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spk13: Today's conference is scheduled to begin shortly. Please continue to stand by and thank you for your patience. Thank you. Thank you. Good day and thank you for standing by. Welcome to the Calumet Specialty Products Partners Third Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star zero. I would now like to hand the conference over to your speaker today, Brad Murray, Investor Relations. Please go ahead.
spk14: Good morning. And thank you for joining us today on Calumet's third quarter 2021 earnings conference call. With me are Steve Moore, CEO, Todd Borgman, CFO, Bruce Fleming, EVP, Montana Renewables and Corporate Development, Scott Overmeyer, EVP Specialty Products and Solutions, and Mark Lon, EVP Performance Brands. Before we proceed, I'll remind everyone that during this call, we may provide various forward-looking statements. please refer to the partnerships press release that was issued this morning, as well as our latest filings with the Securities and Exchange Commission for a list of factors that may affect our actual results and cause them to differ from our expectations. You may now download the slides that accompany the remarks on today's call, which can be accessed in the investor relations section of our website, www.calumetspecialty.com. A replay of this call will be available on the website later today. With that, I'll pass the call to Steve.
spk06: Steve? Thank you, Brad. And everyone, welcome to Calumet's third quarter earnings call. I'd like to start off with a few words about the business backdrop. We all remain hopeful that we're in one of the later innings of the pandemic. And you can see that in the strong earnings we are reporting for Q3. As the pandemic has played out, an economic wave has flowed through the different segments of our business. First, During the maximum lockdown, maximum uncertainty phase, our performance brands business was able to capture the tailwinds of low input costs, nesting phenomena, and consumer resilience. As the vaccine became available, what has become known as a bullwhip recovery manifested, creating exceptional demand and margins for our specialty products and solutions segments. Demand was indeed so good that we were able to expand margins in that segment through one of the sharpest rallies and input costs that any of us have seen in our careers. And now, it looks like we're onto the third wave of the recovery. The tremendous and unprecedented shock of the collapse in transportation fuel demand during lockdown has taken almost a year and a half to rebalance. But with inventories now below average levels, and Europe and Asia experiencing severe energy deliverability issues Fuels margins have got off their low-cycle knees and reverted back to mid-cycle, if not better. This should be quite a favorable environment for Calumet. Specialties margins have likely peaked, but as much as anything, that is because the input costs for specialties are diesel, naphtha, and VGO. And at this moment, we're back in the roughly 80% or so of the time when making your own inputs, as we do at our Northwest Louisiana Specialties Complex, is highly beneficial to Calumet. While on the topic of COVID, it would be remiss not to recognize the efforts and commitment of our team. This has been an extremely difficult 18 months for the world and for Calumet. Through all of this, with the added challenges of Winter Storm Uri, our team has stayed focused, managing through what fate has thrown at us. Their resilience is greatly appreciated. Among the many things that the pandemic forced on us was a rethink of our corporate strategy and vision. I believe that this hardship, coupled with our strategic review, clarified our path forward and created the opportunity to articulate a tremendously better vision. In that light, although many of you understand much of what we're trying to do, we would like to spend a minute or two being more explicit about what our vision is for Calumet and why it can, in our opinion, create significant unit holder value. But first, let's briefly recap the quarter, and we do that on slide three. Earnings for the quarter show the improving trend led by specialties, as I mentioned just now. Adjusted EBITDA for the quarter was $58.8 million. Liquidity remained strong, and our specialty products and solutions segment reported record specialty unit margins. As mentioned earlier, we appear to be back in that roughly 80% or so of the time where our integrated specialty complex in northwest Louisiana will outperform non-integrated specialties production. Furthermore, Asian and European producers are carrying a very significant burden from the tremendous increase in energy costs there, which should further amplify our competitive position here in North America. Our two specialty businesses, Performance Brands and Specialty Products and Solutions, continue to experience very robust demand. The challenge is satisfying that demand due to supply chain disruptions. In Specialty Products and Solutions, We have been able to navigate that effectively so far, and our main supply chain focus is the day-in, day-out challenge of a national trucking shortage. Performance brand's results continue to be affected by supply chain issues, limiting our ability to produce the volumes of packaged and bulk lubricants that our customers eagerly demand. In this business alone, we have received 38 force majeure or force majeure extension notices this year. I would stress that the supply chain issues are materially less in our true fuel engineered fuels business than in our lubricants and greases business. But we will go into a little bit more detail on the supply chain story later. Finally, on this slide, we continue to be more than happy with our progress on standing up an exceptionally competitive renewable diesel business in Montana. Be that our partnering discussions, which are well advanced, or the technical permitting and construction side of the project. Our unique feedstock access, given our location, has become much more apparent and understood outside of Calumet. The concept that our business sits in the heart of the temperate oil seed belt, unlocking a new and huge supply of feedstock has resonated well, and it's gratifying that this important component of our vision is becoming well understood and supported. Speaking of vision, let's move to slide four. All of us here spend a lot of time with our heads down in the weeds planning and executing. We may not lose track of the big picture, but we risk losing track of communicating the big picture. We have a clear vision for Calumet, and we have been implementing it, be it through the resegmentation of our businesses at the beginning of the year or the standing up of arguably the best renewable diesel conversion project in North America. We would contend that the creation and implementation of this vision can and should create significant unit holder value above and beyond the roughly 1,000% appreciation in the units since April 2020. At its heart, our vision is simple. Calumet currently consists of a highly leveraged hybrid business, and our vision is to both de-hybrid and de-lever. The two businesses we end up with as the vision plays out are a specialty business consisting of two segments, Fast-growing performance brands delivering exceptional quality premium products, often direct to consumers, and the specialty products and solutions segment, which we believe has material investment and growth potential. Specialty products and solutions is further distinguished by the tremendously diversified array of customers and products in the portfolio. And then we have renewable diesel. As I believe I've told you on more than one occasion, we and many others believe that this is an exceptional asset in the renewable diesel space. Definitely first quartile, arguably first decile. Evolving this into a separate business can create significant unit holder value, and that is our plan. Other than niche projects, access to renewable diesel companies is not pure play. You have to bring along some fossil exposure or some biodiesel exposure. or some other exposures. It seems to us and many other interested parties that there is investment demand for pure play renewable diesel. Within the energy transition space, it's much more tangible, more immediate, and lower risk than most other energy transition investments. Furthermore, the fact that Montana sits right at the top of the competitive stack Generating strong cash flows in almost all imaginable scenarios also makes this a tremendous growth platform, be it to build a broader pure play RD business or backwards integration into that now well-known temperate oil seed belt, providing low carbon intensity feedstocks right in our backyard. Additionally, our green renewable hydrogen plant will further lower the CI value of our products. Montana is a dream location from a product marketing standpoint. and not just for all the core and soon-to-be-added RD markets, but also sustainable aviation fuel. The Vancouver-Seattle-Portland Trans-Pacific Flight Corridor has the second biggest burn demand on the West Coast after LAX. We can serve that market at low additional capex and with logistical superiority as and when the interest that we are experiencing turns into actual demand. So that's our vision. Separate these businesses into two best of breeds, both with appropriate leverage. Simple, but worth stating more clearly. With that, I will hand over to Todd, who will take you deeper into the quarter's results.
spk08: Thank you, Steve. Let's start with our specialty products and solutions segment on slide five. Our brands in this business are specifically designed for the unique requirements of the industries we serve, and they are relied upon by our best-in-breed customer base across a diverse set of end markets. Our ability to develop such a broad range of solutions is enabled by the combination of deep technical expertise and an extremely integrated and flexible asset base, which is unique in our industry and underpins Calumet's competitive advantage. In Steve's opening remarks, he alluded to the resiliency of this business, and our brand and product diversity lies at the heart of that strength, whether it's performing through the depths of the 2020 pandemic or delivering record margins during the recovery. In the third quarter, these specialty brands delivered margins that were 20% higher than last quarter's record. And we'll turn to slide six to go deeper into the segment. Clearly, our specialty products and solutions business had a nice quarter, generating $46.3 million in adjusted EBITDA versus $31.8 million in the second quarter. The tremendous specialty margins that drove the quarterly performance were a combination of exceptional market demand and the continuation of our commercial initiatives. Further, we saw fuels margins return to mid-cycle type levels near the end of the quarter. This is a welcome change as we emerge from pandemic lows, and we expect this scenario to continue as the global energy shortage further develops. Steve referenced some of the supply chain impacts in our business, but I'd like to reiterate that for SPS, supply chain issues were mainly trucking availability, and they are largely behind us. The logistics team managed that challenge well, and for the most part, we are not experiencing the depth of challenges in this segment that we've seen elsewhere in our business and across industry. Moving to slide seven and transitioning over to our performance brand segment, we show some graphics that highlight and summarize our three high-performance brands, including the large container sizes that were introduced this year in response to growing demand. On slide eight, we provide our third quarter results for the performance brand segment. This business generated $6.8 million of adjusted EBITDA for the quarter, compared to $7.3 million in the second quarter. This is a business where we have most acutely felt the ongoing industry-wide supply chain challenges. Last quarter, we mentioned the development of a grease shortage as one of the largest suppliers in the industry suffered a full plant loss. We ultimately have been able to answer the challenge and source alternate grease supply albeit at a cost that's 28% higher than the price we were paying pre-shortage. Additionally, one of the industry's largest additive manufacturers has been offline for most of the year, which has created an industry-wide additive shortage and posed a huge challenge in the third quarter in particular, as demand is booming. Similar to our grease response, our team has been working tirelessly to fill demand. Also like greases, we will not sacrifice our extremely high product quality standards by sourcing cheaper, untested alternatives. Making top-tier products requires top-tier inputs, and we have had to source expensive alternative additives, which in a short term can eat into margins and even slow down shipments. But our customers know that we will not compromise on quality, and we will not waver on our commitment to produce the highest performance products, even in these challenging conditions. The other issue impacting performance brands, and we've spoken about this before, is the ongoing rising price environment. As we covered in the specialty products and solutions segment, we've seen record base oil margins, which are great for Calumet as a whole, but a challenge to this segment. We've also seen the price of steel increase nearly three times versus 2020, and we know that getting increases through in this consumer business takes a little time. Last quarter, I mentioned that price increases were in motion, and we did see product prices increase in the third quarter as expected. But raw materials continued to rise as well, and with the inherent price lag in this business, we'll be temporarily squeezed when feedstocks rise quickly and will benefit when costs plateau in reverse. Despite these challenges, the underlying fundamentals of our performance brand segment are exciting, and we continue to see strong demand throughout the third quarter. However, because of the supply constraints, we were not able to satisfy all the demand growth and as a result, our order backlog grew to $20 million during the quarter, which is twice its normal size. We also had to reject new demand in order to service historical customers to the best of our ability. As industry works through its supply chain challenges, we're confident that we'll convert the backlog to shipments in a return to a more normal growth environment. In the meantime, protecting our premium brands by serving our customers with world-class products continues to be the top priority for this business. Moving to Montana, on slide nine you can see a few pictures taken during the quarter. Steve referenced the Montana governor visiting our facility for ribbon cutting ceremony, which was a great event and pictured here. You can also see the renewable diesel tank farm that's being constructed. The project's progressing nicely and we've received key permits ahead of schedule, which allow us to get into construction sooner than expected. We're taking advantage of that and pulling forward work to lessen the risk of supply chain delays. On slide 10, you can see that Great Falls had solid performance in the quarter. Margins have steadily improved through the year, and the third quarter's $24.4 million of adjusted EBITDA is up $11.6 million versus the second quarter. As you know, Pad 4 is a great place to be a refiner, and we saw the normal strong summer refining environment play out this quarter, although we did see some headwinds from price lag in the asphalt business. The asphalt produced in Great Falls acts a lot more like a specialty product than a fuel, and a majority of our product goes to premium retail asphalt markets that price well before shipment, as opposed to the wholesale asphalt markets that are more volatile. This asphalt niche is a meaningful competitive advantage for Great Falls. Last, and we can't overlook it, we're pleased to deliver these results in the midst of all the prep work and construction that's happening at the site, and we are thankful for the phenomenal teams we have running our business, and delivering our transformational renewable diesel project safely. Now I'll turn the call back over to Steve for a few final remarks before Q&A.
spk06: Thanks, Todd. I'll keep it brief. Progress on multiple fronts, a good quarter, improving macro backdrop, uncertainty around additive supply, clarification of our direction. With that, we can open up the call for questions.
spk13: Thank you. As a reminder, to ask a question, you will need to press star 1 on your telephone. To withdraw your question, press the pound key. Please stand by while we complete the Q&A roster. Our first question comes from Amit Dayal with HTC Wainwright. Your line is open.
spk17: Thank you. Good morning, everyone. Congrats on the strong quarter to begin with. Just in terms of, you know, I know you touched on it, Steve, a little bit in your commentary, but do you think some of these margin trends will remain intact for you guys, you know, for the next few quarters? On the specialty side, I know you're saying margins have peaked, but just wanted to get a sense of how we should be thinking about, you know, contribution from performance brands, picking up, et cetera, that could continue to support these strong margins.
spk06: Yeah, well, thanks for joining us, Ahmed. It's great to have H.C. Wainwright's cleantech team initiate coverage, so welcome to the call. Well, I think across businesses, like we said, if you look at SPS, I think the specialty side of it, you know, the margins in the quarter were phenomenal, difficult to maintain. So we do think that piece is topped, but we do think that one of the reasons it's topping is because the input into that is the distal and the VGO and the NAFTA And, you know, clearly we're moving into a much stronger refining cycle from that perspective. And, you know, a lot of the pure play refining companies, I think, have covered that extensively in their call. So that would kind of cover that, and that would probably cover Montana. I think on performance brands, maybe it would be good if I get EVP Mark Lorne, who's here to talk a little bit about his thoughts on margin outlook going forward.
spk16: Hi, Amit. Nice to have you on the call. So... So as Steve sort of alluded to, we've been going through these challenges, and we see supply chain challenges probably easing into the first part of 2022. What we're seeing, though, is that the demand isn't waning, and as we mentioned on the call already, that we're having to turn away demand. So we're expecting that strong pull for the business to continue. And once the supply chain normalizes, and all of our price increases have been passed through to the end markets, which generally take up to 60 to 90 days, thinking of our retail partners. We expect then that that will take us back to our, what I would call, normalized growth trajectory, in line with expectations that we've looked at previously. We're not seeing anything at this stage that would take us away from that, so think of it and hold it in that context would be my suggestion.
spk17: Okay, thank you. And then maybe a question for Todd. You know, D4 RIN values were higher for the quarter compared to, you know, the previous quarter. Just wanted to understand the mark-to-market gains during this quarter versus losses, you know, during the prior quarter. Do you think for the fourth quarter in the run sheet, are expected to yield gain again for you guys? Just wanted to see how we should think about that.
spk08: Yeah, no, good question. And like everybody else said, thank you for joining. It's great to have you on the call. So first, let me clarify what's in adjusted EBITDA, because there's no mark-to-market gain in adjusted EBITDA. And I know you know that. I'm just kind of reemphasizing that. So we don't see mark-to-market kind of driving the strong adjusted EBITDA or anything like that. We did have a mark-to-market improvement from decrease in RIN prices flowing through the net income of $66 million for the quarter. So, you know... you probably recognize that it's been a while since we've posted a positive net income quarter, and a lot of the driver for that was kind of the mark-to-market of RENs. It's nice to be back in that area.
spk17: Okay. Yeah, I'll take my follow-up on this offline. And then finally, just the last one from me, if you will. On the renewable diesel side, it looks like you have started some work Can you give us any additional timelines in terms of milestones, et cetera, that we should expect to look forward to?
spk09: Hi, Amit. It's Bruce Fleming. Sure. So the information that we have put out on cost and schedule is unchanged. We're holding the line there. We've got kind of a sequence pre-commissioning that gets us to full rate by late in 2021. late in next year.
spk17: Okay. And, Bruce, how much have we already sort of, you know, how much are we looking to invest in 2021, and then how much are we looking to invest in 2022 towards this effort?
spk09: Yeah, the guidance for this is in our queue, which just came out this morning. The guidance is 65 to 75 million of spending this year, and the balance will be next year. We've not disclosed the total. We have given a dollar per capacity barrel chart. It's in the appendix. And you can also see that sequenced pre-commissioning ramp-up in the appendix.
spk17: Okay. Thank you. Thank you. I'll take a look at that. That's all I have for now. I'll take on other questions offline. Thank you so much.
spk10: Well, thank you. Appreciate the clean coverage.
spk13: Our next question comes from Carly Davenport with Goldman Sachs. Your line is up and open.
spk12: Hey, good morning. Thanks for taking the questions. The first one is just on the potential separation of renewables and specialties that you talked about. I guess, can you just flush that out a little bit in terms of how you see potential timing shaking out, key gating factors we should be thinking about, and ultimately how you see the optimal corporate structure at Calumet, whether that's MLP versus C-Corp?
spk09: Hey, Carly, this is Bruce. I'm going to leave the last one for my boss, but In terms of the sequencing, you know, we've got Montana slash renewables. We're simply going to remove the slash as we get the business stood up, and we'll have an additional reporting segment there. You know, timing will be linked to our partner selection, so that's still pending, as Steve mentioned. Then in terms of where that might take Calumet in the future, Steve or Todd?
spk06: Yeah, I mean, adding to that, I mean, I think that, you know, Looking at the way to maximize unit holder value, then, you know, our belief, but we don't, you know, we can't confirm exactly what the path is coming right now. Our belief is that, you know, that the renewable ends up as a completely separate entity. And then as far as the, you know, corporate structure question, I'm afraid I'm going to give you kind of the same answer that I always do, which is if you look at it, the dehybriding of the business and the delevering of the business, which is what we're working on, creates a huge amount of unit holder value. And so that's our priority is to do all those things, reset, see how the capital market feels about that, and then make future incremental decisions from that. As I think I've also mentioned before, I've actually had a number of investors reach out and say, given the huge gap in valuation between where you are now and where you will be once you have a stood-up RD business, please do not convert in the short term because otherwise the company can be snaffled up by someone. So I think we need to get through those big structural changes and then we'll pause and regroup and then we'll make the logical economic decisions, Carly.
spk12: Great. Thank you for that, Collar. And then the follow-up is just on the renewable side. So we've talked a lot about renewable diesel, but we've also seen a lot of headlines recently around the sustainable aviation fuel. So on that point, Just curious in terms of scope on Great Falls, if that would allow for any SAF production, and then, I guess, second, how you're thinking about the economics around SAF at the current kind of structure.
spk09: Hey, Carly. Thank you. Bruce again. So, yeah, we will have, besides the renewable diesel, we're going to have renewable hydrogen, renewable nap gas, renewable LPG, renewable gasoline, blend stock, and, yes, renewable SAF. The economics for us right now are to leave the sustainable av fuel in the renewable diesel. I think there's a lot of wild cards in the budget process, like a jet blender's tax credit, which may change that. And when we're confident, we will first extract that contained SAF and make it discreetly available. So that's easy enough, and we're talking to the airlines about that now. The scale of our operation is well-suited, as I think Steve already mentioned, to serving the local players. We've had one airline give us a list of eight sites they would like it, for example, around us. Now, the real pivot is for a subsequent investment, we can go about 85% SAF. We can pivot the renewable diesel into JETT. So if we get a sustained economic signal to do so, we're one project away from a really large amount of jet for that Transpac route out of the Northwest.
spk11: Great. Thank you.
spk13: Thank you. Our next question comes from Jim Gableman with Calend. Your line is open.
spk01: Hey, this is Jason Gableman from Calend. Thanks for taking my questions. I wanted to ask another one on the renewable diesel project in Montana, or I guess two on that project. Firstly, as we think about the phase one startup, can you talk about if it's economic to run that phase one asset right now in the current environment, just given refined bean oil is trading at such a premium to soybean oil? And then secondly, on that project, Is there a date at which you really feel you need to get a partner in the door by? I'm thinking as you start to ramp up spend on phase two, you'd like to have some outside capital supporting that spend. Am I thinking about that correctly, or are you comfortable spending that up front and then securing a partner maybe further down the road before the project actually starts up? And I have a follow-up. Thanks.
spk09: So maybe I'll take those in reverse order. We're not under the gun for a partner. At the same time, the reason we told the market last March that we want one is we would not want to strip the rest of the company of resources for the excellent growth projects that are available to Mark Lawn and to Scott Obermeyer. So the partner is part of our intention to separate the renewables business. Since the discussions are going well, we're not concerned about timing. The question of the market, and this is, again, I'll draw everyone's attention to a slide in the appendix, but we're going to, the operational intention is to start up on clean, refined soybean oil like everybody else has in our industry, but not to stay on that too terribly long. it is less economically attractive. Is it underwater at this time? No.
spk01: Okay. I guess I'll double check my calculations or we could take it offline because it seems like it's about break even now, but that's fine. And then my second question just on WCS diffs, obviously they've widened out quite a bit recently. Can you just talk about What's going on there? Is that transitory? Is there something structural in the market happening?
spk09: Thanks. Yeah, so the Canadian heavy crude diff is correlated with industry utilization, and industry utilization is not high or inverse correlated. So, you know, it's exactly where our models would put it, and the wild card is does North American refining utilization tighten up into the you know, 93 and 94 percent range. If I back up from that comment to your previous question, you know, we are first stop on the Canadian heavy crude pipeline. We're also going to be first stop on the oils from the oilseed crops that grow around us. So when you pull industry data, you're looking at kind of eastern low country soybean spot prices. That's not our feedstock for the long run.
spk18: Understood. That's helpful, Color. Thanks.
spk13: Thank you. Our next question comes from Greg Brody with Bank of America. Your line is open.
spk04: Good morning, guys.
spk06: Good morning, Greg.
spk04: Um, so just, I appreciate that. It seems like things are going to as planned with the RD facility, but I'm, I'm curious if the, if the, um, how you're thinking about potential separating the businesses and it's maybe too early to ask this, but how you would think about, um, doing that as a spin, is there an IPO and you keep a piece of it and how does that fit in with a JV partner? Just trying to understand how that fits in and ultimately how does that fit into your goals to reduce debt by the amounts you've targeted?
spk09: The Delaware LLC for Montana Renewables is formed. That's going to be the vehicle if you want the procedural answer. Depending upon the exact partnering agreements, You know, we do expect that that is discreetly separate and visible in our financials. And that'll give us a market signal. So the way that, you know, it's not rocket science. The way that'll feed back into the company's capital structure is, of course, first through the good operating earnings that history would say we'll expect from the renewable diesel. And then, you know, secondly, the debt to equity, when we consolidate our share of that, is going to be attractive.
spk04: But I guess I'm wondering, so what you're talking about is JV bringing in capital that will be used to pay down the remaining 22s and part of the 23s. Is that still the plan or is it possible some of that capital raised or would you actually raise capital at this spent out entity to potentially bring in capital to reduce debt?
spk09: You should assume that the various scenarios you just identified are simultaneous at close.
spk04: Gotcha. And I know you didn't make any references to tweeting on this call, but I guess I'll just ask, is there a time frame for thinking about how long this would take now?
spk09: So I could say we're not going to tweet about that, or I can ask my boss to say we're not going to tweet about that.
spk15: We do actually have a Twitter account.
spk04: Maybe this is the last question for you. So you were talking earlier about performance brands. I'm just curious. You've highlighted this cost advantage that you have because some of your European competitors have higher fuel costs.
spk00: Is it?
spk04: possible that your margins as a result will be higher than they've historically been in peak conditions? Or are you likely to just be more competitive and probably have greater volumes as a result?
spk05: Yeah, Greg, it's Steve.
spk06: Yeah, we may not have communicated well there because the way we're looking at that European Asian advantage is really very much not on performance brands so much. but on the refining part of the business in Montana and then the whole of the SPS business primarily through refining. On the pure play refiner calls, people have talked a lot about how the fact that the cost of BTU is just so much higher in Europe and Asia primarily feeds back through a combination of hydrogen and utility costs to give the U.S. a huge refining advantage. The overlay, I would add, and and Scott weigh in on this once I'm done, if you feel like it, is when you think about the huge competitive advantage on hydrogen costs that the U.S. has right now until our friend in Moscow turns the tap back on, right, that huge advantage rolls back significantly into the loops business furthermore because, you know, those next steps to take the VGO and turn it into paraffinics, for example, or into specialty oils, they consume more hydrogen, more hydrotreating, hydro-processing of all forms. So we're cautiously optimistic. I mean, although we think specialties margins will come under pressure, we're cautiously optimistic that we've got good locational advantage. Scott, I don't know. Do you want to embellish?
spk07: I think that was well said. And, Greg, I don't know if you have any follow-up questions to what Steve just alluded to, though.
spk04: No. Thank you for clarifying. It's all helpful. I appreciate that fuel products would benefit. I was wondering if some of your questions Ken's business is worth. So it's all very helpful. Thank you for your time, guys. I will yield.
spk13: Thank you. And I'm currently showing no further questions at this time. I'd like to turn the call back over to Brad McMurray for closing remarks.
spk14: Yeah, on behalf of the management team here in the room and really all at Calumet, we appreciate your time this morning and your interest in the company. So thank you for joining everybody. Have a great weekend.
spk13: This concludes today's conference call. Thank you for participating. You may disconnect. Thank you. you Thank you. Thank you. Thank you. Good day, and thank you for standing by. Welcome to the Calumet Specialty Products Partners third quarter 2021 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Brad Murray, Investor Relations. Please go ahead.
spk14: Good morning, and thank you for joining us today on Calumet's third quarter 2021 earnings conference call. With me are Steve Moore, CEO, Todd Borgman, CFO, Bruce Fleming, EVP, Montana Renewables and Corporate Development, Scott Overmyer, EVP Specialty Products and Solutions, and Mark Lon, EVP Performance Brands. Before we proceed, I'll remind everyone that during this call, we may provide various forward-looking statements. Please refer to the partnerships press release that was issued this morning, as well as our latest filings with the Securities and Exchange Commission for a list of factors that may affect our actual results and cause them to differ from our expectations. You may now download the slides that accompany the remarks on today's call, which can be accessed in the investor relations section of our website, www.calumetspecialty.com. A replay of this call will be available on the website later today. With that, I'll pass the call to Steve.
spk06: Steve? Thank you, Brad, and everyone, welcome to Calumet's third quarter earnings call. I'd like to start off with a few words about the business backdrop. We all remain hopeful that we're in one of the later innings of the pandemic, and you can see that in the strong earnings we are reporting for Q3. As the pandemic has played out, an economic wave has flowed through the different segments of our business. First, during the maximum lockdown, maximum uncertainty phase, our performance brands business was able to capture the tailwinds of low input costs, nesting phenomena, and consumer resilience. As the vaccine became available, what has become known as a bullwhip recovery manifested, creating exceptional demand and margins for our specialty products and solutions segments. Demand was indeed so good that we were able to expand margins in that segment through one of the sharpest rallies and input costs that any of us have seen in our careers. And now, it looks like we're onto the third wave of the recovery. The tremendous and unprecedented shock of the collapse in transportation fuel demand during lockdown has taken almost a year and a half to rebalance. But with inventories now below average levels, and Europe and Asia experiencing severe energy deliverability issues Fuels margins have got off their low-cycle knees and reverted back to mid-cycle, if not better. This should be quite a favorable environment for Calumet. Specialties margins have likely peaked, but as much as anything, that is because the input costs for specialties are diesel, naphtha, and VGO. And at this moment, we're back in the roughly 80% or so of the time when making your own inputs, as we do at our Northwest Louisiana Specialties Complex, is highly beneficial to Calumet. While on the topic of COVID, it would be remiss not to recognize the efforts and commitment of our team. This has been an extremely difficult 18 months for the world and for Calumet. Through all of this, with the added challenges of winter storm Uri, our team has stayed focused, managing through what fate has thrown at us. Their resilience is greatly appreciated. Among the many things that the pandemic forced on us was a rethink of our corporate strategy and vision. I believe that this hardship, coupled with our strategic review, clarified our path forward and created the opportunity to articulate a tremendously better vision. In that light, although many of you understand much of what we're trying to do, we would like to spend a minute or two being more explicit about what our vision is for Calumet and why it can, in our opinion, create significant unit holder value. But first, let's briefly recap the quarter, and we do that on slide three. Earnings for the quarter show the improving trend led by specialties, as I mentioned just now. Adjusted EBITDA for the quarter was $58.8 million. Liquidity remained strong, and our specialty products and solutions segment reported record specialty unit margins. As mentioned earlier, we appear to be back in that roughly 80% or so of the time where our integrated specialty complex in northwest Louisiana will outperform non-integrated specialties production. Furthermore, Asian and European producers are carrying a very significant burden from the tremendous increase in energy costs there, which should further amplify our competitive position here in North America. Our two specialty businesses, Performance Brands and Specialty Products and Solutions, continue to experience very robust demand. The challenge is satisfying that demand due to supply chain disruptions. In Specialty Products and Solutions, We have been able to navigate that effectively so far, and our main supply chain focus is the day-in, day-out challenge of a national trucking shortage. Performance brand's results continue to be affected by supply chain issues, limiting our ability to produce the volumes of packaged and bulk lubricants that our customers eagerly demand. In this business alone, we have received 38 force majeure or force majeure extension notices this year. I would stress that the supply chain issues are materially less in our true fuel engineered fuels business than in our lubricants and greases business. But we will go into a little bit more detail on the supply chain story later. Finally, on this slide, we continue to be more than happy with our progress on standing up an exceptionally competitive renewable diesel business in Montana. Be that our partnering discussions, which are well advanced, or the technical permitting and construction side of the project. Our unique feedstock access, given our location, has become much more apparent and understood outside of Calumet. The concept that our business sits in the heart of the temperate oil seed belt, unlocking a new and huge supply of feedstock has resonated well, and it's gratifying that this important component of our vision is becoming well understood and supported. Speaking of vision, let's move to slide four. All of us here spend a lot of time with our heads down in the weeds planning and executing. We may not lose track of the big picture, but we risk losing track of communicating the big picture. We have a clear vision for Calumet, and we have been implementing it, be it through the resegmentation of our businesses at the beginning of the year or the standing up of arguably the best renewable diesel conversion project in North America. We would contend that the creation and implementation of this vision can and should create significant unit holder value above and beyond the roughly 1,000% appreciation in the units since April 2020. At its heart, our vision is simple. Calumet currently consists of a highly leveraged hybrid business, and our vision is to both dehybrid and delever. The two businesses we end up with as the vision plays out are a specialty business consisting of two segments, Fast-growing performance brands delivering exceptional quality premium products, often direct to consumers, and the specialty products and solutions segment, which we believe has material investment and growth potential. Specialty products and solutions is further distinguished by the tremendously diversified array of customers and products in the portfolio. And then we have renewable diesel. As I believe I've told you on more than one occasion, we and many others believe that this is an exceptional asset in the renewable diesel space. Definitely first quartile, arguably first decile. Evolving this into a separate business can create significant unit holder value, and that is our plan. Other than niche projects, access to renewable diesel companies is not pure play. You have to bring along some fossil exposure or some biodiesel exposure. or some other exposures. It seems to us and many other interested parties that there is investment demand for pure play renewable diesel. Within the energy transition space, it's much more tangible, more immediate, and lower risk than most other energy transition investments. Furthermore, the fact that Montana sits right at the top of the competitive stack Generating strong cash flows in almost all imaginable scenarios also makes this a tremendous growth platform, be it to build a broader pure play RD business or backwards integration into that now well-known temperate oil seed belt, providing low carbon intensity feedstocks right in our backyard. Additionally, our green renewable hydrogen plant will further lower the CI value of our products. Montana is a dream location from a product marketing standpoint. and not just for all the core and soon-to-be-added RD markets, but also sustainable aviation fuel. The Vancouver-Seattle-Portland Trans-Pacific Flight Corridor has the second biggest burn demand on the West Coast after LAX. We can serve that market at low additional capex and with logistical superiority as and when the interest that we are experiencing turns into actual demand. So that's our vision. Separate these businesses into two best of breeds, both with appropriate leverage. Simple, but worth stating more clearly. With that, I will hand over to Todd, who will take you deeper into the quarter's results.
spk08: Thank you, Steve. Let's start with our specialty products and solutions segment on slide five. Our brands in this business are specifically designed for the unique requirements of the industries we serve, and they are relied upon by our best-in-breed customer base across a diverse set of end markets. Our ability to develop such a broad range of solutions is enabled by the combination of deep technical expertise and an extremely integrated and flexible asset base, which is unique in our industry and underpins Calumet's competitive advantage. In Steve's opening remarks, he alluded to the resiliency of this business, and our brand and product diversity lies at the heart of that strength, whether it's performing through the depths of the 2020 pandemic or delivering record margins during the recovery. In the third quarter, these specialty brands delivered margins that were 20% higher than last quarter's record. And we'll turn to slide six to go deeper into the segment. Clearly, our specialty products and solutions business had a nice quarter, generating $46.3 million in adjusted EBITDA versus $31.8 million in the second quarter. The tremendous specialty margins that drove the quarterly performance were a combination of exceptional market demand and the continuation of our commercial initiatives. Further, we saw fuels margins return to mid-cycle type levels near the end of the quarter. This is a welcome change as we emerge from pandemic lows, and we expect this scenario to continue as the global energy shortage further develops. Steve referenced some of the supply chain impacts in our business, but I'd like to reiterate that for SPS, supply chain issues were mainly trucking availability, and they are largely behind us. The logistics team managed that challenge well, and for the most part, we are not experiencing the depth of challenges in this segment that we've seen elsewhere in our business and across industry. Moving to slide seven and transitioning over to our performance brand segment, we show some graphics that highlight and summarize our three high-performance brands, including the large container sizes that were introduced this year in response to growing demand. On slide eight, we provide our third quarter results for the performance brand segment. This business generated $6.8 million of adjusted EBITDA for the quarter, compared to $7.3 million in the second quarter. This is a business where we have most acutely felt the ongoing industry-wide supply chain challenges. Last quarter, we mentioned the development of a grease shortage as one of the largest suppliers in the industry suffered a full plant loss. We ultimately have been able to answer the challenge and source alternate grease supply albeit at a cost that's 28% higher than the price we were paying pre-shortage. Additionally, one of the industry's largest additive manufacturers has been offline for most of the year, which has created an industry-wide additive shortage and posed a huge challenge in the third quarter in particular, as demand is booming. Similar to our grease response, our team has been working tirelessly to fill demand. Also like greases, we will not sacrifice our extremely high product quality standards by sourcing cheaper, untested alternatives. Making top-tier products requires top-tier inputs, and we have had to source expensive alternative additives, which in a short term can eat into margins and even slow down shipments. But our customers know that we will not compromise on quality, and we will not waver on our commitment to produce the highest performance products, even in these challenging conditions. The other issue impacting performance brands, and we've spoken about this before, is the ongoing rising price environment. As we covered in the specialty products and solutions segment, we've seen record base oil margins, which are great for Calumet as a whole, but a challenge to this segment. We've also seen the price of steel increase nearly three times versus 2020, and we know that getting increases through in this consumer business takes a little time. Last quarter, I mentioned that price increases were in motion, and we did see product prices increase in the third quarter as expected. But raw materials continued to rise as well, and with the inherent price lag in this business, we'll be temporarily squeezed when feedstocks rise quickly and will benefit when costs plateau in reverse. Despite these challenges, the underlying fundamentals of our performance brand segment are exciting, and we continue to see strong demand throughout the third quarter. However, because of the supply constraints, we were not able to satisfy all the demand growth and as a result, our order backlog grew to $20 million during the quarter, which is twice its normal size. We also had to reject new demand in order to service historical customers to the best of our ability. As industry works through its supply chain challenges, we're confident that we'll convert the backlog to shipments in a return to a more normal growth environment. In the meantime, protecting our premium brands by serving our customers with world-class products continues to be the top priority for this business. Moving to Montana, on slide nine you can see a few pictures taken during the quarter. Steve referenced the Montana governor visiting our facility for ribbon cutting ceremony, which was a great event and pictured here. You can also see the renewable diesel tank farm that's being constructed. The project's progressing nicely and we've received key permits ahead of schedule, which allow us to get into construction sooner than expected. We're taking advantage of that and pulling forward work to lessen the risk of supply chain delays. On slide 10, you can see that Great Falls had solid performance in the quarter. Margins have steadily improved through the year, and the third quarter's $24.4 million of adjusted EBITDA is up $11.6 million versus the second quarter. As you know, Pad 4 is a great place to be a refiner, and we saw the normal strong summer refining environment play out this quarter, although we did see some headwinds from price lag in the asphalt business. The asphalt produced in Great Falls acts a lot more like a specialty product than a fuel, and a majority of our product goes to premium retail asphalt markets that price well before shipment, as opposed to the wholesale asphalt markets that are more volatile. This asphalt niche is a meaningful competitive advantage for Great Falls. Last, and we can't overlook it, we're pleased to deliver these results in the midst of all the prep work and construction that's happening at the site, and we're thankful for the phenomenal teams we have running our business, and delivering our transformational renewable diesel project safely. Now I'll turn the call back over to Steve for a few final remarks before Q&A.
spk06: Thanks, Todd. I'll keep it brief. Progress on multiple fronts, a good quarter, improving macro backdrop, uncertainty around additive supply, clarification of our direction. With that, we can open up the call for questions.
spk13: Thank you. As a reminder, to ask a question, you will need to press star 1 on your telephone. To withdraw your question, press the pound key. Please stand by while we complete the Q&A roster. Our first question comes from Amit Dayal with HTC Wainwright. Your line is open.
spk17: Thank you. Good morning, everyone. Congrats on the strong quarter to begin with. Just in terms of, you know, I know you touched on it, Steve, a little bit in your commentary, but do you think some of these margin trends will remain intact for you guys, you know, for the next few quarters? On the specialty side, I know you're saying margins have peaked, but just wanted to get a sense of how we should be thinking about, you know, contribution from performance brands, picking up, et cetera, that could continue to support these strong margins.
spk06: Yeah, well, thanks for joining us, Ahmed. It's great to have H.C. Wainwright's clean tech team initiate coverage, so welcome to the call. Well, I think across businesses, like we said, if you look at SPS, I think the specialty side of it, you know, the margins in the quarter were phenomenal, difficult to maintain. So we do think that piece is topped, but we do think that one of the reasons it's topping is because the input into that is the distal and the VGO and the NAFTA. And, you know, clearly we're moving into a much stronger refining cycle from that perspective. And, you know, a lot of the pure play refining companies, I think, have covered that extensively in their call. So that would kind of cover that, and that would probably cover Montana. I think on performance brands, maybe it would be good if I get EVP Mark Lorne, who's here to talk a little bit about his thoughts on margin outlook going forward.
spk16: Hi, Amit. Nice to have you on the call. So... So as Steve sort of alluded to, we've been going through these challenges, and we see supply chain challenges probably easing into the first part of 2022. What we're seeing, though, is that the demand isn't waning, and as we mentioned on the call already, that we're having to turn away demand. So we're expecting that strong pull for the business to continue. And once the supply chain normalizes, and all of our price increases have been passed through to the end markets, which generally take up to 60 to 90 days, thinking of our retail partners. We expect then that that will take us back to our, what I would call, normalized growth trajectory, in line with expectations that we've looked at previously. We're not seeing anything at this stage that would take us away from that, so think of it and hold it in that context would be my suggestion.
spk17: Okay, thank you. And then maybe a question for Todd. You know, D4 RIN values were higher for the quarter compared to, you know, the previous quarter. Just wanted to understand the mark-to-market gains during this quarter versus losses, you know, during the prior quarter. Do you think for the fourth quarter in the run sheet, are expected to yield gain again for you guys? Just wanted to see how we should think about that.
spk08: Yeah, no, good question. And like everybody else said, thank you for joining. It's great to have you on the call. So first, let me clarify what's in adjusted EBITDA, because there's no mark-to-market gain in adjusted EBITDA. And I know you know that. I'm just kind of reemphasizing that. So we don't see mark-to-market kind of driving the strong adjusted EBITDA or anything like that. We did have a mark-to-market improvement from decrease in RIN prices flowing through the net income of $66 million for the quarter. So, you know... you probably recognize that it's been a while since we've posted a positive net income quarter, and a lot of the driver for that was kind of the mark-to-market of RENs. It's nice to be back in that area.
spk17: Okay. Yeah, I'll take my follow-up on this offline. And then finally, just the last one from me, if you will. On the renewable diesel side, it looks like you have started some work Can you give us any additional timelines in terms of milestones, et cetera, that we should expect to look forward to?
spk09: Hi, Amit. It's Bruce Fleming. Sure. So the information that we have put out on cost and schedule is unchanged. We're holding the line there. We've got kind of a sequence pre-commissioning that gets us to full rate by late in 2021. late in next year.
spk17: Okay. And Bruce, how much have we already sort of, you know, how much are we looking to invest in 2021? And then how much are we looking to invest in 2022 towards this effort?
spk09: Yeah, the guidance for this is in our queue, which just came out this morning. The guidance is 65 to 75 million of spending this year. And the balance will be next year. We've not disclosed the total yet. We have given a dollar per capacity barrel chart. It's in the appendix. And you can also see that sequenced pre-commissioning ramp-up in the appendix.
spk17: Okay. Thank you. Thank you. I'll take a look at that. That's all I have for now. I'll take on other questions offline. Thank you so much.
spk10: Well, thank you. Appreciate the clean coverage.
spk13: Our next question comes from Carly Davenport with Goldman Sachs. Your line is up and open.
spk12: Hey, good morning. Thanks for taking the questions. The first one is just on the potential separation of renewables and specialties that you talked about. I guess, can you just flush that out a little bit in terms of how you see potential timing shaking out, key gating factors we should be thinking about, and ultimately how you see the optimal corporate structure at Calumet, whether that's MLP versus C-Corp?
spk09: Hey, Carly, this is Bruce. I'm going to leave the last one for my boss, but In terms of the sequencing, you know, we've got Montana slash renewables. We're simply going to remove the slash as we get the business stood up, and we'll have an additional reporting segment there. You know, timing will be linked to our partner selection, so that's still pending, as Steve mentioned. Then in terms of where that might take Calumet in the future, Steve or Todd?
spk06: Yeah, I mean, adding to that, I mean, I think that, you know, Looking at the way to maximize unit holder value, then, you know, our belief, but we don't, you know, we can't confirm exactly what the path is coming right now. Our belief is that, you know, that the renewable ends up as a completely separate entity. And then as far as the, you know, corporate structure question, I'm afraid I'm going to give you kind of the same answer that I always do, which is if you look at it, the dehybriding of the business and the delevering of the business, which is what we're working on, creates a huge amount of unit holder value. And so that's our priority is to do all those things, reset, see how the capital market feels about that, and then make future incremental decisions from that. As I think I've also mentioned before, I've actually had a number of investors reach out and say, given the huge gap in valuation between where you are now and where you will be once you have a stood-up RD business, please do not convert in the short term because otherwise the company can be snaffled up by someone. So I think we need to get through those big structural changes and then we'll pause and regroup and then we'll make the logical economic decisions, Carly.
spk12: Great. Thank you for that, Collar. And then the follow-up is just on the renewable side. So we've talked a lot about renewable diesel, but we've also seen a lot of headlines recently around the sustainable aviation fuel. So on that point, Just curious in terms of scope on Great Falls, if that would allow for any SAF production, and then, I guess, second, how you're thinking about the economics around SAF at the current kind of structure.
spk09: Hey, Carly. Thank you. Bruce again. So, yeah, we will have, besides the renewable diesel, we're going to have renewable hydrogen, renewable nap gas, renewable LPG, renewable gasoline, blend stock, and, yes, renewable SAF. The economics for us right now are to leave the sustainable av fuel in the renewable diesel. I think there's a lot of wild cards in the budget process, like a jet blender's tax credit, which may change that. And when we're confident, we will first extract that contained SAF and make it discreetly available. So that's easy enough, and we're talking to the airlines about that now. The scale of our operation is well-suited, as I think Steve already mentioned, to serving the local players. We've had one airline give us a list of eight sites they would like it, for example, around us. Now, the real pivot is for a subsequent investment, we can go about 85% SAF. We can pivot the renewable diesel into JETT. So if we get a sustained economic signal to do so, we're one project away from a really large amount of jet for that Transpac route out of the Northwest.
spk11: Great. Thank you.
spk13: Thank you. Our next question comes from Jim Gableman with Calend. Your line is open.
spk01: Hey, this is Jason Gableman from Calend. Thanks for taking my questions. I wanted to ask another one on the renewable diesel project in Montana, or I guess two on that project. Firstly, as we think about the phase one startup, can you talk about if it's economic to run that phase one asset right now in the current environment, just given refined bean oil is trading at such a premium to soybean oil? And then secondly, on that project, Is there a date at which you really feel you need to get a partner in the door by? I'm thinking as you start to ramp up spend on phase two, you'd like to have some outside capital supporting that spend. Am I thinking about that correctly, or are you comfortable spending that up front and then securing a partner maybe further down the road before the project actually starts up? And I have a follow-up. Thanks.
spk09: So maybe I'll take those in reverse order. We're not under the gun for a partner. At the same time, the reason we told the market last March that we want one is we would not want to strip the rest of the company of resources for the excellent growth projects that are available to Mark Lawn and to Scott Obermeyer. So the partner is part of our intention to separate the renewables business. Since the discussions are going well, we're not concerned about timing. The question of the market, and this is, again, I'll draw everyone's attention to a slide in the appendix, but we're going to, the operational intention is to start up on clean, refined soybean oil like everybody else has in our industry, but not to stay on that too terribly long. it is less economically attractive. Is it underwater at this time? No.
spk01: Okay. I guess I'll double check my calculations or we could take it offline because it seems like it's about break even now, but that's fine. And then my second question, just on WCS diffs, obviously they've widened out quite a bit recently. Can you just talk about What's going on there? Is that transitory? Is there something structural in the market happening?
spk09: Thanks. Yeah, so the Canadian heavy crude diff is correlated with industry utilization, and industry utilization is not high or inverse correlated. So, you know, it's exactly where our models would put it, and the wild card is does North American refining utilization tighten up into the you know, 93 and 94 percent range. If I back up from that comment to your previous question, you know, we are first stop on the Canadian heavy crude pipeline. We're also going to be first stop on the oils from the oilseed crops that grow around us. So when you pull industry data, you're looking at kind of eastern low country soybean spot prices. That's not our feedstock for the long run.
spk18: Understood. That's helpful, Color. Thanks.
spk13: Thank you. Our next question comes from Greg Brody with Bank of America. Your line is open.
spk04: Good morning, guys.
spk06: Morning, Greg.
spk04: Um, so just, I appreciate that. It seems like things are going to as planned with the RD facility, but I'm, I'm curious if the, if the, um, how you're thinking about potential separating the businesses and it's maybe too early to ask this, but how you would think about, um, doing that. Is it a spin? Is there an IPO and you keep a piece of it and how does that fit in with a JV partner? Just trying to understand how that fits in and ultimately how does that fit into your goals to reduce debt by the amounts you've targeted?
spk09: The Delaware LLC for Montana Renewables is formed. That's going to be the vehicle if you want the procedural answer. Depending upon the exact partnering agreements, You know, we do expect that that is discreetly separate and visible in our financials, and that'll give us a market signal. So the way that, you know, it's not rocket science. The way that'll feed back into the company's capital structure is, of course, first through the good operating earnings that history would say we'll expect from the renewable diesel. And then, you know, secondly, the debt to equity, when we consolidate our share of that, is going to be attractive.
spk04: But I guess I'm wondering, so what you're talking about is JV bringing in capital that will be used to pay down the remaining 22s and part of the 23s. Is that still the plan or is it possible some of the capital raised or would you actually raise capital at this spent out entity to potentially bring in capital to reduce debt?
spk09: You should assume that the various scenarios you just identified are simultaneous at close.
spk04: Gotcha. And I know you didn't make any references to tweeting on this call, but I guess I'll just ask, is there a time frame for thinking about how long this would take now?
spk09: So I could say we're not going to tweet about that, or I can ask my boss to say we're not going to tweet about that.
spk15: We do actually have a Twitter account.
spk04: Maybe this is the last question for you. So you were talking earlier about performance brands. I'm just curious. You've highlighted this cost advantage that you have because some of your European competitors have higher fuel costs.
spk00: Is it?
spk04: possible that your margins as a result will be higher than they've historically been in peak conditions? Or are you likely to just be more competitive and probably have greater volume as a result?
spk05: Yeah, Greg, it's Steve.
spk06: Yeah, we may not have communicated well there because the way we're looking at that European Asian advantage is really very much not in performance brands so much. but on the refining part of the business in Montana and then the whole of the SPS business primarily through refining. On the pure play refiner calls, people have talked a lot about how the fact that the cost of BTU is just so much higher in Europe and Asia primarily feeds back through a combination of hydrogen and utility costs to give the U.S. a huge refining advantage. The overlay I would add and and Scott weigh in on this once I'm done, if you feel like it, is when you think about the huge competitive advantage on hydrogen costs that the U.S. has right now until our friend in Moscow turns the tap back on, right, that huge advantage rolls back significantly into the loops business furthermore because, you know, those next steps to take the VGO and turn it into paraffinics, for example, or into specialty oils, they consume more hydrogen, more hydrotreating, hydro-processing of all forms. So we're cautiously optimistic. I mean, although we think specialties margins will come under pressure, we're cautiously optimistic that we've got good locational advantage. Scott, I don't know. Do you want to embellish?
spk07: I think that was well said. And, Greg, I don't know if you have any follow-up questions to what Steve just alluded to, though.
spk04: No. Thank you for clarifying. It's all helpful. I appreciate that fuel products would benefit. I was wondering if some of your questions Ken's business is worth. So it's all very helpful. Thank you for your time, guys. I love you.
spk13: Thank you. And I'm currently showing no further questions at this time. I'd like to turn the call back over to Brad McMurray for closing remarks.
spk14: Yeah, on behalf of the management team here in the room and really all at Calumet, we appreciate your time this morning and your interest in the company. So thank you for joining everybody. Have a great weekend.
spk13: This concludes today's conference call. Thank you for participating.
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