Good morning and thank you for joining us on Calumet's third quarter 2021 earnings conference call. With me on the call are Steve Mawer, CEO, Todd Borgmann, CFO, Bruce Fleming, EVP of Montana Renewables and Corporate Development, Scott Obermeier, EVP of Specialty Products & Solutions and Marc Lawn, EVP, Performance Brands.

Before we proceed, I will remind everyone that during this call, we may provide various forward-looking statements. Please refer to the partnership's press release that was issued this morning as well as our latest filings with the Securities and Exchange Commission for a list of factors that may affect our actual results and cause them to differ from our expectations.

You may now download the slides that accompany the remarks on today's call which can be accessed in the Investor Relations section of our website, www.calumetspecialty.com. A replay of this call will be available on the website later today.

With that, I will pass the call to Steve. Steve?

Thank you Brad and everyone. Welcome to Calumet's third quarter earnings call.

I would like to start off with a few words about the business backdrop. We all remain hopeful that we are one of the late innings of the pandemic and you can see that in the strong earnings we are reporting for Q3.

As the pandemic has played out, an economic wave has flowed through the different segments of our business. First, during the maximum lockdown, maximum uncertainty phase, our Performance Brands business was able to capture the tailwinds of low input costs, nesting phenomena and consumer resilience.

As the vaccine became available, what has become known as a bull whip recovery manifested creating exceptional demand and margins for our Specialty Products and Solutions segment. Demand was indeed so good that we were able to expand margins in that segment through one of the sharpest rallies in input cost that any of us have seen in our careers.

And now it looks like we are on to the third wave of the recovery. The tremendous and unprecedented shock of the collapse in transportation fuel demand during lockdown has taken almost a year-and-a-half to rebalance.

But with inventories now below average levels and Europe and Asia experiencing severe energy deliverability issues, fuels margins have gone off their low cycle needs and reverted back to mid cycle, if not better. This should be quite a favorable environment for Calumet.

Specialties margins have likely peaked but as much as anything that is because the input costs for specialties are diesel, naphtha and VGO. And at this moment, we are back in the roughly 80% or so of the time when making your inputs as we do at our Northwest Louisiana specialties complex is highly beneficial to Calumet.

While on the topic of COVID, it would be remiss not to recognize the efforts and commitment of our team. This has been an extremely difficult 18 months for the world and for Calumet.

Through all of this with the added challenges of winter storm Uri, our team has stayed focused managing through what fate has thrown at us. Their resilience is greatly appreciated.

Among the many things that the pandemic forced on us was a rethink of our corporate strategy and vision. I believe that this hardship coupled with our strategic review clarified our path forward and created the opportunity to articulate a tremendously better vision.

in that light, although many of you understand much of what we are trying to do, we would like to spend a minute or two being more explicit about what our vision is for Calumet ad why it can, in our opinion, create significant unitholder value. But first, let's briefly recap the quarter and we do that on slide three.

Earnings for the quarter show the improving trend led by specialties, as I mentioned just now. Adjusted EBITDA for the quarter was $58.8 million.

Liquidity remains strong. And our Specialty Products and Solutions segment reported record specialty unit margins.

As mentioned earlier, we appear to be back in that roughly 80% or so of the time where our integrated specialty complex in Northwest Louisiana will outperform non-integrated specialties production. Furthermore, Asian and European producers are carrying a very significant burden from the tremendous increase in energy costs there which would further amplify our competitive position here in North America.

Our two specialty businesses, Performance Brands and Specialty Products and Solutions continue to experience very robust demand. The challenge is satisfying that demand due to supply chain disruptions.

In Specialty Products and Solutions, we have been able to navigate that effectively so far and our main supply chain focus is the day in, day out challenge of a national trucking shortage. Performance Brands results continue to be affected by supply chain issues limiting our ability to produce the volumes are packaged and bulk lubricants that our customers eagerly demand.

In this business alone, we have received 38 force majeure or force majeure extension notices this year. I would stress that the supply chain issues are materially less in our true fuel, engineered fuel business than in our lubricants and greases business.

But we will go into a little bit more detail on the supply chain story later. Finally on this slide, we continue to be more than happy with our progress on standing up an exceptionally competitive renewable diesel business in Montana.

These are partnering discussions which are well advanced over the technical permitting and construction side of the project. Our unique feedstock access given our location has become much more apparent and understood outside of Calumet.

The concept that our business fits in the heart of the temperate oil seed belt unlocking a new and huge supply of feedstock has resonated well and it's gratifying that this important component of our vision is becoming well understood and supported. Speaking of vision, let's move to slide four.

All of us here spend a lot of time with our heads down in the weeks planning and executing. We may not lose track of the big picture but we risk losing track of communicating the big picture.

We have a clear vision for Calumet and we have been implementing it, be it through the resegmentation of our businesses at the beginning of the year or the standing up of arguably the best renewable diesel conversion project in North America. We would contend that the creation and implementation of this vision can and should create significant unitholder value above and beyond the roughly 1,000% appreciation in the unit since April 2020.

At it's heart, our vision is simple. Calumet currently consists of a highly leveraged hybrid business and our vision is to both de-hybrid and delever.

The two businesses we end up with as the vision plays out are our specialty business consisting of two segments, fast growing Performance Brands delivering exceptional quality premium products often direct to consumers and the Specialty Products and Solutions segment which we believe has material investment and growth potential. Specialty Products and Solutions is further distinguished by the tremendously diversified array of customers and products in the portfolio.

And then we have renewable diesel. As I believe I have told on more than one occasion, we and many others believe that this is an exceptional asset in the renewable diesel space.

Definitely, first quartile. Arguably, first decile.

Evolving this into a separate business can create significant unitholder value and that is our plan. Other than niche projects, access to renewable diesel companies is not pure play.

You have to bring along some fossil exposure or some biodiesel exposure or some other exposures. It seems to us and many other interested parties that there is investment demand for pure play renewable diesel.

Within the energy transition space, it's much more tangible, more immediate and lower risk than most other energy transition investments. Furthermore, the cast that Montana sits right at the top of the competitive stack, generating strong cash flows in almost all imaginable scenarios also make this a tremendous growth platform, be it to build a broader pure play RD business or backwards integration into that now well known temperate oil seed belt providing low carbon intensity feedstocks right in our backyard.

Additionally, our green renewable hydrogen plant will further lower the CI value of our products. Montana is a dream location from a product marketing standpoint and not just for our core and soon to be added RD markets but also sustainable aviation fuel.

The Vancouver-Seattle-Portland transpacific flight corridor has the second biggest burn demand ion the west coast after LAX. We can serve that market at low additional CapEx and with logistical superiority as and when the interest that we are experiencing turns into actual demand.

So that's our vision. Separate these businesses into two best of breeds, both with appropriate leverage.

Simple, but worth stating more clearly. With that I will hand over to Todd who will take you deeper into the quarter's results.

Thank you Steve. Let's start with our specially products and solutions segment on slide five.

Our brands in this business are specifically designed for the unique requirements of the industries we serve and they are relied upon by our best-in-breed customer base across a diverse set of end markets. Our ability to develop such a broad range of solutions is enabled by the combination of deep technical expertise and an extremely integrated and flexible asset base which is unique in our industry and underpins Calumet competitive advantage.

In Steve's opening remarks, he alluded to the resiliency of this business and our brand and product diversity lies at the heart of that strength, whether it's performing through the deaths of the 2020 pandemic or delivering record margins during the recovery. In the third quarter, these specialty brands delivered margins that were 20% higher than last quarter's record.

And we will turn to slide six to go deeper into the segment. Clearly, our specially products and solutions business had a nice quarter, generating $46.3 million in adjusted EBITDA versus $31.8 million in the second quarter.

The tremendous specially margins that drove the quarterly performance were a combination of exceptional market demand and the continuation of our commercial initiatives. Further, we saw fuels margins return to mid cycle type levels near the end of the quarter.

This was a welcome change as we emerge from pandemic lows and we expect this scenario to continue as the global energy shortage further develops. Steve referenced some of the supply chain impacts in our business but I would like to reiterate that SPS, supply chain issues are mainly trucking availability and they are largely behind us.

The logistic team managed that challenge well and for the most part we are not experiencing the depth of challenges in this segment that we have seen elsewhere in our business and across industry. Moving to slide seven and transitioning over to our Performance Brands segment.

We show some graphics that highlight and summarize our three high Performance Brands including the large container sizes that were introduced this year in response to growing demand. On slide eight we provide our third quarter results for the Performance Brands segment.

This business generated $6.8 million of adjusted EBITDA for the quarter compared to $7.3 million in the second quarter. This is a business where we have most acutely felt the ongoing industrywide supply chain challenges.

Last quarter, we mentioned the development of a grease shortage as one of the largest suppliers in the industry suffered a full plant loss. We ultimately have been able to answer the challenge and source alternate grease supply, albeit at a cost that's 28% higher than the price we were paying pre-shortage.

Additionally, one of the industry's largest additive manufacturers has been offline for most of the year which has created an industrywide additive shortage and posed a huge challenge in the third quarter in particular as demand is booming. Similar to our grease response, our team has been working tirelessly to fill demand.

Also like grease, we will not sacrifice are extremely high product quality standards by forcing cheaper, untested alternatives. Making top tier products requires top tier input and we have had to source expensive alternative additives which in the short term can even the margin and even slow down shipments.

But our customers know that we will not compromise on quality and we will not waver on our commitment to produce the highest performance products even in these challenging conditions. The other issue impacting Performance Brands that we have spoken about this before is the ongoing rising price environment.

As we covered in the Specialty Products and Solutions segment, we have seen record base oil margins which are great for Calumet as a whole but a challenge to this segment. We have also seen the price of steel increase nearly three times versus 2020 and we know that getting increases through in this consumer business takes a little time.

Last quarter, I mentioned that price increases were in motion and we did see product prices increase in the third quarter as expected. The raw materials continued to rise as well and with the inherent price lag in this business, we will be temporarily squeezed when feedstocks rise quickly and we will benefit when cost plateau in reverse.

Despite these challenges, the underlying fundamentals of our Performance Brands segment are exciting and we continue to see strong demand throughout the third quarter. However because of the supply constraints, we were not able to satisfy all the demand growth and as a result our order backlog grew to $20 million during the quarter which is twice its normal size.

We also had to reject new demand in order to service historical customers to the best of our ability. As industry works through its supply chain challenges, we are confident that we will convert the backlog to shipments and return to a more normal growth environment.

In the meantime, protecting our premium brands by serving our customers with world class products continues to be the top priority for this business. Moving to Montana.

On slide nine, you can see a few pictures taken during the quarter. Steve referenced the Montana governor visiting our facility for ribbon cutting ceremony which was a great event and pictured here.

You can also see the renewable diesel tank farm that's being constructed. The project is progressing nicely and we have received key permits ahead of schedule which allow us to get into construction sooner than expected.

We are taking advantage of that and pulling forward work to lessen the risk of supply chain delays. On slide 10, you can see the Great Falls had solid performance in the quarter.

Margins have steadily improved through the year and the third quarter's $24.4 million of adjusted EBITDA is up $11.6 million versus the second quarter. As you know, Great Falls is a great place to be a refiner and we saw the normal strong summer refining environment play out this quarter although we did see some headwinds from price lag in the asphalt business.

The asphalt produced in Great Falls act as a lot more like a specialty product than a fuel and the majority of our product goes to premium retail asphalt markets that price well before shipment as opposed to the wholesale asphalt markets that are more volatile. This asphalt niche is a meaningful competitive advantage for Great Falls.

Lastly, we can't overlook it. We are pleased to deliver these results in the midst of all the prep work and construction that's happening at the site and we are thankful for the phenomenal teams we have running our business and delivering our transformational renewable diesel project safely.

Now, I will turn the call back over to Steve for a few final remarks before Q&A

Thanks Todd. I will keep it brief.

Progress on multiple fronts, good quarter, improving macro backdrop, uncertainty around additive supply, clarification about direction. With that, we can open up the call for questions.

Thank you. Good morning everyone.

Congrats on the strong quarter to begin with. Just in terms of, I know you touched on it Steve a little bit in your commentary.

But do you think some of these margin trends will remain intact for you guys for the next few quarters? On the specialty side, I know you are saying margins have peaked.

But just wanted to get a sense of how we should be thinking about contribution from Performance Brands picking up, et cetera that could continue to support these strong margins?

Yes. Well, thanks for joining us, Amit.

It's great to have H.C. Wainwright's clean tech team initiate coverage.

So welcome to the call. Well, I think across businesses, like we said, if you look at SBS, I think the specialty side of it, the margins in the quarter were phenomenal, difficult to maintain.

So we do think that piece has topped. But we do think that one of the reasons it's topping is because the input into that is diesel and the VGO and naphtha.

And clearly, we are moving into a much stronger refining cycle, from that perspective and a lot of the pure play refining companies I think I have covered that extensively in their call. So that would kind of cover that and that would probably cover Montana.

I think on a Performance Brands, maybe it will be good if I get our EVP, Marc Lawn, to talk a little bit about his thoughts on margin outlook going forward.

Hi Amit. Nice to have you on the call.

So as Steve sort of alluded to, we have been going through challenges. And we see supply chain challenges probably easing into the first half 2022.

What we are seeing though is that the demand isn't waning and as we mentioned on the call already that we are having to turn away demand. So we are expecting that strong pull for the business to continue.

And once the supply chain normalizes and all of our price increases have been passed through to the end markets which generally pay up to 60 to 90 days thinking about retail partners, we expect then that that will take us back to what I would call normalized growth trajectory in line with expectations that we have looked at previously. We are not seeing anything at this stage that would take us away from that.

So think of it and hold it in that context would be my suggestion.

Okay. Thank you.

And then maybe a question for Todd. Before RIN values were higher for the quarter compared to the previous quarter.

I just wanted to understand the mark-to-market gains during this quarter versus losses during the prior quarter? Do you think for the fourth quarter, RINs are expected to yield a gain again for you guys?

I just wanted to see how we should think about that.

Yes. Good question.

And then like everybody else, I thank you for joining us. It's great have you on the call.

So first, let me clarify what's in adjusted EBITDA because there's no mark-to-market gain in adjusted EBITDA. And I know you know that.

I am just kind of reemphasizing that. So we don't see mark-to-market kind of driving the strong adjusted EBITDA or anything like that.

We did have a mark-to-market improvement from decrease in RIN prices flowing through to net income of $66 million for the quarter. So you probably recognize that it's been a while since we have posted a positive net income quarter and a lot of the driver for that was kind of the mark-to-market of RINs nicely backing that area.

Okay Yes. I will take my follow-up on this offline.

And then finally, just this last one for me, if you will. On the renewable diesel side, it looks like you have started some work.

Can you give us any additional timelines in terms of milestones, et cetera that we should expect to look forward to?

Hi Amit. It's Bruce Fleming.

Sure. So the information that we have put out on cost and schedule is unchanged.

We are holding the line there. We have got a kind of a sequence pre-commissioning that gets us to full rate by later next year.

Okay. And Bruce, how much are we looking to invest in 2021?

And then how much of it you are looking to invest in 2022 towards this effort?

Yes. This is in our Q which just came out this morning.

The guidance is $65 million to $75 million of spending this year and the balance will be next year. We have not disclosed the total.

We have given $1 per capacity barrel chart. It's in the appendix.

And you can also see that sequenced pre-commissioning ramp up in the appendix.

Okay. Thank you.

I will take a look at that. That's all I have for now.

I will take other my questions offline. Thank you so much.

Thank you. We appreciate the clean claim coverage.

Hi. Good morning.

Thanks for taking the questions. The first one is just on potential separation of renewables and specialties that you talked about.

I guess can you just flesh that out a little bit in terms of how you see potential timing shaking out, key gating factors we should be thinking about and ultimately how you see the optimal corporate structure coming out, whether that’s MLP versus C-Corp?

Hi Carly. This is Bruce.

I am going to leave the last one for my boss. But in terms of the sequencing, we have got Montana Renewables.

We are simply going to remove the slash as we get the business stood up and we will have an additional reporting segment there. Timing will be linked to our partner selection.

So that's still pending, as Steve mentioned. And then that in terms of where that might take Calumet in the future, Steve or Todd?

Yes. I mean, adding to that I mean I think that looking at the way to maximize unitholder value then our belief.

But we can't confirm exactly what parties are coming right now. We believe that the renewables ends up as a as a completely separate entity.

And then as far as the corporate structure question, I am afraid I am going to give you just kind of the same answer that I they always do which is, if you look at the de-hybriding of the business and the delevering of the business which is what we are working on, creates a huge amount of unitholder value. And so that's our priority is to do all those things, reset, see how the capital market feels about that and then make future incremental decisions from these.

As I think I have also mentioned before, I have actually had a number of investors reach out and say, given the huge gap in valuation between where you are now and where you will be once you have stood up RD business, please do not convert in the short term because otherwise the companies can be snaffled up by someone. So I think we need to get through those big structural changes and then we will pause and regroup and then we will make the logical economic decisions, Carly.

Great. Thank you for that color.

And then the follow-up is just on the renewable side. So we have talked a lot about renewable diesel but we have also seen a lot of headlines recently around the sustainable aviation fuel.

So on that point, just curious in terms of scope on Great Falls, if that would allow for any SAF production? And then I guess second, how you are thinking about the economics around SAF at the current structure?

Hi Carly. Thank you.

Bruce again. So yes, besides the renewable diesel, we are going to have renewable hydrogen, renewable natgas, renewable LPG, renewable gasoline blendstock and yes, renewable SAF.

The economics for us right now are to leave the sustainable av fuel in the renewable diesel. I think there's a lot of wild cards in the budget process.

Like a jet Blender's Tax Credit which may change that. And when we are confident, we will first extract that contained SAF and make it discreetly available.

So that's easy enough that we are talking to the airlines about that now. The scale of our operation is well suited, as I think Steve already mentioned, to serving the local players.

We have had one airline give us a list of eight sites they would like it, for example, around us. Now the real pivot is, for a subsequent investment, we can go about 85% SAF when compared with the renewable diesel into jet.

So if we get a sustained economic signal to do so, we are one project away from a really large amount of jet for that Transpac route out of the Northwest.

Great. Thank you.

Hi. This is Jason from Cowen.

Thanks for taking my questions. I wanted to ask another one on the renewable diesel project in Montana but I guess two on that project.

firstly, as we think about the phase one startup, can you talk about if it's economic to run that phase one asset right now in the current environment, just given refined bean oil is trading at a premium to soybean oil? And then secondly on that project, is there a data that which you really feel you need to get a partner in the door by?

I am thinking as you start to ramp up spend on phase two, you would like to have some outside capital supporting that spend. Am I thinking about that correctly?

Or are you comfortable spending that upfront and then securing a partner maybe further down the road before the product actually starts up? And I have a follow-up.

Thanks.

So this is Bruce. Maybe I will take those in reverse order.

We are not under the gun for a partner. At the same time, the reason we told the market last March that we want one is we would not want to strip the rest of the company of resources for the excellent growth projects that are available to Marc Lawn and Scott Obermeier.

So the partner is part of our intention to separate the renewables business. Since the discussions are going well, we are not concerned about timing.

The question of the market and this is again I will drive everyone's attention to a slide in the appendix but we are going to be -- the operational intention is to startup on clean refined soybean oil like everybody else has in our industry but not to stay on that too terribly long. It is less economically attractive.

Is it under water at this time? No.

Okay. I guess I will double check my calculations or we could it take offline because it seems like it's about breakeven now.

But that's fine. And then my second question just on WCS diffs, obviously they have widened out quite a bit recently.

If you could just talk about what's going on there? Is that transitory?

Is there something structural in the market happening? Thanks.

Yes. So the Canadian heavy crude diff is correlated with industry utilization.

And industry utilization is not high or inverse correlated. So it's exactly where our models would put it.

And the wild card is this North American refining utilization tighten up into the 93%, 94% range. If I back up from that comment to your previous question, we are first stop on the Canadian heavy crude pipeline.

We are also going to be first stop on the oils from the oil seed crops that grow around us. So when you pull industry data, you are looking at kind of Eastern low country soybean spot prices.

That's not our feedstock for the long run.

Understood. That’s helpful color.

Thanks.

Good morning guys.

Morning Gregg.

So just, I appreciate that it seems like things are going as planned with the RD facility. But I am curious if this is how you are thinking about potential separating the businesses?

And maybe it's too early to ask, but how you would think about doing that? Is this a spin?

Is there a IPO and you keep the pieces? How does that fit in with a JV partner?

Just trying to understand how all that fits in and ultimately how does that fit into your goals to reduce debt that you have targeted?

The. Delaware LLC for Montana/Renewables is formed.

That's going to be the vehicle, if you want the procedural answer. Depending upon the exact partnering agreements, we do expect that that is discretely separate and visible in our financials.

And that will give us some market signal. It's not rocket science.

The way that will feed back into the company's capital structure is, of course, through the good operating earnings that history would say we well expect from the renewable diesel. And then secondly, the debt to equity when we consolidate, our share of that is going to be attractive.

Todd, I guess I am wondering, so what you are talking about is JV bringing capital that will be used to pay down the remaining 2022 and some part of the 2023. Is that still the plan?

Or is it possible some of that capital raised or would you actually raise capital at this time to potentially bring in capital to reduce debt?

You should assume that various scenarios you just identified are simultaneously close.

Got you. And I know you have been either making investments through tweeting on this call but I guess I will just ask, is there a time frame you are thinking about?

How long this will take now?

So I could say we are not going to tweet about that or I can ask my boss to say we are not going to tweet about that.

Maybe just a last question for you. So you were talking earlier about Performance Brands.

I am just curious, you have highlighted this cost advantage that you have because some of your European competitors have higher fuel costs. Is it possible that your margins as a result will be higher than they have historically been in peak conditions?

Or you are likely to just be more competitive and probably have greater volumes as a result?

Yes. Gregg, it's Steve.

We may not have communicated well there because the way we are looking at that European nation advantage is really very much not on Performance Brands so much but on the refining part of the business in Montana and then the whole of the SPS business primarily through refining. So on the pure play refiner calls, people have talked a lot about how the fact that the cost of BTU is just so much higher in Europe and Asia, primarily feeds back through a combination of hydrogen and utility costs to give us a huge, give the U.S.

a huge refining advantage. The overlay, I would add and Scott weighed in on this one if he feels like it is, when you think about the huge competitive advantage on hydrogen cost that the U.S.

has right now until our friend in Moscow turns the tap back on, right. That huge advantage rolls back significantly into the lubes business further more because those next steps to take the VGO and turn it into paraffinics for example or into specialty oils, they consume more hydrogen, more hydrotreating hydro processing of all forms.

So we are cautiously optimistic. Although we think specialty margins will come under pressure, we are cautiously optimistic that we got a good location advantage.

Scott, I know you want to embellish.

I think that was well said. And Gregg, I don't know if you have any follow-up questions to what Steve just alluded to though.

No. Thank you for clarifying.

It's all helpful. l I appreciate that fuel products would benefit.

I was wondering if some of your business would. So that’s all very helpful.

Thanks for the time, guys. I will yield.

Yes. On behalf of the management team here in the room and really all of Calumet, we appreciate your time this morning and your interest in the company.

So thank you for joining everybody. Have a great weekend.