Cvr Partners, LP Q3 FY2025 Earnings Call

Greetings, and welcome to the CVR Partners Third Quarter 2025 Conference Call. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Richard Roberts, Vice President of FP&A and Investor Relations. Thank you, sir. You may begin.

Thank you, Eric. Good morning, everyone. We appreciate your participation in today's call. With me today are Mark Pytosh, our Chief Executive Officer; Dane Neumann, our Chief Financial Officer; and other members of management. Prior to discussing our 2025 third quarter 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. 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 2025 third quarter earnings release that we filed with the SEC for the period. Let me also 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 partner's Board. As a result, our distributions, if any, will vary from quarter to quarter due to several factors, including, but not limited to, operating performance, fluctuations in the prices received for finished products, capital expenditures and cash reserves deemed necessary or appropriate by the Board of Directors of our general partner. With 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. The summarized financial highlights for the third quarter of 2025 include net sales of $164 million, net income of $43 million, EBITDA of $71 million, and the Board of Directors declared a third quarter distribution of $4.02 per common unit, which will be paid on November 17 to unitholders of record at the close of the market on November 10. For the third quarter of 2025, our consolidated ammonia plant utilization was 95%, which was impacted by some planned and unplanned downtime at both facilities during the quarter. Combined ammonia production for the third quarter of 2025 was 208,000 gross tons, of which 59,000 net tons were available for sale and UAN production was 337,000 tons. During the quarter, we sold approximately 328,000 tons of UAN at an average price of $348 per ton and approximately 48,000 tons of ammonia at an average price of $531 per ton. Relative to the third quarter of 2024, sales volumes were down slightly primarily as a result of low inventory levels at the end of the second quarter, following the strong demand in the first half of 2025. UAN and ammonia prices increased 52% and 33%, respectively, from the prior year period, driven by tight inventory levels across the system as a result of elevated demand and reduced supply associated with domestic and international production outages. Overall, we had a strong third quarter with UAN pricing above levels we saw in the spring and we believe the setup is favorable for the remainder of the year and into the first half of 2026. Domestic and global inventories of nitrogen fertilizer remain tight, and that has been supportive of higher prices which I will discuss further in my closing remarks. I will now turn the call over to Dane to discuss our financial results.

Thank you, Mark. For the third quarter of 2025, we reported net sales of $164 million and operating income of $51 million. Net income for the quarter was $43 million, $4.08 per common unit and EBITDA was $71 million. Relative to the third quarter of 2024, the increase in EBITDA was primarily due to a combination of higher UAN and ammonia sales pricing. Direct operating expenses for the third quarter of 2025 were $58 million. Excluding inventory impacts, direct operating expenses increased by approximately $7 million relative to the third quarter of 2024 primarily due to higher natural gas and electricity costs and some preliminary spending associated with Coffeyville's plant turnaround. During the third quarter of 2025, we spent $13 million on capital projects, of which $7 million was maintenance capital. We estimate total capital spending for 2025 to be approximately $58 million to $65 million, of which $39 million to $42 million is expected to be maintenance capital. We anticipate a significant portion of the profit and growth capital spending planned for 2025 will be funded through cash reserves taken over the past two years. We ended the quarter with total liquidity of $206 million, which consisted of $156 million in cash and availability under the ABL facility of $50 million. Within our cash balance of $156 million, we had approximately $28 million related to customer prepayments for the future delivery of product. In assessing our cash available for distribution, we generated EBITDA of approximately $71 million and net cash needs of $34 million for interest costs, maintenance CapEx and other reserves and had $6 million released from previous reserves. As a result, there was $42 million of cash available for distribution and the Board of Directors of our general partner declared a distribution of $4.02 per common unit. Looking ahead to the fourth quarter of 2025, we estimate our ammonia utilization rate to be between 80% and 85%, which will be impacted by the planned turnaround currently underway at the Coffeyville facility. We expect direct operating expenses, excluding inventory and turnaround impacts be between $58 million and $63 million and total capital spending to be between $30 million and $35 million. Turnaround expense is expected to be between $15 million and $20 million. With that, I will turn the call back over to Mark.

Thanks, Dane. Harvest is currently on schedule and nearing completion. The USDA is estimating yields of approximately 187 bushels per acre on 98.7 million acres of corn and inventory carryout levels of approximately 13%. Soybean yields are estimated to be 54 bushels per acre on 81 million acres planted with inventory carryout levels of 7%, although the soybean numbers will likely be impacted by ongoing trade friction with China. Both of these carryout estimates are at or below the 10-year averages. Grain prices have remained at the lower end of the last 12-month range, driven primarily by expectations of large crop production in Brazil and North America this year and potential trade disputes where the purchase of grains may be used as a negotiating tool and reaching trade agreements. December corn prices are approximately $4.30 a bushel. In November, soybeans are approximately $10.90 per bushel. The administration and congressional leaders have indicated they intend to provide a subsidy program for farmers to help offset lower grain prices and higher input costs. Geopolitical conflicts are continuing to impact the nitrogen fertilizer industry. In the third quarter, Ukraine continued to target nitrogen fertilizer plants and export infrastructure in Russia; after the large planting seasons in the U.S. and Brazil and the loss of production due to geopolitical factors, fertilizer inventory levels across the industry have been tight and are taking time to replenish. We expect these conditions to persist into the spring of 2026. The wildcard continues to be the potential for tariffs on Russian fertilizer imports that could have significant impacts on pricing in the near term. Natural gas prices in Europe have been steady since our last earnings call and remained around $11 per MMBtu currently, while U.S. prices continue to range between $3 and $4 per MMBtu. As we near winter, Europe has refilled its natural gas inventories at a lower level than normal and there's a risk of prices moving higher if the winter is cooler than expected. The cost of produced ammonia in Europe has remained durably at the high end of the global cost curve, and production remains below historical levels, which has created opportunities for U.S. Gulf Coast producers to export ammonia to Europe for upgrading. We continue to believe Europe faces structural natural gas supply issues that will likely remain in effect through 2026. We are nearing the completion of the planned turnaround at our Coffeyville facility. In the early phases of the turnaround, we experienced an ammonia release which we currently anticipate could delay the completion of turnaround work by a few days relative to the original schedule. We expect the facility to resume full production in the next few weeks. As a reminder, we are currently planning for a 35-day turnaround at our East Dubuque facility in the third quarter of 2026. At our Coffeyville facility, we continue to work on a detailed design and construction plan to allow the plant to utilize natural gas and additional hydrogen from the adjacent Coffeyville refinery as alternative feedstocks to third-party pet coke. This project could also expand Coffeyville's ammonia production capacity by up to 8%. We also continue to execute certain debottlenecking projects at both plants that are expected to improve reliability and production rates. These include water quality upgrade projects at both plants and the expansion of our DEF production and load-out capacity. The goal of these projects is to support our target of operating the plants at utilization rates above 95% of nameplate capacity, excluding the impact of turnarounds. The funds needed for these projects are coming from the reserves taken over the last two years, and the board elected to continue reserving capital in the third quarter. While the Board looks at reserves every quarter, I would expect them to continue to elect to reserve some capital and we anticipate holding higher levels of cash related to these projects in the near term as we ramp up execution and spending, which we expect will take place over the next 2 to 3 years. The third quarter continued to demonstrate the benefits of focusing on safety, reliability, and performance. In the quarter, we executed on all the critical elements of our business plan, which includes safely and reliably operating our plants with a keen focus on the health and safety of our employees, contractors, and communities, prudently managing costs, being judicious with capital, maximizing our marketing and logistics capabilities, and targeting opportunities to reduce our carbon footprint. In closing, I would like to thank our employees for their safe execution during a few brief outages in the quarter, achieving 95% ammonia utilization and the solid delivery on our marketing and logistics plans resulting in a distribution of $4.02 per common unit for the third quarter. With that, we're ready to answer any questions, Eric.

We will now be conducting a question-and-answer session. Our first question comes from the line of Rob McGuire with Granite Research.

Could you, Mark, provide an update on the Coffeyville natural gas feedstock project? I apologize for needing to ask, but when do you expect that to start? Also, are you able to share details about the total cost for the project and your expectations for returns?

I'm not ready to discuss finalizing the cost and returns yet. We are currently in the detailed engineering phase and need to confirm some aspects regarding configuration and infrastructure requirements. However, everything appears to align with our expectations. To clarify, this is a combined project. It involves taking additional hydrogen from the refinery, which has a reformer unit. We are considering augmenting hydrogen from the refinery and potentially replacing some pet coke feedstock with natural gas. The hydrogen aspect would enhance our production capacity, contributing to a potential increase of up to 8% in that capacity. We have been reserving capital for this project, and I expect to provide more specific details in the next call. So far, all the engineering results and construction plans are on track with our original projections.

I appreciate that. And shifting gears, any concerns about drought conditions impacting ammonia runs in this ammonia application season.

Not in the markets where we're placed. We've had some moisture here in the last week, particularly the big ammonia run for us is up in the Northern Plains around East Dubuque, and there has been moisture. So I actually think conditions are as close to perfect as we could predict because the harvest is basically complete there. We've emptied the fields, the soil temperatures are down, and moisture has come in over the last week. That combination creates nearly ideal conditions. I'm expecting a significant fall ammonia run. Customers are telling us we have a solid book of business already, but people are now coming in with additional cash orders. Therefore, I expect a strong fall ammonia run and I'm very optimistic.

Wonderful. And I mean, kind of just moving forward to that question is just how significant of an impact do you think it will be for the acreage to be down this coming season, at least on anticipated acreage? And is it simply that inventories are down, supply is tight, so you're not concerned at all about selling your volume at elevated prices? Or will there be an impact maybe even on imports?

There are several aspects to consider in response to that. Firstly, we had anticipated a decline in corn acreage for next year. However, recent events in Korea have led to a shift in sentiment, and it seems that corn acreage may not decrease as much as previously thought. There is growing concern about the end markets for soybeans, which could result in an increase in corn acreage as a precaution against potential trade tensions. I actually believe that corn acreage could surprise us positively, rather than falling significantly, as many analysts suggested it might dip below 90 million acres, which is still considered a strong performance. Farmers appear to think that there could be limitations on soybean exports, leading to this potential increase in corn planting. Regarding inventory levels, they are already tight; therefore, any reduction in acreage may not greatly affect us in 2026 as it typically would, since there is an urgency to replenish what we currently have. Additionally, Nutrien's recent announcement about shutting down one of their Trinidad plants, which supplies the U.S., will influence the replenishment timeline. Consequently, I'm not overly worried about the acreage situation. We monitor it closely, but at this moment, I believe the market is equipped to manage the circumstances.

That's really interesting. And then with regards to the Trinidad and just looping Russia on imports, are you seeing an impact in the marketplace on those imports at this point in time?

We have not observed any impact from Russian imports. In fact, Russia plays a significant role, particularly in UAN, as they are the marginal producer in the marketplace and have been exporting large quantities to the U.S. Therefore, there has been no effect on supply. The concern in the market arises if there were to be any tariffs or sanctions on fertilizer, which could significantly affect supply. But so far, we haven't seen any indications of that. Throughout this year, despite geopolitical events, there have been no restrictions on imports from Russia, particularly regarding UAN, which has been a major contributor in the U.S.

Well, that's really helpful. And Mark, last question, and I certainly won't hold you to this, but I'd love to hear what your outlook is for the price of ammonia, UAN and urea heading into fourth quarter.

We don't disclose pricing for those products, but I anticipate a strong quarter. The market has been robust since the UAN fill season and ammonia prepay. Pricing will be higher in the fourth quarter compared to Q3, as is typically the case. We can expect to see that reflected in our results. While I’m not ready to make predictions about pricing for spring, I am optimistic about the supply-demand balance and what we can expect. I believe these market conditions will persist through the first half of 2026.

Thank you. We have reached the end of the question-and-answer session. I'd now like to turn the floor back over to management for closing comments.

Well, thanks, everybody, for participating in the call today, and we look forward to reviewing our fourth quarter results with you in February. Have a nice day.

Ladies and gentlemen, this concludes today's call. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.