CVR Partners, LP — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. CVR Partners produces and wholesales ammonia, UAN and other nitrogen fertilizer products from facilities in Coffeyville, Kansas, and East Dubuque, Illinois. Amounts below are in millions except per-unit data.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Net sales | $138.0 | $105.1 | $198.9 | $180.2 |
| Operating income (loss) | $30.3 | $(25.8) | $16.3 | $(30.7) |
| Net income (loss) | $7.0 | $(41.6) | $(18.4) | $(62.3) |
| Basic and diluted earnings (loss) per unit | $0.66 | $(3.68) | $(1.72) | $(5.51) |
- Q2 gross profit was approximately $37.5 million, or 27.2% of sales; operating margin was approximately 22.0%. For the first half, gross profit was approximately $29.5 million, or 14.8% of sales; operating margin was approximately 8.2%.
- Q2 Adjusted EBITDA was $51.5 million, versus $38.6 million in Q2 2020. First-half Adjusted EBITDA was $56.1 million, versus $49.3 million. These are non-GAAP measures; Q2 2020 included a $41.0 million goodwill impairment.
- First-half operating cash flow was $23.0 million, compared with $6.8 million a year earlier. Investing cash outflow was $5.3 million, and financing cash outflow was $5.4 million. Cash increased $12.3 million to $42.8 million.
- At June 30, cash was $42.8 million and available ABL capacity was $32.0 million, for reported total liquidity of $74.8 million. Long-term debt, net, was $640.4 million; the Partnership reported compliance with debt covenants.
Changes and operating drivers
- Q2 sales rose $32.9 million year over year, driven primarily by $32.5 million of favorable pricing, partly offset by lower sales volumes. First-half sales increased $18.8 million: favorable pricing added $32.3 million, offset by $18.3 million of lower-volume impact.
- Management attributed stronger fertilizer pricing to higher crop prices, strong spring demand and reduced fertilizer supply following Winter Storm Uri. Q2 utilization was 98%; first-half utilization was 93%, with downtime related to the Messer air separation plant and winter storm disruptions.
- First-half production was 404,000 gross tons of ammonia and 606,000 tons of UAN, versus 417,000 and 638,000 tons, respectively, in 2020. Q2 net income was positive, but the Partnership remained loss-making for the six-month period.
- Q2 interest expense was $23.3 million, up from $15.9 million, including a $7.8 million loss on extinguishment of debt. On June 23, the Partnership issued $550 million of 6.125% senior secured notes due 2028 and redeemed $550 million of 9.25% senior secured notes due 2023. It reported expected annual cash-interest savings of approximately $17 million. $95 million of the 2023 notes remained outstanding at quarter-end.
- First-half operating costs included higher feedstock, utility and electricity expenses, including costs associated with Winter Storm Uri. Share-based compensation also increased with the unit price.
Liquidity, outlook and risks
- Management said cash, operating cash flow and available borrowing capacity were expected to cover anticipated requirements for at least the next 12 months, while noting that costs or cash needs could exceed expectations.
- Estimated 2021 capital expenditures were $27–$31 million, including $20–$22 million for maintenance and $7–$9 million for growth. The Coffeyville fall 2021 turnaround was expected to cost $8–$10 million. The East Dubuque turnaround was deferred to 2022.
- No earnings or revenue guidance was provided. The Board declared a Q2 distribution of $1.72 per common unit, or $18.4 million, payable August 23, 2021. No distributions were declared or paid for Q1 2021 or during 2020; future distributions remain at the Board’s discretion.
- Management described fertilizer prices and feedstock availability as volatile, with risks including COVID-19 and variants, weather, commodity markets, production interruptions, supplier and transportation dependence, and seasonal demand. The filing said it was too early to assess potential effects of UAN trade investigations involving Russia and Trinidad and Tobago.
- The filing reported no material changes to previously disclosed risk factors or commitments and contingencies. Management said COVID-19 had not caused a material financial impact through June 30, 2021. Disclosure controls were assessed as effective.
Important facts for investors to verify
- Whether higher fertilizer prices and crop demand persist, and how they compare with changes in natural gas, pet coke, utilities and other operating costs.
- Production reliability, utilization, and the financial impact of the Coffeyville turnaround and East Dubuque turnaround timing.
- Cash generation and working-capital movements: Q2 operating cash flow was $(2.6) million despite positive net income, while first-half cash flow was positive.
- Debt refinancing terms, remaining 2023 notes, available ABL capacity and the realized interest savings; the notes describe the 2028 issuance as senior secured.
- The Board’s future distribution decisions and the distinction between declared distributions and available cash for distribution.