Good day, ladies and gentlemen, and welcome to the Third Quarter 2019 Calumet Specialty Products Partners Earnings Conference Call. [Operator Instructions]I would now like to hand the conference over to Joseph Caminiti, Investor Relations.

Thank you, Andrew. Good morning, everyone and thank you for joining us today for our third quarter earnings results call. With us on today's call are Tim Go, CEO; West Griffin, CFO; Keith Jennings, EVP and CFO starting January 1, 2020 and Bruce Fleming, EVP of Strategy and Growth.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 Securities Exchange Act of 1934. Such statements are based on the beliefs of our management's as well as assumptions made by them and in each case based on the information currently available to them.Although our management believes that the expectations reflected in such forward-looking statements are reasonable, neither the partnership its general partner nor our management can provide any assurances that these 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 www.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'll pass the call to Tim. Tim?

Thank you, Joe and good morning everyone. Calumet delivered strong third quarter financial and operating results and made significant progress toward our transformation and deleveraging goals. The structural changes we have implemented through our Self-Help program enabled us to overcome significant market headwinds this year. I'm proud of the focus and determination of our Calumet employees who are delivering on their commitments, and I'm encouraged by a culture of continuous improvement and growth that we're cultivating to drive this success.Starting on Slide 3, I'll walk through some of Calumet’s key business highlights for the quarter. We realized $76 million of adjusted EBITDA after excluding noncash inventory adjustments. This was a 34% increase over the third quarter of last year. This profitability improvement translated into $64 million of cash flow from operations, a significant step up from the $6 million of negative cash flow from operations in last year's comparable quarter.These improved results were driven in part by ongoing contributions from our Self-Help initiative, which directly contributed to record utilization at our facilities and plant level throughput records at four of our operating sites.These strong financial results also drove further improvements to Calumet’s balance sheet. Our leverage ratio defined as net debt to trailing 12 months EBITDA improved a 4.2 times down from 4.6 times in the second quarter of this year and down from 6.2 times year-over-year. After excluding noncash LCM and LIFO adjustments, our leverage sits at approximately 4.0 times as of quarter end down more than three full turns since last year's third quarter.Deleveraging our balance sheet has been one of Calumet’s most important strategic imperatives over the last three years. We also repurchased $49 million of bonds during the third quarter in the open market, which brought our bond repurchases to $139 million year-to-date. Our stronger balance…

Thanks Tim.Slide 7 shows the adjusted EBITDA waterfall reconciling the third quarter results to last year's comparable quarter. Starting from the $54.5 million baseline figure from last year's third quarter, you will see that our results of $73.5 million improved materially versus the prior year period. We faced significant market headwinds in the quarter, which was evidenced by the nearly 19 million decrease in our fuel’s margins.These margin headwinds were primarily a function of unfavorable WCS and Midland crude differentials. We also had some small specialty margin weakness due to change in mix as low margin tolling business accelerated right before the termination of the contract. The most significant positive contributor to EBITDA performance was the increase in volumes across both the specialty and fuels businesses which account for $13.5 million and $11 million year-over-year respectively.We saw a meaningful increase in sales volumes on a year-over-year basis. This improvement was driven in part by the absence of turnaround activity at our Princeton facility last year, combined with record utilization and plant level throughput records this year that we mentioned at the top of the call.Our operating costs decreased $11.5 million, which includes from small refinery RINs exemptions that we received in the quarter. Our EBITDA improved by $4.4 million from lower transportation costs compared to the prior year, combined with some minor impairment charges.SG&A cost picked up by $3 million as we continue to support our Self-Help initiatives. But those higher expenses were more than offset by the $6.3 million of additional EBITDA that was generated through our Self-Help efforts.As shown on Slide 8, our core specialty segment generated $51.6 million in adjusted EBITDA excluding LCM and LIFO, a 39% increase in profitability year-over-year. These solid results were driven largely by higher sales volumes, which were supported by increased plant…

Thanks West.Turning to Slide 17. Calumet captured $6.3 million of EBITDA through our self-help efforts in the third quarter, bringing our year-to-date total to $27.8 million. This uplift came through our continued focus on operational excellence and small high return capital projects. Specifically at Shreveport we realized higher volumes - due to the crude and PDA debottlenecking projects and better margin and mixed performance in our fields and specialty businesses in commending higher margin, local rent sales for our fuels business and improve yields for various specialty products.Combined, these efforts are helping drive greater gross profit per barrel performance, as evidenced by the chart on the top left hand side. As West mentioned, improvements to how we manage our inventories and working capital continue to contribute to our profitability, visible through the continued decline in our finished goods inventory.We've made significant changes to how we manage our asphalt business and we have instituted much improved coordination between our production and our sales team in order to produce the right product in the right amount at the right time to accurately meet demand and preserve our margins. Additionally, we continue to benefit from improvements across our supply chain as our ERP systems and the enhanced capabilities that it offers is helping identify opportunities to capture greater efficiencies.This in turn has resulted in lower freight costs as well lower storage and rail hard costs. Again, these are long lasting, sustainable performance improvements. And we look forward to keeping you updated as we execute against our Self-Help Phase 2 goals.Slide 18 covers our outlook for the coming quarter. Please remember, our interest expenses, balance sheet and asset portfolio are impacted by the refinancing of our 2021 notes and the San Antonio divestment and we expect to continue capturing benefits from our Self-Help program…

Thank you, Tim.I'm excited to be a part of the Calumet team and look forward to meeting as many of you and our investors as possible over the coming months. Calumet’s transformation is clearly gaining momentum as evident by the regional refinancing, continued earnings growth and portfolio rationalization such as the San Antonio sales. I look forward to contributing to the company, becoming the world's premier specialty petroleum products company. Tim?

With that, I would like to turn the call over to the operator and to open up the lines to our analysts for Q&A. Andrew?

[Operator Instructions] And your first question comes from the line of Roger Read with Wells Fargo. Pardon me Roger Read, your phone might be on mute.Okay, our next question comes from the line of Neil Mehta with Goldman Sachs.

Good morning, this is Carly on for Neil, thanks for taking my question. The first one is just around specialties margins. Gross profit per barrel was down quarter-over-quarter. You mentioned a couple of time specific factors on that. I was just curious if there was anything else macro or industry related driving that delta. And then can you also touch on what you're seeing so far here in 4Q?

Yes, Carly, this is Tim. Specialty margins were lower sequentially, which I think is what you were referencing versus the second quarter of this year. But if you look at it, year-over-year, specialty margins of $34 per barrel were actually up versus the third quarter of last year. I think it's more of a seasonal effect Carly. The first two quarters of the year are generally are [indiscernible] quarters.And so we're positive on the specialty margins and feel like that continues to support our strategy of rationalizing low margin SKUs, getting our special margins up. You'll see that in the EBITDA margin that percentage was up this quarter versus both last quarter and year ago quarter.So we feel positive about that Carly. In the fourth quarter, I would tell you that, we've talked about the base oil margins all year and how that has been a headwind for our business. So far in the fourth quarter we've seen crude prices drop a little bit more versus at least last year, and we've seen product prices holding, but I will tell you, as we get into the fourth quarter, it's typically a weaker margin quarter, and we expect that to hold true this season as well.

Great, thanks. That's helpful color. And then the follow up is just around CapEx. Is there any early read you can provide on 2020 capital spend and then perhaps how much you expect to be allocated towards the Self-Help?

Yes, so that's a great question. We're going to spend about the same amount this next year as we are spending this year so it will be in the same sort of $80 million to $90 million for a range. What you're going to see us do however with the sale of San Antonio is that’s going to with and also a [little wider] [ph] turnaround here quite honestly we're going to spend a little bit more money on our Self-Help projects. And have a little bit more focused on growth opportunities in 2020, relative to 2019.

Got it, thanks guys, congrats on a good quarter.

Our next question comes from the line of Roger Read with Wells Fargo.

Anyway, missed some of the prior question. So if I do repeat this, I apologize. But I just wanted to understand I think the comment it's on, you mentioned a couple of times, certainly at the end there were you introduced Keith, but it's on Slide 3, the preparing for growth in specialty products. Can you give us a little more clarity on what that exactly means? I understand that the bottlenecking you've done so far, obviously, the mix changes and while Q2 to Q3 volumes were up in specialty year-over-year, specialty volumes are essentially flat and they're down kind of over the last year or two. So I was just curious, how should we think about growth where would it come from and what do you anticipate toward the margin impacts and cash flow impacts from that to be?

Yes Roger, this is Tim. On specialty volumes let me just point out a couple of things first. We publish production volumes versus the detailed sales volumes. And so while the third quarter you're showing - or you're seeing a little bit lower production volumes we actually had very strong specialty sales volume quarter. We've talked all along about reducing working capital inventories. And so we've been able to have stronger sales as we continue to reduce the working capital.The second thing I would say is, we've talked about SKU rationalization in particular, in our finished lubes business and you'll notice in the production volumes that we do publish that finished lubes volumes are showing down about 600 barrels a day. And that is exactly what we would have expected and what we're intending to happen as we continue to drive our SKU rationalization program and drive higher margins.The other thing I would tell you is, there is the other category in our specialty volumes is down about 700 barrels a day. That was a reflection of the turnaround activity that we had last year. And some of the intermediates in the specialty business that was an outcome of those turnarounds, we would not expect to see those volumes continue in the future. And those are lower margin intermediate products as well. So those are intended.And then the last thing I'll mention is in the fourth quarter of this year, I had talked about it in my prepared remarks that we're taking some further rationalization steps, we had a third party tolling arrangement that was in those production numbers. It's about 1500 barrels a day. And we are ending that relationship in the fourth quarter. And you'll see those volumes lower starting in the first quarter.So the point here is…

Okay, maybe as a follow up on that, as we think about these high return capital projects next year, give us an idea of kind of what you would anticipate the returns to be on that or a cash payback period, or this - invest ended in February, and your cash pay back in six months kind of real high impact projects, or was all about something that takes a little longer?And then my other follow up question based off your comment about having sold down some of the things from inventory. As we look at Slide 14 is probably for U.S., the networking capital contribution of $160 million, can you give us an idea of how much of that was the sale down of these excess volumes or inventory volumes versus what was just an improvement in working capitals results of the other efforts you've put through?

Yes, I'll take the capital project question first and then I'll turn it over to West for the working capital. On projects, we're targeting two year payback returns projects or you know roughly 30% IRR. Those are the type of targets we're going after Roger. Of course, they're all individual and we will make individual decisions. But that's the target range we're looking at. West?

And Roger with respect to the networking capital, the $160 million that you see there, that's driven in part by some of the recovery that we had post-implementation of our ERP system. As you know, we got some of our inventories and accounts receivable and various things out of whack. So we've had the finalization of the recovery associated with that.And then the balance of it is really been a secular decline in our inventory and how much is needed to really run the business and we've shown you some grass in the past but going back to 2017, you had a very, very nice steady decline in terms of our total inventories in the system. And those are all sort of permanent changes.I think what you're going to see on a go forward basis, we have had improvements in our trade credit roughly $12 million or so this year. And I think there's more yet associated with trade credit I think it will finally end up with no further changes in our credit ratings.I think we'll probably get close to double that amount over some period of time here. But I think the changes that you've seen are good solid structural changes. I don't think that you're going to see a tremendous amount, more coming out of the reduction in inventories. I think the bulk of that has already been achieved to-date.We may see some slight continued improvements in terms of our inventories as we get our availability of the promise in MRP elements of the ERP coming on all cylinders, but it's not going to be that significant on a go-forward basis. So don't count on this slide this next year, showing a light come out of $160 million reduction in net working capital.

And our next question comes from the line of Sean Sneeden with Guggenheim. Your line is now open.

West, maybe on the move to kind of a market based pricing scheme versus kind of cost base for the inner segment transfer pricing. Can you talk a little bit about how we should think about that going forward? And I guess, how do we think about that as in the context of as you continue to transition the business more towards kind of the core specialty, how do we kind of think about that corporate segments in kind of contrast of what the prior reporting period was?

So from the specialty side, we started off this slide talking about the specialties walk by comparing the third quarter last year as reported to what we're reporting this period. And was really to kind of give you a good sense that the change in the resegmentation really sort of sets things sort of on an equivalent basis.So if you're modeling the business while there are technical differences in that we no longer have the allocation of corporate overhead, you end up basically at the same place with the new resegmentation, with the market based transfer pricing. But on a go forward basis, it does provide greater transparency and clarity.What you're going to see us do and we've already realized the chunk of it today, but our SG&A obviously is something that we need to continue to focus on over time. And over the last couple of years, we've had a very significant decline in our SG&A and so going back to 2017, we reported G&A, total G&A of $138 million or $139 million; 2018, a $122 million; year-to-date based on the segment results if you sort of annualize that, that would imply something around $100 million this year. So you're going to see a continued secular decline there as we focus on our G&A going forward.

Let me circle back on a couple of questions offline, but maybe can you talk a little bit about this San Antonio sale. And it looks like the, kind of. pro forma financials are showing that the facility was a bit of a drag on EBITDA and I guess should we be thinking that the buyer assumes or takes on any kind of additional kind of corporate overhead associated with that facility, or is that all going to be reallocated to the remaining assets in the portfolio?

This is Bruce. Let me help with the framework. It's an excellent question. We have a couple of things that have changed in San Antonio. And so the particular 12 month pro forma is probably not reflective of a run rate or even of current performance. I would guide you they're $9 million or $10 million of EBITDA if you want to think about what's the value of the facility in service.And then in terms of obligations or the balance sheet side of it, we're receiving a $63 million cash payment with a couple of adjustments. And then we also have on our books, it's basically leveraged or had on our books a capital lease, and that was at present value liability of $38 million. So think of the enterprise value is the sum of those parts against the run rate.

And, Sean, what I would tell you is, we had some downtime in San Antonio last year with some turnarounds. We had an impairment that affects the net income last year. So the trailing 12 months has all that in it. I would tell you on a run rate basis, the work that the employees have done this year to improve the profitability of the plant, $5.9 million of the $28 million of Self-Help that we've talked about this year was at San Antonio.And so the run rate for San Antonio is probably more than that. We'll call it $9 million to $10 million EBITDA range that we believe that that facility is producing and driving. So that gives you a little bit more color of kind of what's going on in the San Antonio business.However, there is a turnaround scheduled next year. It's going to require some additional turnaround capital. And if you look at some of the projects that we've implemented there over the last couple of years to improve the profitability, the Isom project that we've talked about before and some of the other improvements we've made; from our standpoint, cash flow has been a drag for us and this will be a positive impact to us on our cash flow basis.Turning back to your other question on transfer pricing and the resegmentation; what I would tell you is, if you look at the corporate segment, we're all getting used to the new resegmentation. And I know that a lot of questions are going to be around, how do you think of business? And what kind of run rates do you think we ought to be plugging into our models?And I will tell you that we're still working through that ourselves in terms of some of the…

Did that help, Sean?

That's helpful and I appreciate all the commentary there. I guess just for avoiding the doubt there, but if you just for instance look at in Slide 11, should we try to interpret kind of the move from the prior number we're like just kind of using a year ago, the $82 million to $155 million. Is that delta all, the kind of G&A that was previously burdened on the segment or are there other aspects that I'm missing in that bridge?

Yes, there's two components there, Sean; the corporate G&A is just one piece of it. The market based transfer pricing is the second. So what you're seeing is and it affects only - the market based transfer pricing only effects Shreveport.So, what's happening is, by moving from a cost basis to a market based, you're seeing some of the margins move from the specialties segments into the Shreveport fuel segment. And those two factors combined are what bridges the $81.8 million to the $155.3 million.

And could you just give us a sense of kind of what the rough breakdown is just for like historical comparison, so we kind of hopefully true up our models to that between corporate G&A and the market base transfer pricing?

We can't break that out Sean. But what I can tell you is, again, if you look at the specialties breakdown on Slide 9, you see the 128.4 moving to 129.3. And what that is, is it's a combination of the removal of G&A but offset by the market based transfer pricing of margin moving from specialties to Shreveport fuels.So as you look at your models, think about specialties as the G&A help is offset by the market price change, and then on fuels the G&A help plus the market base transfer price help, it bridges the gap on the fuels. And I think as you play around with your models, I think you'll be able to fine tune it accordingly.

And our next question comes from the line of Jason Gabelman with Cowen.

If I could just ask one on the remaining non-core assets; and I was wondering if you could just provide some color on what you're seeing in the M&A market for remaining non-core asset sales and any thoughts on timing of those assets sales?And then if I could just go back to Shreveport, can you just provide a bit more detail on this crude debottlenecking project? I guess what's the impact of throughput, and does that add output on the fuel side or the specialty side?And then lastly also on Shreveport, what is the - if you could provide the impact for throughput on the asset in fourth quarter related to maintenance?

Jason, this is Bruce again. So, I'll try those in reverse order. The Shreveport debottlenecking, we did two small projects. It's more of a restoration of capacity. That's the 60,000 barrel a day nameplate plant. It's been limited in a couple of points and we've addressed those.So, in two steps, we're getting plus 7,000 barrels a day of throughput capability at the front end. More importantly, we've got this fall, the fourth quarter, couple of key catalyst change outs, end of run. These are units that do a couple of years run in service and it's going to come back stronger after that. So, in 2020, we've got zero plant downtime, fresh catalyst and a larger facility. That's kind of been our focus.If I go back to the question on core versus non-core, we don't really think about portfolio in that way. The family of holdings is value accretive. We've been, I think, patient portfolio holders and once in a while somebody comes along to whom one of our facilities is worth more than our keep value and we're very disciplined about our keep value.So we've had a couple of opportunities over the last few years to find the one right buyer. But I think we're not interested in enforcing this along. And so the journey to a specialty products company back to the roots, back to the origins of the company is in active patience and value creation.

Yes, I would just tell you Jason, if you look at how we've been approaching our portfolio over the last four years, we've always talked about the right buyer. We've always talked about the right opportunity. We've always talked about the right decision for the shareholders.And if you look at the moves we've made over the last four years with the Dakota Prairie refinery then you go to Superior then you're go to Anchor and now you look at San Antonio. We found a natural buyer for those assets. It took us some time. We were not in any fire sale or rush to do so.We have - all of those assets were valuable in our portfolio and had a certain hold value that we needed to be able to compare against to make sure that we made the right decision for the shareholders. And I can tell you, I think you're referencing our Great Falls fuels refinery when you asked your question.Great Falls has a significant value in our portfolio. It is, as you saw in the fourth quarter of last year, it has the ability to generate lots of cash flow. And we appreciate that and view it highly in our asset portfolio.We don't comment on M&A. But if there was an opportunity for someone to buy that asset, they would have to have a higher value in their portfolio than in our portfolio. And that would be a good thing for all the parties involved, including the employees and the community. So that's kind of how we view them.

I appreciate that. Just - sorry, going back to the Great Falls answer; you said it was 7,000 barrels a day throughput increase. Can you provide the split of the output from that 7,000 barrels a day between fuels and specialty products?

When you think about it that way, in the two projects, one was implemented in the fourth quarter of last year. One is going to be implemented in the fourth quarter of this year to total that seven. It's a crude debottleneck project. So that's probably going to be impacting fuels the most, Jason.We make more VGO than our loops plants can run. So it will result in excess VGO sales. But with IMO 2020 coming, we believe that that is going to be profitable for Shreveport.In addition, when Bruce talked about going back to start run conditions and we're going to have fresh catalyst to the extent that we're able to continue to debottleneck our specialty plants, that excess VGO will be available to go into the specialty plant as margins and demand continue.

And our next question comes from the line of Gregg Brody with Bank of America.

I think you helped us quite a bit there. But just maybe to simplify it, do you have a third quarter number that you would have reported if, if without the adjustments just as we think about like in our models before today with adjusted EBITDA?

No, we don't have a third quarter number for specialties versus fuels for the third quarter based upon the old segmentation.

And then it looks like you didn't restate the historical numbers and the expectation is you won't do that?

No, we did restate the previous numbers for all numbers present. So we reported the third quarter 2018 specialties and fuels breakout in corporate segment and then the grand total and then the nine months ending September 2018, and then the quarter for 2019 and the year-to-date 2019. So those are all there.

Yes, so Gregg, this is Tim. What I would tell you is, in the press release and in our slides we compare the third quarter 2019 on the new resegmented basis with the third quarter 2018 on a resegmented basis.Okay, so if that is apples-to-apples, you can easily go back to the third quarter 2018 press release and see what was reported a year ago. And you can see that it hasn't changed much, the things we're talking about on the specialty side. The specialties number for the third quarter of 2018 hasn't changed much, which is consistent with what we were showing you on the third quarter year-to-date. So you can do that. Look up and verify that yourself, Gregg, but I think that's what you'll find.

And then you mentioned that you're seeing some benefit from IMO 2020. Have you - can you quantify what you think that could add and sort of a ballpark EBITDA number for us next year? Yes, I appreciate that, those moving parts, but I'm curious how much you think that could add to business?

Yes, Gregg, and we've not been able to do that. I know that that this question comes up in a lot of calls, as a lot of people are still trying to get their arms around it. I think we were encouraged to see the impact on the high sulfur fuel market is something that you would expect that to be discounting as a result of IMO 2020. And we were starting to see that here in the second half of the year.So that was good to show us some signs of what we would - what the thesis is and what people are thinking. The next thing we started seeing the ULSD crack starting to go up. And that's probably the second step that you would expect to be able to see as part of this IMO 2020 impact.And then really, we were waiting to see if the WCS crude diffs would start to widen as a result of, again, the logic or the thought process behind it. And in the fourth quarter here, we are starting to see the WCS/WTI widen.This is even before the pipeline leak, we were starting to see the diffs starting to widen back out again. And all of those are, we think positive indicators that there is going to be an impact on our both our fuels and our specialties business with IMO 2020.And the only thing I would just point out is between our fuels and specialty product mix, we're about 50% leverage to that ULSD/VGO market.

I appreciate, there's a lot of moving parts. I'll use that 50% number somewhere once I figure it out. Just you mentioned that - you gave a lot of EBITDA numbers for the San Antonio refinery, was there much CapEx savings there we should expect going forward in terms of what your maintenance capital is or 2020?

I think if you zoom out to a high level and you strip out the growth CapEx, because we did put in a couple of good growth projects in the past to get that EBITDA. But I would guide you to kind of $7 million to $10 million run rate of CapEx specific for next year, including the turnaround that Tim mentioned, which we're imagining would have been late in the year on our watch. That is probably more like a $13 million for 2020 capital avoidance for us.

And I guess just lastly, West, good luck. Hope you enjoy whatever you do next. We appreciate the interaction with you over the last three years and just before that your predecessor. And Keith, welcome aboard.

Thank you.

Thank you. And I'm showing no further questions at this time. I will now turn the call back over to CEO, Tim Go, for closing remarks.

Thank you again for your time today and your interest in Calumet. We are executing our plan. We remain focused on delivering solid performance, driving improved profitability in cash flow, and deleveraging our balance sheet. Our efforts to transform our business are working and gaining momentum. And we look forward to updating you on our progress next quarter. Thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating and you may now disconnect.