CVR Partners, LP — Q1 2018 Form 10-Q
Business and period: Unaudited results for the three months ended March 31, 2018, compared with Q1 2017. CVR Partners produces and wholesales nitrogen fertilizer, principally UAN and ammonia, at facilities in Coffeyville, Kansas, and East Dubuque, Illinois.
Financial and operating results
| Metric | Q1 2018 | Q1 2017 |
|---|---|---|
| Net sales | $79.9 million | $85.3 million |
| Operating income (loss) | $(3.4) million | $5.3 million |
| Net income (loss) | $(19.1) million | $(10.3) million |
| Net loss per common unit | $(0.17) | $(0.09) |
| Operating margin | (4.3)% | 6.3% |
| Net margin | (23.9)% | (12.1)% |
| EBITDA / Adjusted EBITDA | $13.0 million | $20.8 million |
| Operating cash flow | $14.5 million | $30.0 million |
| Capital expenditures | $2.7 million | $4.1 million |
| Cash at quarter-end | $61.1 million | $81.5 million |
Revenue declined 6.4%. Lower ammonia sales volume reduced sales by $8.3 million and lower UAN pricing by $1.3 million, partly offset by $4.3 million from higher UAN volume. Ammonia and UAN gate prices were $322 and $153 per ton, respectively, versus $308 and $160 in Q1 2017. Gross production was affected by East Dubuque’s 12 days of unplanned downtime; the facility’s ammonia and UAN on-stream factors were 86.7% and 87.0%, respectively, versus 99.6% and 98.2% a year earlier. Coffeyville on-stream factors were 100.0% for gasification, 99.8% for ammonia and 99.2% for UAN.
Operating costs rose: direct operating expenses increased $3.0 million and depreciation and amortization increased $1.0 million. Lower SG&A, down $1.2 million, partly offset these increases. Interest expense and other financing costs were $15.7 million, essentially unchanged. Operating cash flow fell by $15.6 million year over year; Q1 2018 cash generation benefited from working-capital inflows, including customer prepayments and accrued liabilities. Adjusted EBITDA and available cash for distribution are non-GAAP measures and should not be treated as substitutes for GAAP earnings or cash flow.
Liquidity, debt and capital
At March 31, 2018, working capital was $59.6 million, versus $62.8 million at December 31, 2017. Cash included $23.5 million of customer advances. Total debt, net of discount and issuance costs, was $626.6 million, primarily $645.0 million principal of 9.25% senior secured notes due 2023. No ABL borrowings were outstanding; availability was $49.2 million under the $50.0 million facility, subject to borrowing-base conditions. The Partnership reported compliance with the note and ABL covenants. Its 2023 Notes fixed-charge coverage ratio was below 1.75:1.0; $72.7 million of the restricted-payment basket remained available.
Available cash for distribution was negative $4.2 million, compared with positive $1.8 million in Q1 2017; no distribution was declared for Q1 2018, versus $0.02 per unit a year earlier. Management said cash, operating cash generation and available ABL borrowing capacity were expected to cover anticipated existing-operation commitments for at least 12 months, while noting future cash needs and financing availability could vary.
Outlook, material items and risks
- Management estimated 2018 maintenance and growth capital expenditures of approximately $18 million and $3 million, respectively; estimates may change.
- Coffeyville began a scheduled turnaround in Q2 2018, expected to last about 15 days and cost approximately $7 million, excluding lost production. Planned major maintenance is expensed when incurred.
- CVR Partners adopted ASC 606 on January 1, 2018. The filing says adoption did not affect Q1 statements of operations or cash flows; it increased accounts receivable and deferred revenue by $21.4 million at adoption. Management expected adoption of the new lease standard to have a material balance-sheet and disclosure impact, but could not yet estimate the amount.
- Key exposures include fertilizer selling prices and seasonal demand, natural gas and other feedstock costs, plant downtime, supplier and transportation dependence, environmental and safety requirements, and related-party relationships. The filing reports no material change in risk factors or environmental accruals from the 2017 Form 10-K and no new material litigation developments.
- The Partnership’s distribution policy is discretionary and may be changed or revoked; debt covenants also constrain distributions. Management’s forward-looking statements are subject to risks and actual results may differ.
Important facts for investors to verify
- Whether the East Dubuque outage’s production and sales effects, and the Coffeyville turnaround’s cost and downtime, differ from expectations.
- Whether customer prepayments and working-capital movements sustain cash flow, and how operating cash generation compares with debt service and capital needs.
- Current distribution capacity, covenant headroom and ABL availability, including the restricted-payment basket and borrowing-base limits.
- Actual fertilizer pricing, sales volumes, feedstock costs and plant reliability relative to Q1 levels.
- The eventual balance-sheet effect of lease accounting adoption and any changes in related-party supply or services arrangements.