Calumet Inc (CLMT) 2010 Q3 法說會逐字稿

Good day ladies and gentleman, and welcome to the Third Quarter 2010 Calumet Specialty Products Earnings Conference Call. My name is Yvette, and I will be your operator for today.

At this time, all participants are in a listen-only mode. We will conduct a question and answer session towards the end of the conference.

(Operator instructions)

I would now like to turn the call over to your host, Ms. 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 third 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 and 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 the information 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 our Partnership's press release that was issued this morning, as well as our latest filings with the Securities & Exchange Commission for a list of all the 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 third quarter. Our production levels and gross profit have continued to improve each quarter this year. And we continue to focus on increased run rates to meet higher demand levels for our specialty products. We also have been continuing our fuel products and crude oil hedging programs. We expect these programs will continue to help product us against rapid changes in pricing levels for both fuel products and crude oil.

And finally, as announced on October 13, 2010, the Partnership declared a quarterly cash distribution of $0.46 per unit for the quarter ended September 30, 2010, on all outstanding units. The distribution will be paid on November 12, 2010, to unit holders of record at the close of business on November 2. The distribution represents an increase of half a cent per unit from the second quarter of 2010.

I will now turn the call over to Pat Murray to review our financial results.

Thanks, Jennifer.

Net income for the third quarter of 2010 was $21.2 million compared to net income of $4 million for the same period in the prior year. These results include non-cash unrealized derivative gains of $1.9 million and losses of $4.5 million for the quarters ended September 30, 2010 and 2009 respectively, which may or may not be realized in the future as these derivatives are settled.

The $17.2 million improvement in net income quarter over quarter was due primarily to an increase in $21 million in gross profit, partially offset by increased realized derivative losses of $6.3 million and higher transportation expense of $4.7 million due to increased sales volume.

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 agreements, were $44.1 million and $40.9 million respectively for the third quarter of 2010. That is compared to $27.7 million and $42.5 million respectively for the same period in 2009. The Partnership's distributable cash flow for the quarter ended September 30, 2010, was $28.6 million as compared to $30.2 million for the same period in 2009.

The slight decrease in adjusted EBITDA quarter over quarter is primarily due to increased realized losses on derivatives and increased transportation expense partially offset by higher gross profit. 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 the discussion and definition of EBITDA, adjusted EBITDA and distributable cash flow financial measures and reconciliations of these non-GAAP measures to the comparable GAAP measures.

Gross profit by segment for the third quarter for specialty products and fuel products with $60.9 million and $1.2 million respectively compared to $33.5 million and $7.6 million respectively for the same period last year. The increase of $27.4 million in specialty products segment gross profit quarter over quarter was primarily due to an increase of 19.7% in the average selling price per barrel while the average cost of crude oil per barrel increased by only 12.6%.

Also, specialty product sales volumes increased 23.1% due primarily to improvements in overall specialty products demand as a result of improved economic conditions and the addition of sales volumes under our specialty products agreements with (inaudible), which we entered into during the fourth quarter of 2009.

The decrease of $6.4 million in fuel products segment gross profit quarter over quarter was negatively impacted by the 13.9% decrease in fuel products sales volume as a result of lower overall throughput rates at our Shreveport refinery to facilitate the balancing of the inventory levels subsequent to the extended turnaround completed at that refinery in April 2010.

Partially offsetting this decrease in sales volume was a slight improvement in crack spreads and the average selling price per barrel of our fuel products increased by 14.8% driven by market conditions, including a 12.5% increase in the average cost of crude oil per barrel combined with the net $2.5 million increase in derivative gains on our fuel products crack spread cash flow hedges.

Transportation expenses increased $4.7 million or 25.6% to $23.3 million in the quarter ended September 30, 2010, from $18.5 million in the same period in 2009. This increase is primarily due to increased sales volume of lubricating oils, solvents and waxes. Interest expense decreased $0.4 million or 5.4% to $7.8 million for the quarter ended September 30, from $8.2 million for the quarter ended September 30, 2009, primarily due to lower interest rates and lower balances being carried on our revolver and term loan during the third quarter of this year compared to the same period in 2009.

As of September 30, 2010, total capitalization consisted of partners capital in the amount of $414.1 million and outstanding debt of $390.9 million comprised of borrowings of $368.3 million under the term loan facility with an unamortized discount of $11.3 million on the term loan, borrowings of $31.9 million under the revolving credit facility and the long-term capital lease obligation of $2 million.

The $71.2 million decrease in partner's capital from December 31, 2009, was primarily due to a $49.2 million of distributions to partners and a $31 million decrease in other comprehensive income, primarily due to a decrease in the fair market value of our derivative instruments as well as the settlement of derivative instruments designated as cash flow hedges partially offset by net income of $7.2 million.

We finished the third quarter of 2010 in compliance with all financial covenants pursuant to our credit agreements which are measured quarterly. While assurances cannot 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 September 30, 2010, we had availability under our revolving credit facility of $143.8 million based on a $251.1 million borrowing base, $75.4 million in outstanding standby letters of credit and outstanding borrowings of $31.9 million under the revolver.

We believe that we will continue to 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 will 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, could you please confirm if there are any questions?

Sure. (Operator Instructions). We have a question from the line of Darren Horowitz with Raymond James. Please proceed.

Good afternoon everyone. Jennifer, my first question -- I am trying to get a feel for specialty product demand. If I exclude the (inaudible) agreements that you guys have, and I just zero in on lube oils and solvents, both had rather significant sequential improvements, and I am just trying to get a better understanding of how that demand is tracking through the fourth quarter and what level of throughput for those two respective products you think is sustainable as we enter early 2011.

Demand for those two products has been very good all year. We have been unable to meet demand of paraffin or [lubricating] oils because issues that we have encountered throughout the year at our Shreveport facility. That facility is currently operating very, very well, and we would anticipate higher volumes in both solvents and lubricating oils going forward.

OK. And then just shifting gears a little bit looking at the transportation expenses, they were up rather significantly both on a year over year and on a sequential basis. Can you just give us a little more insight? Was there anything that was one time in nature or is this, you know, kind of $23 million run rate the expectation going forward?

Our transportation expenses are volume driven and really we recoup 90% of our transportation cost. We have to -- for accounting purposes we gross up sales and then show that transportation cost down under operating expenses. And as our volume increases, those costs will increase as well. And looking back, one of the things we look it over time is on a dollars per gallon basis of what those costs are, and those costs have been very stable over time.

Okay. Well, I appreciate the call and congratulations on the results.

Thank you.

(Operator instructions). Your next question comes from the line of Will Merritt with Gulf Stream Asset Management. Please proceed, sir.

Good afternoon, I just had a quick question -- wondering if you had thought any further on whether or not to proceed with the same notes offered. I know you had thought about it in early July and then pulled it. I was just wondering if there was any thought on coming back to the capital markets. Thank you.

We did do an -- we did try and offer it in July but we decided to pull based on market conditions. We are under no pressure to do anything at this point in time. We have got very good credit agreements, and at that point in time -- just thought we might take advantage of what had been good market opportunities -- no plans at this time to do anything immediately. We continue to watch the market.

Okay. That sounds good, thank you, and great quarter.

Thank you.

With no further questions in the queue, I would now like to turn the call back over to Ms. Straumins for closing remarks. You may proceed.

Thank you. This concludes our earnings conference call covering our third quarter results. Thank you very much for your participation in today's teleconference, and please note that this call will be available for replay using the instructions contained in our press release. Have a great afternoon everybody.