Calumet Inc (CLMT) 2010 Q2 法說會逐字稿

Welcome to the Second-Quarter 2010 Calumet Specialty Products Earnings Conference Call. At this time, all participants are in a listen-only mode. We will be facilitating a question and answer session towards the end of the conference.

(Operator Instructions)

I will now turn the call over to Jennifer Straumins, Executive Vice President. Please proceed.

Thank you, operator. Good afternoon, and welcome to the Calumet Specialty Products Partners investors call to discuss our second-quarter 2010 financial results. During this call, Calumet Specialty Products Partners will be referred to as the Partnership or Calumet. Also participating in this call will be Bill Grube, our President and CEO, and Pat Murray, our CFO. Following the presentation, we will hold the line open for a question and answer session.

During the course of this call, we will make 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 such 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.

We are very pleased with our results for the second quarter, considering that our largest facility, our Shreveport refinery was down for an extended turnaround during the entire month of April. Since the completion of the turnaround, we have continued to focus on increased run rates to meet higher demand for our specialty products and to take advantage of higher fuel products margins during the summer months.

We elected not to proceed with our unsecured notes offering in July of 2010 due to market conditions. We viewed this offering as an opportunity, and not a requirement, to refinance our existing term loan facility with longer term unsecured notes. We intend to continue monitoring the debt markets for the opportunity to complete a debt refinancing transaction under appropriate market conditions.

We are also continuing our fuel products and crude oil hedging programs. These programs continue to help protect us against rapid changes in pricing levels for both fuel products and crude oil.

And finally, as announced on July 9, 2010, the Partnership declared a quarterly cash distribution of $0.445 (sic - see Press Release) per unit for the quarter ended June 30, 2010, on all outstanding units. The distribution will be paid August 13 to unit holders of record as of the close of business on August 3, 2010. I'll now turn the call over to Pat Murray to review our financial results.

Thanks, Jennifer. Net loss for the second quarter of 2010 was $0.9 million compared to a net loss of $26 million for the same period in 2009. These results include non-cash unrealized derivative losses of $8.0 million and $17.6 million for the quarters ended June 30, 2010 and 2009, respectively. The Partnership improved its quarter over quarter results by $25.1 million, due primarily to an increase of $31.3 million in gross profit, partially offset by increased realized derivative losses of $12.9 million.

We believe the non-GAAP measures of EBITDA, adjusted EBITDA, and distributable cash flow are important financial performance measures for the Partnership. EBITDA and adjusted EBITDA, as defined by our credit agreement, were $21.7 million and $27.8 million, respectively, for the second quarter of 2010, as compared to negative $1.9 million and $26.6 million, respectively, for the same period in 2009.

The Partnership's distributable cash flow for the second quarter of 2010 was $10.7 million, as compared to $14.3 million for the same period last year. The increase in adjusted EBITDA, quarter over quarter, was primarily due to an increase in gross profit, which was partially offset by an increase in realized losses on derivative instruments and an increase in cash outlays for prepaid and accrued expenses.

We encourage investors to review the section of the earnings press release, found on our website, entitled Non-GAAP Financial Measures and the attached tables for discussion and definitions of EBITDA, adjusted EBITDA, and distributable cash flow of financial measures and reconciliation of these non-GAAP measures to the comparable GAAP measures.

Gross profit by segment for the second quarter of 2010 for specialty products and fuel products was $46.4 million and $3.2 million, respectively, compared to $20.7 million and negative $2.4 million, respectively, for the same period in 2009. The increase of $25.7 million in specialty products segment gross profit was primarily due to an increase of 41.5% in the average selling price per barrel of specialty products, while the average cost of crude oil per barrel increased by only 32.3%. Also, our specialty products sales volumes increased 4.7%, due primarily to improvements in overall specialty products demand and the addition of sales volumes under our specialty products segment agreements with LyondellBasell, which we entered into during the fourth quarter of 2009.

Fuel products segment gross profit, quarter over quarter, was positively impacted by improving crack spreads, combined with a $2 million increase in derivative gains on our fuel products hedges. Partially offsetting this increase in gross profit per barrel was a 22.6% decrease in fuel products sales volume. Sales volume decrease for this segment was due primarily to the decrease in production rates at our Shreveport refinery in the second quarter, due to the extended turnaround at the refinery during the entire month of April.

Selling, general, and administrative expenses increased $1.4 million to $8.3 million in the three months ended June 30, 2010, from $6.9 million in the same period in 2009. This increase is primarily due to lowered bad debt expense in the second quarter of 2009, resulting from the recovery of $0.9 million from a fully reserved account receivable from that period, as well as increased incentive compensation costs of $0.4 million in the second quarter of this year, as compared to the same period last year.

Transportation expense increased $3.9 million to $20 million in the three months ended June 30, 2010, from $16.1 million in the same period last year. This increase is primarily due to increased sales volumes of lubricating oils, solvents, and waxes.

Interest expense decreased $1.2 million, or 13.9%, to $7.3 million in the quarter ended June 30, 2010, from $8.5 million in the three months ended June 30, 2009, primarily due to lower interest rates and lower balances being carried on our revolver and term loan during the three months ended June 30, 2010, as compared to the same period in 2009.

As of June 30, 2010, total capitalization consisted of partners' capital in the amount $422.2 million and outstanding debt of $408.8 million, comprised of borrowings of $369.3 million under the term loan facility, with an unamortized discount of $11.9 million on the term loan, borrowings of $49.1 million under the revolver, and a long-term capital lease obligation of $2.3 million. The $63.2 million decrease in partners' capital from December 31, 2009, is primarily due to $32.8 million of distributions to our partners, net loss recorded of $14 million, and an $18 million decrease in other comprehensive income, due to a decrease in the fair market value of our derivative instrument as well as a settlement of derivative instruments designated as cash flow hedges.

We finished the second quarter of 2010 in compliance with all of the financial covenants pursuant to our credit agreements, which are measured quarterly. While assurances can't be made regarding our future compliance with these covenants, we believe that we will continue to maintain compliance with all of the covenants in our credit agreements.

On June 30, 2010, we had availability under our revolver of $112.5 million, based on a $228.5 million borrowing base, $66.9 million in outstanding standby letters of credit, and outstanding borrowings of $49.1 million. We believe that we will have sufficient cash flow from operations and borrowing capacity to meet our financial commitments, minimum quarterly distributions to our unit holders, debt service obligations, contingencies, and anticipated capital expenditures. Now I'll turn the call over to Bill Grube.

Thank you, Pat and Jennifer. This concludes our remarks. We will now be happy to answer any questions you may have. Operator, would you please confirm if there are any questions?

(Operator Instructions). Our first question comes from the line of Darren Horowitz with Raymond James. Please proceed.

Good afternoon. Jennifer, a couple questions from me. First, I'm trying to get my arms around the magnitude of specialty products demand and the sustainability of that demand through the third quarter. Could you give us a little insight there, please?

Sure. Our demand has continued to strengthen each quarter, really, since third quarter of last year. And there are a number -- a number of our competitors are still on or will be on announced turnaround programs, so we anticipate our specialty products demand remaining very strong through the end of the year.

Okay. Where is the Shreveport refinery running relative to its capacity now? And could you also give us an update on the capacity utilization levels at both Princeton and Cotton Valley, please?

Sure. Shreveport is running around 45,000 barrels a day -- 45,000 to 46,000 barrels a day of crude right now, and maximum capacity there is 55,000. So it's got a little room to go. We've just now come back online, 100% recovered from the environmental incident that we had in February. We were operating under a variance, and that equipment has been replaced at this point in time and anticipate run rates to start increasing, due to that.

As far as Princeton and Cotton Valley, Cotton Valley is running at 100% of hydrotreater utilization, and Princeton is running at about 85% to 90% of hydrotreater utilization.

Okay. And then, just a couple housekeeping questions from me. Am I correct in assuming that the increase in your replacement maintenance CapEx this quarter was due to the costs associated with the Shreveport downtime?

No, that was -- well, the downtime due to the turnaround. There was a lot of turnaround expense in that number, and it's also timing. We said we'll spend around $20 million to $25 million in maintenance and environmental CapEx, and we anticipate that number to remain true for the rest of the year. So it's really just heavily weighted towards the first half of the year.

Okay. Should we apply the same range for full-year 2011 as well?

Yes.

Okay. And then, last question for me. As it relates to the potential $450 million term loan, can you give us some color as to what rate you were being offered, relative to what you were hoping to achieve?

No, I can't.

Okay. That's it for me. Thanks.

All right.

Our next question comes from the line of [Peter Matson] with [Drakar Capital]. Please proceed.

Hi. I think it probably relates to what you just mentioned, but I'll just ask it anyway, to make sure, and that is the -- it looks like that the total long-term debt dipped from end of '09 to end of Q1 and then kind of reapproached where '09 -- ending '09 levels of roughly $400 million. Is that kind of decrease and then increase in borrowings outstanding tied to the downtime and to the CapEx?

Not particularly. What it -- it's really tied more to increased working capital levels and increased borrowings under our revolver. We -- due to our agreement with LyondellBasell, we purchased some inventory from them during the second quarter and also, running higher rates at our facilities throughout the second quarter, we increased inventories and working capital. So that's what is driving the increase in debt.

Okay. And then, in the last -- at the end of the last quarter, you'd kind of discussed the Gulf Coast [2-1-1] crack spread as kind of being in the $7.00, $8.00 range during the first quarter, but then, as of May, it had kind of bounced back to $15. Roughly, where is that now and kind of, where has that been, kind of, since May?

Sure. It averaged about $11.50 for the second quarter.

Okay.

And it's a little over $9.00 today.

All right. Thank you. I don't have any other questions.

All right. Thank you.

(Operator Instructions). It appears there are no additional questions at this time. I will now turn the call back to Jennifer Straumins for closing remarks.

Thank you. This concludes our earnings conference call covering our second-quarter 2010 operating results. Thank you for your participation today, and please note that this teleconference will be available for replay, using the instructions contained in our press release. Have a great day, everybody.

This concludes today's presentation. You may now disconnect. Great day.