CVR Partners, LP — Q3 2019 Form 10-Q
Reporting period: Three and nine months ended September 30, 2019. CVR Partners produces and sells nitrogen fertilizer, principally ammonia and UAN, from facilities in Coffeyville, Kansas, and East Dubuque, Illinois. Financial amounts below are in millions of dollars unless stated otherwise.
Financial results and liquidity
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Net sales | $88.6 | $79.9 | $318.1 | $253.0 |
| Operating income (loss) | $(7.5) | $2.5 | $36.5 | $(1.7) |
| Net income (loss) | $(23.0) | $(13.1) | $(10.1) | $(48.7) |
| EBITDA (non-GAAP) | $11.1 | $18.6 | $96.7 | $51.3 |
| Adjusted EBITDA (non-GAAP) | $17.9 | $18.6 | $103.7 | $57.7 |
| Operating cash flow | Not shown separately in the statements | Not shown separately in the statements | $68.7 | $27.1 |
- Q3 revenue increased 10.9% year over year, primarily from higher UAN and ammonia prices and higher UAN sales volumes. The Q3 net loss widened as operating results shifted from income to loss.
- Nine-month revenue increased 25.8%, primarily from favorable pricing and, to a lesser extent, higher volumes. The nine-month net loss narrowed substantially versus 2018.
- Nine-month cash from operations was $68.7; capital expenditures were $9.5, and cash distributions paid were $37.4. Cash increased $21.9 to $83.7.
- At September 30, cash included $16.0 of customer advances. Reported total liquidity was $106.2, including $47.5 available under the asset-based credit facility, net of $25.0 of cash included in its borrowing base.
- Debt was $631.5 net of unamortized discount and issuance costs; principal included $645.0 of 9.25% senior secured notes due 2023 and $2.2 of 6.50% notes due 2021. The partnership reported compliance with debt covenants.
- Current assets were $160.0 and current liabilities $84.7 at quarter-end. The filing reports no separate gross-margin measure.
Material changes and unusual items
- The East Dubuque facility began a scheduled major turnaround on September 14; ammonia and UAN units were down for about 17 days during Q3. The turnaround was completed in October. Related expense was $6.8 in Q3 and $7.0 for the first nine months; estimated total cost was approximately $9.3.
- Management attributed Q3 direct operating expense increases to turnaround costs and inventory draw associated with higher sales. For the nine-month period, higher pet-coke costs and inventory draw also contributed to increased materials costs.
- Weather delayed planting and fertilizer applications, and flooding curtailed UAN rail shipments in Q2. Management said delayed demand and low customer inventories supported strong fertilizer demand in Q3.
- For the nine months, UAN revenue was $199.6 and ammonia revenue was $74.4, compared with $156.8 and $51.4, respectively, in 2018.
- The partnership adopted the new lease standard in 2019, recognizing lease right-of-use assets and liabilities; this increased reported assets and liabilities at adoption by $14.3.
Outlook, distributions, and risks
- Management said existing cash, operating cash flow, and available credit were expected to cover anticipated operating needs for at least 12 months, while noting that future cash generation and financing access depend on business and market conditions.
- Estimated 2019 capital expenditures were $20–25 million, including $18–20 million for maintenance. Management estimated the East Dubuque turnaround would have approximately $2.3 million of costs remaining in Q4.
- The board declared a Q3 distribution of $0.07 per unit, or approximately $7.9 million, payable November 12, 2019. Distribution amounts and timing remain at the general partner board’s discretion.
- Management cited longer-term U.S. nitrogen industry fundamentals as supportive but cautioned that fertilizer prices and margins are volatile and seasonal. Disclosed risks include feedstock and product pricing, operating interruptions, weather, transportation, regulation, customer and supplier concentration, and dependence on CVR Energy and its affiliates.
- A Kansas property-tax settlement is expected to provide $7.9 million of benefit through favorable assessments from 2019 to 2028, subject to the settlement terms. The filing says other pending proceedings were not expected to have a material financial impact.
- On October 22, 2019, the partnership authorized a property swap with CVR Energy subsidiaries in Coffeyville; the filing does not provide a value for the assets exchanged.
Important facts for investors to verify
- Whether the East Dubuque turnaround was completed as planned and whether its total cost remained near the estimated $9.3 million.
- Whether fertilizer prices, customer demand, and product volumes continued to support revenue after the unusual weather-driven timing shifts.
- How much of reported cash and liquidity depended on customer prepayments, and whether the $16.0 million of advances were subsequently fulfilled or repaid through product delivery.
- Debt-service capacity and refinancing needs, given the 9.25% secured notes due 2023 and the revolving facility maturing in September 2021.
- Whether available cash supports future distributions: the partnership’s distribution policy is discretionary, and distributions may change or be suspended.
- The realized value and timing of the Kansas tax settlement benefit, and the accounting and financial effect of the related-party property swap.