Calumet, Inc. /DE Q4 FY2024 earnings call

Management Statement and Operational Highlights

• Sale of Royal Purple Industrial: Announced the sale of the Royal Purple Industrial business for $110 million, which reduces debt and fortifies the specialty strategy. The transaction is accretive and expected to recapture most of the EBITDA sold over the next two years.
• Specialty Products Milestones: Commercial growth continued, with specialty products and solutions teams growing volume 7% year-over-year. Operations became safer and more reliable, with safety recoverable at a TRIR of 0.47 in 2024. Fixed costs were reduced by over $1 a barrel in 2024.
• Montana Renewables Progress: Achieved cost targets, reducing costs from $1.30 per gallon to $0.70 per gallon. The segment improved reliability, met production targets, and expects further cost reductions as it scales up.

Segment Performance

• Specialty Products Segment: Generated $43.4 million of adjusted EBITDA during the quarter and $193.6 million for the full year. Specialty margins were in line with mid-cycle expectations of $60 per barrel, though hampered by a weakened commodity environment in the past year.
• Performance Brands Segment: Posted strong quarterly results of $16.3 million, reflecting a 15% period-over-period volume growth, and $57.4 million in adjusted EBITDA for the year. Volume rose 22% in 2024 versus 2023, with insurance proceeds contributing to results.
• Montana/Renewables Segment: Generated $10.9 million of adjusted EBITDA in the fourth quarter compared to a negative $25.8 million in the prior year period and $16.7 million for the full year. The segment achieved cost targets, with costs stabilizing at $0.70 per gallon, and improved reliability throughout the year.

Guidance

• Deleveraging and Cash Flow: Focus on deleveraging the balance sheet and demonstrating cash flow generation at Montana Renewables. Free cash flow available for deleveraging from the specialties business is expected to be $95 million to $115 million mid-cycle.
• Capital Spending: 2025 capital spend expected to be $60 million to $90 million for the entire company, with MaxSAF CapEx in 2025 expected to be $40 million to $60 million, 45% funded by Montana Renewables' operating cash flow and 55% from the DOE loan.
• Market Expectations: Anticipate continuing specialty margins over $60 per barrel, even in tougher market conditions, and growth in Performance Brands in 2025 through supply chain and operational efficiency programs.

Risks

• Market Volatility: Fluctuations in commodity markets and renewable fuel margins could impact financial performance.
• Regulatory Changes: Uncertainty around PTC (Production Tax Credit) and BTC (Blender's Tax Credit) rules, as well as other regulations, could affect renewable fuel markets.
• Operational Challenges: Dependence on favorable regulatory and market conditions for Montana Renewables' growth and monetization.

Question and Answer

• Q: About ATM program and balance sheet structure A: Todd Borgmann stated the ATM program announced in connection with the von Tacan was terminated as the Royal Purple sale replaced the need for it.
• Q: Monetization of Montana Renewables A: Bruce Fleming explained that monetization of Montana Renewables requires proving out operations, funding the DOE loan, and waiting for market recovery and regulatory clarity.
• Q: Royal Purple sale and EBITDA multiple A: Scott Obermeier and Todd Borgmann mentioned the sale was at a roughly 10 times EBITDA multiple, and the company expects to recapture most of the EBITDA sold over the next two years through operational and supply chain efficiencies.
• Q: Small refinery exemptions and RINs A: Todd Borgmann and Bruce Fleming discussed adjusting EBITDA to add back RIN costs due to ongoing court cases regarding small refinery exemptions, which affect cash flow reflection.
• Q: CapEx and funding at Montana Renewables A: Bruce Fleming clarified the DOE loan is live and capital spending at Montana Renewables is back-end loaded, with exploration of peri debt to optimize cost of capital