CVR Partners, LP (UAN) Q2 2013 Earnings Report, Transcript and Summary

Greetings, and welcome to the CVR Partners second-quarter 2013 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. Wes Harris, Vice President Investor Relations. Thank you, Mr. Harris. You may now begin.

Well, thank you, Jessie. We appreciate everyone's participation on the call this morning. With me today are Chief Executive Officer, Byron Kelly; Chief Operating Officer, Stan Rieman; and Chief Financial, Officer Susan Ball. Before we start to discuss our 2013 second-quarter results, as usual, we're required to make the following Safe Harbor statements. In accordance with federal security law, statements in this earnings call related to matters that are not historical facts are considered forward-looking statements. These forward-looking statements are based on management's beliefs and assumptions using currently available information and expectations as of this day. These forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, including those noted in our filings with the Securities and Exchange Commission. In addition, today's presentation, includes various non-GAAP financial measures. The disclosures related to such non-GAAP measures, including reconciliations to the most directly comparable GAAP financial measures, are included in our 2013 second-quarter results release that was put out this morning. Adjusted EBITDA is an example of such non-GAAP measures. Adjusted EBITDA represents net income adjusted for depreciation, amortization, net interest expense, income tax expense, and share-based compensation. So with that, I'll turn the call over to Byron Kelley, our CEO. Byron?

Thank you, Wes. Excuse me. And good morning to everyone. I am pleased to report that we posted another quarter of solid financial results for the three months ended June 30th. During the 2013 second quarter, we recorded net income of $35.4 million on $88.8 million of net sales. And this is compared to net income of $35.1 million on net sales of $81.4 million in the second quarter of 2012. Adjust EBITDA for the 2013 second quarter was $44.1 million which was the same as last year. Last Friday, we announced a distribution of $0.583 per common unit outstanding for the second quarter of 2013. Combined with our first-quarter distribution of $0.61, this provides us year to date distribution of $1.19 for the first six months of the year. This compared with $1.12 paid for the first six months of 2012 and that represents about 6.3% increase year over year. Our 2013 second-quarter distribution will be paid on August the 14th to unit holders of record on August the 7th. Combining the quarter strong net sales contributed to quarter strong net sales with higher product prices for both ammonia and urea ammonia nitrate, or referred to as UAN. Driven by another large planting of corn acreage in the spring, the average net price we received for UAN and ammonia this past quarter was $331 per ton and $688 per ton, respectively. This is compared to an average net back of $329 per ton for UAN and $568 per ton for ammonia in the 2012 second quarter. The 2013 second quarter was also the first full year – first full quarter of operations of our expanded UAN plant, which was placed in service in late February. Unfortunately, as a result of two externally-driven occurrences that impacted production, we did not…

Thank you, Byron, and good morning, everyone. As Byron discussed, second-quarter 2013 net sales were $88.8 million, as compared to $81.4 million in 2012 contributing to the increase was higher UAN sales volumes and related freight revenue due to the plant expansion. In addition, an increase in sales prices for ammonia and UAN, as well as the net impact of our hydrogen sales to the adjacent refinery positively impacted our year-over-year quarterly comparisons. Partially offsetting the overall increase in net sales was lower ammonia sales volumes due to the increase conversion of ammonia afforded by the expanded UAN plant. To a lesser extent, ammonia sales volumes for the 2013 second quarter were also impacted by the production issues that Byron mentioned in his opening comments. Cost of products sold for the 2013 second quarter was $15.6 million, as compared to $10.7 million in the second quarter of 2012. This increase was primarily associated with the ammonia purchases previously mentioned and higher freight expense in this year's second quarter. As a reminder, freight costs – as freight costs are reimbursed to us by our customers, freight expense recognized in our cost of products sold is offset by a similar amount in revenues during the same period. Partially offsetting the overall increase in cost of products sold was reduced consumption of pet coke in the 2013 second quarter due to the plant down time, as well as a lower blended price per ton for pet coke consumed. During the 2013 second quarter, our average cost for consumer pet coke was $29 per ton. This is compared to $31 per ton for the second quarter of 2012. We typically purchase over 70% of our pet coke from the adjacent refinery. The remaining 30% of our pet coke requirement is purchased from a third-party…

: : : : A couple of things around the market environment. : : : What has happened in China if you really look at their increased production is normally, they run their urea plants at about 75% production. This year as a result of the decline in the housing market demand in China – much really driven by Chinese government policy – you've seen – with the reduction in housing market, you've seen the price of coal, which is a fuel utilized in homes for both – for all fuel sources – you've seen the price of coal in China decline significantly. : So how do these factors impact our fill season prices? Well, for competitive reasons, you know it's our policy to only publicly divulge sales prices on a retroactive basis, so I'm not going to tell you what our prices are for the second half of the year. However, I can tell you that our fill prices for UAN, for the second half of the year, are approximately $30 per ton lower than our previous expectations, and will be slightly less – certainly less than what we saw last year. Now have said that, I would note that the average price we expect to realize for UAN sales in the second half of 2013 is higher than the average for the previous five years. So I think you see a lot of concern about UAN prices moving down, which they have. But quite frankly, they're still pretty darn good UAN prices that the producers are receiving this year. The other full factor that's impacting our full-year expectation is related, as I mentioned, the unexpected downtime and the reduced productions that I've already discussed. We look forward, quite frankly, very much to having our entire plant back up…

Thank you. (Operator instructions). One moment please while we poll for questions. Thank you. And it appears we have no questions at this time. I would like to turn the floor back over to Mr. Wes Harris for any concluding remarks.

Well, we thank everyone for participating today. Given we pre-released our estimates last Friday, I think that's probably a direct reflection on the number of questions. So again, thanks for everyone's time this morning. And we look forward to speaking with you in November when we discuss our third-quarter results. Thank you.

Thank you, ladies and gentlemen. This does conclude today's teleconference. You may disconnect your lines at this time. And thank you for your participation.