CVR Partners, LP — Q2 2019 Form 10-Q
Reporting period: Three and six months ended June 30, 2019. CVR Partners produces wholesale ammonia, UAN and other nitrogen fertilizers at facilities in Coffeyville, Kansas, and East Dubuque, Illinois. Amounts below are in millions except per-unit data.
Financial performance and position
| Metric | Q2 2019 | Q2 2018 | First half 2019 | First half 2018 |
|---|---|---|---|---|
| Net sales | $137.7 | $93.2 | $229.5 | $173.1 |
| Operating income (loss) | $34.5 | $(0.8) | $44.0 | $(4.2) |
| Net income (loss) | $19.0 | $(16.5) | $12.9 | $(35.5) |
| Operating margin | 25.1% | (0.8%) | 19.2% | (2.4%) |
| Adjusted EBITDA | $59.8 | $26.0 | $85.8 | $39.1 |
For the first half, operating cash flow was $34.7 million, compared with cash used of $12.5 million a year earlier. Investing cash use was $5.7 million, including $5.8 million of capital expenditures; financing cash use was $21.5 million, primarily distributions. Cash increased $7.5 million to $69.3 million.
At June 30, total debt carrying value was $630.7 million, primarily $645 million of 9.25% secured notes due 2023; the notes also include $2.2 million of 6.50% notes due 2021, before unamortized discount and issuance costs. The asset-based credit facility had $48.3 million of availability and no borrowings. Reported total liquidity was $92.6 million, calculated after accounting for $25 million of cash included in the facility borrowing base. The Partnership reported compliance with debt covenants.
Current assets were $154.0 million and current liabilities $56.2 million. The filing reported no material liquidity change during Q2 and believed cash, operations and facility availability would cover anticipated needs for at least 12 months.
Changes versus the prior comparable periods
- Q2 sales rose $44.5 million; management attributed the increase to higher prices ($19.8 million) and volumes ($24.7 million). First-half sales increased $56.5 million, primarily from pricing ($44.5 million) and volume ($12.4 million).
- Management said wet weather and flooding delayed fertilizer deliveries and applications, shifting demand into Q2. Q2 ammonia and UAN sales volumes and prices benefited; first-half comparisons also reflected timing shifts from late 2018.
- First-half direct operating expenses fell $5.7 million, mainly because Q2 2018 included $6.3 million of Coffeyville turnaround costs. Higher pet coke costs and inventory draws partly offset revenue gains.
- Q2 earnings improved from a loss to profit, while first-half earnings rose to $12.9 million from a $35.5 million loss. First-half operating cash flow improved by $47.2 million year over year.
- First-half distributions paid were $21.5 million; the comparable 2018 period had no distributions paid.
Outlook, risks and notable items
- Management estimated 2019 capital expenditures of $20 million to $25 million, including $18 million to $20 million for maintenance. The East Dubuque turnaround was expected in the second half of 2019, to last about 28 days and incur approximately $7 million of expense.
- After quarter-end, the general partner’s board declared a $0.14-per-unit Q2 distribution, approximately $15.9 million total, payable August 12, 2019. Distributions remain discretionary and may change.
- Management cited longer-term U.S. nitrogen fertilizer industry fundamentals as supportive, but warned of near-term commodity-cycle volatility. Results are sensitive to fertilizer prices, feedstock and utility costs, seasonal demand, weather, competition, transportation and plant reliability.
- A Kansas property-tax settlement is expected to provide $7.9 million of benefit through favorable assessments over 2019–2028, subject to the settlement terms. The County withdrew its appeal; the filing does not describe this as an immediate cash recovery.
- The Partnership adopted the new lease standard in 2019, recognizing operating lease assets and liabilities. It reported no material changes in previously disclosed risk factors or market risks, and no material change in internal control over financial reporting.
- Other stated risks include operating interruptions, environmental and regulatory matters, customer and supplier concentration, financing availability, and conflicts arising from CVR Energy’s control and related-party arrangements. The Partnership disclosed no off-balance-sheet arrangements.
Important facts for investors to verify
- Whether delayed planting and weather-driven demand shifted sales between periods, and whether pricing and volumes persist beyond the reported season.
- Plant utilization, production reliability and the timing, cost and operational impact of the East Dubuque turnaround.
- Cash available for distribution after debt service, capital spending and reserves; the $0.14 distribution was declared after June 30 and is not a continuing commitment.
- Debt maturity and refinancing exposure, facility borrowing-base availability, and the assumptions underlying reported liquidity.
- Realization and timing of the $7.9 million property-tax settlement benefit, as well as ongoing environmental, legal and related-party exposures.