Calumet Inc (CLMT) 2017 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Calumet Specialty Product Partners First Quarter 2017 Results Conference Call. (Operator Instructions) As a reminder, this conference is being recorded. I will now turn the call over to Joe Caminiti in Investor Relations. Please go ahead, Joe.

Thank you, Latif. Good afternoon, everyone, and thank you for joining us today for our first quarter earnings results call. With us on today's call are at Tim Go, CEO; West Griffin, CFO; Bill Anderson, Head of specialty product sales; and Bruce Fleming who leads our Strategy & Growth functions.

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 the 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 management can provide any assurance 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 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 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'd like to pass the call to Tim Go. Tim?

Thanks, Joe, and thanks to all of you for joining us. The strategic actions we took in 2016 are starting to show in our financial results. In short, our transformation plan is working. That doesn't mean we're declaring victory yet, as we know we're still in the early innings of our turnaround, and we need to continue to execute. But it's good to see that our hard work that all of our employees put in 2016 is starting to have a meaningful impact on the performance of the business. So let's talk about some of the key highlights during the first quarter that we've listed on Slide 3.

First, improved margin capture in our 2 largest segments, specialty and fuels, drove solid adjusted EBITDA of nearly $79 million. Contributing to this result is the ongoing success of our self-help initiatives, which accounted for $18 million of that adjusted EBITDA total. Our specialty product segment had a nearly 10% increase in total sales volume compared to the first quarter of 2016. Volumes were up across nearly all of our product lines. Adjusted EBITDA within specialty products was $45.6 million, which was up over 50% sequentially compared to the fourth quarter of 2016.

Additionally, gross margin for the segment increased sequentially by 26% and came in at $31.85 per barrel. The actions we took to adjust our pricing over the last several quarters have started to have an impact despite the crude price increases during the quarter as well as some small maintenance activity at 2 of our facilities. Also contributing to these strong results was continued growth in our branded and packaged business, which saw volume growth of 14% quarter-over-quarter and 18% year-over-year. Once again, this business had record contributions to our quarterly earnings.

Our branded and packaged products include our Royal Purple high-end lubricants, our Bel-Ray specialty lubricants and greases, our convenience packaged consumer products sold under Quantum and TruFuel brands and our Penreco customer-based materials -- consumer-based materials used in a wide variety of personal care formulations. I am pleased by solid performance improvement in all of these brands.

Continuing on Slide 4 with our fuels business. Sales volumes were lower sequentially due to seasonality, but adjusted EBITDA was up to $36.8 million, and gross margin came in at $5.19 per barrel. Both results were significant improvements sequentially as well as year-over-year. And on a year-over-year basis, total sales volumes for the fuel segment was up nearly 2% compared to Q1 2016. Fuel segment improvement was driven by improved crack spreads, higher sales volumes, self-help initiatives, lower compliance costs associated with the drop in RINs prices and the absence of Dakota Prairie losses.

More specifically, the Gulf Coast 2/1/1 crack spread that we benchmark against was up 30% compared to the first quarter of 2016 and was up slightly versus the fourth quarter of 2016. Within our oilfield services segment, oil drilling rig counts were up 25% during the first quarter. We continue to believe that the anchor team is well positioned to succeed over the long term as the drilling environment gains momentum.

Moving to Slide 5. You can see that our trailing 12-month adjusted EBITDA has improved to over $230 million. We shared this slide with you last quarter, and I think it's important to share it again as it clearly shows that we are starting to turn the corner. Our end markets are improving, and our self-help efforts are incrementally accretive and ongoing, which we'll highlight later. Additionally, we're optimistic about a number of new growth opportunities that I'll talk through with you later in the presentation.

With that, I'll hand the call over to West to walk us through a few more specifics about our financial performance for the first quarter. West?

Thanks, Tim. I'd like to start at a big picture level today and directly address our liquidity and debt profiles. Taking a look at Slide 6, the improvement in adjusted EBITDA that Tim mentioned is reflected in our credit profile as we are stabilizing our balance sheet. We still have more work to do here, but our improving financial performance is having an impact on our key ratios. Specifically, our debt to trailing 12-month EBITDA has declined 9x, which is much better than where we have been. We remain committed to continued improvements and are targeting a long-term leverage profile of less than 4x.

Our fixed charge coverage ratio has also improved significantly over the last 2 quarters and now stands at 1.3x. And our liquidity, as measured by our revolver availability, has been reasonably steady over the last year since we completed the secured notes offer. This is especially relevant as we have largely stabilized our liquidity while simultaneously building our seasonal inventory during the first quarter to support our summer asphalt business. As we execute against these capital plans in 2017 and continue to drive further self-help initiatives, including lowering costs, higher margins and growth, we expect to become cash flow positive.

Let's move to our historical adjusted EBITDA review on Slide 7. I'd like to walk through a few of the specifics of our performance by segment. Before we do that, I want to remind our analysts and investors of 2 key issues that impact our comparisons. First, the first quarter of 2016 was an extremely volatile period that saw crude oil prices fall rapidly to the high $20 per barrel range for a period of time. And secondly, our first and fourth quarters are seasonally our weakest quarters of the year. Let's look at the year-over-year review.

First, you see a marked improvement in the performance of both our fuels and oilfield services segments. Adjusted EBITDA for the fuels product segments was $36.8 million for the period compared to negative $46 million in last year's first quarter. And oilfield services had a $2.2 million improvement year-over-year in adjusted EBITDA with a loss of $3.7 million this quarter. This period's oilfield services result also included a $1.4 million unfavorable LCM adjustment as well.

While adjusted EBITDA within the specialty products segment was down year-over-year, this was mostly a function of the rapid decline in crude costs in last year's first quarter. But our volumes continue to increase, and as we've talked about over the last few quarters, margins in our specialty products tend to trail crude oil price changes both on the way up and the way down.

Now let's look at our adjusted EBITDA results sequentially compared to the fourth quarter of 2016. Given the extreme volatility of last year's first quarter, this is really the more important comparison to see our recent progress. Here, you again see the improved performance in the fuels product segment, driven by higher crack spreads, positive contribution from our self-help initiatives and lower RINs compliance costs.

The really important takeaway in the sequential review is the much stronger performance in the specialty products segment, which had $45.6 million in adjusted EBITDA compared to just $28 million in the fourth quarter of last year. As Tim said, we had higher sales volumes across nearly all of our product categories including ongoing strong growth in the branded and packaged area. Further, the price adjustments we implemented last year and then again throughout the first quarter of this year started to take hold and drove gross profit per barrel to $31.85 this period compared to $25.30 last quarter.

In terms of sequencing, March had the highest gross profit per barrel of the 3 months, and April is continuing that trend, reflecting the price adjustments we made through the first quarter to adjust to higher crude prices. So as crude oil prices have stabilized, you're seeing exactly what we'd expect, which is to catch-up in our margins and profitability within the specialty segment.

If you take a look at Slide 8 for the year-over-year adjusted EBITDA bridge, we've talked about the specialty margin year-over-year declining already, which reflects the difference between the margin expansion in Q1 2016, when crude prices were falling, and margin compression in the first quarter 2017, when crude oil prices were rising. You can see here that a $5.5 million unfavorable change in the LCM inventory adjustment. Items that benefited the bridge included positive impact of lower operating costs, including lower RINs cost. They also include higher overall volumes, better fuels and OFS margins, lower SG&A and the divestiture of Dakota Prairie during the second quarter of 2016, which was an $11 million drag last year.

Lastly, you can again see the contribution from our self-help program.

Looking at Slide 9, you'll see that our cash position remained fairly flat quarter-over-quarter. The first item on the cash bridge is our new inventory financing program, and I want to take a few minutes to talk you through this as it's a new way we're looking to lower the risk profile of the company.

On March 31, we sold almost all of our inventory from our Great Falls refinery to Macquarie, an investment bank. The Great Falls refinery will now purchase all of its crude from them, thus shifting the majority of the underlying commodity exposure to them. Since our borrowing base can swing fairly dramatically with crude oil price movements, this again helps us to derisk the business by stabilizing our long-term liquidity profile as we work to continue to turn the corner in our core base business. We've only taken action with the Great Falls refinery at this time, but we will likely expand the program to include at least one other facility in the future.

This inventory financing added $32 million in onetime cash during the first quarter. From an accounting standpoint, we account for the inventory financing as a financing, so while we are technically -- we sold the inventory, we continue to show the inventory on our balance sheet and recognize the proceeds from the inventory financing as a liability. Operating cash flows improved as we have discussed, and revolver borrowings also added positively to the change in our cash position quarter-over-quarter. We have applied our improved cash position to fund working capital. This use is mostly for seasonal asphalt inventory builds, preparation for the Superior turnaround and a reduction in the balance sheet of our RINs liability. We also spent $17 million of cash for capital projects during the first quarter, including carryover payables from year-end.

Taking a look at our capital spending, on Slide 10. You can see that we incurred roughly $12 million in capital expenditures during the first quarter. In terms of our outlook, there aren't any changes here since our last communication as we still anticipate that we will have between $120 million and $140 million in total capital spending in fiscal year 2017. That's equal or slightly higher than 2016, but is also a significant drop compared to the heavy spending periods of 2014 and '15. Included in our forecast is typical maintenance and turnaround allocations of roughly $75 million per year.

Then we have 2 planned partial turnarounds this year at 2 of our fuels refineries. Superior is in the second quarter and then Montana in the second half of the year. Additionally, we have a handful of attractive low capital growth projects that Tim will update you on in a few minutes. So to conclude, we're making solid financial progress, and we believe that a path to being cash flow positive isn't far away, assuming market conditions continue to firm. We're also working to analyze our numerous potential paths towards lowering our debt.

We don't have much more to share with you on that topic today beyond what I've just told you. There are multiple ways to delever the business, and we'll choose the path that maximizes value and the interests of all our stakeholders. Until then, we're proactively removing costs and waste as well as growing our higher margin products.

Now I'll hand the call back to Tim to outline our progress on the strategic initiatives. Tim?

Thanks, West. Please move to Slide 11. Most of you have seen this graphic before, but it's important to remind all of you that we're executing against a defined strategy and have been for over a year now. The foundation of that strategy was the first leg of our self-help program, namely, operations excellence. In 2016, we focused heavily on this program to reduce costs, eliminate waste, optimize our raw material use and enhance our margins across our platform. Those efforts solidified our foundation and set the table for our recovery.

In 2017, we will continue to drive additional self-help through operations excellence, but we've also moved into the second stage of the program through the addition of opportunistic growth projects. These programs have low capital requirements and are expected to capture quick 1- to 2-year payouts. Let me first talk a bit more about our operations excellence.

Please turn to Slide 12. First, we continue to identify and eliminate costs, which includes additional headcount reductions earlier in the quarter. On the raw material optimization front, we are utilizing our heavy-up strategy to improve our cost of crude. This quarter, we processed 36,800 barrels per day of heavy Canadian-based crude oil, which was nearly 5,000 barrels per day more than last year's first quarter. Also of note, we are pleased to report that the new crude oil pipeline that we mentioned last year for our Shreveport refinery started up January 1.

Use of that pipeline has improved our crude oil flexibility and has lowered our delivered crude costs as well. In terms of margin enhancements, we continue to focus on capturing greater efficiencies in our supply chain and saw a $2.7 million reduction in our total transportation and procurement costs during the period. We also witnessed strong growth in our high-margin branded and packaged business.

Our TruFuel product in particular has been growing well, and we expect to see another record year out of the branded and packaged portfolio of products in 2017. But margin enhancement doesn't stop with our specialty segment as we are also enhancing our fuel product margins as well. These include structural improvements such as shifting to more term sales and moving more product over the rack, as well as better channel management.

Now let me turn to the opportunistic growth projects, on Slide 13. The first 2 of these projects are familiar to you from our fourth quarter call. Our BP packaging partnership continues to ramp up and expand as planned. Last quarter, we also introduced the flexibility project that we are continuing to progress at Superior to capture higher margins post the 2018 turnaround. But what I'm really pleased to introduce is the third item, which outlines a new product launch that we just announced this week.

On Monday, we announced that Calumet is introducing its first Group III synthetic base oil, which we call CALPAR 4GIII. The Group III classification characterizes the most highly refined base oil derived from crude oil, providing viscosity index levels above 120 and very high saturate content. CALPAR 4GIII is designed for extensive use in engine oil formulations to improve gas mileage, reduce emissions and extend oil change intervals. Our proprietary technology was developed in-house by our product development team and shows the innovation capabilities of our organization. In fact, with the launch of CALPAR 4GIII, Calumet becomes the first virgin producer of Group III base oils based in the United States. We expect this to have meaningful contributions to our self-help goals this year, and we also know the full impact may take another year to develop. This is just the start of a few new products we have in our pipeline, and we are looking forward to working with our customers to better serve their needs through future innovation.

Moving to Slide 14. You can see a summary of our self-help performance and future projections. In 2016, we had $89 million of self-help, and when coupled with the $18 million result in Q1 of 2017, we have now driven $107 million of incremental EBITDA over the first 5 quarters of the program and remain well on pace to achieve our 2018 goal of $150 million to $200 million. The $18 million that we delevered in the first quarter also keeps us on pace to achieve 2017's target of $40 million to $60 million.

Let me end my remarks on our outlook for the second quarter, on Slide 15. We told you in the fourth quarter that we were cautiously optimistic about the market environments for most of our products, and we believe that still to be the case. We anticipate that with a full quarter to work, that our price adjustments in the specialty portfolio will drive further improvement in product margins. For example, our solvents business has seen better supply and demand fundamentals, and our high-margin branded and packaged business is growing.

We expect some short-term compression in the WCS spreads given the Syncrude production issue in Canada. We expect to see typical seasonal patterns develop, and we'll continue building our asphalt inventory to prepare for the summer paving season. Momentum in drilling activity appears to be maintaining its positive trajectory, which should help us drive higher revenues in oilfield services. We will continue to identify and drive additional self-help as the year progresses and are on track to hit our self-help goal in 2017.

We have just launched our new Group III base oil product and expect to have another new product innovation to announce during the second quarter. While these new products will take time to develop in the marketplace, we see strong growth potential for them in the long term. Lastly, we'll continue to look for other ways to derisk the business, improve our liquidity and lower our debt profile as the year progresses.

That concludes our prepared remarks. So Latif, we'll go ahead and open the line for questions at this time.

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

Well, let me first say congratulations on the progress you're making here. And then maybe just to dive in on kind of the last thing you talked about here. Group III obviously a key area in terms of its margins. I was curious, and you kind of obviously cautioned it might take a little while, volumes you think you will have available in the market? And how does the marketing of that work? I understand it's an attractive business, but is it one that takes time to break into?

Yes, Roger. Thank you for your question. I appreciate the encouragement on the results. I will just say, first of all, that really, the first quarter results are a testament to the employees of Calumet. Again, I mentioned this at the last call, a never quit, never lose hope attitude that continues to drive the improvements that we're seeing here at Calumet. So thank you again for that comment.

In terms of group 3, we're very excited about this launch. As you know, the margins between group 3 and the next lower level, which is Group 2, is significant. And we think in a tight market where the supply is more than the demand, being able to upgrade into a group 3 margin tier is going to be important to our continued growth.

As far as volumes are concerned, let me ask our EVP of Specialties, Bill Anderson, to say a few comments. It's really him and his group that have put together this proprietary technology, and I'll give him a chance to shine here.

All right, sounds good. Thanks, Tim. So Roger, we're out of the gate. We've been -- we've made several batches of the product. We're working with additive companies to get approvals. We've got -- one of the largest additive companies has given us base oil interchangeability on products heavier than 5W grades, and we expect to have our 0W approvals later -- in the late spring, early summer. So we're progressing as we kind of lined out internally at the beginning of the year to get this program launched. From a volume perspective, we're going to be similar to some of the other announcements that have been made in the previous few months. We will be starting out somewhere less than 1,000 barrels a day and growing as our ability grows and the sales grows. And we'll be balancing that between our current customer base and going to new customers as well.

Okay, great. And then switching gears. West, if you could give me a little bit better idea, the inventory financing, I mean, I understand you get the cash in. Is this, like, thought of as factoring receivables? Or should be thought of as not quite selling forward? It's -- I don't know, I'm struggling a little bit I guess just to understand exactly what the mechanics of the event are.

Yes, no, that's a great question, Roger. So the inventory financing, the counterparty that you really need to have is a bank that has a pretty active hedge desk as well as can provide financing. And so what you're physically doing is you're selling them the inventory, transferring title to them and then taking it back just in time. So from an accounting standpoint, effectively, what's going on is you have, if the crude oil price is $50 a barrel, you have sold that crude at $50 a barrel, so it doesn't matter whether crude prices fall to $30 or not, nothing's going to happen in terms of your liquidity directly as a result of the change in crude price. From an accounting standpoint, you keep the asset on your balance sheet. You keep the inventory on your balance sheet. You record the liability, which is effectively the loan. The periodic expenses that you have are, largely show up as -- in interest expense. There is, however, at the end of the day, at the end of the term of the deal, when you repurchase the inventory back, the mark-to-market associated with that inventory shows up as -- over in derivative gains or losses. So the way to think about it on the income statement is that on the income statement, you really don't see any change to the adjusted EBITDA. It's going to be basically the same sort of thing as what you've seen in the past. Does that address your question?

Yes, I think I can definitely understand that.

Hey, Roger, what I would just add on top of that is this is nothing new in the industry. There are several other independent refiners that do something very similar and have for many years. It's just a way of increasing liquidity and lowering the volatility risk in your crude inventories. So that's the way we think about it.

Okay. And then just a little follow-up on that. Your revolver has been tied to inventories, and obviously, we saw the price of oil change that compressed the revolver. Does this have any impact on that or not since you're ultimately taking title back to it before you run it?

No, so that's great. So when we did the transaction, we basically locked in the liquidity associated with those inventories at that point in time. So for the entire duration of the inventory financing, during that period, that portion of our inventory, it's all locked in. The balance of our inventories are all included as part of the ABL financing, which we have with our lead bank, and it obviously, as commodity prices change, our ABL and our borrowing base will continue to float up and down with those commodity prices. So that's the reason why we're looking to potentially expand this program to potentially more than just the Great Falls refinery.

Our next question comes from Kevin Cohen of Imperial Capital.

I guess when you look at the RINs level prospectively, do you expect that to remain about level where it was in the first quarter? Or is that going to be a material driver at the margin?

Yes. Thanks, Kevin, for your question. As you know, the RINs market has been extremely volatile over the last, really, couple of years. We finally saw a decrease in RINs prices in the first quarter that were significant. You saw a subsequent climb back up here at the end of the first quarter, and now it's kind of leveled off again. It's pretty hard to predict where the RINs prices are going to go, and we're not going to try. But what I would tell you, Kevin, is we still have $120 million of RINs liabilities that we've told you that we incur on an annual basis, and we will continue to work to meet those obligations through our own blending and through our own optimization efforts. And what the price of RINs will look like the rest of the year is just anyone's guess, quite honestly.

Yes, that's understandable. And then I guess when you look at the crack spread, certainly that was an important positive driver in the first quarter. I guess, given the volatility in oil if, hypothetically, the price of oil stayed somewhere around $45 a barrel, I guess what would that mean for your crack spread relative to kind of the figure in April, call it? Or relative to the average in the first quarter?

Kevin, yes, if the crude price levels out here, whether it's between $45 or $50, we expect that what we've seen in April, which was a fairly decent month versus what we saw in March, they were fairly strong, is coming off a little bit here in June -- sorry, here in May. And so when you've got a little bit of pressure on the WCS spreads with the Syncrude outage, you've got a little bit of pressure with the gasoline and diesel inventory levels that are pushing down cracks here over the last couple of weeks. So a month or so ago, we would have said things are looking up. In the last week or 2, I'd say things are looking a little bit not so good. But you just don't -- it's hard to predict, again, what's going to happen with the cracks. What we do know is our asphalt business is continuing to gear up for the summer paving season. We have been building asphalt inventories, and right now, that asphalt business looks like it will continue to be what we expect, for the summer to be a fairly strong asphalt year.

And then just lastly, as you evaluate the portfolio of assets, just given the backdrop, do you feel a little bit more inclined to be more proactive on the disposition front? Or just kind of waiting for a reverse inquiry? Or what's kind of the thought around those topics?

Yes, Kevin, that's a question I know a lot of folks are probably asking. Look, there's not a lot of change in what we've been talking to you about here for the last year, really, on our positions on asset portfolios, but let me turn it over to Bruce, our EVP of M&A, and let him tell you the same thing.

I support the message that we've been giving to the market, which is that we're here to maximize shareholder value. And that may have a short or a long-term component, but usually in the portfolio, that's a longer term. So we've got a market point of view for our businesses discretely. We look at what they're worth in context, and there are some intrasystem synergies that are important in that regard, such as between our 2 northern refineries where we have exchanges in materials. So given all that, we've got a pretty good grasp of our hold values, and while we're certainly open to looking at the portfolio and having it evolve, that is only one way to create shareholder value. And I think we'll leave it at that.

At this time, we have time for one more question. The question comes from the line of Mike Gyure of Janney.

Yes, can you talk a little bit about the sourcing of the Canadian heavy crude and kind of where you're at in that process, I guess compared to maybe your ultimate goal of how much you think you can do per day?

Yes, Mike. I think I mentioned that in the first quarter, we ran some additional WCS-based crudes, about 5,000 barrels a day more than a year ago. As our Great Falls expansion project comes up to full rate, which is basically what you've seen here at the end of the first quarter, we do see additional opportunity to run more WCS-based crudes based on the fact that we can still move that crude slate around at Great Falls. So there's still a little bit more room to go, and really, we've already taken steps to start moving in that direction. So you'll see some additional increases there, kind of in the 1,000 to 2,000 to 3,000 barrel a day range at Great Falls.

Then you look at Superior, and we have, again, more knobs to turn in terms of increasing heavy Canadian. As we move into this asphalt season, we're going to be increasing the amount of heavy Canadian that we run there. We're going through a minor turnaround here in the second quarter, so that will lower the amount of WCS crude we run here in the second quarter. But outside of the turnaround, we look like we're continuing down our path of growing the heavy Canadian and placing the asphalt into attractive markets, and we expect that to be the same here in the second quarter. And then as we talked about, the flexibility project at Superior that we're engineering right now and continuing to progress, once we install that project during the turnaround in 2018, we expect to have the flexibility to run more heavy Canadian crude even above that. So those are probably the main knobs we have still to turn to grow that heavy Canadian leverage.

Before turning the call over to management, we have a follow-up question from Roger Read, Wells Fargo.

Just a last follow-up. On the improvement in EBITDA out of the specialty business, clearly, oil prices moved at the end of last year. First of this year we saw price increases from the industry. Is there a way you can give us a feeling for whether or not the improvement was more price-driven or the self-help and sort of other changes going in there? And then with oil prices, obviously, weaker since Q1, I would think that enhances margin potential, at least in Q2.

Sure, Roger. Happy to try and give you some more color. Really, the answer is all of the above. Our improvement in the first quarter had both a pricing component as well as a volume component as well as a self-help component, so it's really all of those. What I can tell you is in January and February, crude was actually up significantly versus the fourth quarter, and that really slowed the impact of the price adjustments that we were making and we talked about in the fourth quarter and continued to rollout really across the first quarter. But in March, crude prices came back down again and, like you said, as it continues through April, that's going to further improve our price margins there, our gross margins. And we were successful in implementing some price adjustments here in the first quarter. We saw that playing more out in March as opposed to January and February because of the crude pricing. But we anticipate April and really further into the second quarter to see the full impact of those pricing adjustments, so that's very encouraging. But I'll tell you, we put a lot of focus on our self-help initiatives in the specialty group. The Group III announcement that we just made this week is one big example of that. Another example is, again, the branded and packaged business that we continue to see increased volumes and market share in those key products. Those are by design as we continue to grow our strategy on how we build that business. But you look at solvents and the things we're doing in solvents. You look at our light oils business and what we're doing in light oils. You look at our naphthenics business and what we're doing in naphthenics. All of those have self-help components that we are driving hard and trying to improve our gross profit by.

Okay, great. And then if I could just sneak one other question in. Asphalt -- last year, Q1 asphalt building in the quarter in front of the summer kind of hurt performance. Didn't really hear anything this time around on that. I was just curious, are you approaching the market differently? Or maybe that just is a sign of how much better refining was this quarter, and you do have a seasonal uplift in asphalt still coming?

Yes, Roger. We haven't changed our strategy. So we're continuing to build asphalt inventories in preparation for the summer peak season. We believe that's the right thing to do. We built about 500,000 barrels in the first quarter, which is probably similar to where we were last year. I can tell you that, overall, our inventories are lower this year than last year. And we talked about that in the fourth quarter call last time and how we're trying to do a better job of lowering our overall inventory, working inventory, so that we can run this business more efficient. I will tell you that is still ongoing, so while the asphalt inventories have grown 500,000, it's on a smaller base. And so that's helping the overall impact in our numbers. And I'll also tell you that the market itself is better this quarter than it was a year ago. And so building that asphalt doesn't have the same negative consequences than it had last first quarter.

At this time, I'd like to turn the call over to Tim Go for any closing remarks. Sir?

All right, thank you again for your time today. We appreciate your continued support.

Thank you, sir. And thank you, ladies and gentlemen. That does conclude your program. You may disconnect your lines at this time. Have a wonderful day.