CVR Partners, LP — Form 10-Q Summary
Reporting period: Three and six months ended June 30, 2018. CVR Partners produces and sells wholesale nitrogen fertilizer, principally ammonia and UAN, from facilities in Coffeyville, Kansas, and East Dubuque, Illinois.
Financial performance
| Metric | Q2 2018 | Q2 2017 | Six months 2018 | Six months 2017 |
|---|---|---|---|---|
| Net sales | $93.2 million | $97.9 million | $173.1 million | $183.2 million |
| Operating income (loss) | $(0.8) million | $12.2 million | $(4.2) million | $17.5 million |
| Net income (loss) | $(16.5) million | $(3.4) million | $(35.5) million | $(13.8) million |
| Adjusted EBITDA | $26.0 million | $32.3 million | $39.0 million | $53.1 million |
| Available cash for distribution | $0 | $0 | $(4.2) million | $1.8 million |
Net sales fell about 5% in both the quarter and first half. Q2 fertilizer sales were affected by higher realized prices but lower UAN volumes; six-month sales reflected lower ammonia and UAN volumes, partly offset by higher prices. Q2 UAN and ammonia gate prices were $191 and $348 per ton, respectively, versus $174 and $333 a year earlier. Operating results weakened primarily because of reduced production and higher operating expenses. Interest expense was approximately $15.7 million for Q2 and $31.4 million for the first half, broadly unchanged year over year.
Cash and cash equivalents were $28.3 million at June 30, 2018, down from $49.2 million at year-end 2017; working capital was $54.9 million. First-half operating cash flow was negative $12.5 million, compared with positive $6.9 million in 2017. Investing cash outflow was $8.5 million, and cash declined $20.9 million. Long-term debt, net of costs and discount, was $627.4 million; principal debt included $645.0 million of 9.25% secured notes due 2023. The $50 million ABL facility had no borrowings and $49.6 million of availability, subject to borrowing-base limits. The Partnership reported compliance with debt covenants.
Material changes and operating factors
- Coffeyville completed a 15-day scheduled turnaround in Q2. Related expense was approximately $6.3 million; reduced production and unplanned equipment downtime also weighed on output. Coffeyville Q2 on-stream factors were 72.8% for gasification, 70.2% for ammonia, and 67.0% for UAN, including the turnaround impact.
- Q2 direct operating expenses increased $9.6 million year over year to $47.5 million, including turnaround costs, personnel costs, and repairs. First-half direct operating expenses increased $12.4 million to $86.1 million.
- First-half sales volumes declined: ammonia to 117.6 thousand tons from 136.5 thousand, and UAN to 615.0 thousand from 652.5 thousand. First-half Adjusted EBITDA fell to $39.0 million from $53.1 million.
- No distributions were paid in the first half of 2018; the comparable 2017 period included $2.3 million of distributions. The 2023 notes’ fixed-charge coverage ratio was below 1.75-to-1.0; $72.7 million remained in the restricted-payment basket at June 30.
Outlook, risks, and unusual items
Management stated that existing cash, operating cash flow, and potential ABL borrowings were expected to cover anticipated operating commitments for at least the next 12 months, while cautioning that cash needs and performance could vary. Estimated 2018 capital expenditures were approximately $3 million for growth and $18 million for maintenance. Management gave no earnings or distribution guidance.
The Partnership submitted a business-interruption insurance claim for reduced production in the second half of 2017 and early 2018 related to equipment issues. The outcome and timing of any proceeds were not estimable; proceeds could materially affect results. Key risks include plant reliability and supplier outages, fertilizer prices and seasonal demand, feedstock and utility costs, weather, transportation and third-party dependence, environmental and regulatory matters, related-party relationships, and debt restrictions. Management reported effective disclosure controls and no material change in internal control over financial reporting.
Adoption of ASC 606 changed balance-sheet presentation: at June 30, accounts receivable and deferred revenue were each $9.8 million higher than they would have been without adoption; the filing reported no impact to the statements of operations or cash flows. The Partnership expects the lease accounting standard effective in 2019 to have a material balance-sheet impact.
Important facts for investors to verify
- Whether production and on-stream performance recovered after the Coffeyville turnaround and the reported unplanned downtime at both facilities.
- The status, amount, and timing of any business-interruption insurance recovery.
- Cash generation, liquidity, and borrowing-base availability, particularly given negative first-half operating cash flow and substantial interest costs.
- Distribution capacity under the debt indenture and the Partnership’s operating results and cash needs.
- Actual 2018 maintenance and growth capital spending versus management’s estimates, and the eventual balance-sheet effects of lease-standard adoption.