Q4 2017 CVR Energy Inc Earnings Call - Final
Fair Disclosure Wire
Presentation
OPERATOR: Greetings, and welcome to the CVR Energy, Inc. Fourth Quarter 2017
Conference Call. (Operator Instructions) As a reminder, this conference is being
recorded.
It is now my pleasure to introduce your host, Mr. Jay Finks, Vice President of
Finance. Thank you. Mr. Finks, you may begin.
JAY FINKS, VP OF FINANCE, CVR ENERGY, INC.: Thank you, Michelle. Good afternoon,
everyone. We very much appreciate you joining us this afternoon for our CVR Energy
Fourth Quarter 2017 Earnings Call. With me today are Dave Lamp, our Chief Executive
Officer; Susan Ball, our Chief Financial Officer; and other members of management.
Prior to discussing our 2017 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. Without limiting the foregoing, the words outlook,
believes, anticipates, plans, expects and similar expressions are intended to
identify 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 reconciliation to the most directly
comparable GAAP financial measures, are included in our 2017 fourth quarter
earnings release that we filed with the SEC this morning prior to the opening of
the market.
With that said, I'll turn the call over to Dave, our Chief Executive Officer. Dave?
DAVID L. LAMP, CEO, PRESIDENT & DIRECTOR, CVR ENERGY, INC.: Thank you, Jay. Good
afternoon, everyone, and thank you for joining our earnings call. Hopefully, you
had an opportunity to listen to the CVR Partners and CVR Refining earnings call
earlier today.
Before I begin, I'd like to make a couple of comments. First, I'm very excited to
be the new CEO of -- for CVR Energy. I look forward to working with our great
employees we have here to continue to improve on safe, reliable operations and
shareholder returns. Secondly, I'd like to thank Jack Lipinski and the former
executives who have retired or recently left the company for all their contribution
to the success of CVR Energy over the years.
This morning, we reported CVR Energy's fourth quarter and full year results. For
the fourth quarter of 2017, consolidated adjusted net income was $24 million or
$0.28 per diluted share as compared to an adjusted income of $4 million or $0.05
diluted share for the fourth quarter of last year. For the full year 2017, adjusted
income was $76 million or $0.87 per diluted share as compared to adjusted net
income of $42 million or $0.48 per diluted share in 2016. We also announced today a
quarterly cash dividend of $0.50 per share, which will be paid on March 12 to

 stockholders of record on March 5.
Now I'll speak to some of the fourth quarter highlights from each of our business
sections, starting with the Petroleum business. CVR's fourth quarter -- CVR
Refining's fourth quarter 2017 adjusted EBITDA was $76 million as compared to $28
million a year ago. CVR Energy also declared a fourth quarter distribution of $0.45
per common unit. CVR Energy owns approximately 66% of the common units of CVR
Refining and, therefore, receives a proportional amount of the distribution.
Operationally, CVR Refining processed 188,000 barrels a day of crude in the fourth
quarter of 2017 compared to 207,000 barrels a day of crude in the fourth quarter of
2016. Crude throughput for the fourth quarter of 2017 was reduced by Wynnewood's
planned turnaround, which was completed on schedule and on budget. I would note
that our Coffeyville refinery set a new annual throughput -- crude throughput
record by processing approximately 131,600 barrels per day in 2017.
Now turning to the Nitrogen Fertilizer business. CVR Partners announced a fourth
quarter 2017 adjusted EBITDA of $8 million as compared to $18 million for the
fourth quarter of 2016. Operationally, the fourth quarter results were impacted by
12 days of unplanned downtime at the East Dubuque facility and a few maintenance
days on the UAN plant at Coffeyville. CVR Partners announced today it will not pay
a cash dividend for the fourth quarter of 2017.
Now let me turn the call over to Susan to talk about our financial highlights.
SUSAN M. BALL, CFO AND TREASURER, CVR ENERGY, INC.: Thank you, Dave, and good
afternoon, everyone. As Dave previously mentioned, adjusted net income for the
fourth quarter of 2017 was $24 million or $0.28 per diluted share as compared to
adjusted net income of $4 million or $0.05 per diluted share in the fourth quarter
of 2016. We believe adjusted net income is a meaningful metric for analyzing our
performance as it eliminates the impact of noncash and other unusual items inherent
in our business and provides a more transparent view as to market expectations. The
most significant adjustment to drive adjusted net income for the fourth quarter
2017 was the adjustment for the net tax benefit as a result of the Tax Cuts and
Jobs Act legislation that was signed into law in December 2017. Due to the
reduction of the corporate federal income tax rate from 35% to 21%, which is
effective beginning in 2018, we did remeasure our net deferred tax liabilities as
of December 31, 2017, to the lower tax rate that will be in effect for the years in
which the deferred tax assets and liabilities are expected to be realized. As a
result, we recorded and recognized a tax benefit of approximately $200 million in
the fourth quarter of 2017. To derive adjusted net income, we did adjust out this
impact of this onetime benefit related to the remeasurement of the net deferred tax
liabilities.
Additionally, we adjusted for the loss on derivatives not settled in the current
period of $47 million, major scheduled turnaround expenses of $43 million and a
favorable FIFO impact of $30 million. The adjustments for the fourth quarter of
2016 were a favorable FIFO impact of $22 million, loss on derivatives not settled
during the period of $16 million and a gain on extinguishment of debt of $200,000.
The gross pretax adjustments to net income are reduced for the portion that's
attributable to the noncontrolling interest and then are further reduced for the
net tax impact associated with those amounts.
The total income tax benefit for the fourth quarter of 2017 was $234 million as
compared to an income tax benefit of $22 million in the prior year quarter.
Excluding the income tax benefit of approximately $200 million from the
remeasurement of the net deferred tax liabilities, the income tax benefit would
have been approximately $34 million.

 The overall effective tax rate benefited also from certain state income tax credits
and other associated items. Additionally, the overall effective tax rate is
impacted by the income or loss associated with the noncontrolling interest in CVR
Refining's and CVR Partners' earnings. In 2018, we expect our effective tax rate to
be between 13% and 15%. Additionally, as we move forward into 2018 and beyond, we
will see the benefits of the reduced tax rate through reduced cash tax payments on
federal taxable income.
I will now turn to the specific performance of our 2 business segments impacting
our overall quarterly results. As Dave mentioned earlier, CVR Refining's adjusted
EBITDA for the fourth quarter of 2017 was $76 million as compared to $28 million in
the same period in 2016. This increase was primarily driven by a significant
increase in the Group 3 2-1-1 crack spread, partially offset by an increase in net
RINs cost and an overall reduced crude discount.
Just as a reminder, the fourth quarter of 2017 was impacted by Wynnewood's
turnaround, which was completed on schedule and on budget.
In the fourth quarter of 2017, CVR Refining's realized refining margin adjusted for
FIFO was $11.87 per barrel as compared to $7.32 in the same quarter of 2016. The
Group 3 2-1-1 crack spread averaged $19.96 per barrel in the fourth quarter of 2017
as compared to $11.60 in the fourth quarter of 2016.
Now turning to the -- our Fertilizer segment. As previously mentioned, CVR
Partners' fourth quarter adjusted EBITDA was $8 million as compared to $18 million
in the same period last year. The decrease in adjusted EBITDA over the periods was
primarily attributable to lower realized ammonia and UAN sales prices, lower UAN
sales volumes and approximately 12 days of unplanned downtime at the East Dubuque
facility, partially offset by increased ammonia tons sold. The average UAN product
price at the plant gate for the fourth quarter of 2017 was $132 per ton as compared
to $147 per ton in the prior year fourth quarter. The average ammonia product price
at plant gate was $264 per ton in the fourth quarter of 2017 as compared to $352
per ton in the fourth quarter of 2016.
Total consolidated capital spending for the fourth quarter 2017 was $39 million,
which included $34 million at CVR Refining and $3 million at CVR Partners. The 2017
full year capital spending was $119 million. We estimate that the total
consolidated capital spending for 2018 will approximate $230 million.
Our cash position remained strong as we ended the quarter with cash and cash
equivalents of approximately $482 million on a consolidated basis. Total
consolidated gross debt as of December 31, 2017, was approximately $1.2 billion,
unchanged from a year ago. On November 14, 2017, CVR Refining amended and restated
its $400 million ABL facility, which now matures in November 2022.
CVR Energy has no debt, exclusive of the debt that resides at CVR Refining and CVR
Partners. As of December 31, 2017, CVR Refining's total debt is approximately $545
million, and CVR Partners' total debt is approximately $647 million.
With that, Dave, I will turn the call back over to you.
DAVID L. LAMP: Thanks, Susan. In summary, 2017 was a successful year for CVR
Energy. For 2018, our mission is to be a top-tier North American petroleum refining
and fertilizer company as measured by safe, reliable operations, superior financial
performance and profitable growth.
Looking at 2018 and beyond, we see the following industry structure in general
macro market themes: favorable Brent-TI spreads due to the ever-growing shale oil
production; favorable WCS-WTI spreads mainly due to the limited pipeline takeaway

 capacity from Canada; continued strong exports of gasoline and diesel;
normalization of crude, gasoline and distillate inventories in the United States
and, for that matter, the world; constructive political pressure to reform the
broken Renewable Fuel Standard regulations; tax reform; fast-approaching IMO marine
fuel spec changes to 0.5 sulfur, total sulfur; improved fertilizer market
conditions with solid demand and lower imports. With all these, we believe CVR is
well positioned for '18 and beyond. To achieve our mission and our strategic
initiatives and the -- the strategic initiatives and objectives for 2018 are to
continually improve our all environmental health and safety matters. Safety is job
1 and safe operations are generally reliable operations; to leverage our crude
gathering system and pipelines to deliver high-quality crudes produced in our
backyard at favorable costs; to build a wholesale retail business to reduce our RIN
exposure; to install biodiesel blending facilities at all our acts; to expand our
capacity to process WCS in light shale oil crudes at Coffeyville to capture market
opportunities offered with the coming IMO specifications; to improve our liquid
yield at Wynnewood refinery by 3.5%; and finally, to restructure our organization
to reduce G&A cost, eliminate unprofitable activities and improve decision-making.
I would also like to add some more color -- additional color to the RIN fiasco in
the broken Renewable Fuel Standard regulation. As mentioned earlier, constructive
political pressure has developed with the Philadelphia Energy Solutions bankruptcy
and the continued high cost of RINs in the marketplace. As evident from this
bankruptcy filing, RINs make the difference between a healthy, growing, independent
merchant refining company employing thousands of people and their families across
the country with high-paying, high-skilled manufacturing jobs and a bankrupt,
unsustainable, capital-starved company fighting to stay in business. In addition,
these companies have huge multiplier effects on the communities where they operate,
and their loss will be seriously felt in those communities for years. I believe the
right senators are now engaged to repeal or significantly reform the regulation to
prevent additional independent merchant refiners from experiencing the same thing.
The industry -- the refining industry only asked to allow free markets to work and,
ideally, eliminate the mandate or, at a minimum, prevent RINs from picking winners
and losers.
With that, operator, we're ready for questions.
Questions and Answers
OPERATOR: (Operator Instructions) If there are no questions at this time, I would
like to turn the call back over to management for any closing remarks.
DAVID L. LAMP: Again, we like to thank you for your interest in CVR Energy. I'd
also like to thank our employees again for their hard work, making 2017 a
successful year for the company. We look forward to reviewing our first quarter
results of '18 in our next earnings call. Thank you very much.
OPERATOR: Thank you. This concludes 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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Source Citation:

"04 2017 CVR Energy Inc Earnings Call . Final." Fair Disclosure wire 22 Feb. 2913.
Business Insights: Global. web. 7 Apr. 2018.

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