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Hello, and welcome to the Calumet Specialty Products Partners, L.P. First Quarter 2023 Results. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, today’s event is being recorded. I now would like to turn the conference over to Brad McMurray in Investor Relations. Please go ahead.

Good morning. Thank you for joining Calumet today for our first quarter 2023 earnings call. With me on today's call are Todd Borgmann, CEO; Vince Donargo, CFO; Bruce Fleming, EVP Montana/Renewables and Corporate Development; Scott Obermeier, EVP of Specialty; and Marc Lawn, EVP of Sustainable Products and Strategy. You may now download the slides that accompany the remarks made on today's conference call, which can be accessed in the Investor Relations section of our website at www.calumetspecialty.com. Also a webcast replay of this call will be available on our site within a few hours. Turning to the presentation, on slide 2 you can find our cautionary statements. I like to remind everyone that during this call, we may provide various forward-looking statements. Please refer to the partnership's press release that was issued this morning, as well as our latest filings with the SEC for a list of factors that may affect our actual results and cause them to differ from expectations. With that, I'll turn it over to Todd. Todd?

Thanks, Brad, and welcome to Calumet's first quarter 2023 earnings call. Let's turn to slide 3. The first quarter was an impactful one at Calumet. We generated strong earnings in our specialty business and achieved new milestones at Montane Renewables as we started up the final two units and are now fully operational. During the quarter, the company generated $77.7 million of adjusted EBITDA, up $14 million from Q4 of 2022 and $52 million versus last year's first quarter. The step change in results we saw last year in our specialty business continued into 2023. Results in our specialty products and solutions business were a combination of a constructive market, strong demand and ongoing execution. We like to see specialty volumes hovering around a 20,000 barrel per day mark. And in the first quarter, we hit 20,202 barrels per day of specialty product volume, all while specialty unit margins were up 60% versus the first quarter of 2022. Further, Calumet's integrated specialty system continues to run at max rates given strong demand and compelling margins. Our performance brands business took the expected major positive step forward in the quarter, in our newly reconfigured and fully operating Montana asphalt plant started the year strong, and we should continue to expect this business to generate stable, strong cash flows. The Montana team somewhat seamlessly eased into operation at the reconfigured plant, and it was nice to see our output being consumed in a local market, even in the winter months when things are typically slower in the Rockies. This will take us further into all of these segments shortly. And before it does, I'll highlight that while Montana Renewables has been getting most of the airtime through the past couple of years, our core specialty business has delivered $444 million of adjusted EBITDA over the past 12 months. We continue to be committed to taking roughly $300 million of debt out of the Calumet system through excess cash flows and MRL monetization. And it's also worth noting that over the past two years, our credit metrics have dramatically improved, even though we just now completed the Montana Renewables project that unlocks the extreme cash flow generation power of that business. We'll talk more about Montana Renewables shortly. And for now, I'll turn the call over to Vince. Vince?

Thank you, and good morning. As Todd mentioned, Calumet had another strong quarter led by our specialty products and solutions business, as shown on slide 5. Our SPS business generated $76.4 million of adjusted EBITDA in the first quarter and this business continues to deliver both operationally and commercially. While margins for specialties and fuels came off from the levels we saw in the back half of 2022, specialty margins increased over 60% and fuel margins increased over 50% versus this time last year. Shreveport, our largest plant was production limited early in the quarter as the team made some repairs from December's Arctic freeze, and since then, the plant is running at maximum fuels mode, and we expect to continue in the current strong -- we expect that to continue in the current strong margin environment. As we look forward into 2023, we continue to see a constructive market for this segment as we enter the summer driving and paving season and our confidence in this segment is reinforced by the 20,000 barrels per day of 2-on-1 crack spread hedges at $27 per barrel. Moving to Slide 7. Our Performance Brands business generated $16.4 million in adjusted EBITDA for the quarter, a marked improvement on our quarterly results in 2022. Input costs have stabilized and that's what drives the expected financial results for performance brands in the quarter. For over two years, the business has been increasing prices and by the time price increases are enacted, input costs had also increased, leaving the business continuously in catch-up mode. The first quarter's margins are more representative of what we should expect in a stable environment. Further, we received a $5 million partial payment for business interruption insurance proceeds that resulted from the Greece supplier Force Majeure that impacted our business throughout 2021 and 2022. Adjusting for that payment, TD still delivered over $11 million in adjusted EBITDA for the first quarter and delivered an adjusted gross profit of $3.95 a gallon, an increase over 60% versus both fourth quarter and first quarter results of last year. Moving to Montana on Slide 9. Great Falls produced $4.8 million of adjusted EBITDA in the first quarter. We ramped up both our renewable diesel operations at MRL and experienced our first full quarter of operations at our reconfigured specialty asphalt plant. Both businesses ran to plan during the quarter, and our asphalt plant is gearing up for paving season. Most importantly, with the renewable hydrogen plant, pre-treater and staff operations up, we are entering a new period in Great Falls and look forward to realize in the cash generation potential of this new business. With that, let's flip to Slide 10, and I will turn the call back to Todd for concluding remarks. Todd?

Thank you, Vince. For two years, our quarterly calls have included progress reports on Montana Renewables and to now report that all units are operating is a huge accomplishment. As our focus shifts from construction and start-up to delivering the full cash flow potential of MRL, I'll take a few minutes to remind listeners of the key operational milestones announced over the past few months. First, initial renewable diesel operations commenced late last year. Then in Q1, the renewable hydrogen plant was commissioned to increase the feedstock rate from 5,000 barrels a day to 12,000 barrels a day. Our hydrogen system is unique and that it lowers the carbon intensity of our end product by creating renewable hydrogen as opposed to more traditional gray hydrogen plants that are fed by fossil fuels. Previously, we've talked about our expected MAX SAF expansion, which could increase rates to at least 18,000 barrels a day. An additional hydrogen plant will be required to achieve that next step, and it's nice to have our existing plant fully operating and derisked making the future project a low-risk venture. In the meantime, our engineers are hard at work figuring out how to creep up rates on our existing units. Next, our pre-treater, which has started up in April, is the single biggest driver value at Montana/Renewables. The pre-treater opens up all of the regional logistically advanced feedstock that is so key to the lasting competitive advantage that sets Montana/Renewables apart. As we gain experience in a renewable feedstock market, we've reinforced our initial hypotheses regarding the large advantages that both our geography and pre-treater provide. To put the value into perspective, we can currently buy a regional untreated feed approximately $0.80 a gallon more cheaply than treated feed. As we transition into our steady-state operation, we expect to process the majority of our existing safety stock of clean feed this quarter, clearing the slate to receive the full financial benefit of our pre- treater trader in Q3. Last milestone in the Montana/Renewables project was producing sustainable aviation fuel. SAF was added to the project and our team confirmed the significant premium this product demands in the marketplace. As a boutique high-margin product, the SAF value chain more closely resembled a specialty product than a fuel and Calumet was very comfortable in this environment. Since the Inflationary Reduction Act was announced, the outlook for SAF has exploded. As the only proven scalable solution to de-carbonizing air travel, it has turned into one of the hottest topics in energy. And as of last week, Montana/Renewables is the largest producer of sustainable aviation fuel in North America. With all units running, we also recently reconfirmed Montana/Renewables EBITDA expectation. With a clear line of sight into the cost of untreated feedstocks, the economies of scale enabled by our renewable hydrogen plant and margin uplift from SAF. We recently reconfirmed our run rate EBITDA expectation of $1.25 to $1.45 per gallon, which we expect to hit when we are processing all dirty feed. Montana/Renewables has evolved from an idea in 2020 to an operating leading renewable business in a very short amount of time. During that time, 2.7 million man hours were worked on site with no lost time incidents. This is quite an accomplishment, and thank you to the team and our partners that have made Montana/Renewables a reality. As we look forward, our strategy is clear and it remains unchanged. We priority number one is to demonstrate the cash earnings power of this new business. In parallel, we will continue to engineer the potential MAX SAF expansion. Last, we expect to progress down the path of an ultimate IPO of Montana/Renewables as we believe the competitively advantaged pure-play SAF and renewable diesel business with the growth profile of ours is extremely valuable. And of course, we'll continue to remain flexible and opportunistically engaged with potential partners along the way. With that, I'll turn it to the operator for questions. Operator?

Yes. Thank you. At this time, we will begin the question-and-answer session. [Operator Instructions] And the first question comes from Neil Mehta with Goldman Sachs.

Hey, good morning .Thanks for taking the time. This is Nicole Seltzer [ph] on for Neil Meda. The first question here is on Montana/Renewables. And I understand you guys recently reconfirmed the go-forward EBITDA guidance of $1.25 to $1.45 per gallon. Can you just talk us through the drivers between the lower and the upper end of the range? And then kind of where you might see one skewing one way or another later this year?

Hey, Nick, Bruce Fleming. We're simply giving a range. That's a market condition. There is a little bit of volatility. We've published a lot of look back and gross margin information, and that simply captures what's going on out there.

All right. Helpful. Thank you. And then the follow-up here is just on Performance Brands and it seems like that business has been inflecting, I mean, and obviously, a stronger quarter here. Can you just talk about the performance point of inflection and then pays for the rest of the year? Thank you.

Yes. Great. This is Scott Obermeier. As Vince alluded to during the commentary earlier, I think, we finally caught up the market has stabilized. We've been talking for the past 18 months about rising costs and the lag in our price increases. And I think what you saw in the first quarter and what we saw in the first quarter was our pricing finally catching up to the rising cost structure as well as solid demand in the market. So we would expect that to continue to move forward.

Great. Thank you.

Thank you. And the next question comes from Amit Dayal with H.C. Wainwright.

Hi. Good morning, guys. Thank you for taking my questions.

Hi, Amit.

First of all, congrats on delivery against all these milestones in a timely manner, very impressive. Just in terms of how you are now thinking about potentially managing the debt side of the story? What are your priorities from -- for the cash flow that now you are set up to sort of generate with this new setup?

Yes. Hey. It's Todd. Reducing leverage continues to be a strategic priority. I think we've been pretty consistent about that. We have a number of ways to do it. You mentioned operating cash flow from Montana Renewables. That's certainly one. We also expect monetization proceeds at some point in the not-too-distant future from Montana Renewables that's another. I think when you look out at quantum of that, we're in a pretty decent position right now when you look at our current EBITDA versus our kind of restricted debt. We're coming in at a 3.0 ratio, which is actually a pretty reasonable level. That being said, we think that in the long run, we want to take $300 million more off the table, give or take. So the plan is to do that with operating cash flow or Montana Renewables monetization.

Okay. Thank you. And then you already focused on sort of expanding SAF capacity to 18,000 barrels per day. Once we get to that level, are we capped out at this facility, or is there room for further capacity expansion in Montana?

Amit, Bruce Fleming. The natural limits to our existing facility are something that we're going to discover. We're going to be creeping capacity without a project anyway. The guys in the field are already finding small wins. And as we get the project online, we'll find out 18,000 barrels a day renewable feedstock is kind of a guideline figure. We may do better than that. But there will be some ultimate limit to the single train operation there. So at that point, we think that with the competitive advantages we have with every study that we've gotten any bank or consultancy to do for us, we've simply got the best machine out there. And that puts us in a really good position as the industry structure continues to unfold around us to be the aggregator in this space. So we're looking forward to rotating to some pretty conventional M&A activity.

Understood. Thank you for that. That's really helpful. And just last one for me, guys. Let's talk about potential recession, et cetera, given what the macro environment is. Are you seeing sort of any adjustments from customers or industry players around demand, et cetera, keeping in mind that type of scenario?

Yes. This is Scott here. So, overall, demand remains solid. We've seen it become a little choppier in certain areas within the consumer and retail space. But -- and I think we've seen the published cracks out there start to taper down to slightly more normalized levels. Although, overall, we're bullish on the go-forward plan. We've been through over the past three, four years, the extreme up and downs. And I think the business has performed well. We're resilient, we're diversified, and we feel good about where we're at.

Thank you, guys. That’s all I have.

Thanks, Amit.

The next question comes from Gregg Brody with Bank of America.

Hi. Good morning, all.

Hey, Gregg.

So you highlighted the IPO in the press release and something you've been talking about is amongst a bunch of alternative plans. Does the fact that you're putting in the release indicate any sort of change in your considering all the other things that you had talked about in the past? And is there a potential timing around the IPO?

Hi, Gregg, Bruce. Let me take what I think was a three-parter there. So our Montana Renewables strategic options represents an abundance of riches, really. And that's going to cascade over to the parent as well. And Todd may want to comment on that after I'm through. But one of the key pivot points here is going to be what the Department of Energy decides to do with our loan guarantee application, and we will keep you posted. But I'll say that their underwriting conversations and their diligence is going well. And that is a material strategic anchor. So the way that, that plays out is, with a clean balance sheet, the IPO is enabled the over/under from the both bracket banks that we're talking to about that is, let's say, nine months -- centered on nine months, it can go quicker. And so, the future speculation is, what are the market conditions as we have that offering available. So, we'll see. The last couple of years is, Scott Obermeier just mentioned in a different context, I've seen a lot of things thrown at everybody from the macro. And knock on wood, if the world economy is going to be on a more stable footing, and we're going to have a pretty compelling pure-play energy transition offering. And it's not a small thing to suddenly be the biggest SAF producer in North America that nobody ever heard of. We've just had our head down doing this. We're not promoters. We're not developers. And we're no longer in the business of seeking financing to build a project. The projects build that's there, it's running more real. What is that going to be worth in the market. We all look forward to finding out how to maximize unitholder value off the back of this.

Yeah, maybe I'll pile on a little bit. The -- I wouldn't read too much into, is it a signal of other items kind of like Bruce pointed out there at the end, what we think about a potential IPO is it's doable. It's doable in the not-too-distant future. It's extremely accretive. So it's not that we won't take any other actions. We -- like normal, you know us by now, we'll continue to be opportunistic and evaluate options. But what it does mean is that anything that we look at, we're going to evaluate in the context of is this a supportive majorly supportive of what looks like a pretty controllable and positive in destination. So that's kind of the lens we're looking through if that makes sense, Greg.

It does. Thank you for all the clarifications. It sounded like you see business improving, or at least maintaining, I should say. Are you seeing any cracks in anything you're seeing in terms of weakness in the economy and like demand?

We -- I think, Greg, Scott commented a little earlier on not too much in specialty. We continue to see pretty strong specialty margins, so kind of where that played from earlier. On cracks, obviously, we've seen them come in a little bit. So like they should in Q1, we're pretty comfortable with our plan at these levels. So we're not saying that we expect cracks to turn around and reach the levels they were last year or anything like that. What we're saying is we can absolutely play out our business plan to current environment to support running max rates. And we've got a little bit of hedges there, too. And we put those on last year in a time when we were looking forward and saying, "Hey, it could potentially be a volatile market, and we want to make sure that our business plan plays out in any environment isn't at risk. So that's kind of how we're looking at it we've planned on the current levels we're at, and I think our plan is still very viable in the current market environment.

Great. That's it for me, guys. Thank you for the time.

Thanks, Gregg.

Thank you. And the next question comes from Jason Gabelman with TD Cowen.

Hey, guys. Good morning. On MRL the guidance you gave of $145 million to $165 million. I think last year, when you talked about a base case, it was $1.85. So $1.8 per gallon. So the indicative economics are a bit lower than that. I'm just wondering what's going on in the market now different than the base case that you provided last year?

Jason, Bruce, I'll start. So we have put out gross margins and EBITDA and net margins. We're not actually reducing guidance a change in frame of reference. We've talked a lot about the location advantage. We've done differentials on our logistics better than the Gulf Coast, and we've put out the constant $2 a gallon-ish gross margin. And we've had people ask us to just simply tell us what we're going to earn. So the answer is $1.25 to $1.45 a gallon fully loaded, including SG&A, EBITDA based upon gathering of untreated feedstocks in our local market. That's no change, if anything, that's probably up a little bit from some of the look backs that we've put out.

Okay. Got it. And then, if I just apply that math and use the $0.80 per gallon, higher feed that you're running now, it implies 2Q, you should earn some amount of EBITDA on what you're -- on what you're running at the renewable diesel plan. Is that a fair assessment kind of $0.40 per gallon, $0.50 per gallon for Q2 and then a higher amount from 3Q as you ramp up use of untreated feet?

You're thinking in the right direction. The rolling from purchased clean feeds to purchase untreated fees has the compelling advantage that Todd mentioned. I think that's broadly understood in the market. And I think the start-up performance of some of our peers, without a pre-treater is going to give you a benchmark for what the industry looks like. Our pre-treater literally come on in the last couple of weeks or so. We announced that as it did. So, we're going to get a partial benefit as we speed up the untreated supply chain. We've got to work out of the safety stocks, the clean inventory that we have on site. How fast we do that is going to be an optimization. So I'd probably prefer to stay away from technical guidance quarter-over-quarter. We may find that we accelerate the inbound and we hold the safety stocks, we may find the converse. But it's simply time shifting. We're going to eat the clean feeds and they'll be gone. How fast we do that, we're going to try to gain an optimization value.

Got it.

May be I just add on a bit there. Our guys have to learn this new equipment, right? So far, they've done really an exceptional job when you look at the track record from the initial start-up of RDU and in hydrogen plant and now pre-treating SaaS, but -- when we talked about the $1.25 to $1.45 and then you kind of backed out that $0.80, we're talking run rate numbers. We'll give them a little bit of a chance to have a toss up or two in the next couple of months as they learn their equipment. But so far, so good. We're real proud of what they're doing in the field.

Got it. And then on the IPO timing, I think when you talked about the potential IPO last year, you discussed wanting to have some trailing amount of indicative earnings released before going through an IPO process. Is that still how you think about it? Because, it seems like the first two quarter of earnings will be 3Q. Are you going to want a little more of a track record before you pursue in IPL or is one to two quarters of consistent operations enough?

I think we're going to have a look at the market and let that guide us. You're right, that I do think providing that first full quarter run rate of audited financials, we can think about that as kind of a key trigger point in launching the IPO process. I'd also say that, the first few months of the process are confidential. So they don't expect to it all have to necessarily be in series. But I think you're thinking about it the right way. It's going to make a lot of sense. And I think we're all going to benefit to put the numbers out there. Let people see the bottom-line of Montana Renewables as a stand-alone fully operating business. And we'll go from there.

Great. And if I could just squeeze one more in, which was CapEx came in a little higher than we thought it would for 1Q. Was that related to kind of the completion of the biofuels plant? And if you could give some kind of total amount of capital cost that, the project ended up costing that would be helpful. Thanks.

Jason, its Bruce, I'll start and Vince may want to add some exact figures. But three things are happening here at the end game, as we go live on our Montana Renewables business. We did pile SAF opportunistically on top of the program that we first announced two years ago. That was kind of a midcourse correction. And so we've got some, expenditures there. We've got the expansion ramping up. The Montana Renewables Board last fall approved us spending this year on that. And you've got some of that starting to run through. And then, as you indicated, the startup/one-time is a consideration in the first quarter. We commissioned a whole bunch of units sequentially in a relatively short period of time, that's not without some teething opportunities. And we will eventually have a full answer to your question on the total cost. But -- some of that is still running in. We literally just came online with the pre-treater some of the payables are on 30-day terms and that sort of thing. So we'll do a look back at some point in the future.

Great. Thanks for the color, guys.

Thank you.

Thank you. And this concludes the question-and-answer session. I'd now like to turn the floor to Brad McMurray, for any closing comments.

Yeah. On behalf of the Executive Team here in the room and really the entirety of Calumet, we appreciate your time and your interest this morning. So thanks, everybody. And have a good weekend.