10-Q/A: Calumet Restates Q1, Q2 2025 Financials, Cites Control Weakness

Calumet, Inc. filed an amended quarterly report for Q2 2025, restating financial statements due to cash flow misclassifications stemming from a material weakness in internal controls.

Summary

• Calumet, Inc. has restated its unaudited condensed consolidated financial statements for the quarters ended March 31, 2025, and June 30, 2025, due to an error in the historical unaudited condensed consolidated statements of cash flows.
• The error involved the misclassification of certain amounts between cash flows from operating activities and cash flows from financing activities, but had no impact on revenue, net income (loss), or total cash, cash equivalents, and restricted cash.
• Net cash used in operating activities for the three months ended March 31, 2025, was restated from $110.6 million to $29.3 million, and for the six months ended June 30, 2025, from $108.0 million to $31.1 million.
• Net cash provided by financing activities for the three months ended March 31, 2025, was restated from $190.3 million to $109.0 million, and for the six months ended June 30, 2025, from $188.5 million to $111.6 million.
• The error originated from a newly identified material weakness related to the preparation and review of the unaudited condensed consolidated statements of cash flows, leading management to conclude that disclosure controls and procedures as of June 30, 2025, were ineffective.
• The company reported a net loss of $147.9 million for the second quarter of 2025, significantly wider than the $39.1 million net loss in the second quarter of 2024.
• Adjusted EBITDA for Q2 2025 was $55.1 million, a decrease from $74.8 million in Q2 2024.
• Net cash used in operating activities for Q2 2025 was $1.8 million, compared to generating $66.5 million in Q2 2024.
• The Montana Renewables facility achieved a quarterly production record in Q2 2025 and continued to outperform its operational cost target of $0.70 per gallon.
• The Shreveport facility successfully completed a major planned turnaround on time and on budget during Q2 2025.
• Calumet completed the sale of assets related to the industrial portion of its Royal Purple business on March 31, 2025, for $110.0 million, realizing a $62.2 million gain.
• A $1.44 billion DOE Loan Guarantee Agreement was executed for the Montana Renewables facility, with a first tranche of $781.8 million disbursed on February 18, 2025.
• The 'One Big Beautiful Bill Act' (OBBB) was passed on July 4, 2025, extending clean fuel production credits but requiring U.S., Mexico, or Canada-produced feedstocks after December 31, 2025, and eliminating the special SAF credit rate after the same date.

Sentiment

Score: 3

Explanation: The filing reveals a significant net loss, a material weakness in internal controls leading to a financial restatement, and a substantial increase in RINs expenses, all of which are highly negative. While there are positive operational updates and strategic financing for future growth, the immediate financial performance and control issues overshadow these.

Positives

• The Montana Renewables facility achieved a quarterly production record in Q2 2025, demonstrating strong operational performance.
• The Montana Renewables facility continued to outperform its operational cost target of $0.70 per gallon, indicating efficiency.
• The Shreveport facility successfully completed a major planned turnaround on time and on budget, anticipating strong and consistent production for the remainder of 2025.
• The company secured a $1.44 billion DOE Loan Guarantee Agreement for the Montana Renewables facility, with $781.8 million already disbursed, providing significant funding for expansion.
• The sale of the industrial portion of the Royal Purple business generated $95.4 million in cash proceeds and a $62.2 million gain, which was used to reduce indebtedness.
• Total liquidity increased to $379.2 million at June 30, 2025, from $218.5 million at June 30, 2024, enhancing financial flexibility.
• The company was in compliance with all covenants under its debt instruments as of June 30, 2025.

Negatives

• The company restated its Q1 and Q2 2025 financial statements due to misclassification errors in cash flow statements, impacting financial reporting reliability.
• A material weakness in internal control over financial reporting was identified, and disclosure controls and procedures were deemed ineffective as of June 30, 2025.
• Net loss for Q2 2025 significantly widened to $147.9 million, compared to a net loss of $39.1 million in Q2 2024.
• Adjusted EBITDA for Q2 2025 decreased to $55.1 million from $74.8 million in Q2 2024, indicating a decline in operational profitability.
• Net cash used in operating activities for Q2 2025 was $1.8 million, a substantial decrease from generating $66.5 million in Q2 2024.
• Gross profit decreased by $107.4 million (168.3%) to a gross loss of $43.6 million in Q2 2025, compared to a gross profit of $63.8 million in Q2 2024.
• Specialty Products and Solutions segment gross profit decreased by $54.0 million, primarily due to higher RINs prices and lower production volumes from the Shreveport turnaround.
• Montana/Renewables segment gross profit decreased by $50.4 million, mainly due to the mark-to-market impact of RINs prices and the regulatory change from the Blenders Tax Credit (BTC) to the Production Tax Credit (PTC), which is not recognized in cost of sales.
• Accrued expense for RINs increased significantly to $90.8 million in Q2 2025 from $20.2 million in Q2 2024, negatively impacting profitability.
• Debt extinguishment costs of $47.7 million were incurred in H1 2025 due to the termination of MRL financing arrangements.
• The 'One Big Beautiful Bill Act' (OBBB) eliminates the special clean fuel production credit rate for Sustainable Aviation Fuel (SAF) produced after December 31, 2025, and imposes feedstock origin requirements, potentially impacting future renewable fuel profitability.

Risks

• Inability to remediate the identified material weakness in internal control over financial reporting or the emergence of additional material weaknesses, which could adversely affect accurate and timely financial reporting.
• Loss of investor confidence in the accuracy of financial disclosures due to the restatement of previously issued financial statements.
• Significant and potentially increasing expenses related to Renewable Fuel Standard (RFS) compliance if legal or regulatory changes increase the RINs Obligation or eliminate/narrow Small Refinery Exemptions (SREs).
• Volatility in commodity prices (crude oil, refined products, natural gas, precious metals) could materially impact earnings and cash flows.
• The second tranche of the DOE Loan is subject to the achievement of certain milestone conditions, with no assurance of funding.
• The occurrence of amortization events or events of default under the DOE Loan could result in accelerated amortization or liquidation of collateral.
• Dependence on a few major crude oil suppliers (four suppliers accounted for approximately 88% of crude oil supply in H1 2025) poses supply chain risk.
• Ongoing litigation and regulatory matters, including those with the EPA regarding RFS compliance, could result in material adverse effects on financial position, results of operations, or cash flows.
• The risk of recession and inflation continues to be monitored and could negatively impact market demand and margins.

Future Outlook

The company expects the current attractive margin environment for both specialty products and fuel-based products to continue into the third quarter of 2025. Strong and consistent production is anticipated from the Shreveport facility for the remainder of 2025 following its successful turnaround. Management believes that low unemployment and stabilizing raw material and packaging costs will support continued healthy demand for most products. The outlook for strong demand for renewable fuel products, including Sustainable Aviation Fuel (SAF), remains positive, driven by federal policy, corporate decarbonization targets, and sustainability initiatives. The company plans to increase SAF capacity to approximately 150 million gallons per year within two years and approximately 300 million gallons at the completion of the MaxSAFTM project, anticipated in 2028, with the DOE Loan expected to enable on-time and on-budget completion. The 'One Big Beautiful Bill Act' (OBBB) is not expected to have a material impact on the company's financial position, results of operations, or liquidity in 2025.

Management Comments

• "We believe we will continue to have sufficient liquidity from cash on hand, projected cash flow from operations, borrowing capacity and other means by which to meet our financial commitments, debt service obligations, contingencies, and anticipated capital expenditures for at least the next 12 months."
• "We continue to seek to lower our operating costs, selling expenses and general and administrative expenses as a means to further improve our cash flow from operations with the objective of having our cash flow from operations support all of our capital expenditures and interest payments."
• "We believe that our advantage as a first-mover in the renewable fuels market positions us as a key producer for potential offtake partners to help them reach their announced targets."
• "While the ultimate outcome of matters, claims, and litigation currently pending cannot be determined, we currently do not expect these outcomes, individually or in the aggregate (including matters for which we have recorded accruals), to have a material adverse effect on our financial position, results of operations, or cash flows."
• "We are committed to continuing to improve our internal control processes and have implemented the steps described above." (Regarding remediation plan for material weakness)

Industry Context

Calumet operates in the specialty products, performance brands, and renewable fuels sectors, which are subject to commodity price volatility and evolving regulatory landscapes. The strong demand for renewable fuels, particularly Sustainable Aviation Fuel (SAF), is a significant industry trend driven by increasing federal policy support, corporate decarbonization targets, and broader sustainability initiatives. Calumet positions itself as a 'first-mover' in this growing market. The company's exposure to the Renewable Fuel Standard (RFS) program and associated Renewable Identification Numbers (RINs) obligations reflects a major regulatory challenge for the refining industry, with ongoing litigation and policy changes creating uncertainty. The recent 'One Big Beautiful Bill Act' (OBBB) further highlights the dynamic nature of clean fuel incentives and feedstock requirements. The company's integrated business model and diversified product portfolio are presented as a strategic advantage to navigate changing market conditions and raw material volatility, which are common challenges across the refining and chemical industries.

Corporate Governance

Legal Proceedings

• Ongoing litigation with the U.S. Environmental Protection Agency (EPA) regarding Small Refinery Exemptions (SREs) for Renewable Volume Obligations (RVO) for program years 2018-2023.
• The U.S. Supreme Court ruled on June 18, 2025, that the D.C. Circuit is the proper venue for the challenge to EPA's denial of the Shreveport refinery's 2018-2020 RVO petitions, vacating the Fifth Circuit's prior decision.
• The D.C. Circuit has vacated EPA's denials of the Montana Refinery's 2018-2020 and 2021-2022 RVO petitions and remanded them to the agency.
• The Fifth Circuit granted a stay of the Shreveport refinery's 2021 and 2022 RFS obligations, and the D.C. Circuit granted a stay for the Montana refinery's 2021 and 2022 RFS obligations.
• Courts ruled in favor of the company, setting a deadline for EPA to act on the 2023 SRE petitions, which EPA subsequently denied in January 2025; challenges to these denials are pending in the Fifth and Ninth Circuits with stays granted.
• The company is subject to various claims and litigation incidental to its business, including from taxation and regulatory authorities (e.g., IRS, EPA, OSHA), but does not currently expect these to have a material adverse effect beyond amounts already accrued.

Related Party Transactions

• The C-Corp Conversion on July 10, 2024, involved the issuance of 5.5 million shares of Common Stock and 2.0 million warrants to the Sponsor Parties (including The Heritage Group), who are affiliates.
• The redeemable noncontrolling interest in MRHL is held by an affiliate of Warburg Pincus LLC, which invested $250.0 million for preferred units.

Stakeholder Impact

• Shareholders: Likely negative impact on share price and trading liquidity due to the restatement, identified material weakness, and significant net losses. Uncertainty regarding future profitability due to RINs and tax credit changes.
• Investors: Potential loss of confidence in the accuracy and reliability of financial reporting due to the restatement and control deficiencies.
• Management: Significant burden and pressure from ongoing remediation efforts to address the material weakness in internal controls.
• Creditors: The company was in compliance with all debt covenants as of June 30, 2025, which is a positive for debt holders. The DOE loan provides substantial financing for the Montana Renewables project.
• Customers: Continued strong demand for products, especially renewable fuels. The successful completion of the Shreveport turnaround ensures consistent production for customers.
• Regulatory Authorities: Increased scrutiny from the SEC due to the restatement and internal control deficiencies. Ongoing legal and compliance challenges with the EPA regarding RFS obligations.

Next Steps

• Remediate the identified material weakness in internal control over financial reporting to strengthen the overall internal control environment.
• Validate and test the design and operating effectiveness of internal controls for the period ended September 30, 2025, and beyond.
• Continue to review, optimize, and enhance financial reporting controls and procedures.
• Proceed with the MaxSAFTM construction project at the Montana Renewables facility, aiming to increase SAF capacity to approximately 150 million gallons per year within two years and 300 million gallons at completion (anticipated 2028).
• Draw additional tranches of the DOE Loan (up to $658.0 million) as milestone conditions are met.
• Monitor the impact of the 'One Big Beautiful Bill Act' (OBBB) on clean fuel production credits, particularly the feedstock origin requirements and the elimination of the special SAF credit rate after December 31, 2025.
• The Shreveport facility is expected to maintain strong and consistent production throughout the remainder of 2025 following its major planned turnaround.
• Await EPA's decisions on the remanded RVO petitions for program years 2018-2020 and 2021-2022, and on the pending 2024 and 2025 SRE petitions.

Key Dates

Recommendation

The filing reveals severe financial and operational reporting issues, including a restatement of prior financial periods due to a material weakness in internal controls, which indicates fundamental problems with financial accuracy and reliability. The significant increase in net loss and negative operating cash flow for the quarter, coupled with rising RINs expenses, points to deteriorating profitability. While the DOE loan and operational improvements in the renewable segment offer long-term potential, the immediate concerns regarding financial integrity and current losses are paramount. Investors should consider selling given the heightened risk and lack of clear, immediate positive catalysts to offset these substantial negatives.

Keywords

SEC filing, 10-Q/A, restatement, financial statements, cash flow, material weakness, internal controls, Calumet, Inc., CLMT, renewable fuels, Montana Renewables, RFS, RINs, DOE Loan, debt, capital expenditures, corporate governance, financial reporting, specialty products, performance brands, Royal Purple, Shreveport refinery, clean fuel production credit, SAF, tax attributes