CVR Partners, LP — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023; filed August 1, 2023. CVR Partners produces and wholesales ammonia, UAN and other nitrogen fertilizer products from facilities in Kansas and Illinois.
Financial results
| Metric | Q2 2023 | Q2 2022 | First half 2023 | First half 2022 |
|---|---|---|---|---|
| Net sales | $183.0 million | $244.0 million | $409.3 million | $466.9 million |
| Operating income | $66.7 million | $125.9 million | $176.1 million | $229.9 million |
| Net income | $59.9 million | $117.6 million | $161.7 million | $211.2 million |
| Basic and diluted earnings per common unit | $5.66 | $11.12 | $15.30 | $19.90 |
| EBITDA (non-GAAP) | $86.5 million | $147.2 million | $210.8 million | $270.6 million |
- Q2 operating margin was approximately 36.5%, versus 51.6% a year earlier; net margin was approximately 32.7%, versus 48.2%.
- Operating cash flow for the first half was $191.3 million, compared with $215.6 million. Investing activities provided $12.3 million, including approximately $19.9 million received from the 45Q-related equity-method investment. Financing activities used $221.2 million, primarily for unitholder distributions. Cash declined by $17.6 million from year-end to $68.7 million.
- At June 30, cash was $68.7 million and the $35.0 million ABL facility was fully available, for reported total liquidity of $103.7 million. Long-term debt, net, was $547.1 million; the underlying senior secured notes have $550 million principal, bear 6.125% interest and mature in June 2028. The Partnership reported compliance with debt covenants.
- Second-quarter ammonia utilization was 100% (103% for the first half), compared with 89% and 88%, respectively, in 2022.
Changes and management commentary
- Q2 sales fell 25% year over year; first-half sales declined 12%. Management attributed the decreases mainly to lower fertilizer prices, partly offset by higher production and sales volumes. Q2 ammonia and UAN prices fell 40% and 43%, respectively; first-half prices fell 32% and 26%.
- Higher utilization reflected more reliable operations after 2022 planned turnarounds and prior-year equipment and Messer air-separation-plant outages. Lower natural-gas costs helped, while higher direct operating expenses included inventory effects from an ammonia inventory draw.
- The Partnership said fertilizer pricing remained above the recent five-year average and described long-term U.S. industry fundamentals as intact, but emphasized market volatility and uncertainty. It expects cash, operating cash flow and available borrowing capacity to meet anticipated needs for at least 12 months, subject to business conditions and cash requirements.
- Estimated 2023 capital expenditures are $33–$35 million, including $31–$32 million for maintenance. Planned turnarounds are currently scheduled for 2025 at Coffeyville and 2026 at East Dubuque.
Distributions, unusual items and risks
- After quarter-end, the Board declared a Q2-related distribution of $4.14 per unit, or approximately $43.8 million, payable August 21, 2023. Distributions are discretionary and may change. First-half distributions paid totaled approximately $221.2 million, relating to the prior fourth quarter and 2023 first quarter.
- The January 2023 45Q transaction generated $46.0 million of noncash consideration, deferred and recognized as revenue over the carbon oxide contract term. The Partnership received an initial net cash distribution of approximately $18.1 million and may receive up to an additional $60 million through March 2030 if milestones are met. Its subsidiary also faces potential fees of up to $15 million per year, subject to a $45 million cap, for failure to meet specified carbon oxide delivery minimums; the Partnership guarantees specified obligations.
- Management cited fertilizer and feedstock price volatility, natural gas and pet coke costs, weather, seasonal demand, production reliability, supplier and transportation dependence, inflation, regulation, and Russia-Ukraine-related market disruption as risks. It reported no material changes to previously disclosed risk factors or commitments and contingencies, and no material financial impact from contractual performance concerns related to current economic conditions as of June 30.
- The filing provides no specific earnings or fertilizer-price guidance. It reports that disclosure controls were effective as of June 30, 2023.
Investor facts to verify
- Whether fertilizer pricing and demand stabilize, and whether higher operating volumes can offset lower realized prices.
- Facility utilization, reliability and feedstock costs, including exposure to third-party suppliers and the planned turnarounds.
- Cash generation after distributions, the Board’s distribution decisions, and the Partnership’s reserves and capital-spending needs.
- Progress against 45Q capture and sequestration milestones, related cash receipts, and potential delivery-shortfall fees under the guarantee.
- Liquidity and compliance with debt covenants as market conditions, interest rates and operating costs evolve.