Feb 22, 2018
Executives
Jay Finks - Vice President of Finance Dave Lamp - Executive Chairman Mark Pytosh - Chief Executive Officer Susan Ball - Chief Financial Officer
Analysts
Adam Samuelson - Goldman Sachs Richard Kus - Jefferies Tim Raeke - Alcentra
Operator
Greetings. And welcome to the CVR Partners LP Fourth Quarter 2017 Earnings Conference Call.
At this time, all participants are in a listen-only mode. A brief 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, Mr.
Jay Finks, Vice President of Finance. Thank you, you may begin.
Jay Finks
Thank you, Michelle. Good morning everyone.
We appreciate your participation in today’s call. With me today are Dave Lamp, our Executive Chairman; Mark Pytosh, our Chief Executive Officer and Susan Ball, our Chief Financial Officer.
Prior to discussing our recent 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 words outlook, believes, anticipates, plans, expects, and similar expressions are intended to identify forward-looking statements. You’re 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 2017 fourth quarter earnings release that we filed with the SEC this morning, prior to open of the market.
With that said, I’ll turn the call over to Mark Pytosh, our Chief Executive Officer. Mark?
Mark Pytosh
Thank you, Jay. Good morning everyone, and thanks for joining us for today’s call.
Our summarized financial highlights for the 2017 full year included net sales of $331 million, adjusted EBITDA of $66 million and a net loss of $73 million. Looking more specifically at the 2017 fourth quarter, we reported net sales of $78 million, adjusted EBITDA of $7.7 million and a net loss of $27 million.
Fourth quarter results were impacted by approximately 12 days of unscheduled downtime at East Dubuque facility. We also had a few maintenance days on the UAN plant at Coffeyville.
The total negative impact on fourth quarter EBITDA was approximately $5 million. The on-stream rates were at Coffeyville, the gasfire ran at 100%, the ammonia unit operated at approximately 100% and the UAN plant ran at 89%.
While East Dubuque the ammonia unit ran at 86% and the UAN units operated at 87%. For the fourth quarter, our combined operations produced approximately 200,000 tons of ammonia.
We converted the majority of the produced ammonia into approximately 306,000 tons of UAN. This led to approximately 64,000 tons of ammonia available for sale or upgrade to other niche nitrogen products.
We sold the combined total of approximately 303,000 tons of UAN during the 2017 fourth quarter and the product price to gate $132 per ton versus $147 per ton in the 2016 fourth quarter. For ammonia, we sold a combined total of approximately 84,000 tons during the 2017 fourth quarter at a product price to gate of $264 per ton that's compared to $352 per ton in the 2016 fourth quarter.
The fall ammonia application was very strong in 2017 with our volumes up 51% from 2016 where the application was difficult due to poor weather conditions in the upper Midwest. As a result of the strong fall application, inventory levels were lower and we enter the spring application with the market in good balance.
Due to the challenging nitrogen fertilizer pricing environment and downtown at East Dubuque facility, we are not in a position to pay a distribution for the 2017 fourth quarter. In my closing remarks, I will discuss the industry conditions and outlook for the remainder of the year.
But before that, Susan will discuss our detailed financial results. Susan?
Susan Ball
Thank you, Mark, and good morning everyone. Looking specifically at the 2017 fourth quarter.
Net sales for the period were $78 million as compared to $85 million in the same prior year period. The decrease was primarily attributable to lower ammonia and UAN sales prices and lower UAN sales volumes, partially offset by higher ammonia sales volumes.
Cost of materials and other of $22 million remained flat for the 2017 fourth quarter as compared to the $22 million in the prior year period. Direct operating expenses, excluding depreciation and amortization for the 2017 fourth quarter, increased to $42 million from $38 million in the prior year period.
This increase was primarily due to increased inventory cost being expensed associated with the overall higher ammonia tons sold in 2017 fourth quarter. Selling, general and administrative expenses for the 2017 fourth quarter were $6.8 million, which was a slight decrease as compared to the $7.3 million for the fourth quarter of 2016.
Finally, we reported a net loss of $27.4 million or $0.24 per common unit in the 2017 fourth quarter. This is compared to a net loss of $14.5 million or $0.13 per common unit for the fourth quarter 2016.
Now turning to our capital spending. During the 2017 fourth quarter, we spent $3.1 million on capital projects, including $3 million for maintenance capital spend and remainder for growth for the capital projects.
This brings our full year capital spend to $14.5 million. In 2018, we expect our combined spending to be approximately $20 million, of which $18 million is for total expected maintenance CapEx at our two facilities.
A full plant turnaround at our Coffeyville facility is planned to the second quarter of 2018, which is expected to last 15 days and cost approximately $7 million. Looking at the balance sheet as of December 31, we had approximately $49 million of cash and cash equivalents and approximately $647 million of total debt.
Finally, on our Web site, you will find a brief presentation on certain selective financial information. With that, I’ll turn the call back over to Mark.
Mark Pytosh
Thanks, Susan. On our last earnings call at the end of October, we discussed the significant recovery we’ve seen in the urea prices for the summer of 2017.
Urea pricing has remained steady at the higher levels since November and begun to increase recently as customers prepare for spring. We attended the TFI Conference last week and participants were cautiously optimistic about spring conditions because; one, customer inventory levels were on the lower end of normal for this time of year; urea imports are also significantly from last year as Indiana and Latin America experienced solid demand and the U.S.
prices remained below global prices; China is expected to have minimal urea exports in the spring this season. There are production problems at various U.S.
facilities that have constrained the availability of domestic product in certain geographies. And most customers expected approximately 90 million acres of corn to be planted in 2018.
It appears to us that the global trade flow changes driven by new production capacity are subtle again. And with much smaller capacity additions slated for the next several years, market pricing likely be led by crop conditions and global cost curve largely driven by natural gas or coal cost and freight rates.
We think with very efficient production facilities the low natural gas cost and proximately to the market, the U.S. appears to be a long-term winner in the nitrogen fertilizer industry.
However, while we believe conditions are improving, our business plan will remain focused on operating our plan for the high on-stream rates, prudently managing our cost, being judicious with capital and maximizing our marketing and logistics activities. We are well positioned with our production, marketing and logistics but remain conservative in our approach to managing the business for cash until the recovery fully takes hold.
With that, we’re ready to take questions. Operator?
Operator
Thank you. We will now be conducting a question-and-answer session [Operator Instructions].
Our first question comes from the line of Adam Samuelson with Goldman Sachs. Please proceed with your question.
Adam Samuelson
I guess first Mark maybe expanding on some of those last comments that you made. Can you talk a little bit about the order book, as it is today for spring and talk about the sales that you’ve already done for the first half and the second half of ’17?
I guess specifically, I was a little surprised to see that the UAN net back actually decline sequentially in the fourth quarter. I’m guessing that’s just a mix of tons between the plant and how much was priced to summer fill.
But how much is left from summer fill to move forward because you’ve seeing industry benchmark pricing of about pretty strongly from where it was in mid-last year?
Mark Pytosh
I this there are four questions in there, so I'll try to take them one at a time. I think one of the things that you saw, and let's talk about the UAN pricing quarter-on-quarter.
In the fourth quarter, we typically mostly sale UAN out of the Coffeyville. At East Dubuque, we're largely selling ammonia because of the fall application, and so the price relative to the UAN is a mover in the third quarter for East Dubuque.
So that’s more reflective of the Southern Plains price in the fourth quarter, so it was lower than the East Dubuque pricing. So the mix of what we sold was more weighted to Coffeyville, so that's why the price was lower.
And if you recall back in the summer, we put on a pretty good fill book and we were running that off in the fourth quarter. As we rolled into this year, we’ve seen pretty consistent demand since the beginning of the year.
In fact, going back to December, we had orders coming in but we've had pretty consistent demand we've been selling through the first quarter and we’ve got a good book on for the spring and pricing has continued to firm. So we're trying to put on more second quarter volume at this point, and people are coming back.
One of the triggers this past few days has been we've had moisture in Kansas and Oklahoma, which will help the lead run. And we do expect customers coming in for product, everyone is waiting for that.
So that looks like that we run kind of pickup momentum here in the next couple of weeks. So we'll see some more product move in the Southern Plains.
And that's just facilitates more orders coming in. But pricing is higher than it's been since we're back to spring of '16 level of pricing for the spring.
And since TFI, there has been increases in both UAN and ammonia since last week. And so pricing is confirming.
In the spring last year when we got to the end of February, pricing was already starting to fall. This year it looks like it's going to rise into the spring and at the fall, so very different dynamic in 2018 versus '17.
Adam Samuelson
And then maybe just on that last point, I mean that would seem to indicate your expectation at least for the first half where you have some visibility at this point. That you average net backs would be comfortably above the prior year, am I reading that right?
Mark Pytosh
I think it will be above last year in the first half. So I mean if you look at our order book and where foot pricing stands today -- last year last year from a pricing perspective in the first half.
And as you know, the second half a lot of variables to be played out before we get to a sense for what that second half is going to look like. But I would just tell you that the market conditions are just much more balanced in a macro sense this year versus last year a lot of urea that showed up and it just stayed in the market through the spring.
And actually a lot of that got re-exported by June-July last year. So we had a really volatile spring.
And this year the overall I'd say the inventory levels and where things are much more comfortable this year versus last year.
Adam Samuelson
And then just turning around at Coffeyville choosing to do it this year in the second quarter versus prior year third quarter. Do you see that actually impacting your sales volume in the second quarter, which traditionally be your highest net back quarter?
Mark Pytosh
It will. What we’ve -- we think there is some opportunity to increase the rate coming out on the turnaround.
So we think we’ll call some of that back. We trying to pick in time that we thought was a low period in the activity level.
So usually there is a big push to apply and then there is a low and then there is a big top dress side dress push coming behind that. So we’ve trying to time turnaround to do and we push that all from last year, so we’re -- it'll be 2.5 years from last one.
So we think that the increased rate we’ll be able to call back some of the volume that we would have been looking to sell there. So we think it’s a right time to do it.
Adam Samuelson
And then last one from me, on the distribution to understand in this quarter, given the EBITDA level that makes sense, but there is also little bit of cash burn regardless. Do you foresee it into took that cash burn before you would consider distribution and what should be a better pricing environment to help us with that decision point…
Mark Pytosh
When we sit down with the Board that will always be a discussion of do we want to go back in time and call that back, I think a lot of it’s going to depend on the conditions at that moment. If we’re at a point where we’re distributing we want to go back in time, we didn’t burn that much cash.
And so it will be a Board discussion when we get there. And again, a lot of it’s going to be what are the conditions at that time if it’s strong.
I’m not sure how much we will look in the rearview mirror. But if it’s not, it’s clear and we’ll probably spend more time talking about that.
Operator
Thank you [Operator Instructions]. Our next question comes from the line of Richard Kus of Jefferies.
Please proceed with your question.
Richard Kus
So first question for me just on UAN just as a follow up on the pricing there for the first half of 2018. Do you think you can effectively get back to even or up on a year-over-year basis in Q1?
Or do you think just the first half ends up averaging out a little bit better?
Mark Pytosh
I would say that we’re probably going to be pretty steadily above last year due to the first half.
Richard Kus
And then if I look at the performance in Q4, I’m just trying to figure out what’s going on, on the cost side, because your alumina there -- your ammonia volumes were up, your ammonia pricing was up. UAN looks to me like it was relatively flat and you should have did it all versus Q3 and you should have probably gotten a bunch of cost back from maintenance that you did in Q3.
So I guess what else was impacting you to limit your EBITDA improvement on a sequential basis?
Mark Pytosh
Well, we had a bunch of cost in there for the turnaround on our business, I guess you called the turnaround -- unscheduled downtime, it was about the late of turnaround and East Dubuque. So the cost were heavy, the plant runs and we had maintenance cost to fix the issues we’re having there.
So it was almost as if at East Dubuque you have from a days-down perspective like another turnaround. So the expenses were going to be higher for the fourth quarter.
Richard Kus
And there wasn’t anything else going on that would have kept you from posting mid-teens of EBITDA?
Mark Pytosh
No, that was right there. The pricing obviously brought us down, we adjusted -- it would have been down about a third, which is I think in line with where the pricing was for the quarter versus last year.
But as that downtime costs us on the expense side.
Operator
Thank you. Our next question comes from [Alan Glen] with [Concord and Maine Ltd] (ph).
Please proceed with your question.
Unidentified Analyst
Can you give for us the debt covenants that you have?
Mark Pytosh
We don't have any maintenance covenants, so we don't incurrence covenants. So there is no maintenance covenants on our debt structure.
Operator
Thank you. Our next question comes from Tim Raeke with Alcentra.
Please proceed with your questions.
Tim Raeke
I was just follow up on the -- can you maybe just give a little more color on what did happen at East Dubuque for the unexpected downtime. And just want to make sure, I thought it was $5 million, was that…
Mark Pytosh
There was a little bit of downtime and the UAN plant cost us a little bit there, but most of it was in East Dubuque. And we're having trouble with some tubes and boiler feed water and reformer, boiler feed water unit and we had repair two leak.
And to do that you have to -- we have to -- frontend of the plant, we have to take the whole plant down to repair that. So we took the plant down it took about 12 days to complete the repairs.
Tim Raeke
And there is nothing that render -- I mean, it got right back up and running, the restart and whatever happened…
Mark Pytosh
We had some issues in the first quarter and we think we're pass that now. But we think we've addressed the issue that we had there.
We had up until the turnaround last year we had a good long run there at East Dubuque because the plant has been running well since we acquired it two years ago. And our expectations are to have good long run from here.
Tim Raeke
That was the context for my question was, I think the prior run had issues, but this doesn’t sound like it's related to anything…
Mark Pytosh
No. I can’t weigh that on the sales dollar those are our issues and we had something that we dealt with there.
And we felt like we've addressed that. So our intention is to -- we're going to be very focused on getting a good long run out on the plant.
Tim Raeke
And then just a follow up on the CapEx front. So $7 million I think is where you’re saying that turnaround at Coffeyville will cost and that's the delta between what you had for CapEx in '17 and '18?
Mark Pytosh
The $7 million Susan referred to was expense. But we were a little light in our CapEx last year and we've got a couple of things that we're going to do, and the turnaround typically we have a little heavier maintenance CapEx in a turnaround year.
So it's a little bit higher this year and we've got some couple of very small growth projects that we're working on at the business. So that's why it’s a little higher this year, it's partly maintenance and then partly some of our very small growth initiatives.
Tim Raeke
So in the 20 is the CapEx for the turnaround and then $7 million is the delta on the cost on kind of the lost EBITDA opportunity that you’d have in Q2?
Susan Ball
That's correct the $7 million is actual…
Mark Pytosh
[Multiple speakers] in the lost production. That was the context for my question was, I think the prior run had issues, but this doesn’t sound like it's related to anything…
Mark Pytosh
No. I can’t weigh that on the sales dollar those are our issues and we had something that we dealt with there.
And we felt like we've addressed that. So our intention is to -- we're going to be very focused on getting a good long run out on the plant.
Tim Raeke
And then just a follow up on the CapEx front. So $7 million I think is where you’re saying that turnaround at Coffeyville will cost and that's the delta between what you had for CapEx in '17 and '18?
Mark Pytosh
The $7 million Susan referred to was expense. But we were a little light in our CapEx last year and we've got a couple of things that we're going to do, and the turnaround typically we have a little heavier maintenance CapEx in a turnaround year.
So it's a little bit higher this year and we've got some couple of very small growth projects that we're working on at the business. So that's why it’s a little higher this year, it's partly maintenance and then partly some of our very small growth initiatives.
Tim Raeke
So is this like it will be similar to the $5 million that you lost at East Dubuque in Q4, that's obviously on purpose downtime.
Mark Pytosh
Yes, little bit different than that but it’s the same idea…
Susan Ball
Yes, the $7 million that your expected the expense and the $21 million is the capital spend, which Mark mentioned that maintenance CapEx…
Operator
Thank you. There are no further questions at this time.
I would like to turn the back over to management for any closing remarks.
Jay Finks
All right. Well thank you very much for being on the call today.
And we look forward to talking to you here in another couple of months for first quarter results. Thank you.
Operator
Thank you. This concludes today’s teleconference.
You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.