CVR Energy Inc.

Greetings and welcome to the CBR Energy second quarter 2025 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. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. 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 and Investor Relations. Thank you, sir. You may begin.

Thank you, Christine. Good afternoon, everyone. We very much appreciate you joining us this afternoon for our CBR Energy Second Quarter 2025 earnings call. With me today are Dave Lamp, our Chief Executive Officer, Dane Newman, 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 if 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 Finances and 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 disposers related to such non-GAAP measures, including reconciliation to the most directly comparable GAAP financial measures, are included in our 2025 second quarter earnings release that we filed with the SEC and Form 10Q for the period and will be discussed during the call. With that said, I'll turn the call over to Dave.

Thank you, Richard. Good afternoon, everyone, and thank you for joining our earnings call. Yesterday, we reported a second quarter consolidated net loss of $90 million and a loss per share of $1.14. EBITDA was a loss of $24 million. Although crack spreads increased in the quarter, our results were impacted by an unfavorable mark-to-market impact of our outstanding rent obligation and reduced throughputs following the completion of the planned turnaround at Coffeyville. In our petroleum segment, combined total throughput for the second quarter of 2025 was approximately 172,000 barrels per day, with light product yield of 99% on crude oil processed. The planned turnaround at Coffeyville was complete in April, and we ran at a reduced crude rate for most of the quarter as we drew down intermediate inventories built during the turnaround. We resumed full operating rates at Coffeyville in July. and we do not currently have any additional turnarounds planned for the refining segment for the duration of 2025 and 26. We currently expect our next planned turnaround to be at Winniewood in 2027. Group 3-211 benchmark cracks averaged $24.02 per barrel for the second quarter compared to $18.83 per barrel for the second quarter last year. Average RIN prices for the quarter of Second quarter of 2025 were approximately $1.11 on an RVO weighted basis, an increase of over 70% from the prior year period. On a per barrel basis, RINs were approximately $6.08 per barrel, more than 25% of the Group 3 2-1-1 crack spread for the quarter. Regarding the RFS, the Supreme Court ruled on the venue case in the second quarter finding that venue for challenges of EPA's 2022 denial of certain small refinery exemptions lies exclusively in the D.C. Circuit. This ruling should make little difference in our case since the D.C. Circuit, like the Fifth Circuit before it, also held that EPA's denials of small refinery exemptions were arbitrary, capricious, and contrary to law. The comment period for the proposed 2026 and 2027 renewable volume obligation ends in August, and EPA has indicated it intends to rule on the 2024 SRE applications before finalizing the RVOs. In the meantime, we have already filed our 2025 SRE petition, and this will be a true test to see if EPA can finally meet its 90-day statutory deadline to rule on SRE petitions. Given the EPA has indicated it intends to clear the backlog of outstanding SRE petitions, we are holding back for now on filing additional lawsuits against EPA, though we will be prepared to respond to rapidly respond if appropriate. We remain hopeful under President Trump's leadership, EPA will see The critical role small refineries like ours plays in supporting rural communities across America and exactly why Congress included a small refinery exemption in the renewable fuels legislation. For the second quarter of 2025, we processed approximately 14 million gallons of vegetable fuel oil in the renewable diesel unit at Winniewood, which was impacted by some unplanned downtime in May. Gross margin was approximately $0.38 per gallon, for the second quarter of 2025 compared to 43 cents per gallon for the second quarter of 2024. As we continue to await for final regulations from the IRS, we did not recognize any PTC benefit in the quarter. As a reminder, we believe we would have the ability to retroactively claim credits once the regulations are finalized. In the fertilizer segment, We had some planned and unplanned downtime at both facilities during the quarter, which resulted in an ammonia utilization rate of 91%. Nitrogen fertilizer prices for the second quarter of 2025 were higher for both UAN and ammonia compared to the second quarter of 2024, and we saw strong demand for both products through the spring planning system. Now let me turn the call over to Dan to discuss our financial highlights.

Thank you, Dave, and good afternoon, everyone. For the second quarter of 2025, our consolidated net loss was $90 million, losses per share were $1.14, and EBITDA was a loss of $24 million. Our second quarter results include a negative market impact on our outstanding RFS obligation of $89 million, an unfavorable inventory evaluation impact of $32 million, and unrealized regular losses of $2 million. Excluding the above-mentioned items, adjusted EBITDA for the quarter was $99 million, and adjusted loss per share was $0.23. Adjusted EBITDA on the petroleum segment was $38 million for the second quarter, with a slight increase from the prior year period driven by the increase in Group 3 crack spreads, offset by increased RINs prices and lower throughput volumes. Our second quarter realized margin adjusted for RIN mark-to-market impacts, inventory valuation, and unrealized derivative losses was $9.95 per barrel, representing a 41% capture rate on the Group 3 2-1-1 benchmark. Our capture rate for the second quarter was negatively impacted by the timing of product sales, as Coffeeville was still coming out of turnaround and running through expensive feedstocks in April when cracks were at their highest, and our sales volumes were mostly weighted towards June when cracks were at the lowest levels of the quarter. Net RIN's expense for the quarter, excluding mark-to-market impact, was $62 million, or $3.93 per barrel, which negatively impacted our capture rate for the quarter by an additional 20%. The estimated accrued RFS obligation on the balance sheet was $548 million at June 30th, representing 508 million RINs marked to market at an average price of $1.08. As a reminder, our estimated outstanding RIN obligation excludes the impact of any small refinery exemptions. Direct operating expenses in the petroleum segment were $6.45 per barrel for the second quarter compared to $6.94 per barrel in the second quarter of 2024. The decrease in direct operating expense per barrel was primarily due to lower repair and maintenance expenses. Adjusted EBITDA on the renewable segment was a loss of $4 million for the second quarter. A decline from the second quarter of 2024, adjusted EBITDA loss of $2 million. The decrease in adjusted EBITDA was driven by a combination of a decline in the HOGO spread due to higher sodium prices and lower diesel prices, along with the loss of the BTC and nothing booked for the PTC while we await final regulations from the IRS. Adjusted EBITDA on the fertilizer segment was $67 million for the second quarter, with higher UAN and ammonia sales pricing and volumes driving the increase relative to the prior year period. The partnership declared a distribution of $3.89 per common unit for the second quarter of 2025. As CVR Energy owns approximately 37% of CVR partners' common units, we will receive a proportionate cash distribution of approximately $15 million. Cash flow from operations for the second quarter of 2025 was $176 million, and free cash flow was a use of $12 million. Significant uses of cash in the quarter included $189 million of capital and turnaround spending, a $70 million prepayment on the term loan, $26 million for cash interest, and $15 million paid for the non-controlling interest portion of the CBR partner's first quarter 2025 distribution. Working capital was a cash source, partially associated with crude oil and feedstock inventory draws following the Coffeyville turnaround. Total consolidated capital spending on an accrual basis was $36 million, which included $23 million in the petroleum segment $10 million in the fertilizer segment and $2 million in the renewable segment. Turnaround spending on an accrual basis in the second quarter was approximately $24 million. For the full year 2025, we estimate total consolidated capital spending to be approximately $165 to $200 million and turnaround spending to be approximately $190 million. Turning to the balance sheet, we end the quarter with a consolidated cash balance of $596 million, which includes $114 million of cash in the fertilizer segment. Total liquidity as of June 30th, excluding CBR partners, was approximately $759 million, which was comprised primarily of $482 million of cash and availability under the ADL facility of $277 million. During the quarter, we paid down $70 million on the term loan, and subsequent to quarter end, we repaid an additional $20 million, in total representing a 28% reduction and leaving the current principal balance at approximately $235 million. Looking ahead to the third quarter of 2025, for our petroleum segment, we estimate total throughputs to be approximately 200,000 to 215,000 barrels per day, direct operating expenses to range between $105 million and $115 million, and total capital spending to be between $25 million and $30 million. For the fertilizer segment, we estimate our ammonia utilization rate to be between 93% and 98%, with some downtime planted yeast to be used for control system upgrades. We expect direct operating expenses, excluding inventory impacts, to be between $60 and $65 million, and total capital spending to be between $20 and $25 million. For the renewable segment, we estimate third quarter 2025 total throughput to be approximately 16 to 20 million gallons, direct operating expenses to range between $8 and $10 million, and total capital spending to be between $1 and $3 million. With that, Dave, I'll turn it back over to you. Thanks, Dan.

Refining market conditions. Refining market conditions continue to improve in the second quarter. The combination of the heavy spring maintenance season and the closure of one U.S. refinery led to decline in refined products inventories, particularly diesel inventories, which are nearly 15% below 2021 to 2024 averages. Refined product demand in the U.S. remains steady. with year-to-date gasoline and diesel demands both in line with 2021 to 2024 averages. Within the mid-con where we operate, we're seeing similar trends with gasoline and diesel inventories at or below recent historical averages and demand remaining steady. We're also seeing strong premium gasoline pricing in the Group 3, which benefits our system as premium typically makes up 15% of our gasoline pool. The alkylation project at Winniewood should further increase our ability to make premium gasoline as well. This project is currently 40% complete and expected to come online in 2027. We are also in the process of revamping tankage and pipelines to allow us to produce jet fuel out of Coffeyville, where we've already made some progress on the commercial front. With higher RIN prices and jet demand, the R between versus diesel is open. Overall, we are cautiously optimistic about near and medium-term outlook for the refining sector. As I mentioned, refined product inventories are relatively low, and there are still several refineries in the U.S. and Europe that are scheduled to shut down. In addition, the forward curve for diesel remains backward-aided, providing no incentive to increase inventories in the near term. Outside of the startup of new refineries in Mexico and Nigeria, there are few new refineries under construction around the world that will be starting over the next few years. Meanwhile, refined product demand appears stable. Any pro-growth initiatives from the Big Beautiful Bill should be a positive for GDP growth and demand for transportation fuels in the United States. In the renewable segment, we've been near break-even on an adjusted EBITDA basis year-to-date with the loss of the blender's tax credit and increase in soybean oil pricing, mostly being offset by increased rent prices. Assuming we book the PTC in line with proposed regulations, our year-to-date adjusted EBITDA in the renewable segment would have increased approximately $6 million. We have ordered our next load of renewable diesel catalyst and we currently plan to remain in renewable diesel production as we wait to see how credits line out with the PTC and other potential positive changes to come out of the big beautiful bill. We will also continue to weigh all our options for the future of our renewable business. As we have stated in our last few earnings call, we remain fully willing to participate in the renewable space. but we cannot invest in additional time or capital without further assurances from the government that the government will support the business it created. In the fertilizer segment, the spring planting season went well and demand for nitrogen fertilizer is strong, with corn acres planted increasing 4% over 2024 levels. Recent USDA estimates are calling for an inventory carryout levels for corn and soybeans at 10% or less for 2026, which are below the 10-year averages. Between robust demand in the spring and tight supplies of nitrogen fertilizer in the US and globally, we are seeing continued support for pricing and the normal seasonal pricing declines for the summer fill. And fall pre-play of UAN have been much narrower this year than past. Looking at the third quarter, 2025, quarter-of-the-date metrics are as follows. Group 2-1-1 cracks have averaged $25.57 per barrel. Brent TI spread at $2.28 per barrel, and the WCS differential at $10.73 per barrel under WTI. The hobo spread has averaged a negative $1.75. As of yesterday, Group 3-2-1-1 cracks were $25 per barrel. Spread TI was $3.24 per barrel, and WCS was $11.65 under WTI. The hobo spread was a negative $1.85 per gallon, and RINs were approximately $6.90 per barrel. Prompt fertilizer prices are approximately $600 per ton for ammonia and $300 for UAN. In conjunction with improving refining fundamentals and the completion of payments of the coffee bill turnaround in the second quarter, we were pleased to begin making progress on our deleveraging strategy by paying $90 million of the principal on the term loan between the second and third quarters. Returning our balance sheet to target leverage levels is key for us in the near term, in addition to our constant focus on safe and reliable operations of our facilities. We will also continue to look for ways to improve capture, reduce costs, and ultimately grow our business profitably. Finally, as mentioned in our earnings release, I have announced my intention to retire as president and CEO at the end of the year. It's been a privilege to have spent the past 45 years in the boiling oil industry that I love. I truly enjoy working with the talented CBR team and look forward to continuing to serve as a member of its boards. Mark Pytosh has done great things for both our companies, and I look forward to watching him lead CBR Energy into the future. With that, operator, we're ready for questions.

Thank you. We will now be conducting a question and answer session. We ask that all callers limit themselves to one question and one follow-up. If you have additional questions, you may re-queue and those questions will be addressed time permitting. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions. Thank you. Our first question comes from the line of Paul Chang with Scotiabank. Please proceed with your question.

Hey, Dave. Good morning or good afternoon. First, just want to congratulate and best of luck with your pending retirement. We really appreciate over the years your insight and very candid comments. We really appreciate that. Thank you, Paul. I guess two questions. One, on cost of you, I'm just curious then, From a planning standpoint, is it really necessary to have all this excess inventory and end up that you get into a situation where when margin is very strong but you can't run it at full because you have to work off in that inventory? I assume that they have some negative financial impact in the quarter. Can you quantify it? And also from a planning standpoint, is there any way to do so that we can minimize that kind of impact in the future? That's the first question. Second question that I know is a little bit early. Can you maybe, Dane, give us some idea that how 2026 CapEx and turnaround that is going to look like given that you don't have any major turnaround for next year? Thank you.

Paul, on your first question, is there a way to mitigate the inventory we build during a turnaround season. There is some we could do there, leave it stored in tankage for a period of time. But the problem with that is if you have another problem, you have nowhere to go. So most of our strategy is to pull the inventory back towards target so we have some degrees of freedom should some other incident occur like weather or something else that we can't control. On the second part of your question, on the first question, I can't remember now.

What's the financial impact in the quarter because of that?

Yeah, I'll kind of cover the capture overall, Paul. So obviously, 41% was a decline from the first quarter's performance. The draw definitely had an impact. As I mentioned, sales timing, while we were at lower throughputs and drawing that inventory, Cracks were at their best of the quarter. Rolling into June, you know, we got back to full rates. Cracks were depressed. In addition, you know, that feedstock draw that we had was more heavily weighted towards gasoline, which relative to the crack was also obviously disadvantaged against diesel. Kind of pulling all of those together, our estimate is, call it, you know, 7% to 9% on capture, where it pushes closer to 50%.

Paul, on the second question about the CapEx and turnaround for next year.

Yeah, so Paul, for 26, obviously we wait until later in the year to give guidance on capital. You know, I don't think there's anything at this time that's going to say it's going to be an exceptional year from the past years. And in the prepared remarks, we did mention we don't have any planned turnarounds until potentially with the Winniwood turnaround in 27. And depending on timing of when that turnaround would happen, there could be some pre-spending towards the end of the year. But if it happens later in the year, I wouldn't expect that either.

Okay, we do. Thanks. Thank you.

Our next question comes from the line of Neil Meadow with Goldman Sachs. Please proceed with your question.

Yeah, good afternoon, Dave. Thanks for all the guidance over the years, and we're going to miss you very much. Thanks. Thanks, Neil. Well, maybe that's a good place to start, which is as Mark steps into the role, are there areas of strategic focus that you think CVI should really be focused on? How do you think about this being a continuation of the existing strategy or whether there's some white space that you want the business to move towards?

Well, I think, Neil, that you probably have heard me say this before. You know, our biggest issue is we're in one single market with one single, basically one single driver in terms of the crack. And, you know, I hope in the future, you know, the bid-ask narrows somewhat on new assets where we can either acquire something that diversifies to some degree or even be acquired by someone to to accomplish that same function. That's nothing new in our repertoire. What we end up doing from a fertilizer standpoint is an interesting question. There's a lot of value there. Fertilizer appears to be very short. There's geopolitical things that are happening that could make that even worse. I'm sure that Markle has his hands full trying to figure all that out going down the road.

David, as you think about a little bit of a longer-term question, you've always had a very good perspective on the refining cycle. There's a rich debate out right now whether we're in a new refining up cycle. given limited capacity ads, or we're still going to go through a tough period given crude differentials and demand uncertainty. What's your multi-year outlook for refining?

Well, I think there's no new construction that I can find worldwide until 2030. Demand is still, I wouldn't call it growing rapidly, but I'm hoping with a big, beautiful bill that Demand will take off to some degree just from GDP growth and just the demand for products. And I think there's no question there's a lot of countries that would envy the kind of consumption that the US enjoys and the standard of living. So that constant pressure is there. And the alternatives are not particularly attractive, especially when you have crude in a $50 to $70 range. So I think it's very positive just from the standpoint that there's a reason that oil enjoys the market share it does is because there's nothing better out there. So from that standpoint, I think it's still a bright future and we'll need this industry for many, many years.

All right, Dave. Thanks for everything.

You're welcome.

Our next question comes from the line of Benav Gupta with UBS. Please proceed with your question.

Hey, Dave. Congrats on the retirement. We really appreciated all your insights over the years. My question here is, looks like you are more constructive on refining than sometimes you have been in the past. You also do not have any major plan turnaround approaching. And yes, you have lower leverage, but at what point do you and the board sit together and think about rewarding shareholders with some kind of a dividend reinstatement, if you could talk about that?

Sure, Manav. I think, first off, I'd just say we're well known in the industry to be a dividend machine, and we'd love to return to that as fast as possible. I think I'm much more optimistic than I was just because I just believe the penetration of EVs is going to slow. It has to some degree already. And Americans will wake up and the rest of the world will wake up that the most versatile and flexible fuel in the world is gas and diesel. And that, I'm afraid, is very difficult to change. And that makes me much more optimistic. reality has come in on the energy transition, and it's going to be much different than what it was thought of three, four years ago. So on that basis, I think it's got a bright future. Second part of your question was, I forgot now.

No, I think you're hoping for a dividend at some stage. You mentioned that you have been known in the industry as cash machine. So how should we think about a possible dividend reinstatement there?

Well, you know, the board looks at this all the time. So, you know, and I think our strategy has, and you saw us make here just recently a $90 million pay down. We're going to keep that trend going or something of it, most likely, although the board looks at it all the time. But, you know, I think, you know, our goal is to get back to a dividend of some reasonable level that we can support long term. And when exactly that will happen, I can't say. But, you know, that's the goal.

Perfect. My quick follow up here is on the small refinery exemptions. In the past, you know, whenever you have been denied, you have gone all the way to Supreme Court and proven your case. But look, there are a number of people who have applied for these small refinery exemptions. Some people may not be having as compelling a case as you. So just trying to understand from your view, how do you think this plays out? And if small refinery exemptions are actually given out, do you think there would be some kind of a reallocation from the top? Or would it be, you know, without reallocation? What are you hearing and what are your thoughts on that?

Well, you know, I think I've said many times that our Winnie Wood refinery is a poster child for an SRE. And, you know, I think just the numbers are compelling if you look at them closely. And EPA has had these for years, and they could see it. You know, without a doubt, we're disproportionately economically harmed by this RFS rule. And, you know, it's much more of an issue when the RINs are high than it is when RINs are low. And, you know, we just went through a cycle here and we're on an up cycle of rent price with the BTC gone, the PTC sort of in question mark, and then a huge RVO increase for 26 and 27. So, you know, I don't know that this program ever goes away, but Congress always intended to have a relief valve for small refiners that live and that operate in rural areas and that support those communities. I mean, the supply lines are long for a lot of these small refineries that are in rural areas that just don't have an alternative, and the fuel price is going to go up. So Congress knew this, and EPA has fought it every direction they could, almost to absurdity. And the courts have ruled, arbitrary, capricious, and a counter to the law. But I always said this regulation, the law was written poorly. It was implemented ridiculously. It's been managed politically. And it's untenable for people that are in the business to think that you're just going to deny all small refinery waivers across the United States without any consideration. It even gets to the point where you have the Department of Energy that does the scoring, where they do the scoring so rigorously, like it's politically influenced and not facing reality. So, you know, we'll be back in court if it doesn't go our way, without a doubt. And, you know, I think we've had some indications from the EPA, including Zeldin, that the They're going to re-look at this and make more sense out of it, and they're going to clear the backlog and get back on time, which means we're going to test them already. We submitted our 25 applications, and they've done nothing on it yet that we know of, but the 90 days aren't up yet. So we'll find out if they're really serious with that test. On the reallocation comment, I believe there's nothing in the law that states you have to reallocate SREs. In fact, I'm positive there isn't. EPA has made that up, in my opinion, and they're doing that to please the other lobby that's against any kind of change to the RFS. And it's sort of a ridiculous position. But it's never been challenged in court that I know of, and it might get to that. If I was certainly a large refiner, which I am, I'm a large and a small, I would take the position that there's nothing the law requires you to reallocate. So that's kind of currently where we stand.

Thank you so much, sir.

You're welcome.

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.

Again, I'd like to thank you all for your interest in CVR Energy. Additionally, I'd like to thank our employees for their work and their commitment towards safe, reliable, and environmentally responsible operations. We look forward to reviewing our third quarter results in 25 in our next earnings call. Thank you all very much.

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.