Q4 2020 CVR Partners LP Earnings Call
Yeah.
Greetings and welcome to the CVR partners L. P fourth quarter 2020 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 Senior manager of financial planning and analysis 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, Tracy Jackson, Our Chief Financial Officer, and other members of management.
Prior to discussing our 2024 year results. Let me remind you that this conference call may contain forward looking statements as that term is defined under federal securities laws.
This purpose any statements made during this call are not statements of historical facts may be deemed to be forward looking statements.
And you are cautioned that these statements may be affected by important factors set forth in our filings with the Securities and Exchange Commission and on our latest earnings release and.
As a result actual operations or results may differ materially from the results discussed and 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 and required by law.
Let me also remind you that CVR partners completed a one for 10 reverse split of its common units on November 23, 2020 and.
And he per unit references made on this call are on a split adjusted basis.
This call also includes various non-GAAP financial measures and disclosures related to such non-GAAP measures, including reconciliation to the most publicly to the most directly comparable GAAP financial measures are included in our 2020 for your earnings release that we filed with the SEC yesterday after the close of the market.
Let me also remind you we are a variable distribution MLP.
<unk>, our previously established reserves current cash usage.
And future anticipated cash needs and May reserve amounts for other 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 and the prices received for finished products and 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 <unk>, Our Chief Executive Officer Mark.
Thank you Richard and good morning, everyone and thank you for joining us for today's call.
The summarized financial highlights for the full year 2020 included net sales of $350 million and net loss of 98 million EBITDA of 41 million, which was reduced by 41 million dollar non cash goodwill impairment and we repurchased over 623000 and CVR partners common units for <unk>.
$7 million.
Looking more specifically at the 2024th quarter, and we reported net sales of $90 million net.
Net loss of $17 million, and EBITDA and 18 million, we repurchased nearly 394000 and CVR partners common units for $5 million and there is no cash available for distribution this quarter.
During the fourth quarter 2020, we had strong utilization at both facilities and Coffeyville the ammonia plant operated at 99% utilization compared to the fourth quarter of 2019 at 90%.
And east Dubuque, the ammonia plant operating and 103% utilization compared to 88% and the prior year period adjusted for last year's scheduled turnaround.
And our combined operations produced approximately 220000 gross tons of ammonia of which 75000 net tons were available for sale from the fourth quarter of 2020.
This compares to production of 180000 gross tons of ammonia of which 55000 net tons were available for sale and the prior year period.
We produced 335000 tons of UA and in the fourth quarter of 2020 and.
And as compared to 286000 tons and the prior year period, which was impacted by the planned turnaround at east Dubuque.
During the fourth quarter of 2020, we sold approximately 325000 tons of you and on average price of $139 per ton.
And approximately 114000 tons of ammonia and average price of $267 per ton.
Year over year pricing soften for you and and ammonia, which were down 21% and 18% respectively.
Oil prices for nitrogen fertilizers were soft for most of the year prices began to increase and the fall as crop prices and farmer economics improved the.
The combination of improving farmer economics, and favorable weather drove a strong fall ammonia application season, and that strength has carried over into spring demand as well.
And outlook for spring plantings and demand for crop inputs remained strong, but the USDA estimating $92 million and planted corn acres. This year.
This is translating into significantly higher prices for UA and and ammonia for the spring, which I will discuss further in my closing remarks, I will now turn the call over to Tracy to discuss our financial assets. Thank you Mark turning.
Turning to our results for the full year 'twenty and 'twenty, we reported net sales of $350 million and an operating loss of $35 million compared to net sales of 404 million and and and operating income of $27 million for the full year 2019.
Net losses for the full year 2020 were $98 million or $8 77 per common unit and EBITDA was 41 million. This compares to a net loss of 35 million or $3.90 per common unit and EBITDA of $107 million for the full year of 2019.
As a reminder, our full year 'twenty and 'twenty results were reduced by $41 million noncash goodwill impairment related to the Coffeyville facility taken and the second quarter and year over year decline in EBITDA was driven primarily by the goodwill impairment and lower prices for you a and and ammonia.
For the fourth quarter of 2020, and we reported net sales of $90 million and an operating loss of $1 million compared to net sales and $86 million and an operating loss of $9 million in the fourth quarter of 2019 net losses for the fourth quarter 2020 were $17 million or $1 53 per common unit and EBITDA was 18.
Million.
This compares to a net loss of $25 million or $2 20 per common unit and EBITDA of 11 million for the fourth quarter of 2019.
The increase in EBIT was driven primarily by higher sales volume was offset somewhat by lower pricing for Atlanta and pneumonia.
Direct operating expenses for the fourth quarter of 2020 decreased to $44 million from 46 million and the prior year period, excluding inventory impacts direct operating expenses declined by approximately 4 million year over year, primarily related to turnaround and associated expenses incurred in the fourth quarter 2019.
For the full year 2020, and we reduced operating expenses and SG&A costs by over $23 million compared to the full year 2019, a direct result of our cost savings initiatives.
Turning to capital spending during the fourth quarter of 2028, and we spent 3 million primarily on maintenance capital for the full year 2020, and we spent approximately 16 million of which $12 million was for maintenance capital total capital spending for the hurricane and below our expected range of 18 to 21 million as a result of a shift and timing of certain capital projects.
And the subsequent years and currently estimate total capital spending for 2021 to be 23 to 26 million of which $18 million to $20 million is expected to be maintenance capital and this excludes turnaround spending, which we expect will be approximately $8 million.
Looking at the balance sheet as on December 31, we had approximately $51 million and width of liquidity, which was comprised of $31 million and cash and availability under our ABL facility of $20 million within our cash balance of 31 million and we had approximately $8 million related to customer prepayments for the future delivery of product total debt on.
The balance sheet remains at $647 million, which is comprised of 645 million and senior notes due in 'twenty and 'twenty, three and 2 million of senior notes due in April 2021.
As we have discussed in recent earnings calls refinancing. The 2023 notes remains one of our top priorities continued strength and the debt capital markets may provide an opportunity to pursue and refinancing at favorable rates and the next few months. We are currently considering options that would allow us to delever the partnership along with refinancing the existing notes one scenario.
It would be to refinance the majority of the 2023 notes that we've established Mt. Outstanding that will you be able to pay down over the next few years. We are currently and the process of evaluating structures that could allow us to generate and monetize and 45 key and tax credits from the C. O. Two we capture at the Coffeyville facility.
We are still relatively early and the process, but we would expect to be able to get something done in 'twenty and 'twenty, one and can provide additional cash to be used to reduce our total debt outstanding.
And assessing our cash available for distribution, we generated EBITDA of $18 million for the quarter at current cash needs of $15 million for debt service and 10 million from environmental and maintenance capital expenditures.
During the quarter, we repurchased nearly 394000 common units for total cash consideration of $4 8 million. In addition, the board of directors of our general partner and established reserves of $1 5 million for the planned turnaround at Coffeyville and 2021 as a result, there was no cash available for distribution.
During the quarter, we regained compliance with the New York Stock Exchange continued listing standards through the completion of a one for 10 reverse split on November 23rd.
Looking ahead to the first quarter of 2021, despite reducing operating rates and used to be last week due to the extreme weather condition, we estimate our ammonia utilization rate to be greater than 90 per cent for the quarter. We expect direct operating expenses to be $35 million to $40 million, excluding inventory impacts and total capital spending to be between four and $7 million.
With that I will turn the call back over to Mark.
Thanks, Tracy since the last earnings call. There has been continued improvement and crop prices and farmer economics from the 2020 planning season, and the USPS USDA estimates that planted corn acres were $90 million.
And yield per acre was 172 on.
On the demand side ethanol blending remains at lower level from last year due to lower gasoline demand, however, lower ethanol related corn demand and the U S has been more than offset by Chinese and other demand for corn and the.
U S. VA is now estimating U S carryout inventories of $1 $5 5 billion bushels for 11% of domestic production.
That is down over 50% from the summer 2020 estimates.
Crop forecast for Argentina, and Brazil are also lower than previous estimates and soybean demand from China has been much greater than expected.
And this change and fundamentals led to a rally and grain prices with corn recently trading at around $5 50, a bushel and soybeans at $14 per bushel stronger farmer economics led to a robust fall ammonia application and accelerating demand for all crop inputs for spring <unk>.
While demand for ammonia was the best it has been and several years, we believe that industry wide ammonia inventories were very low after the fall and prices and remain firm through the winter.
We have also seen strong follow on demand for ammonia for spring application and have a good order book for the season.
Since the beginning of 2021 urea prices have rallied significantly across the globe prices rose to a peak of $370 per ton on February with robust demand and advance the spring application.
After a lower pricing and the second half of 2020, UA and prices have fallen urea and demand has been robust for spring application even at much higher prices.
For producers natural gas prices have risen and approximately 50.
Per <unk>, but international and natural gas prices have doubled or tripled due to strong demand and limited increase and supply the spread between domestic and international and natural gas nearly reached parity and the summer of 2020, but is now over $5 per <unk> to higher on average and international markets compared to domestic.
Pricing.
Lower domestic natural gas prices getting U S nitrogen fertilizer producers a cost advantage compared to international producers and reduces the incentive to run at high margin low operating rates of production.
The recent severe weather across the Midwest caused many nitrogen fertilizer production facilities to be temporarily shut down due to limited natural gas availability and war extremely high regional natural gas prices. The loss of production. This loss of production should further tightened nitrogen fertilizer inventories in advance of spring.
As Tracy mentioned, the recently issued 45, two tax credit regulations may provide an attractive opportunity for CVR partners. We currently sell a significant amount of the CODI generated at Coffeyville to and independent oil company for sequestering through enhanced oil recovery.
We also use a portion of the CODI generated for the production of urea and has been further upgraded to UAS.
Both of these these processes should qualify there for the generation of 45% <unk> tax credits.
On the final IRS regulations published in January.
Currently and the process of evaluating different structures that can allow us to maximize the value and the partnership from these tax credits and I look forward to providing additional information as we get further along on the process.
The sequestering of Sidoti Coffeyville, combined with the nitrous oxide abatement at both of our plants and has reduced our carbon footprint by over 1 million metric tons per year.
With these reductions we could certify our ammonia production and Coffeyville as blue ammonia and position CVR is one of the lowest carbon footprint and nitrogen fertilizer producers and the U S and <unk>.
Turning to evaluate other methods of reducing our carbon footprint at both plants and we will provide updates when we are prepared to implement changes.
Any proceeds generated from 45, two tax credits would likely be directed towards reducing our total debt outstanding and.
We also anticipate a refinancing of our debt structure at lower rates.
Combination of lowering our debt service costs, and reducing outstanding debt with lower our annual cash burn rate for debt service and improve the partnership's ability to consistently generate free cash flow and continue to delever.
We have patiently waited for the right opportunity and want to take advantage of day, improving fertilizer market and attractive debt markets.
As I mentioned earlier, we continued to repurchase our units during the fourth quarter of 2020, and total we repurchased over 623000 and CVR partners common units for $7 million during the year, leaving approximately $3 million available on the original authorization at year end <unk>.
Despite the strong performance of the unit since November we continue and continue to feel they are significantly undervalued and the board of directors since improvement and an additional $10 million unit repurchase authorization, which would enable the partnership to repurchase common units should and will like to do and its discretion.
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 contractors and communities.
And we will continue to prudently manage our cost and be judicious with our capital, but selectively invest and reliability projects and incremental additions to production capacity and we will maximize our marketing and logistics activities and closing I would like to thank our employees for their commitment to being healthy safe and flexible and <unk>.
And the company executed at a high level, while managing the impact of COVID-19 and <unk>.
The extreme weather these past two weeks with that operator, and we'll take questions.
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.
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Participants using speaker equipment, it may be necessary to pickup your handset before pressing the star keys, one moment, please while we poll for questions.
Thank you. Our first question comes from the line of Roger Spitz with Bank of America. Please proceed with your question.
Thank you and good morning.
Oh.
Regarding the share to.
Tax credits.
Perhaps you can tell how we should think about that how much cash could you potentially generate.
Why would you receive it and.
It sounds like it's more of like an ongoing cash receipt as opposed to a one time, but maybe you can just trying to tell us how to think about that.
I'll take the first step out and Mark can add to it. It is a tax credit program that will pay or reduce taxes potentially by whatever structure. We ended up going with over a 10 year period of time and.
And we have initial estimates, but theyre very preliminary and we're not prepared to disclose those yet.
Just add that we are.
Still on an early phases.
On the regulations have just been final for a month. So we're still on a pretty early phase of exploring structures and what the value potential and the theory.
And our case, we've been operating our facility for seven years.
So we've already been <unk>.
Questar and two for seven years and so we are grandfathered under the regulations. The regulations also are there to incentivize future projects first.
And for sequestration, but we will be grandfathered in but we have a long tail on the ability to claim those credits and so we're looking at different avenues for how do we maximize the value.
But I mean does the regulations and why to look back and get.
You know crystallize some tax credits from the past seven years.
No it doesn't really do that the starting point of the regulation will be 2018.
If you had a plant and service. So the start date would be 2018, and you have to reach a threshold for how much sequester and you do so we could go back further and time than that.
And the reason I'm asking is you suggested a way to address your nine quarters.
And is perhaps a day on market situation of course.
And you'll be filing and but we have said and majority of them on.
And the <unk>.
Repaired remarks.
And then use and CRT and Pops credits for the rest so I'm just trying to figure out within this year.
And how big how much cash you can get crystallized from that.
You know the.
From minority part of that.
Uh huh.
Five.
Well it is a possibility and it's one scenario that we would leave a stub portion out but if we approach the market and we get and exceptional rate. We may opt to leave all of the outstanding debt on the balance sheet.
That and the advantageous lower rate and not hold us stand out to pay down. So there were and the preliminary stages of evaluating whether we're going to do that or not its just one potential outcome.
And as soon as we establish our structure around the 45 Qs, we'll have a better idea of timing on which if we chose to leave and stop out we would start to pay that down and.
And so I know that's a non answer but we're trying to give you as much information as we can very early and the process.
I appreciate that one last thing separately.
You said the plot that is for 2021 is that from $23 million to $26 million, but that does not include an additional $8 million of turnaround Capex did I.
Right on.
What is your policy Bill and east Dubuque turnaround schedule over 'twenty and 'twenty, one 'twenty and 'twenty two.
So first of all the $8 million of turnaround expense.
Yes.
And so that runs through the P&L.
Our schedule right now as were on.
And we're targeting a fall 2021 turnaround per.
Coffeyville and similar and probably it's.
It's early but fall 2022 turnaround at East Dubuque.
Thank you very much.
Our next question comes from the line of Richard <unk> with Jefferies. Please proceed with your question.
Hey, guys. Thanks for taking my questions.
So you mentioned it a little bit east Dubuque down last week due to some of the weather situation.
Was there any issue in Coffeyville and then my follow up on East Dubuque would be.
Operationally driven was it a function of natural gas pricing and what have you guys or what are your expectations around the input.
For Q1 as a result of some of these issues.
I'll start at Coffeyville, because thats pretty simple we didn't have any major disruptions at coffeyville.
Because the plant uses petroleum coke as a feedstock.
And for making hydrogen.
And so the plant operated during the week, we navigated around gas availability and electricity availability and Kansas that was a factor for all plants, and Oklahoma and Kansas last week at East Dubuque.
And that was more opportunistic.
We had pre purchase gas there and to plan and decided that it was made more sense to take the plant down and sell the gas into the marketplace rather than operating so we.
That was more of an economic decision not it wasn't on operational decision at East Dubuque.
Got you and interesting and I guess, what is the potential EBITDA impact as a result of that and it seems I mean, you obviously wouldn't have done that if it was if it was going to be negative for you.
Yes, we're not in a position to quad.
Quantify that but obviously, we thought it was a better idea to to take the plant down and it was to run yes.
Conditions were.
Gotcha and.
Then lastly from me, obviously, we've seen a pretty significant run up and and nitrogen fertilizer prices.
You guys, maybe give a sense of how much book you had sold forward at lower prices and then how much you expect to be able to benefit over the next quarter or two from from the higher pricing that we're seeing share.
And so we're always selling forward. So we if you look at our fourth quarter that was sold and forward during the I'd say, the lower point and the marketplace.
But in the first quarter, we were selling as we entered the year into the first quarter and so on prices were rising and so youll see.
We're kind of seeing a gentle rise on the first the full effect of the rise and fertilizer pricing will be seen in the second quarter.
Where that the prices from January one forward and risen quite a bit but.
We will see more of that rise in the <unk> and the second quarter I think that the problem.
Probably the most interesting opportunity is the spring is going and we think the spring will be very good depending on the weather if the weather holds up and get a good application but.
We think inventory levels have been.
And as low as they've been and several years, a number of years and that should carry through to the spring and into the summer.
Which would help the second half of the year, we believe because inventory levels came into the year low and with the production outage last week virtually all but a lot on nitrogen plants from the United States.
And that further tightens the inventory level. So we feel very good about the overall.
On supply demand balance plus with farmer economics, and crop prices and the way they are and we feel very good about the spring, but you'll see the full.
<unk> on the pricing impact and the second quarter this year.
Got it alright, I really appreciate it good luck guys.
Our next question comes from the line of Brian <unk> with Robert W. Baird. Please proceed with your question.
Good morning.
As we think about.
Net leverage reduction and what are you.
Are you targeting as a sort of.
Leverage going forward.
We don't really we have not talked about it in terms of what we are targeting and we just recognized that our debt burden or our service costs on a quarterly basis take a meaningful amount of available EBITDA off the table for us to have a recurring cash available for distribution number and so.
And in terms of reducing to a specific leverage ratio that changes so much with EBITDA and it's really not a meaningful target and I think on a comparative basis with the peer group and you can see that we're substantially more levered than they are.
And so lower than it is now with a more sustainable debt service cost profile.
Okay, that's fair given the volatility.
And just the capital allocation priorities and you've been buying back some shares.
Key buybacks and debt at a discount a few months ago.
Is it really now just focused on this refinance and then youre going to be spending more money towards shareholder returns.
I would just say that.
We want to get through the next step first.
And see a lot of it is going to depend on the market.
If prices are headed Durably higher then the board will have to reconsider all of that and sort of how they allocated capital.
And but the first step would be.
Deliver on our results this year and execute and get on refinancing done and then look at the cash flow profile and decide the board will decide how to move forward from there.
So.
I'd say, it's too early to call what what we will do.
Very long into the future and we want to see how this how the market's turning and then how the refinancing will go.
Okay, and then just on the refinance and give me a sense of.
What's the sense of urgency is with you and the board.
On your bonds do step down.
<unk>.
And about four months.
And so that's something you're willing to wait on or is there a greater sense of urgency to get this refinancing done sooner than later on.
On the rates certainly don't justify doing it just now I mean, if there is something that happens where rates fall through the floor. Then we may but at this point, we are anticipating aligning with that fault at par.
That's fair and then just finally mark.
Little surprised with the drop and pet coke prices and the.
Quarter, both sequentially and year over year.
Any dynamics that you can.
Share with us on the reason for that decline and I think you had your contract for us well and.
Mexico expire in December of last year, any thoughts on sort of the new pricing dynamics that we should expect going forward.
Sure.
So theres two different.
Buckets and pet Coke with the refinery.
The Coffeyville refinery, which is our sister company.
Have a contractual fee.
<unk> out there that is tied to the price of UAS and with fueling and prices being low the price of pet Coke was low.
And so that help pull the average down for the year I would say pet coke prices generally were.
Contractual prices were pretty steady.
Spot pricing is really dependent on the time and sometimes that can get expensive.
What we did this year compared to last year for 2021 was we actually have contracted with.
And I call on our family of refineries.
We're not really spread around our sourcing further than we did in the past.
And we used to be two and then we kind of went to three and so were up to for now and that gives us more flexibility of the crude slate changes if the production levels down and if theres a turnaround we're drawing from a portfolio. There is a group of refineries within striking distance of Coffeyville and so we've brought.
And our portfolio to lessen the impact of any particular refinery and that mix.
Great and I apologize.
One more.
Are you seeing any shifts right now and trade flows.
Sure.
With respect to the UAE and in particular I know the EU cash.
Chris So.
So the distorted historical freight flows on board a lot of imported UA and it's in the U S.
Any comments or thoughts on current dynamics of what youre seeing and the market today.
So a couple of things there one.
The low prices and in the second half of 2020.
Discouraged.
Has discouraged and the first quarter 2021, and the importance of UA and so the numbers I saw here recently, where that the forecast for the first quarter as it UA and imports will be down around 500000 tons.
Which is a pretty meaningful amount.
And so the low price did there.
The trick on the marketplace by reducing the incentive and then prices were rising faster elsewhere, so that and found a home.
Either in Latin America, or in Europe, and so.
We've seen that kind of a trade flows adjust.
The interesting thing about UA and this year will be.
And <unk>.
Pending on what the availability of ammonia and the weather there may be a push at the end of the season for top dress and side dress for UA and because we don't get enough ammonia on the ground and.
Usually the April time frame and the core of the Midwest. So there may be and additional draw on UA and this year, just because of the the physical ability to deliver ammonia, which usually ammonia and UA and go together and urea is still price at a premium so it's sort of favor UA and right now but.
And catching up let's call it a plot and the marketplace, but the.
The imports are well down from last year.
Great I appreciate the color. Thank you so much.
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.
Well, we appreciate everybody.
Pending today, and we look forward to discussing our first quarter results here and a couple of months. Thank you very much for your time.
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.