Q1 2021 CVR Partners LP Earnings Call
Greetings and welcome to the CVR partners first quarter 2021 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.
And 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 2021 first quarter 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 that are not statements of historical facts may be deemed to be forward looking statements.
For a caution that these statements maybe affected by important factors set forth in our filings with the Securities and Exchange Commission and and 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.
Let me remind you that CVR partners completed a one for 10 reverse split of its common units on November 23, 2020, and he per unit references made on this call around and split adjusted basis.
And also includes various non-GAAP financial measures and disclosures related to such non-GAAP measures, including reconciliation to the most directly comparable GAAP financial measures are included in our 2021 first quarter earnings release that we filed with the SEC yesterday after the close of the market.
And I also remind you that we are a variable distribution MLP. We will review our previously established reserves current cash usage evaluate future anticipated cash needs and May reserve amounts for other future cash needs as determined by our general partner for it.
And 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 capital expenditures and cash reserves deemed necessary or appropriate by the board of directors of our general partner, but that said I will turn the call over to Mark <unk>, Our Chief Executive Officer Mark.
Thank you Richard and good.
Good morning, everyone and thank you for joining us for today's call.
The summarized financial highlights for the first quarter of 2021 included net sales and $61 million and net loss of $25 million and EBITDA of $5 million.
We repurchased 24000, and CVR partners common units for half a million.
And Theres no cash available for distribution and this quarter.
During the first quarter 2020, one we experienced some unplanned downtime at Coffeyville due to an outage of a third party air separation unit and January.
Ammonia plant at Coffeyville operated at 87% utilization for the first quarter of 2020, one compared to 86% and the first quarter of 2020 that was also impacted by downtime due to third party outages.
And east Dubuque, the ammonia plant operating at 89% utilization compared to 101% and the prior year period. The result, and strong operations. Following a planned turnaround and the fall of 2019.
And the severe winter weather in February and caused the spike in natural gas pricing and we elected to shut in production at East Dubuque for several days and sold our contracted natural gas volumes into the market.
Our combined operations produced approximately 188000 and gross tons of ammonia of which 70000 net tons were available for sale for the first quarter of 2021 and this compares to production of 201000 gross tons of ammonia of which 78000 net tons were available for sale and the prior year period reported.
272000 tons of viewing and the first quarter of 2021 as compared to 317000 tons and the prior year period.
During the first quarter of 2021, and we sold approximately 239000 tons of UA and at an average price of $159 per ton and approximately 32000 tons of ammonia at an average price of $300 per ton.
Sales volumes and the quarter were impacted by the previous previously discussed downtime as well as shipping restrictions related to winter storm year.
Year over year pricing was 14% higher for ammonia for 4% lower for UA and.
As do UA and prices were more reflective of the November December price environment due to a forward sales agreements.
Nitrogen fertilizer prices have increased significantly since the start of the year and that strength continued into the spring planting season, although our first quarter results did not reflect increased spot market prices. We believe the stronger price environment will be more evident and our second quarter results.
<unk> strong crop prices are driving strong demand for crop inputs, 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 first quarter of 2021, we reported net sales of $61 million and an operating loss of $14 million compared to net sales and $75 million and an operating loss of $5 million and the first quarter of 2020 net losses for the first quarter of 2021 were $25 million or $2 37 per common unit.
And EBITDA was 5 million. This compares to a net loss of $21 million or $1 83 per common unit and EBITDA of $11 million for the prior year period, the year over year decrease and EBITDA was driven by lower sales volumes of Eliana pneumonia, and lower <unk> and sales.
Sales prices.
Direct operating expenses for the first quarter of 2021 were 37 million compared to $35 million and the prior year period.
Excluding inventory and turnaround impacts direct operating expenses increased by approximately 5 million primarily related to higher stock based compensation as a result of the increased unit price and elevated natural gas and electricity costs as a result of and winter storm here.
Turning to capital spending during the first quarter of 2021, we spent $3 million and capital projects, which was primarily maintenance capital. We estimate total capital spending for 2021 to be approximately 22 to 26 million of which 18% to $20 million is expected to the maintenance capital and this excludes turnaround spending which we expect to be approximately eight.
10 million and.
Looking at the balance sheet as at March 31, we had approximately $77 million of liquidity, which was comprised of approximately 53 million and cash and availability under the ABL facility of approximately $25 million within our cash balance of 53 million, we had approximately $39 million related to customer prepayments for the future delivery and product.
Total debt and the balance sheet remained at $647 million, which was comprised of $645 million of senior notes due in 2023 and $2 million of senior notes that were repaid in April and 2021.
Refinancing of our 900 quarter senior notes due in 2023 remains a key focus as a reminder, and these notes become callable at par and mid June between continued strength and the debt capital markets and the recent improvement and the fertilizer market. We believe we should be able to refinance the notes and a favorable rate. We are also evaluating structures that could allow us to <unk>.
Our total debt outstanding over the next few years, which in addition to the lower interest rate could further reduce our annual debt service costs and increase our ability to generate cash flow.
And assessing our cash available for distribution, we generated EBITDA of 5 million had current cash needs of $15 million for debt service and $2 million for maintenance capital expenditures during the quarter, we repurchased just over 24000 common units for total cash consideration and a half a million and addition of board of directors of our general partner and established reserves.
For $1 5 million for the planned turnaround at Coffeyville in the fall of 2021 and released previously established reserves of $5 3 million as a result, there was no cash available for distribution.
Looking ahead to the second quarter of 2021, we estimate our ammonia utilization rate to be greater than 95%. We expect direct operating expenses to range between $35 and $40 million, excluding inventory impacts and total capital spending to be between four and $7 million with that I'll turn the call back to Mark.
Thanks, Tracy since our last earnings call, the strength and crop prices and farmer economics have continued into the spring planting season.
For the 2021 planting season, and the USDA currently estimate planted corn acres to be $91 million and soybean acres to be $87 million, which we believe are conservative crop yield estimates are currently 172 bushels per acre for corn and 50 bushels per acre for soybeans.
Moving the planting forecast and crop yield estimates hold the expected 2021 inventory carry out of nine 2% for corn and two 6% for soybeans will be the lowest since 2014.
This bodes well not only for the 2021 crop year, but should lend support for fertilizer demand in 2022 as well.
And for corn has largely been driven by Chinese purchases of U S corn and a continued uptick in demand for ethanol blending and.
New crop corn prices are currently at $7 per bushel and soybeans are over $15 50, a bushel.
And while fertilizer prices have risen significantly since January one.
For the ability of fertilizer and as measured against grain prices as well within historical norms with high grain prices. There is also an added incentive to use incremental fertilizer to improve yields.
The spring ammonia application period is largely complete and demand was strong this strength and application coupled with the loss of U S. Nitrogen production and February due to Uri helped further tightened domestic supply and demand and led to low producer inventories since the beginning of 2020, one and urea prices have rallied.
<unk> across the globe.
NOLA urea prices rose to a peak of over $400 per ton in March and advance a spring application and the U S spot prices for UA and increased by more than urea during the first quarter and went from selling and a discount to urea on a nitrogen equivalent basis for most of 2022 selling at a premium as it normally has for.
For the last several years.
Because of forward sales of UA and in November and December when pricing was low our average netback prices were lower than the spot market and the first quarter, but reached an inflection point at the beginning of April the realization of significantly higher UA and prices will be seen in the second quarter results.
We continue to evaluate structuring alternatives for the pursuit of 45 two tax credits for activities. We are currently performing.
In addition to the final regulations published by the IRS and January there are several pieces and proposed legislation moving through Congress that could provide additional flexibility and incentives for companies to pursue carbon capture and sequestration or.
Our focus has been on putting all the necessary pieces in place to maximize the value of the $45. Two credits and we believe there is a meaningful potential for the partnership to monetize. These credits we've made progress, but more work remains to be done.
Our overall goal is to reduce our debt level by approximately $100 million over the next two years and 45% to credit proceeds will be part of helping us achieve this goal.
And recent year CVR energy has been taking steps to reduce its carbon footprint and increasing its focus on sustainability.
As part of the strategy CVR partners has been focused on reducing our carbon footprint through sequestering cotwo at the Coffeyville facility through enhanced oil recovery and nitrous oxide abatement at both the Coffeyville and east Dubuque facilities.
As a result of these initiatives, we have contributed and reduction of our carbon footprint by over 1 million metric tons per year.
We believe that our combined fertilizer plants have the lowest carbon footprint per ton and production of any north American nitrogen fertilizer producers.
In addition to these reductions were exploring opportunities to further reduce our carbon footprint with additional initiatives and we'll report on those when they become actionable and our ultimate goal is to be able to produce ammonia certified and blue at both of our facilities.
As I mentioned, we did small repurchases of our units during the first quarter of 2021, but there are currently $12 million remaining under the board of directors repurchase authorizations.
And we will continue to evaluate future repurchases, while fertilizer market conditions have improved markedly in recent months, we have not changed our focus on maximizing cash flow generation by safely and reliably operating our plants with a keen focus on the health and safety of our employees contractors and communities prudently managing.
Cost.
Being judicious with capital, but targeting select investments and reliability projects and incremental additions to production capacity and maximizing our marketing and logistics capabilities.
In closing I would like to thank our employees for their commitment to being healthy and safe and allowing us to execute at a high level for another spring planting season.
With that and you're ready to answer any questions Christine.
Thank you we will now be conducting a question and answer session.
I would like to ask a question. Please press star one on your telephone keypad and you called for.
And Tom will indicate your line is and the question queue you.
And you May press star two if he would like to remove your question from the queue for.
All participants using speaker equipment and may be necessary to pick up 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 William Stein, a private Investor. Please proceed with your question.
Thank you for taking my questions first I wanted to talk about pricing.
I understand.
Notwithstanding your comments about the positive inflection that happened in April that you don't normally guide this I'm not asking you to do that but if you were a securities analyst and outsider looking into your company.
How would you go about trying to better understand what the likely price debt.
Is that the company would achieve and the market in the current and future quarters is spot ever even a consideration is it always forward pricing what exchanges should we look at any color and that would be helpful. And then I have a <unk>.
Follow up question.
Sure so.
The way to think about it and if there is kind of three three seasons.
The the spring fees spring pre plant and and planting and side dress top dress and then we have the summer fill season.
And then the fall application.
And.
And in many cases.
And for either the spring and the fall application. It's there is a lot of forward sales and of that but during the spring and the fall and Theres a lot of spot sales in and around.
And those forward sales, so but in the first quarter and the third quarter, probably less so because theres not any applications. So theres not any immediate demand.
If there's a need and so it's more of a forward sales, but and that's what the first quarter was its first quarter typically has a lot of forward sales and those are conducted usually in November and December because its really stocking I call. It pre stocking for spring application.
But in terms of pricing.
There are a lot of factors that go into pricing.
The supply demand balances, obviously and fertilizer.
And we this year is an interesting year because on the supply side, we had a complete industry outage for between one and two weeks and February because virtually all our plants were shut down because of natural gas when it has skyrocketed. It didn't make sense to produce so either you did as we did and you took your plant down and sold.
And your contracted gas and very high prices or if you were not under contract you had to shut our plant down because it didn't make economic sense to produce product.
And so the supply side coming into the spring actually was reduced fairly significantly due to the outages at the plants and that was industry wide.
So the supply side and very good shape on the demand side.
Demand is really the biggest driver demands farm farm level economics.
And we since last July we've seen a sea change and farm economics, and the United States.
Grain prices are at close to 10 year highs.
And as you look forward into the summer and the fall.
That's what we call the new crop year.
Corn prices, which are the big driver for nitrogen are at very high levels. So the new crop price and July is at $7 last July that price was at $3 25.
So the economic the economics for the farmer.
And would incentivize that farm or to use nitrogen and maximize corn production because of the revenue base fertilizer overall is about 15% of the cost too to a farm and nitrogen is about 8%. So it's not a big number and with corn prices at seven.
And there's going to there's a lot of demand for nitrogen for corn.
And so as we look into the second half of this year.
See this.
And the trend started in January continuing because of the grain prices and.
And tangentially soybean high soybean prices also are positive not because we they directly consume a lot of nitrogen, but if you go back to farm level economics, if farmers getting paid a lot for soybeans, that's more money they have in their pocket to buy inputs for next year.
So this is probably the biggest sea change we've seen and.
So.
Maybe seven or eight or 10 years ago was grain.
Grain prices have got to a level that have changed the fundamental economics for farming and the United States.
That's very helpful and then sort of segue into the second question on average is very Big picture you are probably aware there is a lot of.
A lot of investors I suppose are writing these articles on seeking alpha and such and.
Perhaps trying to forecast exactly what's going to happen quarter to quarter.
Yeah.
Just wanted to ask you to maybe take a very big step back from sort of debt.
Week to week and month to month sort of to changes and exact calculations and what's going on and the business and instead compare the business today relative to what it looked like let's say.
Nine or 10 years ago, when we last saw corn at this level and we last saw fertilizer at this level.
Memory serves on a split adjusted basis distributions were about 20 Bucks a year and the stock was between 200 300 Bucks.
I'm not asking you to say, yes, that's exactly what's going to happen. This time around I wouldn't expect you to be able to forecast that but I'm, hoping you can frame for investors what the different and the business is today relative to let's say 910 years ago. The last time, you saw those farm economics.
As you describe them looking the way they are today I think your business is much bigger today, because you've done and acquisition and maybe what offsets that is a higher level of debt, but are there other things that we should think that maybe this cycle looks totally different and profitability will be much worse.
Lower or how can you maybe frame that comparison for us. Thank you.
Sure.
And so.
And as a company, we obviously are different because we add at east Dubuque.
What I would say is if you step back and set aside our company for a minute, but the cycle. This business is cyclical.
And farming AG is a cyclical business, we've been through a very difficult period of time and.
<unk>.
But.
The market has re emerged.
And our business.
Is really fundamentally driven by farm level economics, and the most important thing is just the durability of the recovery and the reasons and that.
For me.
I think there are some different factors driving the.
The demand for corn, and where we are and I'm, not saying that Vmware and changing the overall cycle of the industry, but I think that this has legs to it this recovery because the need for corn and actually for soybeans is.
A little different than before were blending more for renewable fuels.
That seems that was the driver for them. If you went from 2005 to 2012 that drove the corn market when ethanol came in and started being blended.
That drove the first leg of this now we're in the second lag where theres, a big push towards sustainability and renewable fuels and soybeans is now part of that too.
Because of the biodiesel work and so farming, which used to be only for food.
And is now also as another leg on it which is for fuels blending and so I think it's a little different market than before.
I would just say that and this recovery the opportunity for us as a company as we took on debt to buy used Dubuque.
And we've been patiently waiting for the.
For the financial markets and this industry to recover before we set we reset our cost of debt.
And so things have kind of come and a good direction, there and we intend and the over the coming months to make that happen, but by being patient and waiting for that the company is going to benefit. So when we refinance effectively the purchase of east Dubuque, which was five years ago.
And we're going to kind of reset the capital structure and the cost and we're going to we've been I think pretty clearly, stating that we'd like to also reduce the overall debt level on the company and that resetting will put us in a stronger position as we move ahead.
Past the refinancing so I'd say this is kind of finalizing the repositioning of the company post East Dubuque and.
And.
And in an industry that I think has got a lot of momentum and the.
<unk> for us isn't quarter to quarter and durability of recovery and we.
What farm economics to last for years not quarters.
So.
As I stated in my comments for the next this next stretch which is I'm already looking into the fall and the spring.
Really with grain prices doing what they're doing I think gives us great confidence in where we are and this cycle. We're at the very early stages, but.
The key to any business is the health of the customer and the willingness to buy your product and our customer is as healthy as they've been in a decade.
Thank you.
Our next question comes from the line of Brian <unk> with Baird. Please proceed with your question.
Good morning.
Couple of questions for you is starting out.
Interest rate that the gain that you received from selling natural gas back when you shut down is viewed was about $4 $6 million.
That's correct.
Okay.
So could you help us understand as you talked about the unplanned outages and some of the other challenges had the quarter what was.
Totality of those expenses.
That you were impacted by.
We don't normally quantify something at that level, what I would tell you is.
And that the gain that we had at east Dubuque was largely offset by a combination of loss production debt.
Less tons to sell and if you looked at our volumes and we sold it was lower.
Recently lower than last year and the other is that we took the opportunity while the plant was down mid to accelerate maintenance activities.
So between those two.
Not a windfall in the quarter that it might appear to be largely offset that with lower product sales and cost.
Pulling forward maintenance costs that we would have done later in the year.
No.
Sort of what happened in the quarter.
Okay that makes sense and I guess as we think about the forward sales that you've made and November December.
Fully.
Satisfied those sales, whereas we'll see and the second quarter is those sales will be out other P&L and we'll see now sales at the more.
And then for spot rates.
Yes, that's correct.
We cleared all of that out and their first quarter and.
Second quarter product that were selling during the first quarter end of the second quarter and spot and spot loads.
Great and then final one for me just on pet Coke costs.
And obviously not much for different year over year, but sequentially came up really really high.
And I guess.
Two question as part of that how much did you source from Coffeyville and what are you seeing in terms of pricing for Pepco and at this point.
I would tell you that.
The coffeyville quarter to quarter was down.
They obviously the refinery was impacted by it and us winter storm and so.
The production rate was lower and they also running lighter crudes.
And what we did source and less.
Our third party pet Coke has been pretty steady.
With that we.
And we bring in.
Usually by barge and then.
And truck it to the plant so that's been pretty steady and we've been able to access back up and we needed it.
We also we also draw for other refineries and the Kansas, Oklahoma market and they all too were affected.
The winter storm. So overall, we had to source more I would say also of the river.
Typically drawing from our nearby refineries and.
And that kind of will normalize and the second quarter.
And because they're all back up and running in fact, the refineries are starting to raise rates back closer to where they were in 2019 rather than <unk>.
2020, and which is they were running 70% to 80% utilization now there and more closer to 85% to 90.
Perfect I appreciate the color. Thank you.
Our next question comes from the line and Roger Spitz with Bank of America. Please proceed with your question. Thanks.
Thanks, very much good morning.
So just returning on prices so seasonally.
And only speaking you said for Q1 and prices Richard base those price levels based on the November December.
For pricing and if I heard that correctly could we go one for Q2 Q3 Q4, how should we think about pricing for each and each one of those is like your Q2, it sounds like it should be closer to the prevailing spot.
Thank you yes.
So yes, so Q2 is going to be much more closer to the prevailing spot and theres a mix and the season peaks and May and then and then and gradually declines through the end of June.
But.
We're the second quarter will look a lot quality of you been following the publications that have pricing out there and the second quarter.
And we're selling much more into that market that started.
And in February March for April and May So we were selling into that at much higher prices and the first quarter.
And we haven't gotten into the second half.
It's too early we're just trying to get through the planting season, and then side dress and top dress clearly I think our view is that the second half is going to look a lot different and the second half of 2020 much higher when it settles.
And.
And so we expect a very different outlook for the second half compared to second half of 2020, which was a very low period, one of the lower periods and this past cycle.
Got it.
Historically.
Seasonally in Q3 and then.
Historically and Q4.
Those are.
As we've talked about.
Some of those being for sales how should we think about historically, how should we think about Q3 prices right also.
Somewhat for borrowings spot.
Spot and Q4, maybe when you look back for some prior time, because that's more forward sales.
Yes, I would say that for you and I'm going to use UAS because thats.
UAE and is.
And we don't sell urea and that's why I'm, not quoting urea, but followed and they follow each other.
The UA and reset it would be it will typically be in July.
And.
And and again.
Typically if you took the peak spring price and looked at July was lower.
Seasonably lower and.
And.
So we would expect similar relationship I, just don't think it will fall as far this year as it has the last few years because of all the dynamics with crop pricing and the supply demand outlook for the producers. So I expect that we're likely to and this spring season.
And with pretty low to manageable inventory levels.
Fertilizer, so going into the summer and it should be a pretty comfortable summerfield discussion with customers because I think the supply demand dynamics will be good and the underlying farm economics are going to be good we're already starting to hear and farmers expressing interest on buying inputs and the second half.
Earlier than normal because theyre going to have.
Money in their pocket.
This year when they sell this year's crop and they typically buy inputs to help manage their tax situations. So they and they have that cost embedded in there. So.
I think conditions are going to be quite solid and the second half.
And I think the supply side is in good shape and the demand sides and good shape.
So feel good about that go forward.
One other thing.
You gave the turnaround.
And so a little per million last call I think we saw growth of and sponge and the fall.
Which I talked about.
Hello, and less Q3 or maybe into Q4.
But it sounds like and your answer before that you use and opportunity to do some maintenance perhaps other plants.
Were down because of winter storm.
When should we when should we model and the <unk>.
10 million of bad debt.
Turnaround expense for this year.
Well the maintenance that we did was on the east Dubuque plant, which is not going to be and turnaround this year.
The eight to 10 will be for the Coffeyville plant and I would put that in the fourth quarter. Our current schedule is a fourth quarter turnaround.
Alright, Thank you very much.
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.
Again wanted to thank everybody for their interest and CVR partners and joining the call and we look forward to speaking with you next quarter for the.
<unk> results. 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.