Q2 2024 CVR Partners LP Earnings Call

Greetings, and welcome to the CVR Partners second quarter 2024 conference call. At this time, all participants are in listen-only mode. A brief question and answer session will follow the formal presentation.

Operator: Conference call. At this time, all participants are in listen-only mode.

Operator: At this time, all participants are in 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, Vice President.

Operator: A brief question and an intercession will follow the formal presentation.

Operator: If anyone requires operator assistance during the conference, please press store zero on your telephone keypad. As a reminder, this conference is being recorded.

If anyone should require operator assistance during the conference, please press star zero on your telephone keypad.

Richard Roberts: It is now my pleasure to introduce your host, Richard Roberts, Vice President of FPNA in Investor Relations.

As a reminder, this conference is being recorded.

Richard J. Roberts: It is now my pleasure to introduce your host, Richard Roberts, Vice President of FP&A and Investor Relations. Thank you, sir. You may begin.

Operator: Thank you, sir. You may begin.

Richard Roberts: Thank you for seeing. Good morning, everyone. We appreciate your participation in today's call. With me today are Mark Pytosh, our chief executive officer; Dane Neumann, our chief and angel officer; and other members of management. Prior to discussing our 2024 second quarter 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 were cautioned that these statements may be affected by important factors set forth in our findings with the Securities and Exchange Commission and our latest earnings release.

Richard J. Roberts: Thank you, Christine. Good morning, everyone.

Richard J. Roberts: We appreciate your participation in today's call. With me today are Mark Pytosh, our Chief Executive Officer; Dane Neumann, our Chief Financial Officer; and other members of management. Prior to discussing our 2024 second quarter 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.

Richard J. Roberts: Thank you, Christine. Good morning, everyone. We appreciate your participation in today's call. With me today are Mark Pytosh, our Chief Executive Officer, Dane Neumann, our Chief Financial Officer, and other members of management.

Richard J. Roberts: 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 a result, actual operations or results may differ materially from the results discussed in the forward-looking statement. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future events, or otherwise, except to the extent required by law.

Speaker Change: Prior to discussing our 2024 second quarter 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.

Richard J. Roberts: This call also includes various non-GAAP financial measures. The disclosures related to such non-GAAP measures, including reconciliation of the most directly comparable GAAP financial measures, are included in our 2024 second quarter earnings release that we filed with the FCC for the period. Let me 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 partners board.

Speaker Change: 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.

Richard Roberts: 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, but as a result of new information, future events, or otherwise, except that it is not required by law.

Richard J. Roberts: 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.

Richard Roberts: This call also includes various non-gat and angel measures, but as opposed to those related to such non-gat measures, including reconciliation with the most directly comparable gas and angel measures, are included in our 2024 second quarter earnings release that we filed with the SEC for the period.

Speaker Change: This call also includes various non-GAAP financial measures. The disclosures loaded at such non-GAAP measures, including reconciliation and the most directly comparable GAAP financial measures, are included in our 2024 second quarter earnings release that we filed with the SEC for the period.

Richard Roberts: Let me also remind you that we are available to distribution and L.P. 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 partners forward. As a result, our distributions, if any, will vary in order to quarter due to several factors, including but not limited to operating performance fluctuations in the crisis, receive or finish products, capital expenditures, and cash reserves seem necessary or appropriate by the board of the audience by general partner.

Richard J. Roberts: 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 partners. With that said, I'll turn the call over to Mark Pytosh, Chief Executive Officer.

Richard J. Roberts: Let me 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 name reserve amounts for other future cash needs as determined by our general partners board.

Richard J. Roberts: 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.

Mark Pytosh: With that said, I will turn the call over to Mark Pythosh, Chief Executive Officer. Mark.

Mark A. Pytosh: Thank you, Richard. Good morning, everyone, and thank you for joining us on our second quarter earnings call. The summarized financial highlights for the second quarter of 2024 include net sales of $133 million, net income of $26 million, EBITDA of $54 million, and the Board of Directors declared a second quarter distribution of $1.90 per common unit, which will be paid on August 19 to unit holders of record at the close of the market on August 12.

Mark Pytosh: Thank you, Richard. Good morning, everyone, and thank you for joining our second quarter earnings call.

Richard J. Roberts: With that said, I'll turn the call over to Mark Pytosh, Chief Executive Officer.

Mark A. Pytosh: Thank you, Richard. Good morning, everyone, and thank you for joining our second quarter earnings call. The summarized financial highlights for the second quarter of 2024 include net sales of $133 million, net income of $26 million, EBITDA of $54 million,

Mark Pytosh: The summarized financial highlights for the second quarter of 2024 include net sales of $133 million, net income of $26 million, EBITDA of $54 million, and the board of directors declared a second quarter distribution of $1.90 per common unit, which will be paid on August 19 to unit holders of record at the close of the market on August 12. Our facilities ran well during the second quarter of 2024 with consolidated ammonia plant utilization of 102 percent, combined ammonia production for the second quarter of 2024 with 221,000 gross tons, of which 69,000 net tons were available for sale, and UAN production was $337,000.

Mark A. Pytosh: and the Board of Directors declared a second quarter distribution of $1.90 per common unit, which will be paid on August 19 to unit holders of record at the close of the market on August 12.

Mark A. Pytosh: Our facilities ran well during the second quarter of 2024, with consolidated ammonia plant utilization of 102% Combined pneumonia production for the second quarter of 2024 was 221,000 gross tons, of which 69,000 net tons were available for sale, and UAN production was 337,000. During the quarter, we sold approximately 330,000 tons of UAN at an average price of $268 per ton and approximately 43,000 tons of ammonia at an average price of $520 per ton.

Speaker Change: Our facilities ran well during the second quarter of 2024, with consolidated ammonia plant utilization of 102%.

Speaker Change: Combined ammonia production for the second quarter of 2024 was 221,000 gross tons, of which 69,000 net tons were available for sale.

Mark Pytosh: During the quarter, we sold approximately 330,000 tons of UAN at an average price of $268 per ton, and approximately 43,000 tons of ammonia at an average price of $520 per ton. Relative to the second quarter of 2023, UAN sales volumes were in line, and ammonia sales volumes were lower as a result of volume shifting into the first quarter, as favorable weather allowed farmers to apply ammonia earlier this year. Price is for the second quarter decline from the second quarter last year, with ammonia prices following 26% and UAN prices following 15%. Nitrogen fertilizer pricing for the second quarter remained fairly steady, with first quarter 2024 pricing, and we saw strong demand for ammonia and UAN for the spring planting season.

Speaker Change: and UAN production was 337,000 tons.

Speaker Change: During the quarter, we sold approximately 330,000 tons of UAN at an average price of $268 per ton, and approximately 43,000 tons of ammonia at an average price of $520 per ton.

Mark A. Pytosh: Relative to the second quarter of 2023, UAM sales volumes were in line, and ammonia sales volumes were lower as a result of volume shifting into the first quarter as favorable weather allowed farmers to apply ammonia earlier this year. However, prices for the second quarter declined from the second quarter last year, with ammonia prices falling 26% and UAN prices falling 15%. Nitrogen fertilizer pricing for the second quarter remained fairly steady with first quarter 2024 pricing, and we saw strong demand for ammonia and UAN for the spring plant. We also saw better-than-expected pricing for the UAN fill and ammonia fall prepay orders in July, and we have a good order book for the fall, which I will discuss further in my closing remarks. I will now turn the call over to Dane to discuss our financial results. Thank you, Mark.

Speaker Change: Relative to the second quarter of 2023, UAN sales volumes were in line and ammonia sales volumes were lower as a result of volume shifting into the first quarter as favorable weather allowed farmers to apply ammonia earlier this year.

Speaker Change: Prices for the second quarter declined from the second quarter of last year, with ammonia prices falling 26% and UAN prices falling 15%.

Speaker Change: Nitrogen fertilizer pricing for the second quarter remained fairly steady with first quarter 2024 pricing and we saw strong demand for ammonia and UAN for the spring planting season.

Mark Pytosh: We also saw better than expected pricing for the UAN fill in a ammonia fall prepay ordering in July, and we have a good order book on for the fall, which I will discuss further in my closing remarks.

Speaker Change: We also saw better than expected pricing for the UAN fill and ammonia fall prepay ordering in July . And we have a good order book on for the fall, which I will discuss further in my closing remarks. I will now turn the call over to Dane to discuss our financial results.

Dane Neumann: I will now turn the call over to Dane to discuss our financial assaults.

Dane Neumann: Thank you, Mark. For the second quarter of 2024, we reported net sales of $133 million in operating income of $34 million. Net income for the quarter was $26 million, or $2.48 per common unit, and EBITDA was $54 million.

Dane J. Neumann: For the second quarter of 2024, we reported net sales of $133 million and operating income of $34 million. Net income for the quarter was $26 million, or $2.48 per common unit, and EBITDA was $54 million. Relative to the second quarter of 2023, the decline in EBITDA was primarily due to lower market prices for ammonia and UAN.

Dane J. Neumann: Thank you, Mark. For the second quarter of 2024, we reported net sales of $133 million and operating income of $34 million.

Dane J. Neumann: Net income for the quarter was $26 million, or $2.48 per common unit, and EBITDA was $54 million.

Dane Neumann: Relative to the second quarter of 2023, the decline in EBITDA was primarily due to lower market prices for ammonia and UAN. Direct operating expenses for the second quarter of 2024 were $47 million, excluding inventory impacts. Direct operating expenses decreased by approximately $1 million, relative to the second quarter 2023, primarily due to lower natural gas and electricity costs. During the second quarter of 2024, we spent $5 million on capital projects, which was primarily managed capital. We estimate total capital spending for 2024 to be approximately $40 to $43 million, of which $29 to $31 million is expected to be managed capital.

Dane J. Neumann: Relative to the second quarter of 2023, the decline in EBITDA was primarily due to lower market prices for ammonia and UAN.

Dane J. Neumann: Direct operating expenses for the second quarter of 2024 were $47 million. Excluding inventory impacts, direct operating expenses decreased by approximately $1 million relative to the second quarter of 2023, primarily due to lower natural gas and electricity costs. During the second quarter of 2024, we spent $5 million on capital projects, which was primarily made into capital. We estimate total capital spending for 2024 to be approximately $40 to $43 million, of which $29 to $31 million is expected to be maintenance capital.

Dane J. Neumann: Direct operating expenses for the second quarter of 2024 were $47 million.

Dane J. Neumann: Excluding inventory impacts, direct operating expenses decreased by approximately $1 million relative to the second quarter 2023, primarily due to lower natural gas and electricity costs.

Dane J. Neumann: During the second quarter of 2024, we spent $5 million on capital projects, which was primarily made into capital.

Dane J. Neumann: We estimate total capital spending for 2024 to be approximately $40 to $43 million, of which $29 to $31 million is expected to be maintenance capital.

Dane Neumann: We anticipate the significant portion of the profit and growth capital spending planned for 2024 will be funded through cash reserves taken over the past six quarters.

Dane J. Neumann: We anticipate a significant portion of the profit and growth capital spending planned for 2024 will be funded through cash reserves taken over the past six quarters. We ended the quarter with total liquidity of $98 million, which consisted of $48 million in cash and availability under the ABL facility of $50 million. Within our cash balance of $48 million, we have $1 million related to customer prepayments for the future delivery of products. In assessing our cash available for distribution, we generated EBITDA of $54 million and had net cash needs of $34 million for interest costs, maintenance capex, and other reserves.

Dane J. Neumann: We anticipate a significant portion of the Profit and Growth Capital Spending Plan for 2024 will be funded through cash reserves taken over the past six quarters.

Dane Neumann: We added the quarter with total liquidity of $98 million, which consisted of $48 million in cash and availability under the ABL facility of $50 million. Within our cash balance of $48 million, we had $1 million related to customer prepayments for the future delivery of product. And assessing our cash available for distribution, we generated EBITDA of $54 million, and had net cash needs of $34 million for interest costs, made its CAPEX, and other reserves. As a result, there was $20 million of cash available for distribution, and the board of directors of our general partner declared a distribution of $1.90 per common unit.

Dane J. Neumann: We ended the quarter with total liquidity of $98 million, which consisted of $48 million in cash and availability under the ABL facility of $50 million.

Dane J. Neumann: Within our cash balance of $48 million, we have $1 million related to customer prepayments for the future delivery of product.

Dane J. Neumann: In assessing our cash available for distribution, we generated EBITDA of $54 million and had net cash needs of $34 million for interest costs, maintenance capex, and other reserves.

Dane J. Neumann: As a result, there was $20 million of cash available for distribution, and the Board of Directors of our general partner declared a distribution of $1.90 per common unit. Looking ahead to the third quarter of 2024, we estimate our ammonia utilization rate to be between 95 and 100 percent. We expect direct operating expenses, excluding inventory impacts, to be between 53 and 58 million and total capital spending to be between 10 and 15 million. With that, I'll turn the call back over to Mark.

Dane J. Neumann: As a result, there was $20 million of cash available for distribution, and the Board of Directors of our general partner declared a distribution of $1.90 per common unit.

Dane Neumann: Looking ahead to the third quarter of 2024, we estimate our ammonia utilization rate to be between 95 and 100%. We expect direct operating expenses, excluding inventory impacts, to be between 53 and 58 million, on total capital spending to be between 10 and 15 million.

Dane J. Neumann: Looking ahead to the third quarter of 2024, we estimate our ammonia utilization rate to be between 95 and 100 percent.

Dane J. Neumann: We expect direct operating expenses, excluding inventory impacts.

Dane J. Neumann: to be between $53 million and $58 million, and total capital spending to be between $10 million and $15 million. With that, I'll turn the call back over to Mark. Thanks, Dane. In summary, we were pleased with our second quarter results.

Mark Pytosh: With that, I'll turn the call back over to Mark.

Mark A. Pytosh: Thanks, Dane. In summary, we were pleased with our second quarter results. We had another quarter of strong production from our facilities, achieving 102% consolidated ammonia utilization. We saw strong demand for ammonia and UAN in the spring, and we're well positioned to meet the needs of our customers throughout the planting and side dressing season. The spring planting season went well, and demand for nitrogen was strong, despite difficult weather causing the planting process to be paused a couple of times.

Mark Pytosh: Thanks, Dave.

Mark Pytosh: In summary, we were pleased with our second quarter results. We had another quarter of strong production from our facilities, achieving 102% consolidated ammonia utilization. We saw strong demand for ammonia and UAN in the spring, and we're well positioned to meet the needs of our customers throughout the planting and side-dressed season. Spring planting season went well, and demand for nitrogen was strong, despite difficult weather causing the planting process to be paused a couple of times. The USDA estimates 91.5 million acres of corn and 86.1 million acres of soybeans were planted in the spring of 2024. A 3% decrease for corn and a 3% increase for soybean compared to 2023.

Mark A. Pytosh: We had another quarter strong production from our facilities achieving 102% consolidated ammonia utilization.

Mark A. Pytosh: We saw strong demand for ammonia and UAN in the spring, and we're well-positioned to meet the needs of our customers throughout the planting and side dress season.

Speaker Change: Spring planting season went well and demand for nitrogen was strong, despite difficult weather causing the planting process to be paused a couple times.

Mark A. Pytosh: The USDA estimates 91.5 million acres of corn and 86.1 million acres of soybeans were planted in the spring of 2024, a 3% decrease for corn and a 3% increase for soybeans compared to 2023. Yield estimates from the USDA are 181 bushels per acre for corn and 52 bushels per acre for soybeans in 2024.

Speaker Change: The USDA estimates 91.5 million acres of corn and 86.1 million acres of soybeans were planted in the spring of 2024, a 3% decrease for corn and a 3% increase for soybeans compared to 2023.

Mark Pytosh: Yield estimates from the USDA are 181 bushels per acre for corn and 52 bushels per acre for soybeans in 2024. Based on these planting and yield estimates, the USDA is projecting inventory carryout levels for 2025, approximately 14% for corn and 10% for soybeans, resulting in the inventories near the 10-year averages. Green prices have solved in some recently in part due to concerns over global demand and a potential large U.S. Crop production. December corn prices are approximately $4.10 per bushel, and November soybeans are approximately $10.35 per bushel. In July, we completed both summer UAN fill and fall pre-pay ammonia ordering from customers, and despite the recent softening and grain prices, we saw strong demand for both products at pricing that was above 20-23 fill season pricing, better than most were expecting.

Speaker Change: Yield estimates from the USDA are 181 bushels per acre for corn and 52 bushels per acre for soybeans in 2024.

Mark A. Pytosh: Based on these planting and yield estimates, the USDA is projecting inventory carryout levels for 2025 of approximately 14% for corn and 10% for soybeans, resulting in inventories near the 10-year average. Grain prices have softened somewhat recently, in part due to concerns over global demand and potential large U.S. crop production. December corn prices are approximately $4.10 per bushel, and November soybeans are approximately $10.35 per bushel.

Speaker Change: Based on these planting and yield estimates, the USDA is projecting inventory carryout levels for 2025 approximately 14% for corn and 10% for soybeans resulting in inventories near the 10-year averages.

Speaker Change: Grain prices have softened some recently, in part due to concerns over global demand and potential large U.S. crop production. December corn prices are approximately $4.10 per bushel, and November soybeans are approximately $10.35 per bushel.

Mark A. Pytosh: In July, we completed both summer UAN fill and fall prepay ammonia orders from customers, and despite the recent softening in grain prices, we saw strong demand for both products at prices that were above, 2023 fill season pricing better than most were expecting. We currently have a solid order book heading into the fall, and UAN pricing has risen from our achieved fill prices. However, geopolitical risks continue to represent a wild card for the nitrogen fertilizer industry given the significant fertilizer production capacity residing in countries across the Middle East, North Africa, and Russia.

Speaker Change: In July , we completed both summer UAN fill and fall prepay ammonia ordering from customers. And despite the recent softening in grain prices, we saw strong demand for both products at pricing that was above 2023 fill season pricing, better than most were expecting.

Mark Pytosh: We currently have a solid order book heading into the fall, and UAN pricing has risen from our achieved fill prices.

Speaker Change: We currently have a solid order book heading into the fall and UAN pricing has risen from our achieved fill prices.

Mark Pytosh: Geopolitical risk continued to represent a wild card for the nitrogen fertilizer industry, given the significant fertilizer production capacity residing in countries across the Middle East, North Africa, and Russia. We continued a monitor development in the Middle East that could impact energy and fertilizer markets, and we expect the remainder of 2024 and 2025 will likely be periods of higher than historical volatility in the business. Natural gas prices in Europe have been steady since our last earnings call, trending in the $10 to $11 per MMBtu range for the fall and $1 to higher for the winter. The inventory fill rate, which typically increases significantly in the summer, has been lower this year, reducing the potential for reaching storage limits for winter.

Speaker Change: Geopolitical risks continue to represent a wild card for the nitrogen fertilizer industry, given the significant fertilizer production capacity residing in countries across the Middle East, North Africa, and Russia.

Mark A. Pytosh: We continue to monitor developments in the Middle East that could impact energy and fertilizer markets, and we expect the remainder of 2024 and 2025 will likely be periods of higher than historical volatility in the business. Natural gas prices in Europe have been steady since our last earnings call, trending in the $10 to $11 per MMBT range for the fall and $1 or two higher for the winter. The inventory fill rate, which typically increases significantly in the summer, has been lower this year, reducing the potential for reaching storage limits for winter. Natural gas prices in the U.S. have been hovering at $2 to $3 per MMBTU through the second quarter and into the third quarter, with demand strong but production returning from shut-ins in the spring.

Speaker Change: We continue to monitor developments in the Middle East that could impact energy and fertilizer markets, and we expect the remainder of 2024 and 2025 will likely be periods of higher-than-historical volatility in the business.

Speaker Change: Natural gas prices in Europe have been steady since our last earnings call, trending in the $10 to $11 per MMBTU range for the fall, and $1 or two higher for the winter.

Speaker Change: The inventory fill rate, which typically increases significantly in the summer, has been lower this year, reducing the potential for reaching storage limits for winter.

Mark Pytosh: Natural gas prices in the U.S. have been hovering at $2 to $3 per MMBT due through the second quarter and into the third quarter, with demand strong but production returning from the shut-ins in the spring. Although the cost to produce nitrogen fertilizer in Europe has remained lower than in 2023, it is still at the high end of the global cost curve, particularly compared to the U.S. We continue to believe Europe makes its structural natural gas market issues, and that will likely remain an effect over the next couple of years.

Speaker Change: Natural gas prices in the U.S. have been hovering at $2 to $3 per MMBTU through the second quarter and into the third quarter, with demand strong but production returning from the shut-ins in the spring.

Mark A. Pytosh: Although the cost to produce nitrogen fertilizer in Europe has remained lower than in 2023, it is still at the high end of the global cost curve, particularly compared to the U.S. We continue to believe Europe faces structural and natural gas market issues, and that will likely remain in effect over the next couple of years. At our Coffeeville facility, we're progressing with detailed engineering studies on the potential to utilize natural gas as an alternative feedstock to third-party pet coke, which we expect to have those studies completed later this year. If this project is approved by the board and successfully implemented, it could give us the ability to choose the optimal feedstock mix and be the only nitrogen fertilizer plant in the U.S. with that flexibility.

Speaker Change: Although the cost to produce nitrogen fertilizer in Europe has remained lower than in 2023, it is still at the high end of the global cost curve, particularly compared to the U.S.

Speaker Change: We continue to believe Europe faces structural and natural gas market issues, and that will likely remain in effect over the next couple of years.

Mark Pytosh: At our calls in the Gulf facility, we're progressing on detailed engineering studies on the potential to utilize natural gas as an alternative feedstock to third-party pet coke, which we expect to have those studies completed later this year. If this project is approved by the board and successfully implemented, it will give us the ability to choose the optimal feedstock mix and be the only nitrogen fertilizer plant in the U.S. with that flexibility. We also began implementing certain de-bottle-necking projects at both plants and expected to improve reliability and production rates. The board elected to continue to reserve a capital in the second quarter that we expect to spend over the next two to three years as we focus on improving reliability and redundancy at the two plants in efforts to provide better production rates and lower downtime in the future.

Speaker Change: At our Coffeyville facility, we're progressing on detailed engineering studies on the potential to utilize natural gas as an alternative feedstock to third-party pet coke, which we expect to have those studies completed later this year.

Speaker Change: If this project is approved by the board and successfully implemented, it could give us the ability to choose the optimal feedstock mix and be the only nitrogen fertilizer plant in the U.S. with that flexibility.

Mark A. Pytosh: We also began implementing certainty bottlenecking projects at both plants that are expected to improve reliability and production rates. The board elected to continue to reserve capital in the second quarter that we expect to spend over the next two to three years as we focus on improving reliability and redundancy at the two plants in efforts to provide better production rates and lower downtime in the future. It began spending capital on these projects in the third quarter of 2024 with funds coming from the reserves taken over the last six quarters.

Speaker Change: We also began implementing certainty bottlenecking projects at both plants that are expected to improve reliability and production rates.

Speaker Change: The board elected to continue to reserve a capital in the second quarter that we expect to spend over the next two to three years As we focus on improving reliability and redundancy of the two plants and efforts to provide better production rates and lower downtime in the future

Mark Pytosh: We began spending capital on these projects in the third quarter of 2024, with funds coming from the reserves taken over the last six quarters. Second quarter continued to demonstrate the benefits of focusing on reliability and performance. In the quarter, we execute on all of the critical elements for our business plan, which include safely and reliably operating our plants with a keen focus on the health and safety of our employees, contractors, and community. employees, brutally managing the cost, being judicious with capital, maximizing our marketing and logistics capabilities, and targeting opportunities to reduce our carbon footprint.

Speaker Change: We began spending capital on these projects in the third quarter of 2024 with funds coming from the reserves taken over the last six quarters.

Mark A. Pytosh: The second quarter continued to demonstrate the benefits of focusing on reliability and performance. In the quarter, we executed on all of the critical elements for our business plan, which includes safely and reliably operating our plants with a keen focus on the health and safety of our employees, contractors, and community. Prudently managing the cost, being judicious with capital, maximizing our marketing and logistics capabilities, and targeting opportunities to reduce our carbon footprint. In closing, I would like to thank our employees for their excellent execution, achieving 102% ammonia utilization and solid delivery on our marketing logistics plans, resulting in a distribution of $1.90 per common unit for the second quarter. With that, we're ready to take any questions. Christine.

Speaker Change: The second quarter continued to demonstrate the benefits of focusing on reliability and performance. In the quarter, we executed on all of the critical elements for our business plan, which includes safely and reliably operating our plants with a keen focus on the health and safety of our employees, contractors, and communities.

Speaker Change: Prudently managing cost, being judicious with capital, maximizing our marketing and logistics capabilities, and targeting opportunities to reduce our carbon footprint.

Mark Pytosh: In closing, I would like to thank our employees for their excellent execution, achieving 102 percent ammonia utilization and solid delivery on our marketing and logistics plans, resulting in a distribution of $1.90 per common unit for the second quarter.

Speaker Change: In closing, I would like to thank our employees for their excellent execution, achieving 102% ammonia utilization and solid delivery on our marketing and logistics plans, resulting in a distribution of $1.90 per common unit for the second quarter.

Mark Pytosh: With that, we're ready to take any questions, Christine. Thank you.

Operator: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

Operator: We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your light is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your hands up before pressing the star keys. One moment, please, while we pull for questions. Thank you.

Speaker Change: With that, we're ready to take any questions. Christine?

Speaker Change: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue.

Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions.

Operator: One moment, please, while we poll for questions. Thank you. Our first question comes from the line of Rob McGuire with Granite Research. Please proceed with your question.

Rob McGuire: Our first question comes from a line of Rob McGuire with Granite Research. Please proceed with your question. Morning, Mark, Dane, and Richard. Thank you for taking my question.

Speaker Change: Thank you. Our first question comes from the line of Rob McGuire with Granite Research. Please proceed with your question.

Robert Miles McGuire: Good morning Mark, Dane, and Richard. Thank you for taking my question. Good morning, Rob.

Mark Pytosh: Morning, Rob. So, to begin with, you touched on the natural gas feedstock versus coke capabilities at Coffee Diesel. Can you remind us what do you anticipate the total cost of this project to be? I think you mentioned it a few minutes ago, but just go back through the timeline when you think it might be complete. So, we haven't yet finished all the detailed engineering. So, I'm not in a position to quantify what that's going to cost. I think what I've said on, you know, previous calls, we don't expect it to be a, you know, large material capital item that, you know, there'll be suspending there.

Robert Miles McGuire: Good morning, Mark, Dane, and Richard. Thank you for taking my question.

Robert Miles McGuire: So just to begin with, you touched on the natural gas feedstock versus coke capabilities at Coffeyville. Can you remind us what you anticipate the total cost of this project to be? And then, I think you mentioned it a few minutes ago, but just go back through the timeline when you think it might be complete.

Speaker Change: Good morning, Rob.

Robert Miles McGuire: So just to begin with, you touched on the natural gas feedstock versus coke capabilities at Coffeyville. Can you remind us, what do you anticipate the total cost of this project to be? And I think you mentioned it a few minutes ago, but just go back through the timeline when you think it might be complete.

Mark A. Pytosh: So, we haven't yet finished all the detailed engineering, so I'm not in a position to quantify what that's going to cost. I think what I've said on previous calls that we don't expect it to be a, you know, I'd call it a material, you know, large material capital item, you know, there'll be some spending there. And we have accounted for that in the reserves that we've been taking the last six quarters.

Speaker Change: So we haven't yet finished all the detailed engineering, so I'm not in a position to quantify what that's gonna cost. I think what I've said on...

Speaker Change: You know previous calls that we don't expect it to be a you know, I'd call it a material

Mark Pytosh: And we, we have accounted for that in the reserves that we’ve been taking the last six quarters.

Speaker Change: You know, large material capital item, you know, there will be some spending there.

Speaker Change: And we have accounted for that in the reserves that we've been taking the last six quarters.

Mark Pytosh: The plan is to get those studies done by the end of this calendar year, get board approval. If the, if the numbers pencil out, which we feel very comfortable, they will. And we would execute the installation of what's required there during the first half of 2026. I mean, 2025, I'm sorry, 2025. I'm skipping a year. And so, the equivalent should be in place later next year to make some decisions on the 2026 slate feedstock slate. Thank you for that color.

Mark A. Pytosh: The plan is to get those studies done by the end of this calendar year, and get board approval. If the numbers pencil out, which we feel very comfortable they will, And we would execute the installation of what's required there during the first half of 2026. I mean, 2020, I'm sorry, 2025. I'm skipping a year, and so the equipment should be in place later next year to make some decisions on the 2026 slate feedstock.

Speaker Change: The plan is to get those studies done by the end of this calendar year, get board approval. If the numbers pencil out, which we feel very comfortable they will.

Speaker Change: and we would execute the installation of what's required there in during the first half of 2026.

Speaker Change: I mean 2025, I'm sorry, 2025. I'm skipping a year. And so the equipment should be in place later next year to make some decisions on the 2026 slate, feedstock slate.

Robert Miles McGuire: Thank you for that color. And then Dane talked about your CapEx, or maybe I heard that wrong. Can you give us an idea? So reserves for investing this quarter were at $25.2 million. Can you just talk about that increase and what level of increase we should see or levels we should see in the second half of this year?

Dane Neumann: And then, I know Dan talked about your Cap Act, or maybe I heard that wrong. Can you give us an idea? So, reserves this quarter for investing where at 25.2 million, can you just talk about that increase? And what level of increase should we see or level we should see in the second half of this year?

Speaker Change: Thank you for that, Collar. And then I know Dane talked about your CapEx, or maybe I heard that wrong. Can you give us an idea? So reserves this quarter for investing were at $25.2 million. Can you just talk about that increase?

Speaker Change: And what level of increase we should see or level we should see in the second half of this year?

Dane Neumann: Yeah, I'll grab that one, Rob. So, with our capital profile, the spending that's occurred thus far this year. It's been slower to ramp up.

Dane J. Neumann: Yeah, I'll grab that one, Rob. So with our capital profile, the spending that's occurred thus far this year, it's been slower to ramp up. And as you can see in our guidance for full year numbers, as well as the third quarter, we do expect that to increase. The increase in the reserve for investing was primarily associated with the timing of the capital expenditures, ensuring that we weren't crossing the reserves and having adequate capital available to spend as we get into the third and fourth quarters. What won't guide future expectations though?

Speaker Change: Yeah, I'll grab that one Rob. So with our capital profile, the spending that's occurred thus far this year, it's been slower to ramp up and as you can see in our guidance and full year numbers as well as the third quarter, we do expect that to increase.

Dane Neumann: And as you can see in our guidance, in full year numbers as well as the third quarter, we do expect that to increase. The increase in the reserve for investing was primarily associated with that timing of the capital expenditures, ensuring that we weren't crossing the reserves and having adequate capital available to spend as we get into the third and fourth quarter.

Speaker Change: The increase in the reserve for investing was primarily associated with that timing of the capital expenditures, ensuring that we weren't crossing the reserves and having adequate capital available to spend as we get into the third and fourth quarter. What won't guide on future expectations though?

Dane Neumann: What won't guide on future expectations, though? Yeah, we did. You know, I'd say for the growth capital reserves, we didn't change the, you know, the quantum. It was really focused on matching up when the capital was going to be needed versus the, you know, the free cash generation. We expected to spend more capital in the second quarter, but that's shifted to third and fourth. So we're just kind of matching up with that. But our reserves for growth capital have been consistent and, uh, the same number. I appreciate that.

Mark A. Pytosh: Yeah, we didn't, you know, I'd say for the growth capital reserves. We didn't change the, you know, the quantum. It was really focused on matching up when the capital was going to be needed versus the, you know, the free cash generation. We expected to spend more capital in the second quarter, but that's shifted to third and fourth. So we're just kind of matching up with that. But our reserves for growth capital have been consistent and the same numbers, you know, in this quarter versus the last several quarters.

Speaker Change: Yeah, we didn't, you know, I'd say that for the growth capital reserves, we didn't change the, you know, the quantum.

Speaker Change: It was really focused on matching up when the capital is going to be needed versus the free cash generation. We expected to spend more capital.

Speaker Change: in the in the second quarter, but that's shifted to third and fourth. So we're just kind of matching up with that. But our reserves for growth capital have been consistent and same numbers, you know, in this quarter versus the last several quarters.

Robert Miles McGuire: I appreciate that. Okay, then switch gears on that.

Mark Pytosh: Okay, then switching gears on that. Um, can you give us an idea how much your ammonia is sold outside of the agricultural market and, you know, what those markets are and perhaps what, what that percentage might be or very quarter to quarter. Um, you know, I would say that we typically, you know, I would say we sell probably 30 to 40% of our total and into the industrial markets.

Speaker Change: I appreciate that. Okay, then switching gears on that, can you give us an idea of how much your ammonia is sold outside of the agricultural market and, you know, what those markets are and perhaps what that percentage might be or vary quarter to quarter?

Robert Miles McGuire: Can you give us an idea of how much your ammonia is sold outside of the agricultural market and, you know, what those markets are and perhaps what that percentage might be or vary quarter to quarter?

Mark A. Pytosh: You know, I would say that we typically, you know, I would say we sell probably 30 to 40% of our total into industrial markets. There's kind of a, I call it, wide range of markets; ammonia is a feedstock for a lot of different chemical production in the, you know, in the non-row crop ag supply chain. So it's, I'd say it's a kind of broad mix of usages, predominantly feedstock based, and the ag part of it tends to be very heavy.

Speaker Change: You know, I would say that we typically, you know, I would say we sell probably 30 to 40% of our total and into the industrial markets. There's the kind of, I call it a wide range of markets. Ammonia is a feedstock for a lot of different

Mark Pytosh: There's kind of, I call it a wide range of markets. But ammonia is a feedstock for a lot of different chemical production for, in the, you know, in the, I call it non grow crop ag supply chain. So it's, I say it's a kind of a broad mix of usages, predominantly feedstock-based. And it tends; the ag part of it tends to be very heavy.

Speaker Change: chemical production for in the, you know, in the, I call it non row crop ag supply chain. So it's, I'd say it's a kind of a broad mix of

Speaker Change: usages, predominantly feedstock-based, and it tends, the ag part of it tends to be very heavy.

Mark Pytosh: Ag sales or tends to be an ammonia tends to be very heavy in the second and the fourth quarter for spring, spring pre-plant and fall effectively fall pre-plant for the spring, the following spring. So those are the big ag periods, and then it's much more of an industrial sale in between. So the first and third quarters have more as a percentage. This is percentage is not volume have more percentage sales because they're more consistent through the year of industrial.

Mark A. Pytosh: Ag sales or the amount of ammonia used tend to be very heavy in the second and the fourth quarter for spring, spring pre-plant, and fall, effectively fall pre-plant for the following spring. So those are the big ag periods. And then it's much more of an industrial sale in between. So the first and third quarters have more as a percentage, this is percentages, not volume, have more percentage sales because they're more consistent through the year.

Speaker Change: Ag sales or ammonia tends to be very heavy in the second and the fourth quarter for spring pre-plant and fall, effectively fall pre-plant for the following spring. So those are the big ag periods.

Speaker Change: much more of an industrial sale in between. So the first and third quarters have more as a percentage. This is percentages, not volume, have more percentage sales because they're more consistent through the year of industrial.

Mark Pytosh: And so hopefully that gives you an idea of the curve, but, you know, so you can see in our numbers that this year's unusual because the weather was so good in the first quarter. We sold a bunch of ag ammonia in March, which we typically don't sell that money on nearly the quantum that we did this year. But typically we sell a lot of our ag in the second and the fourth quarter. That's helpful. Thank you.

Mark A. Pytosh: And so hopefully, that gives you an idea of the curve. But you know, so you can see in our numbers that this year's unusual because the weather was so good in the first quarter; we sold a bunch of ag ammonia in March, which we typically don't sell nearly the quantity that we did this year. But typically, we sell a lot of our ag in the second and the fourth quarter.

Speaker Change: And so hopefully that gives you an idea of the curve. But, you know, so y'all, you can see in our numbers that.

Speaker Change: This year is unusual because the weather was so good in the first quarter we sold a bunch of Ag Ammonia in March, which we typically don't sell nearly the quantum that we did this year, but typically we sell a lot of our Ag in the second and the fourth quarter.

Robert Miles McGuire: That's helpful. Thank you. And do you sell any of that ammonia to the industrial market on contract, or is it all spot?

Mark Pytosh: And do you sell any of that ammonia into the industrial market on contract, or is it all spot? No, there's there's several contracts there. So there's, I would say, you know, big, you know, it's a good chunk of that is under contract, not spot.

Speaker Change: That's helpful, thank you. And do you sell any of that ammonia into the industrial market on contract or is it all spot?

Mark A. Pytosh: No, there are several contracts there, so I would say a good chunk of that is under contract, not spot. And it's more rateable; it's a rateable sale during the year because we're matching up with the buyer's production, so they're generally all takers on a rateable basis during the course of the year.

Speaker Change: No, there's several contracts there, so I would say a good chunk of that is under contract, not spot.

Mark Pytosh: And it's more rateable; it's a rateable sale during the year because we're matching, we're matching up with their, you know, the buyers' production. So they're generally all takers on a rateable basis during the course of the year. Appreciate that color.

Speaker Change: And it's more rateable. It's a rateable sale during the year because we're matching up with their, you know, the buyer's production. So they're generally all takers on a rateable basis during the course of the year.

Robert Miles McGuire: I appreciate that color. And you, you know, Mark, you've been doing this for a while. Can you just tell us your view of the price of corn and how that impacts fertilizer sales?

Mark Pytosh: And you, you know, Mark, you've been doing this for a while. Can you just tell us your view of the price of corn, how that impacts fertilizer sales? I mean, clearly, clearly, you know, it's like with it, you know, I did use this as any business. The health of your customer is, and you know, their ability to spend is critical. And so our customers are farmers. And, you know, the higher the grain price, the better. You know, four dollars and north of four dollars in corn is, outside the last couple of years, usually pretty good.

Speaker Change: I appreciate that color.

Speaker Change: And you, you know, Mark, you've been doing this for a while, can you just tell us your view of the price of corn, how that impacts fertilizer sales?

Mark A. Pytosh: I mean, clearly, clearly, you know, it's like with it, you know, I used this in any business; the health of your customers and, you know, their ability to spend is critical. And so our customers are farmers. And, you know, the higher the grain price, the better, $4 and north of $4 in corn outside of the last couple years is usually pretty good. We got used to seeing corn numbers, you know, at seven or $8. That's extraordinary!

Mark A. Pytosh: I mean, clearly, clearly, you know, it's like with it, you know, I did use this in any business.

Mark A. Pytosh: The health of your customer and their ability to spend is critical, and so our customers are farmers, and the higher the grain price, the better. North of $4.00 in corn is...

Mark Pytosh: We got used to like seeing corn numbers, you know, you know, at seven or eight dollars. That's extraordinary. But four dollars in the four dollar area where we are now is a good; the economics are good for farmers. And, you know, the price of fertilizer from the peaks, you know, when it was seven or eight dollars, the price fertilizer was very high. So, you know, if you look at a P&L from a farm perspective, it's not quite as good as it was a couple of years ago. But, you know, over four dollar corn with fertilizer prices kind of settling into, you know, what I call mid-cycle pricing.

Mark A. Pytosh: Outside of the last couple of years, it's usually pretty good.

Mark A. Pytosh: We got used to seeing corn numbers at $7 or $8. That's extraordinary. But $4, in the $4 area where we are now, is a good...

Robert Miles McGuire: But $4 in the $4 area where we are now is good, and the economics are good for farmers. And, you know, the price of fertilizer from the peaks, when it was seven or $8, the price of fertilizer was very high. So you know, if you look at P&L from a farm perspective, it's not quite as good as it was a couple years ago. But at, you know, over $4 a bushel of corn, with fertilizer prices kind of settling into, you know, what I call mid-cycle pricing, pretty, pretty attractive economics for a farmer these days. And so, you know, that's one of our critical measures is farm health and farm economics. And we're in a, I'd say, pretty good sweet spot right now.

Mark A. Pytosh: The economics are good for farmers, and the price of fertilizer from the peaks, when it was seven or eight dollars, the price of fertilizer was very high.

Mark A. Pytosh: So, you know, if you look at a P&L from a farm perspective...

Mark A. Pytosh: It's not quite as good as it was a couple years ago, but at over $4 corn with fertilizer prices kind of settling into what I call mid-cycle pricing, pretty attractive economics for a farmer.

Mark Pytosh: Pretty attractive economics for a farmer these days. And so, you know, we always, you know, that's one of our critical measures: farm health, farm economics. And we're going to, I'd say, a pretty good sweet spot right now. now.

Mark A. Pytosh: These days and so you know that we always you know that's one of our critical measures is farm health farm economics And we're in a I'd say a pretty good sweet spot right now

Mark Pytosh: You know, that's for all the number I've been hearing for, it just seems like years now. Is there a point where their inflation just causes you to bump that up to, you know, by 10% or something along those lines? I mean, you talked about primary economics the moment ago, so it's profitable, but is inflation playing a role in bumping that number up over time? I think it's some factor in it, too. And, you know, factor in fertilizer price. I think most commodity-oriented manufacturing, same, you know, fundamentally, inflation will raise costs for everybody. So if you go back to pre-COVID, you know, our cost of produces a little bit higher, you know, inflation based, you know, driven by inflation and farmer economics, you know, are, you know, the price, you know, I think the price of corn is going to stay a little higher.

Mark A. Pytosh: You know, that $4 number I've been hearing for, it just seems like years now, is there a point where inflation just causes you to bump that up by 10% or something along those lines? I mean, you talked about farmer economics a moment ago, so it's profitable, but is inflation playing a role in bumping that number up over time?

Speaker Change: You know that $4 number I've been hearing for it just seems like years now. Is there a point where they're inflation?

Speaker Change: just causes you to bump that up to, you know, by 10% or something along those lines, or, I mean, you talked about farmer economics a moment ago, so it's profitable, but is inflation playing a role in bumping that number up over time?

Robert Miles McGuire: I think I think it's a factor in it too. And, you know, factor in fertilizer price. I think most commodity-oriented manufacturing the same, fundamentally, inflation will raise costs for everybody. So if you go back to pre-COVID, you know, our cost to produce is a little bit higher, inflation-based, driven by inflation and farmer economics, you know, the price you know, I think the price of corn is going to stay a little higher. And so, yeah, I think inflation is embedded.

Speaker Change: I think I think it's some a factor in it too.

Speaker Change: and, you know, factor in fertilizer price. I think most...

Speaker Change: Commodity-Oriented Manufacturing same

Speaker Change: Fundamentally, inflation will raise costs for everybody.

Speaker Change: So if you go back to pre-COVID, you know, our cost to produce is a little bit higher, you know, inflation-based, you know, driven by inflation and farmer economics.

Speaker Change: you know, are you know, the price, you know, I think the price of corn is going to stay a little higher.

Mark Pytosh: And so, yeah, I think inflation is embedded; it's embedded in our cost structure, it's embedded in the farmer cost structure. So I think some of those historical measures probably aren't as good. You know, but when the corn got down to $3, that's a tougher, that's really tough economics for the farmer. But at these levels, even with the inflationary costs that are embedded, and they're still pretty attractive because our cost of, you know, our cost of what we sell for have adjusted to. So all in, their, their economics are pretty solid here.

Robert Miles McGuire: It's embedded in our cost structure. It's embedded in the farmer cost structure. So I think some of those historical measures probably aren't as good. But when corn got down to $3, that's really tough economics for the farmer. But at these levels, even with the inflationary costs that are embedded in there, it's still pretty attractive because our cost of what we sell for has adjusted too. So all in, their economics are pretty solid here.

Speaker Change: And so, yeah, I think inflation's embedded. It's embedded in our cost structure. It's embedded in the farmer cost structure. So I think some of those historical measures probably aren't as good.

Speaker Change: You know, but when the corn got down to $3, that's a tougher.

Speaker Change: That's really tough economics for the farmer, but at these levels, even with the inflationary costs that are embedded in there, it's still pretty attractive, because our cost of what we sell for have adjusted too, so all in, their economics are pretty solid here.

Rob McGuire: Thank you for answering my questions. That's all for me. All right, thank you, Rob.

Robert Miles McGuire: Thank you for answering my questions. That's all for me.

Mark A. Pytosh: All right. Thank you, Robert.

Operator: Thank you.

Speaker Change: Thank you for answering my questions. That's all for me.

Operator: 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.

Mark Pytosh: 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. All right, well, thank you, everybody. We appreciate you being on the call today, and we look forward to reviewing our third quarter results in about three months. So, look forward to speaking to everybody again. Thank you. Thank you for your time.

Speaker Change: All right, thank you, Robert.

Speaker Change: 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.

Mark A. Pytosh: Alright, well, thank you everybody, we appreciate you being on the call today, and we look forward to reviewing our third quarter results in about three months, so look forward to speaking to everybody again. Thank you, thank you for your time.

Speaker Change: All right. Well, thank you, everybody. We appreciate you being on the call today, and we look forward to reviewing our third quarter results in about three months. So look forward to speaking to everybody again. Thank you. Thank you for your time.

Operator: 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.

Operator: 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.

Speaker Change: 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.