CVR Partners, LP — Form 10-Q Summary
Reporting period: Quarter ended September 30, 2014; filed October 30, 2014. CVR Partners produces wholesale nitrogen fertilizer, principally UAN and ammonia, at its Coffeyville, Kansas facility. CVR Energy affiliate CRLLC owned approximately 53% of the common units and the general partner.
Financial performance
| Metric | Q3 2014 | Q3 2013 | Nine months 2014 | Nine months 2013 |
|---|---|---|---|---|
| Net sales | $66.7 million | $69.2 million | $224.3 million | $239.4 million |
| Operating income | $14.4 million | $21.3 million | $56.3 million | $95.2 million |
| Net income | $12.7 million | $19.7 million | $51.3 million | $90.7 million |
| Net income per common unit, basic and diluted | $0.17 | $0.27 | $0.70 | $1.24 |
| Adjusted EBITDA | $21.1 million | $28.2 million | $76.8 million | $116.1 million |
| Available cash for distribution | $20.1 million | $26.5 million | $72.0 million | $113.7 million |
Operating margin was approximately 21.6% in Q3 2014 versus 30.8% in Q3 2013, and approximately 25.1% for the first nine months versus 39.8%. Net margin was approximately 19.1% versus 28.5% for Q3 and 22.9% versus 37.9% for the nine-month periods.
Cash flow and liquidity: Operating cash flow for the first nine months was $79.6 million, down from $96.5 million. Capital expenditures were $13.5 million, compared with $35.8 million, largely reflecting completion of the UAN expansion in 2013. Cash distributions paid totaled $83.3 million; cash declined to $68.0 million from $85.1 million at year-end 2013. Working capital was $84.4 million, down from $108.4 million.
Debt: Long-term debt was $125.0 million, with no borrowings under the $25.0 million revolving facility. The facility matures in April 2016; the Partnership reported covenant compliance. Interest-rate swaps cover $62.5 million of floating-rate debt; the reported effective rate was approximately 4.56%.
Material changes and operating drivers
- Q3 net income fell $7.0 million year over year; nine-month net income fell $39.4 million. Lower fertilizer sales prices and higher costs were principal contributors.
- Nine-month UAN pricing at gate declined 10.8% and ammonia pricing declined 24.0%. UAN sales volume increased to 714,200 tons from 638,100, while ammonia sales volume declined to 14,500 tons from 37,900.
- Q3 net sales decreased $2.5 million, mainly from lower UAN price and volume and lower hydrogen sales, partly offset by higher ammonia sales. Nine-month sales decreased $15.1 million, primarily from lower UAN prices and reduced ammonia sales, partly offset by increased UAN volume.
- Nine-month cost of product sold rose $17.4 million, including higher third-party ammonia purchases and railcar repair and inspection costs. Direct operating expenses rose $6.5 million, driven mainly by utilities and refractory-brick amortization.
- Q3 production was affected by lower UAN output; reported on-stream factors were 94.6% for gasification, 92.0% for ammonia and 89.2% for UAN. A planned 5–7-day shutdown per unit in Q2 2014 supported a waste-heat boiler installation and PSA upgrade.
Outlook, risks and unusual items
- Management said cash from operations, cash on hand and available revolving borrowings were expected to cover anticipated commitments and planned capital expenditures for the next 12 months, while noting cash generation depends on operating performance and external factors.
- 2014 capital expenditure estimates were approximately $5–6 million for maintenance and $16–17 million for growth. The PSA upgrade, costing approximately $4.7 million, was expected to enable an additional 7,000–9,000 tons of ammonia annually. The next full plant turnaround was planned for the second half of 2015.
- The board declared a Q3 2014 distribution of $0.27 per unit, approximately $19.7 million in aggregate, payable November 17, 2014. Distribution policy is discretionary and available cash can vary.
- Key business exposures include fertilizer price and seasonal demand volatility, production interruptions, environmental and safety requirements, dependence on transportation and suppliers, and reliance on CVR Refining for most pet coke. The Partnership also has significant related-party dealings and governance is controlled through the general partner.
- Contractual obligations included $157.5 million of unconditional purchase obligations and $20.8 million of operating lease payments. The filing reported no new material litigation developments and no material changes to previously disclosed risk factors.
- The Partnership was evaluating new revenue-recognition guidance effective for periods beginning after December 15, 2016; it had not selected a transition method or determined the impact.
Important facts for investors to verify
- Whether fertilizer pricing and margins stabilize, particularly given the substantial year-over-year decline in nine-month UAN and ammonia gate prices.
- Plant reliability and realized benefits from the PSA upgrade, including whether expected incremental ammonia production is achieved.
- Cash available for distributions after maintenance spending, contractual obligations and the planned 2015 turnaround; distributions are not guaranteed.
- Liquidity and refinancing plans ahead of the April 2016 credit-facility maturity, including covenant headroom.
- Terms and economics of affiliate supply, services and railcar arrangements, and the continuing dependence on CVR-related parties.