Apr 26, 2018
Executives
Jay Finks - Vice President of Finance Mark Pytosh - CEO
Analysts
Adam Samuelson - Goldman Sachs Richard Kus - Jefferies Charles Neivert - Cowen
Operator
Greetings. And welcome to the CVR Partners LP First Quarter 2018 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, 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 Mark Pytosh, our Chief Executive Officer and other members of management.
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 2018 first 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. And good morning, everyone.
And thanks for joining our call today. Before I begin, I would like to thank Susan Ball for all her contribution to CVR Partners, the success over many years.
Susan has been instrumental to our success, she will be missed, but we wish her all the best in the future. To summarize financial highlights for the 2018 first quarter included net sales of $80 million, a net loss of $19 million and adjusted EBITDA of $13 million.
First quarter results were impacted by approximately 12 days a month schedule downtime in January at East Dubuque facility. The total impact on first quarter earnings was approximately $3 million.
The on-stream rates were at Coffeyville, the gas fire ran at 100%, the ammonia unit operated at approximately 100% and the UAN plant ran at 99%. While East Dubuque the ammonia unit and UAN plant ran at 87%.
For the first quarter, our combined operations produced approximately 199,000 tons of ammonia. We converted the majority of the produced ammonia into approximately 339,000 tons of UAN.
This led to approximately 59,000 tons of ammonia available for sale while the rest was upgraded to other niche nitrogen products. We sold the combined total of 345,000 tons of UAN during the first quarter of 2018 and a net back price of $153 per ton as compared to a $160 per ton in the first quarter of 2017.
For ammonia, we sold a combined total of approximately 36,000 tons during the 2018 first quarter at a net back price of $322 per ton that's compared to $308 per ton in the first quarter 2017. The fall ammonia application was very strong in 2017 compared to difficult weather conditions in the fall of 2016.
And as a result of the strong fall application, inventory levels were lower, and we sold less volume in the first quarter of 2018 compared to first quarter of 2017. Also affecting ammonia sales volumes in the first quarter of 2018 would be on plan downtown at East Dubuque.
Due to the challenging nitrogen fertilizer pricing environment and the downtown at East Dubuque facility, we are not in a position to pay a distribution for the first quarter 2018. In my closing remarks, I will discuss the industry conditions and outlook for the remainder of the year.
But before that, Jay will discuss our detailed financial results. Jay?
Jay Finks
Thanks, Mark. We reported a net loss of $19 million or $0.17 per common unit and adjusted EBITDA of $30 million in the first quarter for 2018.
This is compared to a net loss of $10 million or $0.09 per common unit and adjusted EBITDA of $21 million for the first quarter of 2017. Net sales for the period were $80 million as compared to $85 million in the same prior year period.
The decrease was primarily attributable to lower ammonia volumes partially offset by higher UAN sales volumes. Cost of materials and other of $22 million remained flat for the first quarter 2018 as compared to the $22 million in the prior year period.
Additionally, we had higher direct operating expenses for the first quarter of 2018 of $39 million, as compared to $36 million in the prior year period. The increase was primarily due to increased inventory cost being expensed due to overall higher UAN tons sold in first quarter 2018.
Turning to capital spending, during the 2018 first quarter, we spent $2.7 million on capital projects including $2.3 million for maintenance capital spend. In 2018, we expect our combined spending to be approximately $21 million, of which $18 million is for maintenance CapEx at our two facilities.
A full plant turnaround at our Coffeyville facility began in mid-April which is expected to last 15 days. We estimate this business associated with the turnaround exclusive of the impacts of the 15 days loss production is approximately $7 million.
We are on budget and on schedule. Looking at the balance sheet as of March 31, we had approximately $61 million of cash and cash equivalents and availability under the ABL facility of $49 million.
We feel our total liquidity position of approximately $85 million at the end of the quarter is adequately going forward. Our long-term gross debt including current portion was approximately $647 million.
With that, I'll turn the call back over to Mark.
Mark Pytosh
Thanks, Jay. Spring planting has been off to a slow start this year as temperatures are well below normal averages and we've had a lot of rain, snow throughout the corn belt.
Demand has increased this week and the next couple weeks look promising in terms of temperature and dryness and we can easily catch up and get back on track for corn planting. The USDA is estimating planted corn acreage to be approximately $88 million acres.
While this will be down from 2017, we still expect a solid demand year from nitrogen fertilizer and the lower acreage should help reducing corn inventory carryover into the 2019 planting season. Since the last earnings call, urea prices have declined about $20 to $30 per ton, but UAN and ammonia are only down a small amount during this period.
We will have a better idea of our pricing for the rest of the season, the season being June 30th once preplanned application gains momentum. We believe their customer inventory levels are lower than normal and we expect good demand through the side rest season.
At this time last year, we were experiencing domestic competitors marketing new production capacity causing a change in trade flows. Now with all of that new production is onstream and the trade flows are normalizing, the market is more settled in 2018.
We believe customers have grown a custom to purchasing more of their urea needs from domestic producers, so they can provide a steady supply as well as just in time deliveries to meet their demand. Among and UAN our supply largely from domestic production.
China has not been very active in the export market this year allowing the new production to fulfill the need. As we finished the planting season, the second quarter we expect the nitrogen fertilizer market to be in the better balanced than last year and expect the second half 2017 pricing to have been the low of this downturn.
However, even as conditions improve, our business plan more really focused on operating our plants at high on-stream rates, prudently managing our costs and in this regard in collaboration with our parent company CVR Energy we have been restructuring our organization to reduce G&A cost, eliminate unprofitable activities and improve decision making. Our SG&A was lower in the first quarter by $1 million versus 2017 and we expect further savings during the rest of 2018.
We really continue to be judicious with our capital and maximize our marketing and logistics activities. We think we're well positioned with our production, marketing, and logistics but we're going to remain conservative in our approach to manage our cash until the recovery fully takes hold.
With that Michelle, we're ready for Q&A.
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 questions.
Adam Samuelson
Thanks. Good morning, everyone.
Jay Finks
Good morning, Adam.
Adam Samuelson
Maybe starting off just on pricing and realized ASP in the quarter, market was down $7 a ton year-on-year for UAN. If go back to last quarter call, I think there was expectation that pricing could be up year-on-year in the first half of 2018 versus '17.
And even potentially approach the levels of spring of 2018. And I'm just trying to reconcile those two dynamics of what happened in the first quarter?
Mark Pytosh
Sure. There is just kind of two different dynamics.
One is the orders that we've taken this year which are at much higher prices and higher than last year, and as we said probably approaching the 2016 year. We had carryover tons that we hadn't delivered yet from the fall season and that blends down that average price in the first quarter for UAN.
Ammonia was higher than last year, but UAN I recalled a blended number of fill [ph] tons at much lower prices and then everything we sold this year has been at much higher prices than the fill [ph]. So, it's kind of blended number.
So those are the two dynamics in that. And as we get into the second quarter, we will benefit from 100% at the higher pricing.
Adam Samuelson
And was any way to quantify that. And I guess the corollary is of the second quarter.
How much of, what you have left the price, I understand that the side rest [ph] season which could be pretty important this year given the late planting. How we think about what price versus kind of that's left in the market?
Mark Pytosh
Yeah. And I don't want to post our inventory levels for our competitors.
But we've sold, we've got a good book already, but we still have more to fill [ph] into the second quarter. So, pricing has been good since January.
And so, our book is good, and what we are seeing is the market sort of been flat it's down a little bit from the February comp but just a little bit and it's sort of been flattish. And we expect demand to pick up here.
Now products movement. We've seen product move a lot here in the last few days.
And so, we expect to sort of ramping up of the demand and I say it'll be it, I think at very good prices as we finish out this spring. So, we have more to sell, but we already have a good book at higher prices sitting there today and we'll supplement that with the spot sales for the next couple of months, but we don't the whole quarter to sell we have a book on.
And so, you will see a very different price profile in the second quarter versus the first.
Adam Samuelson
Okay. And as I think about coming out of the turnaround at Coffeyville, the expectation is to get the full two months kind of May, June, kind of running it full rates like they can go into that side rest season.
Is there any pickup in production that you'd expect from Coffeyville after the turnaround?
Mark Pytosh
Yeah, if you look at our run rate in the first quarter, actually the last two or three quarters, we have had some issues with our ammonia synthesis loop and so we're going to pick up decent production on the ammonia side, I won't give exact number, but it's probably on the order of a 100 tons a day of a - incremental ammonia production coming out of this turnaround. So, we'll - our economics coming out will be better than what we had gone in.
Adam Samuelson
Okay. And then in the prepared remarks you eluded to some SG&A reductions and you are down a million or so dollars, year-on-year is that a reasonable run rate for the balance of the year or is not quite that, that sizable?
Mark Pytosh
We think so, we can obviously we're working through some plans, our parent companies been on a, we were on a mission to reduce our costs and I'd say that that's a good number to start with and hopefully we'll squeeze some more out as we go. But as you have seen we have been watching ourselves and we have had a renewed focus with the arrival Dave Lamp as a CEO of the parent company and so we're hoping to bring that down further as we go into the summer here.
Adam Samuelson
Okay. And then last for me.
Is there anything on the plant side that you could do on the operating expense side or is really the focus more on the just on the SG&A the administrator function?
Mark Pytosh
No, we are looking at the expense side as well, again this is part of the overall corporate initiative that chip away at routine expenses whether those are operating expenses or SG&A. we are benefiting and looks - the year looks pretty good, the curve looks pretty good for natural gas, so we may get a pickup at East Dubuque for that and so, we're hopeful that we're going to get both SG&A - I sided SG&A but its we're working on the operating expense as well.
Adam Samuelson
Okay, that's all very helpful. I'll pass it on, thanks.
Mark Pytosh
Thanks, Adam.
Operator
Thank you, our next question comes from the line of Richard Kus with Jefferies. Please proceed with your question.
Richard Kus
Hey, good morning guys. So, as you talked about the spring season being a little bit delayed here, can you give us a little bit of color what you think the increase in volume ends up being this year relative to last year as you go from Q1 to Q2?
Mark Pytosh
We don't really get the fuller forecast for that, but this year will be it will have a little more waiting in the second quarter particularly for ammonia because sometimes we will have ammonia deliveries in March and we really did have a significant amount this year particularly at East Dubuque. So, we had a - well basically following the second quarter and so the year is waiting a little more to the second quarter of this year versus the first.
It's always stronger in the second quarter but it'll be stronger this year than in previous two years.
Richard Kus
Got it, so ammonia should be more normalized in Q2 relative to what we saw in Q1 then?
Mark Pytosh
Yes, if you just did as a six-month block, we'll be back to normal, we'll get that product out there, it's moving, it's started moving here recently. And so, and the - season the preplan last like 10 to 15 days, so it's - if you lose two weeks, you don't lose the season, you just move it back a little bit that's basically what's happened its move from early April to later April.
Richard Kus
Got it. And could you guys maybe give a little bit of an idea of what you think the downtime that you're taking in Q2, it's going to end up taken out of volumes or shouldn't that have too much of an impact?
Mark Pytosh
Well, if you look at our - posted what we produce at Coffeyville on 15 days it's probably around 42,000 to 45,000 tons of UAN, because we upgrade virtually everything in UAN there.
Richard Kus
Got it, and so at the end of the day that just kind of ends up being lost for you in that case?
Mark Pytosh
It does. It does.
Richard Kus
Okay, got it. And then with regard to the unplanned downtime that you had in Q1, I think you had mentioned the costs on that was about $3 million, is there going to be any spillover of unabsorbed fixed costs into Q2 from that?
Mark Pytosh
We don't expect any and all I'd say one thing that's come out of that is since January the plants running to highest production levels on ammonia that we see such we want the plant so the plant seems like everything we've sort of done with the issues there and we're running at very high rates north of 1100 tons a day of ammonia.
Richard Kus
That's great, okay. That's it from me.
Thanks a lot.
Operator
Thank you [Operator Instructions]. Our next question comes from the line of Charles Neivert with Cowen.
Please proceed with your question.
Charles Neivert
Yes, this year the perspective planning converse for corn was at $88 million, obviously it's down a little from the year before, but if you look at your particular area since you very localized especially in the Illinois area, does that seem to be the case or is corn going to be more normal versus like last year's number in your area is that when you hit to the acreage you guys think are going to be planted based on your contact with customers?'
Mark Pytosh
Charlie, we're only seeing little I call marginal movement of the acreage around and there's always that kind of flooring here in the end with the final decisions made. Corns they're a little stronger so we may not believe as much as people think I would just tell you from what can demand the plant pull from at the two plants.
We don't really feel I'd say noticeable difference in demand for product and so it's going to be down a little bit. I think the matter of factor for us because I think that demand is a good demand but with the largely being delivered domestically is supposed to import the product is if we can get the corn inventory balances a little better more favorable, get the corn price higher that's probably on in a medium to long term more important than if we did another million on two acres.
I'd rather see corn price $0.50 or a $1 higher than where it is today that would be better for us long term.
Charles Neivert
Okay. And then also does Coffeyville serve the weak markets at where it is and if it does do you think there's any issue around site just because some of the damage to the weak prospect might just have farmers saying let's not bother putting anything down?
Mark Pytosh
We do serve - Kansas is a wheat country and we do serve in that market. I would tell you it's actually middle of better than we would have expected so far this year.
we need some moisture there probably most important thing in the next call it three to four weeks would be some moisture to limit the damage to the crop, but we've seen pretty good. I'd say from a pretty tough situation and we generally we felt more demand out of that than we thought we might see there.
So, it's a top market, it's much top where the corn and soybeans and but that market is hanging in there in Kansas but moisture in the next few weeks will be important to kind of clean out finish out the planting season here.
Charles Neivert
Okay, great. Thanks very much.
Mark Pytosh
Thanks, Charlie.
Operator
Thank you. There are no further questions at this time.
I would like to turn the call back to management for any closing remarks.
Mark Pytosh
I just want to thank everybody for being on the call and we look forward to talking to you next quarter. 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.