CVR Partners, LP
Q4 2020 Earnings Call Transcript
Published:
- Operator:
- Greetings, and welcome to the CVR Partners LP Fourth Quarter 2020 Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Richard Roberts, Senior Manager of Financial Planning and Analysis and Investor Relations. Thank you, sir. You may begin.
- Richard Roberts:
- Thank you, Christine. Good morning, everyone. We appreciate your participation in today's call. With me today are Mark Pytosh, our Chief Executive Officer; Tracy Jackson, our Chief Financial Officer; and other members of management.
- Mark Pytosh:
- Thank you, Richard. And good morning everyone and thank you for joining us for today's call. To summer highlights for the full year 2020 included, net sales of $350 million, net loss of $98 million, EBITDA of $41 million, which was reduced by $41 million non-cash goodwill impairment and we repurchased over 623,000 CVR Partners, units for $7 million. Looking more specifically at 2020 fourth quarter, we reported net sales of $90 million, a net loss of $17 million and EBITDA of $18 million. We repurchased nearly 394,000 CVR Partners common units for $5 million, and there is no cash available for distribution this quarter.
- Tracy Jackson:
- Thank you, Mark. Turning to our results for the full year 2020, we reported net sales of $350 million and an operating loss of $35 million, compared to net sales of $404 million and operating income of $27 million for the full year 2019. Net losses for the full year 2020 were $98 million or $8.77 for common unit, and EBITDA was $41 million. This compares to a net loss of $35 million or $3.09 per common unit and EBITDA of $107 million for the full year 2019. As a reminder, our full year 2020 results were reduced by a $41 million non cash goodwill impairment related to the Coffeyville facility taken in the second quarter. The year-over-year decline in EBITDA was driven primarily by the goodwill impairment and lower prices for UAN and ammonia.
- Mark Pytosh:
- Thanks Tracy. Since the last earnings call, there's been continued improvement in crop prices and farmer economics. For the 2020 planting season the USDA estimates that planted corn acres were 90 million and yield per acre was 172. On the demand side, ethanol blending remains at lower levels than last year due to lower gasoline demand. However, lower ethanol related corn demand in the U.S. has been more than offset by Chinese and other demand for corn. The USDA is now estimating U.S. carry out inventories of 1.55 billion bushels or 11% of domestic production. That is down over 50% from the summer 2020 estimates. Crop forecasts for Argentina and Brazil are also lower than previous estimates, and soybean demand from China has been much greater than expected. This change in fundamentals led to a rally in grain prices, with corn recently trading at around 550 a bushel and soybeans at $14 a bushel. Stronger farmer economics led to a robust fall ammonia application and accelerating demand for all crop inputs for spraying. Fall demand for ammonia was the best that has been in several years. We believe that industry wide ammonia inventories were very low after the fall and prices have remained firm through the winter.
- Operator:
- Thank you. We will now be conducting a question and answer session. Our first question comes from a line of Roger Spitz with Bank of America. Please proceed with your question.
- Roger Spitz:
- Thank you, and good morning.
- Mark Pytosh:
- Good morning.
- Roger Spitz:
- Regarding the CO2 tax credits, perhaps you can tell how we should think about that. How much cash could you potentially generate? When would you receive it? And it sounds like it's more of like an ongoing cash receipt as opposed to a one-time. But maybe you can just try to tell us how to think about that?
- Tracy Jackson:
- I'll take the first stab and then Mark could add to it. It is a tax credit program that will pay or reduce taxes potentially by whatever structure we end up going with over a 10-year period of time. And we have initial estimates, but they're very preliminary, we're not prepared to disclose those yet.
- Mark Pytosh:
- Yes. I would just add that, we're still in the early phases of the -- the regulations have just been final for a month. So we're still in a pretty early phase of exploring the structures and what the value potential theory is. In our case, we've been operating our facility for seven years. So we've already been sequestering CO2 for seven years. And so we're grandfathered under the regulations. The regulations also are there to incentivize future projects for sequestration. But we will be grandfathered in. But we have a long tail on the ability to claim those credits. And so, we're looking at different avenues for how do we maximize the value.
- Roger Spitz:
- But I mean, there's regulations like to look back and get crystallized some tax credits for the past seven year?
- Mark Pytosh:
- No. I doesn't really do that. The starting point of the regulation will be 2018 if you had a plan in service. So the start date would be 2018. And you have to reach a threshold for how much sequestering you do. So we could go back further in time than that.
- Roger Spitz:
- I mean, the reason I'm asking is you've suggested, the way to address your nine in the quarters is perhaps depending on market situation, of course. You refiling them, but you've said the majority of those in the prepared remarks. And then use the CO2 tax credits for the rest. I'm just trying to figure out within this year how big -- how much cash you could get crystallized from that to address some minority part of that 645?
- Tracy Jackson:
- Well, it is a possibility, it is one scenario that we will leave a stub portion out. But if we approach the market and we get an exceptional rate, we may opt to leave all of the outstanding debt on the balance sheet at that advantageous lower rate and not pull this stub out to pay down. So there we're in the preliminary stages of evaluating whether we're going to do that or not. It's just one potential outcome. And as soon as we establish our structure around the 45Qs, we'll have a better idea of timing on which if we chose to leave a stub out, we would start to pay that down. So I know it's a non answer, but we're trying to give you as much information as we can very early in the process.
- Roger Spitz:
- Appreciate that. One last thing separately. You said the CapEx for 2021 is I think $23 million to $26 million, but that does not include an additional $8 million of turnaround CapEx. Did I hear that right? And what is your Coffeyville and East Dubuque turnaround schedule over 2021/2022?
- Mark Pytosh:
- So first of all, the $8 million is turnaround expense and not CapEx. And so that runs through the P&L. Our schedule right now as we're targeting a fall 2021 turnaround for Coffeyville. And similar and probably it's early, but fall 2022 turnaround at East Dubuque.
- Roger Spitz:
- Thank you very much.
- Operator:
- Our next question comes from line of Richard Kus with Jefferies. Please proceed with your question.
- Richard Kus:
- Hey, guys. Thanks for taking my questions. So you mentioned it a little bit East Dubuque down last week due to some of the weather situation. Was there any issue in Coffeyville? And then my follow-up on East Dubuque would be, was that operationally driven? Was it a function of natural gas pricing? And what have you guys or what are your expectations around the input for Q1 as a result of some of these issues?
- Mark Pytosh:
- I'll start at Coffeyville, because that's pretty simple. We didn't have any major disruptions at Coffeyville, because the plant uses petroleum coke as a feedstock for making hydrogen. And so, the plant operated during the week, we navigated around gas availability, and electricity availability at Kansas. So that was a factor for the all plants in Oklahoma and Kansas last week. At East Dubuque, that was more opportunistic. We had pre-purchase gas there at the plant, and decided that it would make more sense to take the plant down and sell the gas into the marketplace rather than operate. So we -- that was more of an economic decision. It wasn't an operational decision at East Dubuque.
- Richard Kus:
- Got you. Interesting. And I guess, what is the potential EBITDA impact as a result of that? That seems -- I mean, you obviously wouldn't have done that if it was going to be negative for you?
- Mark Pytosh:
- Yes. We're not in a position to quantify that. But obviously, we thought it was a better idea to take the plant down than it was to run with conditions.
- Richard Kus:
- Got you. And then lastly, for me, obviously, we've seen a pretty significant run up in nitrogen fertilizer prices. Can you guys maybe give a sense of how much book you had sold forward at lower prices? And then how much you expect to be able to benefit over the next quarter or two from the higher pricing that we're seeing?
- Tracy Jackson:
- Sure. So, we're always selling forward. So we -- if you look at our fourth quarter that was sold forward during the -- I'd say, the lower point in the marketplace. But in the first quarter, we were selling as we entered the year into the first quarter, and some prices were rising. And so you'll -- we're kind of seeing a gentle rise in the first. So full effect of the rise in fertilizer pricing will be seen in the second quarter, where that -- the prices from January 1 forward have risen quite a bit. But we'll see more of that rise in the second quarter. I think that the -- probably the most interesting opportunity is -- the spring is good. And we think this spring will be very good depending on the weather. If the weather holds up and get good application. But we think inventory levels have been as low as they've been in several years, a number of years. And that should carry through to the spring and end of the summer, which would help the second half of the year, we believe, because inventory levels came into the year low. And with a production outage last week of virtually all the --lot of nitrogen plants in the United States that further tightens inventory level. So we feel very good about the overall supply/demand balance. Plus, with farmer economics, crop prices, the way they are, we feel very good about the spring. But you'll see the full effect of the pricing impact in the second quarter this year.
- Richard Kus:
- Got it? Alright, I really appreciate it. Good luck, guys.
- Operator:
- Our next question comes from line of Brian DiRubbio with Robert W. Baird. Please proceed with your question.
- Brian DiRubbio:
- Good morning. As we think about debt leverage reduction, what are you targeting as a sort of debt leverage going forward?
- Tracy Jackson:
- We don't really -- we have not talked about in terms of what we are targeting. We just recognize that our debt burden or our service costs on a quarterly basis take a meaningful amount of available EBITDA off the table for us to have a recurring cash available for distribution number. And so, in terms of reducing to a specific leverage ratio that changes so much with EBITDA it's really not a meaningful target. I think on a comparative basis with the peer group, you can see that we're substantially more levered than they are. So lower than it is now with a more sustainable debt service cost profile.
- Brian DiRubbio:
- Okay. That's fair given the volatility. Just the capital allocation parties, I mean, you've been buying back some shares, you had the opportunity to buy back some debt at a discount a few months ago. Is it really now just focused on this refinance?. And then you're going to be spending more money towards shareholder returns?
- Mark Pytosh:
- I would just say that, we want to get through the next step first and see -- a lot of it's going to depend on the market. If prices are headed durably higher, then the board will have to reconsider all of that in sort of how they allocate capital. And -- but the first step would be to deliver on our results this year and execute and get a refinancing done, and then look at the cash flow profile, and decide -- the board will decide how to move forward from there. So, I'd say it's too early to call what we will do, very long into the future we want to see how this -- how the markets turning and then how the refinancing will go.
- Brian DiRubbio:
- Okay. And then just on the refinancing, give me a sense of -- what the sense of urgency is with you went forward? Your bonds do step down in about four months. That's up here willing to wait on? Or is there a greater sense of urgency to get this refinancing done sooner than later?
- Tracy Jackson:
- No, the rates certainly don't justify doing it just now. I mean, if there's something that happens where rates fall through the floor, then we may. But at this point, we are anticipating aligning with that fall to par.
- Brian DiRubbio:
- That's fair. And then just finally, a nice little surprise was the drop in Pet coke prices in the quarter, fell sequentially year-over-year. Any dynamics that you can share with us on the reason for that decline? And I think you had your contract for Pet coke expire in December of last year. Any thoughts on sort of the new pricing dynamics that we should expect going forward?
- Mark Pytosh:
- Sure. So there's two different buckets of Pet coke. With the refinery, the Coffeyville refinery, which is our sister company, we have a contractual formula there, that is tied to the price of UAN. And with UAN prices being low, the price of pet coke was low. And so that that helped pull the average down for the year. I would say, pet coke prices generally were contractual prices, were pretty steady. Spot pricing is really dependent on the time. And sometimes that can get expensive. What we did this year compared to last year for 2021, was we actually have contracted with I call it a family of refineries. So we're not really -- we've spread around our sourcing further than we did in the past. We used to be two and then we kind of went to three. And so we're up to four now. And that gives us more flexibility if the crude slight changes, if production levels down, if there's a turnaround or drawing from portfolio. There's a group of refineries within striking distance of Coffeyville. And so we broaden our portfolio to lessen the impact of any particular refinery in that mix.
- Brian DiRubbio:
- Great. And I apologize. I do have one more. Are you seeing any shifts right now in freight flows with respect to UAN in particular, I know the EU tariffs, sort of distorted historical freight flows and bought a lot of import at UAN into the U.S. Any comments or thoughts on current dynamics of what you're seeing in the market today?
- Mark Pytosh:
- So, a couple things there. One, the low prices in the second half of 2020, discouraged -- has discouraged in the first quarter of 2021, imports of UAN. So the numbers I saw here recently were that the forecast for the first quarter is that UAN imports will be down around 500,000 tons, which is a pretty meaningful amount. And so, the low prices did the trick on the marketplace by reducing the incentive. And then prices were rising faster elsewhere, so that UAN found a home either in Latin America or in Europe. So we've seen that kind of the trade flows adjust. The interesting thing about UAN, this year will be depending on what the availability of ammonia and the weather. There may be a push at the end of the season for Topdress & Sidedress for UAN, because we don't get enough ammonia on the ground and usually in the April timeframe in the core of the Midwest. So there may be an additional draw on UAN this year just because of the physical ability to deliver ammonia, which usually ammonia and UAN go together. And urea still priced at a premium. So it's sort of favors UAN right now, but UAN is catching up. It's caught up a lot in the marketplace, but the imports are well down from last year.
- Brian DiRubbio:
- Great. Appreciate the call. Thank you so much.
- Operator:
- Thank you. We have reached the end of the question and answer session. I would now like to turn the floor back over to management for closing comments.
- Mark Pytosh:
- Well, we appreciate everybody attending today and we look forward to discussing our first quarter results here in a couple months. Thank you very much for your time.
- Operator:
- Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.
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