CVR PARTNERS, LP The following discussion and analysis of our financial condition, results of operations, and cash flows should be read in conjunction with our unaudited condensed consolidated financial statements and related notes and with the statistical information and financial data appearing in this Report, as well as our Annual Report on Form 10-K for the year endedDecember 31, 2022 filed with theU.S. Securities and Exchange Commission ("SEC") onFebruary 22, 2023 (the "2022 Form 10-K"). Results of operations and cash flows for the three months endedMarch 31, 2023 are not necessarily indicative of results to be attained for any other period. See "Important Information Regarding Forward-Looking Statements." Reflected in this discussion and analysis is how management views the Partnership's current financial condition and results of operations along with key external variables and management actions that may impact the Partnership. Understanding significant external variables, such as market conditions, weather, and seasonal trends, among others, and management actions taken to manage the Partnership, address external variables, among others, which will increase users' understanding of the Partnership, its financial condition and results of operations. This discussion may contain forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to those discussed below and elsewhere in this Report.
Partnership Overview
CVR Partners, LP ("CVR Partners " or the "Partnership") is aDelaware limited partnership formed in 2011 byCVR Energy, Inc. ("CVR Energy") to own, operate, and grow its nitrogen fertilizer business. The Partnership produces and distributes nitrogen fertilizer products, which are used by farmers to improve the yield and quality of their crops. The Partnership produces these products at two manufacturing facilities, one located inCoffeyville, Kansas operated by its wholly owned subsidiary,Coffeyville Resources Nitrogen Fertilizers, LLC ("CRNF") (the "Coffeyville Facility") and one located inEast Dubuque, Illinois operated by its wholly owned subsidiary,East Dubuque Nitrogen Fertilizers, LLC ("EDNF") (the "East Dubuque Facility"). Our principal products are ammonia and urea ammonium nitrate ("UAN"). All of our products are sold on a wholesale basis. References toCVR Partners , the Partnership, "we", "us", and "our" may refer to consolidated subsidiaries ofCVR Partners or one or both of the facilities, as the context may require. Additionally, as the context may require, references toCVR Energy may refer toCVR Energy and its consolidated subsidiaries, excluding the Partnership and its subsidiaries, which include its petroleum and renewables refining, marketing, and logistics operations.
Strategy and Goals
The Partnership has adopted Mission and Values, which articulate the Partnership's expectations for how it and its employees do business each and every day.
Mission and Core Values Our Mission is to be a top tier North American nitrogen-based fertilizer company as measured by safe and reliable operations, superior performance and profitable growth. The foundation of how we operate is built on five core Values:
•Safety - We always put safety first. The protection of our employees, contractors and communities is paramount. We have an unwavering commitment to safety above all else. If it's not safe, then we don't do it.
•Environment - We care for our environment. Complying with all regulations and minimizing any environmental impact from our operations is essential. We understand our obligation to the environment and that it's our duty to protect it.
•Integrity - We require high business ethics. We comply with the law and practice sound corporate governance. We only conduct business one way-the right way with integrity.
•Corporate Citizenship - We are proud members of the communities where we
operate. We are good neighbors and know that it's a privilege we can't take for
granted. We seek to make a positive economic and social impact through our
financial donations and the contributions of time, knowledge and talent of our
employees to the places where we live and work.
March 31, 2023 | 17
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•Continuous Improvement - We believe in both individual and team success. We foster accountability under a performance-driven culture that supports creative thinking, teamwork, diversity and personal development so that employees can realize their maximum potential. We use defined work practices for consistency, efficiency and to create value across the organization.
Our core Values are driven by our people, inform the way we do business each and every day and enhance our ability to accomplish our mission and related strategic objectives.
Strategic Objectives
We have outlined the following strategic objectives to drive the accomplishment of our mission:
Environmental, Health & Safety ("EH&S") - We aim to achieve continuous improvement in all EH&S areas through ensuring our people's commitment to environmental, health and safety comes first, the refinement of existing policies, continuous training, and enhanced monitoring procedures.
Reliability - Our goal is to achieve industry-leading utilization rates at both of our facilities through safe and reliable operations. We are focusing on improvements in day-to-day plant operations, identifying alternative sources for plant inputs to reduce lost time due to third-party operational constraints, and optimizing our commercial and marketing functions to maintain plant operations at their highest level.
Market Capture - We continuously evaluate opportunities to improve the facilities' realized pricing at the gate and reduce variable costs incurred in production to maximize our capture of market opportunities.
Financial Discipline - We strive to be as efficient as possible by maintaining low operating costs and disciplined deployment of capital.
Achievements
From the beginning of the fiscal year through the date of filing, we successfully executed a number of achievements in support of our strategic objectives shown below:
EH&S Reliability Market Capture Financial Discipline
Operated both facilities safely and at high ü ü ü
utilization rates
Achieved record combined ammonia and UAN ü ü
production for the first quarter of 2023
Achieved record truck shipments from the ü ü
Coffeyville Facility in March 2023
Declared a cash distribution of $10.43 per
common unit related to the first three months ü ü
of 2023 to be paid in May 2023
Closed on a transaction related to carbon
capture and sequestration activities at the ü ü ü
Coffeyville Facility in
Industry Factors and Market Indicators
Within the nitrogen fertilizer business, earnings and cash flows from operations
are primarily affected by the relationship between nitrogen fertilizer product
prices, utilization, and operating costs and expenses, including pet coke and
natural gas feedstock costs.
The price at which nitrogen fertilizer products are ultimately sold depends on
numerous factors, including the global supply and demand for nitrogen fertilizer
products which, in turn, depends on, among other factors, world grain demand and
production levels, changes in world population, the cost and availability of
fertilizer transportation infrastructure, weather
March 31, 2023 | 18
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conditions, the availability of imports, the availability and price of
feedstocks to produce nitrogen fertilizer, and the extent of government
intervention in agriculture markets.
Nitrogen fertilizer prices are also affected by local factors, including local
market conditions and the operating levels of competing facilities. An expansion
or upgrade of competitors' facilities, new facility development, political and
economic developments, and other factors are likely to continue to play an
important role in nitrogen fertilizer industry economics. These factors can
impact, among other things, the level of inventories in the market, resulting in
price volatility and a reduction in product margins. Moreover, the industry
typically experiences seasonal fluctuations in demand for nitrogen fertilizer
products.
General Business Environment
Russia-Ukraine Conflict - InFebruary 2022 ,Russia invadedUkraine , significantly impacting global fertilizer and agriculture markets.The Black Sea is a major export point for nitrogen fertilizer and grains fromRussia andUkraine . When the invasion began, theBlack Sea was largely closed to exports which prompted tightening global supply conditions for nitrogen fertilizer in advance of spring planting and wheat and corn availability, asRussia andUkraine are major wheat exporters andUkraine is a major corn exporter from theBlack Sea . Export restrictions have since been relaxed on grain exports fromRussia andUkraine from theBlack Sea which is one of the factors that has led to lower grain prices from the elevated levels in the spring and summer 2022. In 2022, grain harvested inUkraine was approximately 40% lower than 2021 due to lack of planting inputs, fuel, and workers to complete the planting of crops. Additionally, natural gas supplied fromRussia toWestern Europe has been constrained and natural gas prices have remained elevated sinceSeptember 2021 , causing European nitrogen fertilizer production capacity to be curtailed or costs to be elevated compared to competitors in other regions of the world. The ultimate outcome of theRussia -Ukraine conflict and any associated market disruptions are difficult to predict and may affect our business in unforeseen ways. The Partnership believes the general business environment in which it operates will continue to remain volatile, driven by uncertainty around the availability and prices of its feedstocks, demand for its products, inflation, and global supply disruptions. As a result, future operating results and current and long-term financial conditions could be negatively impacted if economic conditions decline and remain volatile. The Partnership is not able at this time to predict the extent to which these events may have a material, or any, effect on its financial or operational results in future periods.
Market Indicators
While there is risk of shorter-term volatility given the inherent nature of the commodity cycle, the Partnership believes the long-term fundamentals for theU.S. nitrogen fertilizer industry remain intact. The Partnership views the anticipated combination of (i) increasing global population, (ii) decreasing arable land per capita, (iii) continued evolution to more protein-based diets in developing countries, (iv) sustained use of corn and soybeans as feedstock for the domestic production of ethanol and other renewable fuels, and (v) positioning at the lower end of the global cost curve should provide a solid foundation for nitrogen fertilizer producers inthe United States over the longer term. Corn and soybeans are two major crops planted by farmers inNorth America . Corn crops result in the depletion of the amount of nitrogen within the soil in which it is grown, which in turn, results in the need for this nutrient to be replenished after each growing cycle. Unlike corn, soybeans are able to obtain most of their own nitrogen through a process known as "N fixation." As such, upon harvesting of soybeans, the soil retains a certain amount of nitrogen which results in lower demand for nitrogen fertilizer for the following corn planting cycle. Due to these factors, nitrogen fertilizer consumers generally operate a balanced corn-soybean rotational planting cycle as evident by the chart presented below as ofMarch 31, 2023 . The relationship between the total acres planted for both corn and soybeans has a direct impact on the overall demand for nitrogen products, as the market and demand for nitrogen increases with increased corn acres and decreases with increased soybean acres. Additionally, an estimated 11.6 billion pounds of soybean oil is expected to be used in producing cleaner renewable fuels in marketing year 2022/2023. Multiple refiners have announced renewable diesel expansion projects for 2023 and beyond, which will only increase the demand for soybeans and potentially for corn and canola.The United States Department of Agriculture ("USDA") estimates that in spring 2023 farmers will plant 92.0 million corn acres, representing an increase of 3.8% as compared to 88.6 million corn acres in 2022. Planted soybean acres are estimated to be 87.5 million, representing no increase as compared to 87.5 million soybean acres in 2022. The combined corn and soybean planted acres of 179.5 million is an increase of 1.9% compared to the acreage planted in 2022. Due to lower input costs in 2023 for corn planting and the relative grain prices of corn versus soybeans, economics favor planting corn compared to soybeans. Lower inventory levels of corn and soybeans are expected to be supportive of corn prices for the remainder of 2023.March 31, 2023 | 19 --------------------------------------------------------------------------------
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Ethanol is blended with gasoline to meet renewable fuel standard requirements and for its octane value. Ethanol production has historically consumed approximately 36% of theU.S. corn crop, so demand for corn generally rises and falls with ethanol demand, as evidenced by the charts below, throughMarch 31, 2023 .
[[Image Removed: 7510]][[Image Removed: 7511]]
(1)Information used within this chart was obtained from the
Weather continues to be a critical variable for crop production. Even with high planted acres and trendline yields per acre in theU.S. , inventory levels for corn and soybeans remain below historical levels and prices have remained elevated. With tight grain and fertilizer inventory levels driven by the war inUkraine , prices for grains are expected to remain elevated through the spring of 2023, although below the elevated prices experienced in the spring of 2022. Demand for nitrogen fertilizer, as well as other crop inputs, is expected to be strong for the spring 2023 planting season. With grain inventory levels expected to be near historical lows, we anticipate it to positively impact planted acreage for the spring of 2023 and boost the demand for nitrogen fertilizer. Fertilizer input costs have been volatile since the fall of 2021. Natural gas prices were elevated in the fall of 2022 due to shortages inEurope and demand being driven by building natural gas storage for winter. Winter 2022/2023 weather was warmer than average inEurope and when combined with natural gas conservation measures caused demand and prices for natural gas inEurope to fall significantly in the first quarter of 2023. The decline in natural gas prices has led to a significant reduction in the price for nitrogen fertilizer globally due to lower input costs. While we expect that natural gas prices might remain below the elevated prices in 2022 in the near term, we believe that the structural shortage of natural gas inEurope will continue to be a source of volatility for the rest of 2023. Petcoke prices remain elevated compared to historical levels, but we believe that if natural gas prices remain lower than 2022 that petcoke prices will likely decline later in 2023.March 31, 2023 | 20 --------------------------------------------------------------------------------
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The charts below show relevant market indicators by month through
Ammonia and UAN Market Pricing (1) Natural Gas and Pet Coke Market Pricing (1)
[[Image Removed: 9718]][[Image Removed: 9719]]
(1)Information used within these charts was obtained from various third-party
sources, including Green Markets (a
Results of Operations
The following should be read in conjunction with the information outlined in the previous sections of this Part I, Item 2 and the financial statements and related notes thereto in Part I, Item 1 of this Report.
The chart presented below summarizes our ammonia utilization rates on a consolidated basis for the three months endedMarch 31, 2023 and 2022. Utilization is an important measure used by management to assess operational output at each of the Partnership's facilities. Utilization is calculated as actual tons of ammonia produced divided by capacity. Utilization is presented solely on ammonia production rather than on each nitrogen product as it provides a comparative baseline against industry peers and eliminates the disparity of facility configurations for upgrade of ammonia into other nitrogen products. With production primarily focused on ammonia upgrade capabilities, we believe this measure provides a meaningful view of how we operate. [[Image Removed: 549755817397]]March 31, 2023 | 21
-------------------------------------------------------------------------------- Table of Contents On a consolidated basis for the three months endedMarch 31, 2023 , utilization increased to 105% compared to 88% for the three months endedMarch 31, 2022 . The increase was primarily due to more reliable operations following the completion of planned turnarounds at both facilities in the third quarter of 2022, along with unplanned downtime in 2022 associated with the Messer air separation plant (the "Messer Outages") at the Coffeyville Facility and various pieces of equipment at the East Dubuque Facility. Sales and Pricing per Ton - Two of our key operating metrics are total sales volumes for ammonia and UAN, along with the product pricing per ton realized at the gate. Total product sales volumes were favorable driven by increased production at both facilities due to operating reliably after the planned turnarounds in the third quarter of 2022, as well as increased downtime from the Messer Outages at the Coffeyville Facility and various pieces of equipment at the East Dubuque Facility in 2022. For the three months endedMarch 31, 2023 , total product sales prices were unfavorable, driven by sales price decreases of 16% for ammonia and 8% for UAN. Ammonia and UAN sales prices were unfavorable primarily due to lower natural gas prices and deferred fertilizer demand at the retail level. Product pricing at the gate represents net sales less freight revenue divided by product sales volume in tons and is shown in order to provide a pricing measure comparable across the fertilizer industry. Operating Highlights for the Three Months EndedMarch 31, 2023 versusMarch 31, 2022 Sales (thousand tons) Product Pricing at Gate ($ per ton) [[Image Removed: 2659]][[Image Removed: 2660]] Production Volumes - Gross tons produced for ammonia represent the total ammonia produced, including ammonia produced that was upgraded into other fertilizer products. Net tons available for sale represents the ammonia available for sale that was not upgraded into other fertilizer products. The table below presents these metrics for the three months endedMarch 31, 2023 and 2022: Three Months Ended March 31, (in thousands of tons) 2023 2022 Ammonia (gross produced) 224 187 Ammonia (net available for sale) 62 52 UAN 366 317 March 31, 2023 | 22
-------------------------------------------------------------------------------- Table of Contents Feedstock - Our Coffeyville Facility utilizes a pet coke gasification process to produce nitrogen fertilizer. Our East Dubuque Facility uses natural gas in its production of ammonia. The table below presents these feedstocks for both facilities for the three months endedMarch 31, 2023 and 2022: Three Months Ended March 31, 2023 2022 Petroleum coke used in production (thousand tons) 131 108 Petroleum coke used in production (dollars per ton)$ 77.24 $ 56.46 Natural gas used in production (thousands of MMBtu) (1) 2,102 1,761
Natural gas used in production (dollars per MMBtu) (1)
$ 5.54
Natural gas in cost of materials and other (thousands of MMBtu) (1)
1,315 1,528
Natural gas in cost of materials and other (dollars per MMBtu)
(1) $ 7.79 $ 5.62 (1)The feedstock natural gas shown above does not include natural gas used for fuel. The cost of fuel natural gas is included in Direct operating expenses (exclusive of depreciation and amortization).
Financial Highlights for the Three Months Ended
For the three months ended
Net Sales Operating Income [[Image Removed: 549755820785]][[Image Removed: 549755820786]]March 31, 2023 | 23
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Net Income EBITDA (1)
[[Image Removed: 549755820792]][[Image Removed: 549755820793]]
(1)See "Non-GAAP Reconciliations" section below for reconciliations of the non-GAAP measures shown above.
Net Sales - For the three months endedMarch 31, 2023 , net sales increased by$3.4 million to$226.3 million compared to the three months endedMarch 31, 2022 . The increase was primarily due to favorable UAN and ammonia sales volumes which contributed$21.2 million in higher revenues, partially offset by decreased sales prices which reduced revenues by$21.0 million , compared to the three months endedMarch 31, 2022 .
The following table demonstrates the impact of changes in sales volumes and
pricing for the primary components of net sales, excluding urea products,
freight, and other revenue, for the three months ended
Price Volume
(in thousands) Variance Variance
UAN $ (13,925) $ 18,659
Ammonia (7,068) 2,556
The $167 and $39 per ton decreases in ammonia and UAN sales pricing,
respectively, for the three months ended March 31, 2023 compared to the three
months ended March 31, 2022 were primarily attributable to lower natural gas
prices and deferred fertilizer demand at the retail level in the current period.
March 31, 2023 | 24--------------------------------------------------------------------------------
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Cost of Materials and Other Direct Operating Expenses (1)
[[Image Removed: 549755823133]][[Image Removed: 549755823134]]
(1)Exclusive of depreciation and amortization expense.
Cost of Materials and Other - For the three months endedMarch 31, 2023 , cost of materials and other was$36.6 million compared to$30.2 million for the three months endedMarch 31, 2022 . The increase was driven primarily by increased petroleum coke feedstock costs and natural gas costs of$4.1 million and$2.2 million , respectively, in the current period. Direct Operating Expenses (exclusive of depreciation and amortization) - For the three months endedMarch 31, 2023 , direct operating expenses (exclusive of depreciation and amortization) were$57.5 million compared to$60.3 million for the three months endedMarch 31, 2022 . The decrease was primarily due to decreased personnel costs of$6.2 million driven by lower share-based compensation due to a decrease in market prices forCVR Partners' common units during the current period. This was offset by increased utilities costs of$2.7 million resulting from increased usage of natural gas and higher electricity costs. Selling, General and Administrative
Expenses, and
Depreciation and Amortization Other
[[Image Removed: 549755824891]][[Image Removed: 549755824892]]
Depreciation and Amortization Expense - For the three months ended March 31,
2023 , depreciation and amortization expense was $15.2 million compared to $19.5
million for the three months ended March 31, 2022 . This decrease was primarily
due to inventory changes, as well as various assets fully depreciated prior to
the start of the current period.
Selling, General, and Administrative Expenses, and Other - For the three months
ended March 31, 2023 , selling, general and administrative expenses and other
were $7.6 million compared to $8.9 million for the three months ended March 31,
2022 .
March 31, 2023 | 25-------------------------------------------------------------------------------- Table of Contents The decrease was primarily related to decreased personnel costs driven by lower share-based compensation due to a decrease in market prices forCVR Partners' common units during the current period.
Non-GAAP Measures
Our management uses certain non-GAAP performance measures, and reconciliations to those measures, to evaluate current and past performance and prospects for the future to supplement our financial information presented in accordance with accounting principles generally accepted inthe United States ("GAAP"). These non-GAAP financial measures are important factors in assessing our operating results and profitability and include the performance and liquidity measures defined below.
The following are non-GAAP measures we present for the period ended
EBITDA - Net income (loss) before (i) interest expense, net, (ii) income tax expense (benefit) and (iii) depreciation and amortization expense.
Adjusted EBITDA - EBITDA adjusted for certain significant non-cash items and items that management believes are not attributable to or indicative of our on-going operations or that may obscure our underlying results and trends.
Reconciliation of Net Cash Provided By Operating Activities to EBITDA - Net cash provided by operating activities reduced by (i) interest expense, net, (ii) income tax expense (benefit), (iii) change in working capital, and (iv) other non-cash adjustments. Available Cash for Distribution - EBITDA for the quarter excluding non-cash income or expense items (if any), for which adjustment is deemed necessary or appropriate by the board of directors of our general partner (the "Board") in its sole discretion, less (i) reserves for maintenance capital expenditures, debt service and other contractual obligations and (ii) reserves for future operating or capital needs (if any), in each case, that the Board deems necessary or appropriate in its sole discretion. Available cash for distribution may be increased by the release of previously established cash reserves, if any, and other excess cash, at the discretion of the Board. We present these measures because we believe they may help investors, analysts, lenders, and ratings agencies analyze our results of operations and liquidity in conjunction with our GAAP results, including, but not limited to, our operating performance as compared to other publicly traded companies in the fertilizer industry, without regard to historical cost basis or financing methods, and our ability to incur and service debt and fund capital expenditures. Non-GAAP measures have important limitations as analytical tools because they exclude some, but not all, items that affect net earnings and operating income. These measures should not be considered substitutes for their most directly comparable GAAP financial measures. Refer to the "Non-GAAP Reconciliations" included herein for reconciliation of these amounts. Due to rounding, numbers presented within this section may not add or equal to numbers or totals presented elsewhere within this document.
Non-GAAP Reconciliations
Reconciliation of Net Income to EBITDA and Adjusted EBITDA
Three Months Ended
March 31,
(in thousands) 2023 2022
Net income $ 101,870 $ 93,661
Interest expense, net 7,173 10,036
Income tax expense 44 258
Depreciation and amortization 15,211 19,465
EBITDA and Adjusted EBITDA $ 124,298 $ 123,420
March 31, 2023 | 26
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Reconciliation of Net Cash Provided By Operating Activities to EBITDA and
Adjusted EBITDA
Three Months Ended
March 31,
(in thousands) 2023 2022
Net cash provided by operating activities $
130,443
Non-cash items:
Loss on extinguishment of debt - (628)
Share-based compensation
(1,933) (12,074)
Other (502) (613)
Adjustments:
Interest expense, net 7,173 10,036
Income tax expense 44 258
Change in assets and liabilities (10,927) (40,486)
EBITDA and Adjusted EBITDA $
124,298
Reconciliation of EBITDA to Available Cash for Distribution
Three Months Ended
March 31,
(in thousands) 2023 2022
EBITDA $ 124,298 $ 123,420 Current (reserves) adjustments for amounts related to: Net cash interest expense (excluding capitalized interest)
(8,466) (9,334) Debt service - (65,000) Financing fees - (815) Maintenance capital expenditures (3,500) (5,128) Utility pass-through (675) (675) Common units repurchased - (12,397) Net cash proceeds from the 45Q Transaction 18,052 -
Other (reserves) releases:
Future turnaround (3,166) (6,875) Reserve for maintenance capital expenditures (16,250) 639 Available Cash for distribution (1) (2)$ 110,293 $ 23,835 Common units outstanding 10,570 10,570 (1)Amount represents the cumulative available cash based on quarter-to-date and year-to-date results. However, available cash for distribution is calculated quarterly, with distributions (if any) being paid in the period following declaration. (2)The Partnership declared and paid a$10.50 cash distribution related to the fourth quarter of 2022 and declared a cash distribution of$10.43 per common unit related to the first quarter of 2023 to be paid inMay 2023 . Liquidity and Capital Resources Our principal source of liquidity has historically been and continues to be cash from operations, which can include cash advances from customers resulting from prepay contracts. Our principal uses of cash are for working capital, capital expenditures, funding our debt service obligations, and paying distributions to our unitholders, as further discussed below. Fertilizer market conditions improved steadily throughout 2022 driven by a combination of increased demand for products amid a series of supply disruptions that led to tight fertilizer inventories and concerns around availability of product. In the first quarter of 2022 following the Russian invasion ofUkraine , fertilizer prices increased further and were volatile over concerns of a reduction in global supply of fertilizers due to restrictions on supply of Russian fertilizers andRussia's decision to restrict March 31, 2023 | 27 -------------------------------------------------------------------------------- Table of Contents fertilizer exports through the end of 2022. Further, the disruption in natural gas flows toEurope following the shutdown of the Nordstream pipeline in the summer of 2022 resulted in a spike in European natural gas and electricity prices, causing many nitrogen fertilizer production facilities inEurope to cease or curtail operations. As a result, nitrogen fertilizer exports fromthe United States toEurope increased in the second half of 2022, thereby reducing the domestic availability of nitrogen fertilizers inthe United States and causing prices to move higher. A mild winter in the US andEurope led to a weakening of natural gas prices in 2023, which in turn drove prices lower for nitrogen fertilizers as supply fears were abated and curtailed European production capacity began to restart. Despite the volatility in recent commodity pricing, nitrogen fertilizer product pricing remains well above the recent 5-year average and has not significantly impacted our primary source of liquidity. While we believe demand for our fertilizer products is stable, there is still uncertainty on the horizon as countries weigh potential impacts of the ongoingRussia -Ukraine conflict. When considering the market conditions and actions described above, we currently believe that our cash from operations and existing cash and cash equivalents, along with borrowings and reserves, as necessary, will be sufficient to satisfy anticipated cash requirements associated with our existing operations for at least the next 12 months. However, our future capital expenditures and other cash requirements could be higher than we currently expect as a result of various factors including, but not limited to, rising material and labor costs and other inflationary pressures. Additionally, our ability to generate sufficient cash from our operating activities and secure additional financing depends on our future performance, which is subject to general economic, political, financial, competitive, and other factors, some of which may be beyond our control. Depending on the needs of our business, contractual limitations, and market conditions, we may from time to time seek to issue equity securities, incur additional debt, issue debt securities, or redeem, repurchase, refinance, or retire our outstanding debt through privately negotiated transactions, open market repurchases, redemptions, exchanges, tender offers or otherwise, but we are under no obligation to do so. There can be no assurance that we will seek to do any of the foregoing or that we will be able to do any of the foregoing on terms acceptable to us or at all.
The Partnership and its subsidiaries were in compliance with all covenants under
their respective debt instruments as of
We do not have any "off-balance sheet arrangements" as such term is defined
within the rules and regulations of the
Cash and Other Liquidity
As of
(in thousands)March 31, 2023
6.125% Senior Secured Notes, due
550,000
Unamortized discount and debt issuance costs (3,076) (3,200) Total long-term debt$ 546,924 $ 546,800 As ofMarch 31, 2023 , the Partnership had the 6.125% Senior Secured Notes, dueJune 2028 (the "2028 Notes") and the ABL Credit Facility, the proceeds of which may be used to fund working capital, capital expenditures, and for other general corporate purposes. Refer to Part II, Item 8, Note 5 ("Long-Term Debt") of our 2022 Form 10-K for further information.
Capital Spending
We divide capital spending needs into two categories: maintenance and growth.
Maintenance capital spending includes non-discretionary maintenance projects and
projects required to comply with environmental, health, and safety regulations.
Growth capital projects generally involve an expansion of existing capacity
and/or a reduction in direct operating expenses. We undertake growth capital
spending based on the expected return on incremental capital employed.
March 31, 2023 | 28
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Our total capital expenditures for the three months ended March 31, 2023 , along
with our estimated expenditures for 2023 are as follows:
Three Months Ended March 31, Estimated full year
(in thousands) 2023 2023
Maintenance capital $ 3,500 $29,000 - 31,000
Growth capital 25 3,000 - 4,000
Total capital expenditures $ 3,525 $32,000 - 35,000
Our estimated capital expenditures are subject to change due to unanticipated
changes in the cost, scope, and completion time for capital projects. For
example, we may experience unexpected changes in labor or equipment costs
necessary to comply with government regulations or to complete projects that
sustain or improve the profitability of the nitrogen fertilizer facilities. We
may also accelerate or defer some capital expenditures from time to time.
Capital spending for CVR Partners is determined by the Board. We will continue
to monitor market conditions and make adjustments, if needed, to our current
capital spending or turnaround plans.
The planned turnaround at the Coffeyville Facility commenced in July 2022 and
was completed in mid-August 2022 . The planned turnaround at the East Dubuque
Facility commenced in August 2022 and was completed in mid-September 2022 . For
the three months ended March 31, 2022 , we incurred turnaround expense of
$0.1 million related to the Coffeyville Facility's turnaround, and $0.5 million
related to the East Dubuque Facility's turnaround. The next planned turnarounds
are scheduled in 2025 and 2026 for the Coffeyville Facility and the East Dubuque
Facility, respectively.
Distributions to Unitholders
The current policy of the Board is to distribute all Available Cash, as
determined by the Board in its sole discretion, the Partnership generated on a
quarterly basis. Available Cash for each quarter will be determined by the Board
following the end of such quarter. Available Cash for each quarter is calculated
as EBITDA for the quarter excluding non-cash income or expense items (if any),
for which adjustment is deemed necessary or appropriate by the Board in its sole
discretion, less (i) reserves for maintenance capital expenditures, debt service
and other contractual obligations, and (ii) reserves for future operating or
capital needs (if any), in each case, that the Board deems necessary or
appropriate in its sole discretion. Available cash for distribution may be
increased by the release of previously established cash reserves, if any, and
other excess cash, at the discretion of the Board.
Distributions, if any, including the payment, amount, and timing thereof, are
subject to change at the discretion of the Board. The following tables present
quarterly distributions paid by the Partnership to CVR Partners' unitholders,
including amounts paid to CVR Energy , during 2023 and 2022 (amounts presented in
the table below may not add to totals presented due to rounding):
Quarterly Distributions Paid (in thousands)
Quarterly
Distributions
Related Period Date Paid Per Common Unit Public Unitholders CVR Energy Total
2022 - 4th Quarter March 13, 2023 $ 10.50 $ 70,115 $ 40,866 $ 110,981
Quarterly Distributions Paid (in thousands)
Quarterly
Distributions
Related Period Date Paid Per Common Unit Public Unitholders CVR Energy Total
2021 - 4th Quarter March 14, 2022 $ 5.24 $ 35,576 $ 20,394 $ 55,970
2022 - 1st Quarter May 23, 2022 2.26 15,091 8,796 23,887
2022 - 2nd Quarter August 22, 2022 10.05 67,109 39,115 106,225
2022 - 3rd Quarter November 21, 2022 1.77 11,819 6,889 18,708
Total 2022 quarterly distributions $ 19.32 $ 129,597 $ 75,193 $ 204,790
March 31, 2023 | 29-------------------------------------------------------------------------------- Table of Contents For the first quarter of 2023, the Partnership, upon approval by the Board onMay 1, 2023 , declared a distribution of$10.43 per common unit, or$110.2 million , which is payableMay 22, 2023 to unitholders of record as ofMay 15, 2023 . Of this amount,CVR Energy will receive approximately$40.6 million , with the remaining amount payable to public unitholders.
Capital Structure
OnMay 6, 2020 , the Board, on behalf of the Partnership, authorized a unit repurchase program (the "Unit Repurchase Program"), which was increased onFebruary 22, 2021 . The Unit Repurchase Program, as increased, authorized the Partnership to repurchase up to$20 million of the Partnership's common units. During the three months endedMarch 31, 2023 , the Partnership did not repurchase any common units. During the three months endedMarch 31, 2022 , the Partnership repurchased 111,695 common units on the open market in accordance with a repurchase agreement under Rules 10b5-1 and 10b-18 of the Securities Exchange Act of 1934, as amended, at a cost of$12.4 million , exclusive of transaction costs, or an average price of$110.98 per common unit. As ofMarch 31, 2023 , the Partnership, considering all repurchases made since inception of the Unit Repurchase Program, had a nominal authorized amount remaining under the Unit Repurchase Program. This Unit Repurchase Program does not obligate the Partnership to acquire any common units and may be cancelled or terminated by the Board at any time. Cash Flows The following table sets forth our cash flows for the periods indicated below: Three Months Ended March 31, (in thousands) 2023 2022 Change Net cash flow provided by (used in): Operating activities$ 130,443 $ 166,927 $ (36,484) Investing activities 15,562
(7,899) 23,461
Financing activities (110,981) (134,197) 23,216
Net increase in cash and cash equivalents $ 35,024 $ 24,831 $ 10,193 Cash Flows Provided by Operating Activities
The change in net cash flows from operating activities for the three months endedMarch 31, 2023 compared to the three months endedMarch 31, 2022 is primarily due to a decrease in working capital of$29.1 million , a$10.1 million decrease in non-cash share-based compensation as a result of lower market prices forCVR Partners' units in 2023 compared to 2022, a decrease in depreciation and amortization of$4.3 million , and a decrease of$0.5 million in long term assets and liabilities. This is partially offset by a$8.2 million increase in net income during 2023 primarily due to increased production at both facilities after planned turnarounds were completed during the third quarter of 2022, which was impacted by a decline in product prices.
Cash Flows Used in Investing Activities
The change in net cash provided by investing activities for the three months endedMarch 31, 2023 compared to the three months endedMarch 31, 2022 was due to distributions received fromCVR Partners' equity method investment of$19 million associated with the 45Q Transaction, and a decrease in capital expenditures during 2023 of$4.5 million resulting from fixed asset additions related to both facilities' turnarounds completed in 2022.
Cash Flows Used in Financing Activities
The change in net cash used in financing activities for the three months endedMarch 31, 2023 compared to the three months endedMarch 31, 2022 was primarily due to an increase in cash distributions paid of$55.0 million in 2023 compared to 2022, changes of$65.0 million from the redemption of the remaining balance of the 2023 Notes and$12.4 million from unit repurchases of the Partnership's common units in 2022, neither having a corresponding amount in 2023, and a$0.8 million reduction in the payment of deferred financing costs for the ABL Credit Facility during 2023 compared to the 2028 Notes in 2022.March 31, 2023 | 30 -------------------------------------------------------------------------------- Table of Contents Critical Accounting Estimates
Our critical accounting estimates are disclosed in the "Critical Accounting
Estimates" section of our 2022 Form 10-K. No modifications have been made during
the three months ended
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