CVR Partners, LP — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019; balance-sheet comparisons are to December 31, 2018. CVR Partners produces and sells wholesale nitrogen fertilizer, principally ammonia and UAN, at facilities in Coffeyville, Kansas, and East Dubuque, Illinois.
Financial performance
| Metric | Q1 2019 | Q1 2018 |
|---|---|---|
| Net sales | $91.9 million | $79.9 million |
| Operating income (loss) | $9.4 million | ($3.4 million) |
| Net loss | ($6.1 million) | ($19.1 million) |
| Net loss per common unit | ($0.05) | ($0.17) |
| Adjusted EBITDA (non-GAAP) | $26.0 million | $13.0 million |
| Cash provided by operating activities | $51.9 million | $14.5 million |
| Capital expenditures | $3.5 million | $2.7 million |
Sales increased $12.0 million, principally from approximately $22 million of favorable pricing, partly offset by about $10 million from lower volumes. UAN pricing drove most of the price increase. Ammonia gross production declined to 179,000 tons from 199,000; UAN production was 335,000 tons versus 339,000. Higher operating cash flow reflected improved results and increased customer advances. The Partnership reported $7.8 million of available cash for distribution, compared with negative $4.1 million in Q1 2018; the filing describes this measure as cumulative based on full-year results.
Financial position and liquidity
At March 31, cash and cash equivalents were $96.6 million, total assets were $1.247 billion, and partners’ capital was $480.2 million. Long-term debt, net of discount and issuance costs, was $629.8 million; principal included $645 million of 9.25% senior secured notes due 2023 and $2.2 million of 6.50% notes due 2021. The $50 million asset-based credit facility was undrawn, with $50 million reported available. Total liquidity was $121.6 million, calculated by the Partnership after accounting for cash included in the borrowing base. It had $63.4 million of customer-advance cash and $65.4 million of deferred revenue. The Partnership reported covenant compliance and said it expected available liquidity and operations to meet anticipated needs for at least 12 months.
Changes, outlook, and notable items
- Management attributed the stronger pricing and seasonal demand shift to wet fall weather that delayed customer ammonia purchases, followed by heavy rain, freezing temperatures, and flooding affecting planting and demand in the Eastern Corn Belt and Southern Plains. It noted the spring planting delay but reported positive cash available for distribution.
- Direct operating expenses fell $3.9 million, mainly due to inventory build, while materials and other costs rose $1.2 million, including higher petroleum-coke costs. Petroleum coke used in production increased to 132,000 tons from 118,000, and reported cost per ton rose to $38 from $18.
- Management estimated 2019 capital expenditures of $20–25 million: $18–20 million for maintenance and $2–5 million for growth. No specific revenue or earnings guidance was provided.
- The general partner declared a Q1 2019 distribution of $0.07 per unit, approximately $8 million, payable May 13, 2019. The prior-quarter distribution of $0.12 per unit was paid in March. Distribution policy and amounts remain discretionary.
- Adoption of the new lease standard on January 1, 2019 added $14.3 million of right-of-use assets and lease liabilities at adoption. At March 31, operating lease liabilities were $13.4 million.
- In April 2019, the Partnership and Montgomery County, Kansas agreed to end a property-tax dispute; the County agreed to withdraw its appeal, and the Partnership expected to recover $7.9 million through favorable assessments from 2019 through 2028, subject to the settlement terms.
Key risks include nitrogen fertilizer price and margin volatility, feedstock and utility availability and costs, seasonality and weather, operational interruptions, transportation constraints, customer and supplier concentration, environmental and regulatory matters, and reliance on CVR Energy and its affiliates. The filing reported no material change in previously disclosed risk factors or market risks and no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether fertilizer pricing and volumes persist as seasonal weather effects normalize, and how those trends affect margins and cash generation.
- The source and durability of operating cash flow, particularly customer advances and changes in working capital.
- Debt-service obligations, the high coupon on the senior secured notes, covenant headroom, and the basis for reported total liquidity.
- Whether estimated capital spending and the expected property-tax recovery proceed on schedule and under the stated terms.
- The general partner’s distribution decisions and the Partnership’s capacity to sustain distributions through seasonal and commodity cycles.