CVR Partners, LP — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; comparisons are with the three months ended March 31, 2021. CVR Partners produces and wholesales nitrogen fertilizer, principally ammonia and urea ammonium nitrate (UAN), at facilities in Kansas and Illinois.
Financial and operating results
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Net sales | $222.9 million | $60.9 million |
| Operating income (loss) | $103.9 million | $(14.0) million |
| Net income (loss) | $93.7 million | $(25.4) million |
| Basic and diluted earnings (loss) per unit | $8.78 | $(2.37) |
| EBITDA, non-GAAP | $123.4 million | $4.7 million |
| Cash provided by operating activities | $166.9 million | $25.6 million |
| Capital expenditures | $7.9 million | $3.0 million |
Operating and net margins were approximately 46.6% and 42.0%, respectively, based on reported figures; the comparable 2021 margins were negative. Revenue growth reflected stronger realized fertilizer prices and higher sales volumes. Management attributed approximately $138.5 million of the increase to pricing and $15.6 million to volume for ammonia and UAN. Reported price increases were 252% for ammonia and 212% for UAN.
Consolidated ammonia utilization was 88% in both periods. Ammonia production was 187,000 gross tons versus 188,000; UAN production was 317,000 tons versus 272,000. Ammonia net tons available for sale declined to 52,000 from 70,000 as more ammonia was upgraded into other products.
Liquidity, debt, distributions, and capital
- Cash and cash equivalents were $137.3 million at March 31, 2022, including $79.8 million of customer advances. The ABL facility had $35.0 million available and no borrowing; reported total liquidity was $172.3 million.
- Long-term debt, net of discount and issuance costs, was $546.4 million. The Partnership repaid the remaining $65.0 million of its 9.25% notes due 2023 in February, leaving $550.0 million principal outstanding on 6.125% secured notes due 2028. The repayment generated a $0.6 million extinguishment loss; management cited approximately $6.0 million in annual future interest savings from this repayment.
- Operating cash flow and cash balances increased substantially year over year. Cash rose by $24.8 million during the quarter after financing outflows, including $65.0 million of debt repayment, $56.0 million of distributions paid, and $12.4 million of unit repurchases.
- The Partnership paid $5.24 per unit in March for the fourth quarter of 2021. It subsequently declared a Q1 2022 distribution of $2.26 per unit, or $23.9 million, payable in May. Distributions remain discretionary and subject to Board decisions and reserves.
- Estimated 2022 capital expenditures were $38–$42 million, including $36–$39 million for maintenance. Summer 2022 turnarounds were expected to cost $12–$15 million at Coffeyville and $14–$16 million at East Dubuque.
Material changes, outlook, and risks
Results improved sharply from the prior-year quarter, when Winter Storm Uri and other operating disruptions coincided with much lower fertilizer prices. In Q1 2022, tighter fertilizer supply, including disruptions following Hurricane Ida, industry turnaround activity, elevated energy costs in Europe and Asia, and the Russia-Ukraine conflict supported higher prices. Higher sales and pricing more than offset increases in feedstock, freight, utilities, maintenance, personnel, and other operating costs. Share-based compensation expense rose to $12.1 million from $3.6 million, partly reflecting the higher unit price.
Management said global fertilizer and grain supply conditions were tight and expected related market conditions to persist through the remainder of 2022, while emphasizing substantial uncertainty and volatility. The Partnership stated that existing cash, operating cash flow, and borrowing capacity were expected to meet anticipated needs for at least the next 12 months. This outlook is subject to operating performance, inflation, capital and turnaround costs, commodity markets, and other factors; the filing provides no earnings or revenue guidance.
Key risks include volatile fertilizer, natural gas, pet coke, and electricity prices; facility outages and third-party supply constraints; seasonal and weather-related demand changes; the Russia-Ukraine conflict and associated trade or supply disruptions; and inflation. The filing reported no material change in previously disclosed risk factors or commitments and contingencies, and no material financial impact from COVID-19 or conflict-related contract disruptions as of March 31, 2022. The Partnership reported compliance with debt covenants and effective disclosure controls.
Important facts for investors to verify
- Whether elevated fertilizer prices and tight global supply persist, and how realized prices compare with input-cost inflation.
- Whether both planned summer turnarounds proceed on schedule and within the estimated combined cost of $26–$31 million.
- How much of reported cash is operationally available, given $79.8 million of customer advances and planned capital, debt-service, and distribution needs.
- Whether production reliability improves after the cited Messer and East Dubuque equipment downtime.
- Distribution sustainability: the $2.26 per-unit Q1 distribution is discretionary, and available cash for distribution is a non-GAAP measure affected by Board-set reserves.
- The filing cites approximately $9 million of annual cash-interest reduction in one achievements discussion for the broader debt-reduction plan, versus approximately $6 million associated with repayment of the remaining 2023 notes; investors should confirm the scope of each figure.