UAN - NYSE

Greetings, and welcome to the CVR Partners Second Quarter 2025 Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Richard Roberts, Vice President, Financial Planning and Analysis, 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 Newmann, our Chief Financial Officer; and other members of management. Prior to discussing our 2025 second 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 reconciliations to the most directly comparable GAAP financial measures are included in our 2025 second 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 for joining us for today's call. The summarized financial highlights for the second quarter of 2025 include net sales of $169 million, net income of $39 million, EBITDA of $67 million, and the Board of Directors declared a second quarter distribution of $3.89 per common unit, which will be paid on August 18 to unitholders of record at the close of the market on August 11. For the second quarter of 2025, our consolidated ammonia plant utilization was 91%, which was impacted by some planned and unplanned downtime at both facilities during the quarter. Combined ammonia production for the second quarter of 2025 was 197,000 gross tons, of which 54,000 tons net tons were available for sale and UAN production was 321,000 tons. During the quarter, we sold approximately 345,000 tons of UAN at an average price of $317 per ton and approximately 57,000 tons of ammonia at an average price of $593 per tonne. Relative to the second quarter of 2024, sales volumes were higher despite lower production volumes, driven by a combination of strong demand in 2025 and a larger shift of product deliveries from 2Q into 1Q last year as a result of favorable weather allowing farmers to plant earlier in the year. UAN and ammonia prices increased 18% and 14%, respectively, from the prior year period, driven by robust demand on increased corn plantings and tight inventories across the system. Overall, we had another good quarter, and we believe the setup is favorable heading into the second half of the year Domestic and global inventories of nitrogen fertilizer remained tight, and that has been supportive of pricing in the summer, 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 second quarter of 2025, we reported net sales of $169 million and operating income of $46 million. Net income for the quarter was $39 million or $3.67 per common unit and EBITDA was $67 million. Relative to the second quarter of 2024, the increase in EBITDA was primarily due to a combination of higher UAN and ammonia sales pricing and volumes, along with lower pet coke feedstock costs. Direct operating expenses for the second quarter of 2025 were $60 million. Excluding inventory impacts, direct operating expenses increased by approximately $6 million relative to the second quarter of 2024, primarily due to higher natural gas and electricity costs. During the second quarter of 2025, we spent $11 million on capital projects, which was primarily maintenance capital. We estimate total capital spending for 2025 to be approximately $55 million to $65 million, of which $40 million to $45 million is expected to be maintenance capital. We anticipate a significant portion of the profit growth capital spending planned for 2025 will be funded through cash reserves taken over the past few years. We ended the quarter with total liquidity of $162 million, which consisted of $114 million in cash and availability under the ABL facility of $47 million. Within our cash balance of $114 million, we had less than $1 million related to customer prepayments for the future delivery of product. In assessing our cash available for distribution, we generated EBITDA of $67 million and had net cash needs of $26 million for interest costs, maintenance CapEx and other reserves. As a result, there was $41 million of cash available for distribution and the Board of Directors of our general partner declared a distribution of $3.89 per common unit. Looking ahead to the third quarter of 2025, we estimate our ammonia utilization rate to be between 93% and 98% with some downtime planned at East Dubuque for control system upgrades. We expect direct operating expenses, excluding inventory impacts, to be between $60 million and $65 million and total capital spending to be between $20 million and $25 million. With that, I will turn the call back over to Mark.

Thanks, Dane. In summary, despite some planned and unplanned downtime, we had a good quarter of operations with ammonia utilization of 91% Demand for nitrogen fertilizer remained solid through the end of the planting season, and we are seeing the strength in demand continue for the second half of the year with favorable pricing. The spring planting season went well and demand for nitrogen was strong. The USDA estimates that 95.2 million acres of corn and 83.4 million acres of soybeans were planted in spring 2025, a 4% increase for corn and a 3% decrease for soybeans compared to 2024. Yield estimates are 181 bushels per acre for corn and 52.5 bushels per acre for soybeans. Based on these planting and corn yield estimates, the USDA is projecting inventory carryout levels for 2026 of approximately 10% for corn and 7% for soybeans, which are below the 10-year averages. Grain prices have softened some recently driven primarily by expectations of large crop production in Brazil and North America in 2025 and potential trade disputes where the purchase of grains may be used as a negotiating tool in reaching trade agreements. December corn prices are approximately $4.15 per bushel and November soybeans are approximately $10 per bushel. Geopolitical conflicts are continuing to impact the nitrogen fertilizer industry. In the second quarter, Israel attacked Iran and caused the natural gas disruption in the flaring of ammonia inventories in Iran, along with the disruption in natural gas flow to Egypt for an extended period of time. Fertilizer producers in both countries shut in capacity during that time and have only recently begun to ramp up production again. Additionally, Ukraine damaged 2 nitrogen fertilizer plants in Russia, which reduced product available for export. It is currently unclear when these 2 plants will resume full production. In total, nearly 20% of global urea export capacity was offline for a period of time in the quarter, while India has been seeking to import urea for its planting season. All of these factors contributed to a tighter global supply-demand balance for nitrogen fertilizers at the end of the planting season and the normal seasonal price declines for summer fill and fall prepay UAN and ammonia have been much narrower this year. In addition to the supply tightness across the fertilizer market, the potential for tariffs on Russian fertilizer exports represents another wildcard that could have significant impacts on pricing in the near term. Natural gas prices in Europe have declined slightly since our last earnings call, but remain around $11 per MMBtu currently, while U.S. prices continue to range between $3 and $4 per MMBtu. Europe has refilled its natural gas inventories at a slower rate than expected, and there are concerns about the ability to replenish the inventory to targeted levels before winter of 2025. The cost to produce ammonia in Europe has remained durably at the high end of the global cost curve and production remains below historic levels, which has created opportunities for U.S. Gulf Coast producers to export ammonia to Europe for upgrade. We continue to believe Europe faces structural natural gas supply challenges that will likely remain in effect through 2026. At our Coffeyville facility, we're working on a detailed design and construction plan to utilize natural gas and additional hydrogen from the adjacent Coffeyville refinery as alternative feedstocks to third-party pet coke in addition to expanding nameplate ammonia capacity by approximately 8%. We expect to begin implementing the project this fall. To remind everyone, this project would give us the ability to choose the optimal feedstock mix between natural gas and pet coke, and this would make Coffeyville the only nitrogen fertilizer plant in the U.S. with that feedstock flexibility. We also continue to execute certain debottlenecking projects at both plants that are expected to improve reliability and production rates, including the expansion of our DEF production and load-out capacity. The goal of these projects to support our target of operating our plants at utilization rates above 95% of nameplate capacity, excluding the impact of turnarounds. We have water quality upgrade projects at both plants underway and the electricity reliability upgrade project at Coffeyville is also progressing in partnership with the city. During the upcoming fall turnaround at Coffeyville, we plan to install a nitrous oxide abatement unit, after which we could have -- we will have nitrous oxide abatement units on all 4 of our nitric acid plants. This would further our strategy of reducing the carbon footprint of our operations, and we are continuing our efforts to have Coffeyville certified as the low-carbon nitrogen fertilizer production facility. The funds needed for the 2025 projects are coming from the reserves taken over the last 2 years, and the Board elected to continue reserving capital in the second 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. We have a planned 30-day turnaround at our Coffeyville facility starting in early October. In addition to the normal open clean and inspect of many of our units, we will be replacing the ammonia converter internals and installing the nitrous oxide abatement unit. The expense for the turnaround is expected to be approximately $15 million, and we have the cash to fund the turnaround expenses and reserves. The second 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 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. Yesterday, our parent company, CVR Energy, announced that its CEO, David Lamp, would be retiring at year-end. As part of the transition, I have agreed to take on his role starting on January 1, 2026, in addition to my role as CEO of CVR Partners. I will continue to focus on having our great team execute CVR Partners' mission to deliver safe, reliable operations and generate attractive unitholder returns. We aren't going to lose focus. In closing, I'd like to thank our employees for their safe execution during a few brief outages, achieving 91% ammonia utilization and the solid delivery on our marketing and logistics plans, resulting in a distribution of $3.89 per common unit for the second quarter. With that, we are ready to answer any questions. Christine?

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

So a couple of questions on UAN. Can you just comment on the timing of your UAN summer fill program? What your thoughts are in terms of getting out there? And are you seeing enough strength to hold pricing without needing to offer discounts?

So Rob, the -- we have not yet completed the summer UAN fill. We have completed the summer fill and fall prepay for ammonia. But the season was extended into July. There was a lot of demand for UAN at the end of the season. So that went into July and inventories are very low. So the fill season got pushed back. We do expect it in the next couple of weeks. And the prices typically -- and you've been through this before, Rob, but typically we would see a pretty good -- maybe a 25% or 30% decline in price from the in-season price to the summer fill and that percentage decline is going to be a lot less this year and because of the tightness in the supply/ demand. So it's not going to be at season prices, but it won't be at the big discount that it typically is.

Okay. I appreciate you getting me on track there. And then is it safe to assume that the third quarter UAN pricing -- I mean, it's going to drop, it sounds like, at some point, given the seasonality you just discussed. But I guess, do you have an outlook on ammonia pricing through the fall application? And then would you be open to sharing that?

What I would tell you is that the fall pricing was, I'd say, relatively similar to the spring pricing. It depends on the geography and -- but we expect the fall to look a lot like the spring. And again, typically, we would expect that to be a pretty good discount from the spring, but the ammonia will be priced around where the spring price was for fall.

Okay. I appreciate that. And then just switching gears here. Direct operating costs increased to $60.5 million in the second quarter, up from $54.5 million in the first quarter. But the gross ammonia production was down modestly. Was there higher than usual maintenance and repair costs in the second quarter number? And just sort of related to the new control systems installed at East Dubuque. Is there any background -- well, anything you can let me know along those lines?

Yes, a couple of factors there. We did have a bunch of repairs go through in the quarter with the outages that we had. And we did draw on the inventory. So that would draw out more DOE because we sort of effectively made it in the first quarter and shipped it in the second quarter. So that would tend to lift the DOE there.

Got it. And then you guided the third quarter direct operating costs to $60 million to $60.5 million. Can you give me an idea of what the breakdown there is? I think Jan might have talked about that, but just with regards to maintenance versus growth CapEx?

That's for the year. For the year. I'll let Dane answer. You're saying CapEx or DOE?

Yes, I think we crossed both there. Which one are we looking at?

The direct operating cost guidance was $60 million to $65 million, I thought.

Yes. So with the -- as it relates to the DOE, we're looking at $60 million to $65 million. We're expecting to continue to see the elevated natural gas and electricity costs that we saw in the second quarter. In addition, we have the work on the Clark controls. There'll be some expense associated with that as well. Outside of that, nothing really abnormal that we would expect in our OpEx for the third quarter.

Yes. One of the things that we've seen this year, Rob, in the summer, in particular, is elevated electricity pricing. And we haven't had any brownouts or blackouts, but the pricing that we're seeing come through at peak demand periods has been higher this year than last year. And so that's lifted up our DOE a bit. And gas is higher year-over-year. That will start to normalize in the second half, but it was higher in the first half. So all of those are kind of -- they're all little pieces that add up to the total.

I appreciate that. And then with regards to the unplanned downtime, is that -- is everything okay now? Or is that part of your expectation of utilization running a little lower? I know you're going into a turnaround as well, so.

Yes. The planned part was okay. We -- and we had said on the last call, we're upgrading our control system for our compressors at our East Dubuque facility, and it requires us to take an outage on the compressor. So that reduces our rate for a period of time until the control system is installed and then tuned up and brought into operation. But the unplanned, we had a couple of outages, and we've dealt with those issues and don't expect that to recur. But there's -- there are always going to be unplanned outages in events, but we've been pretty good about either avoiding them or dealing with them and keeping them as short as possible. And so we just -- we had several factors that happened at Coffeyville and East Dubuque in the quarter. So we lost a few days in both plants.

Okay. I appreciate that. And by the way, Mark, congratulations on being named the incoming CEO of CVR as well. And I get you're going to do both roles, but do you envision at some point naming a new head to CVR Partners?

Like it's -- we're in the first 24 hours, so I don't want to try to speculate on the go forward there. But CVR Partners is an important part of the family and a valuable asset for CVR Energy. And I intend to continue to manage and follow it closely and do the best that we can to maximize returns there. So not planning on giving that up in the short run. We have a great team in place, and so I can count on them. And so I'm going to -- at least initially, I will start with both roles. So you're not getting rid of me here, Rob.

Appreciate that. We're glad you're there. And then with regards -- do you have a view on industry consolidation at this point with the new administration? Do you think they're a smidge more indulgent towards consolidation?

Obviously, this administration seems to be more, I'd say, look more favorably upon consolidation in the context of lowering cost and ultimately lowering cost out to consumers. I don't -- like I've always felt like there probably was some more consolidation to occur in the nitrogen fertilizer space. It is a global business. And some of the geopolitical events, I think, are causing people to reconsider where they own assets, where they're a producer. And so it wouldn't surprise me to see more consolidation down the road. The one thing that we are watching, which has obviously emerged here in the last week is the potential merger of Union Pacific and Norfolk Southern. We think that may very well open up some new lanes for us that we're not currently in. And not sure if there'll be another merger consideration there like in the BN, CSX, but that's -- I think that's a sign of kind of where we are. But it could very well spill into the fertilizer space in terms of more consolidation. You heard in my comments, we -- the U.S. has become an exporter to Europe for ammonia. They're keeping their upgrade plants up and running, but they're taking more ammonia from the U.S. And so I think production capacity in the United States is more valuable because it is -- we have cheap feedstock. We have good logistics. And now with a lot of the carbon capture going on, we're increasingly lower carbon intensity. So I think the U.S. could be a durable exporter of fertilizer, which would make production assets more valuable in the U.S.

That's great. One last question. With regards to your brownfield reliability and redundancy projects, could you give us an idea of where your capacity is today and what those projects will add in terms of volumes?

Sure. And so what I said in the remarks on Coffeyville, we think we can get somewhere in the ballpark of about 100 tonnes a day of ammonia production out of the projects that we've been talking about for the last few quarters. And at East Dubuque, we're looking at potential projects that might add 5% plus to our capacity there. So those are -- and those -- if you look at what it costs to build new capacity, we're getting a bargain price for these brownfield projects where we're adding capacity for a fraction of what it would cost to build actual new production capacity. So they're great investments for us because it's a lot cheaper to build brownfield than it is to try to build a new one.

That makes sense. And can you just confirm for me, are all those projects maintenance or growth CapEx or a mix?

Those are all in the growth whathat Dane described as the growth CapEx that are being reserved. So that doesn't -- we've been reserving against that for a period of time, and that doesn't really come out of the maintenance side of the capital budget. So if you kind of think about reliability, we're spending our ongoing maintenance dollars to maintain our reliability and address issues plus address some what I call bigger bottleneck issues or bigger reliability, single point of failures at the 2 plants. And that's -- those are the dollars that are being reserved in the growth capital, but we get -- we're going to get production capacity for that. So it's not -- it's a combination of reliability plus, which just means higher -- if we operate at higher nameplate capacity, we're going to have more production, plus we're going to increase the nameplate. So ideally, what we would do is higher percentage of a higher nameplate. That's the goal.

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.

I want to again, I want to thank everybody for being on the call today, and we look forward to discussing our third quarter results in October, early November. Thank you very much.