Q4 2024 CVR Partners LP Earnings Call
Speaker Change: Greetings, and welcome to the CBR Partners 4th Quarter 2024 Conference Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation.
Speaker Change: Prior to discussing our 2020 for 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 there are.
Speaker Change: The earnings release as a result, actual operations or results may differ materially from the results discussed in the forward looking statements. We undertake no obligation to publicly update any forward looking statements, whether as a result of new information future events or otherwise except to the extent required by law.
Speaker Change: 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 2020 for fourth quarter earnings release that we felt that the SEC and Form 10-K for the period and will be discussed during the call.
Speaker Change: Let me remind you that we are a variable distribution MLP, who 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: As a result, our distributions if any will vary 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.
Speaker Change: That said I will turn the call over to Mark Hi, Josh Our Chief Executive Officer, Mark. Thank you Richard Good morning, everyone and thank you for joining us for today's call.
Speaker Change: The summarized financial highlights for the fourth quarter of 2024 included net sales of one four to 140 million net income of $18 million.
Speaker Change: EBITDA of $50 million and the board of directors declared a fourth quarter distribution of $1 75 per common unit, which will be paid on March 10, 2025% to unit holders of record at the close of the market on March 3rd.
Speaker Change: For the full year of 2024, we reported EBIT of $179 million and distributions of $6 76 per common unit.
Speaker Change: We had another year of solid operations from our facilities within ammonia utilization rate of 96% for the year.
Speaker Change: At East Dubuque.
Speaker Change: Set new records in 2024 for ammonia utilization rate of 102% as well as ammonia production volumes at approximately 399000 tons.
Speaker Change: We're also proud to report continued improvement in our safety metrics and 2024 with a 40% reduction in total recordable incident rate compared to 2023.
Speaker Change: For the fourth quarter of 2024 are annual.
Speaker Change: Our ammonia plant utilization was 96%.
Speaker Change: This resulted in total ammonia production of 210000 gross tons of which 80000 net tons were available for sale.
Speaker Change: Total UAS production was 310000 tons substantially all of which were sold at an average price of $229 per ton and we sold approximately 97000 tons of ammonia at an average price of $475 per ton.
Speaker Change: Relative to the fourth quarter of 2023 ammonia sales volumes were in line.
Speaker Change: Uhm salt sales volumes were down approximately 3%, partially due to the challenging weather conditions during the fall application.
Speaker Change: Fourth quarter prices for ammonia increased approximately 3% and new and prices declined approximately 5% relative to the prior year period.
Speaker Change: Spite, some unfavorable weather conditions in the fourth quarter, we saw good demand for nitrogen fertilizer that drove prices higher compared to the third quarter and we had strong shipments from our facilities supply and demand for nitrogen fertilizer products have been tight to start the new year and prices have continued to increase with the <unk>.
Speaker Change: Recent rally in grain prices market conditions look favorable for the spring planting season, which I will discuss further in my closing remarks, I will now turn the call over to Dave to discuss our financial results. Thank you Mark turning to our results for the full year 2024, we reported net sales of 525 million and operating income of $90 million net <unk>.
Speaker Change: For the year was $61 million or $5 76 per common unit and EBITDA was $179 million.
Speaker Change: For the fourth quarter of 2024, we reported net sales of $140 million and operating income of $26 million.
Speaker Change: Net income for the fourth quarter was $18 million for $1 73 per common unit and EBITDA was $50 million.
Speaker Change: Relative to the fourth quarter of 2023, EBITDA increased primarily due to higher ammonia sales prices and lower pet coke feedstock costs.
Speaker Change: Direct operating expenses for the fourth quarter of 2024 or $56 million, excluding inventory and turnaround impacts direct operating expenses declined by approximately $3 million from the fourth quarter of 2023, primarily related to lower repair and maintenance expenses.
Speaker Change: <unk> spending for the fourth quarter was $18 million, which was primarily maintenance capital.
Speaker Change: Full year 2024 capital spending was $37 million of which $30 million was maintenance capital.
Speaker Change: We estimate 2025 maintenance capital spending to be about $35 million to $45 million.
Speaker Change: Gross capital spending to be 20% to $25 million.
Speaker Change: We expect a significant portion of the 2025 gross capital spending will be funded from cash the board elected to start reserving over the past two years.
Speaker Change: We ended the quarter with total liquidity of $130 million, which consisted of $91 million in cash and availability under the ABL facility of $39 million.
Speaker Change: Within our cash balance of 91 million, we had approximately $9 million related to customer prepayments for the future delivery of product.
Speaker Change: In assessing our cash available for distribution, we generated EBITDA of $50 million and had net cash needs of approximately 32 million for interest costs maintenance capex and other reserves.
Speaker Change: As a result, there was $18 million of cash available for distribution and the board of directors of our general partner declared a distribution of $1 75 per common unit.
Mark: Looking ahead to the first quarter of 2025, we estimate our ammonia utilization rate to be between 95, and 100%. We expect direct operating expenses to be $55 million to $65 million, excluding inventory impacts and total capital spending to be between 12 and $16 million with that I'll turn the call back over to Mark.
Mark: Thanks, Dan.
Mark: Summary, we had another strong quarter of operations and despite difficult application conditions in the fall, we experienced strong demand for nitrogen fertilizer throughout the quarter.
Mark: With the 2024 harvest complete the USDA is now estimating record high corn yields of 179 bushels per acre, but these yield estimates are down from previous estimates of 183 bushels, an inventory carryout levels for 2025 are now estimated to be approximately 10% soybean yields.
Mark: There are estimated to be 51 bushels per acre down from 53 bushels.
Mark: Previously with an estimated inventory carry out of approximately 9%.
Mark: These inventories are now below the 10 year averages, which has driven both corn and soybean prices higher since our last earnings call with March corn prices at $5 per bushel and soybeans at $2 35 with.
Mark: With tighter supply demand balances in fertilizer at higher grain prices, we expect to see strong demand for nitrogen fertilizer for spring application.
Mark: The current grain prices planting famous corn over beans, and most estimates are calling for 91 to 94 million planted acres of corn for spring 2025.
Mark: Geopolitical risks continue to represent a wildcard for the nitrogen fertilizer industry, given the significant fertilizer production capacity residing in countries across the middle East North Africa, and Russia, We continue to monitor developments in the middle East that could impact energy and fertilizer markets and we expect 2025 will likely be a continued.
Mark: Period of higher than historic volatility in the business.
Mark: With the New administration in Washington, The dynamics are beginning to change with a state of desired in the conflicts in the Ukraine and the middle East.
Mark: We're also closely watching the potential imposition of tariffs on foreign fertilizer and energy imports, particularly Canadian products.
Mark: U S is a significant importer of Canadian fertilizer and a disruption in import flows could cause prices to increase in the U S. Depending on the size and timing of tariffs.
Mark: Natural gas prices in Europe have remained around $15 per MB to you since our last earnings call, while U S prices continuing to range between three and $4 per M. B to you.
Mark: Europe is drawn down natural gas inventories more than expected and there are concerns about the ability to replenish the inventory.
Mark: For winter of 2025, given supply constraints into Europe, although this could potentially be alleviated by additional gas supplies from Russia pending any resolution of award in Ukraine.
Mark: The cost to produce ammonia in Europe has remained durably at the high end of the global cost curve and several plant closures have been announced which we expect will continue to keep the global supply demand balance tight through the first half of 2025.
Mark: We continue to believe Europe faced a structural natural gas market issues that will likely remain in effect over the next two years.
Mark: At our Coffeyville facility, we have completed detailed engineering studies or the potential of a utilized natural gas as an alternative feedstock to third party pet Coke and we have seen no significant technical issues with implementing the project.
Mark: Currently working on construction design plans and plan to seek board approval to begin construction on the project.
Mark: If successfully implemented.
Mark: This project 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: As a reminder, this project were implemented we would likely continue to utilize the pet coke supplied by the adjacent Coffeyville refinery.
Mark: While the remainder of the feedstock can be flex between natural gas and pet coke, depending on prevailing prices as.
Mark: As we mentioned on the last earnings call, we have seen a softening of pet coke prices in the U S and expect to see our pet Coke costs decline further in the first quarter of 2025.
Mark: We also continue to execute certain debottlenecking projects at both plants that are expected to improve the reliability and production rates.
Mark: All of these projects is to support our target of operating our plants at utilization rates above 95% of nameplate capacity, excluding the impact of turnarounds.
Mark: We completed the installation of two new boilers in Coffeyville in the fourth quarter, which should improve our steam availability and reliability.
Mark: For 2025, we're focused on water and electricity reliability and quality at both plants. Among other projects. We're also planning to install a nitrous oxide abatement unit at the Coffeyville plant during our fall 2025 turnaround.
Mark: After installation, we would have nitrous oxide abatement units, all four of our nitric acid plants, which aligns with our strategy of reducing the carbon footprint of our operations.
Mark: <unk> elected to continue reserving capital in the fourth 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 and efforts to provide better production rates and lower downtime in the future.
Mark: The funds needed for the 2025 projects are coming from the reserves taken over the last two years.
Mark: The fourth quarter, continuing to demonstrate the benefits of focusing on reliability and performance.
Mark: Quarter, we execute on all of the critical elements of our business plans, which include safely and reliably operating our plants with a keen focus on the health and safety of our employees contractors and communities prudently.
Mark: Prudently managing cost being judicious with capital.
Mark: Maximizing our marketing and logistics capabilities and targeting opportunities to reduce carbon footprint.
Mark: In closing I'd like to thank our employees for their excellent execution safely, achieving 96% ammonia utilization and solid delivery on our marketing and logistics plans, resulting in a distribution of $1 75 per common unit for the quarter.
Mark: With that we're ready to take any questions.
Mark: Thank you we will now.
Mark: Now be conducting a question and answer session.
Mark: We'd like to ask a question. Please press star one on your telephone keypad.
Mark: Information tone will indicate your line is my question queue. You May Press Star two if you would like to remove your question from the queue.
Just minutes 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.
Thank you. Our first question comes from the line of Brian <unk> with Baird. Please proceed with your question.
Brian: Good morning, gentlemen, just a couple from me this morning.
Brian: First off have you seen any changes in customer ordering patterns with the fed lowering short term interest rates over the last couple.
Brian: A couple of quarters. Thank you, saying Mark last year that there was sort of more just in time ordering given the higher working capital costs.
Brian: Good morning, Brian.
Brian: We haven't seen any real change in that pattern I don't think the 100 basis points was enough to bring.
Brian: That change customers view on how much inventory to hold so we're still seeing more ratable buying.
Brian: And so really since the summer of last year, it's been very ratable for the last.
Brian: Six to seven months.
Brian: Yeah.
Brian: Got it thank you.
Brian: And just switching gears.
Brian: The timing that Coffeyville project, where you stand now is that still a potential 2026 events.
Speaker Change: I'm not sure which project are you refer.
Speaker Change: The what I'm, calling the dual fuel project the ability to switch from that guest to pet Coke.
Speaker Change: The plan would be to if it's approved by the board would be to have it in place to be able to execute on decision on feedstock for 'twenty six.
Speaker Change: Yeah.
Speaker Change: So the you start construction in 2006, when you get approval and then.
Speaker Change: Just trying to see where this starts.
Speaker Change: We would start construction if it's perfectly did construction this year, so that we would have the option.
Speaker Change: We have to sort of declare or make a decision before year end on whether we would use pet coke or natural gas. So we.
Speaker Change: We try to get that in place before year end. So they have that choice to make for next year.
So how would this work then.
Speaker Change: Can you not then switch back and forth daily or weekly you'd have to commit to one fuel or another for a year period.
Speaker Change: I wouldn't say, we would commit for a year period, but it won't be daily or weekly, we would probably make decisions over months not not days or weeks.
Speaker Change: Yes.
Speaker Change: Okay. So mechanically you then operate on pet Coke for let's just say argument's sake for a quarter with natural gas prices then collapse.
Speaker Change: You just basically turned off the pet coke.
Speaker Change: Valve and turn on the natural gas one and then you just start producing natural gas.
Speaker Change: Yeah actually it wouldn't work that we would we would be we have to gasifier. So we would have a petco gas fire running and a natural gas gasifier running and if we wanted to.
Speaker Change: If we go into turnaround on the pickup we would run 100% natural gas for a period of time and then come back on pack up or vice versa. If we wanted to run more pickup we would run switchover to the pet Coke gasifier around 100% there.
Speaker Change: And it would produce enough.
Speaker Change: Hydrogen for our needs to produce so today, we only run one gas fire under this scenario, we'd run both gas fires.
Speaker Change: Okay. That's helpful. There.
Speaker Change: Great. That's all I've got I appreciate it thank you.
Speaker Change: Our next question comes from the line of Rob Maguire with Granite Research. Please proceed with your question.
Rob Maguire: Good morning, Martin and Richard Thank you for taking my questions.
Speaker Change: Morning, Rob.
Speaker Change: Just a few questions on market trends, if you could give us a little more insight Mark you mentioned supply demand is tight can you talk about three trends. One is are you feeling an impact of UAS demand as a consequence of higher urea prices and can you give us a feel for you in an ammonia inventories at the distributor to the farm level.
Speaker Change: And then lastly, you know.
Speaker Change: Have you seen any trends towards the use of more U a N versus ammonia.
Speaker Change: In the spring and fall planting seasons end and do you think there'll be any material shifts this year.
Speaker Change: Okay, there's a lot of questions there sorry.
Speaker Change: Sorry, it's taken in pieces.
Speaker Change: A big driver in the market right now is urea urea.
Speaker Change: Urea is tight globally and the price has risen.
Speaker Change: Public prices, but it's north of $400 in NOLA.
Speaker Change: No one in New Orleans.
Speaker Change: And that's following the global price, which right now is like $450 a tonne metric.
Speaker Change: So.
Speaker Change: They're just.
Speaker Change: A lot of our customers have been looking to buy more urea into the spring and there has been I would say limited availability.
Speaker Change: And so the market has tightened up and thats sort of lifted.
Speaker Change: Both UAS.
Speaker Change: And at.
Speaker Change: In ammonia.
Speaker Change: Ammonia is a little bit different because we typically sell the the spring prepay in December so.
Speaker Change: We will see the effect of the higher pricing there and when they buy cash orders starting in the spring, but we're seeing UA and kind of following urea UA and look so from where the market price today, maybe a little cheap.
Speaker Change: And so we may actually find more demand there.
Speaker Change: And so I would say the supply side has been tight and I think our customers are seeing.
Speaker Change: Greater coronary acreage in the spring I was at a conference.
Speaker Change: We last week and the customers are telling us that corn seed sales are up significantly year over year, which typically implies more acreage of corn planting and so I think the customers are feeling like they need to be buying more.
Speaker Change: And advanced because there is likely to be more acreage there. So.
Speaker Change: I actually think all of the nitrogen will be stronger I think you are and where its priced today is pretty attractive and.
Speaker Change: If urea stays difficult to purchase than the next.
Speaker Change: Customers would turn to you again.
Apply more UA and Buffett pre plant, but also and side dress and top dress season.
Speaker Change: So I'm kind of rambling there so I'll stop and see if I've answered your questions.
Speaker Change: That was great.
Speaker Change: Been a trend towards more union versus pneumonia.
Speaker Change: I wouldn't I wouldn't say that there isn't really a big trend.
Speaker Change: That direction.
Speaker Change: A lot of times it's.
Speaker Change: More of the relative pricing at a moment in time.
Speaker Change: I would say right now ammonia looks pretty cheap compared to.
Speaker Change: Yes, not unduly cheap, but a little bit cheaper than urea in UA and typically the relationship there.
Speaker Change: Paul was difficult.
Speaker Change: We scrambled in the customer scrambled and we did defer.
Speaker Change: Difficult as the weather conditions are we actually did get most of them are ammonia orders out in the fourth quarter.
Speaker Change: But there could be some catch up in the spring and if they don't get there with ammonia in the spring for nitrogen they'll come back with you at our urea. So there's probably going to be a little bit of a pickup on UA in urea in the spring for for what didn't get down on pre plant in the back in the fall.
Speaker Change: That's great color. Thank you and then two thirds of the way through February can you give us an idea of how much you and it's been pre sold in the first quarter and perhaps even into the second quarter of 2025.
Speaker Change: Yeah, I don't like to get very specific in our book I would just say that.
Speaker Change: The customers have been buying kind of.
Speaker Change: On the previous question about ratable, we've been sort of consistently sold forward, but not at the length that we are but where we have a solid book of business going into the spring already for UAS and pneumonia.
Speaker Change: And customers are looking for more than what's available which is that's what's pushed the market up here in the last six weeks. So the customers would like to buy more what I heard at the conference very difficult to find March tonnage.
Speaker Change: Available and so the market is kind of in April at this point just broadly amongst all the producers so I'm.
Speaker Change: It just tells you the market is tight and.
Speaker Change: And firm and.
Speaker Change: Uh huh.
Speaker Change: We'll be working hard to fill fulfill what the customer needs in April and May but.
Speaker Change: Its stronger this year than last year, I think the or our order book and the market itself going into the spring. This year is stronger than last year and it looks like we're going to have somewhere between two to 4 million more acres of corn this year than last year.
Speaker Change: That's helpful. Thank you and then shifting gears in the last question, how should capex, excluding turnaround reserves look for the balance of the year.
Speaker Change: Yes, Rob.
Speaker Change: For looking forward to 2025, I don't think you should expect to see a substantial change in the reserves.
Speaker Change: Obviously as we look at the higher Capex profile the balance of the growth projects is really already been reserved and we will continue to reserve at a comparable level and then same on the on the turnaround.
Speaker Change: Okay, Dan I appreciate it Mark Thank you again, Richard Thank you.
Speaker Change: Thanks, Rob Thank you.
Speaker Change: 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: Just wanted to say thanks to everybody who attended the call today and I. Appreciate your interest in CVR partners and look forward to talking to you about our first quarter results at the end of April. Thank you very much.
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.