Par Pacific Holdings, Inc.

Good morning and welcome to the PAR Pacific second quarter 2025 earnings call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's remarks, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touch-tone phone. To withdraw your question, please press star, then two. Please note this event is being recorded. I would now like to turn the conference over to Ashimi Patel, Vice President of Investor Relations. Please go ahead.

Thank you, Jason. Welcome to PAR Pacific's second quarter earnings conference call. Joining me today are Will Monteleone, President and Chief Executive Officer, Richard Creamer, EVP of Refining and Logistics, and Shawn Flores, SVP and Chief Financial Officer. Before we begin, note that our comments today may include forward-looking statements. Any forward-looking statements are subject to change and are not guarantees of future performance or events. They are subject to risks and uncertainties, and actual results may differ materially from these forward-looking statements. Accordingly, investors should not place undue reliance on forward-looking statements when we disclaim any obligation to update or revise them. I refer you to our investor presentation on our website and to our filings with the SEC for non-GAAP reconciliations and additional information. I'll now turn the call over to our President and Chief Executive Officer, Will Monteleone.

Thank you, Ashimi, and good morning, everyone. Second quarter adjusted EBITDA was $138 million and adjusted net income was $1.54 per share. Strong operations combined with improving market conditions enabled us to generate solid profits during the quarter. We set a quarterly operational throughput record in Hawaii. And the commercial organization was well positioned to capture improving market conditions during the Montana turnaround. Product margins remained firm with a combined index of approximately $13 per barrel so far in the third quarter, especially favoring our distillate-oriented yield profile. The Asian market outlook remained favorable with minimal increases in Chinese exports despite arbitrage opportunities to Europe. Each of our businesses is well positioned to maximize rates as we enter the third quarter. Our retail business continues to shine. Quarterly, same-store fuel and in-store revenue increased by 1.8 and 3% compared to the second quarter of 2024. Underlying profitability also improved, as demonstrated by our last 12 months' total adjusted EBITDA climbing to $85 million. We also made considerable progress on key objectives during the quarter, and we are well on our way towards achieving our strategic priorities for the year. The Montana team delivered solid results, executing the largest turnaround on the site's history. The completion of this event marks the approximate two year anniversary of the Montana acquisition. During this time, we addressed many of the higher risk reliability items. As we've done in prior acquisitions, we will now shift our focus towards improving the profitability of the site through a series of low capital, high return projects. The Hawaii and renewables team progress the SAF project, and remain scheduled for startup in the second half of the year. And we are nearing mechanical completion and commissioning of the pretreatment unit. We're also pleased to announce the joint venture with Mitsubishi and Ineos Corporations. Together, Mitsubishi and Ineos will contribute $100 million for a 36.5% equity interest in the joint venture, while Paw Pacific will remain with a 63.5% controlling interest. This strategic partnership will strengthen our renewable fuels capabilities, including our partner's expertise in global feedstock procurement and product update. Following regulatory clearance, we expect to receive the $100 million investment, which will cover the cost of our project. Despite policy uncertainty, our outlook remains constructive due to the flexibility and structural cost advantages of the project. Amidst this solid operational and strategic execution, we repurchased an additional $28 million of stock at a weighted average price of $17.63, bringing the year-to-date share count down by nearly 8%. Our current share count is approaching 50 million shares, and we continue to measure our financial performance by evaluating our free cash flow on a per-share basis. Our balance sheet is in good shape. with ending liquidity of nearly $650 million, providing flexibility to pursue our strategic objectives and opportunistically repurchase shares. Looking forward, strong market conditions, reduced capital spending requirements, and the expected receipt of the GDP proceeds position us to drive strong cash generation. I'll now turn the call over to Richard to discuss our refining logistics operations.

Thank you, Will. Second quarter combined throughput was 187,000 barrels per day. In Hawaii, throughput was a record 88,000 barrels per day and production costs were $4.18 per barrel. Hawaii delivered strong results due to reliable operations, which enabled the site to run near nameplate capacity throughout the quarter. This record is a result of focus and effort by our team to sustainably de-constrained Hawaiian operations over the last 18 months. Washington throughput was 41,000 barrels per day and production costs were $3.73 per barrel, which highlights the site's low cost and efficient refining structure. Shifting to Wyoming, throughput was 13,000 barrels per day and production costs were $14.50 per barrel impacted by lower throughput and an incremental $4 million due to the crude heater outage. The refinery returned to full production capacity in April and we expect to return to our normal OPEX run rate in the third quarter. Finally, in Montana, second quarter throughput was 44,000 barrels per day, and production costs were $14.18 per barrel, reflecting lower throughput related to the successful completion of the FCC inoculation unit turnaround. As Will said, we are pleased with the team's performance and their solid execution of the site's largest turnaround ever. Looking ahead to the third quarter, we expect Hawaii throughput between 78 and 81,000 barrels per day, with July runs impacted by weather-driven crude delivery delays. Despite this, Hawaii downstream conversion units remain fully utilized through the consumption of intermediate inventory. Shifting to the mainland, we expect Washington throughput to be between 39 and 41,000 barrels per day, Wyoming between 18 and 19, and Montana between 54 and 56, resulting in a system-wide throughput between 190 and 205,000 barrels per day. I'll now turn the call over to Sean to cover the financial results.

Thank you, Richard. Second quarter adjusted EBITDA and adjusted earnings were $138 million and $78 million for $1.54 per share. Our refining segment reported adjusted EBITDA of $108 million in the second quarter compared to a loss of $14 million in the first quarter. Starting in Hawaii, the Singapore 312 averaged $13.56 per barrel and our crude differential was $4.99 resulting in a Hawaii index of $8.57 per barrel. Hawaii margin capture was 119%, including a combined 4 million headwind from price lag and product crack hedging. Excluding these items, margin capture was 125%, reflecting favorable yield and reduced product imports driven by record quarterly throughput rates. Looking ahead to the third quarter, we expect our Hawaii crude differential to land between 575% and $6.25 per barrel. In Montana, our index averaged $20.29 per barrel. Margin capture was 110%, highlighting our ability to maintain strong clean product sales through strategic inventory drawdowns despite lower throughput rates during the turnaround. Looking ahead, our Montana indicator averaged $15.13 per barrel in July, supported by strong distillate margins across the Northern Rockies, offset by tighter heavy crew differentials. In Wyoming, our index averaged $21.41 per barrel. Margin capture was 87% impacted by the recent outage as we resume full throughput rates in late April. Under FIFO accounting, we continue to expense high cost purchase products into May, which reduced second quarter gross margin by approximately $8 million. Looking to the third quarter, we've returned to normal operations and expect OPEX to revert to prior run rate levels. Lastly, our Washington index averaged $15.37 per barrel, an improvement of approximately $11 from the prior quarter, driven by tight distillate supplies in the P&W. Margin capture was 75%, below our guidance range of 85% to 95%, primarily due to higher sales mix of asphalt and intermediate products during the summer demand season. In July, our Washington indicator averaged $13.74 per barrel, remaining well supported by strong clean product margins. Turning to the logistics segment, second quarter adjusted EBITDA came in at $30 million, consistent with our mid-cycle run rate guidance. In Wyoming, logistics volumes began to recover following the restart of the refinery in April. Across the rest of our logistics system, we saw strong utilization on our pipelines and truck racks, supported by seasonal strength in sales volumes. In the retail segment, we reported second quarter adjusted EBITDA of 23 million, up from 19 million in the first quarter. The improvement was driven by higher fuel margins, same-store sales growth, and lower operating costs. Corporate expenses and adjusted EBITDA totaled 24 million for the second quarter. We remain on track to achieve our company-wide cost reduction initiatives, targeting 30 to 40 million in annual savings relative to last year. Including the Wyoming repair costs, Year-to-date consolidated operating expenses were $412 million, reflecting a $24 million reduction compared to the prior year period. Moving to cash flows, cash from operations during the second quarter totaled $83 million, excluding working capital inflows of $123 million and deferred turnaround expenditures of $72 million. We expect a partial reversal of the working capital inflow in the third quarter primarily driven by the timing of derivative cash settlements and a return to typical accounts payable levels. Cash use and investing activities totaled $46 million, driven by capital expenditures. As Will noted, we expect CapEx to decline meaningfully during the second half of the year. Through June 30th, accrued CapEx and turnaround costs totaled $173 million, with our full-year outlook trending toward the upper end of our guidance of $240 million. Turning to capital allocation, we repurchased 28 million or 1.6 million shares of common stock during the second quarter. Year to date, we've bought back 5.2 million shares at an average price of $15, reducing our basic shares outstanding by 8%. Moving to the balance sheet, gross term debt as of June 30th was 641 million or three times our trailing 12-month retail and logistics EBITDA at the low end of our three to four times leverage target. The record LTM EBITDA of $211 million, our growing retail and logistics cash flow comfortably supports our leverage profile. Total liquidity increased 23% during the second quarter to $647 million, supported by strong operating cash flows and expanding capacity under our ABL facility. Our solid financial position combined with an improved market backdrop positions us well to advance our strategic priorities moving forward. This concludes our prepared remarks. Operator, we'll turn it back to you for Q&A.

Thank you. We'll now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. And to withdraw your question, please press star then 2. At this time, we'll pause momentarily to assemble our roster. And our first question comes from Matthew Blair from TPH. Please go ahead.

Thank you and good morning. Could you talk a little bit about the drivers behind the strong capture rates in Hawaii in the second quarter? I believe your overall capture was 119% of your indicator. And I think you mentioned that areas like price lag and the hedging were actually headwinds in the quarter. So what was on the other side that provided tailwinds and enabled such a strong capture figure?

Yeah, Matt, this is Sean. You're correct. Our reported capture was 119%, and excluding the non-recurring events of the price lag and crack edging, it was 125%. You know, I think over the last two or three years, our average capture in Hawaii has been 120%. So I think we've shown that we can outperform our stated guidance of 110% capture. And That's primarily driven by elevated clean product freight rates, which is included in our sales contracts. And then as you see throughput rates move higher, closer to nameplate capacity, our yield expense improves materially on a barrel-for-barrel basis. So I think as long as we sustain throughput rates in the mid-'80s and continue to see elevated clean product freight, I fully expect capture rates to continue to outperform our guidance.

Yeah, Matt, this is Will. I think that what I'd point out here is just that 88,000 barrel per day throughput rate. Again, this reflects, I would say, over 18 months of work by the Hawaii team and really de-constraining and just improving overall heater efficiency inside the plant. And so, again, I think the yield profile on those last barrels produced is very attractive.

Sounds good. And then the SAF JV looks like a total home run for PAR. Could you talk a little bit about how that deal came about, you know, the benefits to PAR from that deal? And then is there an update on the startup timing and when you would expect the EBITDA contribution to begin to flow through the PAR financials?

Sure, Matt. Yeah, I think, you know, this – These discussions have been ongoing for an extended period of time. And I think the key thing that's driven really the partnership here is the, I'll just say, relative attractive elements of our project. And so, you know, I think we've been mentioning this, but I'll reiterate. But I think at the end of the day, we see our SAP project is very attractive relative to the industry. And driven really by, I think, our operating expense, given that it's inside the fence line of the plant. on a per-gallon basis, we'd expect it to be very attractive and highly competitive. Second, really, is logistics. You know, I think we expect over time to sell the vast majority of our products locally in Hawaii, and I think that allows us to leverage our existing proprietary distribution system. And then I think, you know, the capital efficiency of the project is the other piece that we've been touting. I think when you look at all those factors, it's kind of the key ingredients for bringing in a partner of the quality of Mitsubishi and Ineos. And then I think ultimately, you know, it was definitely a, you know, not a two plus two equals four, but I think it's a great opportunity for us to expand our distribution capabilities on the West Coast. You know, Mitsubishi and others have access into the California market, which complements our positioning in Washington. and just expands the flexibility that we're going to have in the overall renewable fuels business. So I think, long story short, I see this being an attractive long-term partnership that unlocks the value of the renewables business and then also brings to bear, you know, a larger global scale that Mitsubishi and Ineos have. So, again, very pleased with this, and I think it helps shine a light on the attractive elements of the project that we've been working on. And in terms of startup, I think we're targeting, you know, second half of this year. We're intending to bring online the pretreatment unit first, as I've referenced, go through the commissioning process there. And I wouldn't expect, you know, to start to see financial contributions from the JV until really the first quarter of 26. And just keep in mind, you know, we'll be in commissioning and really getting through the I'll call it credit pathway establishment. And so I think it's going to take us a quarter or two before we get to kind of the right CI scores and ultimately to the run rate contributions for that business.

Great. Thanks for your comments.

The next question comes from Ryan Todd from Piper Sandler. Please go ahead.

Great. Thanks. I wanted to talk about a little bit about the Rockies. Obviously, really strong performance in Montana and Wyoming in the quarter. Some of that due to excess inventory sales. Can you talk about maybe how much is due to the excess inventory sales and what you're seeing on broader dynamics in the region as you look forward from here?

Yeah, Ryan, I'll take the excess inventory sort of impacts on capture and we'll turn it to Will to talk about sort of the Pad 4 market in general. But And I think the market environment that we're operating in the second quarter supported our capture guidance range of 90 to 100%. I think what drove capture closer to the 110% was our ability to draw down diesel and gasoline inventories. And so then it's just a function of sales bar versus throughput. I think looking ahead, I'd just reiterate our guidance of 90 to 100 in the Q3.

And then Ryan on the broader market, I think the kind of pad five and pad four distillate markets are particularly, you know, tight. I think big picture, you know, I think we saw the export market open up in the pad five market as you saw global distillate inventory start to draw down well below, you know, historical averages and that opened up, I think attractive netbacks for exporting diesel. On top of that, I think you've seen production of biodiesel and renewable diesel come off materially. And I should also say imports of diesel and renewable diesel come off materially, as you saw the blender's tax credit expire. And so you've had both export of conventional diesel and then reduction in renewable barrels available as we kind of worked into the second quarter. So I think the market and supply position there is – is tight and I think that's really reflective of a globally tight distillate market. So those are the key drivers and broadly say a pretty typical driving season in terms of demand and fundamentals on the gasoline side is what we've seen so far.

Great, thank you. And then maybe turning one on kind of use of cash and shareholder returns. You've been pretty active in the first half of the year. In terms of share buyback, you've got $100 million coming in the door from kind of proceeds from the JV CapEx budget that's rolling off pretty materially, as you highlighted here in the second half of the year. But you've also talked in the past about being opportunistic in shareholder returns. So how do you think about those dynamics as you look at the second half of the year?

Sure. Sure. Yeah, I mean, what I would say is really our historical framework still holds today. And what I'd say is when we're in an excess capital position like we are today and like we expect to improve and we get the chance to repurchase our shares below intrinsic value, you know, we seize that opportunity. And I think that opportunity is going to come and go based on, you know, the many variables that impact our business and markets as a whole. And really, I think a nimble approach is critical. You know, we live in a volatile world and things are changing quickly and What I would say is, you know, as a management team, what we're focused on is really actively weighing our growth prospects. That's both the internal growth capital projects that we're generating, as well as, you know, any and any opportunities against those opportunities to repurchase stock and other capital allocation alternatives. And I think I'll just say it a little differently. I think, you know, we really would just want the most options on the table that we can execute at any point in time so that we can adapt quickly to how quickly the world's changing.

Great. Thank you.

Again, if you have a question, please press star, then 1. And our next question comes from Neil Mehta from Goldman Sachs. Please go ahead.

Yeah, good morning, Will and team. Just from your perspective on small refinery exemptions, where do you think we are in terms of the timeline and then Any advice in helping us to size what this could mean for PAR's cash flow?

Sure. Hey, Neil. Good morning. So, you know, I think broadly on small refinery exemptions, our expectation is that, you know, the EPA will, I would say, follow the law. And from our perspective, that means that go through a rigorous kind of refinery by refinery DOE scoring process and to assess, you know, each plant. And so, and to give you some context, in the past, you know, I would say all three of our mainland refineries have qualified and received small refinery exemptions in the past. And so, I think that's really our expectation of the process. In terms of the timing, I won't even hazard a guess, Neil. I think this is a highly politicized effort on all sides, and Unfortunately, there would just be speculation to try and say that we know what the timeline is because it's been difficult for them to maintain a schedule. In terms of sizing of the opportunity, maybe I'll turn it to Sean just to talk about the overall, you know, RIN positioning for us as a whole and what it means. Before I do that, I just want to clarify any exemptions and return of RINs would be upside to us, right? We have really a balanced schedule. rent asset and liability position today?

No, this is Sean. To Will's point there, we've covered our obligations going back to 2019 through 2024. So any retroactive receipt of a small refinery exemption would be sort of direct cash proceeds in terms of getting rents back and selling those at market prices. I think when you think about our exposure on a go-forward basis, The mainland refineries have about 140 million red unit gross exposure. And so I think that's the best way to size up, given that those three refineries received SREs in the past.

That makes sense. And then since I'm just talking about the Singapore market, Hawaii is characterized at or maybe even above mid-cycle. So that happened really quick. It's great to see. but just the sustainability of it. And there's some moving pieces here, right? Asia demand, Chinese oil demand's not that good. India, there's some debate around tariff impacts out there. And then we have this potential for the Chinese to ramp up product exports. So how do you think about some of those moving pieces and risks as you assess the path forward for Singapore margins?

Yep. You know, I think, you know, we watch the Singapore market closely and I think really have for the last 12 years. And I think the theme that we continue to see is that the overall Chinese refining fleet remains focused on meeting internal demand is sort of one theme that we see. And the second is really just deeper and deeper integration between the refining fleet and their petrochemical complex. And so, I think really internalizing demand and then also shifting product yields to the lighter end products so that they can internalize their pet chem complex. And so I think those are the kind of the key policy pieces that we watch. And in terms of the export relief valve, it seems like that's been relatively well contained. And I wouldn't say we see anything right now that suggests that there's a material change coming in the future on Chinese exports. given their stated policy objectives. So I think that's sort of the incremental supply point that we see. And, you know, I think big picture demand in the Asia Pacific market remains steady and, you know, a fair amount of, I'll just say, arbitrage barrels are still needed to clear from, you know, the Middle East and India and even potentially from North Asia all the way into Europe to kind of keep the Atlantic Basin balanced for distillate. So, That's kind of the key thing we're watching, and I think we don't see a major shift there.

Thanks, Will.

The next question comes from Michael Lopheimer from TD Cowan. Please go ahead.

Hey, guys. It's Mike here for Jason Gableman. Thanks for taking my call. First, could you just talk about how your niche markets in the Rockies and Pacific Northwest are shaping up quarter to date? Markets like Portland, for example, have been pretty elevated for quite some time now. So just trying to get a handle on the durability of those margins.

Sure. Yeah, I think I referenced this, that our July combined index is about $13 so far, which kind of aggregates all of our markets. And, you know, that's pretty flat where we were in June. And so I think the overall trend you know, story there is probably very similar to what we saw in the back half of the second quarter in terms of the distillate market being strong. And I commented on this previously, which is, I think, principally driven by, you know, open export market and reduced supply of biodiesel and renewable diesel, both, you know, domestically produced as well as imported, given the changes in the recent BTC to the production tax credit. So, I think those are the factors that are influencing the distillate side of the barrel. You know, I think we see strong demand. I think, in particular, jet demand strong globally. And so, all those pieces are kind of pulling on the distillate barrel. And the gas, you know, kind of side of the equation, I would call it broadly probably a mid-cycle market condition. And then I think the biggest thing to watch in the future is really the changes in California refining fleet, and to the extent that we do see the two competitor refiners there in Los Angeles and San Francisco cease operations in the fourth quarter and the first quarter of next year, I think it really further shifts the kind of import-export parity balance over time, which I think, practically speaking, just puts you more into a position where you're deeply relying on renewables and biodiesel to balance the market.

All right, great. And then my last one is just How are you thinking about your excess cash position? I think in the past you've mentioned that the business is comfortable around $300 million of liquidity. So is that still the right range to think about? And then as your stock has run up a bit, just how your appetite for M&A would be with that excess cash? Thanks.

Yeah, you know, I think we've stated that our minimum liquidity target is $250 to $300 million. So we're certainly in an excess capital position today. And as Will sort of mentioned in the earlier Q&A, I think we're going to continue to think about capital allocation in the same light and measure our opportunistic buybacks with pursuing our strategic growth priorities.

And on the M&A front, I would just say it's a – I'd say still a challenging market from a bid and ask perspective. And, you know, I'd say we're today principally focused on trying to find and develop internal opportunities or sort of smaller scale bolt-on solutions that help advance really, you know, principally on the cost reduction side, but certainly on other elements of market access that could improve our business, particularly on the mainland.

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

I apologize, guys. I was having some technical difficulties, so couldn't join in time. So if this question has been asked, I apologize. But just wanted your views on global quality discounts out there. How do you see heavier, sour, and other kinds of barrels in the global markets, trade versus the light, sweet barrels, if you could talk a little bit about that.

Sure. I would say, you know, big picture, I would say the, you know, I'll say the future incremental supply looks like it should, I would say, add pressure and expand the heavy light diff as we head into the winter. I would tell you that not seeing signs of that in the prompt market, and that probably goes all the way out into the September-October timeframe. So, you know, continue to see ANS and grades like that trade at, you know, some pretty elevated premiums to Brent. And so I would say, well, incremental supply should help kind of bring quality differentials or expand quality differentials again. Have not seen that emerge at this point.

We are seeing some tightening on the WCS side. Any comments you would like to make on that? I think WCS has now dropped to like 13 to WTI, but if you could, because you do use a lot of WCS in the system, so if you could talk a little bit about the WCS market also.

Yeah, I mean, I think certainly been tighter than we would expect in the, I'll say almost in the high single digits at points in time here. And I think a little bit of incremental supply coming back on from Latin America and probably some reduced runs here as you get the turnaround season in the fourth quarter, I think are setting the stage there for a bit wider differentials there. So those would be kind of the incremental changes that we've seen. Nothing earth shattering there, probably to what you've heard in the market from other parties.

Thank you so much for digging my questions.

There are no more questions in the queue. This concludes our question and answer session. I'd like to turn the conference back over to Will Monteleone for any closing remarks.

Thank you. We're encouraged by the improving market backdrop and remain focused on executing on our key objectives as the key to driving our shareholder value. Thank you for joining us today.

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