CVR Partners(UAN) - 2019 Q1 - Quarterly Report

PART I. Financial Information Item 1. Financial Statements The unaudited condensed consolidated financial statements detail the company's financial position, operations, and cash flows for Q1 2019 Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheet Highlights (in thousands) | Metric | March 31, 2019 | December 31, 2018 | Change | Change (%) | | :--------------------------------- | :------------- | :---------------- | :----- | :--------- | | Cash and cash equivalents | $96,606 | $61,776 | $34,830 | 56.38% | | Accounts receivable, net | $16,922 | $61,662 | $(44,740) | -72.56% | | Inventories | $72,479 | $63,554 | $8,925 | 14.04% | | Total current assets | $191,680 | $193,981 | $(2,301) | -1.19% | | Total assets | $1,246,990 | $1,254,388 | $(7,398) | -0.59% | | Total current liabilities | $124,338 | $122,635 | $1,703 | 1.39% | | Long-term debt, net | $629,812 | $628,989 | $823 | 0.13% | | Total liabilities and partners' capital | $1,246,990 | $1,254,388 | $(7,398) | -0.59% | Condensed Consolidated Statements of Operations Condensed Consolidated Statements of Operations Highlights (in thousands, except per common unit) | Metric | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | Change | Change (%) | | :--------------------------------- | :-------------------------------- | :-------------------------------- | :----- | :--------- | | Net sales | $91,873 | $79,859 | $12,014 | 15.04% | | Cost of sales | $75,134 | $77,564 | $(2,430) | -3.13% | | Operating income (loss) | $9,439 | $(3,421) | $12,860 | 376.07% | | Net loss | $(6,079) | $(19,051) | $12,972 | -68.09% | | Net loss per common unit – basic and diluted | $(0.05) | $(0.17) | $0.12 | -70.59% | Condensed Consolidated Statements of Cash Flows Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Metric | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | Change | Change (%) | | :--------------------------------- | :-------------------------------- | :-------------------------------- | :----- | :--------- | | Net cash provided by operating activities | $51,924 | $14,486 | $37,438 | 258.45% | | Net cash used in investing activities | $(3,500) | $(2,548) | $(952) | 37.36% | | Net cash used in financing activities | $(13,594) | $0 | $(13,594) | -100.00% | | Net increase in cash and cash equivalents | $34,830 | $11,938 | $22,892 | 191.76% | | Cash and cash equivalents, end of period | $96,606 | $61,111 | $35,495 | 58.08% | Notes to the Condensed Consolidated Financial Statements (1) Organization and Nature of Business - CVR Partners, LP is a Delaware limited partnership formed by CVR Energy, Inc to own and operate its nitrogen fertilizer business, producing ammonia and UAN at facilities in Coffeyville, Kansas, and East Dubuque, Illinois[14] - As of March 31, 2019, public security holders held approximately 66% of the Partnership's outstanding limited partner interests, while Coffeyville Resources, LLC (a CVR Energy subsidiary) held approximately 34% and 100% of the general partner interest[15] (2) Basis of Presentation - The condensed consolidated financial statements are prepared in accordance with GAAP and SEC rules, reflecting all necessary adjustments for fair presentation, and should be read with the 2018 Form 10-K[17][18] - Management's preparation of financial statements involves estimates and assumptions, and actual results may differ[19] (3) Recent Accounting Pronouncements - The Partnership adopted ASU No 2016-02, 'Leases' (Topic 842), on January 1, 2019, requiring recognition of ROU assets and lease liabilities on the balance sheet for operating leases with terms greater than one year[20][22] Effect of Topic 842 Adoption on Condensed Consolidated Balance Sheet as of January 1, 2019 (in thousands) | Financial Statement Line Item | December 31, 2018 (As Stated) | Effect of Adoption of Topic 842 - Leases | January 1, 2019 (As Adjusted) | | :-------------------------------- | :---------------------------- | :--------------------------------------- | :---------------------------- | | Prepaid expenses and other current assets | $6,989 | $(2,650) | $4,339 | | Other long-term assets | $4,198 | $16,923 | $21,121 | | Accrued expenses and other current liabilities | $24,066 | $3,462 | $27,528 | | Other long-term liabilities | $2,938 | $10,811 | $13,749 | - The Partnership is evaluating ASU 2018-13, Fair Value Measurement (Topic 820), effective January 1, 2020, but does not expect a material impact on disclosures[25] (4) Inventories Inventories (in thousands) | Category | March 31, 2019 | December 31, 2018 | | :--------------- | :------------- | :---------------- | | Finished goods | $34,315 | $25,136 | | Raw materials | $317 | $439 | | Parts, supplies and other | $37,847 | $37,979 | | Total inventories | $72,479 | $63,554 | (5) Property, Plant and Equipment Property, Plant and Equipment, Net (in thousands) | Category | March 31, 2019 | December 31, 2018 | | :--------------------------------- | :------------- | :---------------- | | Machinery and equipment | $1,369,904 | $1,362,965 | | Automotive equipment | $16,773 | $16,860 | | Buildings and improvements | $16,707 | $17,116 | | Land and improvements | $13,751 | $13,250 | | Construction in progress | $9,812 | $15,802 | | Other | $2,074 | $1,990 | | Less: Accumulated depreciation | $431,918 | $412,743 | | Total property, plant and equipment, net | $997,103 | $1,015,240 | (6) Leases - The Partnership leases railcars and facilities, recognizing ROU assets and lease liabilities for leases over one year; short-term lease expense was $0.7 million for Q1 2019[28][33] ROU Assets and Lease Liabilities (in thousands) as of March 31, 2019 | Category | ROU Asset, Net | Lease Liability | | :---------------- | :------------- | :-------------- | | Operating Leases: | | | | Railcars | $13,328 | $13,409 | | Real estate and other | $2,496 | $15 | | Financing Leases: | | | | Real estate and other | $111 | $155 | Lease Terms and Discount Rates | Metric | March 31, 2019 | January 1, 2019 (initial recognition) | | :-------------------------- | :------------- | :------------------------------------ | | Weighted-average remaining lease term (years): | | | | Operating Leases | 4.1 | 4.3 | | Finance Leases | 0.4 | 0.5 | | Weighted-average discount rate: | | | | Operating Leases | 5.1% | 5.1% | | Finance Leases | 11.0% | 8.0% | (7) Accrued Expenses and Other Current Liabilities Accrued Expenses and Other Current Liabilities (in thousands) | Category | March 31, 2019 | December 31, 2018 | | :--------------------------------- | :------------- | :---------------- | | Share-based compensation | $1,172 | $2,667 | | Personnel accruals | $4,136 | $7,993 | | Accrued interest | $17,643 | $2,516 | | Other accrued expenses and liabilities | $13,472 | $10,890 | | Total accrued expenses and other current liabilities | $36,423 | $24,066 | - Accrued expenses include $3.8 million owed to CVR Energy and affiliates at March 31, 2019, up from $3.5 million at December 31, 2018[36] (8) Debt Long-term Debt (in thousands) | Debt Instrument | March 31, 2019 | December 31, 2018 | | :--------------------------------- | :------------- | :---------------- | | 9.25% senior secured notes, due 2023 | $645,000 | $645,000 | | 6.50% notes, due 2021 | $2,240 | $2,240 | | Unamortized discount and debt issuance costs | $(17,428) | $(18,251) | | Total long-term debt, net of current portion | $629,812 | $628,989 | - The estimated fair value of total long-term debt was approximately $675.6 million at March 31, 2019, up from $670.8 million at December 31, 2018[37] - The Partnership has a $50 million Asset Based Credit Facility with $50 million available capacity as of March 31, 2019, maturing September 30, 2021, and was in compliance with all debt covenants[38][39] (9) Partners' Capital Partners' Capital Activity (in thousands) | Metric | Common Units Amount | General Partner Interest | Total Partners' Capital | | :--------------------------------- | :------------------ | :----------------------- | :---------------------- | | Balance at December 31, 2018 | $499,825 | $1 | $499,826 | | Cash distributions to common unitholders - Affiliates | $(4,670) | — | $(4,670) | | Cash distributions to common unitholders - Non-affiliates | $(8,924) | — | $(8,924) | | Net loss | $(6,079) | — | $(6,079) | | Balance at March 31, 2019 | $480,152 | $1 | $480,153 | - A cash distribution of $0.12 per common unit ($13.6 million total) for Q4 2018 was paid on March 11, 2019[42] - A cash distribution of $0.07 per common unit ($8 million total) for Q1 2019 was declared on April 24, 2019, payable May 13, 2019[43] (10) Revenue Revenue Disaggregated by Product (in thousands) | Product | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | | :--------------------------------- | :-------------------------------- | :-------------------------------- | | Ammonia | $13,352 | $11,597 | | UAN | $64,064 | $52,763 | | Urea products | $4,671 | $4,911 | | Fertilizer sales, exclusive of freight and other | $82,087 | $69,271 | | Freight revenue | $8,018 | $8,739 | | Other revenue | $1,768 | $1,849 | | Total net sales | $91,873 | $79,859 | - Revenue is recognized when the customer obtains control of the product, typically upon delivery and acceptance; freight revenue is a pass-through cost reimbursed by customers[44] - As of March 31, 2019, the Partnership had $9.6 million in remaining performance obligations for contracts over one year, with 39% expected to be recognized by end of 2019 and an additional 30% by 2020[49] (11) Share-Based Compensation Share-Based Compensation Expense (in thousands) | Category | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | | :--------------- | :-------------------------------- | :-------------------------------- | | Phantom Units | $790 | $406 | | Other Awards | $318 | $(126) | | Total Share-Based Compensation Expense | $1,108 | $280 | (12) Commitments and Contingencies - No material changes in commitments and contingencies during Q1 2019, with liabilities accrued for probable and estimable losses from lawsuits, administrative proceedings, and governmental investigations[54] - In April 2019, CRNF and Montgomery County, Kansas, settled a property tax dispute, leading to an expected recovery of $7.9 million for CRNF through favorable property tax assessments from 2019 to 2028[55] (13) Supplemental Cash Flow Information Supplemental Cash Flow Information (in thousands) | Metric | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | | :--------------------------------- | :-------------------------------- | :-------------------------------- | | Cash paid for interest | $53 | $138 | | Construction in process additions included in accounts payable | $1,252 | $2,203 | | Change in accounts payable related to construction in process additions | $(668) | $1,314 | (14) Related Party Transactions Related Party Sales and Expenses (in thousands) | Category | Related Party | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | | :--------------------------------- | :------------ | :-------------------------------- | :-------------------------------- | | Net Sales | CRRM | $2 | $35 | | Cost of materials and other: | | | | | Coke Supply Agreement | CRRM | $1,321 | $359 | | Hydrogen Purchase and Sale Agreement | CRRM | $1,541 | $1,310 | | Direct operating expenses: | | | | | Services Agreement | CVR Energy | $940 | $616 | | Limited Partnership Agreement | CVR GP | $174 | $663 | | Selling, general and administrative expenses: | | | | | Services Agreement | CVR Energy | $4,038 | $2,863 | | Limited Partnership Agreement | CVR GP | $915 | $1,330 | Amounts Due to Related Parties (in thousands) | Category | Related Party | March 31, 2019 | December 31, 2018 | | :--------------------------------- | :------------ | :------------- | :---------------- | | Accounts payable: | | | | | Feedstock and Shared Services Agreement | CRRM | $1,102 | $1,280 | | Hydrogen Purchase and Sale Agreement and other | CRRM | $1,335 | $324 | | Limited Partnership Agreement | CVR GP | $1,260 | $1,372 | | Accrued expenses and other current liabilities: | | | | | Limited Partnership Agreement | CVR GP | $940 | $1,179 | | Services Agreement | CVR Energy | $2,818 | $2,352 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section analyzes the company's financial condition, operational results, and market factors for Q1 2019 Partnership Overview - CVR Partners, LP, formed in 2011 by CVR Energy, Inc, produces and distributes nitrogen fertilizer products, primarily ammonia and UAN, from two manufacturing facilities in Coffeyville, Kansas, and East Dubuque, Illinois[62] Strategy and Goals - The Partnership's mission is to be a top-tier North American nitrogen-based fertilizer company, driven by core values including Safety, Environment, Integrity, Corporate Citizenship, and Continuous Improvement[63] - Strategic objectives include continuous improvement in environmental, health, and safety; achieving industry-leading utilization rates; maximizing market capture through improved pricing and reduced costs; and maintaining financial discipline with low operating costs and disciplined capital deployment[64][65][66] - Achievements in Q1 2019 include maintaining high asset reliability, generating positive cash available for distribution despite weather delays, and declaring a cash distribution of 7 cents per unit[67] Industry Factors and Market Conditions - Nitrogen fertilizer earnings and cash flows are primarily influenced by product prices, utilization rates, and operating costs, which are affected by global supply/demand, world grain production, population changes, transportation costs, weather, imports, and government policies[68][69][70] - Despite short-term volatility, long-term fundamentals for the U.S. nitrogen fertilizer industry remain strong, supported by increasing global population, decreasing arable land, evolving diets, sustained corn use for ethanol, and the Partnership's position at the lower end of the global cost curve[71][72] Non-GAAP Measures - Management uses non-GAAP measures like EBITDA, Adjusted EBITDA, and Available Cash for Distribution to evaluate performance and profitability, supplementing GAAP financial information[73] - EBITDA is Net income (loss) before interest expense, income tax expense (benefit), and depreciation and amortization; Adjusted EBITDA further excludes turnaround expense[74] - Available Cash for Distribution is Adjusted EBITDA reduced by cash reserves for debt service, maintenance capital, turnaround expenses, and other operating/capital needs, with potential increases from released reserves or excess cash[75] Results of Operations Key Operating Data - Ammonia utilization rates are presented on a two-year rolling average to account for planned and unplanned outages, providing a long-term view of plant performance and a comparative baseline against industry peers[77][78][79] Production Volumes (in thousands of tons) | Product | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | | :------------------------ | :-------------------------------- | :-------------------------------- | | Ammonia (gross produced) | 179 | 199 | | Ammonia (net available for sale) | 41 | 59 | | UAN | 335 | 339 | Feedstock Usage and Cost | Feedstock | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | | :--------------------------------- | :-------------------------------- | :-------------------------------- | | Petroleum coke used (thousand tons) | 132 | 118 | | Petroleum coke (dollars per ton) | $38 | $18 | | Natural gas used (thousands of MMBtu) | 1,440 | 1,850 | | Natural gas (dollars per MMBtu) | $3.83 | $3.24 | Financial Highlights (2019 1st Quarter Versus 2018 1st Quarter) Financial Highlights (in thousands, except per common unit) | Metric | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | | :--------------------------------- | :-------------------------------- | :-------------------------------- | | Net sales | $91,873 | $79,859 | | Operating income (loss) | $9,439 | $(3,421) | | Net loss | $(6,079) | $(19,051) | | Net loss per common unit | $(0.05) | $(0.17) | | EBITDA | $26,043 | $13,049 | | Adjusted EBITDA | $26,043 | $13,049 | | Available Cash for distribution | $7,849 | $(4,139) | Net Sales - Net sales increased by $12.0 million to $91.9 million in Q1 2019, primarily driven by a $22 million increase from favorable pricing, partially offset by a $10.0 million decrease due to volume reductions[86] Impact of Sales Volumes and Pricing on Net Sales (in thousands) | Product | Price Variance | Volume Variance | | :-------- | :------------- | :-------------- | | UAN | $20,760 | $(9,975) | | Ammonia | $1,600 | $106 | - Increased UAN and ammonia sales pricing was attributed to a shift in demand from Q4 2018 to Q1 2019 due to heavy rain in fall 2018, leading to increased customer demand for ammonia in Q1 2019[87] Cost of Materials and Other (exclusive of depreciation and amortization) - Cost of materials and other increased by $1.2 million to $23.7 million in Q1 2019, primarily due to a $2.2 million increase in pet coke costs at the Coffeyville plant, partially offset by a $1.0 million decrease in distribution costs[88] Direct Operating Expenses (exclusive of depreciation and amortization) - Direct operating expenses decreased by $3.9 million to $34.8 million in Q1 2019, mainly due to a build-up of UAN and ammonia inventories compared to Q1 2018[89] Non-GAAP Reconciliations Reconciliation of Net Loss to EBITDA and Adjusted EBITDA (in thousands) | Metric | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | | :--------------------------------- | :-------------------------------- | :-------------------------------- | | Net loss | $(6,079) | $(19,051) | | Interest expense, net | $15,650 | $15,711 | | Income tax benefit | $(112) | $(37) | | Depreciation and amortization | $16,584 | $16,426 | | EBITDA and Adjusted EBITDA | $26,043 | $13,049 | Reconciliation of Adjusted EBITDA to Available Cash for Distribution (in thousands) | Metric | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | | :--------------------------------- | :-------------------------------- | :-------------------------------- | | Adjusted EBITDA | $26,043 | $13,049 | | Debt Service | $(14,827) | $(14,920) | | Maintenance capital expenditures | $(3,367) | $(2,268) | | Available Cash for distribution | $7,849 | $(4,139) | Liquidity and Capital Resources - The Partnership's primary liquidity sources are cash from operations and customer advances, used for working capital, capital expenditures, debt service, and unitholder distributions[93] - Management believes current cash, cash equivalents, and the ABL Credit Facility will be sufficient to meet cash requirements for at least the next 12 months, with no material changes in liquidity for Q1 2019[94][96] - As of March 31, 2019, total liquidity was $121.6 million, comprising $96.6 million in cash and cash equivalents (including $63.4 million from customer advances) and $50 million available under the ABL Credit Facility (less $25.0 million in cash included in the borrowing base)[97] Capital Spending (in thousands) | Category | Three Months Ended March 31, 2019 | Estimated full year 2019 | | :------------------ | :-------------------------------- | :----------------------- | | Maintenance capital | $3,500 | $18,000 - $20,000 | | Growth capital | — | $2,000 - $5,000 | | Total capital expenditures | $3,500 | $20,000 - $25,000 | Item 3. Quantitative and Qualitative Disclosures About Market Risk There have been no material changes to the Partnership's market risks as of March 31, 2019 - No material changes to market risks were reported as of March 31, 2019[108] Item 4. Controls and Procedures Management confirms the effectiveness of disclosure controls and procedures with no material changes in internal controls - As of March 31, 2019, the Partnership's disclosure controls and procedures were evaluated and deemed effective in providing reasonable assurance that required information is recorded, processed, summarized, and reported timely[109][111] - There were no material changes in the Partnership's internal control over financial reporting during the fiscal quarter ended March 31, 2019[112] PART II. Other Information Item 1. Legal Proceedings This section refers to Note 12 of the financial statements for a description of legal, administrative, and environmental proceedings - For details on legal proceedings, refer to Note 12 ('Commitments and Contingencies') in Part I, Item 1 of this report[114] Item 1A. Risk Factors There have been no material changes to the risk factors previously disclosed in the 2018 Form 10-K - No material changes from the risk factors disclosed in the 'Risk Factors' section of the 2018 Form 10-K[115] Item 5. Other Information This section indicates that there is no other information to report - No other information is reported in this section[116] Item 6. Exhibits This section lists the exhibits filed with the report, including the 2019 Performance-Based Bonus Plan and various certifications - Exhibits include the CVR Partners, LP 2019 Performance-Based Bonus Plan, Rule 13a-14(a)/15d-14(a) Certifications from key executives, Section 1350 Certification, and XBRL formatted financial information[121]