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Edited Transcript of CLMT earnings conference call or presentation 9-Aug-18 1:00pm GMT

Q2 2018 Calumet Specialty Products Partners LP Earnings Call

Indianapolis Aug 24, 2018 (Thomson StreetEvents) -- Edited Transcript of Calumet Specialty Products Partners LP earnings conference call or presentation Thursday, August 9, 2018 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Bruce A. Fleming

Calumet Specialty Products Partners, L.P. - EVP of Strategy & Growth - Calumet GP, LLC

* David West Griffin

Calumet Specialty Products Partners, L.P. - Executive VP & CFO of Calumet GP, LLC

* Joseph Caminiti

* Timothy Go

Calumet Specialty Products Partners, L.P. - CEO of Calumet GP, LLC

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Conference Call Participants

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* Jason Daniel Gabelman

Cowen and Company, LLC, Research Division - VP

* Michael Christopher Gyure

Janney Montgomery Scott LLC, Research Division - MD of Forensic Accounting and MLPs

* Roger David Read

Wells Fargo Securities, LLC, Research Division - MD & Senior Equity Research Analyst

* Sean M. Sneeden

Guggenheim Securities, LLC, Research Division - MD & Trading Desk Credit Strategist

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and welcome to the Second Quarter 2018 Calumet Specialty Products Partners, L.P. Earnings Conference Call. (Operator Instructions) Also, as a reminder, this conference call is being recorded.

At this time, I'd like to turn the call over to your host, Joe Caminiti, Investor Relations. Please go ahead.

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Joseph Caminiti, [2]

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Thank you, Dillon. Good morning, everyone, and thank you for joining us today for our second quarter earnings results call. With us on today's call are Tim Go, CEO; West Griffin CFO; 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 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 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 the 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, please turn to Slide 3 as I pass the call to Tim Go. Tim?

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Timothy Go, Calumet Specialty Products Partners, L.P. - CEO of Calumet GP, LLC [3]

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Thanks, Joe. Good morning, everyone, and thank you for joining us. Calumet delivered another strong quarter of performance results. Our core markets remain healthy. We continue to execute well against our strategic priorities and, perhaps most importantly, our long-term transformation remains on track. I'm going to spend some time discussing our company-wide performance and some operational highlights for the second quarter, and then turn the call over to West to speak specifically to our performance and developments regarding our balance sheet, financing and capital spending.

Calumet generated total company adjusted EBITDA of $78.9 million for the most recent quarter. Looking at the performance on an equivalent basis to exclude the assets we sold last year, our second quarter results represent roughly a 7% improvement to underlying performance year-over-year. These results were driven by healthy markets for our specialty business and improved margin environment for our fuels business and the incremental benefits of our self-help program.

The elimination of our secured notes caused us to incur $58.2 million of debt extinguishment costs as a special charge that directly impacted net income and earnings per unit. After this one-time charge, our net income and earnings per unit would have been $6.3 million and $0.08 per unit, respectively.

Calumet's self-help program continues to boost our business performance. And in the second quarter, we captured an additional $7.8 million in adjusted EBITDA. As we've discussed before, our self-help program is aimed at continuously improving margin capture, reducing operating costs and creating quick payback capital investments.

On the margin enhancement side, we've put initiatives in place to increase advantaged crude opportunities in all 3 of our fuels refineries. We also initiated and completed 2 smaller capital projects during the quarter, which are already beginning to help our results. We spoke about these projects briefly last quarter, but to elaborate, first, we recently started up our new isomerate unit at our San Antonio refinery, which has allowed us to sell premium gasoline from that facility for the first time ever. And second, we completed a project at the Great Falls refinery that upgraded both the quality and market price for our naphtha products.

We also continue to make significant progress with our ERP system implementation. As many of you are well aware, we began implementing the new enterprise resource planning system late last year. The implementation brought some challenges and caused issues with the timely reporting of our quarterly financial information. We have improved the ERP system to the point that we're now filing without any extensions. As a result, you will see us return to a more normal process of announcing our earnings call a few weeks before the call for the third quarter.

Another good sign is that we expect our ERP-related expenses will come in meaningfully lower than last year's total. We incurred $2.4 million in expenses associated with the implementation during the second quarter, bringing the year-to-date total to $6.1 million.

Before I turn the call over to West, I'd like to point out that after adjusting for divestments, we have now delivered 7 quarters of continuous year-over-year improvement, which is a clear indicator that the strategic focus and self-help efforts to improve our operations and grow our profitability are working.

With that, I will turn the call over to West. West?

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David West Griffin, Calumet Specialty Products Partners, L.P. - Executive VP & CFO of Calumet GP, LLC [4]

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Thanks, Tim. Slide 4 shows that our specialty products adjusted EBITDA of $53.7 million was down versus last year's quarterly record of $67.1 million. We had a strong contribution from our higher-margin finished lubricants division, where we had another record quarter of sales volumes.

Additionally, we had an increased contribution from our solvents business, which tends to have lower margins. The contributions from these 2 businesses were offset by the continued secular increase in crude oil prices as well as some unplanned maintenance activity in our base oils and white oils businesses. The maintenance activity included a week-long power outage at our Shreveport facility as well as maintenance outages at one of our third-party white oil suppliers.

Our gross profit per barrel of $37.12 declined versus $41.87 recorded in the second quarter of 2017, but meaningfully improved versus $33.11 a barrel in the first quarter of the year. The year-over-year performance reflects modest changes in mix as we ramped up our solvent sales, while the sequential improvement reflects normal seasonality as shown in the next slide.

As you can see in Slide 5, our trailing 12-month adjusted EBITDA margin shows the stability and predictability of the specialty segment across the fullness of the year. While the trailing 12-month margin ticked down slightly this quarter, this is largely a function of removing the record-setting adjusted EBITDA performance from the second quarter of 2017.

Our adjusted EBITDA margin of 14% was down compared to 19.6% in the year-ago period, but up sequentially versus the first quarter of the year. We took a number of pricing adjustments in the quarter to offset elevated material costs, and we expect the impact of these adjustments to take effect in the third quarter.

Moving to our fuel segment performance on Slide 6. You can see that we produced adjusted EBITDA results of $25.6 million, which was down compared to the second quarter of last year. However, excluding the divestiture of the superior asset, our adjusted EBITDA results improved by 320% compared to the underlying performance in the year-ago period. In addition, our Great Falls refinery captured a quarterly record for throughput volume as we took advantage of favorable WCS discounts.

Our gross profit per barrel of $5.09 for the quarter was up nearly 30% compared to $3.92 in the year-ago period. The increase in gross profit was driven by the 28% year-over-year increase in our benchmark Gulf Coast 2/1/1 Crack Spread of $4 per barrel and the $9 per barrel increase in the WTI/WCS basis differential, both of which were somewhat offset by the $3 per barrel increase in LLS pricing versus WTI.

On a sequential basis, the WCS/WTI spread narrowed by an average of $8 per barrel versus the first quarter, adversely affecting the Great Falls refinery. And the LLS/WTI spread widened approximately $2 per barrel, adversely affecting the San Antonio refinery. The WCS discount to WTI remains very attractive and benefits our operations at Great Falls. As we mentioned earlier, our Great Falls facility processed roughly 25,000 barrels per day of crude priced off of WCS during the quarter.

In our PADD 3 refineries at San Antonio and Shreveport, we mentioned last quarter that we would begin sourcing additional barrels of discounted Midland-priced crude. During Q1, we processed roughly 6,500 barrels per day of Midland WTI. In this quarter, we were able to increase that to 10,500 barrels per day. Further, we achieved a run-up of 17,000 barrels per day of Midland-priced WTI during the month of June, and we're expecting to realize the full quarter benefit of these changes in crude mix during the September quarter.

On Slide 7, we've provided an adjusted EBITDA log that summarizes the year-over-year drivers of our performance. First, you can see the positive impact that our fuel segment had for the quarter, despite the impact of the Superior divestiture. Lower margins and volumes in the specialties business compared to last year were drags. Operating cost increases compared to last year's second quarter primarily reflecting rent hardship relief received in the second quarter of 2017. Finally, we had 3 other positive contributors as we had lower SG&A, the positive impact of self-help program and $14 million in other, which is partially driven by the decreasing size of the ongoing rents liability carried on the balance sheet.

Slide 8 provides the cash bridge for the quarter, where you see that we used $350 million of restricted cash and $96 million of additional cash to redeem our secured notes. We had $25.3 million of cash flow from operations and $14.2 million from proceeds on the sale related to the divestiture of our prior JV in China, which we sold for a modest profit; and additional cash consideration related to our previously closed Anchor transaction.

Working capital used $28 million of cash in the second quarter, as sales rose roughly 26% versus the first quarter, partially due to improved operations, but also due to the higher crude prices leading to higher levels of receivables. Payables also declined somewhat as we finished getting the backlog in the back office to normal levels.

Lastly, we had $16.5 million in CapEx during the second quarter, primarily focused on the maintenance and turnaround activity that we talked about earlier.

Slide 9 shows that our working capital spending is tracking lower full year guidance of $80 million to $90 million. The second half of the year will include heavier maintenance activity across our assets. We had a partial turnaround at our Princeton facility that we just completed, and we will be starting a partial turnaround at Great Falls later in the quarter. Considering that we have spent only $34 million through June, we expect that our full year capital spending totals will come in towards the bottom of the $80 million to $90 million range. Calumet will remain judicious on how we spend our capital.

Slide 10 provides a snapshot of the hedges we have in place as of the end of the second quarter. We added to our diesel WCS hedges during the quarter and also started to hedge our Midland WTI crude runs. The purpose of these hedges is to reduce our volatility of the flat price of crude and capture the attractive market differentials to help ensure that we deliver the cash flows from our fuels business. Some of you may not be familiar with this format, but the percent of WTI hedges shown in the upper left-hand box were put in place during the quarter to hedge the ULSD/WCS differential. Assuming today's WTI prices, the hedges provide roughly a $49 to $51 per barrel crack spread. In addition, we've put in place some Midland WTI hedges depicted in the lower chart, which help lock in incremental differential to the crack spread, which benefits our Shreveport refinery, which is running approximately 17,000 barrels per day of Midland-priced WTI. We will continue to evaluate our hedging activity as the year progresses.

Before I turn the call back to Tim, allow me a moment to speak specifically to our credit metrics, which we'll -- you'll find on Slide 11. As we've noted previously, early in the quarter, we fully redeemed our senior secured notes in an effort to reduce the burden on our cash flow stemming from heavy interest payments as well as to remove the restrictive covenants required by the secured notes. In May, S&P upgraded our senior unsecured notes to B minus. You will see that our available liquidity of $382 million as of the end of the quarter dropped relative to the $458 million we had available to us at the end of the prior quarter. As a reminder, the $458 million excluded the $350 million held in escrow for the redemption of the secured notes. Given that we used approximately $96 million beyond the amount in escrow to retire the secured notes, on an apples-to-apples basis, we had $362 million of liquidity last quarter after giving effect to the extinguishment of the secured notes versus $382 million this quarter, indicating that our liquidity in our core business actually improved $20 million during the second quarter.

Lastly, the redemption of our notes also had a modest impact on our leverage, as measured by our net debt to trailing 12-month adjusted EBITDA. We remain committed to improving our leverage by increasing our adjusted EBITDA through our self-help program, while incrementally growing our liquidity levels.

With that, I'll turn the call back to Tim for some final remarks.

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Timothy Go, Calumet Specialty Products Partners, L.P. - CEO of Calumet GP, LLC [5]

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Thanks, West. Turning to Slide 12, you'll see the results of our self-help program. As I mentioned at the top of this call, the program helped Calumet produce $7.8 million in adjusted EBITDA for the quarter, much of those gains coming from our efforts to capture more value within our supply chain as well as contributions from the expansion of our finished lubricants production capacity.

We have captured roughly $16 million of adjusted EBITDA through self-help efforts this year, and we continue to expect between $40 million to $50 million in adjusted EBITDA results by year-end.

Self-help is not simply an operational initiative, but inherently strategic as well. It is clear that our commitment to lowering our costs and enhancing our margins through self-help has been a significant contributor to the success we've seen over the last 7 quarters of continuous improvement, adjusting for divestments. But in fact, our results this quarter represent the third-highest quarter we've had in the last 3 years as reported, even without the contributions of the assets we divested last year.

On Slide 13, we detailed our outlook for the upcoming quarter. In our core specialty products business, we expect a typical seasonal outlook, somewhat offset by higher crude prices and planned maintenance at our Princeton facility, which will wrap up this week. We expect continued strengthening of demand in our solvents business from increased oil field activity.

In our fuels business, we expect continued benefits from attractive crude differentials, offset somewhat by planned turnaround activity at our Great Falls refinery. We will continue processing as much discounted crudes through our refineries as we can efficiently source, with expectations that we process roughly 24,000 barrels a day of heavy Canadian crude at Great Falls and 17,000 barrels a day of Midland WTI at our Gulf Coast refineries during the second half of the year.

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

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from Roger Read from Wells Fargo.

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Roger David Read, Wells Fargo Securities, LLC, Research Division - MD & Senior Equity Research Analyst [2]

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Just diving in here, things look pretty good. Certainly, margins overall are tracking fairly well. Execution, I guess, may be my biggest question. We look back over the last year, some things not your fault, like the hurricane; some things maybe self-inflicted like the ERP implementation; some unplanned downtime here in Q2. Is it something that you can recapture as we go forward? I know mix is going to be mix, but I'm just trying to understand if volumes get recaptured into temporary effect or is it something where you lose to the broader industry and it doesn't get recaptured? And then can you give us an idea maybe of the volume impact from the planned turnaround at Princeton this quarter?

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Timothy Go, Calumet Specialty Products Partners, L.P. - CEO of Calumet GP, LLC [3]

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Yes, Roger, this is Tim. Yes we're -- overall, we're pleased with the margin. We mentioned that earlier. In a rising crude environment, we know specialty margins will be lagging and [shaking] that rising crude, and that's certainly what we've seen over the last really couple of years. But if you -- as you pointed out, the specialty margins are actually pretty strong. In fact, probably one of the higher margins per barrel in this type of rising crude environment, which gives us confidence that we are keeping up and maybe even catching up to the rising crude prices. In terms of execution, in the first quarter, we had a planned downtime at Shreveport, which certainly impacted our volume and our productions in the first quarter. In the second quarter, it was primarily unplanned, as you mentioned, at Shreveport. Most of it was associated with an external power outage that ended up taking the plant down for about a week. Unfortunately, Roger, that's lost barrels of production. And so we're not going to get that back. And we call that lost opportunity that we track and continue to focus our efforts on in terms of minimizing that. We also had some third-party supplier outages, Roger, that resulted in lost production. That also is not going to come back in the future. It's unfortunate. We've been working with our supplier to continue to improve their reliability. But all in all, we would probably characterize those lost opportunities at about $8 million for the quarter. Your question about Princeton, in Princeton we're just finishing up the turnaround right now. It was about a 30-day turnaround at Princeton. It was partial. We continue to run crude, but our hydroprocessing facility was down for turnaround. So our impacts will be a partial impact on the third quarter results.

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Roger David Read, Wells Fargo Securities, LLC, Research Division - MD & Senior Equity Research Analyst [4]

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Okay, great. Changing gears a little bit. Longer term you've been talking about maybe restructuring the company in various ways, some of which, obviously, we've seen, the sale of Superior. As you look at both acquisitions and/or divestitures here, how do we -- how should we think about the fuel products and the specialties business? We add to both from here? Or do we take away from one? Does the market look more or less favorable for either side?

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Timothy Go, Calumet Specialty Products Partners, L.P. - CEO of Calumet GP, LLC [5]

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Yes, Roger, on restructuring -- I'll take a shot at this and then, Bruce, you can jump in if you like. But we continue to look at all opportunities, whether they be on the specialty side or the fuel side. We continue to look at divestments; we continue to look at acquisitions. So all of those remain in play. What I would tell you is, we're probably not going to grow in the fuels area. That's something that we signaled to you guys last year. We are looking to continue to grow in the specialties area as demonstrated by our acquisition of Biosynthetic last quarter. But just because we're not going to add more assets in the fuels business doesn't mean that, that fuels business isn't still important to Calumet. And so I just want to emphasize, for example, Shreveport, which we've talked about before, continues to be a core asset for Calumet and has both specialties and fuels exposure. We've been working and focus very hard on improving the overall profitability of Shreveport, both on the specialties and the fuel side. And in particular, we're very encouraged by the current Midland/Cushing/WTI differentials that we're going to be able to take advantage of at Shreveport. So you look at Great Falls, and with the strong WCS differentials that we're seeing here going into the third quarter, again, we're very pleased with the outlook for those facilities. And then when you think about the overall IMO 2020 impacts and how that's going to continue to strengthen the diesel cracks in the market, we think Calumet are well positioned, our facilities are well positioned to take advantage of not just the crude differentials, but also the higher demand and the higher margins associated with the IMO 2020 initiative. If you think, Roger, about just overall how Calumet's specialties and fuels businesses are stacked up, we make about 30% of our production of ULSD and jet, so call that a distillate mix. We make another 8% or 9% in solvents, which will directly be impacted by the IMO 2020. And then we make another 10% to 11% in base oils, which we also think will be helped by the IMO 2020 initiative. So overall, our products will be exposed roughly 50% to the rising diesel cracks that we're starting to see here and look to in the future.

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Roger David Read, Wells Fargo Securities, LLC, Research Division - MD & Senior Equity Research Analyst [6]

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That's a really good clarity on that. One last question from me, RINs, I know the prices of these things have come down quite a bit, a part of that the small refinery exemptions. You would seem to have units that pretty well -- or at least by paper, would seem to qualify, but we haven't seen anything specific on a small refinery exemption for you. I was just wondering if you could kind of update us on your approach to that?

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Bruce A. Fleming, Calumet Specialty Products Partners, L.P. - EVP of Strategy & Growth - Calumet GP, LLC [7]

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Roger, this is Bruce. There's so much opaqueness around the RINs public market that it's really hard to interpret what some of the relative performance metrics are from our peers. A couple of them have announced exemptions. We tend to footnote those as we've received them in the past. There's really no clear view where the whole program is headed right now.

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Operator [8]

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Our next question comes from Jason Gabelman from Cowen.

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Jason Daniel Gabelman, Cowen and Company, LLC, Research Division - VP [9]

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I just had a quick question on the Permian crude sourcing. Could just talk about where you're sourcing that crude from? And how you're transporting it to your refineries? So just trying to hone in on what the transportation cost is for you guys?

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Timothy Go, Calumet Specialty Products Partners, L.P. - CEO of Calumet GP, LLC [10]

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Yes, Jason, this is Tim. Let me try to explain. We've made a lot of efforts and we've talked about that earlier on the call. We continue to improve our Permian exposure, primarily to the Shreveport refinery, but I can tell you we're also looking at trying to support and bring some of that over to our San Antonio refinery. The 17,000 barrels a day that we've talked about, that we actually got to that run rate here in June, and we believe we're going to be able to continue that through the rest of the year. You could -- the way I would model it, Jason, and the way I would think about it is, we have full exposure to the Midland/Cushing/WTI differential for 12,000 barrels a day of that 17,000. It's via pipeline and contractual arrangements and it only has an incremental cost of about $0.75 to get that to the refinery. So that 12,000 is in pretty good shape. You will note that West talked about, earlier in the call, that we've hedged a lot of that volume already. So if you take those hedges, subtract $0.75 on the incremental costs, you'll get a feel for what kind of uplift we're looking for on that 12,000. The additional 5,000 barrels a day are Midland-priced barrels, but after transportation and other expenses, they net out at a fixed benefit of about $1.50 a barrel for those 5,000 barrels. So that's kind of how the 17,000 overall shake out. We're very pleased with the improvement that, that provides in our third quarter outlook and our fourth quarter outlook. And we are continuing to look at ways to bring more of Permian crude into our Shreveport and San Antonio refineries.

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Jason Daniel Gabelman, Cowen and Company, LLC, Research Division - VP [11]

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Great. That's really clear. If I could just ask a follow-up about the refinery projects that you mentioned, the isomerate unit in San Antonio, the naphtha upgrading in the Great Falls. What type of contribution are you seeing from those? Or can you put any metrics beyond the 1-year payback period to those projects?

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Bruce A. Fleming, Calumet Specialty Products Partners, L.P. - EVP of Strategy & Growth - Calumet GP, LLC [12]

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Sure. I think we can give a little bit of guidance there. We've just completed our initial look back on both projects, and at the current commodity price environment, we're right at $10 million a year of EBITDA.

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Operator [13]

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Our next question comes from Sean Sneeden from Guggenheim.

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Sean M. Sneeden, Guggenheim Securities, LLC, Research Division - MD & Trading Desk Credit Strategist [14]

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Tim, maybe for you, as we're getting ready to lap a full year on the ERP implementation, can you talk a little bit about the opportunities that you see that may be available, whether it's on the cost side or other synergies that you can share with us?

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David West Griffin, Calumet Specialty Products Partners, L.P. - Executive VP & CFO of Calumet GP, LLC [15]

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Yes, this is West. That's a great question. One of the things that we envisioned when we went live on our ERP system was to consolidate all of our transportation and optimize our transportation costs. And so that was a huge benefit we were anticipating. Unfortunately, when we went live on the ERP system, we had to disable a lot of that functionality because we had some bigger issues that we had to deal with. We have since started to roll that out, and I think I may have touched on it briefly on the last call. We have 3 plants that are currently utilizing that feature, which helps us to coordinate and optimize our pricing on all our transportation. And we're rolling it out to our other plants on a program basis where we think we'll have almost all of those -- all of our plants switched onto it by the end of this year. One of the things you'll note is our transportation cost has been relatively steady to actually declining a little bit. And that's in face of the market where you've had kind of a secular increase in transportation costs across the board. So I think, while there is more to be done in this area, we think that, that's going to actually be incredibly helpful to us to maintaining our margins and our profitability, in spite of some increased cost hitting the overall market. The other key areas that we think there's going to be a tremendous amount of this help is that, historically, prior to the implementation of our ERP system, we did not have good visibility with respect to where we were making our money, in which products, et cetera, and what the overall product profitability was, et cetera, as well as various market channels. We have great hopes for that. We're just now getting to the point where we're going to be getting that information here in the next quarter. And obviously, that is a key driver. If you know where you're making your money and where you're not, you can then start optimizing your business. And so we have not identified exactly kind of what we're going to be able to realize associated with it, but we have great hopes here in the future, and that's something to sort of look at and monitor as things progress here over the next couple of quarters.

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Sean M. Sneeden, Guggenheim Securities, LLC, Research Division - MD & Trading Desk Credit Strategist [16]

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That's helpful. So I guess, when you think about at least the transportation impact and that optimization plan, we should kind of be anticipating you guys kind of keeping relatively consistent cost as we head into next year when that system is kind of fully rolled out. Is that how we should think about that impact?

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David West Griffin, Calumet Specialty Products Partners, L.P. - Executive VP & CFO of Calumet GP, LLC [17]

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I would anticipate that our -- whatever increases the market generally has in transportation, we'll realize fewer, is the way I think about it, because of the rollout of the system is going to help us control our costs better.

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Sean M. Sneeden, Guggenheim Securities, LLC, Research Division - MD & Trading Desk Credit Strategist [18]

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Got it. That's helpful. And then I guess, just two quick housekeeping questions, if you don't mind. I guess, one, on working cap, there was a use of cash in the quarter, and I think first half. What kind of order magnitude should we be thinking about as a source of cash in second half as you unlock some of the inventory and whatnot?

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David West Griffin, Calumet Specialty Products Partners, L.P. - Executive VP & CFO of Calumet GP, LLC [19]

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So the second half of the year, really not anticipating too much other than the typical sort of seasonality. So obviously, you have a build-up in inventory over the year associated with the asphalt season. And obviously, this is -- we're rolling into the peak asphalt season. And so we'll be liquidating those inventories, and you'll see the working capital decline associated with that.

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Sean M. Sneeden, Guggenheim Securities, LLC, Research Division - MD & Trading Desk Credit Strategist [20]

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Got it. And I guess, the expectation then is that, with some of the benefit from working cap, you should be roughly kind of free cash flow positive when you kind of compare that with the CapEx guidance that you've talked about. So is that a fair assumption?

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David West Griffin, Calumet Specialty Products Partners, L.P. - Executive VP & CFO of Calumet GP, LLC [21]

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Yes, our key driver since 2017 is to be cash flow positive on an annual basis. And so, we're very, very focused on making sure that we get our debt down and our -- improve our credit metrics, and we want to be driving the company to be cash flow positive.

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Sean M. Sneeden, Guggenheim Securities, LLC, Research Division - MD & Trading Desk Credit Strategist [22]

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Great. And then just lastly for me, any kind of new thoughts, West, on current balance sheet? Obviously, your picking up of secured notes was pretty much of a positive, but how you guys are thinking about the current maturity wall, and any plans to kind of push that out beyond where we are today?

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David West Griffin, Calumet Specialty Products Partners, L.P. - Executive VP & CFO of Calumet GP, LLC [23]

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So that's a great question. We've got, obviously, $900 million of the 2021 unsecured notes. There's nothing wrong with those notes. There's -- we love the coupon associated with this, it's just that there is a lot of them. And yet, at the same time where we sit today, interest rates over the next 2 years would have to go up a tremendous amount to justify taking those notes out today versus waiting. So to a certain extent, we're kind of paid to wait. One of the things that we've been doing, as you know, is we've been working to improve our balance sheet to get our metrics in better shape, talking to the rating agencies. We got the upgrade from S&P, single B minus. We're continuing to talk to Moody's and try to work to improve things as far as that's concerned. So we think that there is a little more runway here in terms of improving our credit metrics as well as potentially seeing some improvement in terms of our ratings. And so that's where we're going to be focused on in the short term before we consider refinancing our debt.

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Operator [24]

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And our last question comes from Mike Gyure from Janney.

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Michael Christopher Gyure, Janney Montgomery Scott LLC, Research Division - MD of Forensic Accounting and MLPs [25]

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Can you guys touch a little bit on, your capital spending forecast includes any funds for acquisitions or joint ventures or anything like that?

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David West Griffin, Calumet Specialty Products Partners, L.P. - Executive VP & CFO of Calumet GP, LLC [26]

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Yes, we don't include anything in our regular CapEx plans for any acquisitions or JVs or anything of that nature. We don't forecast acquisitions. And so, the spend and the guided CapEx spend that we provide is simply related to really our organic activities.

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Michael Christopher Gyure, Janney Montgomery Scott LLC, Research Division - MD of Forensic Accounting and MLPs [27]

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Okay. And then maybe secondly on the [lower of] cost to market adjustment, this quarter looks like it was a slight benefit. Was that mostly in the fuel segment or in the specialty products segment?

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Timothy Go, Calumet Specialty Products Partners, L.P. - CEO of Calumet GP, LLC [28]

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Yes, it was mostly on the field side, Mike. We detailed that out in the press release in the different sections of the segments.

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Operator [29]

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Thank you. This concludes our Q&A session. At this time, I'd like to turn the call back to CEO, Tim Go, for closing remarks. Please go ahead.

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Timothy Go, Calumet Specialty Products Partners, L.P. - CEO of Calumet GP, LLC [30]

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Thank you, again, for joining us today and for your continued support. Have a great day.

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Operator [31]

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Thank you, ladies and gentlemen, for attending today's conference. This concludes the program. You may all disconnect. Good day.