CVR Partners, LP Price & Performance (UAN)

You, Christine. Good morning, everyone. Appreciate your participation in today's call. With me today are Mark Bytosh, our Chief Executive Officer Dan Newman, our Chief Financial Officer and other members of management. To discussing our twenty twenty four fourth quarter and full year results, me remind you that this conference call may contain forward looking statements as that term is defined under federal securities laws. For this purpose, statements made during this call that are not statements of historical facts may be deemed to be forward looking statements. You are cautioned that these statements may be affected by important factors set forth in our filings with 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. Disclosures related to such non GAAP measures, including reconciliation to the most directly comparable GAAP financial measures are included in our twenty twenty four fourth quarter earnings release that we filed with the SEC and Form 10 ks for the period will be discussed during the call.

Let me remind you that we are a variable distribution MLP. We will review our previously established reserves, current cash usage, evaluate future anticipated cash needs and may reserve amounts for other future cash needs as determined by our General Partners Board. As a result, our distributions, if any, vary quarter to quarter due to several factors, including but not limited to operating performance, fluctuations in the prices received for finished products, capital expenditures, cash reserves deemed necessary or appropriate by the Board of Directors of our general partner. That said, I'll turn the call over to Mark Pytosh, our Chief Executive Officer. Mark?

Thank you, Richard.

Good morning, everyone, and thank you for joining us for today's call. Summarized financial highlights for the fourth quarter of twenty twenty four included net sales of $140,000,000 income of $18,000,000 EBITDA of 50,000,000 and the Board of Directors declared a fourth quarter distribution of $1.75 per common unit, which will be paid on March 10, 2025 to unitholders of record at the close of the market on March 3. For the full year 2024, we reported EBITDA of hundred and 79,000,000 and distributions of $6.76 per common unit.

We had another year of solid operations for our facilities, with an ammonia utilization rate of 96% for the year. At East Dubuque, we set new records in 2024 for ammonia utilization rate of 102%, as well as ammonia production volumes at approximately 399,000 tons.

We're also proud to report continued improvement in our safety metrics in 2024 with a 40% reduction total recordable incident rate compared to 2023.

Fourth quarter twenty twenty four, Our annual ammonia plant utilization was 96%. This resulted in total ammonia production of 210,000 gross tons of which 80,000 net tons were available for sale. Total UAN production was 310,000 tons, substantially all of which was sold at an average price of $229 per ton And we sold approximately 97,000 tons of ammonia at an average price of $475 per ton. Relative to the fourth quarter of twenty twenty three, ammonia sales volume we're in line and UAN sales volumes were down approximately 3% partially due to the challenging weather conditions during the fall application. Quarter prices for ammonia increased approximately 3% and UAN prices declined approximately 5% relative to the prior year period. Despite some unfavorable weather conditions in the fourth quarter, we saw good demand for nitrogen fertilizer that drove prices higher compared to third quarter and we had strong shipments from our facilities. Supply and demand for nitrogen fertilizer products have been tight to start the New Year and prices have continued to increase. With the recent rally in grain prices, market conditions look favorable for the spring planting season, which I will discuss further in my closing remarks. Will now turn the call over to Dane to discuss our financial results.

Thank you, Mark.

Turning to our results. The full year 2024, reported net sales of $525,000,000 and operating income of $90,000,000 Net income for the year was $61,000,000 or $5.76 per common unit and EBITDA was $179,000,000 For the fourth quarter of twenty twenty four, we reported net sales of $140,000,000 and operating income of $26,000,000 Net income for the fourth quarter was $18,000,001.73 per common unit and EBITDA was $50,000,000 Relative to the fourth quarter of twenty twenty three, EBITDA increased primarily due to higher ammonia sales prices and lower pet co feedstock costs. Direct operating expenses for the fourth quarter of twenty twenty four were $56,000,000 Excluding inventory and turnaround impacts, direct operating expenses declined by approximately $3,000,000 from the fourth quarter of twenty twenty three, primarily related to lower repair and maintenance Capital spending for the fourth quarter was 18,000,000 which was primarily maintenance capital. Full year 2024 capital spending was 37,000,000 of which $30,000,000 was maintenance capital. Estimate 2025 maintenance capital spending to be about $35,000,000 to $45,000,000 and growth capital spending to be $20,000,000 to $25,000,000 We expect a significant portion will be funded from cash the Board elected to start reserving over the past two years.

We ended the quarter with total liquidity of $130,000,000 which consisted of $91,000,000 in cash and availability under the ABL facility of dollars Within our cash balance of $91,000,000 we had approximately $9,000,000 related to customer prepayments for the future delivery of product. Assessing our cash available for distribution, we generated EBITDA of 50,000,000 and had net cash needs of approximately $32,000,000 for interest costs, maintenance CapEx and other reserves. A result, there was $18,000,000 of cash available for distribution and the Board of Directors of our general partner declared a distribution of $1.75 Looking ahead to the first quarter of twenty twenty five, we estimate our ammonia utilization rate to be between 95100%. We expect direct operating expenses to be $55,000,000 to $65,000,000 excluding inventory impacts and total capital spending to be between $12,000,000 and $16,000,000 With that, I'll turn the call back over to Mark.

Thanks, Dane. In summary, we had another strong quarter of operations and despite difficult application conditions in the fall, we experienced strong demand for nitrogen fertilizer throughout the quarter. We With the 2024 harvest complete, the USDA is now estimating record high [indiscernible] of 179 bushels per acre.

But these yield estimates are down from previous estimates of 183 bushels and inventory carryout levels for 2025 are now estimated to be Soybean yields are estimated to be 51 bushels per acre down from 53 bushels previously with an estimated inventory carryout of approximately 9%. These inventories are now below the ten year averages which has driven both corn and soybean prices higher since our last earnings call. With March corn prices at $5 per bushel and soybeans at $10.35 With tighter supply demand balances in fertilizer and higher grain prices, we expect to see strong demand for nitrogen fertilizer for spring application. The current grain prices planting favors corn over beans most estimates are calling for 91,000,000 to 94,000,000 planted acres of corn for spring twenty twenty five. Geopolitical risk continue to represent a wildcard North Africa and Russia. We continue to monitor developments in The Middle East that could impact energy and fertilizer markets and we expect 2025 will likely be a continued period of higher than historical volatility in the business. With the new administration in Washington, the dynamics are beginning to change. And The Middle East. We're also closely watching the potential imposition of tariffs on foreign fertilizer and energy imports particularly Canadian products.

The U. S. Is a significant importer of Canadian fertilizer, and the disruption in import flows could cause prices to increase in The U. S. Depending on the size and timing of tariffs. Natural gas prices in Europe have remained around $15 per MMBT since our last earnings call. While U. S. Prices continue to range between $3 and $4 per mMBtu. Europe has drawn down natural gas inventories more than expected and there are concerns about the ability to replenish the inventory Q4 winter of twenty twenty five given supply constraints into Europe, Although this could potentially be alleviated by additional gas supplies from Russia, pending any resolution of the war in Ukraine. The cost of produce ammonia in Europe is and several plant closures have been announced which we expect will continue to keep the global supplydemand balance tight through the first half of twenty twenty five. We continue to believe Europe faces structural natural gas market issues that will likely remain in effect over the next two years. At our Coffeyville facility, we have completed detailed engineering studies on the potential to utilize natural gas as an alternative feedstock to third party pet coke and we have seen no significant technical issues with implementing the project.

We're currently working on construction design plans and plan to seek Board approval to begin construction on the project. [indiscernible] This project could give us the ability to choose the optimal feedstock mix and be the only nitrogen fertilizer plant in The U. S. With that flexibility. As a reminder, if this project were implemented, we would likely continue to utilize the pet coke supplied by the adjacent Coffeyville refinery while the remainder of the feedstock can be flexed between natural gas and pet coke depending on prevailing prices. As we mentioned on the last earnings call, we have seen softening of pet coke prices in The U. S. Expect to see our pet coat costs decline further in the first quarter of twenty twenty five. We also continue to execute certain debottlenecking projects at both plants that are expected to improve the reliability and production rates. Goal of these projects is to support our target of operating our plants at utilization rates above 95% of nameplate capacity We completed the installation of two new boilers in Coffeyville, in the fourth quarter, which should improve our steam availability and reliability. For 2025, we're focused on water and electricity reliability, and quality at both plants We're also planning to install a nitrous oxide abatement unit the Coffeyville plant during our fall twenty twenty five turnaround.

After installation, we would have nitrous oxide abatement units all four of our nitric acid plants which aligns with our strategy of reducing the carbon footprint of our operations. The Board elected to continue reserving capital in the fourth quarter that we expect to spend over the next two to three years as we focus on improving reliability and redundancy at the two plants in efforts to provide better production rates and lower downtime in the future. The funds needed for the 2025 projects are coming from the reserves The fourth quarter continued to demonstrate the benefits of focusing on reliability and In the quarter, we executed on all of the critical elements of our business plan, which include safely and reliably operating our plants, with a keen focus on the health and safety of our employees contractors and communities, prudently managing cost, being judicious with capital, maximizing our marketing and logistics capabilities, and targeting opportunities to reduce carbon footprint. In closing, I'd like to thank our employees for their excellent execution safely achieving 96% ammonia utilization and solid delivery in our marketing and logistics plans. Resulting in a distribution of $1.75 per common unit for the quarter.

Thank you. We will now be conducting a question and answer session. Star keys, Our first question comes from the line of Brian DeRubio with Baird. Please proceed with your question.

Good morning, gentlemen. Just a couple for me this morning. First off, have you seen any changes in customer ordering patterns with the Fed lowering short term rates over the last couple of quarters. I think you were saying, Mark, last year that there was sort of more just in time ordering given the higher working capital cost Good morning, We haven't seen any real change in that pattern. I don't think the 100 basis points was enough to bring change customers' view on how much inventory to hold. So we're still seeing more ratable buying. And so really since the summer last year been very ratable for the last six, seven months.

Got it. Thank you.

And just switching gears, The timing that Coffeeville project, where you stand now, is that still a potential 2026 event? I'm not sure which project are you referring to? I apologize. The what I'm calling the dual fuel project the ability to switch from that gas to pet coke?

Yes. The plan would be to if it's approved by the Board would be to have it in place to be able to execute on a decision on feedstock for 2026.

So you start construction '26, so you get approval and then just trying to see where this starts We would start construction. It's approved. We did construction this year. So that we would have the option We have to sort of declare or make a decision before year end on whether we would use pet coke or natural gas. So we try to get that in place before year end. So we have that choice to make for next year. So how would this work then then? Can you not then switch back and forth daily or weekly You'd have to commit to one fuel or another for a year period?

I wouldn't say we would commit for a year period, but it won't be daily or weekly. We would probably make decisions over months, not not days or weeks. Okay. So mechanically you then operate on pet coke for, let's just say, argument say for a quarter.

If natural gas prices then collapse that you just basically turn off the pet coke valve and turn on the natural gas one and then you just start producing via natural gas Actually, it wouldn't work that. We would be we have two gas fires, so we would have a Petco gas fire running and a natural gas gas fire running and if we wanted to to if we go into turnaround on the pet coke, we would run 100% natural gas for a period of time. And then come back on pet coke or vice versa. If we want to run more pet coke, we would run switch over to the Petco gas fired run 100% there and it would produce enough hydrogen for our needs to produce. So today, we only run one gas fire under this scenario, we'd run both gas fires.

Okay. That's helpful there. Great. That's all I've got. Appreciate it. Thank you.

Our next question comes from the line of Rob Maguire with Granite Research. Please proceed with your question.

Good morning, Mark, Dane and Richard. Thank you for taking my questions. Good morning, Rob. Just a few questions on market trends. If could give us a little more insight, Mark. You mentioned supply demand is tight.

Can you talk about three trends? One is, are you feeling an impact of UAN demand as a consequence of higher urea prices and you give us a feel for UAN and ammonia inventories at distributor to the farm level? And then lastly, have you seen any trends towards the use of more UAN versus ammonia in the spring and fall planting seasons? And do you think there'll be any material shifts this year?

Okay. There's a lot of questions there. Let's take into pieces. The big driver in the market right now is urea. Urea is tight. [indiscernible] And the price has risen. These are public prices, but it's north of $400 in Noah. And New Orleans. And that that's following the global price, which right now is like $450 a ton metric. So they're just a lot of our customers have been looking to buy more urea into the spring and there's been I think limited availability. And so the market's tightened up. And that's sort of lifted both UAN [indiscernible] Ammonia is a little bit different because we typically sell the the spring prepay in December. So we'll see the effect of the higher pricing there in the when they buy cash orders starting in the spring. But we're seeing UAN kind of following urea UAN looks from where the market's priced today, maybe a little cheap. And so we may actually find more demand there. And so, yes, there's I would say the supply side has been tight. And I think our customers are seeing greater corn acreage in the spring. I was at a conference week last week and the customers are telling us that corn seed sales are up significantly year over year, which typically [indiscernible] And so I think the customers are feeling like they need to be buying more in advance because there's likely to be more acreage there.

So I actually think all the nitrogens will be stronger I think UAN where it's priced today is pretty attractive And if urea stays difficult to purchase then the next [indiscernible] customers would turn to UAN and apply more UAN both at pre plant but also in side dress and top dress season. Sorry, I'm kind of rambling there. So I'll stop and see if I've answered your questions.

No, that was great. Has there been a trend towards more UAN versus ammonia? I wouldn't say that there's really a big trend in that direction. A lot of times, it's more of the relative pricing at a moment in time. I would say right now ammonia looks pretty cheap compared to not unduly cheap, but a little bit cheaper than urea and UAN. Typically the relationship there. The fall was difficult. We scrambled and the customers scrambled and we didn't [indiscernible] difficult as the weather conditions are, we actually did get most of our ammonia orders out in the fourth quarter, but there could be some catch up in the spring And if they don't get there with ammonia in the spring for nitrogen, they'll come back with UAN or urea. So there's probably going to be a little bit of a pickup UAN and urea in the spring for for what didn't get down pre plant and back in the fall. This is great color. Thank you. And then we're twothree the way through February. Can you give us an idea of how much UAN has been presold in the first quarter and perhaps even in the second quarter of twenty twenty five?

Yes. I don't like to get very specific in our book. I would just say that the customers have been buying kind of like the previous question about Rainable. We've been sort of consistent sold forward, but not at the length that we are, but we have a solid book of business going into the spring already for UAN and ammonia. And customers are looking for more than what's available. Which is that's what's pushed the market up here in the last six weeks. So the customers would like to buy more What I heard at the conference, very difficult to find March tonnage. [indiscernible] And so the market is kind of in April.

At this point, just broadly amongst all the producers. So it just tells you the market is tight [indiscernible] and [indiscernible] we'll be working hard to fulfill what the customer needs April and May. But it's it's stronger this year than last year. I think our order book and the market itself going into the spring this year is stronger than last year. And it looks like we're going to have somewhere between two to 4,000,000 more acres of corn this year than last year. That's helpful. Thank you.

And then shifting gears and the last question, how should CapEx excluding turnaround reserves look for the balance of the year?

Rob, for looking forward to 2025, I don't think you should expect to see a substantial Obviously, as we we look at the higher CapEx profile, the balance of the growth projects has really already been reserved and we'll continue to reserve at a comparable level. And same on the turnaround.

Okay, Dane. I appreciate it. Mark, thank you again, Richard. Thank you. Thanks, Rob. Thank you. We have reached the end of the question and answer session. I would now like to turn the floor back over to management for closing comments.

Just want to say thanks to everybody who attended the call today. And appreciate your interest in CVR Partners. I look forward to talking to you about our first quarter results at the April. Thank you very much.

Your lines at this time. Thank you for your participation and have a wonderful day.