Calumet Specialty Merchandise (NASDAQ:) Companions, L.P. (NASDAQ: CLMT) mentioned its fourth quarter and full-year 2023 monetary outcomes, revealing a plan to transform from an MLP to a C-Corp in November 2023, with the conversion settlement formally signed two weeks prior.

The corporate generated $40 million in adjusted EBITDA for the fourth quarter and $261 million for the total yr. Regardless of going through operational challenges, together with a steam drum crack in Montana and excessive climate circumstances, Calumet noticed margin progress in its Specialties enterprise for the fifth consecutive yr.

Calumet additionally made important progress in its Montana/Renewables enterprise, launching North America’s largest sustainable aviation gas (SAF) operation. The corporate is awaiting Division of Power (DOE) suggestions on funding for its MaxSAF challenge and has introduced measures to cut back debt, together with a word buy settlement.

Moreover, Calumet restated its financials for 2022 and 2023 to appropriate an allocation error with no affect on web revenue.

Key Takeaways

• Calumet plans to shift from an MLP to a C-Corp construction by mid-year 2023.
• The corporate posted $40 million in adjusted EBITDA for This autumn and $261 million for the total yr.
• Operational setbacks had been skilled, together with a steam drum crack and climate disruptions.
• Specialties enterprise margins elevated for the fifth yr in a row.
• North America’s largest SAF operation was launched.
• Awaiting DOE suggestions for the MaxSAF challenge funding.
• Introduced a word buy settlement to retire debt and scale back total indebtedness.
• Restated financials for 2022 and 2023 with no affect on web revenue.
• Offered steering for 2024 and expressed confidence in enterprise efficiency regardless of market challenges.

Firm Outlook

• Expects to finish the C-Corp conversion in Q2 and potential monetization of the renewable enterprise within the second half of the yr.
• Plans to cut back $300-400 million of excellent debt via a minority sale of Montana/Renewables and free money circulation.
• Optimistic about acquiring DOE mortgage for the MaxSAF challenge quickly.

Bearish Highlights

• Skilled a steam drum crack on the Montana facility, leading to misplaced revenue alternatives.
• Blended outlook with enhancing gas cracks however slowing demand in specialties.
• Ongoing litigation associated to RINs (Renewable Identification Numbers).

Bullish Highlights

• Elevated margins within the Specialties enterprise for the fifth consecutive yr.
• Launched the most important SAF enterprise in North America.
• Positioned effectively for the vitality transition with flexibility in Specialties and progress in renewable diesel and SAF.
• Geographic benefits and suppleness in shifting supplies to completely different markets.
• Authorities help and legislated markets for SAF each within the US and globally.

Misses

• Restated financials for 2022 and 2023 as a consequence of incorrect allocation of web losses in most well-liked fairness funding in MRL.

Q&A Highlights

• Mentioned the significance of the Canadian marketplace for renewable diesel gross sales.
• Highlighted the worldwide drive for vitality transition and Calumet’s alternative to be a serious shipper in Canada.
• Expressed optimism concerning the trade construction and Calumet’s positioning.
• Famous that each gallon of SAF produced is changing diesel gas.
• No plans to tackle further senior notes; funding for MaxSAF challenge linked to DOE approval.
• Expects to contract 30 million gallons of SAF out of a complete feedstock run of 12,000 barrels per day.

Calumet’s earnings name underscored the corporate’s resilience and adaptableness within the face of operational challenges and market fluctuations. With a transparent technique for debt discount, a deal with renewable vitality sources, and a pending company construction change, Calumet is poised to capitalize on the rising demand for sustainable fuels and the supportive legislative setting.

InvestingPro Insights

Calumet Specialty Merchandise Companions, L.P. (NASDAQ: CLMT) has been navigating a fancy market panorama, as mirrored in its current earnings name. To additional perceive the corporate’s monetary well being and market place, let’s delve into some key knowledge and insights from InvestingPro.

InvestingPro Information:

• Market Cap (Adjusted): $1,330M USD

• P/E Ratio (Adjusted) final twelve months as of Q3 2023: 11.39

• Income Progress final twelve months as of Q3 2023: -7.66%

The adjusted P/E ratio of 11.39 means that Calumet’s inventory could be buying and selling at an inexpensive valuation relative to its near-term earnings progress, notably when contemplating the corporate’s strategic initiatives and deal with renewable vitality sources. Nonetheless, the income contraction over the past twelve months might be some extent of concern for traders, highlighting the operational challenges the corporate has confronted.

InvestingPro Suggestions:

1. Calumet operates with a major debt burden, which aligns with the corporate’s announcement of a word buy settlement aimed toward decreasing total indebtedness.

2. The corporate is buying and selling at a excessive earnings a number of, suggesting that traders might have optimistic expectations about Calumet’s future profitability, particularly in gentle of its renewable vitality ventures and C-Corp conversion plans.

For these seeking to dive deeper into Calumet’s financials and market potential, there are further InvestingPro Suggestions out there at https://www.investing.com/professional/CLMT. These insights may present priceless context for the corporate’s strategic strikes and anticipated efficiency within the close to future. For entry to those ideas, think about using the coupon code PRONEWS24 to get a further 10% off a yearly or biyearly Professional and Professional+ subscription. There are 9 extra InvestingPro Suggestions out there, which may additional inform funding choices relating to Calumet Specialty Merchandise Companions.

Full transcript – Calumet Specialty (CLMT) This autumn 2023:

Operator: Good day, and welcome to the Calumet Specialty Merchandise Companions, L.P. Fourth Quarter 2023 Outcomes Convention Name. All individuals will probably be in a listen-only mode. [Operator Instructions] After right now’s presentation, there will probably be a possibility to ask questions. [Operator Instructions] Please word, this occasion is being recorded. I’d now like to show the convention over to Brad McMurray, Investor Relations. Please go forward.

Brad McMurray: Good morning. Thanks for becoming a member of us right now for our fourth quarter and full-year 2023 earnings name. With me on right now’s name are Todd Borgmann, CEO; David Lunin, CFO; Bruce Fleming, EVP, Montana/Renewables and Company Growth; and Scott Obermeier, EVP, Specialties. Chances are you’ll now obtain the slides that accompany the remarks fabricated from right now’s convention name, which could be accessed within the Investor Relations part of our web site at www.calumet.com. Additionally, a webcast replay of this name will probably be out there on our web site inside a number of hours. Turning to the presentation, on slides two and three, you could find our cautionary statements and tax disclosures. I might wish to remind everybody that in this name, we might present numerous forward-looking statements. Please consult with the partnership’s press launch that was issued this morning, in addition to our newest filings with the SEC for a listing of things which will have an effect on our precise outcomes and trigger them to vary from our expectations. I’ll now move the decision to Todd. Todd?

Todd Borgmann: Thanks, Brad, and welcome to Calumet’s year-end 2023 earnings name. To begin, I will present an replace on our conversion course of, we’ll then recap 2023, Dave will take us deeper into the quarter and I will wrap with a ’24 outlook. Let’s flip to slip 4. In November, we introduced that our normal associate and conflicts committee had agreed to phrases that will convert Calumet to a C-Corp from an MLP, and since then we have been at work placing that into impact. Over the previous few years, Calumet has remodeled itself into a brand new firm, and it turned clear that the everyday institutional traders who would spend money on a number one specialty merchandise firm in a top-tier renewable fuels enterprise largely do not and even cannot spend money on MLPs. Additional, nearly no passive funding methods, which make up almost half of the capital being invested allocate to MLPs. Thus, to extend our investor base and finally present our shareholders the very best alternative to comprehend honest worth for Calumet, we launched into this variation. Two weeks in the past we introduced the signing of the official conversion settlement, which is a prerequisite to submitting our S-4 with the SEC. After we obtain feedback again from the SEC, a ultimate S-4 will probably be filed, a proxy vote held, and we hope to realize approval from our shareholders and full this conversion midyear. Once more, I thank everybody concerned, particularly our normal associate and conflicts committee, for a good and thorough negotiation, and we’re wanting ahead to this vote and new alternative. Turning to slip 5, we see the fourth quarter. Within the fourth quarter, Calumet generated $40 million of adjusted EBITDA, and for the yr, we generated $261 million of adjusted EBITDA. Our 2023 monetary outcomes had been pushed by three issues, all of which we have mentioned beforehand. First, in Montana, a steam drum crack basically set our strategic plan again half a yr and culminated with a month-long outage in November, the place we efficiently changed the unit. At the moment, given we had been down anyhow, we pulled ahead turnaround work and changed the catalyst change that was beforehand scheduled for 2024. Second, the mixture of a winter freeze and summer season tornadoes in Shreveport underpinned roughly $70 million of misplaced alternative in our specialties enterprise. Third, and positively, we had been capable of offset a few of the yr’s challenges with very good business execution all through the enterprise. Most notably, our Specialties workforce elevated margins for the fifth consecutive yr. Strategically, 2023 was a foundational yr which positions us effectively to realize our final strategic aims. Our Specialties enterprise has solidified itself as a business chief within the area. Our distinctive built-in asset base, buyer focus, and business and technical know-how are lasting benefits. Final yr, we constructed on this by efficiently integrating our Efficiency Manufacturers and Specialty Merchandise and Options segments right into a single Specialties group. And we see further alternative right here as we seize worth from our agility, optionality and breadth of providing all through your entire Specialty Merchandise worth chain. Additional, in a number of months, we’ll be getting into yr three of our operational enchancment plan in Shreveport. The occasions of 2023 highlighted a few of our infrastructure weaknesses, each inside and outdoors the plant. And whereas we’ll by no means be proof against all the pieces, the enhancements made so far have been significant and we’re tackling reliability at Shreveport head on. Naturally, probably the most notable merchandise of this previous yr was our Montana/Renewables enterprise got here to fruition. The primary yr wasn’t with out setbacks as typically because the case for tasks as bold as this one, and finally, we stood up and de-risked the important thing parts of the enterprise. We demonstrated our capability to supply competitively advantaged feed. We de-risked our know-how and we confirmed our business agility and skill to capitalize on our location as half of our product ended up within the quickly rising Canadian market. Final, in Could, we launched North America’s largest sustainable aviation gas enterprise, establishing Montana/Renewables as a primary mover in an space that’s so promising that it has since change into a strategic point of interest of many in our area. The emergence of a quickly rising SaaS market is extraordinarily thrilling for trade, and we’re thrilled to be positioned on the tip of the spear together with our companions at Shell (LON:). We examine the sustainable aviation gas transition right now to the one we noticed in renewable diesel almost a decade in the past. Like renewable diesel, SAF is the one drop in gas that is out there right now. Different options are attention-grabbing, however they require many years of analysis and improvement and big funding to utterly overhaul the airline trade’s infrastructure, which we view as unlikely anytime quickly. It is now widespread data that our trade is producing lower than 1% of the SAF that will be required in six years to satisfy the federal government’s 3 billion gallon milestone within the grand SAF problem. And this 2030 milestone is barely 9% of the final word 35 billion gallon plan laid out by federal businesses. Naturally, extra capability and extra applied sciences are going to be required. There are a number of methods to make SAF, probably the most financial of which by far is the HEFA course of which Montana/Renewables presently makes use of. That being stated, the expansion prospects for this trade are so massive that every one applied sciences are more likely to be required, most of that are meaningfully costlier than the HEFA course of. Additional, we’re seeing demand for SAF change rapidly. SAF mandates exist within the U.Okay., particular person airways have introduced targets. We see airports setting SAF necessities, and simply this week, Singapore introduced the requirement for all departing planes to make use of SAF. This quickly rising demand is strictly why a few of the largest gamers within the trade are investing closely on this area. And it is why Montana/Renewables made the change in our authentic challenge almost two years in the past so as to add SAF functionality. All through 2023, we progressed plans to construct on Montana/Renewables’ first mover benefit through our MaxSAF challenge. We have progressed engineering, interviewed development companions, and we eagerly await suggestions from the DOE on ultimate funding to maneuver ahead. The DOE course of continues to maneuver effectively, in actual fact, speed up, and we’re hopeful to obtain confirmatory suggestions in a not-too-distant future that can permit us to formally launch the following section of MaxSAF, which we count on will make us one of many largest SAF services on the earth. A progress in SAF demand additionally needs to be anticipated to alter the panorama of renewable diesel. As we consider MaxSAF, we ask, if these margins exist and the addressable market is so massive, why would not each renewable diesel participant convert? Naturally, our trade is stuffed with sharp rivals who’re contemplating simply that. What we rapidly discover is regardless of the entire progress we have seen in renewable diesel, your entire US RD capability simply reached 3 billion gallons this yr. In different phrases, it could take the entire RD to satisfy the 2030 Grand Theft Problem. In fact, we’re additionally seeing demand develop in renewable diesel, with Canada being early of their program and New Mexico reminding us that particular person states will proceed to implement new low-carbon gas requirements. Additional, all of the renewable diesel that is being produced right now is required to stay in compliance with present low-carbon gas necessities. And as RD is transformed to SAF, the obligated RD quantity demand will necessitate the necessity for market to incentivize the manufacturing of renewable diesel. As this dynamic performs out, we’ll take our conventional method at Montana/Renewables of constructing an optionality, remaining nimble commercially, and leveraging our relative location and price benefit in any situation. This consists of the power to provide both renewable diesel or SAF. It additionally consists of using our benefit logistics value construction to climate any trade volatility. Lately, we have seen market renewable diesel margins hit a trough. Whereas short-term volatility exists in any enterprise, we consider the historic construction of the market will proceed to carry in time. When the value of RINs, diesel and LCFS, all unbiased variables are lowered on the identical time, the wanted equal and reverse affect of feed value is dramatic. Suppliers attempt to mitigate a pointy decline by all means out there to them, together with decreasing crush charges and constructing stock, which may delay the response in feed costs. We’d count on the affect of value lag on trade margins to be bigger than regular on this situation, and we’re seeing that right now. In fact, over time, biodiesel would have a troublesome time competing at low trade margins, inventories within the provide chain ought to construct, and one of many variables within the proxy equation has to react. And simply up to now couple of weeks, we have seen the vegetable oil margin indicators begin to flip. We have additionally seen tallow, a waste product regulate quickly and robust tallow margins live on. In a standard setting, we would count on the comparatively quick size of Montana/Renewables provide chain to be a differentiated benefit in instances like this. However throughout this present trough, we have been stuffed with stock that was initially contracted for the second half of 2023 earlier than the ability was reduce. This impacts us because the feed is greater priced, nevertheless it additionally limits our flexibility to react to short-term adjustments within the relative feed dynamics, which in any other case can be a core benefit. We began processing our previous feed after we restarted in December, and count on to be via it within the first quarter. To place the affect of this stuff in perspective, the distinction between Q3 common CBOT value ranges in December was over a $1.20 per gallon. Additional, over the previous couple of months, margins have remained over a greenback a gallon greater for tallow than vegetable oils. With regular stock ranges, we would be switching to tallow and capturing this benefit, which might ship margins fairly consistent with beforehand acknowledged expectations. With full stock, we’re processing what we now have. Because the vitality transition continues to evolve, we consider Calumet is positioned for fulfillment. As mentioned right now, we’re effectively positioned in Montana for each renewable diesel and SAF progress, and our Specialties enterprise can flex gas manufacturing up or down because the market dictates. Additional, our Specialties enterprise is positioned to profit from most of the megatrends that we see in right now’s market as we produce high-performing merchandise going into mining, energy transmission, meals and pharma, and clear water, together with a rising record of environmentally pleasant supplies similar to our biodegradable lubricants servicing the worldwide transport trade. We consider this breadth and suppleness positions us effectively as our trade continues to evolve. Our core perception continues to be that the vitality transition will proceed to happen however will take longer than most suppose. It is complicated, it requires funding, and it’ll ebb and circulation as companies and society experiment and adapt. And at Calumet, we’ll proceed to deal with positioning ourselves to stay competitively advantaged in all situations. With that, I will hand the decision to David to overview our quarterly financials. David?

David Lunin: Thanks, Todd. I will begin with our announcement this morning that we entered right into a word buy settlement to difficulty $200 million combination principal quantity of 9.25% Senior Secured First Lien Notes due 2029. The usage of proceeds will probably be to name and retire our present 2024 secured notes and we will even name, together with out there will, money $50 million of our 11% 2025 notes. This transaction permits us to take away a near-term maturity, scale back total indebtedness and scale back our annual curiosity expense. Given the potential Montana/Renewables monetization was pushed again half a yr as a consequence of final yr’s steam drum alternative and the necessity to display a number of quarters of sturdy operations in an effort to seize correct worth from a possible monetization, we wish to make sure that we had ample flexibility and time to form of entry the market correctly. This financing gives that flexibility by including a small quantum of debt that would not in any other case commerce effectively is cheaper than a brand new unsecured issuance and also will be callable in a yr, in addition to leaving sufficient debt excellent with out name safety to supply an environment friendly path for additional deleveraging later within the yr. Earlier than I overview the segments, I might additionally wish to touch upon the 8-Okay we launched this morning and the related restatement of 2022 and 2023 quarters. The restatement pertains to our accounting for the popular fairness funding in MRL. We had been allocating web losses within the enterprise in a proportion to the overall possession for the non-controlling curiosity. We have decided that these losses mustn’t have been allotted to the popular fairness funding, thus, $6.7 million in 2022 and $18.5 million in 2023 of losses that had been beforehand allotted to non-controlling curiosity will now be allotted to Calumet’s restricted companions. To be clear, this has no affect on the web revenue, adjusted EBITDA or money circulation of the enterprise, and solely it pertains to the allocation of web losses. This restatement additionally has no affect on the timing of our conversion, and extra particulars could be discovered within the 8-Okay. Turning to Slide 8. Our SPS enterprise generated $75.6 million of adjusted EBITDA in the course of the quarter and $251.2 million for the total yr 2023. This was a really sturdy quarter for our SPS enterprise. The crops operated effectively and we had top-of-the-line quarters as our business workforce continued to execute our customer-focused technique. We noticed unit margins improve with specialties in the course of the quarter whereas gas and asphalt margins decreased seasonally. We proceed to see an above-mid-cycle margin setting on this enterprise. Transferring to Slide 10. Our Efficiency Manufacturers enterprise generated $6.1 million of adjusted EBITDA, bringing our full-year adjusted EBITDA to $47.9 million for the Efficiency Manufacturers section. We usually see some seasonality within the enterprise as a few of our clients, particularly the large field retailers, handle year-end stock ranges and that was no completely different this quarter. Industrial demand outpaced shopper demand which weakened and we count on that development more likely to proceed early in 2024. Our workforce continues to do a pleasant job capturing worth from the optionality and integration of our numerous enterprise throughout SPS and the PB section. As you’ll be able to see turning to Slide 11, we now have delivered 5 consecutive years of progress in our Specialties enterprise. As a reminder, it is a mixture of the Specialty Merchandise inside our SPS section and our Efficiency Manufacturers section. The workforce has performed a extremely good job these final a number of years, capitalizing on an improved margin setting whereas additionally making lasting step-change enhancements inside the enterprise. You possibly can see within the decrease right-hand chart a steadily rising quantity of intermediates between our SPS and PB enterprise because the workforce continues to drive an built-in enterprise mannequin which we consider gives a novel benefit throughout our platform. Transferring to our Montana companies, you’ll be able to see on Slide 13 that we recorded a lack of $25.8 million of adjusted EBITDA within the quarter and generated $30.2 million of adjusted EBITDA for the total yr. Whereas operations carried out effectively at our legacy asphalt plant in the course of the quarter, the winter is at all times troublesome on this enterprise as roads aren’t being paved and native gasoline demand dries up. For our standard asphalt and area of interest fuels plant, its first yr post-MRL was an excellent one. Entering into we anticipated the 50% smaller footprint would ship roughly 60% of the specialty asphalt operations put up MRL, after which we executed on that in 2023. At Montana/Renewables, Todd frolicked earlier on the beforehand disclosed closed steam drum outage and alternative, and I’ll briefly contact on that once more as that was the story in This autumn and the second half of 2023. The restore work was accomplished in the course of the fourth quarter together with the turnaround and catalyst change that we pulled ahead into the interval. The renewable diesel plant was utterly shut down for the month of November and got here again on-line firstly of December, and has been working effectively since. You possibly can see in our renewables productions volumes the affect of the lowered charges and shutdown had on MRL’s manufacturing. Now that the ability is again up and working at near full capability, we’re drawing the remainder of our extra stock that was constructed in the course of the unplanned outage and shutdown. We needs to be via that stock within the subsequent quarter, at which level we’ll resume our regular feedstock buy program. We’re glad to have the alternative work on the steam drum behind us. And whereas final yr, whereas that had the affect of pushing again about six months, our technique is unchanged as we proceed to pursue the DOE mortgage, finalize our growth for MaxSAF, and put together for potential monetization alternatives. Lastly, earlier than I flip it again to Todd to wrap up ready remarks, I will present a number of steering gadgets for this yr. We count on the Company section to incur roughly $80 million of adjusted EBITDA value in 2024, which is consistent with earlier yr’s and our beforehand outlined annual expectations. And from a money circulation perspective, excluding MRL, we anticipate $100 million to $120 million of annual CapEx. On Montana/Renewables, we count on $15 million to $30 million of sustaining CapEx this yr, which incorporates the deliberate buy of an extended lead time catalyst that will probably be later within the yr or subsequent yr. I will now hand it again to Todd for closing feedback earlier than we transfer to Q&A.

Todd Borgmann: Thanks, David. Let’s flip to the final slide and speak concerning the yr forward. 2024 is a pivotal yr for the Firm and its traders. That is the primary yr that each our specialties enterprise and renewables enterprise are totally working collectively, and we’re dedicated to unlocking worth via various near-term catalysts. The primary of those is demonstrating the highest decile profitability potential of Montana/Renewables, which given the previous feed and stock overhang talked about earlier, we count on to happen within the second quarter. Subsequent is the DOE course of, which we talked about earlier. This goes hand in hand with the launch of MaxSAF, and we sit up for offering a extra full outlook on this challenge quickly. Not solely is MaxSAF an enormous alternative, however we additionally count on it to be one other catalyst in a possible Montana/Renewables monetization, which continues to be an final deleveraging step for the group. And final, we’re on observe for a mid-year conversion to a C-Corp. Thus far, traders who’re in any other case concerned with Calumet haven’t been capable of spend money on our Firm as a consequence of widespread constraints that include MLPs. Our institutional and passive investor base is tiny in measurement which leads to our items being very thinly traded, which is also a deterrent to new traders. For the reason that conversion announcement late final yr, we have spoken to many potential new shareholders concerning the Calumet alternative. We consider our story is an attention-grabbing one for traders, and we’re excited to supply the power for them to partake in a brand new Calumet, one which has been remodeled over the previous few years, which has two competitively advantaged companies and important near-term catalysts that we consider current a significant worth proposition. Thanks. And with that, I will flip the decision again to the operator for questions. Operator?

Operator: We’ll now start the question-and-answer session. [Operator Instructions] The primary query right now comes from Roger Learn with Wells Fargo. Please go forward.

Roger Learn: Sure. Thanks. Good morning, everyone. Sure, it does seem like it is going to be a fairly thrilling and in addition difficult 2024 for you. Coming to the MRL aspect, I might like to only ask you, Todd. You talked about product going into Canada, a few of the different locations. We acknowledge the problems with start-up of those services and feedstock prices. However if you happen to take a look at the distribution aspect, give us form of an inkling of how that is turned out and perhaps how these realizations are working, in order that as you repair the feedstock and the operational points, we will get confidence on the place margins must go.

Todd Borgmann: Sure, you wager. And hello, Roger. Thanks for calling in. And I will flip it over to Bruce right here in a second. I am certain he has extra so as to add. However typically, I might say our product distribution has been distinctive. Now we have an excellent versatile group of companions. They’re contracted long-term. Bear in mind, we promote all the pieces FOB, so we now have perception into the place the product goes, and we profit when merchandise are upgraded to Canada, for instance. However finally, our gross sales are contracted formulaically, they align with the regular margin formulation that we have talked about traditionally, and I might say these are working very effectively precisely as anticipated. I do not know, Bruce, what would you add?

Bruce Fleming: Thanks, Roger. The truth that we now have our pathways registered into the entire LCFS geographies, in addition to having the CORSIA certification for our SAF, implies that our off-takers have quite a lot of flexibility to shift any of those supplies to the place they suppose is the very best for his or her system operations. So we have had as a lot as 50% of bodily manufacturing going to Canada on a month-to-month foundation. And this is likely one of the hidden attributes of our geographic location. I imply, we share a land border with British Columbia. Lots of people are attempting to get there the laborious manner by the water, and we actually drive a truck over. So there’s rather a lot occurring within the distribution optimization area.

Roger Learn: All proper. Get a geographic clarification in addition to all the pieces else, proper? Shifting gears to the opposite two companies, simply asking actually for kind of a macro outlook. We have seen the chemical trade have quite a lot of challenges. I do know you all are usually not pure chemical compounds, however you form of get put into that field. So I am simply curious as you take a look at past the climate points at Shreveport, however what is the underlying form of demand and pricing setup as we take a look at each Specialty and Efficiency?

Scott Obermeier: Hey, Roger, that is Scott. Thanks for the query. In order we kind of walkthrough, I will name it the timeline, Roger. In This autumn, I feel the actual headline theme was seasonality, proper? So we noticed the gas cracks take a serious step down on that aspect of the enterprise. Inside the Specialties, each SPS and Efficiency Manufacturers. I’d say we noticed the everyday seasonal slower demand at year-end. We additionally noticed some clients seeking to destock a bit of bit additional and de-risk their enterprise the place doable. Wanting now into the early a part of 2024, I’d say it is a bit of bit blended, Roger. Going again to the gas aspect of the enterprise, we now have a constructive outlook. Inside fuels, we have seen crack margins enhance from three-year lows that we hit in mid-December. We have seen that enhance again above mid-cycle, though stays extremely unstable. On the Specialty aspect. Roger, total, we are saying demand is slowed. As you alluded to, we have seen the demand gradual. However with that stated, and Todd and David touched on this in the course of the script, , we have delivered 5 years in a row of report outcomes inside that Specialty aspect of the enterprise. You already know we have carried out business best-in-class packages which have allowed us to carry out and ship outcomes, actually, in any kind of setting that we have encountered the previous three, 4, 5 years. So we stay assured within the enterprise, however with out query, there was some market pullback from the client demand.

Todd Borgmann: Perhaps I might add a bit of bit, Roger and Scott to see what you consider this. The — if I take a look at the traditional slide that we current in SPS, we present the margin per barrel on Specialties. And we noticed that bounced again to a bit of bit above $70 a barrel in This autumn, which I feel we alluded to on the final earnings name. I feel we’ll proceed to see margins form of in between that This autumn and Q3 quantity so $60, $70 kind vary as we glance into 2024 and proceed to count on that we’ll have the ability to promote all the pieces we make. So it is undoubtedly a bit of bit slower on form of — notably on the retail entrance, however extra broadly continues to be effectively above mid-cycle and simply very snug and assured within the gross sales workforce that Scott has constructed. They’re doing an distinctive job and actually capable of exit and have quite a lot of confidence to carry out in any market.

Roger Learn: Nice. I respect that. I will flip it again. Thanks.

Operator: The following query comes from Neil Mehta with Goldman Sachs. Please go forward.

Neil Mehta: Sure. Good morning, Todd and workforce. Thanks for the time right now. The primary query I had was…

Todd Borgmann: Good morning.

Neil Mehta: Good morning. I used to be actually on Montana in attempting to get a way of what the misplaced revenue alternative was as a result of it was a harder quarter, however you had a turnaround and also you had a interval the place you are working via some high-priced stock. Now, is there a solution to strip again out and attempt to get a way of what the profitability would have seemed like? And in that any feedback on whenever you — we will actually see the run price ranges of profitability for that enterprise?

Todd Borgmann: Hey, Neil, it is Todd. I will kick once more after which, like I stated, Bruce may have loads so as to add, I am certain. I might say misplaced revenue alternative within the second half was between $80 million and $100 million. So the steam drum crack undoubtedly pushed us again. If we sit up for what we’re doing now, and I alluded to this a bit of bit on this script. I feel if we glance ahead, we take a look at what margins have performed proper now, trade margins have softened a bit of bit and we all know we now have some affect of previous feed. However keep in mind, Montana/Renewables’ core benefit is our capability to change feedstocks and make the most of no matter market is robust. And what we have actually seen is tallow has remained tremendous worthwhile. Sadly, proper now we’re not capable of make the most of it largely as a result of our stock is full. So LPO is form of laborious to drag again an excessive amount of as a result of there’s so many parts. However I might say proper now, if we had been working in an regular steady-state setting, taking a look at trade tallow margins of $1.70-ish a gallon or so, we would be producing someplace in all probability between $0.80 and $1 a gallon. So it is a bit of bit softer on the market, however undoubtedly it is a high decile plant. The affect of This autumn was solely on operations and a turnaround and never having the ability to unfold fastened prices and seize these economies of scale. So I do not know, Bruce, what would you add?

Bruce Fleming: I feel that is an excellent seize. And Neil, as well as, I’d flag with tallow margins at $2, if you happen to waive the magic wand, we needs to be working 100% tallow. And we now have performed that. We commissioned the unit on 100% tallow so it is inside our attain. The difficulty we bumped into was with the downtimes because of the steam drum, we underran manufacturing. All of our tanks are full, our provide chain is full, and our capability to shift gears and optimize feed lessons goes to be delayed until we clear that inbound.

Neil Mehta: Thanks, Bruce. After which workforce, when do you see that occuring? When do you get that inflection? The place we will see the run price profitability of the renewables enterprise? Is that the center of this yr?

Bruce Fleming: In all probability sooner, Neil. We’re truly already climbing out of the opening after we take a look at our inner short-time body metrics. The quarterly reporting will start to indicate that on the finish of this present quarter and it is going to proceed to enhance as we resume regular feed optimization exercise.

Todd Borgmann: And I feel if I might add something is, count on Q2 for the primary full form of run price quarter, proper? So Bruce is highlighting that. We’re getting via the top of our stock challenges right here. I feel that we’ll have that totally cleared in March, and Q2 is what we’re taking a look at for form of the primary regular, I will name it, the place we’re shopping for feed in month and promoting product in the identical month at full price.

Neil Mehta: Thanks, Todd. Thanks, Bruce.

Todd Borgmann: Thanks.

Bruce Fleming: Thanks.

Operator: The following query comes from Manav Gupta with UBS. Please go forward.

Manav Gupta: Guys, I simply have a fast macro query. You supplied very detailed opening feedback and one of many read-throughs for me was that you just had been indicating that your benefit — you may have benefit feedstock, you make renewable diesel with the decrease feedstock costs ultimately. However one aspect of the trade which you form of hinted was at a drawback was biodiesel producers utilizing vegetable oil. And it seems to be like a few of these guys may shut down and ultimately that will assist convey the entire trade extra into steadiness, higher D4 outlook, higher LCFS outlook, and in addition scale back the oversupply of BDRD. Is that what you’re pondering that the benefit tasks like yours will run whereas weaker biodiesel tasks utilizing vegetable oil may need to ultimately shut down?

Bruce Fleming: Manav, it is Bruce. Directionally, that is completely appropriate. The Siri autumn, , the ordinal rating of money margin is completely going to favor the HEFA producers over the biodiesel logistics, will even kind out particular person rivals, and ours are going to be the very best as a result of we are the closest to the entire markets. The query on the desk is definitely how briskly does the EPA appropriate its error. They underrepresented the provision aspect and that has the impact once they set their targets. Sorry, they set the targets too low, to be clear. That is placing quite a lot of stress on the farmers and on the ag sector. I am unsure that is politically sustainable.

Manav Gupta: Excellent guys. And a fast follow-up. Appears to be like like New Mexico can be transferring forward. And from what we’re listening to is that this delay in carb is definitely a bit of extra optimistic. They’re wanting on the present mechanism and saying perhaps we must be extra strict about it to get the carbon value financial institution in a greater steadiness. Something you may have heard both on New Mexico or the proposed carb ruling if you happen to may assist us out.

Bruce Fleming: Nicely, we all know what from the general public reviews. However our thesis all alongside has been that the low carbon gas customary goes to proceed to unfold geographically. So if you happen to simply take a look at current historical past, you may have all of federal Canada opting in. They usually had been cautious with the rule. They took their time to get that proper, and it got here on stream July 1st of this previous yr. That doubles the addressable diesel quantity topic to an LCFS customary, similar to that. New Mexico is smaller, I consider 100,000 barrels a day. Diesel is the quantity I’ve in my head. However they are not going to be final. They’re simply subsequent. Plenty of state legislatures are contemplating this. Generally it is for farm help as a result of it does pull crop-based materials via into the transportation gas pool. Generally it is for air high quality. All people has bought a distinct motivation, however that is going to proceed. And that is simply the US or North American image. You already know, these guidelines are persevering with to come back in world wide. As Todd indicated there’s been quite a lot of exercise in SAF, most not too long ago with Singapore requirement. And I wish to re-emphasize that renewable diesel plus SAF is the decision on the HEFA {hardware}. Each gallon of SAF the trade makes has been taken away from diesel and that is bought to be a part of the balances for anyone doing any forecasting.

Manav Gupta: Thanks a lot for detailed responses, guys.

Todd Borgmann: Thanks, Manav.

Operator: The following query comes from Sameer Joshi with H.C. Wainwright. Please go forward.

Sameer Joshi: Hey, guys, thanks for taking my questions. Only a clarification on the C-Corp conversion and kind of the monetization of MRL. Is it doable so that you can proceed to kind of proceed on the divestiture whereas this C-Corp course of is occurring, or will it need to be solely began after the C-Corp performed?

Scott Obermeier: Hey, Sameer, it is Scott. I feel typically, our plan stays unchanged round each monetization and C-Corp conversion. I see them as separate, however there actually are connection factors. Clearly, our core idea with all of that is as Montana/Renewables comes on-line and simply normal investor sentiment in direction of MLPs, there may be simply — it is only a utterly completely different investor base. So to get the appropriate kind of curiosity, to get our buying and selling quantity as much as the place it must be and to have the ability to outreach institutional and passive traders, it is simply crucial that we had a extra investable company construction. So I feel that is separate from a possible monetization of Montana/Renewables. I additionally suppose it is usually useful, proper? In order we take a look at the Montana/Renewables potential monetization, I do not suppose a lot has modified there. We stated all alongside that we want in all probability two quarters of sturdy regular operations which we began in December. We want at the least one quarter, if not two of steady-state financials, which we stated right now we count on in Q2. So if we form of tie all of that collectively, we might be pointing in direction of second half of the yr for potential monetization. Clearly, we do not have to monetize. We’re targeted on creating Max shareholder worth on this entire deal. However we’re actually concerned with it and have been speaking about it for some time. And I might say our plan as that could be a base case stays unchanged. The conversion or the change to a C-Corp would occur earlier than that. So we count on the conversion to be full in Q2, which might be earlier than a sale of Montana/Renewables. Does that assist?

Sameer Joshi: Understood. Sure, sure. No. Thanks for that colour. I perceive. On the — stepping again and taking a look at your total financials, how has the RIN pricing setting helped, or impacted total profitability? Since you do have to purchase the RINs to your non-renewable enterprise. And the way is the RINs on steadiness sheet? How are you taking part in that — pricing that out? Simply wished to know the way you’re managing profitability and affect of those parts.

Bruce Fleming: Hello, Sameer. It is Bruce. I will take a begin at that. So we principally have a list accounting type remedy of RINs on our steadiness sheet. So we accumulate any size or scarcity, deal with that as a list and reprice it on the finish of every quarter. And as we have communicated earlier than, we’re unsure that is actually an excellent estimate of a monetary legal responsibility for 2 causes. One, there’s quite a lot of volatility within the RIN value itself, which you simply famous, and a rifle shot of 4 days out of the entire yr is the primary query. Secondly, you’ll be able to’t settle that legal responsibility with cash. That is not how that program works. So with that disclaimer, I feel I’d additionally let you know that we’re concerned in various federal circuit courtroom litigations, and I do not wish to go too far into any forward-looking statements apart from to notice that the standing of every of these circumstances is a matter of public report. And for instance, the Fifth Circuit sided with us, and we’ll see how that performs out as we proceed to speak to the EPA.

Sameer Joshi: Understood. After which one, simply final one. Of the particular manufacturing of renewables, what quantity was — I feel it was 5.4 barrels per day on common. What quantity was RD and what quantity was SAF?

Bruce Fleming: Our steering is a 12,000 barrel per calendar day feedstock run. And if you happen to convert that to gallons, you are going to get about 175 million gallons a yr. We have contracted 30 million gallons of SAF.

Sameer Joshi: Okay, bought it. Useful. Thanks rather a lot.

Operator: The following query comes from Gregg Brody with Financial institution of America. Please go forward.

Gregg Brody: Good morning, guys. And Bruce, are you a bit of bit stunned that I did not get to ask the RIN query? Simply the factor — I am attempting to know how to consider funding the Max growth challenge. And I notice the DOE funding is a part of that, however are you able to speak a bit of little bit of the sequencing of MaxSAF? Will you — do you principally want the DOE funding to come back in to begin doing that, after which perhaps you’ll be able to attempt to tie that to finally the deleveraging of legacy Calumet?

Todd Borgmann: Hey, Greg, it is Todd. We have stated earlier than that, that we’re not going to tackle significant additional — simply senior notes to go fund MaxSAF. And that continues to be the plan, at the least till we’re utterly de-levered. So I would not count on that to alter. So what meaning is it is straight linked to DOE. We have been progressing the engineering. We are able to do this internally. We are able to do this via very minor spend to an extent. We’re attending to the purpose now the place we now have a fairly sturdy really feel of what we now have and we’re very enthusiastic about it. We’ll present extra particulars, truly, in all probability on the upcoming earnings name of what we truly count on MaxSAF to be. However we do not count on to go ahead and spend significant {dollars} till we get DOE approval. So we’re rapidly coming onto a plateau and simply how productive we could be. It is form of like with the DOE comes the launch of MaxSAF. It is that easy. We have progressed via the pre-planning phases over the previous few months and actually enthusiastic about what we now have. So the — I assume to oversimplify, do not count on an entire bunch of extra new capital to come back in to fund MaxSAF. It is strictly tied to DOE. No change in our long-term deleveraging plan. We have stated that we wish to scale back $300 million to $400 million of excellent debt. That continues to be the plan, continued path and continues to be a minority sale of Montana/Renewables and free money circulation.

Gregg Brody: And would you count on any free money circulation from Montana/Renewable to come back out this yr, or is all of it going to be reinvested?

Todd Borgmann: No, I’d count on it to remain in Montana/Renewables this yr.

Gregg Brody: After which simply on the DOE, you made it sound such as you’re optimistic you will hear one thing quickly. Are you able to speak a bit of bit about what you are listening to that provides you confidence in that? And simply helps us perceive what you are pondering whenever you made that assertion.

Bruce Fleming: Gregg, it is Bruce. I will take that one. We’re actively engaged with the DOE a number of instances per week. It is a precedence on each side. And we’ll count on to have a go, no go within the foreseeable future. This isn’t a case the place we have some PowerPoint concept and we’re working round searching for financing. We’re launching the growth off of an actual platform and the economics are compelling.

Gregg Brody: All proper, guys. I feel that is it for me. Thanks for the time.

Todd Borgmann: Thanks, Gregg.

Bruce Fleming: Thanks.

Operator: The following query comes from Jason Gabelman with TD Cowen. Please go forward.

Jason Gabelman: Good morning. I wished to ask concerning the political, or I ought to say authorities help because it pertains to your SAF challenge. On condition that it is an election yr, one, how essential is it that you just get the mortgage from the DOE previous to the election? Do you see a possible for danger if you aren’t getting it by then? After which two, how snug are you with the SAF economics excluding help from the IRA given there might be some danger to the producer tax credit score if there is a republican wave?

Bruce Fleming: Jason, I will begin. It is troublesome to invest on an election outcome. And so far as the second a part of your query, we’re capable of take part within the present legislated markets which aren’t solely federal. Do not forget that LCFS issues. Do not forget that there’s quite a lot of world stress to drag SAF into bodily commerce. The business premiums in Europe are within the $3 a gallon vary. Volumes are being mandated. State of Illinois has handed a $1.50 per gallon tax credit score. So it is a a lot, a lot broader tapestry of help than simply is the longer term administration going to reverse the present federal regulation. And I do not suppose we understand that as a big danger as a result of if there’s not a premium for SAF, we will depart it within the diesel. No premium, no SAF, and that is globally true.

Jason Gabelman: Okay. Thanks. After which simply on the DOE mortgage course of, has there been one thing that is been holding this up longer than anticipated? I do not know if there’s one thing particular or if it is simply typical form of authorities delays that you just run into. However I feel whenever you first began speaking concerning the DOE mortgage, you anticipated it to get it as early as Labor Day 2023.

Bruce Fleming: It is Bruce once more. Your reminiscence is appropriate. We truly started speaking to the DOE two years in the past. We did not speak publicly about that earlier, however because it turned an actual prospect on each side, we did have a step change enchancment in that dialog after the IRA laws got here via. That modified various issues. And so we’re in truly a significantly better state of affairs and assuming success, you are going to prefer it when it comes out. But it surely did require some re-architecture based mostly upon the change in legislative help.

Jason Gabelman: Okay. After which the ultimate one simply on Canada, which you talked about is a crucial market to your renewable diesel gross sales. Are you able to talk about — it’s kind of much less clear than form of the U.S. LCFS packages simply given the federal program beginning to ramp up. Are you able to talk about the outlook for that market? Do you count on that to change into a serious pull on U.S. renewable diesel manufacturing over the following couple of years as their clear gas customary program ramps up?

Bruce Fleming: Sure. And to offer a bit of extra colour, if you happen to make a free analogy, the Canadian trade construction is just like the U.S. aspect. There is a chief on the West Coast, that is British Columbia. They have their very own mannequin and guidelines which can be tighter than the nationwide averages. Similar because the analogy to California or CARP, and the U.S. federal. There’s a proliferation of provincial-level necessities, a few of that are direct quantity mandates, not LCFS type, and you then’ve bought the federal overlay of an LCFS program working off of a distinct mannequin platform than the BC one. So the parallels are very, very cheap. And if you happen to take that and challenge it, the tightening program simply calls in increasingly more quantity. You already know, it is equipped by import now, and the forecast is that’ll proceed. We’re in an important place to be the shipper. Now, I wish to offer you a distinct thought. The mannequin variations in Canada are usually not solely on the product aspect. They deal with carbon depth calculations in a different way, and notably British Columbia does. And so there’s an actual incentive to take Canadian canola and spherical journey it via our plant again to Canadian positioned product. We have one in every of our off-takers particularly requesting that we assign them product made out of canola. So there’s a lot occurring below the floor. The forecast is that the worldwide vitality transition drive continues. Totally different native political — native regional political gamers will discover a solution to correctly tune that to their ag sector, their ranch sector, within the case of tallow, and there is not any motive to not stay optimistic concerning the underlying trade construction.

Jason Gabelman: Nice. Obtained it. Thanks for the solutions.

Bruce Fleming: Thanks.

Operator: This concludes our question-and-answer session. I want to flip the convention again over to Brad McMurray for any closing remarks.

Brad McMurray: Thanks, Betsy. On behalf of the administration workforce right here within the room and actually all of us right here at Calumet, we respect your time and curiosity this morning. Thanks for becoming a member of us on right now’s earnings name. Have an important weekend, everyone.

Operator: The convention has now concluded. Thanks for attending right now’s presentation. Chances are you’ll now disconnect.

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