Ladies and gentlemen, thank you for standing by [Technical Difficulty] Q4 2019 Calumet Specialty Products Partners LP Earnings Conference Call. [Operator Instructions]. I would like now to turn the call to Joseph Caminiti to proceed with today's call.

Thank you, Dimitris. Good morning, everyone, and thank you for joining us today for our fourth quarter earnings results call. With us on today's call are Tim Go, CEO; Keith Jennings, CFO; Bruce Fleming, EVP of Strategy and Growth; and Scott Obermeier, our new EVP of Commercial.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 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 our 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 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'll pass the call to Tim. Tim?

Calumet produced another solid quarter of financial performance, closing out an important and successful year in our transformation. This performance was driven by good execution against our strategic initiatives, which included a focused effort over the past several years to expand margins of our core specialty business, drive improved operations across all of our segments and strengthen our balance sheet.Turning to Slide 3, let's begin with the highlights of our fourth quarter performance and the year-end review. During the fourth quarter, Calumet delivered $49.9 million of adjusted EBITDA, excluding noncash inventory adjustments. Our consolidated result is comprised of $42.8 million delivered by our specialty segment and $28.7 million from the fuel segment, offset by $7.5 million of net G&A costs in the corporate segment. Both operating segments performed well, particularly given the planned turnaround work in our Shreveport facility, which we successfully completed during the quarter.For the full year, Calumet delivered $262.8 million of adjusted EBITDA after excluding favorable noncash inventory adjustments. As a reminder, we present adjusted EBITDA excluding noncash LCM and LIFO adjustments to give a more transparent view of business performance. Our specialty business profitability increased 24% to $207.9 million driven by solid sales volume growth across a number of our key product categories. Our fuels business contributed $152.5 million of adjusted EBITDA in full year 2019, reflecting the impact of improved throughput across our assets, which was offset by weaker market fundamentals versus the prior year. The net company result was $192 million in cash flow from operations, which represents a 75% increase over last year.Next, we successfully executed a number of key strategic initiatives during the year. In the fourth quarter, we successfully divested our San Antonio fuels refinery in a credit-accretive transaction. This divestment not only lowered our leverage, but also reduced our portfolio…

Thank you, Tim, and good morning, everyone. Slide 6 shows our consolidated headline results for the fourth quarter and full year. All references to adjusted EBITDA in my commentary will be adjusted EBITDA excluding lower cost of market, LCM, and LIFO impacts, except for Slide 13, which uses adjusted EBITDA, as reported, to align with our covenant calculations.For the fourth quarter, revenue and adjusted EBITDA were $774.8 million and $49.9 million, respectively, both of which declined versus prior year's record fourth quarter performance. Full year 2019 results for revenue and adjusted EBITDA were $3.4 billion and $262.8 million, both declined 1.3% and 12.6% year-over-year, respectively. $321 million of incremental annual revenues from higher volumes were more than offset by $309 million of price decline and $56 million of reduced revenues from the San Antonio divestiture. WTI on average was 12% lower in 2019 versus 2018, which drove the price compression. The lower year-over-year earnings results for both the quarter and the full year were primarily driven by the absence of the wide crude differentials that drove the prior year's record performance for the fuel segment. This year-over-year contribution from fuel segment was partially offset by solid growth from our core specialty business.On Slide 7, we have provided a detailed bridge of the 2019 consolidated adjusted EBITDA results relative to full year 2018. Starting with last year's $300.8 million of full year consolidated adjusted EBITDA, the primary driver in the year-over-year decline in annual results was the lower fuels margins seen across the year, which more than offset $35 million of hedge gains, contract and local rack price improvements in the fuel segments, resulting in a headwind of approximately $80 million. This meaningful year-over-year margin headwind in our fuels business was partially offset by the $57 million of earnings from consolidated…

Thanks, Keith. As you turn to Slide 14, I'd like to take a moment to introduce Scott Obermeier market, who was recently named Executive Vice President of Commercial. Scott has over 20 years in commercial-facing roles in the specialty chemicals space. Before joining Calumet, Scott served as a Vice President for a global chemical company managing their organic chemicals business. Scott joined Calumet in 2017, serving as the Vice President of Commercial Excellence, and most recently, as the General Manager of our Calumet's Base Oil business. Now as the EVP of Commercial, Scott will be responsible for managing our lubricating oils, solvents and wax businesses. Additionally, Scott will be responsible for our corporate marketing, research and development and customer service. Scott's appointment is aligned with our strategic pivot towards driving growth in our core specialty business. Scott's extensive experience in delivering commercial success for specialty chemicals businesses is a significant asset in our ongoing transformation and growth initiatives.I'm going to ask Scott to say a few words of introduction, and I'd also ask him to talk about our recent acquisition of Paralogics. Scott?

Thanks, Tim. I'll keep my remarks brief, but I wanted to express to our unitholders how excited I am to be tasked with leading Calumet's specialty business. While my role is new, I am supported by a strong team that has already built solid foundations from which we've launched our growth efforts. We are looking forward to building upon our strong legacy while we further develop our portfolio of our highly valued customized solutions.I'd like to transition over to Slide 15, where I'll briefly discuss our Paralogics acquisition. The strategic bolt-on acquisition was completed in order to enhance and expand our capabilities and presence in the end markets for our niche specialty waxes. Today, Calumet produces and sells over 100 million pounds of waxes, and our wax business has one of the higher-margin profiles in our portfolio. The acquisition of Paralogics and its integration into our existing wax value chain will add 20 million pounds of blending, formulating and packaging capability. It's a natural and synergistic fit with our existing business and adds an additional logistics hub to our geographic footprint. We see this combination as very powerful, allowing us to more efficiently access higher-margin end markets, extend down the value chain into packaging and blending, and add additional technical expertise and high-margin formulations. We will now offer customers a fully integrated wax solution.With that, I'll turn the call back over to Tim. Tim?

Slide 16 recaps our multiyear self-help program. In terms of our performance in 2019, we delivered $30 million in incremental EBITDA, which was in line with our expectations, and the program is on track to deliver on the $100 million goal by year-end 2021, that we outlined at the beginning of last year. Looking forward to 2020, we expect to deliver on our recently announced goal of adding $40 million in adjusted EBITDA due to a number of specialty-focused growth initiatives and cost management. About $20 million of that goal is expected to come from improved profitability through the completion of two debottlenecking projects at our Shreveport and Princeton facilities, further rationalization of low-margin products from our operations and through the completion of capacity expansion efforts in our high-margin Finished Lubricants business.The other roughly $20 million will come from cost reduction efforts that include a reduction in outside services and the elimination of certain facility-level fixed costs in our system. For example, last month, we announced plans to close our packaging facility in Farmingdale, New Jersey and consolidate that production within our Finished Lubricants portfolio. Additionally, as our focus consolidates around our core specialty assets. We will rightsize our staffing needs to fit our smaller asset portfolio. Through today, I can report that we have already delivered on 3/4 of the $20 million of G&A reductions on a run rate basis.I'll close on Slide 17, where we've outlined our outlook for the coming year. In our core specialty business, we expect to continue driving EBITDA margin expansion, improving our gross profit per barrel performance towards our near-term goal of $40 in gross profit per barrel annually. Additionally, we expect to successfully execute several commercial initiatives, driving year-over-year growth. In our fuels business, our performance will be impacted by the story…

[Operator Instructions]. And our first question comes from Gregg Brody with Bank of America.

Tim, good luck with the next steps.

Thanks, Gregg.

You've commented there at the end, it was a little bit of a -- I wasn't expecting to hear that on the call. So maybe it's actually a little bit more about your decision to move on, as you said. So to get this right, you're going to -- by June 30, if you will resign, sounds like you're going to focus specifically on the Great Falls strategic options and then Steve Mawer was going to come in as CEO. Can you talk a little bit more about the transition process -- if I got that right, number one, in the transition process? And is Steve going to be the permanent CEO potentially? Or how does that process play out?

Yes, Gregg, I know I caught you cold there at the end, so I'm happy to explain some more. Yes, so Steve Mawer is going to be the permanent CEO effective June 1. Over the next 3 months, we will be focused on an orderly transition to make sure that the transition is smooth and seamless.But let me step back, you asked -- you were kind of asking what's driving this. And I talked about vision. And when I got here 4.5 years ago, I reset our vision for Calumet on two things: we were going to refocus on our core specialty business, and we were going to build a foundation for growth on self-help and operational excellence. If you look back on those 4.5 years, we divested the Dakota Prairie Refinery, the Superior Refinery, the Anchor Oilfield Services and last year, the San Antonio Refinery. We established our specialty business teams and our general managers as a focus on how we were going to grow our specialties business, and that's going very well. While we're never done on operations excellence, our operational excellence is producing the results we want to see. We talked about that earlier on the call in terms of some of the results in 2019 that we're very proud of. Self-help is becoming a way of doing business. And as that continues to get ingrained into our culture, I feel better and better about the way this company is focused on their growth. We announced the small bolt-on acquisition earlier this year on Paralogics. And it's a -- while it's small, it's a sign that this company is ready to grow again in the specialties business.Finally, we talked about the Great Falls asset and that we're reviewing strategic options for Great Falls this year. As all of that comes to fruition, Gregg, we are on the cusp of closing an old chapter in Calumet's history and opening up a new one. And as we're entering into that new chapter, I believe it's a good time for me to transition out. And that was the discussion that I've had with the Board, and the Board reluctantly has accepted my resignation and has asked Steve Mawer to step in as the new CEO.

And you have accomplished quite a bit, so congratulations. Maybe I could just turn to the business a little bit. Obviously, a lot going on in the world today. You mentioned potential headwinds in the fuel products. Maybe you could talk a little bit on the specialty side, what you might be seeing today if that's -- because of the coronavirus, anything you can help us to think through, what type of downside we could expect? And just if -- are you -- or is there more stability than we would think?

Yes, Gregg, there's obviously a lot of concern, a lot of uncertainty associated with the coronavirus and some of the impacts that it has on the world markets. What I can tell you is we think about it in 3 ways. There's a macroeconomic impact. And just as you see the impacts from the stock market, as you see the impacts in overall global demand and GDP, that will certainly impact Calumet, and we're focused on that and launching that carefully. It's impossible to predict how long this will last, but we're watching that closely along with everyone else.The other two ways that it impacts our business is, one, directly in our supply chain, whether it's through customers or whether it's through supply in procurement disruptions. And what I can tell you is our specialty business is primarily a U.S. domestic business and has not been significantly impacted on the supply chain. And then the third factor that we look at here is, if there is an epidemic or even a pandemic here in the U.S., how it impacts our facilities and our employees. And I can tell you that none of our facilities at this point throughout the United States have been impacted by the coronavirus. And we have implemented our business continuity plans and our precautionary measures around flu pandemics at all of our facilities, and believe we are in good shape in case that does make its way here into the United States.

And when you say that, I appreciate continuity planning is part of the business. And when you've run through those scenarios, is it your expectation that the business can continue normally or without interruption in the scenarios? Or do you assume there would be some impact and it would actually reduce your activity at the plants?

Yes, no our -- yes. Gregg, no, our plans are to be able to continue business as usual through this -- through any type of worst-case scenario planning as we drill on and think through. There'll be anything from sending nonessential personnel to work from home and continue to keep things moving with limited contact, to everything from making people are washing their hands, practicing good hygiene, having plenty of antibacterial hand sanitizer around. All those things are part of the preparedness activities that we have already taken and are set up for.

That's very helpful, and I'll ask -- I'm sorry, do you want to say something else?

Yes. Let me just finish up though, Gregg, on your second question, which is more of getting around our specialties business and what we are kind of thinking about for 2020. And let me ask Scott to maybe say a few words on that.

Great. Thanks, Tim, and thanks, Gregg, for the question. So let me touch on a few things here, Gregg. The first is, we're pleased to announce, as you heard earlier, that as we look at 2019, we did deliver 4% volume growth in our specialties as well as over $200 million of EBITDA. So going forward, we're going to continue to be intentional on our targeted products, markets and customer segments as we deliver growth on some of those key products that we've touched on, such as waxes, solvents, naphthenic base oils and engineered fuels. And let me just provide a couple of quick examples for a little more color for you, Gregg, on that. In addition to our Paralogics acquisition on the wax side, we've also increased our wax production capacity at our Shreveport plant through some process debottlenecking. We're going to be unlocking some more capacity in Princeton on the naphthenic base oils. And we'll continue to invest and grow our solvents and engineered fuels by enhancing our overall supply chain network in Cotton Valley. So we're excited about the foundation that we've laid for specialty growth and we're looking forward to an exciting year in 2020.

[Operator Instructions].

Hey, Gregg, what I would say, this is Tim, I know there's some other competing events going on right now and many people have told us that they've -- they will follow-up with us on the questions. So if you have any other questions, Gregg, let us know, this would be the time.

So the acquisition you announced, is there -- I'm assuming you funded that on the revolver? And is there a purchase price? And any way to think about incremental EBITDA from that?

It was a very small acquisition, Gregg, this is Keith. And so I don't want us to focus on the size, it was less than $5 million purchase price. So what we're focusing on here is the platform that we've acquired. So let me back up for a second just to alleviate and to answer your question a little bit. It's a small business. It has positive EBITDA and cash flow, so it will be accretive to EBITDA immediately, and it's going to be accretive to our income by the end of 2020. Now why did we do it? We did it because of the platform for growth. It will allow Scott and his team to access some higher-margin end markets. It brings really 2 things to the party for us: it brings packaging and distribution assets, and it brings formulating and lending technical expertise. And so we're putting that on the front end of our production of waxes, and I think we'll open up a platform for future growth in this space.

The other thing I would just mention, Gregg, is it's -- this serves as a great opportunity for this organization to get back into what it means to acquire a business. And for example, we have put a full-time integration manager in charge of this acquisition, trying to make sure that not only do we do a good job of integrating the capabilities that Paralogics brings to Calumet, but that we also put a full-time manager in charge of capturing those synergies and driving this platform for growth that Keith mentioned. It's not something that we have done in the past in terms of our inorganic growth activities, but it's one of the things that we are going to be doing going forward. And this is a great way to kind of start exercising those muscles, trying to get back in that mode of best practices around how do we grow it organically.

Got it. And then with San Antonio, could you just remind us how much EBITDA contribution there was this quarter from that? And sort of LTM, what was the EBITDA now that is -- when we dig in the fourth quarter as we think about taking out of our normalized numbers?

Gregg, this is Bruce. The run rate was $10 million a year.

And was the fourth quarter particularly -- was particularly good or bad or just $2.5 million or...

October was good. The financial transition was October 31, so November and December are, of course, not on our books.

November and December, got it, so that's it. That's helpful. And then maybe just moving to cash flow side of things. Just sort of the working capital improvement and how should we think about that going forward in -- this year? Is there opportunity to take more -- to produce more cash from that? Also, the use of your intermediation facilities [indiscernible] lockdown.

Okay. So working capital in 2019 on a net basis, helped us by about $20 million. We reduced our inventory by $16 million. Trade credit improved by about $15 million, and we invested in our AR because we had growing revenues. We've been squeezing that working capital for the last few years. And as we turn towards growth, I would say that our objective in 2020 is to keep it flat. So I wouldn't say that we're expecting to get more out of working capital. We are moving towards some rationalizations of inventory as we focus on higher-margin things. But I would say that the focus in 2020 is the structural earnings profile of the business, discipline around our working capital management and our CapEx.In terms of our facilities, the revolving credit facility is still available and has ample liquidity. And we still have access to our supply and offtake agreements with our banking partners that front us or are accrued and some of our inventory financing on the finished goods side, so...

And then you did some work on at least in letters of credit or people at the ratings upgrade. Anything more that we see there potentially this year?

I think this year, it's a function of getting the earnings to repeat at the strong -- or stronger than 2019, that will continue to drive our leverage metrics down. We are very focused on improving our fixed charge coverage ratio as that has a significant impact to our facilities and covenants in the future. And we are always in constant dialogue with our rating agency partners to better understand our business because we would like to upgrade our ratings and get back to a higher zip code in that regard.

And since I'm the only one, I'll take two more, if you don't mind. Obviously, the San -- the divesting Montana or Great Falls, it sounds like you -- Tim, it sounds like there's some incentive for you to help get that done before you leave. And you guys mentioned this year, is that -- how likely do you think that is?

Yes. Gregg, I mean the incentive for me to get that done is because of the vision that I have set for the company and the desire to kind of have that as part of the completion of the chapter of my part here in Calumet. I mean it's -- we will do, as we review these options, what is best for our shareholders for Great Falls. There's -- we're not going to do anything because I'd like to do it for my own benefit. We will focus on these strategic options as a benefit to Calumet shareholders. As I've mentioned before, we'll look at all options, sale included. We have retained an adviser. And our objectives are simply to, again, do a credit-accretive transaction that helps us focus our capital and our efforts on our specialties business.

Got it. And then -- and you've mentioned in the -- during the prepared remarks, about addressing potentially '22s and '23s. Presumably, that's -- you're talking about using the Great Falls proceeds if -- to address those? Is there anything else that you would consider divesting? One, is that correct? And two, is there anything else you're looking at divesting other than Great Falls to help address those?

Well, let me take one part of that question, and then I'll ask Keith to talk about the second part of that. In terms of our assets, we've said this before, Bruce has said this many times, we look at the value of these assets in our portfolio. And with all of our strategic growth plans and with all of our initiatives to continue to expand our assets, we know pretty well what the value is of those assets to our portfolio. What we said before is, we will always look at offers or at conversations that people want to have for any of our assets, whether they're fuels, whether they're specialties. Any asset that we have, where someone believes that it's more valuable in their portfolio than ours, certainly, we will look at any of those situations and try to decide if it makes sense to engage in any type of activity around those lines. So we're talking about Great Falls right now because we know that, that strategically gives us an opportunity to focus on our core specialty business. But sure, we'll look at all of our assets if there is interest.

So Gregg, let me take the refinancing question. First, the '22s do not go current until January 2021. So we have a bit of a window to think through it. In terms of refinancing, we're focused on the unsecured market. That's where we would like to stay as we think about our capital structure and what options we have. Given what's happening in the macro environment as we review our options for Great Falls, what we're doing is we're looking at the landscape ahead of us. We are evaluating the capital markets. We're against the transaction options and hoping to generate strong cash flow. So it's nothing more than what we've always done, which is assess our capital markets options or risks and -- against our cost of capital going forward. So if the transaction occurs at the right time, it might be the right choice to repay from the proceeds or if we get an opportunity to refinance one of those tranches, we'll take it, and then we'll manage the proceeds accordingly after.

And our next question comes from Andrew McLellan with Wasserstein.

Tim, sorry to see you leave. Good luck with your next steps.

Thank you, Andrew.

As a starting point on specialty, we're encouraged to see the recent acquisition and the focus on specialty growth being the core business. As a starting point, the $208 million from EBITDA from specialty this year, if we assume that there's $5 of gross profit per unit improvement in the near-term in 2020, that would imply significant growth in 2020. Do you think $250 million of EBITDA is achievable from the specialty segment in 2020?

Yes, Andrew, let me take a shot at that. The $40 per barrel -- gross profit per barrel target that we had put out there is a near-term target. But I don't want you to necessarily take away that it is a 2020 target. However, we do think there is opportunity to grow. I think the slide on Slide 9, the waterfall chart for the specialties business, I think, is a great starting point for your question. It shows our specialty business has improved significantly across this year, as we've talked about on the prepared remarks. And you're right, as we look at our specialty business, and we have told you and others that we think we have a $200 million specialty business, well, we are ready to say, no, we have a greater than 200 million specialty business. As we look at our plans and our efforts, we would probably say, Andrew, maybe $215 million to $240 million would be the way we would probably characterize it. Could we get to $250 million? Absolutely. But probably from a more conservative basis, we would probably say $215 million to $240 million is what we would now bracket our specialty business at.

And when you say that $215 million to $240 million, is that a near-term target? And secondly, what is kind of the aspirational target if we look out a couple of years?

Yes, Andrew, that is a near-term target. And of course, our aspirational target is to go north of $250 million, like you had mentioned. The other thing, of course, is -- the Paralogics acquisition is certainly, as Steve mentioned earlier, a platform for growth, and we'll continue to look for bolt-on acquisitions. So the numbers we just talked about, of course, don't assume any additional bolt-on acquisitions.

That makes sense. And as you look at divesting or considering strategic alternatives for Great Falls, how much G&A would you ascribe to the specialty segment if that business -- if that unit -- that noncore unit were to be divested?

Well, last quarter -- I'll say something, and then I'll let Keith say something else, too. But remember, last quarter, when we resegmented into a corporate segment, we told you that our guidance there was about $100 million for the G&A that is unallocated. Given our announcement on our self-help program and the $20 million of G&A improvements that we are capturing here in 2020, I can tell you that you can probably assume $90 million would be the corporate G&A signal or target that we would be looking for, and the other $10 million to get us to the $20 million is directly attributable to either specialties or fuels and so will be part of those businesses, which is how it kind of breaks down. The other thing I would mention is none of this assumes any type of strategic options around Great Falls. So if we decide to take action on Great Falls, of course, for example, if the Great Falls asset was removed from our portfolio, we would believe our G&A costs would go down significantly from that.

Is there any way to modify that latter point on just the G&A cost from Great Falls, if you decide to get down that path?

So I'll take it from here, Andrew. I don't think we're prepared or ready to discuss that step down. We know there will be a step down. But we're going through the strategic options. But if you look at how we've run this business over the past few years, we've gotten leaner and leaner at the corporate level as we struggle with our leverage. And so this is a natural cost base to remain a public company and do things right. And so as we go through the options that are presented to us after Great Falls, we will then be thinking about what are the true stranded costs that we have to shed and what are the true costs that will have to go with the Great Falls acquisition with the buyer. So we haven't done that homework in detail yet because we haven't seen all the options. And so let's wait until those are on the table, and we'll catch up and we'll be happy to update you in a way that is more thoughtful.

Great. And Tim, longer term, on specialty, what do you think the organic growth rate, looking at it from a bottom line perspective, should be for the specialty segment?

Yes, Andrew, I'll step in here for Tim. The organic growth rate for our specialty business, given what we do, I think you have to align to around U.S. GDP. I think -- if you think about it from the standpoint of anything else, we are a refinery, and so we make goods and services and specialty products that are going into a wave of number of things. So on average, we should be stepping with GDP. We will step ahead of GDP, where we have growth platforms where our niche businesses are delivering things that others can't. But to the extent that we are in the U.S. and doing U.S. business, I think your base model should be around U.S. GDP.

And I'll just say this, Andrew, and I think we're out of time after this. But what I would say is if you look at some of our businesses in 2019, our solvents business, our naphthenic business, our true field business and our wax business, I think, have been growing faster than GDP in 2019, and those are the kind of businesses that Keith was just referring to. And so we continue to look to drive that growth and see what we can accomplish. But I think Keith is right on when he says use GDP as your general growth rate.

Ladies and gentlemen, this concludes our Q&A portion of today's call. I would now like to turn the call back over to Tim Go for closing remarks.

Thank you, Dimitris. I'd like to close by thanking our Board and all of our employees for all of their hard work in 2019 and over the last few years. Collectively, we've transformed this partnership and put it on a path for long-term growth. We have a lot to be proud of, but our work is not done, and we have aggressive goals to continue our transformation. We look forward to sharing the results of our success with our unitholders throughout 2020. Thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect. Everyone, have a great day.