Business context and reporting period
CVR Partners, LP filed this Form 10-K for the fiscal year ended December 31, 2018; it is an annual report, not a standalone fourth-quarter filing. The Partnership produces and wholesales ammonia and UAN fertilizer from facilities in Coffeyville, Kansas, and East Dubuque, Illinois. Results are seasonal and exposed to fertilizer prices, weather, plant reliability, and feedstock costs.
Financial performance and liquidity
| Metric | 2018 | 2017 |
|---|---|---|
| Net sales | $351.1 million | $330.8 million |
| Operating income (loss) | $6.3 million | $(10.3) million |
| Net income (loss) | $(50.0) million | $(72.8) million |
| Net loss per common unit | $(0.44) | $(0.64) |
| Net cash from operating activities | $32.2 million | $10.4 million |
| Capital expenditures | $19.8 million | $14.6 million |
Net sales rose $20.3 million, primarily from $37.6 million of favorable pricing, partly offset by $18.4 million of lower volume. Operating margin was approximately 1.8% in 2018, compared with approximately negative 3.1% in 2017; net margin was approximately negative 14.2% versus negative 22.0%. These percentages are calculated from reported figures.
UAN sales were $222.3 million and ammonia sales were $66.3 million; the products represented approximately 72% and 20% of net sales, respectively. Production was 794 thousand gross tons of ammonia and 1.276 million tons of UAN. Management reported higher fertilizer pricing and improved operating results, but higher pet coke prices, purchased ammonia costs, and turnaround expense partly offset the gains. The 2018 Coffeyville turnaround lasted 15 days and cost approximately $6.4 million.
Adjusted EBITDA, a non-GAAP measure, was $90.5 million versus $66.8 million; EBITDA was $84.1 million versus $64.3 million. Available cash for distribution for the full year was $9.8 million, versus negative $9.7 million in 2017. No common-unit distributions were paid in 2018; after year-end, the Partnership declared a $0.12-per-unit distribution, totaling approximately $14.1 million, payable in March 2019.
At year-end, cash and equivalents were $61.8 million, including $23.7 million of customer advances. The Partnership reported total liquidity of $86.8 million, including $50.0 million available under its ABL facility, subject to the borrowing-base calculation. Debt, net of discount and issuance costs, was $629.0 million, principally $645.0 million of 9.25% senior secured notes due 2023; interest expense was $62.6 million. The ABL facility had no borrowings outstanding and matures in September 2021. The Partnership reported compliance with its debt covenants and said it expected available resources to meet existing operating needs for at least 12 months.
Material changes, outlook, and risks
- Operating income improved by $16.6 million year over year, turning positive, while the net loss narrowed by $22.8 million. Operating cash flow increased by $21.8 million.
- UAN pricing and sales volume improved. Ammonia sales volume fell as wet fall weather prevented customer application and led to canceled fourth-quarter contracts.
- A $6.1 million business-interruption insurance settlement for Coffeyville equipment damage and reduced production in 2017 and early 2018 was recognized in 2018 other income. Approximately $5.0 million was received by year-end and the balance was collected in January 2019.
- 2019 estimated capital expenditures were $20 million to $25 million, including $18 million to $20 million for maintenance. Management provided no specific earnings or fertilizer-price guidance in the supplied filing text.
- Management identified a planned backup oxygen unit at Coffeyville to reduce the effects of third-party outages and a new UAN rail loading rack intended to expand reach and reduce distribution costs. The Coffeyville turnaround was completed on time and on budget.
- Major risks include volatile global fertilizer prices, adverse weather and seasonality, dependence on key customers and suppliers, pet coke availability and pricing, natural gas exposure at East Dubuque, plant outages, transportation constraints, environmental and process-safety liabilities, and substantial debt service. The third-party pet coke supply agreement expires in December 2019; East Dubuque’s natural-gas access agreement expires in October 2019.
- The County’s appeal in the Coffeyville property-tax dispute remained pending before the Kansas Supreme Court. The Partnership stated it believed an adverse outcome in the disclosed legal matters would not materially affect liquidity, financial position, or results. It reported no environmental remediation liabilities as probable and estimable at year-end.
- ASC 606 adoption increased reported accounts receivable and deferred revenue by $45.1 million at December 31, 2018 compared with balances without adoption; the filing says adoption did not affect 2018 earnings or cash flows. The Partnership also reported approximately $14.3 million of right-of-use assets and lease liabilities upon adoption of the new lease standard in January 2019.
Most important facts for investors to verify
- Whether improved fertilizer pricing, production reliability, and operating cash flow continue, and whether weather-related volume and inventory effects reverse.
- Pet coke supply and pricing after the third-party agreement expires, and renewal or continuity of East Dubuque natural-gas service and other key utility agreements.
- Capacity to service the $645 million principal of 9.25% notes due 2023, maintain covenant compliance, and fund maintenance capital needs from operating cash and available liquidity.
- Whether the declared $0.12 distribution is sustainable; distributions remain discretionary and depend on available cash, reserves, and board decisions.
- Outcome of the Kansas property-tax appeal and any material environmental, operational, or insurance developments, including the limits and exclusions in coverage.
- Impact of customer prepayments, deferred revenue, customer concentration, and the related-party supply and services arrangements on cash conversion and costs.