CVR Partners, LP — Q2 2015 Form 10-Q
Business context and reporting period. The filing covers the quarter and six months ended June 30, 2015. CVR Partners produces wholesale nitrogen fertilizers, principally UAN and ammonia, at its Coffeyville, Kansas facility. Its production relies on petroleum coke, much of which is supplied by affiliate CVR Refining.
Financial and operating results
| Metric | Q2 2015 | Q2 2014 | Six months 2015 | Six months 2014 |
|---|---|---|---|---|
| Net sales | $80.8 million | $77.2 million | $173.9 million | $157.5 million |
| Operating income | $28.7 million | $18.8 million | $60.2 million | $41.9 million |
| Net income | $27.0 million | $17.1 million | $56.8 million | $38.6 million |
| Net income per common unit | $0.37 | $0.23 | $0.78 | $0.53 |
| Adjusted EBITDA | $36.1 million | $25.7 million | $74.5 million | $55.7 million |
| Available cash for distribution | $28.4 million | $24.0 million | $61.0 million | $51.8 million |
Revenue increased 4.7% in Q2 and 10.4% for the six-month period; net income rose approximately 58% and 47%, respectively. Operating margins were approximately 35.5% in Q2 2015 versus 24.3% in Q2 2014, and 34.6% versus 26.6% for the six-month periods. Adjusted EBITDA and available cash for distribution are non-GAAP measures and should not be treated as substitutes for GAAP earnings or cash flow.
Cash flow and liquidity. Six-month operating cash flow was $56.0 million, compared with $59.9 million a year earlier; capital expenditures were $6.0 million. Cash distributions of $62.9 million exceeded operating cash flow, and cash declined to $67.0 million from $79.9 million at year-end 2014. The $125.0 million term loan was classified as current because the credit facility matures in April 2016. The reported working-capital deficit was $33.8 million, but working capital excluding current debt was $91.2 million. The $25 million revolver was undrawn, and the Partnership reported covenant compliance.
Material changes versus the prior comparable period
- Q2 sales rose $3.6 million, primarily from higher UAN, ammonia and hydrogen volumes; lower UAN pricing partly offset the volume benefit. Six-month sales increased $16.4 million, largely on greater volumes, with ammonia prices also contributing.
- Q2 operating income increased $9.9 million. Lower product costs, direct operating expenses and SG&A helped, alongside higher sales. The six-month operating-income increase was $18.3 million.
- Q2 2015 production benefited from higher operating availability than Q2 2014, when units had planned 5–7 day shutdowns for projects and maintenance. Q2 2015 on-stream factors were 100.0% for gasification, 99.3% for ammonia and 96.6% for UAN.
- For the six months, operating cash flow fell despite higher earnings, principally reflecting an $11.7 million decline in deferred revenue and lower accrued liabilities.
Outlook, risks and contingencies
- Management was evaluating capital-structure and refinancing options for the April 2016 debt maturity and stated that it expected available options to address the maturity. No specific refinancing terms or earnings guidance were provided.
- A full facility turnaround was planned for Q3 2015, with estimated cost of approximately $7.0 million and expected duration historically around 14–21 days. 2015 maintenance capital expenditures were estimated at $10–12 million.
- On July 29, 2015, the general partner’s board declared a Q2 distribution of $0.39 per unit, approximately $28.5 million in total, payable August 17. Distributions remain discretionary and may be modified or suspended; debt covenants also constrain them.
- Key exposures include fertilizer price and seasonal demand volatility, weather and crop economics, plant downtime, dependence on suppliers and transportation, and reliance on affiliate CVR Refining for most pet coke. Affiliate agreements were not negotiated at arm’s length, and CVR Energy controlled the general partner and approximately 53% of units.
- Contractual commitments included $131.6 million of unconditional purchase obligations, including pet coke supply, and $19.1 million of operating lease payments. The filing reported no new material environmental developments and no material changes to previously disclosed risk factors or litigation matters.
- The Partnership hedged interest-rate exposure on $62.5 million of its $125.0 million floating-rate debt with swaps; the effective term-loan rate after swaps was approximately 4.57% at June 30.
Important facts for investors to verify
- Progress, terms and timing of refinancing the $125 million facility before its April 2016 maturity.
- Turnaround completion, actual cost and any impact on production, sales and cash distributions.
- Whether strong operating availability and fertilizer volumes continue, and how UAN and ammonia pricing affects margins.
- Distribution coverage and liquidity after distributions, maintenance spending and the debt refinancing.
- Affiliate supply, service and governance arrangements, including pet coke availability and pricing.