Calumet, Inc. /DE Q1 FY2025 earnings call

• Macro Environment: Despite potential recession headlines, no real signs of recession in the business; specialty sales volume was one of the highest in company history during slow season.
• Specialty Business: Serves over 3,000 customers with nearly 2,000 products globally, operates assets as a network for flexibility, dynamically shifts product placement, and has seen robust volume growth and EBITDA doubling in performance brand segment since unification two years ago.
• Montana Renewables: Closed DOE loan, which strengthens balance sheet; completed accretive sale of Royal Purple industrial business; progressing MaxSAF project, expecting to reach 150 million gallons of SAF capacity more cheaply and quickly; generated $2.4 million of adjusted EBITDA including PTCs in Q1.
• Balance Sheet: Received DOE loan Tranche 1 funding, reduced annual debt service by ~$80 million; completed sale of Royal Purple industrial business, bringing in ~$100 million cash; called $150 million of 2026 notes; ended Q1 with $347 million liquidity in restricted business.

Specialty Products

• Generated $56.3 million of adjusted EBITDA in the quarter.
• Strong volumes, with approximately 23,000 barrels per day, one of the highest quarters on record for SPS volumes.
• Year-over-year op cost improvements of $1.41 per barrel, production volumes up 9% despite a reformer turnaround.
• Margins came in just below $60 per barrel mid-cycle level, expecting to operate at that level amidst industry backdrop below mid-cycle.

Performance Brands

• Posted $15.8 million in quarterly results, reflecting strong volume growth and commercial improvements.
• Completed the sale of the industrial portion of Royal Purple at a roughly 10 times EBITDA multiple, expecting to recapture majority of the sold EBITDA over next two years.

Montana/Renewable

• Adjusted EBITDA with tax attributes generated $3.3 million in Q1 vs. negative $13.4 million in prior year period.
• Renewables business drove adjusted EBITDA with tax attributes of $2.1 million, driven by cost savings and operational improvements.
• Op cost reduced to $0.50 per gallon, sixth consecutive quarter of operational cost improvement excluding 2024 Q4 turnaround.
• Renewable volumes 10,300 barrels per day, expecting to increase SAF sales in late Q2 2025.

• Expect to reach 150 million gallons of SAF capacity more cheaply and quickly than originally expected, with potential to start selling 50 million gallons of SAF this summer.
• Marketing additional SAF material soon, which could be sold directly or tied to monetization event.
• Target restricted debt of $800 million with ultimate monetization of Montana Renewables, expecting RVO news to bring margin recovery and move towards that target.
• DOE loan Tranche 1 received, with balance of loan proceeds available for construction draw facility.

• General macroeconomic uncertainties that could impact business performance.
• Regulatory changes affecting tax credits (PTC/BTC) and their impact on index margins.
• Potential market volatility affecting SAF margins and overall financial performance.

Q: Neil Mehta with Goldman Sachs asked about regulatory environment and EBITDA comparison between BTC and PTC worlds.

A: Todd Borgmann and Bruce Fleming responded that the adjusted EBITDA plus tax attributes basis allows apples-to-apples comparison between BTC and PTC worlds, and the PTC credit is added back to show earnings power. Bruce added that the regime has cut over to PTC as per IRA legislation, with detailed rules still pending.

Q: Amit Dayal with H.C. Wainwright inquired about higher SAF volumes, lower CapEx, and DOE loan funds.

A: Bruce Fleming explained that existing hydrocracker has more capability for SAF output, with modest constraint removal costing $20-30 million, and DOE loan Tranche 1 received with balance available for construction draw facility.

Q: Jason Gabelman with TD Cowen asked about PTC booking, feedstock, and DOE loan.

A: David Lunin stated $20 million PTC booked in Q1, reflective of full value of generated PTC, and feedstock moves to highest margin. Bruce Fleming clarified no re-qualification needed for DOE loan, just ongoing construction draw process.

Q: Gregg Brody with Bank of America asked about strategic alternatives, DOE loan, and intercompany payables.

A: Todd Borgmann mentioned strategic alternatives for debt reduction, DOE loan funding process, and intercompany payables with Montana Renewables owed $375 million, down from $540 million at year-end.