CVR Partners, LP — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. CVR Partners produces and sells wholesale nitrogen fertilizer, principally ammonia and urea ammonium nitrate (UAN), from facilities in Kansas and Illinois.
Financial results and liquidity
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Net sales | $156.5 million | $144.7 million | $623.4 million | $343.7 million |
| Operating income (loss) | $(11.9) million | $46.3 million | $217.9 million | $62.6 million |
| Net income (loss) | $(19.8) million | $35.0 million | $191.4 million | $16.7 million |
| EBITDA (non-GAAP) | $10.2 million | $63.7 million | $280.9 million | $119.9 million |
| Basic and diluted earnings (loss) per unit | $(1.87) | $3.28 | $18.06 | $1.56 |
- Q3 operating and net margins were approximately -7.6% and -12.7%, respectively; nine-month margins were approximately 35.0% and 30.7%.
- Q3 sales rose 8% year over year as higher fertilizer prices more than offset lower volumes. For the nine months, sales rose 81%, principally on higher UAN and ammonia prices.
- Q3 performance was sharply weaker: lower production and sales and elevated turnaround costs drove an operating loss, despite higher prices. Nine-month earnings increased substantially versus 2021.
- Nine-month operating cash flow was $304.2 million, versus $120.3 million; capital expenditures were $33.4 million on the cash flow statement. Cash increased to $119.0 million from $112.5 million at year-end 2021.
- At September 30, long-term debt, net, was $546.7 million, primarily $550 million of 6.125% secured notes due 2028. The $65 million of 9.25% notes due 2023 was redeemed in February 2022. The $35 million asset-based credit facility was undrawn; reported total liquidity was $154.0 million, including cash and facility availability.
- Current assets were $241.3 million and current liabilities $183.8 million. Cash included $51.8 million of customer advances. The Partnership reported compliance with debt covenants.
Changes, outlook and material items
- Both facilities completed planned turnarounds in Q3 2022. The filing attributes materially lower production to these outages, additional unplanned downtime at the Coffeyville facility related to the Messer air-separation plant, and equipment downtime at East Dubuque. Consolidated ammonia utilization was 52% in Q3 and 76% for the nine-month period.
- Q3 ammonia gross production was 114,000 tons versus 205,000; UAN sales were 184,000 tons versus 314,000. For the nine months, ammonia gross production was 494,000 versus 610,000 and UAN sales were 832,000 versus 920,000.
- Q3 direct operating expenses increased to $109.1 million from $48.3 million, including higher turnaround expenses, inventory drawdown, repairs and personnel costs. Nine-month direct operating expenses also rose, reflecting turnarounds, repairs, and higher natural gas and other input costs.
- Management said fertilizer and grain prices were elevated amid tight supply, including effects of the Russia-Ukraine conflict, and expected volatile business conditions through spring 2023. It cited uncertainty in feedstock availability and prices, demand, inflation and global supply disruptions; it did not provide earnings or revenue guidance.
- Management believed cash, operating cash flow and borrowing capacity would be sufficient for anticipated existing-operation needs for at least 12 months, while warning inflation and other factors could raise cash requirements. Estimated full-year 2022 capital expenditures were $44–47 million.
- The Board declared a $1.77-per-unit Q3 distribution on October 31, payable November 21, 2022, totaling approximately $18.7 million. Distribution amounts and timing remain at the Board’s discretion.
- The filing reported no material change in previously disclosed commitments and contingencies and no material financial impact from contractual-performance issues related to COVID-19, the Russia-Ukraine conflict, inflation or volatility as of September 30. It identified no material change in previously reported risk factors.
Key facts for investors to verify
- Whether production and utilization recover following the completed turnarounds, and whether further unplanned downtime occurs.
- How fertilizer selling prices compare with natural gas, pet coke, labor and other operating costs as market conditions change.
- Whether liquidity remains adequate after distributions, capital spending and debt service; note that reported cash includes customer advances.
- The sustainability of variable distributions: the Q3 distribution was lower than the Q2 2022 payment of $10.05 per unit, and the policy is discretionary.
- How the filing’s discussion of debt-redemption interest savings should be interpreted: it cites approximately $9 million of annual cash-interest reduction for the debt-reduction plan and approximately $6 million of future annual interest savings for the 2023 Notes redemption.