Good day, and welcome to Calumet Inc.'s Second Quarter 2025 Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to John Kompa, Investor Relations for Calumet. Please go ahead.

Thank you, Steve. Good morning, everyone. Thanks for joining our call today. With me on today's call are Todd Borgmann, CEO; David Lunin, EVP and Chief Financial Officer; and Scott Obermeier, EVP of Specialties. Please note, Bruce Fleming, EVP, Montana/Renewables and Corporate Development, has an unavoidable company obligation today. Todd Borgmann will address questions regarding Montana/Renewables in his absence. You may now download the slides that accompany the remarks made on today's conference call, which can be accessed in the IR section of our website at calumet.com. Also, a webcast replay of this call will be available on our site within a few hours. Turning to the presentation on Slide 2, you can find our cautionary statements. I'd like to remind everyone that during this call, we may provide various forward-looking statements. Please refer to our press release that was issued this morning as well as our latest filings with the SEC for a list of factors that may affect our actual results and cause them to differ from our expectations. As we turn to Slide 3, I'll now pass the call to Todd.

Thanks, John. Good morning, and welcome to our second quarter 2025 earnings call. This quarter was one of sound execution paralleled with foundational and supportive steps taken on the regulatory front, both of which we'll walk through on today's call. Calumet earned $76.5 million of adjusted EBITDA with tax attributes during the second quarter. This result was a function of continued execution of our near-term initiatives on reliability, cost discipline and commercial excellence across the company. $8.3 million of our quarterly result was earned at Montana/Renewables, which we'll touch on more momentarily, leaving the lion's share of the quarterly result being earned in our specialties business despite a full month turnaround at our largest facility in Shreveport. Specialty margins continue to prove resilient overall and our product and market diversification has been critical to this as pockets of weakness in the more commoditized paraffinic lube space have been more than offset with continued strength across our specialized lines of naphthenics, solvents, waxes and food-grade in pharmaceutical products. Further, specialty sales volume within our SPS segment marked the third straight quarter over 20,000 barrels a day. And despite a late start to the outdoor lawn and garden season, our Performance Brands segment posted its second highest quarterly sales volume in its modern form, second only to this quarter last year. These results are a combination of continued deployment of our integrated specialty strategy in the industrial lubricants and separately, rapid growth of our TruFuel brand. One area we haven't talked about much when it comes to commercial excellence is the impact of our program outside our core specialties offering. Specifically, I'll note the results from the change in our approach to our Southern asphalt margin. This is a fairly commoditized space, but with 3 crude fed refineries in northwest Louisiana, we…

Thanks, Todd. It's great to see the progress in Montana on all fronts as monetization of that asset continues to be the final step in our deleveraging strategy. Before I go through each of the segments, I'd like to highlight some recent activity as our deleveraging and maturity management strategy continues to unfold. Last week, we announced a refresh of our Shreveport terminal assets financing, which was a nice optimizer within our broader plan. We had previously sold these assets to Stonebriar for $70 million back in 2021. And given the improvements in Shreveport production, the truck rack and related assets value increased to $120 million. Instead of repurchasing the asset in 1.5 years, we were able to add $80 million of new cash to the existing $40 million of principal and call another $80 million of our 2026 notes, reducing the outstanding balance to a manageable $124 million. Add this to the accretive Royal Purple industrial asset monetization and deleveraging that occurred earlier this year, and we now will have called $230 million of the 2026 notes in the last few months. With our revolver capacity and approximately $50 million to $60 million of cash flow expected in the restricted group through the rest of the year, we shift our near-term strategic focus to broader deleveraging and managing the 2027 notes. With improving cash flows from the business and the renewable regulatory outlook solidifying, we remain confident in our plan to reach our ultimate goal of $800 million of restricted group debt. Further, the broader strategic activity that we've mentioned previously continues to progress well, and we'll discuss that more at an appropriate time. Turning to Slide 6. Our Specialty Products & Solutions segment generated $66.8 million of adjusted EBITDA during the quarter. We continue to see strong performance,…

[Operator Instructions] The first question comes from Alexa Petrick with Goldman Sachs.

First one, just wanted to ask on renewable diesel. We appreciate we're in a challenging macro right now, just given the uncertain regulatory environment. But would love your updated thoughts on what mid-cycle earnings looks like for the business? And then what do we need to see in the industry to get to more normalized earnings?

Alexa, it's Todd. Good question. Like you said, it's obviously a tough environment out there right now. And we think the driver of that is really just the market waiting for news on the permanent RVO and the SRE to respond plus working through that backlog of RINs that was carried forward from 2024. So I'd point to those as kind of the key drivers for recovery. We provide that chart every quarter that talks about the supply stack, the biomass-based diesel supply stack. And basically, what we see is at the proposed RVO levels, you should see D4 demand of basically 5.5 billion gallons or so, which would suggest that you need a good chunk of biodiesel to run and meet that demand. That puts you in that $1.50 to $2 a gallon index margin range. We're ways away from that right now. But really, that's the range that we've seen throughout history up until kind of the 2023 RVO change things. So at those levels, I think we put some information out in the past that says at $1.50 a gallon index margin, Montana/Renewables should be making around $140 million, $150 million a year of adjusted EBITDA with tax attributes. So I kind of point to that. And then obviously, if you increase back up to the historic $2 a gallon level, you're meaningfully higher than that. That's at our current yields. The other thing I'd point out is adding the SAF flexibility that we are really provides a meaningful kick to those margin numbers. When you're talking an extra $1 to $2 a gallon premium on an incremental 90 million to 100 million gallons or 120 million gallons of SAF, it's a pretty meaningful bump in margin, which is why we're so excited to be able to streamline this MaxSAF 150 project and move that forward. You talk about $1 a gallon plus on 100 million gallons. Obviously, that's the math. And we stack that on top of the core renewable diesel EBITDA that we just talked about.

Okay. That's great. And then my follow-up, just on the balance sheet. It's nice to see the partial redemption of the '26 notes. Can you talk about the path to further debt paydown? And then particularly, what considerations do you guys think about for potential future divestitures?

Yes. Good question. The -- like David said, there's not too much remaining on the 2026 is after we called the $230 million so far this year. So really nice progress on that front. I think if you look at that, you could say we have enough availability in free cash flow in the second half of the year to manage that in itself. So we kind of look forward and say what next on the 2027. We've talked about potential strategic asset sales. I don't want to get too far into that. But I can tell you that's certainly an option. We're expecting meaningful cash flow next year and throughout the rest of this year. And then also, you have the Montana/Renewables monetization, which we continue to expect is the ultimate step to reach our final deleveraging target of $800 million. So those are kind of the 3, I'd say, large steps. There is other things that can be done as well and kind of the -- just the maturity management mode. But as far as ultimate deleveraging, that's really what we're looking at.

The next question comes from Conor Fitzpatrick with Bank of America.

This was another quarter where OpEx per gallon was reduced in the renewables business. Cost reductions have had momentum for a while now. But I think it would help us to explain the types of improvements and changes you've made in your operations year-to-date that are driving these cost reductions.

Conor, it's Todd again. Thanks for the question. And you're right. It's fundamental really to our success, particularly in this tight market, what we've been able to do on costs and really establish ourselves as one of the cost leaders in the space, which stacked on top of our geographic advantage and feedstock flexibility and ability to generate SAF, we're quite excited about. Specifically, I'd say there are -- the primary improvement that we've made on cost is real minimization of water. We've spent a lot of time and effort understanding water treatment, reducing the amount of water we have to treat in general. That's been a major step down. And then with smaller amounts, you can obviously treat it more efficiently as well. In fact, we put out something not too long ago that said as part of the expansion in the future, we -- highlighting that on treatment -- on-site treatment of water is a piece of that plan, which hasn't changed. That's always been the case. So water treatment is the primary improvement. We've also just got more efficient with the operation. You learn a lot, and we came up the learning scale really quickly in Montana over the past couple of years. But we had a number of folks on site, third-party contractors, et cetera, to just help us with the learning curve over the last year. And we've had a meaningful contractor reduction on site this year. And obviously, in the numbers -- the production numbers and the cost numbers, we see that we didn't need them. So the teams just done a really spectacular job of getting up to speed, familiarizing themselves with the assets and keeping costs down.

Great. That's clear. And then as a follow-up, it looks like there's a few regions to play for SAF in the United States. The West Coast has LCFS programs and transpacific voluntary and mandatory markets. The Gulf Coast has voluntary and mandatory markets in Europe. And there are several U.S. Midwest states that have purchasers or producers tax credits. And then SAF prices nationally trade at a premium from incremental voluntary demand versus RD and conventional jet. So how would you characterize the attractiveness of the different regions from where you sit? And do you think the proximity to the Midwest will win out versus other regions over time or at least provide a more stable end market?

Yes, great question. The Midwest is a really interesting market just because of the state tax credit, right? So I think you used the word just stability or kind of stabilize the whole outlook. That tax credit goes a long way to do that. So yes, that will be a piece of the solution. California is obviously a big piece as well. Oregon, Washington, we've talked about all of these areas. Honestly, just like renewable diesel, we're pretty flexible on our output, and we take it to whatever areas we're geographically advantaged in. That's what we're doing now with our partners at Shell, and that's what we expect to do in the future as we add to the portfolio that we're building on the marketing side. The other thing I wouldn't forget about is Canada. We're right on the border there, and there's some real ability to partner with the right people in Canada, blend our product and service that market. And there's a pretty meaningful SAF premium still in Canada. So like always, at Montana/Renewables, the key to our advantage or one of the keys to our advantage is really that end market flexibility. And sitting right there on the BNSF, we can go east to Minnesota and Illinois. We can go west to California, Washington, Oregon, and we can even truck north to Canada. So very flexible, and I'd expect all of those to be part of the solution.

The next question comes from Gregg Brody with Bank of America.

Nice quarter. It's nice to see the operations coming together in Specialty. I was -- you gave a couple of numbers there on the restricted group that I just wanted to run through to make sure that's clear. So I think you said the second half of '25, you expect $50 million to $60 million of cash flow. And then you also mentioned the unwind of some working capital of $35 million. Is that part of that number? Or is that in addition to that?

Yes. It's part of that number. So we're already seeing some of that unwind from the working capital, just related to the turnaround and timing of building inventory in advance.

Got it. And then you suggested that you could deal with the remaining $125 million of the [ 26's ] this year. So the $50 million to $60 million is from restricted group. Should we expect cash from anything from renewable diesel business to be sent out? Or is the rest going to be solved for with possibly strategic actions?

It's a good question. It's possible to have cash out of Montana/Renewables. Honestly, the way we plan for it is just the fully controllable in today's market. So the way we plan for things is just what can we generate in the restricted group. So yes, to your point, you've got the $50 million, $60 million of cash flow. I think you said is that -- all in the business -- there will be additional to that from the $35 million of capital unwind. So I don't want you to think that there's only $15 million of free cash flow generated in the core business in the second half plus that $35 million of working capital unwind, right? So it's $50 million plus the rest. So we are expecting more cash flow in the second half. We do expect some strategic activity to help with that. But I'd also just point to our general liquidity and revolver balance for a very small amount.

Okay. And then just shifting to the PTC monetization. I think you said you had a term sheet for about half of it. Sort of 2 questions there. I think you had mentioned a discount the way to think about it, if I'm remembering like 5% to 7% versus what the book value is? And then just remind us if that's -- if I'm remembering that right, and if that's sort of a good way to think about it? And then second part of that is, when do you think you'll address this -- the other half of the PTCs? And just in general, based on the way the market is coming together, should we expect that to be a quarterly -- to be done quarterly ratably with what your -- the actual income is?

Yes. Big Beautiful Bill was signed and provided a little bit more clarity around these PTCs. So we do expect to sell them all in the near future. And after we clear that backlog, yes, we expect it to be a quarterly transaction.

Got it. And one piece in for me. So I was wondering if you have your liquidity as of today, just -- or basically what's on the revolver?

It's just about $200 million.

The next question comes from Amit Dayal with H.C. Wainwright.

Pretty solid execution despite some -- and on that front, Todd, are there any particular catalysts we should be looking for with respect to any remaining sort of macro overhangs for you to start hitting your stride, especially with respect to Montana/Renewables. I mean it looks like on the cost side, you've already done pretty well in terms of bringing costs down. If some margin improvement starts showing up, I mean, it looks like there's a lot of operating leverage you could start generating. So any color on maybe this topic would be helpful.

Yes. I think that's the million-dollar question you've nailed it is, is when do we see the reversal in margins. Very comfortable and confident that with the regulatory actions we've seen here in the second quarter that it's a matter of when, not if on these, right? We talked earlier in Q&A about a 5.5 billion gallon RVO without an overhang, you're at substantially better volumes than prices -- margins than we are today just to stay compliant. So we're very bullish to long-term outlook. I think the big question is just the overhang around when is that RVO going to be finalized. A lot of rumors still flowing around the SREs and how that interacts with the RVO, if at all. And then the market just has to work through this backlog. There is a year's worth of overproduction from 2024 RINs that have been carried into 2025. So the market is not acting like it would in a normal environment. When it has those RINs that it has to eat through in the current year, I'll say just expire, that essentially becomes part of the balance and the market doesn't have to respond to just normal fundamentals like it would. But that all ends at the end of this year when we step into 2026, those old RINs can't be carried forward again, and we see the step-up in RVO. So I think the big question in our mind is, do we see margin recovery before that as people get more comfortable with how strong the outlook looks for 2026 and starts to ramp up production or RIN prices start to respond expecting that there's going to be such an increase in 2026. So that's what our eyes are on. I think that's what most folks in the industry are tracking as well. And long-term, we think the changes that occurred in Q2 are quite bullish for the space. So looking forward to getting there.

Okay. And just on the Montana/Renewables monetization, it's -- I mean, it looks like it's still on the table. But from a timeline perspective, should we expect any movement on that front in 2026? Or is this a little bit more sort of a future type event for the company now?

Yes, I don't think 2026 should be thought of as off the table at all. When we rewind the clock a little bit and we say, what do we have to do at Montana/Renewables, we need to get the DOE loan that's done. We needed to prove out our operation, commercial position that's done. We needed to demonstrate our cost advantage, that's done. Right now, we're ramping up kind of the faster, cheaper first step into MaxSAF. We think that's a really nice value upside for potential buyers. And then the last thing you need that's a little bit outside of our control is really just demonstrated margins, which we kind of just talked about. So we think that you get a little bit of margin improvement here late this year, early into next year have a quarter or 2 of really strong earnings, and it's an active conversation. I don't want to predict exactly when that happens and the like. But I wouldn't say 2026 is off the table by any stretch.

The next question comes from Jason Gabelman with TD Cowen.

I wanted to get your views on the RVO proposal and specifically the part that talks about half RIN generation for imported feed or products. And I'm wondering if you have a sense of what that does to the market. Does that essentially just double the value for RINs? Or is there some offset on feedstock costs? And do you think that is likely to be included in the final RVO?

Jason, it's Todd. Great question. I wish Bruce is here to help with it a little bit, but he'll be back this afternoon and hopefully, by the time we get to connect a little later to chime in more. But the whole half RIN concept is an interesting one. I'd say the most important thing is we don't see that imported feed is needed to basically meet the RVO as it is. 4.5 billion gallons of domestic feed is what it calls for in the proposal. And we're generating almost 7 billion gallons of domestic feed in North America now. So big macro, I would start there and say, I don't know how much imported feed is even in the mix. Now if you go down a little bit, there are certain plants that just logistically would have a really hard time potentially bringing in or would need to just work on their rail, et cetera, to do more around domestic. And I think that's something that can be done in time. But they may be in the mix for a little bit. But big picture, we don't think that imported feed is needed to meet the proposed RVO. If it is temporary, then I think exactly what you said is right. You would look at our supply stack and you would say those folks that are running on imported feed, the RINs basically would have to cover that price. The RIN price in order for them to run and meet the D4 requirement would have to adjust so that at half RIN value, they'd be incentivized to do that. So either the price of the imported feed would have to go down. That's not going to happen because it's a global market that has a floor price to it or the price of RINs would have to react. So we see that as a potential. And I guess it's an upside possibility. But more practically, I just don't see that imported feed will be needed to meet the proposed RVO. And we're hoping that as the group there, the EPA studies deeper into it and closes the comment period today that they'll come to the same conclusion and increase it.

Got it. Yes, that's great color. And my follow-up is just a clarification on the PTC monetizations. And I know you talked about signing some term sheets. Is there anything on regulatory front that needs to be finalized in order to convert those term sheets into final deals? Or is it just normal -- more normal course working through the paperwork?

No, I think just normal course working through the paperwork. We're in that process now. We haven't come across anything where anybody said that, hey, we need to slow down. So I think it's just the normal process. It did get delayed a little bit while rumors were swirling around the PTC and the Big Beautiful Bill kind of negotiation. But now that's behind us, it looks like game on and return to normal. So we're not seeing anything that would stand in the way. We're seeing a lot of activity there and expect to have these things sold by the next time we're talking.

This concludes our question-and-answer session. I would like to turn the conference back over to John Kompa for closing remarks.

Thank you, Steve. On behalf of Todd and the entire management team, I'd like to thank our shareholders for joining our call today and your continued support. Have a great rest of the day. Thank you.

Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.