Good day, ladies and gentlemen, and welcome to the Calumet Specialty Products Partners First Quarter 2017 Result Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. As a reminder, this conference is being recorded. I would now turn the call over to Joe Caminiti, Investor Relations. Please go ahead, Joe.

Thank you, Steve. Good afternoon everyone and thank you for joining us today for our first quarter earnings results call. With us on today's call are, Tim Go, CEO; West Griffin, CFO; Bill Anderson, Head of Specialty Product Sales; and Bruce Fleming, who leads our Strategy and Growth functions. Before we proceed, allow me to remind everyone that during the course of this call, we may provide various forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. Such statements are based on the beliefs of our management, as well as assumptions made by them, and in each case, based on the information currently available to them. Although our management believes that these expectations reflected in such forward-looking statements are reasonable, neither the partnership, its general partner, nor the management can provide any assurances that the expectations will prove to be correct. 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 could cause them to differ from our forward-looking statements made on this call. As a reminder, you may now download a PDF of the presentation slides that will accompany the remarks made on today's conference call as indicated in the press release we issued earlier today. You may access these slides in the Investor Relations section of our website at calumetspecialty.com. Also, a webcast replay of this call will also be available on our site within a few hours. And you can contact Alpha IR Group for Investor Relations support at 312-445-2870. With that, I'd like to pass the call to Tim Go. Tim?

Thanks, Joe, and thanks to all of you for joining us. The strategic actions we took in 2016 are starting to show in our financial results. In short, our transformation plan is working. That doesn't mean we are declaring victory yet, as we know we're still in the early innings of our turnaround and we need to continue to execute. But it's good to see that our hard work that all of our employees put in 2016 is starting to have a meaningful impact on the performance of the business. So let's talk about some of the key highlights during the first quarter that we've listed on Slide 3. First, improved margin capture in our two largest segments; Specialty and Fuels, drove solid adjusted EBITDA of nearly $79 million. Contributing to this result is the ongoing success of our self-help initiatives, which accounted for $18 million of net adjusted EBITDA total. Our Specialty Product segment had nearly 10% increase in total sales volume compared with the first quarter of 2016. Volumes were up across nearly all of our product lines. Adjusted EBITDA within the Specialty Products was $45.6 million, which was up over a 50% sequentially compared to the fourth quarter of 2016. Additionally, gross margin for the segment increased sequentially by 26% and came in at $31.85 per barrel. The actions we took to adjust our pricing over the last several quarters have started to have an impact. Despite the crude price increases during the quarter, as well as some small maintenance activity at two of our facilities. Also contributing to the strong results, was continued growth in our branded and packaged business, which saw volume growth of 14% quarter-over-quarter and 18% year-over-year. Once again, this business had record contributions to our quarterly earnings. Our branded and packaged products…

Thank Tim. I'd like to start at a big picture level today and directly address our liquidity and debt profiles. Taking a look at Slide 6, the improvement in adjusted EBITDA that Tim mentioned is reflected in our debt profiles as we are stabilizing our balance sheet. We still have more work to do here, but our improving financial performance is having an impact on key ratios. Specifically, our debt to trailing 12-month EBITDA has declined 9 times, which is much better than where we have been. We remain committed to continued improvements and are targeting a long-term leverage profile of less than 4 times. Our fixed charge coverage ratio has also improved significantly over the last two quarters and now stands at 1.3 times. And our liquidity as measured by our revolver availability has been reasonably steady over the last year since we completed the secured notes offer. This is especially relevant as we have largely stabilized our liquidity, while simultaneously building our seasonal inventory during the first quarter to support our summer asphalt business. As we execute against these capital plans in 2017, we continue to drive further self-help initiatives, including lowering costs, higher margins and growth, we expect to become cash flow positive. Let's move to our historical adjusted EBITDA review on Slide 7. I'd like to walk through a few of the specifics of our performance by segment. Before we do that, I want to remind our analysts and investors of two key issues that impact our comparisons. First, the first quarter of 2016 was an extremely volatile period that saw crude oil prices fall rapidly to the high $20 per barrel range for a period of time. And secondly, our first and fourth quarters are seasonally our weakest quarters of the year. Let's look at…

Thanks, West. Please move to Slide 11. Most of you have seen this graphic before, but it's important to remind all of you that we are executing against a defined strategy, and have been for over a year now. The foundation of that strategy was the first leg of our self-help program, mainly operations excellence. In 2016, we focused heavily on this program to reduce costs, eliminate waste, optimize our raw material use and enhance our margins across our platform. Those efforts solidified our foundation and set the table for our recovery. In 2017, we will continue to drive additional self-help through operation of excellence, but we've also moved into the second stage of the program through the addition of opportunistic growth projects. These programs have low capital requirements and are expected to capture quick one to two year payouts. Let me first talk a bit more about our operations excellence. Please turn to Slide 12. First, we continue to identify and eliminate cost, which includes additional headcount reductions earlier in the quarter. On the raw material optimization front, we are utilizing our heavy up strategy to improve our cost of crude. This quarter, we processed 36,800 barrels per day of heavy Canadian based crude oil, which was nearly 5,000 barrels per day more than last year's first quarter. Also of note, we are pleased to report that the new crude oil pipeline that we mentioned last year for our Shreveport refinery started up January 1. Use of that pipeline has improved our crude oil flexibility and has lowered our delivered crude costs as well. In terms of margin enhancements, we continue to focus on capturing greater efficiencies in our supply chain, and saw $2.7 million reduction in our total transportation and procurement costs during the period. We also witnessed…

Yes sir. [Operator Instructions] Our first question comes from the line of Roger Read of Wells Fargo. Your line is open.

Yeah. Thank you, good afternoon.

Hey Roger.

Well, let me first say congratulations on the progress you are making here. And then, maybe just to dive in on kind of the last thing you talked about here. Group III obviously a key area in terms of its margins, I was curious and you've kind of obviously cautioned, it might take a little while. Volume you think you have available in the market and how does the marketing of that work? I understand it's an attractive business, but it's one that takes time to break into.

Yeah. Roger. Thank you for your question. I appreciate the encouragement on the results. I will just say first of all that really the first quarter results are a testament to the employees of Calumet. Again, I mentioned this at the last call, you know a never quit, never lose hope attitude that continues to drive the improvements that we're seeing here at Calumet. So, thank you again for that comment. In terms of Group III, we're very excited about this launch. As you know the margins between Group III and the next lower level which is Group II is significant. And we think in a tight market, is where the supply is more than demand, being able to upgrade into a Group III margin tier is going to be important to our continue growth. As far as volumes are concerned, let me ask our EVP of Specialties Bill Anderson to say a few comments. It's really him and his group that has put together this proprietary technology. I'll give him a chance to pitch on there.

Alright, so good. Thanks Tim. So, Roger we're out of the gate, we've been – we've made several batches of the product. We're working with additive companies to get approvals. We've got one of the largest additives companies has given us base oil interchange ability on products heavier than 5W grades and we expect to have our 0W approvals later in the next spring release summer. So, we're progressing as we kind of lined our internally. It's beginning of the year to get this program launched. From a volume perspective, we're going to be similar to some of the other announcements that have been made in the previous two months. We'll be starting out somewhere less than 1,000 barrels a day and growing as our ability grows and the sales grows and we'll be balancing that between you know our current customer base and going to new customers as well.

Okay. Great. Thanks. And then switching gears west, if you could give me a little bit better idea, the inventory financing, I mean I understand you get the cash and – is this like thought of as factoring receivables or should be thought of as not quite you know selling forward. It's – I don't know, I'm struggling a little bit I guess just to understand exactly what the mechanics of the event are?

Yeah. No, that's a great question Roger. So, the inventory financing, the counterparty that you really need to have is the bank that has a pretty active hedge desk as well as can provide financing. And so what you are physically doing is you are selling them the inventory transferring title to them and then taking it back Just in time. So, from an accounting standpoint, you know effectively what's going on is you have – if the crude oil price is $50 a barrel, you sold that crude at $50 a barrel, so it doesn't matter whether crude prices fall to $30 or not, nothing is going to happen in terms of your liquidity directly as a result of the change in crude price. From an accounting standpoint, you keep the asset on the balance sheet, you get the inventory on your balance sheet, you record the liability which is effectively the loan. But periodic expenses that you have are largely show up as net interest expense. There is however at the end of the day, at the end of the term of the deal when you repurchase the inventory back, the mark-to-market associated with that inventory shows up as over in derivative gains or losses. So, the way to think about it on the income statement is that on the income statement you really don't see any change to the adjusted EBITDA. It's going to be basically the same sort of thing as what you've seen in the past.

Okay. Thanks.

Did that address your question?

Yeah.

Roger, what I would just add on top of that is, this is nothing new in the industry. There are several other independent refiners that do something very similar and that the way it is. It's just the way of increasing liquidity and lowering the volatility risk in your crude inventories. So, that's the way we think about it.

Okay. And then just a little follow-up on that, your revolver has been tied to inventories and obviously we saw the price oil change that compressed the revolver. Does this have any impact on that or not since you are ultimately taking title back to it before you run it?

No. So, that's great. So, when we did the transaction, we basically locked in the liquidity associated with those inventories as that point in time. So, for the entire duration of the inventory financing, during that period, that portion of our inventory it's all locked in. The balance of our inventories are included as part of the ABL financing which we have with our lead bank and obviously as commodity prices change, our ABL and our borrowing base will continue to go up and down with those commodity prices. So, that's the reason why we're looking to potentially expand the program to potentially mold in just the great [indiscernible].

Okay. Great Thanks.

Thank you. Our next question comes from Kevin Cohen of Imperial Capital. Your question please.

Good afternoon. Thanks for taking the questions. I guess when you look at the RINs level prospectively, do you expect that to remain about level where it was in the first quarter, or is that going to be a material driver at the margin?

Yeah. Thanks Kevin for your question. As you know the RINs market has been extremely volatile over the last really couple of years. You know we finally saw a decrease in RINs prices in the first quarter that were significant. You saw subsequent climb back up here at the end of the first quarter and you know now it's kind of leveled off again. It's pretty hard to predict where the RINs prices are going to go and we're not going to try. But what I would tell you Kevin is we still have $120 million of RINs liabilities that we've told you that we incur on an annual basis and we will continue to work to meet those obligations through our own blending and through our own optimization efforts. And you know what price of RINs will look like the rest of the year is, is anyone's guess quite honestly.

Yeah, that's understandable. And then I guess when you look at the crack spreads, certainly that was an important positive driver in the first quarter. I guess given the volatility in oil lift hypothetically, the price of oil stayed somewhere around $45 a barrel. I guess what would that mean for your crack spread relative to the figure in April call letter relative to the average in the first quarter?

Kevin, if the crude price leveled out here, whether it's between $45 or $50, we expect that what we've seen in April which was a fairly decent month versus what we saw in March, they were fairly strong. It's coming off a little bit here in May. And so, when you got a little bit of pressure on the WCS spreads with Syncrude outage, you got a little bit of pressure with the gasoline and diesel inventory levels that are pushing down cracks here over the last couple of weeks. So, a month or so ago we would have said things are looking up. The last week or two I think things are looking a little bit not so good. But you just don't – it's hard to predict again what's going to happen with the cracks. What we do know is our asphalt business, it's continuing to gear up for the summer paving season. We have been building asphalt inventories. And right now that asphalt business looks like it will continue to be what we expect for the summer to be a fairly strong asphalt year.

And then just lastly, thanks for all the color on that. As you evaluate the portfolio of assets just given the backdrop, do you feel little bit more inclined to be more proactive on the disposition front or just kind of wait for reversing, what kind of a thought on those topics?

Kevin, that's the question I know a lot of folks are probably asking. Look there is not a lot of change in what we've been talking to you about here for the last year really on our positions on asset portfolios. But let me turn it over to Bruce, our EVP of M&A, and let him tell you the same thing.

I support the message that we've been giving to the market, which is that we are here to maximize shareholder value, and that have a short or long term component, but usually in the portfolio that's a longer term. So, we've got a market point of view for our businesses discretely. We look at what they're worth in context and there are some interests and synergies that are important in that regard, such as between our two northern refineries where we have exchanges of material. So, given all that, we've got a pretty good grasp of our own values and well we're certainly open to looking at the portfolio and have it evolved, there is only one way to create shareholder value. And that, I think we'll leave it at that.

That's very helpful. Thanks Bruce, and continued best of luck. Well done in the quarter.

Thank Kevin.

Thank you. At this time, we have time for one more question. The question comes from the line of Mike Gyure of Janney. Your line is open.

Yeah. Can you talk a little bit about the sourcing of the Canadian heavy crude and kind of where you're at in that process? I guess compared to maybe your ultimate goal of how much you think you can do per day?

Yeah, Mike. I think I mentioned that in the first quarter we ran some additional WCS based crudes, about 5,000 barrels a day more than a year ago. As our Great Falls expansion project comes up to full rate, which is basically what you've seen here at the end of the first quarter. We do see additional opportunity to run more WCS based crudes based on the fact that we can still move that crude slate around at Great Falls. So there is still a little bit more room to go and really we've already taken steps to start moving in that direction. So you'll see some additional increases there kind of in the 1,000 to 2,000 to 3,000 barrels a day range at Great Falls. Then you look at Superior and we have again more knobs to turn in terms of increasing heavy Canadian. As we move into this asphalt season, we're going to be increasing the amount of heavy Canadian that we run there. We're going through a minor turnaround here in the second quarter, so that will lower the amount of WCS crude we run here in the second quarter, but outside of the turnaround. We look like we're continuing down our path of growing the heavy Canadian and placing the asphalt into attractive markets, and we expect that to be the same here in second quarter. And then, as we talked about the flexibility project at Superior that we are engineering right now and continuing to progress. Once we install that project during the turnaround in 2018, we expect to have the flexibility to run more heavy Canadian crude even above that. So those are probably the main knows we have still to turn to grow that heavy Canadian leverage.

Great. Thanks Tim.

Before turning the call over to management, we have a follow-up question from Roger Read with Wells Fargo. Your line is open.

Yeah. Thanks for squeezing me back in here. Just a last follow-up on the improvement on EBITDA on the Specialty business, clearly, oil prices moved at the end of last year, first this year we saw price increases from the industry. Is there a way, you can give us a feeling for whether or not the improvement was more price driven or the self-help and sort of other changes going in there? And then, with oil prices obviously weaker since Q1, we think that enhances margin potential at least in Q2?

Sure, Roger. I am happy to try to give you some more color. Really the answer is all of the above. Our improvement in the first quarter had both a pricing component, as well as the volume component as well as a self-help component. So, it's really all of those. What I can tell you is in January and February, crude was actually up significantly versus the fourth quarter, and that really slowed the impact of the price adjustments that we were making and we talked about in the fourth quarter and continued to rollout really across the first quarter. But in March, crude prices came back down again, and like you said as they continued through April, that's going to further improve our price margins there and gross margins. And we were successful in implementing some price adjustments here in the first quarter. We saw that playing more out in March as opposed to January and February because of the crude pricing, but we anticipate April, and really further into the second quarter to see the full impact of those pricing adjustments. So, that's very encouraging. But I'll tell you, we put a lot of focus on our self-help initiatives in the Specialties Group. The Group III announcement that we just made this week is one big example of that. Another example is again the branded and packaged business that we continue to see increased volumes and the market share in those key products. Those are by design as we continue to grow our strategies on how we build that business. But you know you look at solvents and the things we're doing in solvents, you look at our white oils business and what we're doing in white oils. You look at our naphthenics business and what we're trying to do in naphthenics. All of those have self-help components that we are driving hard and trying to improve our gross profit.

Okay, great. And then I could just sneak one other question. Asphalt, last year Q1 asphalt building in the quarter in front of the summer kind of hurt performance, didn't really hear anything this time around on that. I was just curious are you approaching the market differently or maybe that just is a sign of how much better refining was this quarter, and you do have a seasonal uplift in asphalt still coming?

Yeah Roger. We haven't changed our strategy. So, we're continuing to build asphalt inventories in preparation for the summer peak season. We believe that's the right thing to do. We billed about 500,000 barrels in the first quarter, which is probably similar to where we were last year. I can tell you that overall, our inventories are lower this year than last year. And we talked about that in the fourth quarter call last time, and how we're trying to do a better job of lowering our overall inventory – working inventory, so that we can run this business more efficient. I will tell you that it's still ongoing, so while the asphalt inventories have grown 500,000, it's on a smaller base. And so that's helping the overall impact in our numbers. And I'll also tell you that, you know the market itself is better this quarter than it was a year ago, and so building that asphalt doesn't have the same negative consequences that it had last – this quarter.

Okay. Great. Thank you.

Thank you. At this time I'd like to turn the call over to Tim Go for any closing remarks. Sir?

Alright. Thank you, again for your time today. We appreciate your continued support.

Thank you sir. Thank you Ladies and gentlemen. That does conclude your program. You may disconnect your lines at this time. Have a wonderful day.