Q3 2024 CVR Partners LP Earnings Call
Speaker Change: Greetings and welcome to the CVR Partners 3rd Quarter 2020 4 conference call. At this time, all participants are an listen-only mode.
Speaker Change: A brief question and answer session will follow the formal presentation. If anyone to require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded.
Speaker Change: It is now my pleasure to introduce your host Richard Roberts of Financial Planning and Analysis and Investor Relations. Thank you sir, you may begin.
Richard Roberts: Thank you Christine, good morning everyone. We appreciate your participation in today's call. With me today, our Mark Pytosh, our T.B. Executive Officer, Dane Neumann, our Chief Nage Walsh, and other members of Management.
Richard Roberts: Prior to discussing our 2024 third 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 Roberts: You were 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 statements.
Richard Roberts: We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, public events, or otherwise, except to the extent required by law.
Richard 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 third quarter earnings release that we filed with the SEC for the period.
Richard 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 may reserve amounts for other future cash needs as determined by our General Partners Board.
Richard 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.
Richard Roberts: With that said, I'll turn the call over to Mark Pytosh, our Chief Executive Officer. Mark. Thank you, Richard. Good morning, everyone, and thank you for joining us for today's third quarter call.
Mark Pytosh: net income of $4 million, EBITDA of $36 million, and the Board of Directors declared a third quarter distribution of $1.19 per common unit, which will be paid on November 18th to unit holders of record at the close of the market on November 8th.
Mark Pytosh: Combined ammonia production for the third quarter of 2024 was 212,000 gross tons, of which 61,000 net tons were available for sale, and UAM production was 321,000 tons.
Mark Pytosh: Relative to the third quarter of 2023, ammonia sales volumes were in line and UAN sales volumes were lower as a result of some unplanned downtime at the upgrading units at both facilities.
Mark Pytosh: Prices for the third quarter increased from the third quarter last year, with ammonia prices increasing 9% and UAN prices increasing 3%.
Mark Pytosh: After the peaks in nitrogen fertilizer pricing we saw over the past few years, we believe we're currently in more of a mid-cycle type of environment and we were encouraged to see ammonia and UAM prices for the third quarter increasing relative to the third quarter of last year.
Mark Pytosh: Demand for summer UAN fill and ammonia fall prepay were strong, and customer inventory levels have been low ahead of fall.
Mark Pytosh: As a result, we have seen prices continue to increase for both Ammonia and UAN since summer, 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.
Dane Neumann: For the third quarter of 2024, we've reported net sales of $125 million and operating income of $11 million.
Dane Neumann: That income for the quarter was $4 million, or $0.36 per common unit, and EBITDA was $36 million.
Dane Neumann: Relative to the third quarter of 2023, the increase in EBITDA was primarily due to a combination of higher market prices for ammonia and UAN and lower feedstock and operating expenses.
Dane Neumann: Direct operating expenses for the third quarter of 2024 were $56 million.
Dane Neumann: Excluding inventory impacts, direct operating expenses decreased by approximately $3 million relative to the third quarter of 2023, primarily due to lower natural gas and electricity costs.
Dane Neumann: During the third quarter of 2024, we spent $10 million on capital projects, which was primarily maintenance capital. We estimate total capital spending for 2024 to be approximately $39 to $42 million, of which $31 to $33 million is expected to be maintenance capital.
Dane 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 seven quarters.
Dane Neumann: Within our cash balance of $111 million, we had $31 million related to customer prepayments for the future delivery of product.
Dane Neumann: In assessing our cash available for distribution, we generated an EBITDA of $36 million and had net cash needs of $23 million for interest costs, maintenance capex, and other reserves.
Dane Neumann: As a result, there was $13 million of cash available for distribution, and the Board of Directors of our general partner declared a distribution of $1.19 per common unit.
Dane Neumann: Looking ahead to the fourth quarter of 2024, we estimate our ammonia utilization rate to be between 92% and 97%, with some potential downtime at the third-party air separation unit at Coffeyville expected in the quarter.
Dane Neumann: We expect direct operating expenses, excluding inventory and PACs, to be between $60 million and $70 million, and total capital spending to be between $19 million and $23 million.
Mark Pytosh: With that, I will turn the call back over to Mark. Thanks, Dane. In summary, we had another good quarter operationally with ammonia utilization of 97%. And we were pleased to see pricing for the third quarter of 2024 come in higher for both ammonia and UAN compared to the third quarter of 2023.
Mark Pytosh: We saw a strong demand for our products over the summer, which combined with plant disruptions and natural gas issues in certain global markets has led to fertilizer prices increasing from the levels we saw in early summer.
Mark Pytosh: Harvest is nearing completion and ahead of schedule, and corn yields are expected to be the highest in history. The USDA is estimating yields of almost 184 bushels per acre on 91 million planted acres of corn, and inventory carryout levels of approximately 13%.
Mark Pytosh: Soybean yields are estimated to be at 53 bushels per acre on 87 million acres planted with inventory carryout levels also estimated around 13 percent.
Mark Pytosh: Corn prices have been weaker with the expectation of a large U.S. crop, and December corn prices are currently at $4.15 per bushel, roughly in line with prices from July.
Mark Pytosh: With the early harvest, we believe conditions will be favorable for fall ammonia application and prices for fourth quarter are up approximately $50 per ton for ammonia and $10 per ton for UAN compared to the fourth quarter of 2023.
Mark Pytosh: 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 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
Mark 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 natural gas market issues that will likely remain in effect over the next two years.
Mark Pytosh: 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, and we expect to have these studies completed later this year.
Mark Pytosh: As a reminder, if this project were implemented, we would likely continue to utilize the pet coke supplied by the adjacent Coffeyville refinery, while the remainder of the feedstock can be flexed between natural gas and pet coke depending on prevailing prices.
Mark Pytosh: We also began implementing certain debottlenecking projects at both plants that are expected to improve reliability and production rates.
Mark Pytosh: the board elected to continue reserving capital in the third 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
Mark Pytosh: We began spending capital on these projects in the third quarter of 2024 with funds coming from reserves taken over the last seven quarters.
Speaker Change: The third quarter continued to demonstrate the benefits of focusing on reliability and performance. In the quarter, we executed on all of the critical elements of 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: Brutally managing cost, being judicious with capital, maximizing our marketing and logistics capabilities, and targeting opportunities to reduce our carbon footprint.
Speaker Change: In closing, I'd like to thank our employees for their excellent execution, achieving 97% ammonia utilization and solid delivery on our marketing and logistics plans, resulting in a distribution of $1.19 per common unit for the third quarter.
Speaker Change: With that, we're ready to take questions, Christine.
Christine: Thank you. We will now be conducting a question and answer session.
Speaker Change: If you would like to ask a question, please press star 1 on your telephone keypad.
Speaker Change: 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. One moment please while we poll for questions.
Speaker Change: Thank you. Our first question comes from Brian DiRubio with Baird. Please proceed with your question.
Brian DiRubio: Good morning, gentlemen. A couple of questions for me. First off, just with the river levels on the Mississippi and normally low again, is that having a positive impact on corbel prices for UAN and ammonia?
Speaker Change: We haven't seen any major impacts on on either of those. You know, a lot of the ammonia is positioned already. And there's a lot of ammonia that moves into the corn belt from a pipeline. And same on UA and a lot of it.
Speaker Change: Dane Neumann, Richard Roberts, Mark Pytosh
Speaker Change: The ability to move grain could be impacted, and so we're following that closely to see, you know, how high storage gets and the ability to move grain from the Midwest to the Gulf.
Speaker Change: Got it. That's helpful. Thank you. And just with the Coffeyville natural gas project, I know you said you're going to complete some of the front-end engineering studies this quarter, but any rough guesstimates on how much that would cost and how the company would look to fund that investment?
Speaker Change: I'll start with the second question first. We've...
Speaker Change: We've been setting aside reserves for growth capital, and that capital would be taken out of the reserve if it's approved.
Speaker Change: We roughly think it's about a $10 million project, is what we think now, but that would be part of the reserve that we've set aside for growth projects for the plant.
Speaker Change: Got it. I doubt you're going to be able to answer this, but earlier this year there was a 13-D filing on your sister company, CVR Energy, potentially about a large owner evaluating options for CVR partners. Any developments there that you are able to discuss or comment on? We don't really have anything to report on that.
Speaker Change: Mark Pytosh, Richard Roberts, Mark Pytosh, Mark Pytosh, Mark Pytosh, Mark Pytosh, Mark
Brian DiRubio: Appreciate all the color. Thank you so much. Thanks, Brian.
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.
Speaker Change: Again, thanks everyone for joining our call today and we look forward to reviewing our fourth quarter results in February. So thanks and have a good 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.