CVR Partners, LP — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. CVR Partners produces and sells wholesale nitrogen fertilizer, principally ammonia and urea ammonium nitrate (UAN), from facilities in Kansas and Illinois. Figures below are in U.S. dollars; financial-statement amounts are unaudited.
Financial performance and position
- Revenue: $226.3 million, up 1.5% from $222.9 million. Higher sales volumes added approximately $21.2 million, largely offset by approximately $21.0 million from lower prices. Ammonia and UAN prices fell 16% and 8%, respectively.
- Profitability: Operating income was $109.4 million versus $103.9 million; net income was $101.9 million versus $93.7 million. Diluted earnings per common unit were $9.64 versus $8.78. Derived operating and net margins were approximately 48.3% and 45.0%, compared with 46.6% and 42.0% a year earlier.
- EBITDA and cash flow: EBITDA and Adjusted EBITDA were $124.3 million versus $123.4 million. Operating cash flow declined to $130.4 million from $166.9 million, primarily reflecting working-capital changes and lower noncash share-based compensation. Capital expenditures were $3.5 million. Investing cash flow included a $19.0 million distribution from the equity-method investment.
- Liquidity: Cash was $121.4 million at quarter-end, up from $86.3 million at December 31, 2022. Management reported total liquidity of $156.4 million, including $35.0 million available under the ABL facility. Cash included $38.5 million of customer advances.
- Debt: $550.0 million of 6.125% senior secured notes are due June 2028; carrying value, net of issuance costs and discount, was $546.9 million. The $35.0 million ABL facility was undrawn. The Partnership reported compliance with debt covenants.
Material changes and operating developments
- Ammonia utilization increased to 105% from 88%, and production rose: gross ammonia production was 224,000 tons versus 187,000; UAN production was 366,000 tons versus 317,000. Management attributed the improvement to more reliable operations after 2022 turnarounds and prior-year outages.
- Higher volume and lower prices broadly offset each other. Feedstock costs increased, including petroleum coke and natural gas costs; direct operating expenses and depreciation declined. Share-based compensation expense fell to $1.9 million from $12.1 million.
- The Partnership entered a Section 45Q carbon-capture transaction in January. It received approximately $18.1 million in initial net cash proceeds and recorded a $46.0 million noncash equity interest in a joint venture, with related consideration deferred and recognized over the carbon oxide contract term. The investment balance was $27.0 million at quarter-end after distributions.
- Cash distributions paid during Q1 related to Q4 2022 totaled $110.98 million, or $10.50 per unit. Separately, the Board declared a $10.43-per-unit distribution for Q1 2023, totaling approximately $110.2 million, payable in May.
Outlook, risks, and contingencies
- Outlook: Management expected cash from operations, cash on hand, and available borrowing capacity to cover anticipated operating needs for at least 12 months. Estimated 2023 capital expenditures are $32–$35 million, including $29–$31 million for maintenance and $3–$4 million for growth. No specific earnings or product-price guidance is provided.
- Management cited commodity-price volatility, seasonal demand, weather, natural gas and petroleum coke availability and costs, inflation, and uncertainty related to the Russia-Ukraine conflict. It expected near-term fertilizer demand to be supported by spring planting, while noting continued market volatility.
- Under the 45Q agreements, the subsidiary must meet annual carbon oxide delivery minimums. Failure may trigger fees of up to $15 million per year, subject to a $45 million overall cap; the Partnership guarantees specified obligations. Additional payments of up to $60 million may be available through March 2030 if milestones are met.
- The filing reports no material change in previously disclosed risk factors or commitments and contingencies. Management said it had not experienced a material financial impact from potential disruptions to contractual performance. The Partnership noted that distributions remain at the Board’s discretion.
Important facts for investors to verify
- Whether higher utilization and production can continue, and how fertilizer prices, feedstock costs, and seasonal demand affect margins and cash generation.
- The terms, milestone requirements, expected cash flows, and potential fees or guarantee exposure associated with the Section 45Q transaction.
- How much reported cash is operationally available, given customer advances and the timing of distributions and capital spending.
- The Board’s future distribution decisions and the Partnership’s ability to sustain distributions through commodity and working-capital cycles.
- Progress against the $32–$35 million 2023 capital-spending estimate and any cost changes or facility interruptions.