Calumet, Inc

Ladies and gentlemen, please stand by. Your Q2 2021 Calumet Specialty Products Partners LP Earnings Conference Call will begin momentarily. Again, please stand by for your conference will begin momentarily. Thank you. Thank you. Good day, ladies and gentlemen, and welcome to the Q2 2021 Calumet Specialty Products Partners LP Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session, and instructions will follow at that time. If anyone should require assistance during the conference, please press star zero on your touchtone telephone. As a reminder, this call is being recorded. I would now like to turn the conference over to your host, Mr. Brad McMurray, Vice President of Investor Relations. You may begin.

Good morning. Good morning. Thank you for joining us on today's call to discuss our second quarter results. Joining me on the call are Steve Marsh, CEO, Todd Borgman, CFO, Bruce Fleming, EVP of Montana Renewables and Corporate Development, Scott Obermeyer, EVP of Specialty Products and Solutions, and Mark Lott, EVP Performance Brands. Before we proceed, allow me to remind everyone that during this call, we may provide various forward-looking statements as defined under federal securities laws. Please refer to our press release that was issued this morning as well as our latest filings with the Securities and Exchange Commission for a list of factors that may affect our actual results and could cause them to differ from our forward-looking statements made on the call. As a reminder, you may now download the slides that will accompany the remarks made on the conference call. They can be accessed in the investor relations section of our website at www.cowumetspecialty.com. A replay of this call will also be available on the website later today. With that, I'll pass the call to Steve.

Thanks, Brad. Good morning, everybody, and thank you for joining us today. For the second quarter, the partnership generated $32.3 million of EBITDA. Specialty margins have been very good, increasing 19% over the first quarter, despite dramatic increases in input costs. Within the specialty products and solutions segment, most of our product lines have implemented six or seven price increases so far this year. Back in late 2020, Our team labeled 2021 as the year of the price increase and prepared our systems and teams for a rapid increase in our feedstock costs. We really appreciate how diligently our team has protected our margins in this environment. Sales volumes in specialty products and solutions improved over last quarter, but are still short of maximum rate given that we completed our post-turnaround inventory rebuild and also experienced an unplanned outage at our Shreveport facility in June. Performance Brands has also successfully implemented price increases with similar frequency this year. As one gets closer to the consumer, as we do in Performance Brands, price increases operate with a significantly longer lag time, and Performance Brands' second quarter is affected by this. One way to think about this lag cost effect is as a reversal of the positive price lag benefit that we accrued in the second and third quarter of 2020 when we are in a deflationary, depressed price environment. Demand in performance brands is extremely robust. And for now, we can't keep up, resulting in a record backlog. As a specialties-focused company with consumer brands, we're right in the thick of the supply chain challenges that the recovering global economy is experiencing. Performance brand second quarter shift volumes dipped versus first quarter due to the production complexity that comes with multiple shortages. And Todd will spend a few minutes sharing our supply chain perspective, challenges, and also opportunities a bit later in the call. Montana Renewables had a solid second quarter. Our Northern Rockies niche tends to manifest its advantage during the spring and summer, and this was again the case in the second quarter. Limited availability and expensive long-haul trucking in Utah and Nevada have increased the cost of resupply to our market, which has benefited us, although this has been partly offset by asphalt pricing not fully keeping up with crude's impressive rally. We also set production records both in Montana and several of our specialty products and solutions facilities during the quarter. I know there is a lot of interest in the excellent progress we're making on our renewable diesel conversion project, and so before Todd takes you deeper into segment performance, let me give you an update. June was the last time we shared an update on Montana Renewables conversion. At that point, we added feed pretreat as an additional project module and significantly raised EBITDA guidance. Since then, our estimates of the project cost and timing have not changed. We still plan to be producing renewable diesel after the plant-wide turnaround next April. As we have discussed before, de-risking the renewable diesel venture, or indeed any venture, is a key element of our operating philosophy and stewardship. This stewardship goes in three directions. The first direction is project readiness. Due to the excellent metallurgy of our existing hydrocracker and already rail-focused site logistics, the scope of work needed to complete the initial conversion is quite limited. We're holding fast to our modular step-by-step approach on the site, which simplifies execution and flattens the capex spending curve. We have decided to advance an FCC turnaround away from next April into the fall of this year in order to reduce execution complexity in 2022. We have secured a fixed-cost engineering and procurement contract for our renewable green hydrogen plant, which removes cost uncertainty from a major program element and assures us of lower carbon intensity. We've passed another internal front-end loading gate, as well as an external readiness review of our project without a change to forecasting timing, or spending. These are just examples. The core reason behind holding the line on cost and timing is the top-tier metallurgy we have at the plant already. This existing platform means we can dramatically reduce the cost and complexity of switching to renewable feedstock. Our metal is at the heart of why we believe this is arguably the best renewable diesel conversion project in North America. And as we've shown before, we have the lowest capex per barrel of any announced project. So right now, we feel good about capital stewardship. Our second stewardship element is commercial readiness, which also continues to make excellent progress. Our geographical advantage helps here as well. And we'll touch on that on the next slide, which I believe is slide four in the packet. In terms of feedstock access and logistics, We're starting up next spring using technical tallow and some soy, supported by our feedstock strategy, which is to emphasize local gathering and take advantage of our superior geographic location. Local supplies of non-soybean oils, such as camelina, canola, mustard, et cetera, offer lower carbon intensity and lower logistics costs because these temperate climate crops literally grow in our backyard. The dashed red circle on the map illustrates this. With the pretreater on deck for late 2022 commissioning, plus our hydrocracker metallurgy, we will be able to run any feedstock. Millions of acres in Montana, Alberta, and Saskatchewan either are or can produce oilseed crops. And our location within this temperate oilseed belt will make us one of the most feedstock-advantaged renewable producers in North America. While we plan to start up on technical tallow and some soy, the pre-treater then shrinks our soy dependency window to one that is quite manageable. And you can see that from a chart we put on slide 11 in the appendix of the package. When you look at the appendix slide, you'll also see that we have an opportunity to de-bottleneck our oversized hydrocracker and further expand the renewable diesel facility to over 18,000 barrels a day of throughput capacity for little capital cost. Many of you will recall that the hydrocracker was an off-the-shelf purchase and was oversized from day one, and we plan to take advantage of that. You can think about this as another exciting growth phase and opportunity for our renewable diesel business. Back to feedstocks, we've begun signing the initial supply agreements for startup, focusing on soybean oil and tallow producers close to our plant who are natural suppliers. We can get into this during Q&A if there's interest. But we strongly supported the comprehensive bipartisan Senate effort to have EPA approve the pending renewable diesel pathway application for canola. Canola is already approved in Canada, as well as being approved for biodiesel in the U.S. So we see its inclusion as inevitable. You probably haven't heard much about the canola feedstock opportunity from others. As for most of the renewable diesel projects in the U.S., canola production is far away from them. But for us, it grows right around the plant. On the marketing side, we've had strong interest in our production, particularly in the northwestern markets. Our position as the short-haul supplier to British Columbia and the PAC Northwest is readily apparent, and events of the last six months have reminded people of the risks of lengthy supply chains. We're also blessed with unique proximity to supply Alberta and Saskatchewan with renewable diesel when the rest of Canada goes to low-carbon fuels in 2023. So, while we conservatively forecast our EBITDA performance, assuming realization of the products in Los Angeles, we expect to do better than that. Indeed, our current modeling and buyer interest indicates that Canada may be our main or even possibly our entire market. Our third stewardship element is partnering. I'm happy to report that we've had tremendous interest in this project. Feedback from those who have dug in hard in the data room confirms our point of view that this is a truly exceptional value proposition and most definitely not one of the Me Too renewable diesel projects. It's also gratifying, it's always gratifying, when highly capable people go through a data room in depth and reinforce and confirm our competitive thinking. Funding for this project could be available to us from multiple sources. The field has been narrowed, and when we are ready to announce, we will announce. I'll now turn the call over to Todd to take you through our second quarter results in more depth. Todd. Thank you, Steve.