Q4 2023 Calumet Specialty Products Partners LP Earnings Call

Operator: Good day, and welcome to the Calumet Specialty Products Partners LP fourth quarter 2023 results conference call. All participants will be in a listen-only mode.

Good day and welcome to the Calumet specialty products partners L. P fourth quarter 2023 results conference call.

All participants will be in a listen only mode.

Operator: Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on the touch-tone phone, then cancel your question.

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Ralph.

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Operator: Please note, this event is being recorded. I would now like to turn the conference over to Brad McMurray, Investor Relations. Please go ahead.

Please note this event is being recorded.

I would now like to turn the conference over to Brad Macquarie Investor Relations. Please go ahead.

Brad Heffern: Morning. Thank you for joining us today for our fourth quarter and full year 2023 earnings call. With me on today's call are Todd Borgman, CEO; David Lunan, CFO; Bruce Fleming, EVP, Montana Renewables and Corporate Development; and Scott Obermeyer, EVP, Specialties. You may now download the slides that accompany the remarks made on today's conference call, which can be accessed in the investor relations section of our website at www.calumet.com.

Good morning, Thank you for joining us today for our fourth quarter and full year 2023 earnings call with me on today's call are Todd Workman CEO, David Lannon CFO.

Fleming, EVP, Montana, renewables and corporate development and Scott Obermeier EVP specialty you may now download the slides that accompany the remarks made on today's conference call, which can be accessed in the Investor Relations section of our website at Www Dot Calumet Dot Com also a webcast replay of this call will be available on our <unk>.

Brad Heffern: Also, a webcast replay of this call will be available on our site within a few hours. Turning to the presentation, on slides two and three, you can find our cautionary statements and tax disclosures. I'd like to remind everyone that during this call, we may provide various forward-looking statements. Please refer to the Partnership's press release that was issued this morning, as well as our latest filings with the SEC, for a list of factors that may affect our actual results and cause them to differ from our expectations. I will now pass the call to Todd.

Within a few hours.

Turning to the presentation on slides two and three you can find our cautionary statements and tax disclosures I'd like to remind everyone that during this call. We may provide various forward looking statements. Please refer to the partnership's press release that was issued this morning as well as our latest filings with the SEC for a list of factors that may affect our actual results and cause them to <unk>.

From our expectations I will now pass the call to Todd Todd.

Todd Borgman: Thanks, Brad, and welcome to Calumet's year-end 2023 earnings call. To start, I'll provide an update on our conversion process. We'll then recap 2023, Dave will take us deeper into the quarter, and I'll wrap with a 24 outlook. Now, let's turn to slide four.

Thanks, Brad and welcome to Calumet to year end 2023 earnings call.

To start I will provide an update on our conversion process will then recap 2023, David will take us deeper into the quarter and I'll wrap with a 24 outlook, let's turn to slide four.

Todd Borgman: In November, we announced that our General Partner and Conflicts Committee had agreed to terms that would convert Calumet to a C Corp from an MLP, and since then, we've been at work putting that into effect. In the past few years, Calumet has transformed itself into a new company. It became clear that the typical institutional investors who would invest in a leading specialty products company and a top-tier renewable fuels business largely don't, or even can't, invest in MLPs. Further, almost no passive investment strategies, which make up nearly half of the capital being invested, allocate to MLPs.

In November we announced that our general partner and conflicts Committee had agreed to terms that would convert Calumet to a C Corp from an MLP and since then we've been at work putting that into effect.

Over the past few years Calumet has transformed itself into a new company and it became clear that the typical institutional investors, who invest in our leading specialty products company and a top tier renewable fuels business largely down okay, but you can't invest in Mlps.

Further almost no passive investment strategies, which make up nearly half of the capital being invested allocate to mlps.

Todd Borgman: That's to increase our investor base and ultimately provide our shareholders the best opportunity to realize fair value for Calumet. We embarked on this change. Two weeks ago, we announced the signing of the Official Conversion Agreement, which is a prerequisite to filing our S-IV with the SEC. After we receive comments back from the SEC, a final S4 will be filed, a proxy vote held, and we hope to gain approval from our shareholders and complete this conversion mid-year. Again, I thank everyone involved, especially our General Partner and Conflicts Committee, for a fair and thorough negotiation, and we're looking forward to this vote and new opportunity. Turning to slide five, we see the fourth quarter. In the fourth quarter, Calumet generated $40 million of adjusted EBITDA.

That is to increase our investor base, and ultimately provide our shareholders the best opportunity to realize fair value for Calumet, we embarked on this changed.

Two weeks ago, we announced the signing of the official conversion agreement, which is a prerequisite to filing our S. Four with the SEC.

After we receive comments back from the SEC and final asked for will be filed a proxy vote held.

Hope to gain approval from our shareholders and complete that conversion midyear.

Again, I think everyone involved, especially our general partner and conflicts committee for a fair and thorough negotiation and we're looking forward to this vote and new opportunity.

Turning to slide five we see the fourth quarter.

In the fourth quarter Calumet generated $40 million of adjusted EBITDA and for the year, we generated $261 million and adjusted EBITDA.

Todd Borgman: And for the year, we generated $261 million of adjusted EBITDA. Our 2023 financial results were driven by three things, all of which we've discussed previously. First, in Montana, a steam drum crack essentially set our strategic plan back half a year and culminated with a month-long outage in November, where we successfully replaced the unit. At that time, given we were down anyways, we pulled forward turnaround work and replaced the catalyst change that was previously scheduled for 2024. Second, the combination of a winter freeze and summer tornadoes in Shreveport underpinned roughly $70 million of lost opportunity in our specialties business.

Our 2023 financial results were driven by three things all of which we've discussed previously.

First in Montana steam drummed crack essentially said, our strategic plan back half a year and culminated with a month long outage in November where we successfully replaced the unit.

At that time, given we were down anyways, we pulled forward turnaround work and replace the catalyst change that was previously scheduled for 2024.

Second the combination of a winter freeze in summer tornadoes in Shreveport, underpinned roughly $70 million of lost opportunity in our specialties business.

Todd Borgman: Third, and positively, we were able to offset some of the year's challenges with superb commercial execution throughout the business. Most notably, our specialties team increased margins for the fifth consecutive year. Strategically, 2023 was a foundational year, which positions us well to achieve our ultimate strategic objective. Our specialties business has solidified itself as a commercial leader in the space. Last year, we built on this by successfully integrating our performance brands and specialty products and solutions segments into a single specialties group.

Third and positively we were able to offset some of the year's challenges with some with superb commercial execution throughout the business, most notably our specialties team increased margins for the fifth consecutive year.

Strategically 2023 was a foundational year, which positions us well to achieve our ultimate strategic objectives.

Our specialty business has solidified itself as a commercial leader in this space.

Our unique integrated asset base customer focus and commercial and technical knowhow or lasting advantages.

Last year, we build on this by successfully integrating our performance brands and specialty products and solutions segments into a single specialties group and we succeeded.

Todd Borgman: And we see additional opportunity here as we capture value from our agility, optionality, and breadth of offering throughout the entire specialty product value chain. Further, in a few months, we'll be entering year three of our Operational Improvement Plan Entry Report. The events of 2023 highlighted some of our infrastructure weaknesses, both within and outside the plant, and while we'll never be immune to everything, the improvements made thus far have been meaningful, and we're tackling reliability at Shreveport head on. Naturally, the most notable item of this past year was our Montana Renewables business coming to fruition. The first year wasn't without setbacks, as often is the case for projects as ambitious as this one.

General opportunity here as we capture value from our agility, optionality and breadth of offerings throughout the entire specialty products value chain.

Further in a few months, we'll be entering year three of our operational improvement plan in Shreveport BV.

The events of 2023 highlighted some of our infrastructure weaknesses, both within and outside the plant and why it will never be immune to everything the improvements made thus far have been meaningful and we're tackling reliability at Shreveport head on.

Naturally the most notable item of this past year was our Montana renewables business came to fruition.

The first year wasn't without setbacks as often is the case for projects as ambitious as this one and ultimately we stood up and Derisk the key elements of the venture.

Todd Borgman: And ultimately, we stood up for and de-risked the key elements of the venture. We demonstrated our ability to source competitively-advantaged feed. We de-risked our technology, and we showed our commercial agility and ability to capitalize on our location as half of our product ended up in the rapidly-growing Canadian market. Last, in May, we launched North America's largest sustainable aviation fuel business, establishing Montana Renewables as a first mover in an area that is so promising that it has since become a strategic focal point of many in our space. The emergence of a rapidly growing SaaS market is extremely exciting for the industry, and we're thrilled to be positioned at the tip of the spear along with our partners at Shell. We compare the sustainable aviation fuel transition today to the one we saw in renewable diesel nearly ten years ago. Like renewable diesel, SAF is the only drop-in fuel that's available today.

We demonstrated our ability to source competitively advantaged feed we derisked, our technology and we showed our commercial agility and ability to capitalize on our location is half of our product ended up in the rapidly growing Canadian market.

Last in May we launched North America's largest sustainable aviation fuel business.

Tableau seemed Montana renewables as a first mover in an area that is so promising that has since become a strategic focal point of many in our space.

The emergence of a rapidly growing SaaS market is extremely exciting for industry and we're thrilled to be positioned at the tip of the sphere, along with our partners itself.

We compare the sustainable aviation fuel transition today, because one we saw in renewable diesel nearly a decade ago.

Like renewable diesel staff as the only drop in fuel that's available today.

Todd Borgman: Other alternatives are interesting, but they require decades of research and development and huge investment to completely overhaul the airline industry's infrastructure, which we view as unlikely any time soon. It's now common knowledge that our industry is producing less than 1% of the SAF that would be required in six years to meet the government's 3 billion gallon milestone in the Grand SAF Challenge. And this 2030 milestone is only 9% of the ultimate 35 billion gallon plan laid out by federal agencies. Naturally, more capacity and additional technologies are going to be required. There are a few ways to make SAF, the most economical of which by far is the HEPA process, which Montana Renewables currently uses.

Other alternatives are interesting, but they require decades of research and development and huge investment it's completely overhaul the airline industry's infrastructure, which we view as unlikely anytime soon.

It is now common knowledge that our industry is producing less than 1% of the SaaS that would be required in six years to meet the government's 3 billion gallon milestone and the Grand theft Challenge.

And it's 2030 milestone is only 9% of the ultimate 35 billion gallon plan laid out by federal agencies.

Naturally more capacity and additional technologies are going to be required.

There are a few ways to make yourself, the most economic of which by far is they have a process, which Montana renewables currently uses.

That being said the growth prospects for this industry are so large that all technologies are likely to be required most of which are meaningfully more expensive than a half a process.

Todd Borgman: That being said, the growth prospects for this industry are so large that all technologies are likely to be required, most of which are meaningfully more expensive than a HEPA process. Further, we're seeing demand for SAF change quickly because SAF mandates exist in the UK.

Further we're seeing demand for staff change quickly.

<unk> mandates exist in the U K individual airlines have announced targets, we see airports settings have requirements and just this week, Singapore announced a requirement for all departing planes to yourself.

Todd Borgman: Individual airlines have announced targets, and we see airports setting SAF requirements. And just this week, Singapore announced a requirement for all departing planes to use SAF. This rapidly growing demand is exactly why some of the largest players in the industry are investing heavily in this space. And it's why Montana Renewables made the change in our original project nearly two years ago to add SAF capability. Throughout 2023, we progressed plans to build on Montana Renewables' First Mover Advantage VRMAC SAF project. We've progressed engineering, interviewed construction partners, and we eagerly await feedback from the DOE on final funding to move forward.

This rapidly growing demand is exactly why some of the largest players in industry are investing heavily in this space.

And it's why Montana renewables made the change in our original project nearly two years ago to add SaaS capability.

Throughout 2023, we progressed plans to build on Montana renewables first mover advantage via our Mac SaaS project.

We've progressed engineering interviewed construction partners and we eagerly await feedback from the DLA final funding to move forward.

The DLA process continues to move well in fact accelerate and we are hopeful to receive confirmatory feedback in a not too distant future that will allow us to officially launch the next phase of Mac staff, which we expect will make us one of the largest sand facilities in the world.

Todd Borgman: The DOE process continues to move well, in fact, accelerate, and we're hopeful to receive confirmatory feedback in the not-too-distant future that will allow us to officially launch the next phase of MAC SAF, which we expect will make us one of the largest SAF facilities in the world. A growth in SAF demand also should be expected to change the landscape of renewable diesel. As we evaluate MACSAF, we ask, if these margins exist and the addressable market is so large, why wouldn't every renewable diesel player convert?

Our growth in SaaS demand also shouldn't be expected to change the landscape of renewable diesel.

As we evaluate Mac SaaS, we ask if these margins exist and the addressable market is so large why would never renewable diesel player convert.

Naturally our industry, it's full of sharp competitors, who are considering just that.

While we quickly find is despite all of the growth we've seen in renewable diesel the entire U S. Rd capacity just reached 3 billion gallons this year.

In other words, it would take all of the R&D to meet the 2030 Grand Theft Challenge.

Of course, we're also seeing demand growing renewable diesel with Canada being early in their program and new Mexico, reminding us that individual states will continue to implement new low carbon fuel standards.

Todd Borgman: Naturally, our industry is full of sharp competitors who are considering just that. But what we quickly find is despite all of the growth we've seen in renewable diesel, the entire USRD capacity just reached 3 billion gallons this year. In other words, it would take all of RD to meet the 2030 Grand Theft Challenge.

Further all the renewable diesel that's being produced today is needed to remain in compliance with existing low carbon fuel requirements and has already has converted the south the obligated already volume demand will necessitate the need for market to incentivize the production of renewable diesel.

Todd Borgman: Of course, we're also seeing demand grow for renewable diesel, with Canada being early in their program, and New Mexico reminding us that individual states will continue to implement new low-carbon fuel standards. Further, all the renewable diesel that's being produced today is needed to remain in compliance with existing low-carbon fuel requirements, and as RD is converted to SAF, the obligated RD volume demand will necessitate the need for the market to incentivize the production of renewable diesel. As this dynamic plays out, we'll take our traditional approach at Montana Renewables of building in optionality, remaining nimble commercially, and leveraging our relative location and cost advantage in any scenario. This includes the ability to produce either renewable diesel or SAF.

As this dynamic plays out we'll take our traditional approach at Montana renewables are building, an optionality remaining nimble commercially and leveraging our relative location and cost advantage in any scenario.

This includes the ability to produce either renewable diesel are SaaS.

It also includes utilizing our advantage logistics cost structure to weather any industry volatility.

Recently, we've seen market renewable diesel margins hit a trough.

While short term volatility exists in any business. We believe the historic structure of the market will continue to hold in time.

When the price of Rins diesel Enel CFS, all independent variables are reduced at the same time, the needed equal and opposite impact of feed prices dramatic.

Suppliers try to mitigate a sharp decline by all means available to them, including reducing crush rates and building inventory, which can delay the reaction in feed prices.

We would expect the impact of price lag on industry margins to be larger than normal in this scenario and we're seeing that today.

Todd Borgman: It also includes utilizing our advantage logistics cost structure to weather any industry volatility. Recently, we've seen market renewable diesel margins hit a trough. While short-term volatility exists in any business, we believe the historic structure of the market will continue to hold in time. When the price of rims, diesel, and LCFS, all independent variables, are reduced at the same time, the needed equal and opposite impact of feed price is dramatic. Suppliers try to mitigate a sharp decline by all means available to them, including reducing crush rates and building inventory, which can delay the reaction and feed price. We would expect the impact of price lag on industry margins to be larger than normal in this scenario, and we're seeing that today. Of course, over time, biodiesel would have a difficult time competing at low industry margins.

Of course over time biodiesel would have a difficult time competing at low industry margins inventories in the supply chain should build and one of the variables in the profit equation has to react and just in the past couple of weeks, we've seen the vegetable oil margin indicators start to turn.

We've also seen Tau a waste product adjust rapidly and strong tower margins continue to exist.

In a normal environment, we would expect relatively short length of Montana renewable supply chain to be a differentiated advantage in times like this.

But during this current trough.

Full of inventory that was originally contracted for the second half of 2023 before the facility was cut back.

This impacts US is the feed is higher priced but it also limits our flexibility to react to short term changes in the field dynamics, which otherwise would be a core advantage.

We started processing our old feed one where he started in December and expect to be through it in the first quarter.

Todd Borgman: Inventories in the supply chain should build, and one of the variables in the profit equation has to react. And in just the past couple of weeks, we've seen the vegetable oil margin indicators start to turn. We've also seen tallow, a waste product, adjust rapidly, and strong tallow margins continue to exist. In a normal environment, we'd expect a relatively short length of the Montana Renewable Supply Chain to be a differentiated advantage in times like this. But during this current trough, we've been full of inventory that was originally contracted for the second half of 2023 before the facility was cut back. This impacts us as the feed is higher priced, but it also limits our flexibility to react to short-term changes in the relative feed dynamics, which otherwise would be a core advantage. We started processing our old feed when we restarted in December and expect to be through it in the first quarter. To put the impact of these items in perspective, the difference between the Q3 average CBOP price levels in December was over $1.20 per gallon.

To put the impact of these items in perspective, the difference between Q3 average seaborne price levels in December was over $1 20 per gallon.

Further over the past couple of months margins have remained over a dollar a gallon higher for tallow and vegetable oils.

With normal inventory levels, we'd be switching the tallow and capturing this advantage, which would deliver margins reasonably in line with previously stated expectations.

With full inventory we're processing what we have.

As you know we think transition continues to evolve we believe Calumet is positioned for success.

As discussed today, we are well positioned in Montana for both renewable diesel in south growth.

In our specialties business can flex fuel production up or down as the market dictates.

Further our specialties business is positioned to benefit from many of the Mega trends that we see in todays market as we produce high performing products going into mining power transmission, food and pharma and clean water, including a growing list of environmentally friendly materials, such as their biodegradable lubricant servicing the global shipping industry.

Todd Borgman: Further, over the past couple months, margins have remained over a dollar a gallon higher for tallow than vegetable oil. With normal inventory levels, we'd be switching to TALO and capturing this advantage, which would deliver margins reasonably in line with previously stated expectations. However, with full inventory, we are processing what we have. As the energy transition continues to evolve, we believe Calumet is positioned for success.

We believe this breadth and flexibility positions us well as our industry continues to evolve.

Our core belief continues to be that the energy transition will continue to occur but will take longer than most think.

It is complex and requires investment and it will ebb and flow as businesses and society experiment and adapt and at Calumet will continue to focus on positioning ourselves to remain competitively advantaged in all scenarios.

Todd Borgman: As discussed today, we're well positioned in Montana for both renewable diesel and SAF growth, and our specialties business can flex fuel production up or down as the market dictates. Further, our specialties business is positioned to benefit from many of the megatrends that we see in today's market as we produce high-performing products going into mining, power transmission, food and pharma, and clean water, including a growing list of environmentally friendly materials such as our biodegradable lubricants servicing the global shipping industry. We believe this breadth and flexibility positions us well as our industry continues to evolve. Our core belief continues to be that the energy transition will continue to occur but will take longer than most think. It's complex, it requires investment, and it will ebb and flow as businesses and society experiment and adapt.

With that I'll hand, the call to David to review, our quarterly financials David.

Thanks Todd.

I'll start with our announcement. This morning that we entered into a note purchase agreement to issue 200 million aggregate principal amount of nine in the quarter senior secured first lien notes due 2029.

The use of proceeds will be to call and retire our existing 2020 for secured notes.

Also call along with available cash 50 million of our 11% 2025 notes.

This transaction allows us to remove the near term maturity.

Juice overall indebtedness and reduce our annual interest expense.

Given the potential Montana renewables monetization was pushed back half of the year due to last year's steam drum replacement and the need to demonstrate a few quarters of strong operations in order to capture proper value from attack from a potential monetization. We wanted to ensure that we have ample flexibility.

David Lunan: And at Calumet, we'll continue to focus on positioning ourselves to remain competitively advantaged in all scenarios. With that, I'll hand the call to David to review our quarterly financials. Thanks, Todd.

And time for it to.

To access the market properly.

This financing provides that flexibility by adding a small quantum of debt that wouldnt, otherwise trade well is cheaper than a new unsecured issuance and will also be callable in a year.

David Lunan: I'll start with our announcement this morning that we entered into a note purchase agreement to issue $200 million aggregate principal amount of nine and a quarter senior secured first lien notes due 2029. The use of the proceeds will be to call and retire our existing 2024 secured notes, and we will also call, along with available cash, $50 million of our 11% 2025 notes. This transaction allows us to remove a near-term maturity, reduce overall indebtedness, and reduce our annual interest expense. Given the potential Montana Renewables monetization was pushed back half a year to the last year's steam drum replacement, and the need to demonstrate a few quarters of strong operations in order to capture proper value from a potential monetization, we want to ensure that we have ample flexibility and time to access the market properly. This financing provides that flexibility by adding a small quantum of debt that wouldn't otherwise trade well, is cheaper than a new unsecured issuance, and will also be callable in a year, as well as leaving enough debt outstanding without call protection to provide an efficient path for further deleveraging later in the year.

As well as leaving enough doubt debt outstanding without call protection to provide an efficient path for further deleveraging later in the year.

Before I review the segments I'd also like to comment on the 8-K, we released this morning, and the associated restatement of 2022 and 2023 quarters.

There were statements relates to our accounting for the preferred equity investment and M. R. L.

We had been allocating net losses in the business in proportion to the total ownership for the Noncontrolling interest.

We've determined that these losses should not have been allocated to the preferred equity investment.

Thus the $6 7 million in 2022, and $18 5 million in 2023 of losses that were previously allocated to Noncontrolling interest will now be allocated to Calumet Limited partners.

To be clear.

This has no impact on the net income adjusted EBITDA or cash flow of the business and only it relates to the allocation of net losses.

This restatement has also it also has no impact on the timing of our conversion and more details can be found in the 8-K.

Turning to slide eight our S. T S business generated $75 6 million of adjusted EBITDA during the quarter and $251 2 million for the full year 2023.

David Lunan: Before I review the segments, I'd also like to comment on the 8K we released this morning and the associated restatement of the 2022 and 2023 quarters. The restatement relates to our accounting for the preferred equity investment in MRL. We had been allocating net losses in the business in a proportion to the total ownership of the non-controlling interest. However, we've determined that these losses should not have been allocated to the preferred equity investment.

This was a very strong quarter for our S. P. S business the plants operated well and we had one of the best quarters as our commercial team continued to execute our customer focused strategy.

We saw unit margins increase with specialties during the quarter, while people and asphalt margins decreased seasonally weak.

We continue to see an above mid cycle margin environment in this business.

Moving to slide 10, our performance brands business generated $6 1 million of adjusted EBITDA, bringing our full year adjusted EBITDA to $47 9 million for the performance brand segment.

David Lunan: Thus, $6.7 million in 2022 and $18.5 million in 2023 of losses that were previously allocated to non-controlling interests will now be allocated to Calumet Limited Partners. To be clear, this has no impact on the net income, adjusted EBITDA, or cash flow of the business, and only relates to the allocation of net losses. This restatement also has no impact on the timing of our conversion.

We typically see some seasonality in the business as some of our customers, especially the big box retailers manage year end inventory levels and that was no different this quarter.

Industrial demand outpaced consumer demand, which weakened and we expect that trend likely to continue early in 2024.

David Lunan: More details can be found in the 8K. Turning to slide 8, our STS business generated $75.6 million of adjusted EBITDA during the quarter and $251.2 million for the full year 2023. This was a very strong quarter for our SPS business. The plants operated well, and we had one of our best quarters as our commercial team continued to execute our customer-focused strategy. We saw unit margins increase for specialties during the quarter, while fuel and asphalt margins decreased seasonally.

Our team continues to do a nice job capturing capturing value from the optionality and integration of our various business across Sps in the PV segment.

As you can see turning to slide 11, we have delivered five consecutive years of growth in our specialties business.

As a reminder, this is a combination of the specialty products within our S. T S segment and our performance brands segment.

The team has done a really good job. These last several years capitalizing on an improved margin environment. While also making last thing step change improvements within the business.

David Lunan: We continue to see an above-mid-cycle margin environment in this business. Moving to slide 10, our performance brands business generated 6.1 million of adjusted EBITDA, bringing our full-year adjusted EBITDA to 47.9 million for the performance brand segment. We typically see some seasonality in the business for some of our customers, especially the big box retailers, managers, and inventory levels, and that was no different this quarter. However, industrial demand outpaced consumer demand, which weakened, and we expect that trend likely to continue early in 2024. Our team continues to do a nice job capturing value from the optionality integration of our various businesses across SPS and the PV segment. As you can see, turning to slide 11, we have delivered five consecutive years of growth in our specialties business. As a reminder, this is a combination of the specialty products within our SPS segment and our performance brand segment.

You can see in the lower right hand chart, our steadily increasing volume, but intermediates between a S. P. S. M. P. D business as the team continues to drive an integrated business model, which we believe provides a unique advantage across our platform.

Moving to our Montana businesses, you can see on slide 13 that we recorded a loss of $25 8 million of adjusted EBITDA in the quarter and generated $30 2 million of adjusted EBITDA for the full year.

Well operations performed well in our legacy asphalt plant during the quarter. The winter is always difficult in this business as roads aren't being paved and local gasoline demand dries up.

For our conventional asphalt at niche fuels plant its first year post MRO was a good one.

Going in we expected the 50% smaller footprint would deliver roughly 60% of the specialty asphalt operating operations post M. R. L. A and then we executed on that in 2023.

Yeah.

David Lunan: The team has done a really good job these last several years capitalizing on an improved margin environment while also making lasting step change improvements within the business. You can see in the lower right-hand chart a steadily increasing volume of intermediates between our SPS and PV business as the team continues to drive an integrated business model, which we believe provides a unique advantage across our platform. Moving to our Montana businesses, you can see on slide 13 that we recorded a loss of $25.8 million of adjusted EBITDA in the quarter and generated $30.2 million of adjusted EBITDA for the full year. While operations performed well at our legacy asphalt plant during the quarter, winter is always difficult in this business as roads aren't being paved, and local gasoline demand dries up.

At Montana Renewables, Todd spent time earlier on the previously disclosed closed steam drum outage and replacement and I will briefly touch on that again as that was the story in Q4 and the second half of 2023.

The repair work was completed during the fourth quarter, along with the turnaround and catalyst change that we pulled forward into the period.

The renewable diesel plant was completely shut down for the month of November and it came back online as the at the beginning of December and has been operating well since.

You can see in our renewables production volumes the impact of the reduced rates and shutdown had on <unk> production.

Now that the facility is back up and operating at close to full capacity. We are drawn to the last of our excess inventory that was built during the unplanned outage and shut down.

David Lunan: For our conventional asphalt and niche fuels plant, its first year post-MRL was a good one. Going in, we expected the 50% smaller footprint would deliver roughly 60% of the specialty asphalt operating operations post-MRL. And then we executed on that in 2023. At Montana Renewables, Todd spent time earlier on the previously disclosed steam drum outage and replacement, and I will briefly touch on that again, as that was the story in Q4 and the second half of 2023. The repair work was completed during the fourth quarter along with the turnaround and catalyst change that we pulled forward into the period. The Renewable Diesel Plant was completely shut down for the month of November and came back online at the beginning of December and has been operating well since.

We should be through that inventory in the next quarter at which point, we will resume our normal feedstock purchase program. We're glad to have the replacement work on the steam drum behind us and while last year, a well that had the impact of pushing back about six months. Our strategy is unchanged as we continue to see her.

Pursue the deal alone finalize our expansion from excess and prepare for potential monetization opportunities.

Lastly, before I turn it back to Todd to wrap up prepared remarks, I'll provide a few guidance items for this year.

We expect the corporate segment to incur approximately $80 million of adjusted EBITDA cost in 2024, which is in line with previous years and our previously outlined annual expectations.

And from a cash flow perspective, excluding MRI, we anticipate 100 $100 million to $120 million of annual Capex.

Montana renewables, we expect $15 million to $30 million of sustaining Capex. This year, which includes the planned purchase of a long lead time catalyst.

David Lunan: You can see in our renewables production volumes the impact of the reduced rates and shutdown had on MRLs production. Now the facility is back up and operating at close to full capacity. We are drawing down the last of our excess inventory that was built during the unplanned outage and shutdown. We should be through that inventory in the next quarter, at which point we will resume our normal feedstock purchase program. We are glad to have the replacement work on the steam drum behind us.

That will be later in the year or next year.

I'll now hand, it back to Todd for closing comments before we move to Q&A.

Thanks, David let's flip to the last slide and talked about the year ahead.

'twenty 'twenty four is a pivotal year for the company and its investors.

This is the first year that both our specialties business and renewables business are fully operating together and we're committed to unlocking value through a number of near term catalysts.

The first of these are demonstrating the top decile decile profitability potential of Montana, renewables, which given the old print inventory overhang mentioned earlier, we expect to occur in the second quarter.

David Lunan: And while last year, that had the impact of pushing back about six months, our strategy is unchanged as we continue to pursue the DOE loan, finalize our expansion for max SAF, and prepare for potential monetization opportunities. Lastly, before I turn it back to Todd to wrap up prepared remarks, I'll provide a few guidance items for this year. We expect the corporate segment to incur approximately 80 million of adjusted EBITDA costs in 2024, which is in line with previous years and our previously outlined annual expectations. And from a cash flow perspective, excluding MRL, we anticipate $100 to $120 million of annual CapEx.

Next is a D O a process, which we mentioned earlier.

This goes hand in hand, with the launch of Mac SaaS and we look forward to providing a more complete outlook on this project soon.

Not only is Max have a huge opportunity, but we also expect it to be another catalyst and a potential Montana renewables monetization, which continues to be an ultimate deleveraging step for the organization.

And last we are on track for a mid year conversion to a C Corp.

To know investors, who are otherwise interested in calumet have not been able to invest in our company due to common constraints that come with Mlps.

David Lunan: Montana Renewables, we expect $15 million to $30 million of sustaining CapEx this year, which includes the planned purchase of a long-lead time catalyst that will be later in the year or next year. I'll now hand it back to Todd for closing comments before we move to Q&A. Thanks, David.

Our institutional and passive investor base is tiny in size, which results in our units being very thinly traded what's also as a deterrent to their investors.

Todd Borgman: Let's flip to the last slide and talk about the year ahead. 2024 is a pivotal year for the company and its investors. This is the first year that both our specialty business and renewables business are fully operating together, and we're committed to unlocking value through a number of near-term catalysts. The first of these is demonstrating the top decile profitability potential of Montana Renewables, which, given the old feed and inventory overhang mentioned earlier, we expect to occur in the second quarter. Next is the DOE process, which we mentioned earlier. This goes hand-in-hand with the launch of MaxSaf, and we look forward to providing a more complete outlook on this project soon.

Since the conversion announcement late last year, we've spoken to many potential new shareholders about the Calumet opportunity.

We believe our story is an interesting one for investors and we're excited to provide the ability for them to partaken of new Calumet, one which has been transformed over the past few years, which has two competitively advantaged businesses and significant near term catalysts that we believe present a meaningful value proposition. Thank you and with that I'll turn the call back to the operator for questions.

Operator.

We will now begin the question answer session.

To ask a question you May press star.

And then one on you touched on top.

If you are using a speaker phone please pick up your handset before pressing the keys.

Todd Borgman: Not only is MaxSaf a huge opportunity, but we also expect it to be another catalyst in a potential Montana Renewables monetization, which continues to be an ultimate deleveraging step for the organization. And last, we're on track for a mid-year conversion to a C-Corp. Up to now, investors who are otherwise interested in Calumet have not been able to invest in our company due to the common constraints that come with an Our institutional and passive investor base is tiny in size, which results in our units being very thinly traded, which is also a deterrent to new investors.

If at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.

At this time, we will pause momentarily to assemble our roster.

The first question today comes from Roger read with Wells Fargo. Please go ahead.

Yeah. Thanks, good morning, everybody.

Yes. It does look like it's going to be a pretty a pretty exciting and it also had a challenging 2024 for you.

Coming to the M. R. L side I'd like to just ask you Todd you mentioned product going into Canada. Some of the other places we recognized the issues with start up of these facilities in feedstock cost, but if you look at the distribution side. It gives us a kind of a inkling on how that is.

Operator: Since the conversion announcement late last year, we've spoken to many potential new shareholders about the Calumet opportunity. We believe our story is an interesting one for investors, and we're excited to provide the ability for them to partake in a new Calumet. One that has been transformed over the past few years, which has two competitively advantaged businesses and significant near-term catalysts that we believe present a meaningful value proposition. Thank you. And with that, I'll turn the call back to the operator for questions. Operator. We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touch-tone phone. If you are using a speaker phone, please pick up your handset before pressing the key.

Turned out and maybe how those realizations are working so that you know as.

As you fix the feedstock and the and the operational issues, we can get confidence on where margins at ago.

Yeah, you bet Hi, Roger.

For calling in and I'll turn it over to Bruce here in a second I'm sure. He has more to add but in general I'd say, our product distribution has been exceptional.

We have a super flexible.

Group of partners, they're contracted long term remember, we sell everything F. O b. So we have insight into where the product is going and we benefit when products are upgraded into Canada. For example, but ultimately all of our sales are contracted formulaic way they align with the steady margin.

The formula that we've talked about historically.

Roger D. Read: If at any time your question has been addressed and you would like to withdraw your question, please press star and two. At this time, we will pause momentarily to assemble our roster. The first question today comes from Roger Read with Wells Fargo. Please go ahead. Yeah, thanks. Good morning, everybody.

And I'd say those are working very very well exactly as expected I don't know if Bruce what would you add.

Thanks Roger.

The fact that we have are both ways registered into all of the L. CFM geographies.

As well as of course see a certification for ourselves.

Todd Borgman: Yeah, it does look like it's going to be a pretty, pretty exciting and also challenging 2024 for you. Coming to the MRL side, I'd like to just ask you, Todd, you mentioned product going into Canada and other places. We recognize the issues with, you know, startup of these facilities and feedstock costs. But if you look at the distribution side, give us a, you know, kind of an inkling of how that's turned out and maybe how those realizations are working so that, you know, as you fix the feedstock and the operational issues, we can get confidence on where margins ought to go. Yeah, you bet. Hi Roger.

Instead, our off takers and have a lot of flexibility to shift any of these materials to where they think is the best for their system operations.

So you know we've.

We've had as much as 50% of physical production go into Canada on a monthly basis.

And you know this is this is one of the hidden.

Each of our geographic location I mean, we we share a land border with British Columbia.

A lot of people are trying to get their the hard way by water and we literally drive the truck over so there's a lot going on in the distribution optimization space.

Alright get a geographic explanation as well as everything else around it.

Shifting gears to the other two businesses.

Todd Borgman: Thanks for calling in. And I'll turn it over to Bruce here in a second. I'm sure he has more to add.

Just asking really for sort of a macro outlook, we've seen the chemical industry have a lot of challenges I know you are not pure chemicals that you kind of get put into that box I'm. Just curious as you look at beyond the weather issues at Shreveport, but.

Todd Borgman: But in general, I'd say our product distribution has been exceptional. We have a super flexible group of partners. They're contracted long term. Remember, we sell everything FOB.

What's the underlying kind of demand and pricing setup as we look at both the specialty and performance.

Todd Borgman: So we have insight into where the product is going, and we benefit when products are upgraded to Canada, for example. But ultimately, all our sales are contracted formulaically. They align with the steady margin formula that we've talked about historically. And I'd say those are working very, very well, exactly as expected. I don't know, Bruce, what would you add?

Hey, Roger This is Scott thanks for thanks for the question.

So if we sort of walked through I'll call. It the timeline Roger in Q4, I think the real headline headline theme or seasonality.

Right. So we saw the fuel cracks take a major step down on that side of the business within the specialties, both Sps and performance brands I would say we saw the typical seasonal slower demand at the at year end.

Bruce A. Fleming: Thanks, Roger. The fact that we have our pathways registered in all of the LCFS geographies as well as have the CORSIA certification for our staff means that our off takers have a lot of flexibility to shift any of these materials to where they think is the best for their system operations. So, you know, we've had as much as 50% of physical production going to Canada on a monthly basis. And, you know, this is one of the hidden attributes of our geographic location. I mean, we share a land border with British Columbia.

We also saw some customers looking to destock, a little bit further and derisk their business, where where possible.

Looking now into the early part of 'twenty 'twenty four I would say, it's a little bit mixed Roger.

Going back to the fuel side of the business, we have a constructive outlook within fuels, we've seen a crack margins improve.

From three year lows that we had in our mid December we've seen that improve back above mid cycle, although we remain highly volatile.

On the specialty side Roger.

Overall, we say demand has slowed.

As he alluded to we've seen the demand slow.

Bruce A. Fleming: You know, a lot of people are trying to get there the hard way by water, and we literally drive the truck over. So there's a lot going on in the distribution optimization space. All right, get a geographic explanation as well as everything else, right?

But with that said and Todd and David touched on this during the script.

We've delivered five years and are all in a row of record results within that specialty side of the business.

We've implemented.

<unk> commercial best in class programs.

Roger D. Read: Shifting gears to the other two businesses. Just asking for sort of a macro outlook. You know, we've seen the chemical industry have a lot of challenges. I know y'all are not pure chemicals, but you kind of get put into that box.

That has allowed us to perform and deliver results really in any type of environment that we've we've encountered in the past three or four or five years. So we we remain confident in the business, but without question. There has been some market pull.

Scott Obermeyer: So I'm just curious as you look beyond, you know, the weather issues in Shreveport, but what's the underlying kind of demand and pricing setup as we look at both specialty and performance? Hey, Roger, this is Scott. Thanks. Thanks for the question. So, as we sort of walk through, I'll call it the timeline, Roger, in Q4, I think the real headline, the headline theme was seasonality. Right, so we saw the fuel cracks take a major step down on that side of the business within the specialties, both SPS and performance brands. I would say we saw the typical seasonal slower demand at the year end.

Pull back from the customer demand.

Maybe I'd add a little bit Roger Scott you want to think about this but the.

If I if I look at the normal slide that we present and SPS you know we showed the margin per barrel on specialties, and we saw that bounce back a little bit about $70 a barrel in Q4, which I think we alluded to on our last earnings call.

I think.

We will continue to see margins kind of in between that Q4, and Q3 number. So 60 $70 type range, yes, as we look into 2024 and continue to expect that we'll be able to sell everything we make so it's undoubtedly a little bit slower on kind of.

Scott Obermeyer: We also saw some customers looking to de-stock a little bit further and de-risk their business where possible. Looking now into the early part of 2024, I would say it's a little bit mixed, Roger. You know, going back to the fuel side of the business, we have a constructive outlook within fuels. We've seen crack margins improve from three-year lows that we had in mid December. We've seen that improve back above mid cycle, although remain highly volatile, and on the specialty side. Overall, we say demand has slowed.

Particularly on the retail front, but more broadly continues to be well above mid cycle, and just very comfortable and confident in the sales team that Scott has bill they're doing an exceptional job in really able to go out and.

Have a lot of confidence performing in any market.

Great I appreciate that I'll turn it back thanks.

Scott Obermeyer: As you alluded to, we've seen the demand slow. But with that said, and Todd and David touched on this during the script, you know, we've delivered five years in a row of record results within that specialty side of the business. You know, we've implemented commercial best-in-class programs that have allowed us to perform and deliver results really in any type of environment that we've encountered in the past three, four, or five years.

The next question comes from Neil Mehta with Goldman Sachs. Please go ahead.

Yeah, Good morning, Todd and team. Thanks for thanks for the time today.

First question I had was Martin and I was really ought not on Montana in trying to get a sense of what the loss profit opportunity was because it was it was a tougher quarter, but you had turned around and you had a you had a period, where you're working through some high priced inventory.

Todd Borgman: So we remain confident in the business, but without question, there has been some market pullback from customer demand. Maybe I'd add a little bit, Roger, and discuss what you think about this, but the, you know, if I look at the normal slide that we present in SPS, we show the margin per barrel on specialties, and we saw that bounce back to a little bit above $70 a barrel in Q4, which I think we alluded to on the last earnings call. I think we'll continue to see margins kind of in between that Q4 and Q3 number, so a $60, $70 type range if, as we look into 2024, and continue to expect that we'll be able to sell everything we make.

Now is there a way to stripping step back out and get a sense of what with the profitability would've looked like and and that's any comments on when you can really see the run rate levels of profitability for that business.

Hey, Nick I'll start.

I'll catch again, and then and then like I said, Bruce I'll have plenty of Adam sure.

I'd say loss loss profit opportunity. The second half was between 80 and $100 million. So the steam drum crack undoubtedly pushed us back.

If we look forward to what we're doing now and I alluded to this a little bit in the script I think if we look forward. We look at what margins have done right. Now you know industry margins has softened a little bit.

Todd Borgman: So, you know, it's undoubtedly a little bit lower, particularly on the retail front, but more broadly, it continues to be well above mid-cycle and just very comfortable and confident in the sales team that Scott has built. They're doing an exceptional job and really able to go out and have a lot of confidence performing in any market. I appreciate that. I'll turn.

And we know we have some impact of all the feed but remember Montana renewables core advantage is our ability to switch feedstocks and take advantage of whatever market is strong and what we've really seen is tallo has remained.

Super profitable. Unfortunately, right now, we're not able to take advantage of it.

Neil Mehta: The next question comes from Neil Mehta with Goldman Sachs. Please go ahead. Yeah, good morning, Todd and team. Thanks for the time today. The first question I had was really about Montana and trying to get a sense of what the lost profit opportunity was because it was a tougher quarter, but you had a turnaround, and you had a period where you're working through some high-priced inventory. Is there a way to strip it back out and try to get a sense of what the profitability would have looked like? Any comments on when we can really see the run rate levels of profitability for that? Hey, Neil, it's Todd. I'll catch you again.

Largely because our inventory is full so L. P. I was kind of hard to tell.

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Pull back too much because theres, so many elements, but I'd say right now if we were running at a normal steady state environment looking at industry. Palo margins of you know dollar 70 S. A gallon or so we we'd be generating somewhere probably between 80 cents on a dollar a gallon.

A little bit softer out there, but undoubtedly this is a top decile plant.

The impact of Q4 was solely on operations.

And tend to turn around and not being able to spread fixed costs and capture those economies of scale. So I don't know if Bruce would you add.

Todd Borgman: And then, like I said, Bruce will have plenty to add. I'm sure. The lost profit opportunity in the second half was between $80 and $100 million. So the steam drum crack undoubtedly pushed us back.

I think that's a good capture them.

Neil In addition, I would oh.

But you know with <unk>.

Hello margins at $2, if you wave a magic wand.

We should be running at 100% of tallow and we have done that we commissioned me and about 100% tallow. So it's within our reach the the issue we ran into was with the.

Todd Borgman: If we look forward to what we're doing now, and I alluded to this a little bit in the script, I think if we look forward, we look at what margins have done right now. You know, industry margins have softened a little bit, and we know we have some impact from old feed. But remember, Montana Renewables' core advantage is our ability to switch feedstocks and take advantage of whatever market's strong. And what we've really seen is Tallow has remained super profitable. Unfortunately, right now, we're not able to take advantage of it, largely because our inventory is full. So LPO is kind of hard to pull back on too much because there are so many elements. But I'd say right now, if we were running in a normal steady state environment, looking at industry pallet margins of, you know, $1.70-ish a gallon or so, we'd be generating, you know, somewhere probably between $0.80 and $1 a gallon. You know, so it's a little bit softer out there. But undoubtedly, this is a top V-style plant. The impact of Q4 was solely on operations and the turnaround, and not being able to spread fixed costs and capture those economies of scale.

Downtime due to the steam drum we under ran production all of our tanks are full our supply chain is full.

And our ability to shift gears and optimize feed classes is gonna be delayed until we clear the inbound.

Thanks, Chris and I and the team that when do you see that happening when do you get that inflection where we can see the run rate profitability of the renewables business is that the middle of this year.

Probably sooner than the healthy we're actually already climbing out of the whole when we look at our internal.

No short short timeframe metrics the quarterly reporting will began to show that at the end of this current quarter.

It's going to continue to improve as we resume normal feed optimization activity.

And I think if I'd add anything.

We expect Q2 for the first full kind of run rate quarter, right, so versus highlighting that we're getting through.

At the end of our inventory challenges here I think that will have that fully cleared in March and Q2 is what we're looking at for.

You know kind of the first normal I'll call it where we're buying feed.

10 months and selling product in the same month at full rate.

Thanks, Pat Thanks, Bruce.

Okay.

Thank you.

Todd Borgman: So, I don't know, Bruce, what would you add? I think that's a good capture. And Neil, in addition, I would, I would flag, you know, with tallow margins at $2. If you wave the magic wand, we should be running 100% tallow, and we have done that. We commissioned the unit on 100% tallow. So it's within our reach. The issue we ran into was with downtime due to the steam drum.

The next question comes from Manav Gupta with UBS. Please go ahead.

Guys I just have a quick macro question you provided they detailed our opening comments and one of the read throughs for me was that you were indicating that you know you what advantage do you have the advantage feedstock dealmaking renewable diesel.

The lower feedstock prices eventually, but one side of the industry that you kind of hinted was that a different one page was biodiesel producers using vegetable oil and it looks like some of those guys could shut down and eventually that will bring the whole industry more into balance back out of default outlook.

Bruce A. Fleming: We underrun production, all of our tanks are full, our supply chain is full, and our ability to shift gears and optimize feed classes is going to be delayed till we clear that inbound. Thanks, Bruce. And then Tim, when do you see that happening?

That's a L. P. S S outlook and also reduce the oversupply of B D. I B is that what youre thinking that you know the advantaged projects like yours will run while we could've biodiesel projects using vegetable oil could have to eventually shut down.

Bruce A. Fleming: When do you get that inflection point, where we can see the run rate profitability of a renewables business? Is that in the middle of this year? Probably sooner, Neil. We're actually already climbing out of the hole when we look at our internal, you know, short time frame metrics. The quarterly reporting will begin to show that at the end of this current quarter, and it's going to continue to improve as we resume normal feed optimization activity. That's it.

Manav, it's Bruce and Directionally that sex Act absolutely correct.

With Syria on them.

King of cash margin is absolutely going to favor the heifer producers over the biodiesel.

Logistics will also sort out individual competitors and ours are going to be the bias because we are the closest to all of the markets.

Me.

Bruce A. Fleming: And I think if I had to add anything, it's, expect Q2 for the first full kind of run right quarter. Right. So Bruce is highlighting that we're getting through the end of our inventory challenges here. I think that we'll have that fully cleared in March. And Q2 is what we're looking at for you know, kind of the first normal, I'll call it, where we're buying feed in one month and selling product in the same month at full rate. Thanks, Pat. Thanks, Bruce. Thank you. The next question comes from Manav Gupta with UBS. Please go ahead. Guys, I just have a quick macro question.

Question on the table is actually.

How fast.

Does the E P a corrupted error.

Under represented the supply side.

And.

You know that that has the effect when they shut their target sorry, they set the targets too low to be clear, that's putting a lot of pressure on the farmers and on the energy sector.

Sure that's politically sustainable.

Oh, perfect guys and a quick follow up it looks like New Mexico is also moving ahead and from what we're hearing is that this delay in car, but it's actually more positive. They are looking at the current immuno Mccann is a main thing maybe we need to be more strict about it to get the carbon price.

Manav Gupta: You provided very detailed opening comments, and one of the things that caught my attention was that you were indicating that, you know, you have advantaged feedstock, you're making renewable diesel with lower feedstock prices eventually, but one side of the industry which you kind of hinted at was that a disadvantage was biodiesel producers using vegetable oil, and it looks like some of those guys could shut down, and eventually that would help bring the whole industry more into balance, Is that what you're thinking that, you know, the advantage projects like yours will have while weaker biodiesel projects using vegetable oil could have to eventually shut down? Manav, it's Bruce.

Bank.

Our balance.

Any can give hard either a new Mexico or the proposed God willing if you could help us out.

Well, we know what you know from the public reports, but our thesis all along has been that.

The low carbon fuel standard is going to continue to spread geographically. So if you. If you just look at recent history you know you have.

All of Federal Canada, opting in and they were careful with the rule. They they took their time to get that right and it came on stream July 1st of this past year.

It doubles, the addressable diesel volume subject to and I'll see if I stand or just like that.

Bruce A. Fleming: Directionally, that's absolutely correct. The Siri Autumn, you know, the ordinal ranking of cash margin is absolutely going to favor the HEFA producers over biodiesel. Logistics will also sort out individual competitors, and ours will be the best because we're the closest to all of the markets. The question on the table is actually, how fast...

New Mexico smaller I believe 100000 barrels a day of diesel is the is the volume I have in my head.

But they're not gonna be lost there just not a lot of state legislatures are considering this.

Sometimes it's for farm support because it does Paul.

Crop based materials through into the transportation fuel pool sometime.

Bruce A. Fleming: Does the EPA correct its error? They underrepresented the supply side, and you know that has the effect when they set their targets, sorry, they set the targets too low to be clear. That's putting a lot of pressure on the farmers and on the ag sector. I'm not sure that's politically sustainable. Perfect, guys.

Sometimes that's for air quality everybody's got a different motivation.

But that's going to continue and that's just the U S or North American picture. You know. These these rules are continuing to come in around the world as Todd indicated you know there's been a lot of activity in soft most of it is certainly as the solar poor requirement and I want to reemphasize that renewable diesel plus off.

Bruce A. Fleming: And a quick follow-up. Looks like New Mexico is also moving ahead. And from what we are hearing is that this delay in CARB is actually a little more positive. They are looking at the current, you know, mechanism and saying, maybe we need to be more strict about it to get the carbon price, you know, bank in a better balance. Anything you have heard either on New Mexico or the proposed CARB ruling, if you could help us out. Well, we know what you know from the public reports, but our thesis all along has been that the low carbon fuel standard is going to continue to spread geographically. So if you just look at recent history, you have all of federal Canada opting in, and they, you know, they were careful with the rule. They took their time to get that right, and it came on stream July 1st of this past year.

Is the call on behalf of hardware.

So if the industry makes has been taken away from diesel and that's got to be part of the balances for anybody doing any forecasting.

Yeah.

Thank you so much for detailed responses guys.

Thanks, Bob.

The next question comes from Joshua <unk> with H C. Wainwright. Please go ahead.

Oh, Hey, guys. Thanks for taking my questions.

A clarification on the C Corp conversion Hum and Oh sort of the monetization of memorial is.

Is it possible for you to continue to sort of gross proceeds on the deal.

Bruce A. Fleming: You know, that doubles the addressable diesel volume subject to an LCFS standard just like that. New Mexico is smaller; I believe 100,000 barrels of diesel a day is the volume I have in my head. But they're not going to be the last; they're just next. A lot of state legislatures are considering this. Sometimes it's for farm support because it does pull crop-based materials through into the transportation fuel pool. Sometimes it's for air quality. Everybody's got a different motivation.

On the on the.

Divestiture why this C corp versus what's going on or really kind of be only started after the C Corp done.

Be.

Hey, Samir, it's Todd B I think in general our plan remains unchanged around you know both monetization and C Corp conversion.

See them as separate but there certainly are.

No connection points.

Obviously, our core theory with all of that says.

As Montana renewables comes online and just general investor sentiment towards Mlps.

Bruce A. Fleming: But that's going to continue, and that's just the U.S. or North American picture. You know, these rules are continuing to come in around the world. As Todd indicated, there's been a lot of activity in SAF, most recently with the Singapore requirement. And I want to reemphasize that renewable diesel plus SAF is the call on behalf of hardware. Every gallon of SAF the industry makes has been taken away from diesel. And that's got to be part of the balances for anybody doing any forecasting. Thank you so much for the detailed response. Thanks a lot.

It's just a completely different investor base.

So to get the right type of interest to get our.

Trading volume up to where it needs to be and to be able to outreach to institutional and passive investors. It's just critical that we had a a more investable.

Corporate structure. So so I think that separate from a potential monetization of Montana area, but knowable I also think it's generally helpful. Right. So as we look at the Montana renewables, but physical monetization I don't think much has changed there you know the we've said all along that we need.

Samir Joshi: The next question comes from Samir Joshi with HD Wainwright. Please go ahead. Hey guys, thanks for taking my question. Just a clarification on the C-Corp conversion and sort of the monetization of MRL, is it possible for you to continue to sort of proceed on the divestiture while this C-Corp process is going on, or will it have to be only started after the C-Corp conversion? Beep. Thanks, Samir. It's Todd.

Probably two quarters of strong steady operations, which which we started in December.

We need at least one quarter, if not two of steady state financials, which we said today, we expect in Q2. So if we kind of tie all that together, we would be pointing towards second half of the year for potential monetization, obviously, we don't have to.

Todd Borgman: I think, in general, our plan remains unchanged around, you know, both monetization and C Corp conversion. I see them as separate, but there certainly are, you know, connection points. Obviously, our core theory with all of this is that as Montana renewables comes online and just general investor sentiment towards MLPs. There's just it's just a completely different investor base. So to get the right type of interest to get our trading volume up to where it needs to be and to be able to outreach to institutional and passive investors, it's just critical that we had a more investable business. Corporate Structure. So I think that's separate from a potential monetization of Montana Renewables. I also think it's generally helpful, right?

To monetize we are focused on creating back shareholder value in.

And this whole deal, but we're certainly interested in it and it had been talking about it for a while and I'd say our plan is that as a base case remains unchanged.

The.

The conversion or the change to a C Corp, what happened before that so we expect the conversion would be complete in Q2, which would be before a.

Sale of Montana renewables.

Does that help understood, yes, yes, no. Thanks for that color I understand on the.

Stepping back and looking at your overall financials or how has the.

Todd Borgman: So as we look at the potential monetization of Montana Renewables, I don't think much has changed there. You know, we've said all along that we need probably two quarters of strong, steady operations, which we started in December. We need at least one quarter, if not two, of steady state financials, which we said today we expect in Q2. So if we kind of tie all that together, we would be pointing towards the second half of the year for potential monetization. Obviously, we don't have to monetize it.

RIN pricing environment helped.

Our impacted overall profitability.

Because you do have to buy the rooms.

For you in the laundry business.

And how are the rents.

Rents on balance sheet.

How are you laying that.

Just wanted to understand how you're managing profitability.

The impact of these elements.

Hey, Sameer, it's Bruce I'll I'll take a start at that so we basically have an inventory accounting style treatment of rooms on our balance sheet. So we we accumulate any length of shortage a treat that as an inventory at a right price. It at the end of each quarter and as we've communicated.

Todd Borgman: We are focused on creating maximum shareholder value in this whole deal, but we're certainly interested in it and have been talking about it for a while. And I'd say our plan, as that is a base case, remains unchanged; the conversion, or the change to a seed corp, would happen before that. So we expect the conversion to be complete in Q2, which would be before the sale of Montana Renewables. Does that help? Yes, yes, no, yeah, thanks for that color.

Indicated before we're not sure that's really a very good estimate of the financial liability for two reasons. One there's a lot of volatility in the RIN price itself, which you just noted.

Our rightful shot of four days out of the whole year is it.

Is the first question.

Secondly, you can't settle that liability with money.

That's not how that program works.

So with that with that disclaimer.

I would also tell you that.

Samir Joshi: On the... Stepping back and looking at your overall financials, how has the Win Pricing Environment, its health or impact on Overall Profitability because you do have to buy their end for your non-renewable business, and how is the rinse-on-balance sheet, how are you playing that, pricing that out? Just wanted to understand how you are managing profitability. Hi, Samer.

Sure.

Get involved in a number of.

The Federal Circuit Court litigations.

And I don't want to go too far into any forward looking statements other than to note that the status of each of those cases is a matter of public record and for example, the fifth circuit sided with us and.

We'll see how that plays out as we continue to talk to the E. P. A.

Understood and then one just last one off the actual production of renewables what proportion was I think it was 5.4 barrels per day on average what proportion was already and what proportion was this is.

Bruce A. Fleming: It's Bruce. I'll take a start at that. So, we basically have an inventory accounting style treatment of RINs on our balance sheet. So, we accumulate any length or shortage, treat that as inventory, and reprice it at the end of each quarter. And as we've communicated before, we're not sure that's really a very good estimate of financial liability for two reasons. There's a lot of volatility in the RIN price itself, which you just noted, and a rightful shot of four days out of the whole year is the first question. Secondly, you can't settle that liability with money.

Our.

Guidance is a 12000 barrel per calendar day feedstock run.

And if you convert that to gallons, you're going to get about 175 million gallons a year.

We have contracted 30 million gallons of SaaS.

Oh got it.

Thanks, a lot.

That's all right.

Your next question comes from.

Gregg Brody with Bank of America.

Good morning, guys and Bruce are you, you're a little bit surprised that I didn't but I think I have to ask the one question.

Bruce A. Fleming: That's not how that program works. So with that disclaimer, I think I would also tell you that, you know, we're involved in a number of federal circuit court litigations. And I don't want to go too far into any forward-looking statements, other than to note that the status of each of those cases is a matter of public record. And, for example, the Fifth Circuit sided with us.

Hum.

I'm just.

I'm trying to understand how to think about.

Funding the Max expansion project and I realize the D O N E.

Finally, as part of that but could you talk a little bit of the sequencing of SaaS will U G. B. It seemed to me to deal with funding to comment to start doing that and then maybe you can kind of try to tie that to ultimately the deleveraging.

Bruce A. Fleming: And, you know, we'll see how that plays out as we continue to talk to the EPA. And then one last one, on the actual production of renewable energy. What proportion was it? I think it was 5.4 miles per day on average.

Well I can see Calumet.

Hey, Greg It's Scott.

We've said before that that we're not going to take on meaningful extra.

Samir Joshi: What proportion was RD and what proportion was SAS? Our guidance is a 12,000 barrel per calendar day feedstock run. And if you convert that to gallons, you're going to get about 175 million gallons a year. And we've contracted 30 million gallons of SAF. Oh. Your next question comes from Gregg Brody with Bank of America. Please go ahead. Good morning, guys. And Bruce, are you a little bit surprised that I didn't didn't get to ask?

Just senior notes to go to go fund Max out and that continues to be the plan.

At least until we're completely de levered. So so I wouldn't expect that to change.

So what that means is extra rapidly went to D O a.

You know we've been progressing the engineering, we can do that internally, we can do that through their very minor spend too.

Two nights that we're getting to the point now where we have a pretty strong feel of what we have.

Gregg Brody: I'm trying to understand how to think about funding the Max Expansion Project, and I realize the DOE funding is part of that. But can you talk a little bit about the sequencing of MACSF? Will you basically need the DOE funding to come in to start doing that? And then maybe you can try to try to tie that to, ultimately, the deleveraging of Legacy Calumet. Hey, Greg, it's Todd.

And we're very excited about it will provide more details except probably on the upcoming earnings call.

Of what we actually expect Max out to be but we don't expect to go forward and spend meaningful dollars until until we get the OEM approvals. So we're quickly coming on to a plateau and then just how productive we can be you know it.

Todd Borgman: We've said before that we're not going to take on meaningful extra, you know, just senior notes to go to fund MacTask. And that continues to be the plan, at least until we're completely de-leveraged. So I wouldn't expect that to change.

Kind of like with the D. O E comes the launch of Mac staff its that simple we progressed.

Through the pre planning phases over the past few months and really excited about what we have so.

The I guess to oversimplify don't expect a whole bunch of access you know new new capital to come in.

Todd Borgman: So what that means is it's directly linked to DOE. You know, we've been progressing the engineering; we can do that internally, we can do that through a very minor spend on QNET staff.

So fund to fund Max assets directly tied to D. O a no change in our long term deleveraging plan, we said that we want to reduce three for $3 million to $400 million of outstanding debt that continues to be the plan continued pathway continues to be a a minority sale of Montana renewables.

Todd Borgman: We're getting to the point now where we have a pretty strong feeling for what we have, and we're very excited about it. We'll provide more details, actually, probably on the upcoming earnings call, of what we actually expect MACSAF to be, but we don't expect to go forward and spend meaningful dollars until we get DOE approval. So we're quickly coming on to a plateau and just how productive we can be. It's kind of like with the DOE comes the launch of MACSAF. It's that simple.

Free cash flow.

And would you expect any free cash flow from from Montana renewable to come out this year or is it is it all going to be reinvested.

Todd Borgman: We've progressed through the pre-planning phases over the past few months and are really excited about what we have. So, The, I guess to oversimplify, don't expect a whole bunch of excess new capital to come in to fund max assets directly tied to DOE. No change in our long-term deleveraging plan. We've said that we want to reduce three to four hundred million dollars of outstanding debt.

No I would I would expect.

It to stay in Montana renewables this year.

And then.

Just on the D. O you you made it sound like you're optimistic you'll hear something soon.

She talked a little bit about what you're hearing that gives you confidence in that I'm, just hoping to understand what your what's your thinking when you. When you made that we've made that statement.

Todd Borgman: That continues to be the plan. Continued Path A continues to be a minority sale of Montana Renewables and, you know, free cash flow. And would you expect any free cash from Montana Renewables to come out this year? Or is it all going to be reinvested?

Greg It's Bruce I'll take that one.

We're actively engaged with the D O N E.

Multiple times per week, it's a priority on both sides.

And.

We will expect to have a go no go.

Gregg Brody: No, I would expect it to stay in Montana Renewables this year. And then, just on the DOE, you made it sound like you're optimistic you'll hear something soon. Can you talk a little bit about what you're hearing that actually gives you confidence in that? Just help us understand what you were thinking when you made that statement. Greg, it's Brutus.

In the foreseeable future.

This is not a case, where we've got some powerpoint idea, we're running around looking for financing.

We're launching the expansion off of a real platform and the economics are compelling.

Bruce A. Fleming: I'll take that one. We're actively engaged with the DOE multiple times per week. It's a priority on both sides, and we won't expect to have a go, no go, in the foreseeable future. This is not a case where we've got some PowerPoint idea and we're running around looking for financing.

Alright, that's it for me thanks for the time.

How are you.

The next question comes from Jason Gabe on that with talent.

Helen Please go ahead.

Good morning, I wanted to ask about the political or I should say government support as it relates to Assaf project.

Bruce A. Fleming: You know, we're launching the expansion off of a real platform, and the economics are compelling. All right, guys, I think that's it for today. Thanks. Thank you. The next question comes from Jason Gabelman with TB Cowen. Please go ahead. Good morning.

And it's an election year.

One how important is it that you get the loan.

From the prior to the election do you see a potential for risk. If you don't get it by then and then two how comfortable are you with the sense economics excluding.

Jason Gabelman: I wanted to ask about the political, or I should say government support as it relates to your SAF project. You know, given it's an election year, one, how important is it that you get the loan from the DOE prior to the election? Do you see potential for risk if you don't get it by then?

Support from the I R I guess.

There there could be some risk to.

The producer tax credit if.

Jason Gabelman: And then two, how comfortable are you with the SAF economics excluding support from the IRA given there could be some risk to the producer tax credit if there's a Republican waiver. Jason, I'll start.

If there's a Republican wave.

Jason I'll start.

Yeah, it's difficult to speculate on an election result.

Bruce A. Fleming: You know, it's difficult to speculate on an election result. And, As far as the second part of your question, we are able to participate in the current legislated markets, which are not only federal. Remember that LPFS matters. Remember that there's a lot of global pressure to pull SAF into physical commerce. The commercial premiums in Europe are in the $3-a-gallon range, and volumes are being mandated. The state of Illinois has passed a $1.50-per-gallon tax credit.

And.

As far as the second part of your question.

We are.

Able to participate in the current legislated markets, which are not only federal remember that El CFS matters remember that there's a lot of global pressure to pull staff into physical commerce.

The commercial premiums in Europe or in the $3 a gallon range.

Volumes are being mandated state of Illinois has passed $1 50 per gallon tax credit.

Bruce A. Fleming: So it's a much, much broader tapestry of support than just, is the future administration going to reverse the existing federal law? And, you know, I don't think we perceive that as a large risk because, If there's not a premium for SAF, we're going to leave it in the diesel. You know, no premium, no SAF. And that's globally true.

So you know, it's it's a much much broader tapestry of support than just.

Is the future administration did a reverse the existing federal law and you know I don't think we perceive that as a large risk.

Because.

If there's not a premium for SaaS, we're going to leave it in the diesel you know no premium no staff and that's globally true.

Jason Gabelman: Okay. Thanks. And then just on the DOE loan processes, there have been some things that've been holding us up longer than expected. I don't know if there's something specific or if it's just the typical kind of, you know, government delays that you run into.

Okay.

And then just on the loan process has there been.

Something that's been holding us up longer than expected I don't know if there's something specific or is it just typical calmed down.

Government delays that you run into but I think when you first started talking about the deal alone.

Bruce A. Fleming: But I think when you first started talking about the DOE loan, you expected it to get it as early as Labor Day 2020. It's Bruce again. Your memory is correct. We actually began talking to the DOE two years ago. We didn't talk publicly about that earlier, but as it became a real prospect on both sides. We did have a step change improvement in that conversation after the IRA legislation came through. That changed a number of things. And so we're in a much better situation, and assuming success, you're going to like it when it comes out.

You expected it to get it as early as Labor day 2023.

It's Bruce again your memory is correct.

We actually began talking to the D O two years ago.

We didn't talk publicly about that earlier, but.

As it became a real prospect on both sides.

We did have a.

Step change improvement in that conversation after the I R. A legislation came through that changed a number of things.

And so you know we're in a actually a much better situation and assuming success, you're going to like it when it comes out but it did require some re architecture based upon the change in legislative support.

Bruce A. Fleming: But it did require some re-architecture based upon the change in legislative support. And then the final one, just on Canada, which you mentioned is an important market for your renewable diesel sales. Can you discuss? It's a bit less transparent than the US LCFS programs, just given the federal program starting to ramp up. Can you discuss the outlook for that market? Do you expect that to become a major pull on US renewable diesel production over the next couple of years as their clean fuel standard program ramps up? Yes, and to give it a little more color.

Okay and then the final one just on Canada, which which you mentioned is an important market for your renewable diesel sales can you discuss it a bit less transparent than kind of a U S defense programs.

Just given the federal programs starting to ramp up can you just give us the outlook for that market.

Do you expect that to become.

A major toll on U S renewable diesel production.

Next couple of years, and they're clean fuel standard program ramps up.

Yes.

And to give a little more color on it.

Bruce A. Fleming: If you make a loose analogy, the Canadian industry structure is similar to the US side. There's a leader on the West Coast, that's British Columbia. They have their own model and rules that are tighter than the national averages, same as the analogy to California or CARB and the US federal government. There is a proliferation of provincial level requirements, some of which are direct volume mandates, not LCFS style.

If you make a looser analogy the Canadian industry structure similar to the U S side. There is a leader on the west coast that British Columbia.

They've got their own.

Model N rules that are tighter than the national averages Seamus.

Oh, Gee to California, or carb and the U S federal.

There is a proliferation of the provincial level requirements.

Some of which are direct volume mandates.

L C F F style and then you've got the the federal overlay of a of an L. CSF program.

Bruce A. Fleming: And then you've got the federal overlay of an LCSF program running off of a different model platform than the BC one. So the parallels are very, very reasonable. And if you take that and project it, the tightening program just calls for more and more volume, you know, it's supplied by import now.

Running off of a different model platform than the B C. One so the parallels are very very reasonable and if you take that and project that the tightening program just calls you and more and more volume.

You know, it's it's supplied by imports now.

Bruce A. Fleming: And the forecast is that it will continue. We're in a great position to be the shipper. Now, I want to give you another thought. The model differences in Canada are not only on the product side; they treat carbon intensity calculations differently, particularly in British Columbia.

And.

The forecast is that it'll continue we were in a great position to be the shipper, yeah I wanted to give you a different thought.

The model differences in Canada are not only on the product side, they treat carbon intensity calculations differently, particularly British Columbia does.

Jason Gabelman: And so there's a real incentive to take Canadian canola and round trip it through our plant back to Canadian placed product. We've got one of our off takers specifically requesting that we assign them product made from canola. So there's a lot going on under the surface. The forecast is that as the global energy transition drive continues, different local, regional political players will find a way to properly tune that to their ag sector, their ranch sector, in the case of tallow. And you know, there's no reason not to remain optimistic about the underlying industry structure. Great. Got it. Thanks for the answer.

So there's a real incentive to take Canadian canola and round trip it through our plant back to Canadian placed product.

We've got one of our offtake or specifically requested that we assign them product made from canola. So there's there's a lot going on under the surface. The forecast is that the global energy transition drive continues.

Different local political local regional political players will find a way to properly tune that to their AG sector. They're ranch sector in the case of Tallow and you know there's no reason not to.

Remain optimistic about the underlying industry structure.

Great got it thanks for the answers.

Brad Heffern: Thank you. This concludes our question and answer session. I would like to turn the conference back over to Brad McMurray for any closing remarks. Thanks, Betsy. Thanks, Betsy. On behalf of the management team here in this room, and really all of us here at Calumet, we appreciate your time and interest this morning. Thank you for joining us on today's earnings call. Have a great weekend, everybody. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect. The Ultimate Parody Site! www.larryweaver.com

Thank you.

This concludes our question answer session I would like to turn the conference back over to Brad Whitmarsh for any closing remarks.

Thanks Betsy.

On behalf of the management team here in the room and really all of US here at Calumet. We appreciate your time and interest. This morning. Thank you for joining us on today's earnings call have a great weekend everybody.

The conference is now concluded. Thank you for attending today's presentation you may now disconnect.

Yeah.

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Yeah.