Q4 2022 CVR Partners LP Earnings Call
Greetings and welcome to the CVR partners fourth quarter 2022 conference call.
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A brief question and answer session will follow the formal presentation.
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It is now my pleasure to introduce your host Richard Roberts, Vice President 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, Dan Newman, Our Chief Financial Officer, and other members of management.
Prior to discussing our 2022 fourth quarter and full year results. Let me remind you that this conference call may contain forward looking statements as that term is defined under federal securities laws for this purpose any statements made during this call that are not statements of historical facts may be deemed to be forward looking statements.
You are cautioned that these statements may be affected by important factors set forth in our filings with the Securities and Exchange Commission 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 for the.
Except as 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 he per unit references made on this call are on a split adjusted basis.
This call also includes various non-GAAP financial measures the disclosures related to such non-GAAP measures, including reconciliation to the most directly comparable GAAP financial measures are included in our 2022 fourth quarter earnings release that we filed with the SEC and Form 10-K for the period and will be discussed during the call.
Let me also remind you that we are a variable distribution MLP.
I'll 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 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 said I'll turn the call over to Marc <unk>, Our Chief Executive Officer.
Thank you Richard Good morning, everyone. Thank you for joining us for today's call. The summarized financial highlights for the fourth quarter of 2022 included net sales of $212 million net income of 95 million EBITDA of 122 million and the board of directors declared a fourth quarter distribution of $10.50 per common unit.
It wasn't really paid on March 13th 2023 to unit holders of record at the close of the market on March 6th.
Full year 2022, we reported EBITDA of $403 million and record distributions of $24.58 per common unit.
All while completing planned turnarounds at both of our facilities during the year.
We also repurchased approximately 112000 CVR partners common units and we completed our targeted debt reduction was a repayment of the final $65 million of 9.25% notes that were outstanding.
We are proud to report continued improvement in our environmental health and safety metrics in 2022 with only one recordable injury for the entire year for a total recordable incident rate of 0.3, a reduction of 86% compared to 2021.
We also received achieved a 37% reduction year over year and tier one process safety incidents.
In December we published our first external ESG report for 2021 in conjunction with CVR energy, which can be found on our website.
Our facilities ran well during the fourth quarter of 2022 with consolidated ammonia plant utilization of 96%.
This resulted in combined ammonia production of 210000 gross tons of which 75000 net tons were available for sale and UA in production of 308000 tons.
During the quarter, we sold approximately 261000 tons of UAE.
At an average price of $455 per ton and approximately 77000 tons of ammonia.
The average price of $967 per ton.
Relative to the fourth quarter of 2021 U N in ammonia sales volumes were lower primarily due to reduced inventories carried into the quarter. As a result of the planned turnarounds completed in the third quarter of 2022.
Mrs for the fourth quarter improved significantly from the prior year period, with helium prices, increasing 31% and ammonia prices increasing 30%.
Following the completion of the turnarounds in the third quarter, both facilities are running well and we achieved record ammonia production in the month of December at East Dubuque and last month at our January 2023 at Coffeyville.
As expected our realized prices for the fourth quarter increased from third quarter levels as we saw a significant amount.
A significant amount of our production early in the quarter when pricing was strong.
We also saw more than half of first quarter 2023 production in 2022, which I will discuss further in my closing remarks, I will now turn the call over to Dan to discuss our financial results. Thank you Mark.
Turning to our results for the full year 2022, we reported net sales of 836 million and operating income of $320 million net.
Net income for the year was $287 million or $27 seven per common unit and EBITDA was $403 million.
For the fourth quarter of 2022, we reported net sales of $212 million and operating income of $102 million.
Net income for the fourth quarter was $95 million or $9.02 per common unit and EBITDA was $122 million.
Relative to the fourth quarter of 2021, EBITDA increased primarily due to higher U a N and ammonia sales prices along with lower direct operating costs due to inventory impacts.
Direct operating expenses for the fourth quarter of 2022 were $52 million, excluding inventory and turnaround impacts direct operating expenses increased by approximately $4 million from the fourth quarter of 2021, primarily related to higher electricity and natural gas costs and increased repair and maintenance expenses offset somewhat by lower personnel.
Costs.
Capital spending for the fourth quarter was $2 million, which was primarily maintenance capital and full year 2022 capital spending was $41 million.
We estimate total capital spending for 2023 to be approximately 33 to 36 million of which 31% to $33 million is expected to be maintenance capital.
We ended the quarter with total liquidity of 121 million, which consisted of $86 million in cash and availability under the ABL facility of $35 million.
Within our cash balance of $86 million, we had approximately $14 million related to customer prepayments for the future delivery of product.
In assessing our cash available for distribution, we generated EBITDA of $122 million and had net cash needs of 11 million for interest cost maintenance capex and other reserves.
As a result, there was $111 million of cash available for distribution and the board of directors of our general partner declared a distribution of $10.50 per common unit.
Looking ahead to the first quarter of 2023.
We estimate our ammonia utilization rate to be between 95 and 100% for the quarter. We expect our direct operating expenses to be $55 million to $65 million, excluding inventory impacts and total capital spending to be between five and $10 million.
With that I'll turn the call back over to Mark.
In summary, we were pleased with our fourth quarter results driven by strong product prices and solid production with an ammonia utilization rate of 96% for the quarter.
The harvest was completed on time, which allows farmers to get in the field for an early fall ammonia application.
The USDA estimates the final planted corn acres were $88 6 million with estimated yields of 172 bushels per acre in soybeans were estimated at $87 5 million planted acres with yields of 50 bushels per acre.
Inventory carryout levels are estimated to be 8% for corn and 5% for soybeans, keeping inventories at or below the low end of the 10 year range.
As a resolve grain prices remain strong with corn at $6 80 per bushel soy beans at $15 30 per bushel.
These strong grain prices are continuing to generate attractive farmer, economics, which should bode well for nitrogen fertilizer demand for spring 2023.
Analysts are currently estimating 91 to 93 million planted corn acres for the U S. This year.
In the third and fourth quarter, we experienced strong demand in the U S for nitrogen fertilizer due to added demand from Europe . As a result of the shut in production capacity several U S and Trinidad producers, who are exporting nitrogen fertilizer to meet the supply shortfall in Europe , which cost supply tightness in the U S.
Pricing was strong in the late third quarter and the fourth quarter allowed us to take advantage of those market conditions to sell our fourth quarter production and more than half of our first quarter production.
Due to warmer than expected weather in Europe , and the U S. Starting in December natural gas supplies have increased and prices have fallen significantly involved in the U S and Europe .
As a result spot prices for all nitrogen products have fallen from a high level from the fall.
With the recent decline in natural gas prices in Europe , we have seen some of the offline capacity come back online.
Although the cost curve remains dramatically in favor of the U S.
There's currently about a 500 dollar a ton advantage to produce ammonia in the U S compared to Europe .
While the extreme pressure on natural gas has subsided for now we do not believe that the structural issues that initially drove the European natural gas prices higher had been solved and will likely remain in effect through 2023. We also expect as we get closer to the spring planting season in the coming weeks demand for nitrogen fertilizer will end.
Peru due to strong grain prices and farmer economics, while we may not see the high prices of spring 2022, we still expect a solid market and good demand for product in the spring of 2023.
On 45, Q tax credits for the Coffeyville facility, we completed the transaction with tax equity investors on January 6th and received initial net cash proceeds of approximately $18 million, which would potentially add to cash available for distribution for the first quarter of 2023.
Expect to receive additional proceeds of up to $60 million over the next seven years related to $45 two tax credits and certain conditions are met.
We believe that our 40 <unk> transaction is the first to reach closing.
Under the new framework, we are also continuing to evaluate our future options at the east Dubuque facility at several developers are pursuing sequestration projects and your other plants, we will update on these efforts on future calls.
With the turnarounds behind US we're doing more work to evaluate the brownfield development projects at both plants that could be attractive targeted capacity increases to our existing footprint.
If the full cycle economics of each project are attractive and approved by the board they would likely take several years to complete.
As I've mentioned previously we are not currently contemplating any greenfield development projects in.
In 2022 took advantage of the strong nitrogen fertilizer market conditions to strengthen our balance sheet, while investing in our plants to improve reliability and returning cash to our unit holders with no turnarounds currently planned until the fall of 2024 at the earliest.
We will be focused on maximizing maximizing free cash flow generation and unit holder returns with <unk>.
<unk> fourth quarter results, we're pleased to be paying at $10 50 distribution to our common unitholders.
As always our business plan will focus on 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 in reliability projects and incremental additions to production capacity, maximizing our marketing and logistics capabilities and targeting opportunities to reduce our carbon footprint.
Closing I would like to thank our employees for their excellent execution for all of 2022.
Currently during the turnarounds at both plants, while generating our best environmental Health and safety results in the partnership's history.
With that we're ready to take any 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 Rob Maguire with graduate Research. Please proceed with your question.
Good morning, Mark Dane and Richard Good nice quarter.
Morning, Thank you.
I'm trying to get a better idea in terms of the environment heading into the spring season can you give us a feel for your first quarter order book at this point, maybe relative to where it is normally at this time in the quarter.
I would say, we're pretty much in the normal conditions.
Near the end of February so the quarter is only a month ago.
And so we are where we.
Sold through the first quarter at this point.
And Thats typical for this time of year. So I wouldn't I don't think that's been any different this year.
Dan.
That prior years.
Got it and then do you normally pre sell high volumes into the second quarter as well and has the I've heard a little bit about a buyer's strike out there has that affected any of your pre sales as well.
We know it.
Varies by products. So we.
We sell ammonia in UAE.
And typically the ammonia component of the nitrogen is pretty sold.
Which is typical in that that happened. This year that usually is late in the prior year and so that occurred back in the fourth quarter.
Normal market conditions and buying has been <unk>.
Slower.
In the first quarter for spring.
And so there's been less of that but what we did was we had sold more than we typically would have during the first quarter back in the fall. So net net we're probably in the same or better positioned from an order book sizing perspective than normal at this point.
I appreciate that thank you and then shifting gears can you.
Just discuss how you would finance plant expansions and and you know would you use cash flow from operations, New dad, what what would be that you're most likely source.
Yeah, I would say that we would most likely to use cash from operations.
I think if you recall for maybe three or four quarters ago, we were comfortable with our leverage level, where you know when we refinanced ourselves last year, we wouldn't likely be looking to add leverage to the balance sheet. At this point, we would fund it out of our cash from operations.
I appreciate that.
Natural gas has come down here is there an option of hedging forward purchasing of natural gas a recent prices for the rest of the year or can.
Can you just give us some idea of a you know can you lock in at these prices.
Yes, the way, we thought about it philosophically as.
Yes, because yes, the way I think that's our products kind of move around partially with it's not a perfect correlation with natural gas prices, but it is affected by it but we typically when we pre purchased natural gas we've done it.
Oh boy.
Catastrophic weather events. So we typically have been when we did buy and had we bought it from the winter because that's when your greatest risk is.
And we.
We typically have not been a buy a pre buyer or heavier during the course of the year.
I don't think we would intend to change that at this at this point.
Thank you and then lastly, and a different topic are you seeing the Russian imports of urea and having an impact on U S markets at this point.
Okay.
What I would say about and I would put urea in the same category as there was in effect for a short period of time last year in the second quarter and in that.
Trade flows all I've said reverted back to kind of normal the U S has been a buyer of Russian product and continues to be on both urea and UAS, so, but that's been going on for quarters now and it was only affected at the beginning of the war with the Ukraine, where there was a pause.
And exports to the U S, but that resumed last summer and it's been continuing.
So Russian urea, new Anr coming to the U S are being imported here and have been for the last few quarters.
Thank you for all that color that's it for me.
Yeah.
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 being on the call today.
And we.
We look forward to talking to you here with our first quarter results in April . Thank you very much for participating.
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.