UAN - NYSE

For a conference call. At this time, all participants are in a listen-only mode. 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 Financial Planning and Analysis and Investor Relations. Thank you, sir. You may begin.

Thank you, Christine. 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. To discuss our 2024 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 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, 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. The 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 2024 fourth quarter earnings release that we filed with the SEC and Form 10-K for the period and 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 partner's 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. With that said, I'll turn the call over to Mark Pytosh, our Chief Executive Officer.

Thank you, Richard. Good morning, everyone, and thank you for joining us for today's call. To summarize financial highlights for the fourth quarter of 2024, included net sales of $140 million, net income of $18 million, and EBITDA of $50 million. 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 $179 million 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 are also proud to report continued improvement in our safety metrics in 2024 with a 40% reduction in total recordable incident rate compared to 2023. In the fourth quarter of 2024, 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. We sold approximately 97,000 tons of ammonia at an average price of $475 per ton. Relative to the fourth quarter of 2023, ammonia sales volumes were in line and UAN sales volumes were down approximately 3%, partially due to the challenging weather conditions during the fall application. Fourth 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 the third quarter. 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. 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 2024, we reported net sales of $525 million and operating income of $90 million. Net income for the year was $61 million or $5.76 per common unit, and EBITDA was $179 million. For the fourth quarter of 2024, we reported net sales of $140 million and operating income of $26 million. Net income for the fourth quarter was $18 million, or $1.73 per common unit, and EBITDA was $50 million. Relative to the fourth quarter of 2023, EBITDA increased primarily due to higher ammonia sales prices and lower pet coke feedstock costs. Direct operating expenses for the fourth quarter of 2024 were $56 million. Excluding inventory and turnaround impacts, direct operating expenses declined by approximately $3 million from the fourth quarter of 2023, primarily related to lower repair and maintenance expenses. Capital spending for the fourth quarter was $18 million, which was primarily maintenance capital. Full year 2024 capital spending was $37 million, of which $30 million was maintenance capital. We estimate 2025 maintenance capital spending to be about $35 to $45 million and growth capital spending to be $20 to $25 million. We expect a significant portion of the 2025 growth capital spending 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 million, which consisted of $91 million in cash and availability under the ABL facility of $39 million. Within our cash balance of $91 million, we had approximately $9 million related to customer prepayments for the future delivery of product. Assessing our cash available for distribution, we generated EBITDA of $50 million and had net cash needs of approximately $32 million for interest costs, maintenance CapEx, and other reserves. As a result, there was $18 million of cash available for distribution, and the Board of Directors of our general partner declared a distribution of $1.75 per common unit. Looking ahead to the first quarter of 2025, we estimate our ammonia utilization rate to be between 95% and 100%. We expect direct operating expenses to be $55 to $65 million, excluding inventory impacts, and total capital spending to be between $12 and $16 million. 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. With the 2024 harvest complete, the USDA is now estimating record high corn yields of 179 bushels per acre. But these yield estimates are down from previous estimates of 183 bushels. Inventory carryout levels for 2025 are now estimated to be approximately 10%. 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 soybean 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. At current grain prices, planting favors corn over beans, with most estimates calling for 91 million to 94 million planted acres of corn for spring 2025. Geopolitical risks continue to represent a wildcard for the nitrogen fertilizer industry, given the significant fertilizer production capacity residing 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 2025 will likely be a continued period of higher-than-normal volatility. With the new administration in Washington, the dynamics are beginning to change, with the stated desire to end the conflicts in Ukraine and the Middle East. We are also closely watching the potential imposition of tariffs on foreign fertilizer and energy imports, particularly Canadian products. The US is a significant importer of Canadian fertilizer, and the disruption in import flows could cause prices to increase in the US, depending on the size and timing of tariffs. Natural gas prices in Europe remained around $15 per MMBtu since our last earnings call, while US 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 before winter of 2025, 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 to produce ammonia in Europe is running durably at the high end of the global cost curve, and several plant closures have been announced, which we expect will continue to keep the global supply-demand balance tight through the first half of 2025. 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 are currently working on construction design plans and plan to seek board approval to begin construction on the project. If successfully implemented, this project could give us the ability to choose the optimal feedstock mix and be the only nitrogen fertilizer plant in the US with that flexibility. As a reminder, if this project were implemented, we would likely continue to utilize 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 a softening of pet coke prices in the US and expect to see our pet coke costs decline further in the first quarter of 2025. We also continue to execute certain debottlenecking projects at both plants that are expected to improve the 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. 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 are focused on water and electricity reliability and quality at both plants, among other projects. We are also planning to install a nitrous oxide abatement unit at the Coffeyville plant during our fall 2025 turnaround. After installation, we would have nitrous oxide abatement units at 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 taken over the last two years. The fourth quarter continued to demonstrate the benefits of focusing on reliability and performance. In the quarter, we executed on all 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 our 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. With that, we're ready to take any questions.

Thank you. We will now be conducting a question and answer session. You may press star two if you would like to remove your question from the queue. One moment please while we poll for questions. Thank you. Our first question comes from the line of Brian DiRubbio 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 it was sort of more just-in-time ordering given the higher working capital cost.

Good morning, Brian. We have not seen any real change in that pattern. I do not think the 100 basis points was enough to bring, you know, the change in customer's view on how much inventory to hold. So we are still seeing more ratable buying. And so, really, since summer last year, it has been very ratable for the last six, seven months.

Got it. Thank you. And just switching gears, the timing of that Coffeyville project, where you stand now, is that still a potential 2026 event?

I am not sure which project you are referring to. I apologize. The what I am calling is a dual fuel project.

The ability to switch from natural gas to pet coke.

Yeah. The plan would be to, if it is approved by the board, have it in place to be able to execute on a decision on feedstock for 2026.

So you start construction in 2026, so you get approval and then trying to see where this starts.

We would start construction. If it is approved, we would do construction this year, so that we would have the option. You know, 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? You know, can you not then switch back and forth daily or weekly? You would have to commit to one fuel or another for a year period.

I would not say we would commit for a year period, but it will not be daily or weekly. We would probably make decisions over months, not days or weeks.

Okay. So mechanically, you then, you know, operate on pet coke for, let's just say, argument's sake, for a quarter. If natural gas prices then collapse, do 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?

Yeah. Actually, it would not work that way. We would be operating with two gasifiers, so we would have a pet coke gasifier running and a natural gas gasifier running. And if we wanted to, you know, 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 switch over to the pet coke gasifier, run 100% there, and it would produce enough hydrogen for our needs to produce. So today, we only run one gasifier. Under this scenario, we would run both gasifiers.

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 McGuire 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 you 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 can you give us a feel for UAN and ammonia inventories at the distributor to the farm level? And then lastly, you know, 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 will be any material shifts this year?

Okay. There's a lot of questions there. Let's sort of take it in pieces. The big driver in the market right now is urea. Urea is tight globally, and the price has risen. You know, these are public prices, but it's north of $400 in New Orleans. And that's, you know, following the global price, which right now is like, $450 a ton metric. So there just, you know, a lot of our customers have been, you know, looking to buy more urea into the spring, and there's been, I'd say, limited availability. And so the market's tightened up. And that sort of lifted both UAN and ammonia. Ammonia is a little bit different because we typically sell the spring prepay in December. So, you know, we'll see the effect of the higher pricing there when they buy cash orders starting in the spring. But we're seeing UAN kind of following urea. UAN looks from, you know, where the market's priced today, maybe a little cheap. And so we may actually find more demand there. And so, you know, there's, I would say the supply side's been tight. And I think our customers are seeing greater corn acreage in the spring. I was at a conference last week, and the customers were telling us that corn seed sales are up significantly year over year, which typically implies more acreage of corn planting. 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, you know, the customers would turn to UAN and apply more UAN both pre-plant but also in the 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, you know, in that direction. A lot of times, it's more of the relevant pricing at a moment in time. I would say right now, ammonia looks pretty cheap compared to, you know, 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 did, for as 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 on UAN and urea in the spring for what didn't get down on pre-plant back in the fall.

This is great color. Thank you. And then, you know, we're two-thirds of the way through February. Can you give us an idea of how much UAN has been presold in the first quarter and perhaps even into the second quarter of 2025?

Yeah. I don't like to get very specific in our book. I would just say that, you know, the customers have been buying kind of, you know, like, you know, the previous question about ratable. We've been sort of consistently 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 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 available. And so, you know, the market is kind of in April at this point, just broadly amongst all the producers. So, you know, it just tells you the market is tight and firm. And, you know, we'll be working hard to fulfill what the customer needs in April and May. But 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 four million 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?

Yep. Rob, for looking forward to 2025, I don't think you should expect to see substantial change in the reserves. You know, obviously, as 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. And look forward to talking to you about our first quarter results at the end of April. Thank you very much.