Q4 2021 Calumet Specialty Products Partners LP Earnings Call
Thank you for standing by and welcome to the climate specialty products partners fourth quarter 2021 earnings call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During this session you will need to press star one on your telephone as a reminder, today's program may be recorded.
And now I'd like to introduce your host for today's program that Fred Macmurray head of Investor Relations. Please go ahead Sir.
Good morning, Thank you for joining us today for our fourth quarter and full year 2021 earnings call.
With me on today's call are Steve Moore, CEO , Todd Borkman, CFO , Bruce Fleming, EVP of Montana, renewables and corporate development Scott.
Scott Obermeier EVP of specialty products and solutions and Marc lore EVP of performance brands before we proceed I'll remind everyone that during this call. We may provide various forward looking statements. Please refer to the partnerships press release that was issued this morning as well as our latest filings with the SEC for a list of factors that may affect our actual results.
Listen to differ from our expectations.
May now download the slides that accompany the remarks made on today's conference call, which can be accessed in the investors section of our website www dot Calumet specialty dot com.
Replay of this call will be available on the website later today with that I'll pass the call to Steve.
Brad let's start by going to slide three.
Since our last earnings call on November 5th 112 days ago our.
The team has made very substantial strategic progress in fact, we describe these 112 days as a milestone period and Calumet is transformation.
We closed on a total commitment of $675 million of external capital injected into the company as well as an extension of our ABL.
These well received and well timed capital markets transactions mean that our team can focus on delivering our vision of standing up and separating out to best of beef breed businesses, a leading specialty products business and of course, Montana renewables.
Internally, we refer to these milestone accomplishments as recapitalization, one point out setting.
Setting the stage for us to control the timeline from sequencing of the separation and deleveraging of these businesses.
As we've mentioned before we still believe that the most value creating move for our unit holders is probably a montana renewables to be a publicly traded pure play renewables company.
We continue to progress more than one potential path to deliver that price to our unit holders.
On slide four.
We recap some of our actions.
We formed and capitalized Montana renewables and shortly we will give you more of an update on where we are with what has become widely known as MRO.
We addressed our two most immediate bond walls, giving us a very substantial flexibility to address future capital markets opportunities from a position of no urgency.
We also started the process of deleveraging the parent.
Yeah.
Our business environment continues to improve although that clearly as current geopolitical uncertainty.
With that improvement stronger expectations of cash flow generation allow us to start to edge, our way into selective growth reinvestment in specialties, we will talk about outlook and growth towards the end.
Yesterday, we announced some rule changes in our leadership team and we will touch on that later as well.
Slide five.
Montana renewables business update.
Strategically.
The objectives remain unchanged.
One standup a leading renewables business.
Two ultimately plan to take public as a pure play <unk>.
Three use some of the value of <unk> to Delever the parent.
Yeah.
Stepping down from the highly strategic to the specific elements of standing up MRO, we are more than happy with our overall progress on the project construction sourcing et cetera, all continued to track as expected.
We have a clear line of sight to our total feedstock supply and a layering in contracts across a range of different materials and time periods to get that right mix of security and Optionality that we think should maximize value.
Within that procurement strategy with favorably surprised with the amount of lowest Ci feats that we appear to be able to source locally.
Unlike others, we have not advertised low ci beads as a core advantage and to be honest, we wouldn't be surprised if in large competitive markets such as the NOLA area. The feed prices tend to gravitate to what we would term Ci parity.
We believe our core competitive advantages are the everlasting ones up low capital intensity and superior location, but if we can add low <unk> to the mix so much the better.
Product placement was several times oversubscribed with strong uptake of interest and we are completing those contracts as well.
As we got deeper and deeper into product placement and understanding our customers' needs.
We've decided to accelerate our focus on renewable kerosene and have made engineering changes to be able to produce 2000 barrels a day of RK right from startup.
Yet again, our unique position fuels, our competitive advantage and renewable kerosene as we can and will access both the.
The well known and very sexy sustainable aviation fuel market, but also the less well known and much less sexy, but very real renewable Arctic diesel market.
Slide six is our results overview, which I will cover and then hand over to Todd to take you into the segments Q4, adjusted EBITDA was $24 6 million full year EBITDA was $110 3 million.
As we've discussed before the externalities of winter storm Uri on the global supply chain, where the two themes that dominated our results for the year liquidity is strong with us closing the year revolver, undrawn and $334 million available so with that I'll hand, you over to Todd for a deeper dive.
Thanks, Steve.
Let's start with our specialty products and solutions segment on slide eight.
In the fourth quarter, we generated $25 $5 million of adjusted EBITDA compared to $46 3 million in the third quarter.
The largest driver of the variance was a reduction in material margin as we saw some specialty margin easing from the all time highs we saw last quarter.
Specialty margins were quite strong compared to the normal winter period, and we saw a little seasonality return to this business late in the quarter.
Similarly, our fuel and asphalt margins experienced the usual winter margin squeeze as the market switch to winter formulation.
That being said December as average Gulf Coast 211, crack spread was nearly double the level that we ended 2020 with and as the fuels margin outlook trends positive. We are back to that normal state, where the ability to produce our own specialty feedstocks in northwest, Louisiana, while producing fuels as byproducts is a meaningful competitive.
<unk>.
We expect this trend to continue given the incredibly tight supply of global energy and the cost advantage that domestic producers have relative to the price setting European and Asian refiners, given their cost of natural gas and ultimately hydrogen.
This domestic advantage is also very visible in our specialty markets.
Earlier, I mentioned that we have seen some specialty margin easing from all time record 2021, 2021 levels and we expect that to continue.
But at the same time, we expect a high global hydrogen costs the strength in export markets and provide margin support compared to historical norms.
On a full year basis specialty products and solutions generated $104 $6 million and adjusted EBITDA down from $151 million in 2020.
We've talked a lot about winter storm here over the past year and the estimated $70 million of damage. This storm that was really the event the shattered over the whole year. In this segment, we're glad to have that fully behind us.
Let's move to performance brands on slide 10.
We generated $3 8 million and adjusted EBITDA for the quarter down from $6 $8 million in the third quarter.
For the full year performance brands generated $33 9 million and adjusted EBITDA compared to $61 million in 2020.
If we summarize the results there are three key items that defined performance brands 2021 performance.
First raw material and packaging cost inflation outpaced the rate at which we can pass through price increases, particularly at our consumer channels.
This lag is a phenomenon that will come and go but it will balance in the long run you will remember it helped us to the tune of $8 million in 2020 and that reversed in 2021.
Second and most impactful was the global supply chain crisis.
In our other segments, we were able to temper the impact of supply chain, but it hit performance brands hard.
Early in the year it impacted us across the board as we struggled to get anything from labels to steel cans. The team worked through the majority of the broad systemic challenges in the second half of the year was headlined by two specific matters Kim.
Kim tool one of the largest three suppliers in the business and our largest supplier suffered a catastrophic loss of their entire facility and lubrizol, our largest additive supplier has had us on force majeure for over a year now.
We've discussed our quality standards before and these high performance specifications caused us to be very cautious about changing elements of our formulations and it takes us longer than others to do so.
We're happy to say that we now believe enough high quality alternative feedstocks had been gathered that we expect to meet demand from this point forward.
It is still a bit uncertain, whether we will receive enough supply to meaningfully eat into our order backlog, but we do expect to start building, which is a welcome change.
These alternatives are roughly 30% more expensive than our typical supply so while we're thrilled to fulfill more customer demand our margins will be challenged until supply is back to normal.
I've mentioned cost inflation and supply chain issues and the third highlight is a positive one.
Demand was exceptional in 2021 and is continues to be the case.
Even our supply challenges, we've been forced to measure demand growth through our order backlog instead of the shipping log in that key reached $34 million by the end of the year, which is three times higher than normal historical levels.
One example, despite the year's challenges to fuel volumes grew year over year and in December the product line set an all time sales order record.
Youll remember that to meet growing demand for larger volume containers, we introduced the $2 one gallon offering in 2021, and we're happy to see it performing.
Looking forward, we have some challenges remaining early in the year, but we do expect to reach normalcy within 2022.
We've seen costs easing and our margins continue to catch up.
Steel costs have rescinded and feedstock concept.
That being said, we're cognizant of the current geopolitical environment poses a risk of a new round of cost escalation.
Unavailability of supply Lubrizol recently notified us that our force majeure is being extended through June of 2022.
Now that we have introduced replacements, we expect availability to continually improve but it looks like margins will be somewhat squeezed through the first half of the year.
And Excitingly, we expect volumes to meaningfully grow as we believe we can now keep up with demand.
On slide 12, you'll see that in Montana, we delivered $9 1 million of adjusted EBITDA in the fourth quarter versus $24 4 million in the third quarter and $6 4 million in <unk> of 2020.
We experienced normal seasonality in great falls as gasoline and asphalt demand in the Rocky Mountains is typically low in the winter.
Further we previously reported a hydrogen yet a hydrogen unit outage during the month of November that led to unplanned downtime for the plant.
We brought both the hydrogen unit and the facility back to full operations in December and have been running well ever since.
Before I turn the call back over to you Steve I just wanted to say that it's been a pleasure being your CFO .
I know we are both grateful to so many of our analysts investors vendors customers and ultimately the great Calumet employees, who have made the past couple of years at Calumet a true success.
And Steve while I know youre not going anywhere I think I can speak for everyone. When I say, thank you for your leadership and commitment to Calumet as our CEO .
And with that I'll turn the call back over to you to talk 2022 outlet.
Thank you Todd and thank you for the very calm woods.
I'll briefly touch on the transition announcement, we issued yesterday, one that has been well received by major unit holders and key partners.
And then I'll conclude with our outlook.
The most consequential transition event is.
<unk> decision to retire from our board as Chairman Fred has been a wonderful leader mentor and friend to many of US here at Calumet. He co founded the company. So naturally we will miss his perspective his experience and his expertise.
Heritage has been very supportive of management and our Calumet through the years.
So firstly I wish spread all the best and thank him from our entire Calumet team.
Thoughtful unplanned transitions are important to fret and we've approached this one in exactly that manner.
Yeah.
Secondly, I just want to reiterate that this is the same management team. Although roles are changing I look forward to continuing in an executive capacity as well as chair of the board we have a great group of directors and a great management team running our business.
And third Todd is going to do just great it's going to be an easy and smooth transition he knows as much about calumet as anybody in the company. He has been here a long time has deep experience across basically every one of our businesses. These shop, he's humble and he loves this company is going to be an excellent CEO and I have every confidence in him to lead us.
Into the future.
I would add to our transition it's not just about Todd, it's a vote of confidence and belief in our whole team.
Last two years have been pretty challenging for Calumet and it takes a strong and close team to stope of the wagons pension together and emerge from all the challenges of the pandemic with a transformational vision. One that's created a tremendous amount of unit holder value and should be able to continue to create substantially more we've got about 500 people here at Calumet.
And I'm proud to have had the chance to work with each and everyone everyone committed to staying the course and rising to the challenge no matter how daunting it might appear.
In conclusion on slide 13, I wanted to touch on our outlook for this year and how Calumet is thinking about positioning ourselves for continued growth and success.
First let's touch on our core specialty businesses as you know thats comprised of specialty products and solutions and performance brands.
In Sps and you've heard me say it before through most of the business cycle. We believe we are competitively advantaged by producing our own feedstocks as opposed to purchasing them.
And that is definitely very true in this current market.
So while Todd mentioned that record specialty margins have eased.
Inventories are shockingly low demand is solid and we definitely appear to be setting the stage for solid fuels margin contributions that will at least balance if not outweigh.
The easing in specialty margins.
And performance brands demand continues to be strong.
And we believe that our supply chains recover we will generate even more value in this business I'm not going to say we are out of the woods on supply chain issues, yet, but we have had quite a lot of promising signs.
I told you about where we are today with MRO, it's a truly superior quality project.
We believe the most value to be unlocked for Calumet unit holders is the path morale.
Into the public markets and we will continue to position that business. Accordingly, we can then use some of that unlock value to delever the Calumet parent.
Giving our specialties business, a competitive cost of capital and the appropriate leverage to return to growth and reinvestment mode, but what is an excellent business.
And despite geopolitical uncertainty, we think 2022 has the potential to be a good year for Calumet, one that should generate enough earnings and cash flow to give us the option to begin to selectively invest in growth again, we budgeted about $25 million or so for improvements to modernize and upgrade optimize further.
Integrate upfronts, it's a basket of small capital projects that are easy to execute and have high returns.
So with that I'd like to turn the call over to the operator to open up the line for Q&A operator.
Certainly ladies and gentlemen, if you have a question at this time. Please press Star then one if your question has been answered and you'd like to remove yourself from the queue. Please press the pound key our first question comes from the line of Manav Gupta from Credit Suisse. Your question. Please.
Hey, guys.
Quick question here and you seem to have compressed timeline, all startup of Montana renewables as I understand this is an economic decision.
Margins are extremely good and you want to capitalize on those margins. So I'm just trying to.
And if you can help us quantify a little bit what would have been the opportunity cost have you taken the decision to start the facility versus now that the margins are really good you are choosing to.
Continue to operate the refinery and then compress the timeline of startup players start everything together once the pretreatment unit is also online.
Hi, Manav.
Bruce I'll take a run at that.
That might have been about six questions. So that come back to me if I don't cover it all.
The compression is.
I think you correctly captured.
It's very interesting because we think we are derisking both of the businesses there but.
By staying online for the summer asphalt season.
Capturing that we're actually supporting the sites economics overall, and then on Montana renewables, what we had initially envisioned was.
Bringing on the hydro cracker early.
That.
Makes more sense, if we bring it on coincident with our pre trader.
And we are.
Continuing to.
Reyes our.
Aspirations for the benefit of the feedstock gathering strategy.
And the low Ci feeds that seem to be coming our way so well.
While we haven't disclosed it.
We suspect that we're going to do better than what we've advertised.
Thank you for taking my questions I'll turn it over.
Thank you. Our next question comes from the line of Carly Davenport from Goldman Sachs. Your question. Please.
Hey, good morning, Thanks for taking the questions today, just wanted to start on the 2022 capital spending guidance that you provided are you able to provide a bit more granularity in terms of the allocation of that capital across the segment and maybe including some of the projects you're considering for that discretionary capex.
What's the overall budget include all of the remaining spend to get renewable diesel up and running.
Hey, Charlie this is tod.
Thanks for the question couple in there the so so I think when you think about capex.
We think about kind of three buckets.
And you know we have the 115.
<unk> 135 kind of range for the year. If you think about a steady state bucket of kind of $65 million of maintenance environmental.
Theres, obviously, some volatility around that number based on turnaround. So so this year has kind of higher than normal turnaround spend.
As far as segment breakout we.
We don't break it out.
All the way down to the segment level, but I can tell you. The biggest chunk is in the Montana full plant turnaround. If you remember that's been kind of on the on the agenda for years now.
And that's the turnaround where the where the full plant comes down and then we do the conversion of the hydro cracker to renewable diesel. So so that's a big one.
We also have some kind of smaller turnarounds throughout especially system that they have some cost implications, but arent really expected to have a meaningful impact on sales. If thats helpful. And then and then we have the so that kind of is that I'd think about that as a $20 million to $30 million bucket.
And then we have the 2000 $20 million to $30 million of kind of discretionary spend. So so these are kind of high return modernizations.
As Steve mentioned in the script.
Some examples.
Shreveport in Cotton Valley, we are doing some spend around some optimization kind of reliability.
Utility improvements done some electrical work some integration work that type of stuff.
We're investing in our <unk> crude oil supply chain to be able to bring in and kind of a water wider and and.
Kind of a wider slate of feeds we're doing some investment at our <unk>.
<unk> crude tanks, so we can better control and and blend specialty crudes.
Some automation that will increase Whitehall volumes out of carton city, we restarted that health plans to keep up with growing demand and why it all last year. So.
Those are something that just came off the top of my head, but give you give you a feel for in general. These arent major risky type of spend these are kind of.
That group of smaller buckets that we think have a have a extremely high rate of return kind of two year payback type range.
And minor controllable spend is strong optimization focus.
Great. Thanks, that's helpful. And then sorry, just to clarify on that so you mentioned the Montana full plant turnaround is included.
Renewable diesel like spend on pre treatment.
Would not be included in the one that's it I just wanted to know that that's not included in the range now.
Okay, great. Thanks.
Thanks for that and then the follow up is just kind of a housekeeping item around G&A costs. During the quarter came in a bit higher than where we had anticipated is there anything that you'd call out as kind of onetime in nature.
Or is that kind of the type of run rate, we should be thinking about going forward.
I think in general we've talked about an $80 million type run rate for that.
For that corporate segment.
And.
I think I think that's probably still the right guidance going forward.
Great I appreciate the color.
Thank you. Thank you. Our next question comes from the line of Amit Dayal from H C. Wainwright Your question. Please.
Thank you and good morning, everyone and thank you for taking my questions.
Just with respect to the Admiral.
Going public.
Decision is this concrete.
If it is can you give us potential timing for this.
Sure I'll take that.
This is Todd.
I wouldn't say I wouldn't say anything is concrete we're still evaluating kind of a number of a number of options right. Now we do think that ultimately at the end of the day. This this business is best served in the public market.
You've probably noticed that you see some some things out there alluding to spec markets and a lot's changed in that market. That's that's pretty meaningful I think you know.
One thing that's changed is that market is kind of bifurcated between real businesses and spreadsheet businesses and that's advantageous for us.
I'd say the other thing that's changed is it's really not a dependable source of capital as redemptions trend up which.
For us is okay, MRO doesn't need much capital and.
And last I would say, it's gotten a lot cheaper to do a spec. So so you think relative to kind of doing a.
A traditional IPO path so.
We think you really have to plan on receiving very little capital from a spec trust you analyze the cost difference between a traditional IPO on a spec and you really compare that cost to the value that you can place on accessing the public markets more quickly. So speed has value to Calumet, we think the public markets have value to Calumet.
Not unlimited value, but obviously expediting the deleveraging of our specialties business and standing up an independent public MRO are both fundamental to our vision. So so yes.
I think that path is when we take seriously I think we do want to end up in the public markets. It's a matter of time traditional IPO path.
<unk> spec path, some combination of private and private equity investment followed by a.
Our future public path.
A little bit further down the timeline, so I hope that helps but try to frame up the options a little bit. Yes. This is Steve I mean.
Sorry, sorry, I meant I mean, just to reframe it may be so the way I would look at it is this.
Base case is that this is probably a highly IPL will business roughly 18 months from now when it stood up and running right. So that's an easy move into public 18 months from now and.
In the meantime, it's possible to accelerate it so as Todd says.
<unk> is an interesting option that has evolved and how it works. So so we have the capital by and large we need so if we take a spark group it simply because at this point in time the cost of doing a spark has dropped dramatically and we wouldn't be doing it for capital raise so redemptions would be a secondary.
Issue, we'd be doing it as a much accelerated way into the market. So it is possible that we would do that and you know if you look at the Oaktree transaction its quality designed to facilitate that and then there's a third strand to white weave into that which as Todd said.
There may be private placement at some point in the process.
And it doesn't have to be private equity it could be strategic so we've got the IPO out there in the future and then we've got these other strengths to weave in if we think it makes sense to accelerate the process.
Understood. Thank you for that.
<unk>.
About.
The optionality around this asset.
And then just.
Staying on MRO.
With respect to feedstock I'm reading between the lines I guess, there is some feedstock flexibility over here.
One of the Goodies feedstock, you're targeting near term and then what are the other options that you have with respect to this.
Amit it's Bruce again.
Feedstock.
Slate is.
Optimizing for our local gathering.
And we've got a completely different opportunity set than for example, the Gulf coast and industry.
We believe that some of the historical.
Cheap attractive feedstocks are going to come up they're gonna arb in to some sort of Ci parity.
In the large markets.
And that's going to have an impact on trade flows. So we've got a pretty good global balance than in North America and balance that our micro balance around us.
And based on all of that.
So we're going to we're going to run a lot of things, it's kind of like a large crude oil refinery. That's got access to 400 different crudes. If you think about it that way it's going.
B are very dynamic.
Rice environment, they're going to be opportunities for feedstock sellers that are much much better coming to us than what they're doing today.
And all of that.
Plays off of our feedstock Pretreatment unit, it's a next generation technology and it can run any triglyceride feedstock from anywhere in the world.
Okay understood. Thank you for that.
Just one last one for me with respect to the performance brands the 34 million in backlog for this segment.
Can you give us some color on.
This is expected to be delivered by us at the next one or two quarters or is it slowly throughout the year.
Hi, Amit smartphone thanks for the question so.
That sort of bringing together some of the things that Steve referenced during the call.
We've now we now believe that based on line of sight that we've got the raw materials coming in to help us to start eating into that backlog as we would expect that to be going down from here.
On the cost soft still slightly high because we're having to go in <unk> that we haven't planned for regionally as mentioned so we're still somewhat in recovery mode on that and then the unknown quantity within all of this and I know <unk> Stephens I had mentioned this as well as the geopolitical environment that we operate in all things being equal we would.
Expect that to be coming down to a normalized level by the end of the tav thoughts there is still an element of uncertainty and that's what we're planning towards and we will continue.
Best endeavors behind it.
Okay. Thank you for that that's all I have guys I appreciate it.
Thank you. Our next question comes from the line of Jason <unk> from Cowen Your question. Please.
Hey, guys. Thanks for taking my questions.
Now onto our first ask about the specialties.
Can you just remind us I mean, you discussed the competitive advantages and.
Sps relative to the rest of the market.
Sure.
From the integration you have.
And your Louisiana.
Louisiana footprint can you just remind us.
What are the competition gets their base oil feed from what prices that tracking and how that.
Calumet a competitive advantage in that business.
Hey, Jason Scott Obermeier here so.
Todd can weigh in but just for some background context. So when we think northwest, Louisiana, we are backward integrated into boiling crude a lot of a lot of the specialty folks are buying raw materials.
I'll say further down that downstream, whether it be VGL or other types of feedstocks in our case, we've got this flexibility all the way back to crude.
Not only did control the quality and move around some of our molecules, depending on market and customer demand, but due to that backward integration, we've got the competitive positioning on the on the.
The front end of it.
Yeah, and maybe this is Todd I'll jump in just a little bit.
So competition it kind of depends on what area you're talking about.
Our northwest, Louisiana complexes as Shreveport Cotton Valley in Princeton.
We make napkin include paraffinic, lubes and aliphatic solvent. So so we have competitors and the solvent side for example that by desk.
So theyre paying diesel price.
Make solvents, where we're paying crude price, making solvents and understanding the remainder of the material to Shreveport to make fuels.
We've got competitors in the lube spaces that some by crude oil like like we do.
Others by <unk>, which would obviously be at a premium to crude.
To further fractionate and treat so.
Just wanted to highlight that it kind of depends on what business youre talking about but as a whole as a network we have the ability to to both.
Joe as far upstream as we as we need to to optimize input cost and then we also have the ability to.
Optimize between plants as these facilities are all kind of interconnected in a very short trucking distance to one another.
Does that help that's yeah. That's that's very helpful color and then I just had a couple of clarifying questions on the Montana Renewables project first.
First you mentioned.
<unk>.
Increasing flexibility to produce renewable kerosene does that involve an increase in capital involved in the project.
Secondly, you mentioned sourcing.
More locally available feedstock I know you had mentioned the $65 million EBITDA benefit from kind of a logistics advantage. So are you expecting that to now be higher given the ability to source more of local feedstock and then thirdly, just on kind of monetization avenues.
The commentary around Ipos and potential <unk>.
Spec, but.
Have you been exploring potential.
To have another renewable diesel player acquire you is there is there interest youre hearing within the market for maybe operators with a one asset footprint to expand the assets.
They operate.
Hey, Jason you bet. Thank you I hope, it's Bruce I'll take those in reverse order so.
Sure.
The.
I guess.
Last March we told our investors and you and anybody that wanted to hear it that we would go this direction.
And we took 100 phone calls in 100 days.
Cover the waterfront of possibilities.
And as we funnel that down.
And.
Formed a clear point of view about our superior competitiveness, which is both location driven that's the $65 million variable cost logistics advantage as well as capital driven because we have got the <unk>.
Asset in place.
So I'll remind you that the capital isn't for the Rd production as much as it is for the logistics separation.
And the things, we're spending money on or mostly pretty mundane tanks.
<unk> railroads.
The one thing that is novel is the renewable hydrogen plant, we're pretty proud of that and I already mentioned the nextgen pre treater, so as all that comes together.
It's a bolt on.
To do a bit more of each of those things, it's a bit more capex for oil moving and segregation its a bit more capex for a small increase in hydrogen.
And.
Yeah.
We're not we're not signaling an enormous turn as much as.
Opportunistically taken advantage of offtake or demand.
Backing up to the.
Monetization question again.
This is all interrelated right so.
Complementary.
Operating partner.
Could bring multi plant synergies and that would be closer to us.
That that plant would set the more likely the synergies are a bigger number and that's that's been proved in a lot of industries over a long time.
We're not missing that opportunity.
And I think I'll leave it at that.
Does that answer your questions.
Yeah that was great. Thanks.
Thank you. Our next question comes from the line of Gregg Brody from Bank of America. Your question. Please.
Yes.
Hey, good morning, guys.
Congrats on all the promotions over there.
Steve I'll Miss you on the call.
Todd looking forward to heading into my my Twitter feed.
[laughter].
So first question for you.
U S.
Brad said something around about a month ago about a proposed financing.
And the muni market potentially.
I know, it's early stages, but I'm curious how that fits into your into your capital raising program.
And there were some number in the press release et cetera, I think $550 million.
<unk> so what do you what do you think about using that for.
Greg I'm going to I'm going to this is Bruce I'm going to let Todd touch on some of the detail there because it's super interesting and he's leading that effort.
But let's let's pop back up.
Steel opened by remaining.
The group that we took $675 million of capital in call that recapitalization of one point, though around the Montana renewables lever, but we're not done we've signaled and enterprise value for that business to the market that's been our prior public materials low twos to low <unk> billion.
So as you think about that the initial capitalization last fall with our partnering with Oaktree, which has been a great.
Outcome for us.
Is a mini bond ladder, so we've got a three year tenor.
At $300 million face and we've got another 10 year tenure.
$50 million from stone, Brian . So if you think about the bond ladder for a second and we'd like to fill that in a bit.
We'd like to drop something in between.
We've got some pretty good ideas, there and the Muni drops one on the outside is a much longer tenor. So the $5 50, you mentioned includes <unk> and.
In 2024, and our business plan, a significant expansion and further pivot towards SaaS yield wise, so with all of that on the table. There is a whole bunch of moving parts for Todd and.
I'm going to I'll ask Todd to color some of that because it is super interesting and the team is doing.
Just a ton of lifting so it's much much broader than the muni, but you do recall the $5 50 correctly.
No and I'll pile on a bet.
Bruce is right I mean, the $5 50 is.
As a bit of a placeholder.
Ladies work kind of with the Muni tax exempt bond as.
If you go out and you say hey, we want to do some resolution and you say, we're going to figure out how much of the supplies. We think we know how much.
How much of our plant qualifies for for potentially tax exempt financing.
But when you file that inducement resolution you go out a couple of years and you look at the more than a couple of years. You go out you got a few years and you look at potential future spend as well. So so I think of it as more of a placeholder than anything else. It's an option what it does is it qualifies us to say hey, any spin.
That occurs that's qualifying for tax exempt financing from basically December over the next few years.
Muni bond financing as a potential option for that so so that was kind of the gist of the of the $5 50.
Got a commitment it's not a commitment on anybody's behalf the municipality.
Anyone else.
Leaseholder and will firm up the offering as time goes.
Is it I know there was a resolution.
Intent is there so much more you need to go through to be able to tap this opportunity or is that something thats available short term yes.
Yes. There is there are a couple of different steps.
The resolution was the first the second is how much of our spend qualifies and Thats a combination of what percentage of your feed is solid waste feed.
Wastewater type investment those types of things and so that's the second and then the third phase is.
Understanding how much volume caps actually available.
From the state so it's not just an unlimited supply the municipality has has too.
Allocate their volume cap.
Every year.
There is still some work to do on understanding how much of that may be available to us and again that can be tapped over multi year period. So so that's a little bit of the numbers. We're looking forward like Bruce said potential future SaaS investments you name it that this could be an option for them.
Got it.
If you could raise it on a project financing basis, where the facility is done online.
It's more just on our forecast.
Yeah E rate do you think you could raise it as the project does not have to be online.
Okay.
Just a subtlety here, so you talked about being able to source new supply.
For the.
For your.
The performance for emphasis I believe.
Which will allow you to.
Just meet demand you Werent sure if it would if it would improve your margins.
Trying to get a sense of.
But it would allow you to increase volume. So is there an incremental margin benefit that we should we should think about that as you grow margins should actually improve just because youre, putting more volumes through the system.
So let me, let me kind of clarify a bit and then mark jump in with some color here. So so it will improve overall margin. These are these are incredibly high margin products. So.
The margin may be a little bit lower but the fundamental point is hey, we can keep up with volume and I think I think you hit the nail on the head there Greg.
Point is we want to be able to grow volume we have the demand now that we have supply we hope to be able to keep up with the demand now we may make 35% margin on that incremental sale instead of a 40% margin just starting the numbers out there to represent but.
It's still a very high margin business I'm, just saying on a unit relative to maybe at 2020 time period margins will be squeezed a little bit as we add kind of higher cost.
Alternative feedstocks.
Got it so is.
Is it fair to say about it.
About half of the of the supply side issues.
That hurt your margins here is addressed with this this country.
The sourcing agreement.
Hi, Greg <unk>.
So we believe as we sit at the moment that we've managed to cover all of the requirements as we see them today now if we sort of referenced just give you. Some data points on this is that in 'twenty. One volume was up overall in the year, but we're actually tracking at double digit up in the first half of the ads you can get.
Some extrapolation they have around the.
The impacts of those supply chain challenges.
How we would sort of expect a normal supply sort of pan out for 2022 wings, which is implied in your question. The key here is that.
We talked again I mentioned it before around the geopolitical piece that we've got to be mindful of in the midst right.
<unk> needs as I mentioned before still to clear that the bulk of that backlog by the end of the first half of the year.
And as Todd referenced in sort of circling back to that and hopefully filling out the answer for you at that time.
The compression is that we're still in cost recovery mode as I mentioned.
We are expecting those volumes to come back and show the trajectory of growth that we were we were predicting previously.
Okay.
And just separately I know you.
If you get to pass through a lot of the cost inflation here.
Curious is there are you seeing any impact on your business.
It's noteworthy.
That's from inflation.
So what we're seeing on an inflationary basis at the moment, Greg is that everything's starting to flatten out so with that lag that we talked about before we expect that we cost recovery to learn to work its way through now the unknown quantity of nits and sort of plays a little bit one of the common.
That's hard made earlier is that in our forward forecast at the moment suggests that these things will be coming back down again, if you look at the indices. However, there'll be see that uncertainty that's out there at the moment, but as we see as we're working through and that cost recovery mode will catch up.
Yes. This is Steve I mean, if I could add I mean, I think simply put.
What happened tragically in Ukraine, a couple of days ago, we would have felt pretty good that things are topped out and not at least across the markets that we access that kind of inflation forces have topped out.
Now who knows right as of Wednesday, or whenever it was.
Got it have you been able to manage.
The COVID-19 .
Issues in the first quarter.
People, maybe not being able to show up to work because.
So how is.
It's going well I mean, I think like everybody in the industry I think we struggled with trucking in the first couple of weeks of January that's like the entire trucking industry had COVID-19 , where it felt like that but I think both teams Scott's team amongst team did a good job scrambling. So it didn't really affect our volumes.
And I think like the country. We've just seen cases collapse. The last report I saw earlier. This week is in all of Calumet. We had one case. So we feel good about that and actually we're also obviously, we're really pleased generally but we're also very pleased because as we can potentially start to ease COVID-19 .
Covid protocols.
During the turnaround we are going to have a lot of people on a crowded site right. So actually pushing back the construction work to get out of the winter, which we talked about was we thought was a good de risk may be an even bigger derisk and then we thought because we may be able to operate with them with more lenient COVID-19 protocols. I mean, obviously, we will comply with CDC and local authorities and all that good stuff, but.
For us <unk> it looks like it's in the rearview mirror right now knock on wood.
That's great to hear and then last one it wouldn't be.
With me on it if I didn't ask you just your thoughts on on Rins.
Any insights you might have on developments that are worth pointing out.
Hey, Greg Thanks, It's Bruce Thanks, I think.
Corp, Dev hat on for a second and I'll set the Montana renewables had down.
So the EPA has public comment period closed earlier this month.
Thereafter, digesting all of that there are a whole bunch of a thicket of.
Conflicting legal activities all over the place and Theyre going to have to pick their way through that Theyre under court orders to answer certain questions by certain dates and so I think the first half of this year.
Bring more clarity at the agency level.
We are sympathetic for the struggle they have trying to manage all of these conflicting stakeholder groups.
That sets up.
The thing that may be should be more interesting to all of us which is.
The congressional renewable volume.
Statute is going to sunset.
So we are at the early stages of <unk>.
A lot of conversations with legislators.
The Senate Committee on environment held a hearing I would direct your attention to the transcripts of that about two weeks ago.
And we think theres going to be a lot.
Of bipartisan support to help the agency to norm These things and so we're optimistic this year.
That's great.
Thanks again for the time guys.
Enjoy your weekend.
Thanks, Brian .
Thank you.
Does conclude the question and answer session of today's program I'd like to hand, the program back to Steve Moore for any further remarks.
Well. Thank you very much for joining us on the call we really appreciate it.
Really appreciate it.
Upon involvement over the last two years. This team has created tremendous amount of unit holder value.
We clearly see the potential to stay with our vision and execution here and create a lot more.
Using the same team in different roles. So we were excited.
I wish you a great weekend, thank you very much.
Thank you, ladies and gentlemen for your participation in today's conference. This does conclude the program you may now disconnect good day.
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