CVR Energy Inc (CVI) 2015 Q4 法說會逐字稿

Greetings, and welcome to the CVR Energy fourth-quarter 2015 conference call.

(Operator Instructions)

As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Jay Finks, Vice President of Finance for CVR Energy. Please go ahead, Jay.

Good afternoon, everyone. We very much appreciate you joining us this afternoon for our CVR Energy fourth quarter 2015 earnings call.

With me are Jack Lipinski, our Chief Executive Officer, and Susan Ball, our Chief Financial Officer. Prior to discussing our 2015 fourth-quarter results, let me remind you that this conference call may contain forward-looking statements, as that term is defined under Federal Securities Laws.

For this purpose, any statements made during this call that are not statements of historical facts may be deemed to be forward-looking statements. Without limiting the foregoing, the word outlook, believes, anticipates, plans, expects and similar expressions are intended to identify forward-looking statements.

You are cautioned that these statements may be affected by important factors set forth in our filings with the Securities and Exchange Commission, and in our latest earnings release. As a result, actual operations or results may differ materially from the results discussed in the forward-looking statements. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise, except to the extent required by law.

This call also includes various non-GAAP financial measures. The disclosures related to such non-GAAP measures, including reconciliation to the most directly comparable GAAP financial measures are included in our 2015 fourth-quarter earnings release that we filed with the SEC this morning, prior to the open of the market.

With that said, I'll turn the call over to Jack Lipinski, our Chief Executive Officer. Jack?

Thanks, Jay. Good afternoon, everyone, and thank you for joining our call. Hopefully, you had the opportunity to listen to the CVR Partners and CVR Refining fourth-quarter earnings calls earlier today.

This morning, we reported CVR Energy's fourth-quarter consolidated adjusted net loss of $4.3 million, or a loss of $0.05 per diluted share, which compares to an adjusted net income of $24.4 million, or $0.28 per diluted share, in the fourth quarter of 2014. Susan will provide you more details on this during her report. We also announced today a quarterly cash dividend of $0.50 per share, which will be paid on March 7, to stockholders of record on February 29.

Let me talk a little bit about our business segments and our petroleum business. CVR Refining's 2015 fourth-quarter adjusted EBITDA was $16.4 million, as compared to $104.6 million a year ago. CVR Refining's total crude throughput for the fourth quarter was approximately 160,000 barrels a day. Coffeyville processed 77,000 barrels a day, while Wynnewood processed about 83,000 barrels a day.

Impacting CVR Refining results for the fourth quarter were lower realized refining margins and an extended turnaround schedule, due to additional mechanical work. This caused the turnaround to go nine days longer than scheduled, and resulted in additional related expenses. And recall, during turnarounds, we are not operating optimally, and we capture margin -- we don't capture as much margin as you would normally expect from our plants. As a result of lower realized refining margins and the impact of the turnaround, CVR Refining did not declare a fourth-quarter distribution.

In our fertilizer segment, CVR Partners announced a 2015 fourth-quarter adjusted EBITDA of $28.5 million, and that compares to $33.5 million in the fourth quarter a year ago. CVR Partners also declared a 2015 fourth-quarter cash distribution of $0.27 per common unit. As CVR Energy owns approximately 53% of the common units of CVR Partners, we will receive a proportional amount of the distribution.

I'll turn the call over to Susan to [give more] right now. So Susan?

Thank you, Jack, and good afternoon everyone.

Net loss attributable to CVR Energy's stockholders was $45 million in the fourth quarter 2015, as compared to a net loss of $44.4 million in the fourth quarter of last year. Adjusted net loss for the 2015 fourth quarter was $4.3 million, or a loss of $0.05 per diluted share, as compared to an adjusted net income of $24.4 million, or $0.28 per diluted share, in the fourth quarter of 2014.

This decrease was primarily the result of the turnaround activities during the 2015 fourth quarter at the Coffeyville refinery, as well as lower realized refining margins at the petroleum segment. Additionally, the fertilizer segment was impacted by lower pricing. We believe adjusted net loss, or income, is a meaningful metric for analyzing our performance, as it eliminates the impact of non-cash and other unusual items inherent in our business, and provides a more transparent view as to market expectations.

The adjustments to net loss during the 2015 fourth quarter, to derive the adjusted net loss, were adjustments related to a major scheduled turnaround expense of $84.9 million. Unfavorable impacts, as a result of our accounting under first in, first out, or the FIFO inventory accounting method, of $26.6 million. Gains on derivatives not settled during the period, of $15.5 million. Share-based compensation of $3.7 million, and expenses associated with the Rentech Nitrogen merger of $800,000.

The adjustments for the 2014 fourth quarter were an unfavorable FIFO impact of $154.6 million, losses on derivatives not settled during the period of $14.5 million, share-based compensation of $1.5 million, and major scheduled turnaround expenses of $1.3 million. These gross adjustments to net loss are reduced for the portion that's attributable to the non-controlling interest, and are further reduced for the net tax impact associated with them. The fourth-quarter 2015 effective tax rate was approximately 21%, as compared to 23% in the fourth quarter of 2014.

I will now turn to the specific performance of our two business segments impacting our overall quarterly results. As Jack mentioned earlier, CVR Refining's adjusted EBITDA for the 2015 first quarter was $16.4 million, as compared to $104.6 million in the same period in 2014. The decrease in adjusted EBITDA over the period was primarily driven by the first phase turnaround activities at the Coffeyville refinery during the fourth quarter in 2015, as well as lower realized refining margins during the period.

In the fourth quarter 2015, CVR Refining's realized refining margin, adjusted for FIFO, was $8.96 per barrel, as compared to $11.28 in the same quarter of 2014. The NYMEX 2-1-1 crack spread averaged $14 per barrel in the fourth quarter of 2015, as compared to $16.97 per barrel in the same period of 2014. The PADD 2 Group 3 2-1-1 crack spread averaged $13.91 per barrel in the fourth quarter of 2015, as compared to $17.27 in the fourth quarter of 2014.

Now, turning to our fertilizer segment. As mentioned earlier, CVR Partners' fourth-quarter adjusted EBITDA was $28.5 million, as compared to $33.5 million in the same period last year. The decrease in adjusted EBITDA over the periods was primarily driven by lower pricing for UAN and lower sales of ammonia. Partially offsetting the overall decrease for the period were higher UAN sales volumes. The Partnership announced a 2015 fourth-quarter cash distribution of $0.27 per common unit, with approximately $10.5 million of this will be paid to CVR Energy.

Our financial position remains strong, as we ended the quarter with cash and cash equivalents of approximately $765.1 million, on a consolidated basis. This included $50 million held at CVR Partners and $187.3 million of cash at CVR Refining. As such, CVR Energy held cash of $527.8 million as of December 31, 2015.

CVR Energy has no debt exclusive of the debt that resides at CVR Refining and CVR Partners. Total consolidated debt, including current portions as of December 31, was approximately $673.5 million.

With that, Jack, I will turn the call back over to you.

Thank you, Susan. I have nothing more at this point.

I'd like to thank each of you for joining us on the call today. Again, I hope you joined us on the earlier calls for CVR Partners and CVR Refining. And with that, operator, we're now ready for Q&A.

Thank you. At this time, we'll be conducting a question-and-answer session.

(Operator Instructions)

Our first question today is coming from Neil Mehta from Goldman Sachs. Please proceed with your question.

Hey, Jack, long time no speak.

Yes, it's been an hour or two, yes. (laughter)

One follow-up, as it relates specifically to CVR. What's the right amount of cash, in your mind, to have on the balance sheet, that sits up at the parent, in terms of what's the appropriate level of cash that you're managing to?

The cash is used for a couple of reasons. One, it supports the CapEx revolver at CVR Refining. Recently, we used that cash to backstop a note at CVR Partners. Susan can give you a little more detail on that when I'm done.

And then ultimately, it has been our goal, and remains our goal, to use CVR Energy as an acquisition vehicle. So keeping dry powder around is very helpful.

While Partners had a very good quarter this quarter, and Refining did not -- but again, we were in turnaround. Last year, we had a very good year. We built cash. We feel -- the Board felt comfortable in maintaining the dividend.

We still have a growth profile that we're looking at. We're just looking for opportunities, and we really believe, with this downturn in business, is when the opportunities will avail themselves to us.

So to that, Neil, as Jack mentioned Coffeyville Resources, as a wholly owned subsidiary of CVR Energy, did provide a guarantee for the term debt at CVR Partners. That comes due in April of 2016.

So that -- again, CVR Energy does maintain cash to help support the underlying MLPs, when needed. That $125 million is available there, should CVR Partners draw on that. And the term of that note would be the lesser of a two-year period, or such time as CVR Partners obtains its own financing.

Additionally, last August, when the mergers were announced, CVR Partners announced a merger with Rentech. CVR Energy also did provide a commitment of $150 million to support the cash that will be due at the time of closing for that merger, to the unit holders, as well as to pay off any revolver due at that time.

Yes, and to just be very clear, the intent here is not to loan money to partners. We are in the midst of the merger with Rentech, and we're just trying to find the -- not be pressured by bad markets into doing a recap of that company. And this is one of the benefits of having CVR Energy sitting up there, with cash to backstop what we're doing, and it takes the time pressure off of anything that's going on.

So what's the right amount of money? I think we're probably at the right level, that we have enough to do different things with our different businesses, and still maintain a dividend. Now, again, I will say that the dividend is a quarterly call by the Board of Directors. But last year, we had a very good year, and we built cash, and felt comfortable maintaining the dividend.

That's great, Jack. And that leads me into my second question, which is on the dividend. And obviously, this is a call from the Board of the Directors.

But how do you think about the $2 a share a year, $0.50 a quarter, and whether that's the appropriate level? Obviously, there was an adjustment last year.

And then the follow-up is on the special dividend. Again, recognizing it's a call from the Board of Directors, but just any thoughts there on the potential for a special in the future?

Okay. Special dividends have usually been on the tail of the secondary, and the markets are just in turmoil right now. So I'm not saying we wouldn't do a sale, but selling stock at any of the underlying subs, at these levels, just is not particularly attractive.

Maintaining the dividend, on the other hand, is -- we came off of a couple of exceptional years, particularly when the Brent TI differentials were very, very wide. We narrowed the dividend to $0.50 a quarter, or $2 a year, thinking, on a run rate basis, that was probably very sustainable.

We're going through a little rough patch right now, but it's a geopolitical rough patch. It's not something that I believe is completely fundamental, because when prices return to more normal levels, the world will balance out again.

And we have Coffeyville, which arguably is one of the best refineries of its size and complexity in the country. It has very high margin capture, very high complexity, and the ability to run different crudes.

Wynnewood, we've put a lot of money into. And again, it's a little bit smaller and a little less complex, but it's been a very profitable plant.

So we don't make our decisions based on quarter-to-quarter as much as you might think. We're thinking, longer term, that, at least in my view, a $2 dividend might very well be sustainable. But we pray to the margin gods every day.

(laughter) Understood. Thanks so much, Jack and Susan.

Thank you.

Thank you.

Thank you. We've reached the end of our question-and-answer session. I'd like to turn the floor back over to Management for any further or closing comments.

Thank you, Kevin. I'd like to thank everyone for listening to our conference call today. As a reminder, our conference call, along with CVR Refining, CVR Partners will be available for replay for the next 14 days.

Please visit our website, CVRenergy.com, or contact Investor Relations for additional information. Thank you.

Thank you. That does conclude today's program. You may disconnect your lines at this time, and have a wonderful day. We thank you for your participation today.