CVR Partners LP (UAN) 2014 Q2 法說會逐字稿

Greetings, and welcome to the CVR Partners second quarter 2014 conference call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. (Operator Instructions)

As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Mr. Wes Harris, Vice President of Investor Relations for CVR Partners. Thank you. Mr. Harris, you may begin.

Thanks, Kevin. Good morning, everyone. We appreciate you joining us for today's call. With me today are our Chief Executive Officer, Mark Pytosh, Chief Financial Officer, Susan Ball.

As in the past, before we discuss our 2014 second-quarter results, we will make the following safe harbor statements. In accordance with federal securities laws, statements in this earnings call relating to matters that are not historical facts are considered forward-looking statements.

These forward-looking statements are based on management's beliefs and assumptions using currently available information and expectations as of today. These forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, including those noted in our filings with the SEC.

In addition, today's presentation includes various non-GAAP financial measures. The disclosures related to such non-GAAP measures, including reconciliations to the most directly comparable GAAP financial measures are included in our 2014 second-quarter results press release that went out this morning.

Adjusted EBITDA is an example of such non-GAAP measures. Adjusted EBITDA represents net income adjusted for depreciation, amortization, net interest expense, income tax expense, and non-cash share-based compensation.

So with that, I'll turn it over to Mark.

Thank you, Wes, and good morning, everyone. Thank you for joining us today for CVR Partners' second-quarter earnings call, which is my first as CEO.

By way of background, I've been a Director on the Board of CVR's general partner since the IPO in 2011. This has allowed me to gain insight into the industry and company operations. The knowledge I've gained over the past three years has been invaluable during the transition into the CEO role of the partnership.

Now turning attention to CVR Partners' financial results for the second quarter of 2014. The highlights were, we had UAN production of 223,400 tons. Our revenue was $77.2 million, adjusted EBITDA was $25.7 million, and net income was $17.1 million.

In today's press release, we also announced the 2014 second-quarter distribution of $0.33 per common unit. The distribution will be paid on August 18th, to unit holders of record on August 11th.

Looking specifically at our operating performance during the 2014 second quarter, the gasifier ran at 94%, the ammonia unit operated at 88%, and the UAN plant ran at 86%.

On our first-quarter earnings call, we discussed the need to bring the plant down later in May. During this period, repair and maintenance work was performed at the fertilizer facility and Linde's air separation unit. In addition, the waste heat boiler was replaced in the fertilizer facility's ammonia plant to address previously disclosed issues that resulted in downtime and lower production levels during the 2014 first quarter and early in the second quarter.

During the planned downtime, we also installed tie-ins for an upgraded pressure swing absorption unit designed to increase hydrogen recovery. With the upgrade now complete, the additional hydrogen is being converted into incremental ammonia. This is projected to increase ammonia production by approximately 7,000 to 9,000 tons annually.

Given this backdrop for the quarter, we produced 92,200 tons of ammonia, we purchased 2,700 tons of ammonia as feedstock. We sold [then] that 1,400 tons ammonia equivalent of hydrogen to CVR Refining's adjacent refinery, and we converted the substantial majority of our ammonia into 223,400 tons of UAN. This left a balance of 3,200 net tons of ammonia available for sale.

In the second quarter of 2014, we received an average realized gate price of $283 per ton of UAN versus $331 per ton of UAN in the second quarter of 2013. For ammonia, we received $521 per ton in the second quarter of 2014, versus $688 per ton in the second quarter of 2013.

Price comparisons between this year's second quarter and the second quarter of 2013, were expected to be difficult given the widespread devastating drought experienced during 2012, and the resulting low level of year-end corn inventory heading into the 2013 planting season.

This drove substantial demand for nitrogen fertilizer last spring, as the USDA was estimating more the 97 million acres of corn would be planted, the largest amount in 75 years.

Another pricing data point is the comparison of the 2014 first quarter, when market pricing reflected weaker conditions for UAN and ammonia. Our average price realized gate price for UAN was $283 per ton, and that was up approximately 12% from $253 a ton we received in the first quarter.

With that, I will turn the call over to Susan Ball, our Chief Financial Officer, to discuss our detailed financial results. After that, I'll provide some closing comments before opening up the call for Q&A. Susan.

Thank you, Mark, and good morning, everyone. As Mark mentioned, net sales for the 2014 second quarter were $77.2 million compared to $88.8 million in 2013. The key factors contributing to the decrease were lower sales prices for UAN and, to a much lesser extent, ammonia. Also contributing to the decrease was lower ammonia sales volumes and a decrease in hydrogen sales to CVR Refining's adjacent refinery.

Partially offsetting the overall decrease was higher UAN sales volumes in 2014.

Cost of product sold for the 2014 second quarter were $19.4 million, as compared to $15.6 million in 2013. The substantial majority of the increase was associated with higher cost for railcar repairs and inspections.

Direct operating expenses were $26.9 million for the 2014 second quarter, as compared to $24.4 million last year. The increase was primarily attributable to higher utilities and refractory brick amortization.

The increased utility costs were largely due to higher on-stream rates for the gas supplier during this year's second quarter.

Selling, general, and administrative expenses for the 2014 second quarter were $5.3 million, as compared to $5.5 million in the second quarter of 2013. Contributing to the decrease was lower general partner reimbursements and cost for outside services, partially offset by higher service agreement expenses.

Depreciation and amortization expense increased to $6.8 million in the second quarter of 2014, from $6.2 million in the same period for 2013. The increase was substantially associated with assets placed into service since the end of the 2013 first quarter.

Finally, net income for the 2014 second quarter was $17.1 million, or $0.23 per common unit. This is compared to net income of $35.4 million, or $0.48 per common unit for last year's second quarter.

During the 2014 second quarter, we spent $4.1 million on capital projects, including $1 million for maintenance CapEx. For the 2014 full year, we expect maintenance CapEx will range between $9 million and $11 million.

Looking at the balance sheet, we continue to enjoy substantial liquidity. As of June 30, this included $78.5 million in cash and cash equivalents, and $25 million available under our revolving credit facility. In addition, our long-term debt remained low at $125 million.

With that, I'll turn the call back to Mark.

Thanks, Susan. As I discussed earlier, while the nitrogen fertilizer market was weaker than last year's first half, it appears to have reached a near-term lower pricing level reflective of better crop conditions, likely larger year-end corn investigation levels, and lower corn prices.

Offsetting these negative market conditions was much-needed rain received in the Corn Belt and southern plains during May and June. This resulted in additional demand for nitrogen fertilizer for this year's planting season and helped further empty dealer and distributor storage.

In addition, there were production-related issues at certain Kansas and Oklahoma plants that impacted UAN supply levels in the region. As such, we were in a good position as we moved into fill season, which this year occurred in the second half of June.

During the fill season, we have historically taken orders for the significant majority of our second-half production. Given that most of these tons go into storage for use the next spring, we typically see prices fall in the fill season from the first-half pricing.

We typically only publicly disclose sales prices on a retroactive basis for competitive reasons. However, I can say that published industry sources on Wall Street and investment research, quoted fill season NOLA pricing at $235 to $240 per ton. As a reminder, given our plant's strategic location, we typically see an approximate $15 price premium over NOLA.

In terms of our financial outlook for the second half of the year, given we now have visibility of our product pricing and an expense structure that is substantially fixed, we are focused on keeping the plant operating at high production rates.

Looking specifically at the 2014 third quarter, we currently expect UAN production levels of 240,000 to 260,000 tons for the three-month period. The 250,000 ton midpoint of this range is consistent with our previously disclosed view of approximately one million tons of annual UAN production, excluding any significant unplanned downtime or major scheduled turnaround. We continue to anticipate our next major turnaround at the plant will occur in 2015.

Turning attention to our growth opportunities, in my earlier comments, I mentioned the expanded PSA unit we installed and the resulting increase in our ammonia production. In addition, on our last earnings call, we discussed that our new UAN terminal in Dartmouth, Kansas began to be utilized in the first quarter.

The Dartmouth facility includes a 10,000 ton storage tank with automated lead-out facilities and similar to the facility we built last year in Phillipsburg, Kansas. These two facilities, combined with our leased offsite locations provide us the capability to store approximately 100,000 tons of UAN at distribution facilities across the Midwest.

As such, we can store a sizeable portion of our product during periods of lower pricing fertilizer application, thereby allowing us to deliver additional product during peak planting periods. This has proved beneficial over the past several weeks, as the demand for prompt sales of UAN has remained strong, given the recent rain in Texas and continued product application in other markets we serve.

Today, I'm pleased to announce that our plants expanded liquid urea storage and load-out facilities are now operational. We sell liquid urea to customers that typically convert the product into diesel exhaust fluid. Therefore, we price the liquid urea on a basis consistent with what it would have been if the nitrogen content was sold as DEF.

Similar to how UAN is priced at a premium to ammonia, our liquid urea sells on this basis at a premium to UAN. As such, we plan to maximize our sales of liquid urea to the extent the current plant configuration will operationally allow.

Finally, as CEO of CVR Partners, I plan to focus much of my time on working with the team to maximize production at our Coffeyville plant, identify the right opportunities to expand the partnership through organic plant and distribution growth, and potentially external growth opportunities.

Our focus on growth must meet two critical criteria. The opportunities must fit within our area of strategic focus and the opportunities must be accretive to our distributable cash flow.

So with that, we're ready to take any Q&A that you may have today. Kevin, if you could open the line.

Thank you. At this time we'll be conducting a question-and-answer session. (Operator Instructions) One moment, please, while we poll for questions. (Operator Instructions) If there are now questions today, I'll turn the floor back over to management for any further or closing [comments].

Well, this is Mark again. And I just wanted to thank everyone for joining the call today. And if you have any follow-up questions, either Wes or the team will be available. And we look forward to talking to you next quarter. Thank you.

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