CVR Partners, LP — Q3 2021 Form 10-Q
Business and period: CVR Partners produces and wholesales ammonia, UAN and other nitrogen fertilizers from facilities in Coffeyville, Kansas, and East Dubuque, Illinois. This unaudited report covers the three and nine months ended September 30, 2021; balance-sheet comparisons are with December 31, 2020. Financial amounts below are in millions unless noted.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Net sales | $144.7 | $79.5 | $343.7 | $259.7 |
| Operating income (loss) | $46.3 | $(3.1) | $62.6 | $(33.8) |
| Net income (loss) | $35.0 | $(19.0) | $16.7 | $(81.3) |
| Operating margin | 32.0% | (3.9%) | 18.2% | (13.0%) |
| Net margin | 24.2% | (23.8%) | 4.8% | (31.3%) |
| Adjusted EBITDA | $63.7 | $15.0 | $119.9 | $64.3 |
| Basic and diluted earnings (loss) per unit | $3.28 | $(1.70) | $1.56 | $(7.22) |
Margins are calculated from reported sales and income. Q3 cost of sales was $91.8 million; nine-month cost of sales was $261.2 million. Net interest expense was $11.3 million for Q3 and $50.6 million for the nine months. The nine-month 2021 results include an $8.3 million debt-extinguishment loss; 2020 included a $41.0 million noncash goodwill impairment.
Cash, debt and distributions
- Cash and cash equivalents were $100.7 million at September 30, up from $30.6 million at year-end; reported liquidity, including $35.0 million of unused ABL capacity, was $135.7 million. Cash included $29.7 million of customer advances.
- Nine-month operating cash flow was $120.3 million, investing cash outflow was $10.2 million, and financing cash outflow was $40.0 million. Cash increased $70.1 million over the period.
- Debt was $625.2 million net of unamortized discount and issuance costs ($630.0 million principal): $550 million of 6.125% notes due 2028 and $80 million of 9.25% notes due 2023. The Partnership issued the 2028 notes and redeemed $565 million of 2023 notes during 2021. Management estimates annual interest savings of approximately $18.6 million versus the prior debt structure.
- A new $35 million asset-based credit facility, maturing in September 2024, was entered into on September 30; it had no borrowings at quarter-end. The Partnership reported compliance with debt covenants.
- A $1.72-per-unit distribution related to Q2 was paid in August. After quarter-end, the Board declared a $2.93-per-unit Q3 distribution, totaling approximately $31.3 million, payable November 22, 2021.
Material changes and operating drivers
- Q3 sales rose $65.2 million year over year; nine-month sales rose $84.0 million. Management attributed the improvement chiefly to higher ammonia and UAN prices, reflecting strong crop-related demand and tight fertilizer supply. Q3 realized pricing increased 110% for ammonia and 118% for UAN; nine-month increases were 42% and 54%, respectively.
- Lower production and sales volumes partly offset pricing gains. Ammonia utilization was 94% for Q3 and 93% for the nine months. Messer air-separation outages, power outages, and, in the nine-month comparison, Winter Storm Uri affected production; nine-month ammonia and UAN volumes were also lower year over year.
- Higher feedstock, utilities, labor and share-based compensation costs pressured expenses. Nine-month direct operating expenses increased to $138.6 million from $113.7 million; cost of materials and other increased to $70.0 million from $67.7 million.
- The 2021 nine-month net-income comparison benefited from the prior-year goodwill impairment. Even excluding that impairment, the filing reports improved operating performance, principally from higher fertilizer prices.
Outlook, risks and notable items
- Management said cash from operations, existing cash and potential borrowings should cover anticipated operating cash needs for at least 12 months, while noting costs or cash needs could exceed expectations.
- Estimated 2021 capital expenditures are $20–$23 million: $14–$15 million maintenance and $6–$8 million growth. Planned 2022 turnarounds are estimated at $8–$10 million for Coffeyville and $11–$13 million for East Dubuque; Coffeyville also had $2–$3 million of planned fourth-quarter 2021 downtime/maintenance.
- Management described the operating environment as volatile, citing fertilizer and feedstock price swings, seasonal and weather-related demand, COVID-19 uncertainty, supply disruptions, and dependence on third-party suppliers and transportation. Winter Storm Uri, Hurricane Ida and higher global feedstock costs contributed to reduced industry supply and higher fertilizer prices.
- U.S. investigations into UAN imports from Russia and Trinidad and Tobago were ongoing; the Partnership said it was too early to assess their effects. Management reported no material financial impact from COVID-related contract impairment or excused performance as of quarter-end.
- Distributions are discretionary and depend on available cash and Board-approved reserves. Legal proceedings and contingencies were described as having no material changes from the 2020 Form 10-K; management believed adverse outcomes would not materially affect the financial statements.
Investor verification priorities
- Check that elevated fertilizer prices and tight supply persist, and whether higher feedstock, utility and other operating costs offset pricing gains.
- Monitor facility reliability, production volumes, the effects of third-party outages, and the scheduled maintenance and 2022 turnarounds.
- Verify cash generation, customer-advance balances, debt service and covenant compliance, and the expected interest savings following the refinancing.
- Assess the sustainability of the Q3 distribution and the Board’s reserve decisions; distributions are not guaranteed.
- Track the UAN trade investigations, commodity and weather risks, and actual capital spending versus management estimates.