CVR Partners(US:UAN)2022-05-03 19:19Financial Data and Key Metrics Changes - In Q1 2022, the company reported net sales of $223 million, net income of $94 million, and EBITDA of $123 million, a significant increase from net sales of $61 million and an operating loss of $14 million in Q1 2021 [7][14] - Net income per common unit for Q1 2022 was $8.78, compared to a net loss of $2.37 per common unit in the prior year [15] - Direct operating expenses increased to $60 million in Q1 2022 from $37 million in the prior year, primarily due to higher electricity and natural gas costs [16] Business Line Data and Key Metrics Changes - The company produced approximately 187,000 gross tons of ammonia in Q1 2022, with 52,000 net tons available for sale, compared to 188,000 gross tons and 70,000 net tons in the prior year [9] - UAN production increased to 317,000 tons in Q1 2022 from 272,000 tons in the prior year [9] - Sales volumes for UAN and ammonia were higher, with UAN sold at an average price of $496 per ton and ammonia at $1,055 per ton, reflecting year-over-year price increases of 212% for UAN and 252% for ammonia [10][11] Market Data and Key Metrics Changes - Fertilizer inventory levels remain tight across the US and globally, exacerbated by the ongoing conflict in Ukraine, which has caused supply concerns in the fertilizer and grain markets [11] - The company expects strong demand for UAN and ammonia due to tight supply conditions and high grain prices, with corn prices at $8, soybeans at $16.50, and wheat at $10.50 [27] Company Strategy and Development Direction - The company plans to focus on maximizing cash flow generation by safely operating its plants, managing costs prudently, and targeting select investments in reliability projects and incremental production capacity increases [33] - The company is evaluating brownfield development projects that could increase capacity within its existing footprint [32] - The management is also progressing on monetizing the 45Q tax credits for the Coffeyville facility, expecting to complete a transaction in the coming months [31] Management's Comments on Operating Environment and Future Outlook - Management indicated that the ongoing conflict in Ukraine and natural gas shortages in Europe are likely to persist, affecting nitrogen fertilizer production and supply conditions [25][26] - The company does not expect supply conditions to improve materially until 2023, with a focus on maintaining strong pricing dynamics in the medium term [28][52] - Management expressed optimism about pricing dynamics for the second half of 2022 and into 2023, supported by strong demand and tight supply conditions [12][30] Other Important Information - The company completed a targeted debt pay down by retiring the remaining $65 million of the 2023 Senior Notes, reducing annual debt service costs by approximately $26 million [20][32] - The Board of Directors declared a distribution of $2.26 per common unit for Q1 2022, reflecting the company's strong cash generation [21] Q&A Session Summary Question: Expectations for volumes in Q2 - Management indicated it is too early to call volumes for Q2, but typically, if less ammonia is applied, demand for UAN and urea may increase [36] Question: Booking for Q3 - Management is in price discussions for Q3 but has not booked significant volumes yet [37] Question: Potential M&A opportunities - Management stated that all options are on the table for potential M&A, but they are focused on returns and will not chase assets that do not meet their return criteria [39] Question: 45Q tax credits cash flows - Management confirmed there will be both an upfront payment and ongoing payments from the 45Q credits, providing two cash streams [44] Question: Inventory levels and production issues - Management explained that production issues contributed to low inventory levels, but they have sufficient ammonia for spring planting [45][48] Question: Long-term supply and demand changes - Management discussed the ongoing energy and grain market issues, indicating it may take two to three years to reach a new equilibrium in supply and demand dynamics [52]