CVR Partners, LP — Q1 2024 Form 10-Q
Business and period: CVR Partners produces and wholesales nitrogen fertilizer, principally ammonia and urea ammonium nitrate (UAN), from facilities in Coffeyville, Kansas, and East Dubuque, Illinois. This unaudited report covers the three months ended March 31, 2024, compared with Q1 2023; balance-sheet comparisons are with December 31, 2023. Amounts below are in millions unless stated otherwise.
Financial results and liquidity
| Metric | Q1 2024 | Q1 2023 / prior date |
|---|---|---|
| Net sales | $127.7 | $226.3 |
| Operating income | $20.1 | $109.4 |
| Net income | $12.6 | $101.9 |
| Basic and diluted earnings per unit | $1.19 | $9.64 |
| EBITDA (non-GAAP) | $39.5 | $124.3 |
| Operating cash flow | $42.4 | $130.4 |
| Capital expenditures | $8.1 cash-flow basis | $3.4 cash-flow basis |
| Cash and cash equivalents | $64.6 | $45.3 at Dec. 31, 2023 |
| Total liquidity | $107.6 | Not stated |
| Long-term debt, net | $547.4 | $547.3 at Dec. 31, 2023 |
Operating margin was approximately 15.7% versus 48.3% in Q1 2023; net margin was approximately 9.9% versus 45.0%. These are calculated from reported operating income and net income divided by net sales. Interest expense, net, was $7.7 million, compared with $7.2 million. The Partnership reported no income tax expense in Q1 2024 (a $25,000 benefit). Its $550 million of 6.125% senior secured notes mature in June 2028; the ABL facility had $43.0 million available and no borrowings. The Partnership was in compliance with debt covenants.
Cash increased by $19.3 million during the quarter. Operating cash flow was $42.4 million; investing activities used $5.3 million, including $8.1 million of capital expenditures and a $2.8 million return of equity-method investment; financing activities used $17.8 million, principally for distributions.
Material changes and operating drivers
- Net sales fell $98.6 million year over year, primarily from lower realized prices and lower UAN volumes. Ammonia and UAN prices declined 41% and 42%, respectively; management attributed the pricing pressure to lower natural-gas prices reducing input costs and increased global fertilizer supply.
- UAN sales volumes declined, with total product volumes affected by a 14-day planned Coffeyville outage. Consolidated ammonia utilization was 90%, versus 105% a year earlier; gross ammonia production was 193,000 tons versus 224,000, and UAN production was 305,000 tons versus 366,000.
- Lower natural-gas and pet-coke prices reduced materials costs, and lower utility costs helped reduce direct operating expenses. Depreciation and amortization rose to $19.3 million from $15.2 million, including accelerated depreciation after changes to estimated useful lives for assets affected by granular urea production.
- The East Dubuque labor strike, which began in October 2023, ended February 24, 2024; employees began returning March 4. The facility continued operating during the strike.
Outlook, risks, and notable items
- No earnings or product-price guidance is provided. Management expects cash from operations, existing cash, and available borrowing capacity to cover anticipated operating needs for at least the next 12 months, while cautioning that costs and cash requirements may rise.
- 2024 estimated capital expenditures are $46–49 million: $33–35 million for maintenance and $13–14 million for growth. Planned turnarounds are currently scheduled for Coffeyville in 2025 and East Dubuque in 2026.
- Management described the business environment as volatile, citing fertilizer and feedstock prices, weather, seasonal demand, inflation, supply disruptions, and geopolitical conflicts. USDA estimates cited in the filing project 2024 U.S. corn acreage down 4.9% and soybean acreage up 3.5% from 2023; management said spring fertilizer demand was expected to be strong, but outcomes remain uncertain.
- The Partnership is studying potential Coffeyville modifications to permit natural gas as an alternative feedstock to pet coke; the project remains subject to Board approval and successful implementation.
- Under the 45Q carbon oxide arrangements, the Partnership may owe fees of up to $15 million per year, subject to a $45 million overall cap, if minimum annual supply quantities are not met. It has guaranteed specified obligations. The filing reports no material change in other commitments and contingencies and states that pending matters are not expected to have a material financial impact if decided adversely.
- The Board declared a $1.92-per-unit Q1 2024 distribution, totaling approximately $20.3 million, payable May 20, 2024. Distributions remain discretionary and may be changed. The remaining nominal authority under the unit repurchase program was terminated in February 2024.
Most important facts for investors to verify
- Whether fertilizer prices, sales volumes, and plant utilization recover after the sharp year-over-year declines, and the financial impact of scheduled downtime and future turnarounds.
- Whether projected 2024 capital spending remains within the $46–49 million estimate and whether the alternative-feedstock study advances to an approved project.
- Whether operating cash generation and liquidity remain sufficient to support debt service, capital needs, and distributions under volatile commodity and input-cost conditions.
- Progress toward 45Q carbon oxide supply milestones and any exposure under the guarantee and potential shortfall fees.
- That the $1.92-per-unit distribution was declared after quarter-end and is not a commitment to future distributions.