CVR PARTNERS, LP SEC 10-Q Report

CVR Partners, LP, a leading North American nitrogen-based fertilizer company, has released its Form 10-Q report for the quarter ended September 30, 2023. The report provides a comprehensive overview of the company's financial performance, operational highlights, strategic initiatives, and the challenges it faces in the current market environment.

Financial Highlights

• Net Sales: $125.2 million, decreased from $130.6 million for the three months ended September 30, 2023, primarily due to unfavorable UAN sales volumes.
• Net Sales: $385.8 million, decreased from $539.9 million for the nine months ended September 30, 2023, primarily due to unfavorable UAN and ammonia pricing conditions and sales volumes.
• Operating Income: $11.0 million, increased from $8.1 million for the three months ended September 30, 2023, driven primarily by a decrease in utility costs and favorable personnel costs related to share-based compensation.
• Operating Income: $64.6 million, decreased from $184.2 million for the nine months ended September 30, 2023, driven primarily by lower product sales prices.
• Net Income: $3.8 million, increased from $0.7 million for the three months ended September 30, 2023, due to lower utility costs and favorable personnel costs.
• Net Income: $42.6 million, decreased from $162.5 million for the nine months ended September 30, 2023, primarily due to lower product sales prices.
• Basic and diluted earnings per common unit: $0.36, increased from $0.07 for the three months ended September 30, 2023.
• Basic and diluted earnings per common unit: $4.03, decreased from $15.37 for the nine months ended September 30, 2023.

Business Highlights

• Revenue Segments: The Partnership's principal products are ammonia and urea ammonium nitrate (UAN). For the three months ended September 30, 2024, net sales of ammonia were $24.6 million and UAN were $76.7 million. For the nine months ended September 30, 2024, net sales of ammonia were $83.9 million and UAN were $241.1 million.
• Sales Units: For the three months ended September 30, 2024, the Partnership sold 61 thousand tons of ammonia and 321 thousand tons of UAN. For the nine months ended September 30, 2024, the Partnership sold 191 thousand tons of ammonia and 964 thousand tons of UAN.
• Production Volumes: For the three months ended September 30, 2024, the Partnership produced 212 thousand gross tons of ammonia and 321 thousand tons of UAN. For the nine months ended September 30, 2024, the Partnership produced 626 thousand gross tons of ammonia and 964 thousand tons of UAN.
• Feedstock Usage: The Coffeyville Facility used 133 thousand tons of petroleum coke at an average cost of $44.69 per ton for the three months ended September 30, 2024. The East Dubuque Facility used 2,082 thousand MMBtus of natural gas at an average cost of $2.19 per MMBtu for the same period.
• Utilization Rates: For the three months ended September 30, 2024, the ammonia utilization rate was 97%, compared to 99% for the same period in 2023. For the nine months ended September 30, 2024, the utilization rate was 96%, compared to 101% for the same period in 2023.
• Operational Performance: The decrease in utilization rates for the nine months ended September 30, 2024, was primarily due to a 14-day planned outage at the Coffeyville Facility and minor unplanned outages at both facilities.
• Future Outlook: The Partnership continues to conduct engineering studies on the potential to utilize natural gas as an optional feedstock to petroleum coke at its Coffeyville Facility. If approved and implemented, this could allow the facility to choose the optimal feedstock mix for production.
• Market Conditions: The Partnership believes the long-term fundamentals for the U.S. nitrogen fertilizer industry remain intact, driven by factors such as increasing global population, decreasing arable land per capita, and sustained use of corn and soybeans for renewable fuels.
• Geopolitical Impact: The ongoing conflicts in the Middle East and the Russia-Ukraine war pose significant geopolitical risks that could impact global fertilizer and agriculture markets, potentially affecting the Partnership's business operations and cash flows.

Strategic Initiatives

• Mission: CVR Partners, LP has adopted a mission to be a top-tier North American nitrogen-based fertilizer company, focusing on safe and reliable operations, superior performance, and profitable growth.
• Engineering Studies: The Partnership is conducting engineering studies to potentially utilize natural gas as an optional feedstock to pet coke at its Coffeyville Facility, which could allow for optimal feedstock mix for production. This initiative aims to make the Coffeyville Facility the only nitrogen fertilizer plant in the United States with such feedstock flexibility.
• Operational Improvements: The Partnership is focusing on improvements in day-to-day plant operations, identifying alternative sources for plant inputs, and optimizing commercial and marketing functions to maintain high plant operations levels.
• Capital Management: The Partnership's principal sources of liquidity include cash from operations and borrowings under the ABL Credit Facility. As of September 30, 2024, CVR Partners had cash and cash equivalents of $110.5 million and $39.3 million available under the ABL Credit Facility, totaling $149.8 million in liquidity. The Partnership's long-term debt includes $550 million in 6.125% Senior Secured Notes due June 2028. Capital expenditures for the nine months ended September 30, 2024, were $19.2 million, with estimated full-year expenditures ranging from $39 million to $42 million. The Partnership declared and paid quarterly distributions totaling $5.50 per common unit in 2024. The Board's current policy is to distribute all Available Cash for Distribution on a quarterly basis, subject to reserves for maintenance capital expenditures, debt service, and other contractual obligations.
• Future Outlook: The Partnership plans to continue its strategic initiatives focused on safe and reliable operations, superior performance, and profitable growth. The potential project to utilize natural gas as an optional feedstock at the Coffeyville Facility, if approved and implemented, could provide significant operational flexibility. The next planned turnarounds are scheduled for late 2025 at the Coffeyville Facility and in 2026 at the East Dubuque Facility. The Partnership expects to maintain its focus on financial discipline, aiming to be as efficient as possible by maintaining low operating costs and disciplined capital deployment. The Board will continue to evaluate and adjust the distribution policy and capital spending plans based on market conditions and business needs.

Challenges and Risks

• General Business Environment: The Partnership believes the general business environment will continue to remain volatile, driven by uncertainty around the availability and prices of its feedstocks, demand for and prices of its products, inflation, and existing and potential future global supply disruptions. This volatility could negatively impact future operating results and financial conditions.
• Regulatory Environment: Certain governmental regulations and incentives associated with the automobile transportation and agricultural industries can impact the business. For instance, the EPA's renewable volume obligations for 2023-2025 support strong demand for corn, which in turn supports nitrogen-based fertilizer use. Conversely, new motor vehicle emission standards for 2027 and beyond could reduce the use of internal combustion engine vehicles and the demand for liquid fuels, including ethanol, which could impact the fertilizer market.
• Geopolitical Matters: The conflict in the Middle East and the ongoing Russia-Ukraine war pose significant geopolitical risks to global markets. These conflicts could disrupt the production and trade of fertilizer, grains, and feedstock, leading to market disruptions that are difficult to predict and may affect the business in unforeseen ways.
• Market Indicators: While there is a risk of shorter-term volatility due to the inherent nature of the commodity cycle and governmental and geopolitical risks, the Partnership believes the long-term fundamentals for the U.S. nitrogen fertilizer industry remain intact. Factors such as increasing global population, decreasing arable land per capita, and the sustained use of corn and soybeans for renewable fuels are expected to provide a solid foundation for the industry.
• Weather and Seasonal Trends: Weather continues to be a critical variable for crop production. Even with high planted acres and above trendline yields per acre for corn, global inventory levels for corn and soybeans remain near historical averages, and prices have remained elevated. Demand for nitrogen fertilizer was strong for the spring 2024 planting season due to elevated grain prices and favorable weather conditions.
• Feedstock Volatility: Fertilizer input costs have been volatile since the fall of 2021. Natural gas prices were elevated in the fall of 2022 but fell significantly in early 2023 due to warmer weather and conservation measures in Europe. The structural shortage of natural gas in Europe is expected to continue to be a source of volatility through 2026. Pet coke prices have also declined and are expected to decline further in 2025.
• Partnership Initiatives: The Partnership is conducting engineering studies to utilize natural gas as an optional feedstock to pet coke at its Coffeyville Facility. If approved and implemented, this could allow the Partnership to choose the optimal feedstock mix for production, providing flexibility and potentially reducing costs.

SEC Filing: CVR PARTNERS, LP [ UAN ] - 10-Q - Oct. 29, 2024