Jul 26, 2018
Executives
Jay Finks – Vice President-Finance Mark Pytosh – Chief Executive Officer Tracy Jackson – Chief Financial Officer
Analysts
Charles Neivert – Cowen Lin Shen – Hite
Operator
Greetings, and welcome to the CVR Partners, LP Second 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, 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 Mark Pytosh, our Chief Executive Officer; Tracy Jackson, our Chief Financial 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 are 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 second quarter earnings release that we filed with the SEC yesterday after close 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 thank you for joining us for today’s call.
The summarized financial highlights for the 2018 second quarter included a net loss of $16 million, net sales of $93 million, adjusted EBITDA of $26 million, and there is no cash available for distribution this quarter. During the second quarter, we had a scheduled turnaround at the Coffeyville Facility for 15 days and unplanned downtime of 10 days.
East Dubuque had six days of downtime. The financial impact of lost production at Coffeyville due to the turnaround and unscheduled downtime was approximately $12 million.
The on-stream rates were at Coffeyville, the gasifier ran at 73%, the ammonia unit operated at 70%, and the UAN plant operated at 67%. While at East Dubuque, the ammonia ran at 93% and the UAN units operated at 94%.
For the second quarter, our combined operations produced approximately 241,000 tons of UAN and 66,000 tons of ammonia available for sale. We sold a combined total of approximately 270,000 tons of UAN during the second quarter of 2018 at a netback price of $191 per ton, which was a 10% increase over the second quarter of 2017 and a 25% increase over the first quarter of 2018.
In addition, we sold a combined total of approximately 82,000 tons of ammonia during the second quarter of 2018 at a netback price of $348 per ton, which was a 5% increase over the second quarter of 2017 and an 8% increase over the first quarter of 2018. While the spring application season started late in 2018, it finished strong across the Midwest.
This led to lower inventories at the end of the season for both producers and customers as compared to last year, and pricing held firm through the quarter. I will now turn the call over to Tracy to discuss our financial results.
Tracy Jackson
Thanks, Mark. We reported a net loss of $16 million or $0.15 per common unit and adjusted EBITDA of $26 million in the second quarter of 2018.
This is compared to a net loss of $4 million or $0.03 per common unit and adjusted EBITDA of $32 million for the second quarter of 2017. Net sales for the period were $93 million as compared to $98 million in the prior year period.
The decrease was mainly attributable to the lower UAN sales volumes due to the Coffeyville turnaround and unplanned downtime. The decrease of $3 million in cost of materials for the second quarter 2018 was the result of lower freight costs, lower natural gas costs, partially offset by higher pet coke feedstock pricing.
Direct operating expenses for the second quarter of 2018 increased to $47 million from $38 million in the prior year period. The increase year-over-year was mainly due to $6 million of turnaround expenses and downtime.
Selling, general and administrative expenses for the second quarter of 2018 increased to $7 million as compared to $6 million for the second quarter of 2017. The $1 million increase is primarily due to share-based compensation.
Turning to capital. During the second quarter 2018, we spent $6 million on capital projects, including $4 million for maintenance CapEx and the remainder for growth capital.
In 2018, we expect our combined spending to be approximately $21 million, of which, $18 million is for maintenance CapEx at our two facilities. Looking at the balance sheet as of June 30, we had approximately $28 million of cash and availability under the ABL facility of $50 million.
We feel our total liquidity position of approximately $53 million at the end of the quarter is sufficient going forward. Our long term gross debt, including current portion, remains unchanged.
Each quarter, we will review any remaining previously established reserves and evaluate future anticipated needs. We may also reserve amounts for other future cash needs as determined by the board.
We are a variable rate – variable distribution MLP. As a result, our quarterly distributions, if any, will vary from quarter-to-quarter due to several factors.
For example, feedstock and product prices, on-stream rates, capital needs and other reserves deem necessary by the Board of Directors of our general partner. With that, I’ll turn the call back over to Mark.
Mark Pytosh
Thanks, Tracy. With the planting season have complete, the industry is now focused on weather conditions for the remainder of the summer to see where corn and soybean yields will end for the harvest.
A few weeks ago, the USDA announced that planted corn acreage this spring in the U.S. was approximately 89 million acres, which is slightly higher than prior forecast.
Since the first quarter earnings call, nitrogen fertilizer prices have been steady as nitrogen demand remains strong. Due to the strong demand, inventory levels for all nitrogen products were very low at the end of the season.
During the past 12 months, imported urea barge volumes were down approximately 1.4 million tons. These reduced imports offset – were offset by increased urea production.
In June, we completed the summer fill season for ammonia prices approximately $80 per ton higher than last year’s fill levels, and the UAN fill was completed two weeks ago at $30 to $40 per ton higher than last year, depending on the location. There were strong customer demand for both ammonia and UAN at these pricing levels.
Observing this fill season compared to last year, we believe the global and domestic trade flows have largely adjusted to the increased production capacity in the U.S. Trade flows in the U.S.
have readjusted the customers buying product at each location based on the lowest distribution cost delivered from domestic production facilities rather than imported product delivered from river terminals. To address the trade flows in the Midwest from our Coffeyville facility, we recently started up a new loading rack, which will give our Coffeyville plant greater access to the Burlington Northern Railroad.
This improves the competitiveness of the facility, as it allows us to reach geographic locations we could not previously reach economically. Our expanded footprint has been well received by our customers.
As the nitrogen market recovers further, we won’t lose focus on what we can control, including safely operating our plants at high on-stream rates, prudently managing our costs, being judicious with our capital, and maximizing our marketing and logistics activities. We continue to manage the business for cash flow and expect that the improving conditions may give us the opportunity to begin making cash distributions.
With that, we are ready to open the call for questions. Michelle?
Operator
[Operator Instructions] Our first question comes from the line of Charles Neivert with Cowen. Please proceed with your question.
Charles Neivert
I got a few. How much – you said the fill season has been now taken care of – you’ve done how much of your third quarter production capability is now committed?
And is there any – how much excess do you have left to sell during the course of the third quarter?
Mark Pytosh
Typically, Charlie, in the fill, we would sell a lion’s share in the second half. We sold a little less this year than last couple years, but we are largely booked for the third quarter.
But the fourth quarter, there’s still tonnage to sell.
Charles Neivert
The fact that you sold less, is that on purpose to see if probably you can get some better pricing? Or is it just the demand was a little different, or how do you characterize that?
Mark Pytosh
We felt that the market would continue to strengthen into the fourth, so we held back and didn’t sell. The demand was there, but we decided to hold back a bit and see how the market plays out from here.
Charles Neivert
Okay. And then in this quarter, you guys sold similar amounts of ammonia versus like year ago when you had much higher production.
Do you – but typically, I think you guys would normally turn it over into UAN, do you guys have specific ammonia commitments every quarter that we have to sort of deal with? And then whatever is left over, which is significantly more of your production, goes to UAN or is that the wrong way to think about that?
Mark Pytosh
We actually – we can swing, and this is really – it needs to be, because we upgrade Coffeyville largely to UAN. We are – we make a decision based on what market conditions and relative pricing.
And typically UAN has commanded a decent premium, and so we typically have been swinging it to more UAN upgrade, and the plant has limits to how much we can upgrade. But we have – UAN has been commanding a premium to ammonia really for a long period; but this spring, we were upgrading more.
So it’s not – we don’t have any commitments that tie us to an upgrade.
Charles Neivert
I meant the other way. I mean, meaning a commitment of ammonia that says, okay, once I’ve done that, I can take everything else.
So if you had it some downtime, your – it was your UAN that was little short. I know there was the downtime you guys saw, but that was largely just because Coffeyville was offline.
Mark Pytosh
Yes. The shortage in – the shortage really was Coffeyville.
So we produced less ammonia, less UAN. So – because if you add the two days, that was 25 days of downtime.
Charles Neivert
Okay. And everything running normally now?
Mark Pytosh
Yes, we’ve been in normal production in the third.
Charles Neivert
Okay. And no – any turnaround scheduled in the second half?
Mark Pytosh
We don’t have any turnaround scheduled until next year.
Charles Neivert
Okay. So everything – assuming all is well and demand is there, you’d be running hopefully back at those above 90 kind of numbers is what we look, I assume.
Okay, I’ll get back in the queue.
Mark Pytosh
Yes. Our business plans run full out for the rest of the year.
Charles Neivert
Okay. Thanks.
Operator
Thank you. Our next question comes from the line of Lin Shen with Hite.
Please proceed with your question.
Lin Shen
Good morning, thanks for taking the question. You mentioned that the price, the feedstock price, for pet coke is higher than last year.
Can you just explain why the price is higher this year versus last year?
Mark Pytosh
Sure. In the past, we’ve typically taken around 70% of our need from our sister refinery next door, and they have not been producing as much pet coke for two reasons: One, they had some operating issues in the first quarter; and the second is that the crude slate that the refinery is running is a little bit different than the past.
So when you combine those two factors, there was less pet coke available from our sister company. And we had to go into the market to get additional pet coke and every option that we have is a further distance away, so there’s transportation costs that we don’t bear when we buy it from our sister company, so that costs more.
The cheapest coke is our sister company and everything else has transportation in there. So that’s why the pet coke price is up this year.
Lin Shen
Got it. So for the refinery at Coffeyville, if they are running more heavy, then they produce more pet coke, is that right?
Mark Pytosh
That’s right. And I know, Lin, you follow the refinery business.
The crude slate has been lighter generally in the United States and so that’s not as much pet coke coming out of the refineries. It’s not that – from a market perspective, not that big a deal, but the – it does affect our sister company.
Lin Shen
Got it. And now you mentioned that you sort of like put fourth quarter production on hold not to fill, because you’re expecting better price.
Did you already see the sign that the prices keep recovering or how should we think about the supply demand for fourth quarter?
Mark Pytosh
Yes. I would say that it’s a little early to decide how the fourth quarter.
But the general view, I think most producers would tell you, is there is sufficient demand, there is new demand for the fourth quarter that has not been met yet. So the market feels like it’s very balanced, and we would expect to see demand picking up as we get into the fall.
But we’re at comfortable position right now. We think the market is firming and we think there will be some opportunities as we get later in the year.
Lin Shen
Got it. The last question, if I can, is for the unplanned downtime for the facility, is any kind of lesson learned or what’s the background it will happen?
Mark Pytosh
On the – so far in the Coffeyville site, we had two issues. One was, there was – when we came out of turnaround, Linde had some issues coming back up, instrumentation issues, and so we lost production there.
And then we had an issue with our slurry line in our gas fire, when Linde came back up, so we had – one was our issue and one was Linde’s issue, and so that took us down in the quarter.
Lin Shen
Okay. Thank you very much.
I appreciate.
Operator
Our next question is a follow-up from Charles Neivert with Cowen. Please proceed with your question.
Charles Neivert
Looking at the current level of debt, when is it that you can sort of address that in terms of either refinancing it at lower rates or paying down some of it? What’s the time frame on that?
Obviously, it depends on how much cash is available, but I’m assuming that if you choose not to pay it down and just refinance it, when can that be done and how much – what are the rates now versus what they potentially could be?
Mark Pytosh
So Charlie, we can call that debt in June of 2019. So the opportunity will be for next year to see where we are and where the markets are.
We’re paying 9.058% coupon on that debt. And it’s kind of hard to say, we haven’t really – the debt trades at a decent premium.
So it tells you that our current refinancing rate would be a lot lower, but we will have an opportunity to address that next year if we decide to go forward.
Charles Neivert
Okay. Great.
That’s all for me. Thank you.
Operator
Thank you. We have reached the end of our question-and-answer session.
I would like to turn the call back over to management for any closing remarks.
Mark Pytosh
Okay. Again, I would like to thank everyone for your interest in CVR Partners and joining the call today.
Additionally, I would like to thank all of our employees for their continuous hard work and commitment to safety. And we look forward to reviewing our third quarter 2018 results on our next earning call in October.
So thank you, everyone.
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.