Q3 2020 CVR Partners LP Earnings Call
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It is now my pleasure to introduce your host Richard Roberts.
Senior manager of F., DNA and Investor Relations. Thank you Sir you may begin.
Thank you Christine good morning, everyone. We appreciate your participation in today's call with me.
Today are Mark <unk>, our Chief Executive Officer Trey.
She Jackson, our Chief Financial Officer.
Members of management.
Prior to discussing our 2023rd quarter results. Let me remind you that this conference call may contain forward looking statements that term is defined under federal securities laws.
This purpose any statements made during this call that are not storable facts, maybe deemed to be 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 in our latest earnings release as.
It was all 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, but.
But its mostly related to such non-GAAP measures, including reconciliation to the most directly comparable GAAP financial measures arc would've never 2023rd quarter earnings release that we filed with the FCC yesterday after the close of the market.
Let me also remind you that we are variable distribution MLP. We will review our previously established reserves current cash usage evaluate future anticipated cash needs and there was ever a mouse for under under future cash needs as determined by our General Partners Board.
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 I'll turn the call over to Mark Pytosh, Our Chief Executive Officer, Mark. Thank you Richard Good morning, everyone and thank you for joining us for today's call.
Summarized financial highlights from the third quarter 2020 included net sales of 79 million a net loss of 19 million and EBITDA 15 million we.
We repurchased 1.5 1.4 billion CVR partners common units from one point Threemillion and there's no cash available for distribution the score.
During the third quarter 2020, we had strong utilization at both facilities.
Coffeyville, the ammonia plant operated at 97% utilization compared to the third quarter of 2019 at 98%.
At East Dubuque.
The ammonia plant operated at 99% utilization compared to 97% in the prior year period adjusted for last year's schedule turnaround.
Our combined operations produced approximately 215000 gross tons of ammonia of which 71000 that talks were available for sale from third quarter 2020. This.
This compares to production of 196000 gross tons of ammonia of which 56000 net tons were available for sale in the prior year period.
It is 330000 tons of you I am in the third quarter 2020, as compared to 318000 tons in the prior year period.
During the third quarter 2020, we sold approximately 365000 tons to you again at an average price of a $140 per ton.
And approximately 54000 tons of ammonia at an average price of $242 per ton.
Where your pricing softened for UAN, and ammonia, which are down 23, and 28% respectively.
Natural gas pricing was lower as well, helping to offset some of the UAN and ammonia price weakness.
Prices for nitrogen fertilizers have been softer this year recently, we've seen improvements in crop prices and farm economics that make us cautiously optimistic about an uptick in fertilizer pricing from these wells the supply demand balance for corn is looking more favorable market conditions are improving which I will discuss further in my closing remarks.
I will now turn the call over to Tracy to discuss our financial results. Thank you Mark turning to our results for the third quarter of 2020 reported net sales of 79 million and an operating loss of 3 million compared to net sales of 89 million and an operating loss of 8 million in the third quarter of 2019 net losses for the third quarter of 2020.
Were 19 million or 17 cents per common unit and EBITDA was 15 million. This compares to a net loss of 23 million or 20 cents per common unit and EBITDA of 11 million for the prior year period, the year over year increase in EBITDA was driven by higher sales volumes and lower operating expenses offset somewhat by lower prices for.
Our ammonia and UAN.
Direct operating expenses for the third quarter of 2020 decrease to 39 million from 48 million in the prior year period, excluding inventory in turnaround impacts direct operating expenses decreased by approximately 3 million or 7% compared to the same period last year as we make progress on our cost reduction efforts.
Turning to capital during the third quarter of 2020, we spent 6 million on capital projects, which was primarily maintenance capital. We estimate total capital spending for 2020 to be approximately 18 to 21 million of which 13 to 15 million is expected to be maintenance capital turnaround expenses year to date were less than 1 million and we do not care.
We expect any significant turnaround expenditures for the remainder of 2020.
Turning to the balance sheet at the end of September we amended our ABL facility to extend the maturity out to September Thirtyth 2022, well also reducing the total commitment to 35 million and improving the borrowing base, including the elimination of cash and increasing the advance rate on certain eligible inventory and receivables.
As of September Thirtyth, we had approximately 74 million of liquidity an improvement of 21 million over June Thirtyth, which was comprised of approximately 48 million in cash and availability under the ABL facility of approximately 25 million within our cash balance of 48 million, we had approximately 10 million related to customer prepayments.
The future delivery of product total debt on the balance sheet remains at 647 million, which is comprised of 645 million of senior notes due in 2023 and 2 million of senior notes due in April of 2021 in.
In assessing our cash available for distribution, we generated EBITDA of 15 million and current cash needs us.
15 million for debt service and 3 million for maintenance capital expenditures during the quarter, we repurchased just over 1.4 million common units for total cash consideration of 1.3 million. In addition, the board of directors of our general partner established reserves of 1.5 million for the plant turnaround at Coffeyville and 2021 as a result, there was no.
Cash available for distribution.
Looking ahead to the fourth quarter of 2020, we estimate our ammonia utilization rate to be between 95, and 100%. We expect direct operating expenses to range between 37, and 42 million, excluding inventory impact and total capital spending to be between five and 8 million with that I will turn the call back over to Mark.
Thanks, Tracy since our last earnings call. There has been a market improvement in crop prices and farm economics.
The U.S.T. I estimate estimates were planted corn acres were lowered in September to 91 million acres from the initial estimate of 97 million.
During the summer and there were drought conditions in parts of the Midwest and the unusual for retro storm that struck I one other parts of the Midwest damage to over 10 million acres of corn.
On the demand side ethanol blending remains at lower levels than last year due to lower gasoline consumption, but this has largely been offset by an increase in other domestic and Chinese demand for core.
Actually as a vaccine or therapeutics are developed for Carbonite team, we expect to see an uptick in gasoline consumption in ethanol blending and in turn an increase in corn demand for that usage soybean demand from China has been far greater than expected as well as.
As a result, the drought conditions under retro Skandi Ustašas currently forecasting lower expected yields on harvested acres and therefore, much lower expected corn inventory levels. All of these factors have led to a rally in crop prices since the July log prices corners rallied from $3, an eight cents per bushel to over $3 or 95 cents per bushel.
Joel and soybeans rallied from age 70 per bushel to over 10 50 per bushel weather conditions have also been favorable in September and October and the harvest those largely complete leaving the fields ready for ammonia application, we expect solid demand for all ammonia. This fall and have already seen the ammonia run began in the upper Midwest we can.
Senator healthy farm economics to be one of the most important factors for fertilizer demand in the coming years and market conditions have improved substantially up in that regard.
While urea prices have exhibited strength since July, especially with multiple India tenders ammonia and UAN prices have been relatively flat for the past three months.
As we enter the fall ammonia application, we can see growing interest on these two men pets relative to your real we think the markets may gravitate towards the traditional pricing relationships among ammonia urea and UAN, where today ammonia and UAN are favorable on a price per pound a nitrogen.
Since the last earnings call natural gas prices have risen over a dollar per MB two and the curve shows natural gas prices rising further for the rest of the year and into the winter higher.
Higher natural gas prices will lower the incremental incentive for producers to run at full capacity.
I also want to highlight a press release, we issued on October 5th about CVR its efforts to reduce its carbon footprint reach.
Recently, our Coffeyville facility certified its first carbon offset credits for reducing nitric oxide emissions in one of our acid plants. Previously we installed similar units at both of our asset class at East Dubuque and I've been on average abating. The vast majority of our nitric oxide emissions over the past five years.
Following these efforts with our ongoing process for carbon sequestration through enhanced oil recovery at our Coffeyville facility. We are now able to reduce our carbon dioxide equivalent emissions by over 1 million metric tons per year between the two plants with.
But the reduced carbon footprint at Coffeyville, we could seek to certify our ammonia production is below and we believe that as part of the energy transition new customers going forward will be seeking blow ammonia. That's a potential energy source that is produced a low carbon footprint.
Finally on our first quarter earnings call. We discussed the continued listing notice that we received from the New York Stock Exchange in April as a result of our average closing unit price falling below one dollar.
I Havent till January Onest of 2021 to regain compliance as such the board of directors of our general partner has authorized a one for 10 reverse split of our common units effective after the close of the market on November 23rd.
Unit holders will receive one unit for every 10 units owned at the close of business on November 20, Threerd with fractions rounded to the nearest whole unit.
We continue to believe our units are undervalued. However, we consider the reverse split a necessary step towards regaining compliance with the New York stock exchange listing standards.
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 prudently managing our costs being judicious with our capital, but selectively investing in reliability projects and incremental additions to production capacity and maximizing our marketing and logistics activities.
In closing I want to thank our employees for their commitment to being healthy safe and flexible and helping the company execute at a high level during the third quarter, while managing the impact to COVID-19.
We're all looking forward to returning to more normalized conditions with that we're ready to take questions.
Thank you we will now be conducting a question and answer session.
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Thank you. Our first question comes from the line of Adam Samuelson with Goldman Sachs. Please proceed with your question.
Yes, thanks, good morning, everyone.
Good morning, Adam.
Hi, So I guess Mark first I wanted to just maybe.
A little bit on the.
On the marketing strategy, given kind of where that you end markets that you did.
Did some of the volumes in the in the third quarter are kind of still slow to capture any of the spring pricing I guess I'm trying to wrap my head around the third quarter, marking kind of a new quarterly record on UAN sales, but that's the low point of the year from a pricing perspective I just want to know if that included some of the spring pricing punit.
I would say not really much effect on spread from spring pricing.
Phil occurred earlier this year. So yeah, we came into the third quarter basically with the fill book So the third quarter pricing is really the fill pricing, particularly for you and but even ammonia in the summer film was done early in this year. So the third quarter as does not have any.
The spring pricing yet.
Fundamental.
Just a.
A rounding error.
Okay, and so in that context, I mean is that it typically kind of when you guys got Joe's heart failure, you tend to do it for the whole second half or have you given yourself more kind of open space as you move it kinda into the latter part of this year and early next to potentially capture a rising market I'm just trying to.
Think about kind of the scope for earnings leverage is making sure shouldn't be poised for nitrogen about you or something.
Yeah, we never we haven't really been selling the whole second half and we always have the ability to <unk> I would say move tons around from a delivery timing perspective, so we can capture capture pricing opportunities.
And so.
You know were we typically would sell into the fourth quarter, but and wait and see for the market. The left it has the last couple of years. It Didnt really lift until we got closer to the end of the year and ended the first quarter. So.
Yes, that's been the pattern in the last couple of years. Historically, if you go back further and always there was the fill price and then there was a lift by September October it's been a little slower to lift. These last couple of years in the September October and then in December January typically the price increased around that time so.
We have opportunities to take orders and yes, we can jump in and take advantage of market opportunities and we're kind of waiting to see I think with the fall ammonia application will have a better idea of where demand is going to be on pricing, but we feel a lot more optimistic about kind of where things are headed than.
And then we did say on the last earnings call conditions have improved I'd say significantly in terms of farm level economics, and I I don't really know any business that does well if their customers are healthy financially and doing well and that's really change that's the big change since the last call.
Okay, and then final one for me just just looking at the capital structure of the business I mean, you've got about 80 million you got about 20 million $68 million fixed charges to spin the interest on the bonds.
Sustaining kind of capital run rate.
That's kind of the EBITDA kind of level, you've got a clear before you're generating any cash do you think that.
The business has the wherewithal to weather through this or how.
How are you evaluating our thinking about different kind of capitalization opportunities at some point get out those bonds when they when they when they come due or before that but I'm just trying to think about kind of different options as you evaluate.
Well I'd just tell you that we have we've you know even in sort.
Sort of 2017, we used a little bit of cash, but we typically havent been using any cash so I'm very comfortable with our structure and quite frankly.
We're not in a rush to refinance you know until the market is.
Good price for us, but I think from a cash flow perspective, either this year or next year, we feel very comfortable with our.
Our cash position cash flow position, and it's really about being opportunistic with the refinancing of that piece of paper. So I don't see any dramatic changes in our cap structure or anything like that we're not nervous about anything we feel very comfortable with where we are we have weathered I think the worst part of this storm was really the I'd say.
In the tail end of the first quarter end of the second quarter when.
Yes, it was very unclear what the demand profile and I'd say we've recovered.
You know faster than we thought we would and then a little different way than we thought we would and I'd say, we're pretty lined up for.
We're not going to we're not doing any sharing or no rainbows here, but I think we feel pretty good about 2021.
So we're going to be opportunistic about when the debt markets are going to offer us a chance to re Fi.
The Boston area.
Alright, great I really appreciate the color. Thank you.
Thanks.
[noise]. Thank you we have reached the end of the question and answer session. I would now it's 20 floor back over to management for closing comments.
Well I just want to thank everybody for being on the call today and hope that you are safe and healthy and.
We're talking to you in February for our fourth quarter call. Thank you very much.
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.