CVR Partners, LP — Q2 2022 Form 10-Q
Business and period: The partnership produces and wholesales ammonia, UAN and other nitrogen fertilizers from facilities in Coffeyville, Kansas, and East Dubuque, Illinois. This unaudited report covers the quarter and six months ended June 30, 2022; it was signed August 2, 2022. Dollar amounts below are in millions unless stated otherwise.
Financial performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Net sales | $244.0 | $138.0 | $466.9 | $198.9 |
| Operating income | $125.9 | $30.3 | $229.9 | $16.3 |
| Net income (loss) | $117.6 | $7.0 | $211.2 | $(18.4) |
| Operating margin | 51.6% | 22.0% | 49.2% | 8.2% |
| Net margin | 48.2% | 5.1% | 45.2% | (9.2)% |
| EBITDA (non-GAAP) | $147.2 | $51.5 | $270.6 | $56.1 |
Sales rose about 77% in Q2 and 135% in the first half, mainly due to higher ammonia and UAN prices; lower Q2 sales volumes partly offset the price benefit. Management attributed stronger fertilizer pricing to supply disruptions, tighter global availability, the Russia-Ukraine conflict and higher crop prices. Q2 ammonia utilization was 89%; six-month utilization was 88%, down primarily because of unplanned downtime at both facilities.
Cash flow and liquidity: First-half operating cash flow was $215.6 versus $23.0 in 2021; investing cash outflow was $13.7 versus $5.3, and financing cash outflow was $158.1 versus $5.4. Cash increased by $43.8 to $156.3. At June 30, cash plus the undrawn $35.0 asset-based lending facility provided reported total liquidity of $191.3. Q2 operating cash flow was $48.7 versus an outflow of $2.6, as shown in the filing’s reconciliation.
Debt: The partnership redeemed its remaining $65.0 of 9.25% notes in February 2022. At June 30, it had $550.0 principal outstanding on 6.125% secured notes due 2028, with $546.6 reported as long-term debt net of discount and issuance costs. It reported covenant compliance and no borrowing under the $35.0 ABL facility.
Changes, distributions and outlook
- Profitability improved substantially year over year, driven mainly by higher fertilizer prices. Costs also rose: first-half cost of materials and other was $71.2 versus $43.9, and direct operating expenses were $109.1 versus $90.4.
- Product volumes were affected by unplanned Messer air-separation-plant downtime at Coffeyville and equipment downtime at East Dubuque. UAN production was 648,000 tons for the first half versus 606,000; gross ammonia production was 380,000 tons versus 404,000.
- First-half capital expenditures were $13.7. Full-year 2022 estimates were $44–47, including $43–45 for maintenance. Planned turnarounds were underway at Coffeyville (estimated $12–15) and expected at East Dubuque in August (estimated $19–21).
- The partnership declared a Q2 distribution of $10.05 per unit, or $106.2 in total, payable August 22, 2022. Distributions are discretionary and depend on available cash and reserves. First-half distributions paid totaled $79.9.
- Management said cash, operating cash flow and available borrowings were expected to cover anticipated requirements for at least 12 months, while noting inflation and uncertain operating and market conditions. No specific earnings or product-price guidance was provided.
- The filing describes Russia-Ukraine-related supply disruption, volatile fertilizer and feedstock prices, inflation, weather and seasonality, supplier dependence, plant outages, and regulatory and environmental requirements as risks. Management expected market volatility to continue through 2022. It reported no material financial impact from COVID-19, the conflict or related contract-performance issues as of June 30.
Other notable items
Deferred revenue declined from $87.1 at year-end 2021 to $4.2 at June 30, mainly as revenue was recognized on customer prepayment contracts. The partnership repurchased 111,695 units for $12.4 in the first half; the repurchase authorization had only a nominal amount remaining. Related-party purchases were $29.1 in the first half, primarily pet coke and hydrogen supplied through CVR Energy affiliates. The filing reported no material changes to previously disclosed commitments, contingencies or risk factors and no expected material effect from pending proceedings.
The filing gives different estimates for annual interest savings from the 2023-note repayment: approximately $9 million in its achievements discussion and approximately $6 million in its liquidity discussion. This discrepancy should be verified.
Key facts for investors to verify
- Whether pricing and margins remain resilient as fertilizer markets, global supply and feedstock costs change.
- Completion, cost and operational impact of the 2022 facility turnarounds, and whether downtime persists.
- The board’s future distribution decisions, including the discretionary nature of the $10.05-per-unit Q2 distribution.
- The interest-savings estimate for the redeemed 2023 notes, given the differing figures in the filing.
- Full-year capital spending versus the $44–47 estimate, and liquidity needs after distributions and turnaround spending.
- Exposure to related-party suppliers and the potential effects of geopolitical, weather, regulatory and commodity-market developments.