Q3 2021 Calumet Specialty Products Partners LP Earnings Call
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Good day, and thank you for standing by welcome to the Calumet specialty products partners third quarter 2021 earnings Conference call.
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Good morning, and thank you for joining us today on Calumet is third quarter 2021 earnings conference call.
With me are Steve Moore, CEO, Todd Borkman, CFO, Bruce Fleming, EVP, Montana, renewables and corporate development, Scott Obermeier, Pvp specialty products and solutions and Mark Lawn EVP performance brands before we proceed I will remind everyone that during this call we may provide various form.
Looking statements. Please refer to the Partnership's press release that was issued this morning as well as our latest filings with the Securities and Exchange Commission for a list of factors that may affect our actual results.
To differ from our expectations.
May now download the slides that accompany the remarks on today's call, which can be accessed in the investor Relations section of our website www Dot Calumet specialty dot com.
A replay of this call will be available on the website later today.
With that I'll pass the call to Steve Steve.
Thank you, Brad and everyone welcome to Calumet third quarter earnings call.
I'd like to start off with a few words about the business backdrop.
We all remain hopeful that we're in one of the later innings of the pandemic and.
And you can see that in the strong earnings we are reporting for Q3.
As the pandemic has played out and economic wave has flowed through the different segments of our business first during the maximum lockdown maximum uncertainty phase our performance brands business was able to capture the tailwind of low input costs.
<unk> phenomena and consumer resilience.
As the vaccine became available what has become known as a bullwhip recovery manifested, creating exceptional demand and margins for our specialty products and solutions segment.
Demand was indeed, so good that we were able to expand margins in that segment through one of the sharpest rallies in input costs that any of us have seen in our careers.
And now it looks like we're on to the third wave of the recovery.
<unk> tremendous an unprecedented shock of the collapsed in transportation fuel demand during lockdown has taken almost a year and a half to rebalance.
With inventories now below average levels in Europe, and Asia experiencing severe energy deliverability issues fuels margins got off that low cycle needs and reverted back to mid cycle, if not better.
This should be quite a favorable environment for Calumet.
Specialties margins have likely peaked but as much as anything that is because the input cost for specialties.
So naphtha and VGL.
And at this moment, we are back in the roughly 80% or so of the time when making your own inputs as we do at our northwest, Louisiana specialties complex is highly beneficial to Calumet.
While on the topic of Covid it would be remiss not to recognize the efforts and commitment of our team. This has been an extremely difficult 18 months for the world and for Calumet.
Through all of this with the added challenges of winter storm here. Our team has stayed focused managing through what fate has thrown at us that resiliency is greatly appreciate it.
Among the many things that the pandemic forced on US was a rethink of our corporate strategy and vision.
I believe that this hardship coupled with our strategic review clarified our path forward and created the opportunity to articulate a tremendously better vision.
In that light, although many of you understand much of what we're trying to do we would like to spend a minute or two being more explicit about what our vision is for Calumet.
And in our opinion create significant unit holder value.
But first let's briefly recap the quarter and we do that on slide three.
Earnings for the quarter show, the improving trend led by specialties as I mentioned just now.
Adjusted EBITDA for the quarter was $58 8 million.
Liquidity remains strong and our specialty products and solutions segment reported record specialty unit margins.
As mentioned earlier, we appear to be back in that roughly 80% or so at the time, where our integrated specialty complex in northwest, Louisiana will outperform non integrated specialties production.
Furthermore.
Asian and European producers.
Carrying a very significant burden from the tremendous increase in energy costs, there, which should further amplify our competitive position here in North America.
Our two specialty businesses performance brands and specialty products and solutions continue to experience very robust demand.
Challenge is satisfying that demand due to supply chain disruptions.
In specialty products and solutions, we have been able to navigate that effectively so far.
And our main supply chain focus as the day in day out challenge of a national trucking shortage.
Performance brands results continued to be affected by supply chain issues limiting our ability to produce the volumes of packaged and bulk lubricants that our customers equally demand.
And this business alone we have received 38 fulsome with Shaw of force Majeure extension notices this year.
I would stress that the supply chain issues are materially less.
Our true fuel engineered fuels business than in our lubricants and greases business, but we will go into a little bit more detail on the supply chain story later.
Finally on this slide.
We continue to be more than happy with our progress on standing up an exceptionally competitive renewable diesel business in Montana.
We that are partnering discussions, which are well advanced or the technical permitting and construction side of the project.
Our unique feedstock access given all location has become much more apparent and understood outside of Calumet.
Concept that our business sits in the heart of the temporary oil seatbelt.
Unlocking a new and huge supply of feedstock has resonated well and it's gratifying that this important component of our vision is becoming well understood and supported.
Speaking of vision, let's move to slide four.
All of our <unk> spend a lot of time with our heads down on the weeds planning and executing we may not lose track of the big picture, but we risk losing track of communicating the big picture, we have a clear vision for Calumet and we have been implementing it be it through the re segmentation of our businesses at the beginning of the year or the standing up of arguably the best where.
<unk> diesel conversion project in North America.
We would contend that the creation and implementation of this vision can and should create significant unit holder value above and beyond the roughly 1000% appreciation in the units since April 2020.
At its heart our vision is simple.
Calumet currently consists of a highly leveraged hybrid business and our vision is to both be hybrid and de lever.
The two businesses, we end up with as the vision plays out our specialties business considered consisting of two segments.
Fast growing performance brands, delivering exceptional quality premium products often direct to consumers.
And the specialty products and solutions segment, which we believe has material investment and growth potential.
Specialty products and solutions is further distinguished by the tremendously diversified array of customers and products in the portfolio.
And then we have renewable diesel.
As I believe I've told you on more than one occasion, we and many others believe that this is an exceptional asset and the renewable diesel space.
<unk> first quartile arguably first decile.
Evolving this into a separate business can create significant unit holder value and that is our plan.
Other than niche projects access to renewable diesel companies is not pure play you have to bring along some fossil exposure or some biodiesel exposure or some other exposures.
It seems to us and many other interested parties, but there is investment demand pure play renewable diesel.
Within the energy transition space, it's much more tangible more immediate and lower risk than most other energy transition investments.
The mall.
And the fact that Montana states right at the top of the competitive stack generating strong cash flows and almost all imaginable scenario is also makes this a tremendous growth platform.
To build a broader pure play or the business or backwards integration into that now well known temporary oilseed belt, providing low carbon intensity feedstocks right in our backyard.
Additionally, a green renewable hydrogen plant will further lower the ci value of our products.
Montana is a dream location from a product marketing standpoint, and not just for all the core and soon to be added or the markets, but also sustainable aviation fuel.
The Vancouver, Seattle, Portland, Transpacific flight corridor has the second biggest burn demand on the West coast. After X. We can serve that market at low additional capex and with logistic logistical superiority as and when the interest that we are experiencing turns into actual demand.
So that's our vision.
Separate these businesses into two best of breed, both with appropriate leverage.
Simple, but worth stating more clearly.
With that I will hand over to Todd who will take you deeper into the quarters results.
Thank you Steve.
Let's start with our specialty products and solutions segment on slide five.
Our brands in this business are specifically designed for the unique requirements of the industries, we serve and are relied upon by our best in breed customer base across a diverse set of end markets.
Our ability to develop such a broad range of solutions is enabled by the combination of deep technical expertise and an extremely integrated and flexible asset base, which is unique in our industry and underpins Calumet competitive advantage.
In Steve's opening remarks, he alluded to the resiliency of this business and our brand and product diversity lies at the heart of that strength.
Whether it's performing through the depths of the 2020 pandemic are delivering record margins during the recovery.
In the third quarter, the specialty brands delivered margins that were 20% higher than last quarter's record and will turn to slide six to go deeper into the segment.
Clearly, our specialty products and solutions business had a nice quarter generating $46 3 million and adjusted EBITDA versus $31 8 million in the second quarter.
The tremendous specialty margins that drove the quarterly performance were combination of exceptional market demand and the continuation of our commercial initiatives.
Further we saw fuels margins returned to mid cycle type levels near the end of the quarter.
This is a welcome change as we emerge from the pandemic Lowes and we expect this scenario to continue as a global energy shortage further develops.
Steve referenced some of the supply chain impacts in our business, but I'd like to reiterate that for Sps supply chain issues were mainly trucking availability and there are largely behind us.
Our logistics team manage that challenge well and for the most part we are not experiencing the depth of challenges in this segment that we've seen elsewhere in our business and across industry.
Moving to slide seven and transitioning over to our performance brand segment. We showed some graphics that highlight and summarize our three high performance brands, including the large container sizes that were introduced this year in response to growing demand.
On slide eight we provide our third quarter results for the performance brand segment.
This business generated $6 8 million of adjusted EBITDA for the quarter compared to $7 3 million in the second quarter.
This is a business, where we have most acutely felt the ongoing industry wide supply chain challenges.
Last quarter, we mentioned the development of agree shortage is one of the largest suppliers in the industry suffered a full plant loss.
We ultimately have been able to answer the challenge and source alternate Greece supply, albeit at a cost of 28% higher than the price we were paying pretty shortage.
Additionally, one of the industry's largest largest additive manufacturers has been offline for most of the year, which has created an industrywide additive shortage and posed a huge challenge in the third quarter in particular as demand is booming.
Similar to our Grease response, our team has been working tirelessly to fill demand.
Also like Greece's, we will not sacrifice, our extremely high product quality standards by sourcing cheaper untested alternatives.
Making top tier products requires top tier inputs and we've had to source expensive alternative additives, which in a short term Canadian margins and even slow down shipments, but our customers know that we will not compromise on quality and we will not waver on our commitment to produce the highest performance products even in these challenging conditions.
The other issue impacting performance brands and we've spoken about this before is the ongoing rising price environment.
As we covered in our specialty products and solutions segment, we've seen record base oil margins, which are great for Calumet as a whole, but a challenge to this segment.
We've also seen the price of steel increased nearly three times versus 2020, and we know that getting increases through in this consumer business takes a little time.
Last quarter I mentioned that price increases were in motion and we did see product prices increase in the third quarter as expected, but raw materials continue to rise as well and with the inherent price lagging this business will be temporarily squeezed when feedstocks rise quickly and will benefit when cost plateau in reverse.
Despite these challenges the underlying fundamentals of our performance brands segment are exciting.
And we continue to see strong demand throughout the third quarter.
However, because of the supply constraints, we were not able to satisfy all the demand growth and as a result, our order backlog grew to $20 million during the quarter, which is twice its normal size.
We also had to reject new demand in order to service historical customers to the best of our ability.
As industry works through its supply chain challenges, we're confident that we'll convert the backlog to shipments and a return to a more normal growth environment.
In the meantime, protecting our premium brands by service by serving our customers with World class products continues to be the top priority for this business.
Moving to Montana on Slide nine you can see a few pictures taken during the quarter.
Steve referenced the Montana Governor visiting our facility for ribbon cutting ceremony, which was a great event and pictured here.
You can also see the renewable diesel tank farm, that's being constructed the project's progressing nicely and we've received key permits ahead of schedule, which allow us to get into construction sooner than expected.
We're taking advantage of that and pulling forward work to lessen the risk of supply chain delays.
On Slide 10, you can see the great falls had solid performance in the quarter.
Margins have steadily improved through the year in the third quarter is $24 4 million of adjusted EBITDA is up $11 $6 million versus the second quarter.
As you know Pat for as a great place to be a refiner and we saw the normal strong summer refining environment play out this quarter, although we did see some headwinds from price lag in the asphalt business.
The asphalt producing great falls X a lot more like a specialty product in our fuel and a majority of our product goes to premium retail asphalt markets that price well before shipment as opposed to the wholesale asphalt markets that are more volatile.
This asphalt niche as a meaningful competitive advantage for great falls.
Lastly, we can't overlook it we're pleased to deliver these results in the midst of all the prep work and construction that's happening at the site and we're thankful for the phenomenal teams, we have running our business and delivering our transfer transformational renewable diesel projects safely.
Now I'll turn the call back over to Steve for a few final remarks before Q&A.
Thanks, Todd I'll keep it brief progress on multiple fronts are.
Good quarter.
Improving macro backdrop.
Uncertainty around additive supply.
Clarification about direction.
With that we can open up the call for questions.
Thank you as a reminder to ask a question you will need to press star one of your telephone to withdraw your question press the pound key.
Please standby, while we come to any roster.
Our first question comes from Amit Dayal with H C. Wainwright Your line is open.
Thank you good morning, everyone.
Congrats on the strong quarter to begin with.
Just in terms of.
I know you touched on it Steve a little bit in your commentary, but do you think some of these margin trends will remain intact for you guys for the next few quarters on the specialty side I know, you're saying margins.
Just wanted to get a sense of how we should be thinking about.
Contribution from performance brands speaking up et cetera that could continue to support the strong margins.
Yeah, well, thanks for joining us.
It's great to have HC Wainwright circling team initiate coverage so welcome to the call.
Well I think across businesses like we said if you look at Sps I think the specialty side of it.
The margins in the quarter was phenomenal.
Difficult to maintain.
So we do think that piece is topped but we do think that one of the reasons, it's toughing as because the the.
Input into that is the discipline and the <unk> and the naphtha and clearly we are moving into a much stronger refining cycle.
From that perspective, a lot of the pure play refining company. So I think I've covered that extensively in the call.
So that would kind of cover that and that would probably cover Montana I think on performance brands, maybe it would be good if I get our edp Microloans usage took a little bit about his thoughts on margin outlook going forward.
Hi, Amit nice to have you on the call.
So it was then.
You sort of alluded to say where we've.
We've been going through these challenges and we see the we see supply chain challenges probably easing into the first part of 2022.
What we're seeing now is that demand isn't waning and as we've as we mentioned on the call already that.
We're having to turn away demand. So we're expecting that strong pull for the business to continue and once the supply chain normalizes.
And the and all of our price increases have been passed through to.
At the end markets, which generally take up to 60 to 90 days thinking about retail partners.
We expect then that that will take us back to what I would call normalized growth trajectory in line with expectations that we that we've looked at previously we're not seeing anything at this stage that would take us away from that so think of it and hold it in that context would be my suggestion.
Okay. Thank you and then maybe a question for Doug.
D for RIN values were higher for the quarter compared to.
Previous quarter, just wanted to understand the market mark to market gains during this quarter versus losses during the prior quarter.
Do you think for the fourth quarter.
Yes.
Glen sheet.
Our expected to either gain.
Jean again for you guys just wanted to see how that should how we should think about that.
Yes, no good question and like everybody else that I might think thank you for joining it's great to have you on the call.
So first let me clarify what an adjusted EBITDA, because because theres no mark to market gain.
And adjusted EBITDA and I know you know that I'm, just I'm, just kind of re emphasizing or deemphasizing that so we don't see mark to market kind of driving the strong adjusted EBITDA or anything like that we did have a mark to market improvement from decrease in rins prices flowing through to net income of $66 million for the quarter.
So so.
You would probably probably recognize that it's been a while since we've posted a positive net income quarter and.
And a lot of that a lot of the driver for that was kind of the mark to market of brands, it's nice to be back in that area.
Okay.
I'll take my follow up on the Susquehanna.
And then finally, just one last one from me if you will on the renewable diesel side it.
It looks like you have started.
Some work can you give us any additional timelines in terms of my.
Milestones et cetera that you should expect we will move forward.
Hi, Amit its Bruce Fleming sure.
So the information that we have put out on cost and schedule is unchanged.
The line there.
We've got a kind of a sequence.
Pre pre commissioning that.
Gets us to full rate by late in.
Later next year.
Okay.
And Bruce how much have we already settled.
How much are you looking to invest in 2021 and how much I'm looking to invest in 2022 towards this effort.
Yes, the guidance for this this is in our Q, which just came out. This morning, the guidance is $65 million to $75 million of spending this year and the balance will be next year.
<unk> not disclosed the total we have given a dollar per capacity barrel chart. It's in the appendix.
And you can also see that sequenced pre commissioning and ramp up in the appendix.
Thank you. Thank you and take a look at that that's all overnight.
Thanks, so much.
Okay. Thank you appreciate the clean coverage.
Our next question comes from Carly Davenport with Goldman Sachs. Your line is now okay.
Hey, good morning, Thanks for taking the questions.
The first one is just on the potential separation of renewables in specialties that you talked about I guess can you just flush that out a little bit in terms of how you see potential timing shaking out key gating factors, we should be thinking about and ultimately how you see the optimal corporate structure at Calumet, whether that's MLP versus C Corp.
Currently this is Bruce I'm going to I'm going to leave the last one from my boss, but.
In terms of the sequencing, we've got Montana Slash renewables, we're simply going to remove the slash as we get the business stood up and we will have an additional reporting segments there.
Timing will be linked to our partner selection. So that's still pending as Steve mentioned that in terms of where that.
Might take Calumet in the future.
Steve or Todd.
Yes, I mean, adding to that I mean, I think that.
Looking at the way to maximize unit holder value then.
Our belief, but we don't we cant confirm exactly what the path is coming right now believes that.
Renewables ends up as a completely separate entity.
And then as far as the corporate structure question.
Afraid I am going to give you is kind of the same answer that I always do which is if you look at it that day hybrid ing of the business and the Delevering of the business, which is what we're working on creates a huge amount of unit holder value and so that's our priority is to.
Do all those things.
Reset and see how the capital market feels about that and then make future incremental decisions.
From that.
As I think I've also mentioned before I've actually had a number of investors reach out and say given the huge gap in valuation between where you are now and what you will be once you have stood up our D business. Please do not convert.
In the short term.
Because otherwise the company can be snaffled up by someone.
So I think we need to get through those those big structural changes and that will pull us to regroup and then we'll make the logical economic decisions colleague.
Great. Thank you for that color and then the follow up is just on the renewable side. So we've talked a lot about renewable diesel, but we've also seen a lot of headlines recently around the sustainable aviation fuel so on that point.
Just curious in terms of scope on great falls, if that would allow for any Saf production and then I guess second how youre thinking about the economics around SaaS that at the current kind of structure.
He currently thank you Bruce again, so yes, we will have besides the renewable diesel we're going to have renewable hydrogen renewable nat gas renewable LPG renewable gasoline blendstock in yes renewable.
Jeff.
The economics for US right now are to leave the sustainable I have fuel in the renewable diesel.
I think theres a lot of wildcards in the budget process.
Like a jet blenders tax credit, which may change that.
And when we're confident we will first extract that contained.
And make it discretely available so that's easy enough that we're talking to the airlines about that now.
The scale of our operation is well suited as I think Steve already mentioned.
Serving the local.
Players we've had one airline gives us a list of eight.
They would like it.
For example around us.
Now the real pivot is for a subsequent investment we can go about 85% SaaS, we can pivot there.
Renewable diesel into jet.
So if we get a sustained economic signal to do so we're one project away from a really large amount of jet for that Trans Pac route out of the northwest.
Great. Thank you.
Thank you. Our next question comes from Jim gave women with.
Your line is open.
Hey, This is Jason gave one from Cowen. Thanks.
Thanks for taking my questions.
Wanted to ask another one.
The renewable diesel project in Montana.
I guess two on that project firstly, as we think about the phase one.
Startup.
Can you talk about if it's economic to run that.
That phase one asset right now.
Current.
Environment, just given refined bean oil is trading at such a premium to soybean oil and then secondly on that project.
Okay.
Is there is there a data, which you really feel you need to get a partner in the door by Im thinking.
As you start to ramp up spend on phase two and you'd like to ask on <unk>.
Side capital supporting that spend am I thinking about that correctly or are you comfortable.
Pending that upfront and then securing a partner.
Maybe further down the road before the product actually starts up and I have a follow up thanks.
So this first maybe I'll, maybe I'll take those in reverse order.
Under the gun for a partner.
At the same time the reason we told the market last March that we want one is.
We.
Would not want to strip the rest of the company of resources for the excellent growth projects that are available to mark lawn into Scott Obermeier.
So the partner is.
Part of our intention to separate the renewables business.
Since the discussions are going well, we're not concerned about timing.
The question of the market and this is it.
Again, I'll draw everyone's attention to our slide in the appendix, but we're going to.
The operational intention is to start up on clean.
Refined soybean oil like everybody else has in our industry, but not to stay on that too terribly long.
It is less economically attractive is it underwater at this time no.
Okay.
I guess ill double check my calculations or we can take it offline because it seems like it's about breakeven model. That's fine and then my second question just on WCS steps, obviously widened out quite a bit recently can you just talk about what's gone on there is that transitory or is there something structural in the market happening.
Yes.
<unk>.
The Canadian heavy crude diff.
Correlated with industry utilization and industry utilization is not high or inverse correlated.
So it's exactly where our models would put it.
And the wildcard is this north American refining utilization tighten up into the <unk>.
<unk>, 93%, 94% range.
The.
If I back up from that comment to your previous question.
Our first stop on the Canadian heavy crude pipeline.
We're also going to be first stop on the oils from the oilseed crops to grow around us so when you pull industry data.
Youre looking at kind of eastern.
No country soybean spot prices, that's not our feedstock for the long run.
Understood.
Helpful color.
Thank you. Our next question comes from Gregg Brody with Bank of America. Your line is open.
Good morning, guys.
Good morning, Greg.
So just I appreciate it seems like things are going as planned with the R&D facility.
I'm curious if the.
How youre thinking about potential separating the businesses.
It's maybe too early to ask this but how you would think about.
Doing that will span is there.
IPL and you keep a piece of it and how does that fit in with that JV partner I'm, just trying to understand all that.
And ultimately how does that fit into your calls to reduce debt.
All the amounts.
Targeted.
The.
Delaware LLC.
For Montana renewables is formed thats going to be the vehicle if you want the procedural answer.
Depending upon the exact.
Partnering agreements.
We do expect that that is discretely.
Separate and visible in our financials.
And that will give us a market signal so the way that it is.
Not rocket science, the way that'll feedback into the company's capital structure is of.
Of course first through the good operating earnings that history would say, we would expect from the renewable diesel.
And then.
Secondly, the debt to equity when we consolidate our share of that.
Is going to be attractive.
But I guess I'm wondering.
So what youre talking about is JV, bringing in capital that will be used to pay down the remaining 2010 as part of the 2000.
Is that still.
Is that still the plan or is it possible some of the capital raise or would you actually raise capital at this point that.
Anthony.
To potentially bring in capital to reduce debt.
You should assume that.
Various scenarios, you just identified or simultaneous at close.
Gotcha.
And I know you.
He didn't make any reference to tweeting almost call but.
Okay.
Yes.
Is there a timeframe to thinking about how long this will take time.
So I could.
I could say, we're not going to tweet about that or I can ask my boss to say, we're not going to wait about that.
Can we do actually I kind of wonder.
[laughter].
This is the last question for you.
You were talking earlier about performance brands.
I'm just curious.
You've highlighted this as cost advantage that you have because some of your European.
Others have higher fuel costs.
Is it possible that you or your margin as a result will be higher than they've historically been.
And peak conditions.
Or are you likely.
To just be more competitive and probably have greater volumes as a result.
Yes, Greg it's Steve.
Yes, we may not have communicated well, though because of the way the way we are looking at that European and Asian advantage is really very much non performance brands, so much but on.
On the on the refining part of the business in Montana, and then the whole of the Sps business primarily through refining so.
On the <unk>.
On the pure play refine our calls people have talked a lot about how the fact that the cost of Btu is just so much higher in Europe and Asia, primarily.
Primarily feeds back through a combination of hydrogen on utility costs to give us a huge give the USC huge refining advantage the overlay I would add in and.
And Scott weigh in on this once I'm done if you feel like it is when you think about the huge competitive advantages on hydrogen cost that the U S has right now until.
Until our front end Moscow tons, the tap back on right at.
That huge advantage rolls back significantly into the lubes business. Furthermore, because.
As next steps to take the VGL and turn it into inspire Phoenix for example, or in our specialty oils. They consume more hydrogen more hydro treating hydro processing of all forms. So so we are cautiously optimistic although we think specialties margins will come will come under pressure. We're cautiously optimistic that we've got good locational advantages Scott I know you want to you want to embellish.
I think that was well said and Greg I don't know if you have any follow up questions to what Steve just alluded to though.
No. Thank you for clarifying it's all helpful.
Appreciate the fuel products would benefit.
Wondering if.
Okay.
So this is what.
That's all thank you for your time guys.
Alright.
Thank you and I'm currently showing no further questions at this time I'd like to turn the call back over to Brad. Thank Murray for closing remarks.
On behalf of the management team here in the room and really collect Calumet. We appreciate your time this morning and your interest in the company.
So thank you for joining everybody have a great weekend.
This concludes today's conference call. Thank you for participating you may now disconnect.
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Good day, and thank you for standing by welcome to the Calumet specialty products partners third quarter 2021 earnings conference call at.
At this time all participants are in a listen only mode.
After the speaker's presentation, there will be a question and answer session.
Ask a question during this session you will need to press star one on your telephone.
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Any further assistance. Please press star Zero I would now like to hand, the conference over to your Speaker today Bradbury Investor Relations. Please go ahead.
Good morning, and thank you for joining us today on Calumet is third quarter 2021 earnings conference call.
With me are Steve Moore, CEO, Todd Bachman, CFO, Bruce Fleming, EVP, Montana, renewables and corporate development, Scott Obermeier EVP of specialty products and solutions and Marc Maun EVP performance brands before we proceed I will remind everyone that during this call we may provide various form.
Looking statements. Please refer to the Partnership's press release that was issued this morning as well as our latest filings with the Securities and Exchange Commission for a list of factors that may affect our actual results and cause them to.
To differ from our expectations.
You may now download the slides that accompany the remarks on today's call, which can be accessed in the investor Relations section of our website www Dot Calumet specialty dot com.
A replay of this call will be available on the website later today.
With that I'll pass the call to Steve Steve.
Thank you, Brad and everyone welcome to Calumet third quarter earnings call.
I'd like to start off with a few words about the business backdrop.
We all remain hopeful that we're in one of the later innings of the pandemic and.
And you can see that in the strong earnings we are reporting for Q3.
As the pandemic has played out and economic wave has flowed through the different segments of our business first during the maximum lockdown maximum uncertainty phase our performance brands business was able to capture the tailwind of low input costs.
<unk> phenomena and consume our resilience.
As the vaccine became available what has become known as a bullwhip recovery manifested, creating exceptional demand and margins for our specialty products and solutions segment.
Demand was indeed, so good that we were able to expand margins in that segment through one of the sharpest Bradley's in input costs that any of us have seen in our careers.
And now it looks like we're on to the third wave of the recovery.
The tremendous an unprecedented shock of the collapse in transportation fuel demand during lockdown has taken almost a year and a half to rebalance.
With inventories now below average levels in Europe, and Asia experiencing severe energy deliverability issues.
<unk> margins have got off that low cycle knees and reverted back to mid cycle, if not better.
This should be quite a favorable environment for Calumet.
Specialties margins have likely peaked but as much as anything that is because the input cost for specialties, a diesel naphtha and VGL.
At this moment, we are back in the roughly 80% or so of the time when making your own inputs as we do at our northwest, Louisiana specialties complex is highly beneficial to Calumet.
While on the topic of Covid it would be remiss not to recognize the efforts and commitment of our team. This has been an extremely difficult 18 months for the world and for Calumet.
Through all of this with the added challenges of winter storm here. Our team has stayed focused managing through what fate has thrown at us that resilience is greatly appreciate it.
Okay.
Among the many things that the pandemic forced on US was a rethink of our corporate strategy and vision.
I believe that this hardship coupled with our strategic review clarified our path forward and created the opportunity to articulate a tremendously better vision.
In that light, although many of you understand much of what we're trying to do we would like to spend a minute or two being more explicit about what our vision is for Calumet.
And in our opinion create significant unit holder value.
But first let's briefly recap the quarter and we do that on slide three.
Earnings for the quarter show, the improving trend led by specialties as I mentioned just now adjusted.
Adjusted EBITDA for the quarter was $58 8 million.
Liquidity remains strong.
Specialty products and solutions segment reported record specialty unit margins.
As mentioned earlier, we appear to be back in that roughly 80% or so at the time, where our integrated specialty complex in northwest, Louisiana will outperform non integrated specialties production.
Furthermore.
Asian and European producers.
Carrying a very significant burden from the tremendous increase in energy costs, which should further amplify our competitive position here in North America.
Our two specialty businesses performance brands and specialty products and solutions continue to experience very robust demand.
Challenge is satisfying that demand due to supply chain disruptions.
In specialty products and solutions, we have been able to navigate that effectively so far and our main supply chain focus as the day in day out challenge of a national trucking shortage.
Performance brands results continued to be affected by supply chain issues limiting our ability to produce the volumes of packaged and bulk lubricants that our customers equally demand.
And this business alone we have received 38 false Michele a force majeure extension notices this year.
I would stress that the supply chain issues are materially less in our true fuel engineered fuels business than in our lubricants and greases business, but we will go into a little bit more detail on the supply chain story later.
Finally on this slide we continue to be more than happy with our progress on standing up an exceptionally competitive renewable diesel business in Montana.
Without our partnering discussions, which are well advanced or the technical permitting and construction side of the project.
Our unique.