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CVR Energy, Inc. (NYSE:CVI)

Q1 2013 Earnings Call

May 2, 2013 02:00 PM ET

Executives

Jay Finks - Director of Finance

Jack Lipinski - CEO

Susan Ball - CFO

Stan Riemann - COO

Analysts

Chi Chow - Macquarie

Rakesh Advani - Credit Suisse

Operator

Greetings and welcome to the CVR Energy First Quarter 2013 Earnings 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, Jay Finks, Director of Finance. Thank you, sir. You may now begin.

Jay Finks

Thanks, Jessie. Good afternoon, everyone. We very much appreciate you joining us this afternoon for our CVR Energy first quarter 2013 earnings call. With me are Jack Lipinski, our Chief Executive Officer; Susan Ball, our Chief Financial Officer; and Stan Riemann, our Chief Operating Officer.

Prior to discussing our 2013 first 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.

Without limiting the foregoing, the words believes, anticipates, plans, expects and similar expressions are intended to identify forward-looking statements. You’re 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.

This call also includes various non-GAAP financial measures. The disclosures related to such non-GAAP measures, including reconciliation to the most directly comparable GAAP financial measures are included in our 2013 first quarter earnings release that we filed with the SEC this morning prior to the open of the market.

With that said, I’ll turn the call over to Jack Lipinski, our Chief Executive Officer. Jack?

John Lipinski

Thanks Jay. As reported this morning, our business segments reported very strong earnings. That’s CVR Partners LP and CVR Refining LP, and those entities had their respective earnings conference calls earlier today. For the first quarter of 2013 CVR Energy’s consolidated adjusted net income was $156.8 million or $1.81 per diluted share as compared to 67.1 million or $0.76 per diluted share in the first quarter a year ago. Like prior quarters, we adjust net income for the impact of FIFO share-based compensation, loss on the extinguishment of debt major turnaround expenses and the impact of unrealized derivative gains or losses and other one-time expenses.

The first quartet also represents the first quarter when we receive distributions we being CVR Energy will receive distribution from both business segments both our fertilizer and petroleum segments reported exceptional distributions. We continue to return cash to shareholders through special and recurring dividends as you know on January 24 CVR Energy declared a $5.50 special dividend which was paid on February 19. Our Board of Directors also adopted a regular quarterly cash dividend of $0.75 per share which was announced this morning and will be paid on May 17 to shareholders of record on May 10.

Let me talk a little bit about some of the highlights in each of our business segments talking about petroleum first and this was also discussed on CVR Refining call earlier on January 23 we closed our initial public offering of CVR Refining LP. Our business petroleum segment set new operating records for crude throughput and for gathering in our logistics business, crude gathering in our logistics business. Post-IPO, CVR Refining’s first quarter distribution of a $1.58 per common unit exceeds the previously announced IPO distribution outlook of a $1.10 to a $1.35 per common unit the $1.58 distribution will be paid on May 17 to unit holders of record on May 10.

CVR Energy owns approximately 81% of the common units of CVR Refining and therefore receives a proportional amount of the distributions from CVR Refining. CVR Refining’s 2013 first quarter consolidated adjusted EBITDA was $309.9 million as compared to $143 million in the same period last year. In the first quarter, we ran 194,816 barrels of crude that breaks down to 123,639 barrels a day at Coffeyville and 71,177 barrels at Wynnewood. Our consolidated actual results were at the high end of our previously disclosed guidance as far as run rates.

On the nitrogen business, on April 26, 2013 CVR Partners announcement a 2013 first quarter cash dividend of $0.61 per common unit and that compared to $0.52 per common unit distributed a year ago. CVR Energy owns approximately 70% of the common units of CVR Partners and again receives a proportional amount of distributions from CVR Partners.

The CVR Partners first quarter adjusted EBITDA was $43.8 million and that compares to $38 million in the prior year. And also, during the first quarter, CVR Partners completed the UAN plant expansion and it’s very, very well.

I’ll turn the call over to Susan now to talk about the financials, and then I’ll have few brief closing remarks. Susan?

Susan Ball

Thank you, Jack and good afternoon everyone. As Jack previously mentioned, we posted strong quarterly financial results. Our net income attributable to CVR Energy stockholders was $165 million in the first quarter 2013 as compared to a net loss of $25.2 million in the prior year.

Non-controlling interest reducing of 2013 first quarter net income attributable to the stockholders of CVR energy was $47.7 million for 2013 as compared to $9.2 million for the first quarter of 2012.

Adjusted net income for the quarter was $156.8 million as compared to $67.1 million in the first quarter 2012.

As mentioned on our previous calls, adjusted net income is a meaningful metric for analyzing our performance, as it does eliminate the impact of unusual accounting impact inherent in our business and in other unique events, and we believe it provides more transparency for a better comparison to market expectations. The significant adjustments utilized to drive the adjusted net income were a loss on extinguishment of debt of 26.1 million for the first quarter of 2013 as well as unrealized derivative gain of 32.5 million.

Other adjustments related to, also drive our adjusted net income relate to our FIFO accounting which was a 4.7 million favorable impact for 2013. As well as share-based compensation, which was 6 million in the first quarter of 2013.

On a consolidated realized refining margin basis, we posted a strong quarterly result of $26.44 for crude oil throughput barrel which is adjusted for the favorable FIFO impact as compared to $18.62 per barrel. In the first quarter 2012 adjusted as well. At the plant level, Coffeyville’s refining margin adjusted for FIFO impact was $26.12 per barrel in the first quarter of 2013 as compared to $17.94 per barrel for the same period a year ago. Wynnewood’s refining margin adjusted for FIFO impact was $26.87 per barrel in the first quarter of 2013 as compared to $19.57 per barrel for the same period a year ago.

Our Fertilizer segment ran by CVR partners reported another solid quarter. Adjusted EBITDA for the quarter was $43.8 million as compared to $38 million in the first quarter of 2012.

As Jack mentioned, the UAN expansion went online in the first quarter. The increase associated with adjusted EBIDTA was primarily attributable to the higher UAN in sales volume due to this UAN expansion and higher prices for ammonia during the first quarter of 2013.

We ended the quarter with cash and cash equivalence of over a $1 billion on a consolidative basis. Our fertilizer business ended the first quarter with 153.2 million. The petroleum segment ran by CVR Refining ended the first quarter with 525.1 million excluding the amounts residing at CVR Refining and CVR partners for cash we held 362.5 million as of March 31, 2013.

Total consolidated debt including current debt as of March 31 was 677 million, all debt that was resided either CVR Refining or CVR partners, a 125 million of debt that was resided CVR partners and 552 million at CVR refining.

Both of our segments have strong balance sheets and are positioned well for growth with that I’ll turn my call back over Jack.

John Lipinski

Okay, thank you Susan. I’d like once again remind everyone that each of our business segments reported earnings this morning I would recommend that you look at our press release and our Qs. And if you were not able to attend our earlier conference call again I strongly recommend that you go our website and those calls were recording to be replayed for the next 14 days. So with that perhaps the best thing to do is just turn it over to questions at this point and Jay.

Jay Finks

Thank you, Jack. Jessie, we are not ready for questions.

Question-and-Answer Session

Operator

(Operator Instructions). Our first question comes from the line of Chi Chow with Macquarie. Please proceed with your question.

Chi Chow - Macquarie

I got a question on cash usage and your dividend policy. Obviously, you're a little bit different than typical C-corps within the industry, given your structure. How are you and the Board thinking about dividend distributions longer term? And can investors expect ongoing large, special dividends like you declared earlier this year?

Jack Lipinski

Obviously that’s a full discussion to the board but CVR Energy at this point is a whole-co effectively. We announced basically a $3 annual dividend, $0.75 quarter and may be special dividend in the past and unless there is some major acquisitions that would tie up cash at the parent that could be dropped down to one of the subs, I think our views is intended to be a yield vehicle.

Chi Chow - Macquarie

What do you think is the appropriate yield? There's no real comp, per se, right, to this?

Jack Lipinski

No, no and it’s very hard to say because that’s not really, it’s really the purview of the board but our discussions were that we intend to be very shareholder-friendly, you can see our majority shareholder likes people would be shareholder friendly. So I can’t answer it any more than that but again lacking a major acquisition of some sort that would eventually be dropped down to one of the subs, usage of cash more than likely to be used for dividends.

Chi Chow - Macquarie

On the acquisition front, it seemed like it would be more efficient at the MLP level to make the acquisition, but is that something you'd consider at the CVI level?

Jack Lipinski

It depends on size, you know if you take a look at those, you would do something at CVI that was larger than the MLP could do in a pie-size chunk and then drop it down in pieces so that it doesn’t disrupts the financing and the structure of the underlying MLP. And when we were on our road show for CVR refining in particular, one of the points we made was that the parent is providing $150 million credit facility to CVR refining to do regular smaller organic growth projects or we could use it for a small acquisitions. The interesting thing about where we set up the CVR energy is that we could do JVs with other enterprises in the icon organization it take up large. So having a parent that has access to pretty big balance sheet could, I am not saying will, but could provide us the ability to do larger acquisitions.

Chi Chow - Macquarie

Are you committed to staying within refining and fertilizer, those industries? Or would you consider branching out to other business segments?

Jack Lipinski

I mean, you know for us obviously Icon Enterprises is diversified across many different business line, obviously within CVR Energy I don't think we'd go far afield from our netting.

Operator

Thank you, the next question comes from the line of Rakesh Advani with Credit Suisse, please proceed with your question.

Rakesh Advani - Credit Suisse

Just a quick one, I know in the past you guys have given us some help in terms of looking at the tax basis for UAN. Is there anything you could share about how we should look at the CVR stake?.

Jack Lipinski

CVR Energy meaning, not CVR Refining right.

Rakesh Advani - Credit Suisse

Well, you've given on the UAN stake before, when you are trying to calculate what the value could be over there. I'm wondering can you share anything on CVRR, CVR perspective.

Susan Ball

Hi Rakesh, this is Susan. We haven't really provided detail as far as the basis that we have in CVR Refining, I will point out we did acquire Gary Williams in December of 2011 and that purchase price is disclosed in our 10K and our financial. Additionally we are making adjustments and you can look at the 10K as far as our basis difference in book and tax impacts did occur within this quarter in the financial, so I think looking at that and those two items might help get you there without providing specific detail.

Operator

(Operator Instructions). It appears there are no further questions at this time, I would like to turn the floor back over to Mr. Finks for any closing comments.

Jay Finks

Thank you Jessie, again I would like to thank everyone for joining us today to review our first quarter results and we wish everyone a good day. Thank you all, thanks for joining us.

Operator

Thank you, ladies and gentlemen this does conclude today's teleconference; you may disconnect your lines at this time, thank you for your participation and have a wonderful day.

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