Cvr Partners, LP Q4 FY2025 Earnings Call

Hello, and thank you for joining us. My name is Bella, and I will be your conference operator today. I would like to welcome everyone to the fourth quarter 2025 CVR Partners LP Earnings Conference Call. I would now like to turn the conference over to Richard Roberts, Vice President of FP&A and Investor Relations. Please proceed.

Thank you. 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 fourth quarter and full year 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 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 fourth quarter earnings release that we filed with the SEC on Form 10-K for the period and will be discussed during the call. Let me remind you that we are a variable distribution MLP, and we'll 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. Before we get into the results, I would like to introduce our new Chief Operating Officer, Mike Wright. Mike also serves as COO of CVR Energy, a position he's held since January of 2022. Mike has nearly 35 years of experience in the refining and petrochemicals industries in a variety of operations and commercial roles, and we are excited to have him leading our fertilizer operations teams. Turning to the results for the fourth quarter of 2025, we reported net sales of $131 million, a net loss of $10 million, EBITDA of $20 million. The Board of Directors declared a fourth quarter distribution of $0.37 per common unit, which will be paid on March 9, to unitholders of record at the close of the market on March 2. For the full year 2025, we reported EBITDA of $211 million and distributions of $10.54 per common unit. We had another year of solid operations from our facilities with an ammonia utilization rate of 88% for the year. For the fourth quarter of 2025, our ammonia plant utilization was 64%, which was impacted by the planned turnaround and subsequent delayed start-up at the Coffeyville facility. While the turnaround was completed in early November as scheduled, we experienced additional downtime following approximately 3 weeks of start-up issues at the third-party air separation plant. Although production and sales volumes were lower than we expected, pricing for nitrogen fertilizers remains strong throughout the quarter, and we continue to be optimistic about the spring planting season, 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. Turning to our results for the full year 2025, we reported net sales of $606 million and operating income of $129 million. Net income for the year was $99 million or $9.33 per common unit and EBITDA was $211 million. For the fourth quarter of 2025, we reported net sales of $131 million and an operating loss of $3 million. Net loss for the fourth quarter was $10 million or $0.97 per common unit and EBITDA was $20 million. Relative to the fourth quarter of 2024, EBITDA decreased primarily due to lower production and sales volumes and higher direct operating costs associated with the planned turnaround of Coffeyville. Total ammonia production for the fourth quarter was 140,000 gross tons, of which 62,000 net tons were available for sale and UAN production was 169,000 tons. During the quarter, we sold approximately 182,000 tons of UAN at an average price of $355 per ton and approximately 81,000 tons of ammonia at an average price of $626 per ton. Relative to the fourth quarter of 2024, UAN and ammonia sales volumes were lower as a result of the planned turnaround and subsequent start-up issues at Coffeyville that Mark discussed previously. Fourth quarter prices for UAN increased approximately 55% and ammonia prices increased approximately 32% relative to the prior year period. Direct operating expenses for the fourth quarter of 2025 were $81 million, which included turnaround expenses of approximately $14 million. Excluding inventory and turnaround impacts, direct operating expenses increased by approximately $9 million from the fourth quarter of 2024, primarily related to higher repair and maintenance and personnel expenses. Capital spending for the fourth quarter was $27 million, of which $17 million was for maintenance capital. Capital spending for the full year 2025 was $57 million, of which $35 million was maintenance capital. We estimate 2026 maintenance capital spending to be $35 million to $45 million and growth capital spending to be $25 million to $30 million. As a reminder, we expect a significant portion of the 2026 growth capital spending will be funded from the cash the Board elected to reserve over the past several years. We ended the quarter with total liquidity of $117 million which consisted of $69 million in cash and availability under the ABL facility of $48 million. Within our cash balance of $69 million, we had approximately $3 million related to customer prepayments for the future delivery of product. In assessing our cash available for distribution, we generated EBITDA of $20 million and had net cash needs of approximately $16 million for interest costs, maintenance CapEx and other reserves. As a result, there was $4 million of cash available for distribution and the Board of Directors of our general partner declared a distribution of $0.37 per common unit. Looking ahead to the first quarter of 2026, we estimate our ammonia utilization rate to be between 95% and 100%. We expect direct operating expenses to be $57 million to $62 million, excluding inventory impacts, and total capital spending to be between $25 million and $30 million.

Thanks, Dane. In summary, although we were disappointed about the extended downtime associated with the third-party air separation unit during the quarter, nitrogen fertilizer market conditions continue to be constructive and pricing has remained robust. With the 2025 harvest complete, the USDA is now estimating a record crop year with corn yields of nearly 187 bushels per acre on nearly 99 million acres of corn planted. Soybean yields are estimated to be 53 bushels per acre on over 81 million planted acres. U.S. inventory carryout levels are expected to be above the 10-year average for corn and below for soybeans. Despite the record harvest, May corn prices remain around $4.45 per bushel, and current expectations are for approximately 95 million acres of corn to be planted in 2026. At this level of planting, we expect to see continued strong demand for nitrogen fertilizers through the spring. On the supply side of the equation, inventory levels around the world continue to appear tight. Geopolitical tensions remain a key risk to nitrogen fertilizer supplies, given the significant production capacity in countries across the Middle East, North Africa, and Russia. We continue to monitor developments in the Middle East that could impact energy and fertilizer markets, and we expect 2026 will likely be a continued period of higher than historical volatility in the business. Natural gas prices in the U.S. saw a sharp increase earlier this year due to extreme cold weather across several regions of the country. However, prices have since declined and have been trending between $3 and $4 per MMBtu. Meanwhile, natural gas prices in Europe averaged over $10 per MMBtu for the fourth quarter and had been over $13 since the beginning of the year. The cost to produce ammonia in Europe has remained durably at the high end of the global cost curve, and production remains below historical levels, which creates opportunities for U.S. Gulf Coast producers to export ammonia to Europe for upgrade. We continue to believe Europe faces structural natural gas supply issues that will likely remain in effect through 2026. We continue to execute certain debottlenecking projects at both plants that are expected to improve reliability and production rates. The goal of these projects is to support our target of operating our plants at utilization rates above 95% of nameplate capacity, excluding the impact of turnarounds. For 2026, we are focused on water and electricity reliability and quality at both plants and expanding our DEF production and load-out capacity among other projects. We also continue working on construction and design plans for the feedstock diversification and ammonia expansion project at the Coffeyville facility. As a reminder, this project should provide us the ability to choose the optimal mix of natural gas and third-party pet coke depending on prevailing prices. The Board elected to continue reserving capital for these projects in the fourth quarter that we expect to spend over the next 2 years. Our focus is on improving reliability and redundancy at the two plants in efforts to provide better production rates and lower downtime in the future. The fourth quarter demonstrated the benefits of focusing on reliability and performance. In the quarter, we continue to focus 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 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 all their hard work during the Coffeyville turnaround and continuing to deliver on our marketing and logistics plans, resulting in a distribution of $0.37 per common unit for the fourth quarter. With that, we're ready to take any questions.

Your first question comes from the line of Rob McGuire of Granite Research.

Just a few questions. One is, what are you seeing in terms of UAN imports out there? Are you seeing a dearth of imports from Trinidad? And in particular, what are you seeing from Russia and any other color you can give to us?

I wouldn't say that we are seeing anything unusual. We're still bringing in some tonnage. The main issue in Trinidad is the Nutrien plant being down for an upgrade, which means less tonnage is coming in from there. I believe this is keeping the UAN market tight in the states. I've noticed some commentary from Nutrien, and it seems unlikely that the plant will be back in operation soon. There is a combination of ammonia and UAN tightness due to reduced imports. The Russian product has been flowing consistently, and I wouldn't say there are any significant changes in that regard. The market is keeping a close eye on recent drone strikes targeting Russian fertilizer plants or export terminals. Overall, it feels like the supply-demand balance in UAN is quite tight.

Switching topics. The current deferred revenue was $23 million at year-end, and that was down from $51 million year-over-year. Does that mean there was less product presold this year rather than relative to last year?

Yes. I would say it was a timing issue because we typically see more activity in December for tax planning purposes from our customers, but we didn't see as much this year. However, that demand has picked up in January and the early part of February. I would characterize our current situation as normal, and if anything, we have a slightly larger book for the spring than usual. It simply didn't align with the usual December timeline, but customers are purchasing product, and we have a significant book for the spring.

And then is it safe to assume that ammonia and UAN pricing will increase sequentially, heading into the first quarter of 2026?

Yes. If you look at our book of business today, it's at higher prices than the fourth quarter. And so yes, there will be an uptick. It won't be dramatic, but there'll be an uptick from the fourth quarter to the first quarter.

Great. And then do you feel confident about the air separator issue at Coffeyville being resolved at this point? Might you receive compensation from the operator for downtime and related shortfall on that?

Let me begin by saying that I believe we have addressed the issues that led to the delayed startup. We are not satisfied with the performance and are currently in talks with the service provider regarding our future strategy for operations and maintenance at that facility. We are working on what I would describe as an updated business plan that will involve us taking a more active role in the ongoing activities there. We are not going to sit back and accept the situation; instead, we will be taking a different approach than we did in November. While the contract includes penalties and some were incurred, they only represent a small fraction of our lost production at the facility. This situation is frustrating, and while the penalties are meant to incentivize the provider to deliver quality service and get us online, they do not compensate for the production shortfall. We are reassessing our business relationship, and in the upcoming quarters, we will share more details about our future strategy, but it will not be business as usual.

I appreciate that. And then last question, Mark. I always appreciate your commentary on the market acreage is supposed to be down for corn this year, as you mentioned in your opening remarks. And I'm just kind of curious I would think that would hurt demand just a little bit, then again, there are more supply constraints. So can you kind of just give us how you feel the spring is going to work out? And why are you feeling so optimistic about it?

Sure. If you had asked me three years ago about having 95 million acres of corn, I would have been thrilled. That number is really at the high end, aside from last year, and it represents a significant amount of acreage. Given the 99 million acres planned, we need to replenish nitrogen in the soil since corn consumes a lot of it. The nitrogen levels have decreased, so fertilization is necessary. This year is shaping up to be a strong demand season. Last year reached peak levels, but even with 99 million acres planted, application rates might vary. Therefore, you can't directly compare 99 million with 95 million acres. If we focus on more productive land for higher yields, we will use more fertilizer, complicating a straightforward comparison. The supply side continues to be a major concern, and we could discuss various regions globally that are facing constraints. There have been issues with natural gas availability in certain countries, and conflicts in some areas are still ongoing. We're also monitoring Iran, as they are a significant nitrogen producer and exporter. Any disruption in the Strait of Hormuz could impact Iran's production, especially with spring approaching in about six weeks. The supply challenges have been substantial, while demand remains robust. Recently, ammonia distribution has been picking up in the Midwest, extending into Iowa, Illinois, and down to the Southern Plains. This early ammonia activity bodes well for spring. Although it was cold a few weeks ago, the situation is improving, and we're optimistic as we head into spring. We're seeing good momentum and have a solid order book for the company. We expect to operate at high utilization and efficiently meet our customers' needs.

That was really helpful. And just one other follow-on is just with product moving at this point, is there a change in trend in terms of the farmer living food-to-mouth? Or are they starting to plan early at this point in time or it's just that the application is starting earlier given the weather opportunities.

I believe your last comment is key; the conditions have improved here in February instead of March. So, it's likely that things are ahead by a couple of weeks or even three. It may not seem significant, but in farming, particularly in farmland, that's quite impactful. If you're a farmer and can get an early start on your ammonia application, it truly helps with preparing for spring. Early ammonia runs boost everyone's confidence since it allows for a longer timeframe to apply it and plant afterwards. There's a lot of optimism regarding the conditions. We began the year with extremely cold weather all the way to the Canadian border, but we are now seeing an improvement in weather conditions. Consequently, we have been moving product from our plants to the fields.

There are no questions at this time. I will now turn the call back over to Mark Pytosh for closing remarks.

Again, I'd like to thank all of you for your interest in CVR Partners and being on the call today and our employees for their hard work and commitment towards safe, reliable and environmentally responsible operations. And we look forward to reviewing our first quarter results here in a couple of months. Thank you for being here today. Thanks.

Ladies and gentlemen, that does conclude our conference call for today. Thank you all for joining, and you may now disconnect. Everyone, have a great day.