CVR Partners, LP — Form 10-Q Summary
Reporting period: Three months ended March 31, 2015. CVR Partners produces and sells nitrogen fertilizers, principally UAN and ammonia, from its Coffeyville, Kansas facility. The filing was signed April 30, 2015.
Financial and operating results
| Metric | Q1 2015 | Q1 2014 |
|---|---|---|
| Net sales | $93.1 million | $80.3 million |
| Operating income | $31.5 million | $23.1 million |
| Net income | $29.8 million | $21.5 million |
| Net income per common unit, diluted | $0.41 | $0.29 |
| Adjusted EBITDA, non-GAAP | $38.4 million | $29.9 million |
| Cash flow from operations | $25.4 million | $35.6 million |
| Capital expenditures | $2.7 million | $3.4 million |
- Operating margin was approximately 33.8%, up from 28.8% a year earlier. Revenue growth reflected higher UAN and ammonia sales volumes and prices, plus increased hydrogen revenue.
- UAN sales were 274.5 thousand tons versus 254.7 thousand; ammonia sales were 12.8 thousand tons versus 5.4 thousand. UAN gate pricing rose 4.0% and ammonia gate pricing rose 15.4% year over year.
- Operating cash flow fell despite higher earnings, principally because deferred revenue and accrued liabilities declined; these working-capital movements reduced cash generation.
- Cash and cash equivalents were $72.6 million at March 31, 2015, including $6.3 million of customer advances. Working capital was $94.5 million.
- Debt was $125.0 million, with no revolving-credit borrowings. The $125 million term loan matures in April 2016; the partnership reported compliance with its debt covenants. The $25 million revolver was undrawn.
Changes, distributions and outlook
- Net sales increased $12.8 million and net income increased $8.3 million versus Q1 2014. Higher sales more than offset increased product costs, while direct operating expenses were nearly flat.
- Cash distributions totaled $30.0 million in Q1, relating to Q4 2014. On April 29, the board declared a Q1 2015 distribution of $0.45 per unit, approximately $32.9 million, payable May 18. Distributions are discretionary and the policy may be changed or revoked.
- Management expected 2015 maintenance capital expenditures of approximately $10–$12 million. A full facility turnaround was planned for Q3 2015; such turnarounds typically last 14–21 days and cost approximately $5–$6 million.
- Management stated that cash from operations and available liquidity were expected to cover anticipated commitments and planned capital expenditures for the next 12 months. The filing provides no specific earnings or revenue guidance.
Risks, contingencies and unusual items
- Results are exposed to fertilizer pricing, seasonal demand, weather, crop economics, production reliability, transportation costs, and the availability and price of feedstocks. The partnership does not hedge fertilizer or pet coke prices with derivatives.
- Operations rely substantially on pet coke from affiliated CVR Refining and involve significant related-party arrangements. Management cautioned that these agreements were not negotiated at arm’s length and may not have terms as favorable as third-party arrangements.
- Approximately half of the $125 million floating-rate debt was hedged by swaps; the effective rate was approximately 4.57% at March 31. The swaps mature in February 2016. A 1% increase in the applicable rate was estimated to raise annual interest expense by approximately $625,000.
- A Kansas property-tax dispute remains unresolved. In March 2015, the Board of Tax Appeals determined that a substantial majority of disputed assets for tax year 2008 should be classified as personal property; valuation evidence and a final decision remained pending. No related recovery was recognized.
- The filing reported no new material EHS developments and no material changes to previously disclosed risk factors. Management considered the partnership substantially compliant with existing EHS requirements, while noting future matters could adversely affect results.
- The filing identifies substantial contractual commitments, including unconditional purchase obligations of $133.4 million and operating lease payments of $20.5 million. These amounts span multiple years and include the affiliated pet coke supply arrangement.
Important facts for investors to verify
- Whether fertilizer prices, sales volumes and plant reliability support earnings after the seasonal first quarter and through the planned Q3 turnaround.
- Liquidity and refinancing plans ahead of the April 2016 term-loan maturity, including covenant headroom and revolver availability.
- Whether the declared distribution is sustainable given operating cash flow, capital spending, turnaround costs and the discretionary distribution policy.
- Progress and potential financial effect of the Kansas property-tax proceeding and any EHS or other contingencies.
- The impact of related-party feedstock, service and management arrangements on costs, cash flows and unitholder interests.