CVR Partners, LP — FY2023 Form 10-K
Business context and reporting period. This annual report covers the fiscal year ended December 31, 2023; it is not a standalone fourth-quarter report. CVR Partners produces and wholesales nitrogen fertilizers, principally UAN and ammonia, at facilities in Coffeyville, Kansas, and East Dubuque, Illinois. Common units trade on the NYSE under UAN.
Financial results and key metrics
| Metric | FY2023 | FY2022 |
|---|---|---|
| Net sales | $681.5 million | $835.6 million |
| Operating income | $201.4 million | $319.9 million |
| Net income | $172.4 million | $286.8 million |
| Basic and diluted earnings per unit | $16.31 | $27.07 |
| EBITDA, non-GAAP | $281.1 million | $403.2 million |
| Net cash from operating activities | $243.5 million | $301.5 million |
| Cash capital expenditures | $24.2 million | $44.7 million |
Operating margin was approximately 29.5% versus 38.3%; net margin was approximately 25.3% versus 34.3%. Net sales fell 18%, operating income 37%, and net income 40% year over year. Lower fertilizer selling prices reduced revenue by $373.5 million, partly offset by higher volumes, which added $210.0 million. Ammonia and UAN prices declined 44% and 36%, respectively. Production improved: ammonia utilization rose to 100%, and ammonia gross production increased to 864,000 tons from 703,000 tons.
Cash and cash equivalents were $45.3 million at year-end, down from $86.3 million. The Partnership reported $39.0 million of unused ABL capacity and total liquidity of $84.3 million. Long-term debt was $550 million principal amount of 6.125% senior secured notes due June 2028; the ABL facility had no borrowings outstanding. The Partnership reported compliance with debt covenants. Current assets were $165.9 million and current liabilities $75.5 million.
Available cash for distribution, a non-GAAP measure, was $188.2 million for FY2023 versus $259.7 million in FY2022. The Partnership declared a $1.68-per-unit distribution for Q4 2023, payable in March 2024. Distributions are variable and subject to Board discretion and reserves. Cash distributions paid during 2023 totaled $26.62 per unit, including the payment related to Q4 2022.
Material changes and management commentary
- Lower global fertilizer prices, driven in part by lower natural-gas prices and increased global supply, outweighed the benefit of greater production and sales volumes.
- Operating costs improved: direct operating expenses declined to $234.9 million from $270.2 million, largely because FY2022 included both facilities’ planned turnarounds and greater unplanned downtime. Materials and other costs rose $3.5 million, mainly from higher third-party pet coke costs.
- FY2023 operating cash flow decreased by $57.9 million year over year. Management attributed the decline principally to lower earnings; higher working-capital investment also affected cash flow.
- The Coffeyville and East Dubuque facilities achieved 100% consolidated ammonia utilization, aided by improved reliability after FY2022 turnarounds and outages. Next planned turnarounds are scheduled for 2025 at Coffeyville and 2026 at East Dubuque.
Outlook, risks, contingencies and unusual items
- Capital spending: Management estimated FY2024 capital expenditures of $44–48 million, including $32–35 million for maintenance and $12–13 million for growth. Estimates may change with project scope, timing, labor, equipment and inflation.
- Liquidity outlook: Management believes cash from operations, cash on hand and available borrowing capacity should cover anticipated needs for at least the next 12 months, while noting uncertainty from commodity markets, operating performance and potentially higher costs.
- Feedstock and operating dependencies: Coffeyville relies on pet coke, including supply from CVR Energy’s adjacent refinery; third-party pet coke contracts run through December 2024. East Dubuque relies on natural gas and third-party pipeline transportation agreements expiring in 2025. The Partnership also depends on third parties for utilities, oxygen and product transportation.
- Labor: About 90 East Dubuque employees represented by the UAW went on strike in October 2023 after their agreement expired. The facility continued operating and was expected to maintain normal operations during the strike; investors should check for subsequent developments.
- Carbon capture and credits: A 2023 transaction with CapturePoint and investors established an equity-method joint venture intended to monetize Section 45Q credits through March 2030. The Partnership reported a $24.5 million JV investment at year-end and received a $2.2 million distribution in February 2024, to be recognized in Q1 2024. Credit eligibility and value depend on meeting requirements and milestones.
- Environmental and legal matters: Operations face extensive environmental, safety and permitting obligations. Historical commingled UAN and groundwater contamination at Coffeyville is subject to an agreement with Kansas regulators; cleanup provisions are held in abeyance while the adjacent refinery undertakes corrective action. No environmental remediation or loss-contingency liability was recognized at year-end; management said adverse resolution of disclosed legal matters was not expected to materially affect liquidity, financial position or results.
- Other principal risks: Fertilizer and feedstock price volatility, weather and seasonality, customer concentration, unplanned shutdowns, inflation, interest rates, geopolitical disruption, environmental regulation, cybersecurity, and conflicts arising from CVR Energy’s control and related-party arrangements. The two largest customers represented 25% of FY2023 net sales.
Important facts for investors to verify
- Whether fertilizer pricing, global supply and feedstock costs support margins and distributions in 2024.
- Current status and operational effects of the East Dubuque labor strike, plus the outcome of contract negotiations.
- Execution, cost and timing of the $44–48 million FY2024 capital plan and the planned 2025 Coffeyville turnaround.
- Pet coke supply and contract renewal after December 2024, and East Dubuque gas transportation arrangements after 2025.
- Cash available after debt service, working-capital needs and Board reserves; distributions are not guaranteed and may change.
- Progress and economics of the Section 45Q joint venture, including credit qualification, capture milestones and future distributions.
- Related-party costs and governance conflicts: CVR Energy owns approximately 37% of the units and controls the general partner; Icahn-related interests control CVR Energy.
Audit and controls: Grant Thornton issued unqualified opinions on the financial statements and internal control over financial reporting; it reported no critical audit matters.