financing plans into the next couple of years my name evaluating essentially new financing opportunities on your debt and the cost remembered I'm done that.

It has come down we continue to monitor the high yield markets and look for opportunities to.

See if we can bring that rate in a little bit and decrease our interest burden.

And as you know the interest markets the high yield market in particular has been pretty volatile although improving the last couple of weeks. So we'll just keep monitoring for an opportunistic window.

<unk> metal that me thank you.

Thank you.

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.

I just want to thank everybody for being on the call today, and we look forward to speaking to you. After the third quarter. He is completed and in October. Thank you.

Thank you. This concludes todays teleconference. You may disconnect. Your lines. That's fine. Thank you for your participation have a wonderful day.

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