CVR Partners LP (UAN) 2015 Q4 法說會逐字稿

Greetings, and welcome to the CVR Partners fourth-quarter 2015 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.

It is now my pleasure to introduce your host Wes Harris, Vice President of Business Analysis for CVR Partners. Please go ahead, Wes.

Thanks Kevin, and good morning, everyone. We appreciate your participation in today's call. With me today are Chief Executive Officer, Mark Pytosh, and Chief Financial Officer, Susan Ball.

Before Mark and Susan discuss our recent results, I will provide 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 financial measures, including reconciliations to the most directly comparable GAAP financial measures, are included in our 2015 fourth-quarter and full-year results press release that was issued this morning.

Adjusted EBITDA is an example of such non-GAAP financial measures. Adjusted EBITDA represents net income adjusted for depreciation, amortization, net interest expense, and other financing costs, income tax expense, major scheduled turnaround expenses, non-cash share-based compensation, and expenses associated with the Rentech Nitrogen Partners merger.

With these formalities out of the way, I'll turn it over to Mark.

Thank you, Wes.

And good morning and thanks for joining us today for the 2015 fourth-quarter and full-year earnings call. We were very pleased with the performance of the Coffeyville plant in the fourth quarter as we had record quarterly production of ammonia and UAN.

The summarized financial highlights for the 2015 fourth-quarter included revenue of $66 million, adjusted EBITDA of $28.5 million, net income of $18.7 million. Today's press release we also announced the 2015 fourth-quarter distribution of $0.27 per common unit.

I would note that the distribution includes an adjustment of $3 million or $0.04 per unit to replenish working capital for future operating needs as a result of our 2015 third-quarter shortfall. The $0.27 per unit distribution will be paid on March 7 to unit holders of record on February 29.

Financial highlights for the 2015 full year included revenue of $289.2 million, adjusted EBITDA of $106.8 million, net income of $62 million and distributions totalling $1.11 per unit.

As discussed on our last earnings call, during our plant turnaround in July, we performed extensive repairs and maintenance across the entire Coffeyville facility, as well as modifications to allow us to run at higher rates production. These activities have proven successful based on the production levels we saw in the fourth quarter and year to date in the first quarter.

In the second half of 2016 we expect to further grow our ammonia production once the new hydrogen plant comes online at CVR refining for the adjacent refinery. At that point we will be taking enough hydrogen to result in additional ammonia production of 50 to 75 tons per day which we will sell into the fertilizer market and not upgrade to UAN.

Looking into more details of this year's fourth-quarter operating performance during the period, the gasifier and the ammonia unit both operated at 99% and the UAN plant ran at 98%. During the fourth quarter we produced 116,000 100 tons of ammonia adding in the ammonia equivalent tons of hydrogen we sent to the refinery during the period. It would equate to an ammonia production rate in excess of 1,300 tons per calendar day. Also during the fourth quarter we converted the substantial majority of our ammonia into 270,500 tons of UAN.

Turning to pricing. Since last summer, we have seen nitrogen fertilizer prices fall to their lowest levels in the past several years. However, in late June, early July, we took orders that locked in UAN pricing for the significant majority of our 2015 second half of the year production.

For the 2015 fourth quarter we received an average realized gate price for UAN of $221 per ton. This is compared to the $247 per ton in the fourth quarter of 2014 and the $227 per ton for the third quarter of 2015.

For ammonia we received an average realized gate price of $479 per ton in the fourth quarter of 2015 versus $547 per ton in the fourth quarter of 2014 and $478 per ton in the third quarter of 2015. Another important highlight of our fourth quarter was continue progress on our planning for the integration of the operation to the East Dubuque facility upon closing our merger with Rentech Nitrogen. We have found the team at East Dubuque very knowledgeable and I expect a smooth integration once the deal closes.

Last month the F4 went effective with the FCC, and earlier this week the unitholders of Rentech Nitrogen approved the completion of the merger conditioned on the sale or [sent out] of Rentech's Pasadena facility. We're not in a position to discuss the specific timing of this process but continue to target closing the merger transaction by the end of the first quarter.

The strategic rationale for the merger remains firmly in place and we look forward to expanding our footprint into new geographic markets, as well as broadening our customer relationships. We also expect to benefit from East Dubuque usage of natural gases and [feed] stock.

I will now turn the call over to Susan to discuss our detailed financial results. Following that I will provide some concluding remarks and then open it up for Q&A. Susan?

Thank you, Mark. Good morning, everyone.

As Mark mentioned, net sales for the 2015 fourth quarter were $66 million as compared to $74.4 million in 2014. The primary driver of the decrease was lower pricing for UAN and lower sales of ammonia, partially offsetting the overall decrease for the period was higher UAN sales volumes.

Cost of products sold for the 2015 fourth quarter was $9.5 million as compared to $15.4 million in 2014. The decrease was primarily associated with a reduction in railcar repair and inspection costs, third-party ammonia purchases, pet coke expenses and other product costs.

Direct operating expenses for the 2015 fourth quarter increased to $23.3 million from $21.7 million in the prior year period. The primary driver of the increase was a nonrecurring utilities reimbursement that occurred in the 2014 fourth quarter.

Selling general and administrative expenses for the 2015 fourth quarter were $5.6 million, as compared to $3.8 million for the fourth quarter of 2014. Contributing to the increase was approximately $800,000 of expenses related to the Rentech Nitrogen merger, as well as higher services agreement expenses and share-based compensation.

Finally we reported net income of $18.7 million or $0.26 per common unit in the 2015 fourth quarter. This is compared to net income of $24.8 million or $0.34 per common unit for the fourth quarter of 2014.

During the 2015 fourth quarter, we spent $4.6 million on capital projects, including $2.3 million for maintenance CapEx. For the 2015 full year, we spent $17 million on capital projects, including $9.6 million for maintenance CapEx.

We ended the 2015 fourth quarter with $50 million in cash and cash equivalents and $25 million available under our revolving credit facility. In addition, our long-term debt was $125 million.

Last week, Coffeyville Resources LLC, a wholly-owned subsidiary of CVR Energy, and a full member of the general partner of CVR Partners, agreed to guarantee the $125 million in outstanding term debt due in April 2016. As a result, the term debt is presented as long-term on our balance sheet as of December 31, 2015.

We are currently considering various capital structures and refinancing options in regard to our credit facility that matures in April and in contemplation of the Rentech nitrogen merger. We anticipate these options will be adequate to fund any necessary cash requirements.

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

Thanks, Susan.

In last week's WASDE report, the USDA included a planting estimate of 88 million corn acres in the US for 2015. And the year-end corn inventory stocks to use ratio of 13.6%.

This is compared to the USDA's estimate from a year ago of the stocks to use ratio of 13.4% leading into the 2015 planting seasons. We currently expect a similar number of corn acres of will be planted in 2016 as in 2015. This implies a strong need for nitrogen fertilizer for the spring application.

In addition, based on industry reports on our observation in our key selling market, it appears only 50% to 60% of the a typical amount of nitrogen was applied in the fall. This further indicates that a significant amount of nitrogen fertilizer will need to be purchased to meet this year's spring demand.

As I mentioned in my opening remarks, we have seen a global [softening] of nitrogen fertilizer prices. This is primarily due to well-documented economic slow downs in China and Brazil, weather issues in various parts of the world, a less than normal level fall application of nitrogen in the US, and large imports of urea into the domestic market.

As a result, farmers have been slower to purchase fertilizer from dealers and distributors in advance of spring application as compared to prior years. However, over the last couple of weeks, we saw prices stabilize and then rise with an acceleration of customer orders for wheat top dress and in preparation for spring corn application.

As we look to the second half of 2016, we will not have a solid view of pricing levels until we get closer to the field season which typically begins in June or July. At that time the industry will take into consideration how much corn was planted this spring, how well the crop has done since planting, projected yields for the fall harvest and global inventory considerations.

Despite these weaker market conditions, it is important to keep in mind that the fundamentals of the US nitrogen fertilizer industry remains strong. We expect the US to remain a net importer of nitrogen, even after taking into consideration the additional product supply coming online over the next year. As such, we expect domestic prices will continue to be influenced by the cost of tons imported into the US.

In this current environment, we will continue to focus on running our business efficiently and maximizing production at our Coffeyville plant, and once the merger closes at East Dubuque. In addition, some of our commodity related input costs have declined which should help offset the impact of expected lower product pricing as compared to 2015. We also believe that the current environment may continue to present opportunities for expanding our business to further industry consolidation.

As I said in the past, CVR Partners will be thoughtful and patient in pursuing opportunities. And we remain focused on acquisitions that are accretive to distributable cash flow.

With that, we are ready to answer any questions you have. Kevin?

Thank you.

(Operator Instructions)

Adam Samuelson, Goldman Sachs.

Yes. Thanks. Good morning, everyone.

I guess first I would like to hear your thoughts on where your customer levels -- customers are today in terms of their spring buying activity and how much you think they have actually held back from committing to tons? And as a corollary to that, understand how far along you are in pricing your first-quarter and first-half volumes given some pretty sharp falls in pricing in the last couple months?

Sure, Adam. Good morning. So I would say that in January, the purchase levels were pretty far behind previous years than they were with the falling prices. Customers were very cautious and so we did not see a great deal of buying in January. And quite frankly, we were not that interested as a seller.

But in the last two weeks, I would say that we have largely plot up to how much tonnage we would expect to have sold forward this time of year. We are getting pretty close -- closer to normal.

I think that there is going to be probably stronger demand into the spring application than we have seen in prior years because of the shortfall back in the ammonia run in the fall. The ammonia run was light because of the weather in the Midwest.

And along those lines, are you starting to see demand from winter [wheat] in the southern plains and people actually putting (inaudible) nitrogen back into the ground at this point with application work? Or are we still a few weeks away from that?

The wheat run has already started in Texas and I think a little bit in Oklahoma. But Texas for sure, and it has been a pretty good wheat run so far. That has already begun, and people are all ordering in to be prepared for the corn application.

I would describe the last two or three weeks as normal. Like we have gotten back to normal. People are getting positioned for spring. I would say we're pretty close to normal.

You had asked also about pricing. Pricing was very soft in January. There wasn't really a lot of tonnage attached to those prices. I'm not sure how I would describe the pricing environment then because tonnage wasn't moving. Customers were not buying tons.

UAN, very little changed hands in the month of January. And so we have gotten a little bit detached from the urea price. I would say, again, it has kind of gotten back to normal, here, in the last couple weeks. It's softer than it was back in the third and the fourth quarter, but it's better than where the market indicated in January, if that's of any value.

It is. I guess I'm trying to reconcile -- because these listed UAN prices that I would see are still around 170 NOLA's. And you've seen a rally in the urea price in the last two weeks or so -- and last couple days, frankly, without any observable move yet, at least in the trade press on the UAN price, and I'd just be interested to get your thoughts there.

I would say it has sort of been, again, a developing environment the last couple weeks. It has firmed up. I don't really want to comment on kind of where things are. I would say that the NOLA price has tended to be pretty conservative, at least in the last two or three months, in terms of where things are.

Great. That's very helpful. I appreciate the color.

Thank you. We have 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.

I want to thank everyone for participating today, and we look forward to talking to you shortly on our first-quarter results. Thank you very much.

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.