425: Calumet Specialty Products Partners Announces First Quarter 2024 Financial Results and C-Corp Conversion Update

Calumet Specialty Products Partners reports Q1 2024 financial results, highlighting progress on C-Corp conversion and Montana Renewables strategic plan.

Summary

• Calumet Specialty Products Partners, L.P. announced its first quarter 2024 financial results on May 10, 2024.
• The company is on track to complete its conversion from an MLP to a C-Corp structure by mid-year 2024.
• Q1 2024 Adjusted EBITDA was $21.6 million.
• The Specialty Products and Solutions (SPS) segment reported Adjusted EBITDA of $41.8 million.
• The Montana/Renewables (MR) segment reported an Adjusted EBITDA loss of $14.5 million but reached positive EBITDA in March.
• Performance Brands (PB) reported Adjusted EBITDA of $13.4 million.
• The company paid down $50 million of Senior Notes due in 2025.
• Calumet is advancing its Montana Renewables strategic plan and progressing in the DOE loan process for the MAX SAF expansion.

Sentiment

Score: 5

Explanation: The sentiment is neutral. While the C-Corp conversion is a positive catalyst, the Q1 results were weak, particularly in the Montana/Renewables segment. Debt levels remain a concern.

Positives

• The conversion to a C-Corp structure is on track and expected to broaden the investor base.
• Montana Renewables achieved positive EBITDA in March 2024.
• The company is actively reducing debt, having paid $50 million of Senior Notes due 2025.
• Performance Brands continues to grow and perform well, with a 13% year-over-year volume growth.
• The Shreveport turnaround was successfully completed in Q1 2024.
• The company is consistently processing approximately 12,000 barrels per day of renewable feedstock in April.

Negatives

• Q1 2024 Adjusted EBITDA was $21.6 million, which is lower compared to previous periods.
• The Montana/Renewables segment reported an Adjusted EBITDA loss of $14.5 million for Q1 2024.
• Weak asphalt margins were driven by seasonality and a crude run-up.
• The company processed old, high-priced inventory during the quarter, impacting profitability.
• Corporate expenses were $19.1 million.

Risks

• The company's forward-looking statements involve risks and uncertainties that could cause actual results to differ materially.
• Seasonal weakness and rapid crude escalation impacted the wholesale asphalt market in the Rockies.
• The DOE loan process for the MAX SAF expansion is still progressing and not yet secured.
• Index margins for renewable diesel are currently below fundamentals, impacting profitability.
• The company's debt levels remain high, with a net recourse debt to LTM Adjusted EBITDA ratio of 7.8x.

Future Outlook

Calumet expects to complete its conversion to a C-Corp structure by mid-year 2024 and is focused on de-leveraging through operating cash flows and potential Montana monetization proceeds. The company is also progressing with the DOE loan process for the MAX SAF expansion.

Industry Context

The renewable diesel industry is facing pressure on feed prices due to high demand driven by the Renewable Volume Obligation (RVO). This is leading to biodiesel and RD closures, and index margins are expected to adjust accordingly. Calumet's Montana Renewables aims to maintain a competitive advantage through feedstock flexibility, pretreatment capability, and scale.

Comparison to Industry Standards

• Calumet's peers that are C-Corps have approximately 20-30% passive holdings in their shareholder base.
• Normal index margin for renewable diesel is around $2/gallon, while recent index margins have been lower at around $1/gallon.
• The current RVO implies a demand of 4.5 billion gallons, while the industry has a capacity of 6 billion gallons, operating at 75%.

Stakeholder Impact

• Unitholders will be impacted by the proposed C-Corp conversion, which aims to broaden the investor base and enable passive investor demand.
• Employees may be affected by the ongoing strategic initiatives and potential monetization of Montana Renewables.
• Creditors are impacted by the company's debt reduction efforts and commitment to de-leveraging.

Next Steps

• File final amendment to Form S-4 and distribute proxy statement to unitholders.
• Schedule unitholder vote on C-Corp conversion and related matters.
• Convert to C-Corp structure following unitholder approval.
• Continue to progress the DOE loan process for the MAX SAF expansion.

Key Dates