CVR Partners, LP — FY2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022; filed February 22, 2023. This is an annual report, not a standalone fourth-quarter report. CVR Partners produces and wholesales ammonia, UAN and other nitrogen fertilizers from facilities in Coffeyville, Kansas, and East Dubuque, Illinois.
Financial and operating performance
| Metric | FY2022 | FY2021 |
|---|---|---|
| Net sales | $835.6 million | $532.6 million |
| Operating income | $319.9 million | $134.5 million |
| Net income | $286.8 million | $78.2 million |
| Operating margin | 38.3% | 25.3% |
| Net margin | 34.3% | 14.7% |
| Net cash from operating activities | $301.5 million | $188.7 million |
| Capital expenditures | $44.7 million | $20.6 million |
| EBITDA (non-GAAP) | $403.2 million | $212.7 million |
| Basic and diluted earnings per common unit | $27.07 | $7.31 |
At December 31, 2022, cash and cash equivalents were $86.3 million, including $13.7 million of customer advances. The Partnership reported $35.0 million of undrawn ABL capacity and total liquidity of $121.3 million. Long-term debt, net of discount and issuance costs, was $546.8 million; the principal balance of the 6.125% senior secured notes due 2028 was $550 million. The ABL facility had no borrowings and matures September 30, 2024. The Partnership reported compliance with debt covenants.
Ammonia utilization was 81%, down 11% as described by the filing. Production was 703,000 gross tons of ammonia and 1.140 million tons of UAN, compared with 807,000 and 1.208 million tons, respectively, in 2021. UAN and ammonia prices increased 84% and 88%, respectively.
Changes versus FY2021
- Net sales rose $303.0 million, primarily from $347.7 million of higher UAN and ammonia pricing, partly offset by a $53.8 million effect from lower sales volumes.
- Operating income increased $185.4 million and net income increased $208.6 million. Higher product prices more than offset lower production and increased feedstock, operating and turnaround costs.
- Operating cash flow increased $112.7 million. Working capital was a partial offset: the filing cites an unfavorable year-over-year change of $90.9 million.
- Both plants completed planned third-quarter turnarounds. Unplanned downtime, including outages at the Coffeyville air separation plant and equipment issues at East Dubuque, also reduced output. Turnaround expense was $33.4 million, versus $2.9 million in 2021.
- The Partnership repaid the remaining $65 million of 9.25% notes in February 2022. Cash declined $26.2 million during the year, reflecting distributions, debt repayment, unit repurchases and capital spending.
Outlook, distributions and significant items
- Management said it expects cash from operations, existing cash and borrowings as needed to cover anticipated requirements for at least 12 months. It cautioned that higher material, labor and other inflationary costs could increase cash needs.
- Management expected tight grain and fertilizer inventories and elevated prices to persist through spring 2023, while emphasizing uncertainty from the Russia-Ukraine conflict, commodity markets and feedstock costs. The filing does not provide formal earnings guidance.
- Estimated 2023 capital expenditures were $33 million to $36 million: $31 million to $33 million maintenance and $2 million to $3 million growth.
- The Board declared a $10.50-per-unit distribution for fourth-quarter 2022, totaling approximately $111 million and payable in March 2023. Distributions are discretionary and may be changed or suspended. The Partnership reported $19.32 per unit paid during 2022 for the fourth quarter of 2021 and first three quarters of 2022; it reported cumulative distributions declared related to 2022 of $24.58 per unit.
- In January 2023, the Partnership received approximately $18.1 million, net of expenses, under agreements intended to monetize Section 45Q carbon-capture tax credits. It could receive up to an additional $60 million through March 2030 if specified milestones are met.
- CVR Energy announced in November 2022 that its board authorized management to explore a potential spin-off of its interests in the fertilizer business. No timetable or assurance of completion was given.
- Grant Thornton issued unqualified opinions on the financial statements and internal controls; it reported no critical audit matters. Management also concluded disclosure controls and internal control over financial reporting were effective at year-end.
Key risks and contingencies
Results are exposed to volatile fertilizer selling prices, natural gas and pet-coke costs, agricultural demand and weather, seasonal working-capital needs, production interruptions, and reliance on suppliers and third-party transport. Customer concentration is significant: two customers accounted for approximately 30% of 2022 net sales. The Coffeyville facility depends in part on pet coke supplied by CVR Energy affiliates and third parties; East Dubuque depends on natural gas and pipeline service. Environmental rules, hazardous-material incidents, labor disruptions, inflation, rising interest rates and debt restrictions are additional risks. The filing states that no litigation or other loss contingency required recognition or disclosure at year-end; the Coffeyville historical contamination agreement could become enforceable if the adjacent refinery fails to perform required corrective action.
Investor verification priorities
- Confirm the sustainability of unusually strong fertilizer prices and the effect of lower production, feedstock inflation and future plant reliability on margins and cash generation.
- Review liquidity and debt terms, including the 2024 ABL maturity, 2028 note obligations, covenant restrictions and the impact of distributions on available cash.
- Assess the concentration of sales among major customers and dependence on related-party and third-party supply, utility and transportation arrangements.
- Verify the conditions, timing and remaining potential payments under the Section 45Q agreements, and monitor progress or changes to the proposed CVR Energy spin-off.
- Reconcile distribution amounts and periods: the filing distinguishes distributions paid during 2022 from the fourth-quarter 2022 distribution declared after year-end.