Calumet Inc (CLMT) 2018 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Q1 2018 Calumet Specialty Products Partners, L.P. Earnings Conference Call. (Operator Instructions)

I would now like to introduce your host for today's conference call, Mr. Joseph Caminiti. You may begin, sir.

Thank you, Kevin. Good morning, everyone, and thank you for joining us today for our first 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 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 the expectations will prove to be correct.

Please refer to the partnership's press release that was issued last night as well as our latest filings with 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 last night. 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. 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?

Thanks, Joe. Good morning, everyone, and thank you for joining us. At our last conference call, I indicated that our business transformation was succeeding and that we had turned the corner. On the financial front, our 2017 disposition of 2 noncore assets allowed Calumet an opportunity to restructure our balance sheet. And in the first quarter of this year, we addressed that opportunity by, first, calling our 11 1/2% senior secured notes, thereby putting an end to what had been a difficult period and more importantly, leaving the company with a traditional balance sheet comprised of equity, bank lines of credit and ordinary unsecured bonds. Second, we completed the refinancing of our corporate revolver, thereby demonstrating to the market that Calumet has emerged as a solid credit.

On the business transformation front, our 2017 divestments allowed Calumet to increase focus on our core specialties products businesses. In the first quarter, we completed the acquisition of Biosynthetic Technologies in partnership with The Heritage Group. As many of you know, The Heritage Group has been a strong strategic partner of Calumet for many years and serves as one of the owners of our GP. The Biosynthetic Technologies acquisition is our first acquisition since 2014, and we believe this will open new opportunities for the company to exploit proprietary new technology and expand our portfolio to include renewable lubricants and other renewable specialty products. We're very excited about Biosynthetic Technologies.

And I'd like to spend a few minutes outlining our vision starting with Slide 4. Our new proprietary technology converts renewable plant oils into high-performing speciality products. These products offer exceptional qualities in formulating high-performance synthetic lubricants and meet extremely rigorous environmental specifications such as low toxicity, exceptional biodegradability and low bioaccumulation.

One of our immediate objectives is to provide an industrial proof-of-concept for the new technology by manufacturing renewable lubricants at our existing esters plant in Missouri. We presently anticipate that we can achieve this key milestone while incurring very small capital cost, thereby making Calumet uniquely positioned to accelerate the commercialization of this technology. Our esters plant is capable of manufacturing a portion of the Biosynthetic product slate now. And as we identify additional opportunities, we will consider expanding our capabilities further.

Beyond this immediate industrial objective, other diverse specialty products applications are under development at our new product innovation center. These developments promise to increase the market applicability of our proprietary technology. This research effort to broaden the Biosynthetic product line will take time, but innovation is at the heart of Calumet's culture, and we look forward to sharing the results of our team's hard work in the future.

Finally, note that these efforts may naturally lead to cooperative involvement with others, and Calumet and The Heritage Group are actively pursuing third-party commercial involvement.

Slide 5 provides a little more granularity on the potential industrial, automotive, marine and personal care market opportunities that exist for this new product offering. This acquisition fits hand in glove with our existing distribution channels as we currently serve all of these markets.

We are excited about the potential to broaden our product line offering for our existing customers to better address their particular needs. Our new products will be of interest in all of these sectors. For example, in automotive formulation, our products deliver exceptional technical performance, especially in the areas of oxidative stability, volatility and viscosity index. These performance benefits are of great interest at the cutting edge of the automotive market segment.

In the industrial and marine sectors, our products meet stringent environmental specifications, which are increasingly important, including biodegradability as they rapidly break down once released into the environment; bioaccumulation, as they don't accumulate in the tissues of living organisms; and toxicity, as they are nontoxic by recognized OECD testing standards.

In the personal care sector, our new product innovation center will focus on the benefits that renewable carbon brings to the customer experience.

The last point I'd like to make is on Slide 6. Bringing Biosynthetic Technologies into our family provides us with 71 issued patents, 54 of which are domestic and 17 international. We also have another 76 patent applications currently pending, and we are the exclusive licensee of 2 original estolide patents from the USDA. The key here is this new technology has very solid various entry. And with our strong innovation capabilities and specialty chemical relationships, we are excited about what Calumet and The Heritage Group can do with these new high-performance renewable products.

Now I'd like to move to a discussion of our first quarter business performance. Slide 7 shows that our adjusted EBITDA of $75 million was very similar to our performance a year ago even though we no longer have the contributions of the 2 assets we divested last year. Also, we are pleased that we delivered these results despite a significant amount of turnaround and maintenance activity at our Shreveport and Great Falls refineries. Shreveport is a dual-purpose facility and produces both specialty chemicals and fuels products, so the Shreveport maintenance impacted both of our segments. In spite of the heavy maintenance, our performance results represent more than a 20% improvement to last year's underlying performance, excluding Superior and Anchor.

West will talk through the specific drivers. But at a high level, this solid performance was driven by improved margins at both segments, continued growth in our Branded Products division, incremental self-help contribution and RINs benefits related to lower market prices and lower obligations. We should point out that our first quarter results include a number of special charges, which included among other things $4 million in acquisition expenses, $3.7 million in ERP expenses, $2.1 million in hedging losses and $3.1 million in favorable LCM adjustments. Excluding those 4 impacts, our adjusted EBITDA would have been $81.7 million during the first quarter of 2018.

In summary, our business teams delivered solid results. Part of that execution stems from our ongoing commitment to self-help, where we drove an additional $8.3 million in the first quarter from a combination of new product growth, margin enhancement opportunities and improved raw material sourcing.

Before I pass the call to West, I wanted to update you on our ERP implementation. What I can tell you is we're making steady progress. We remain disappointed in the delays that our ERP implementation have caused in our financial reporting and understand that it's been difficult for our investors. But our additional costs have been reduced, and we have fully caught up with all the shipping backlogs associated with the ERP system.

So with that, I'll pass the call to West to walk through our financial highlights in a little more detail. West?

Thanks, Joe. On Slide 8, you can see that our specialty products adjusted EBITDA of $37.7 million was down compared to our reported results of $45.6 million in the first quarter of last year but up sequentially compared to $30.8 million in the fourth quarter. There are 2 primary drivers of this year-over-year decline. First, as Tim mentioned, we had a fair amount of turnaround activity at Shreveport that affected our lubricants business. Secondly, we reported $4 million in onetime charges associated with acquisition costs. So without these special costs, our specialty adjusted EBITDA would have been nearly flat year-over-year.

So quarterly gross profit declined year-over-year due to the impact of turnaround and maintenance activity. Our gross profit per barrel of $33.11 was an improvement compared to $31.85 in the first quarter of last year and the $30.07 captured in the sequential quarter. Our margin performance on a per barrel basis overcame pressure from rising crude prices as WTI increased over 21% from where we were in last year's first quarter. Despite this pressure, our margin improvement was driven by stronger mix, including the continued strength in contribution from our high-margin Branded Products division and several product pricing adjustments that were taken early in the quarter in response to an elevated crude price environment.

Slide 9 shows that while our quarterly EBITDA margin can often fluctuate, our margins exhibit strength and stability when viewed on a trailing 12-month basis. This demonstrates the consistency and stability of our base business. Individual quarterly results reflect both the natural lag and adjusting to changes in crude prices, turnaround activity, as well as the seasonality in our business. When crude prices change during a period, we have delays in adjusting prices, which affect our quarterly adjusted EBITDA margins. But on a trailing 12-month basis, our margins are very stable, reflecting our ability to make those adjustments to changes in our costs. In addition, our first and second quarters tend to be the strongest quarters in our specialty business, which is reflected in the recovery in the first quarter 2018 EBITDA margin versus the fourth quarter 2017 margin in spite of continued increases in crude prices.

Our fuel segment performance on Slide 10 shows that we generated quarterly adjusted EBITDA of $38.7 million, which was an improvement compared to the as reported results of $36.8 million from the first quarter last year in spite of not having Superior in the numbers this year. When adjusted for the divestiture of the Superior Refinery, our current fuels asset base generated adjusted EBITDA that more than doubled that that was captured in last year's first quarter, reflecting the stronger business environment this quarter compared to that a year ago. This stronger business environment was partially offset by turnaround and maintenance activity at both Shreveport and Great Falls as well as $2.1 million in hedging activity.

The segment's gross profit per barrel performance of $7.49 marks a 44% increase to the $5.19 per barrel captured in the first quarter of last year. Growth in our gross profit per barrel were driven by combination of a number of contributing factors including, first, the year-over-year improvement in crack spreads, the Gulf Coast 211 was about 14% higher than last year; secondly, record-setting premium gasoline sales volume from Shreveport; thirdly, the margin uplift from processing greater amounts of discounted crudes, both WCS as well as Midland WTI; and fourth, reduced costs due to lower RINs prices and a reduction in RINs obligations.

Crude optimization has been a key component of our profit improvement efforts. For example, during the first quarter, we processed approximately 23,000 barrels per day of advantaged heavy Western Canadian Select Crude, or WCS. Additionally, we processed approximately 6,500 barrels per day of cost advantaged Midland WTI priced crudes. Each of these have helped to improve our gross profit capture, and Tim will talk more about how we're looking for new ways to continue to optimize discounted crude in a few moments.

Slide 11 shows our hedged schedule as of March 31. We entered the second quarter unhedged for 2018. We have, however, put in place some diesel WCS crack spreads for calendar 2019, and we'll continue to evaluate our program and the context of the market as we move forward.

Our self-help initiatives have realized a little over $8 million in benefits so far this year as you can see on Slide 12. These EBITDA contributions were driven by improved crude sourcing and logistics efforts, the benefits of new product introductions and product upgrades and the additional capturing of efficiencies within our supply chain. We have now officially exceeded the low end of our original $150 million to $200 million 3-year goal with just 9 quarters.

Consistent with the guidance we gave last quarter, we continue to expect that full year 2018 results from our self-help program will deliver between $40 million to $50 million in total adjusted EBITDA. This includes contributions from our new isomerate unit at San Antonio and the naphtha upgrade project at Great Falls, both of which are just now starting up. In addition to these growth-oriented capital projects, we expect to see continued growth within our high-margin Branded Products division.

Lastly, I want to spend a little time providing a little more context on our ERP implementation. We have made significant progress. All shipping backlogs have been eliminated. While we have addressed many of the issues on the front end that caused our original backlog in shipping, the transition to the new ERP system has also raised issues that will make it difficult to complete our accounting flows and, therefore, cause delays in our financial report. While we are still working through the effects of these issues, we are cautiously optimistic that the back-office impacts will be largely addressed by the end of the second quarter so that the company can pivot to realizing the benefits from the ERP system. While we cannot assure that we will fall within the normal timeline, we are very encouraged by the progress made today. You should see us continue to make solid progress when we close the book for the second quarter. The $3.7 million that we spent on ERP cost this quarter was less than the fourth quarter's expense of $6.9 million, reflecting the diminishing effort on both the front end of the shipped product as well as the back end to complete our accounting. We expect our full year ERP spend to be less than the $18.6 million realized in the full year 2017.

Looking forward, we expect to realize significant benefits from the ERP system to drive further self-help improvements. For example, when we went live on our ERP system, we had anticipated having all our transportation centrally arranged and coordinated to further drive our transportation costs down. We had to delay the full implementation of this initiative and are just now turning on this part of this system on a plant-by-plant basis in the second quarter, and we anticipate that we will start to realize benefits as we roll it out during the remainder of this year. While we are disappointed that we're not further along today, we strongly believe that this will be a good long-term investment for the company and for our shareholders.

Before I turn the call back to Tim, I wanted to take a moment to reference our credit metrics on Slide 13. As Tim mentioned earlier, we have made significant headway in the first quarter, securing the new 5-year term for our revolver as well as formally calling our senior secured notes. Our liquidity continues to exhibit stability and incremental improvement. However, you'll see projected liquidity levels decrease next quarter as we use some of the cash in our balance sheet to fully redeem the secured notes early in the second quarter. This will have a modest effect on our leverage metric as measured by net debt to trailing 12-months EBITDA as well as our total liquidity, given that the call included about $46 million in call premium.

With that, I'll turn the call back to Tim for closing comments. Tim?

Thanks, West. As we look forward on Slide 14, we will be coming out of the seasonally slow first quarter, and we expect to see typical strengthening performance across both of our segments. We also should have much less turnaround and maintenance activity as well. On the specialty products side, we expect stronger sales and production volumes in the second quarter in line with historical second quarter run rate levels. Our recent pricing adjustments will be fully implemented, which should help to somewhat offset ongoing higher crude prices.

In our fuels product business, we also expect to see seasonally stronger patterns emerge, and we will continue to leverage the benefits of discounted crudes, including WCS price crudes at our Great Falls facility and Midland WTI price crudes at Shreveport. As West mentioned earlier, we ran approximately 6,500 barrels per day of Midland WTI in the first quarter, and we're in the process of ramping up our use even further with the goal to run over 17,000 barrels per day of Midland WTI price crude during the second half of the year.

We expect to see our total annual ERP costs to come in below the $18.6 million spend during 2017, and we will continue to try to offset these special charges with further self-help and remain committed to delivering an incremental benefit of $40 million to $50 million of adjusted EBITDA through self-help in fiscal 2018.

I want to thank all of our employees for their ongoing hard work and our board and investors for their ongoing support for our organization. I'm encouraged by our solid start to the year and look forward to the work we have ahead of us.

With that, Kevin, please open the line for questions.

(Operator Instructions) Our first question comes from Neil Mehta with Goldman Sachs.

I want to explore a couple of things that you said that I thought were incremental, Tim and West. The first was the Midland commentary with Midland TI having widened out to, call it, $12, $14 in the forward curve, running incremental barrels definitely accretive. How are you going to get those barrels into Shreveport given some of the constraints? And can you confirm again, you said 17,000 barrels a day is your expectation by the back half of the year?

Yes. Neil, this is Tim. I'll take that question, and thanks for the encouragement and support, by the way. Yes, Midland TI is certainly something we're focused on right now. We've got access through pipelines. There's the Sunoco pipeline and there's the Plains pipeline that we just started up last year, if you remember, as part of that Plains project. So we have the capability to bring TI through those venues or these TI-based crudes or price crudes. We also have truck and rail that we're looking at. Keep in mind, as the incremental barrel is being basically trucked out of the Permian, it basically has to go past our Shreveport refinery or our San Antonio refinery to head towards St. James, and so we have opportunities to take advantage of that routing.

And are you seeing movements, Tim, on trucks yet? Or is it still early innings? And do you have any view on what the trucking cost are from West Texas and the Gulf Coast?

It's still early, Neil, as we lay this out. We have a lot of discussions going on right now. I would say the spread that you're seeing right now is reflecting people's views of what the costs are to get these barrels basically to Louisiana, and so we hope to improve and better our position based on that.

The second line of questioning is just around the specialties business. We would have thought in the rising Brent price environment we would have seen more pressure in terms of the margins. They came in pretty good here in 1Q. So just talk about the margin dynamics, especially with Brent coming up on $80 here as we think about the second quarter and whether pricing has been able to keep up with input cost.

Yes, Neil. Obviously, we watch that very carefully and very closely as it impacts our specialty business. We're very pleased with the progress we're making. We were able to respond a couple of times in the first quarter to rising crude prices, and we've responded once already here in the second quarter to rising crude prices. I still think we're chasing crude prices, and so we still have a little ways to go. But as these price increases or adjustments take effect, they'll continue to help catch us up here in the second quarter. I think you also have to understand that as we continue to grow our Branded Products division, that higher-margin business, that better mix of products is helping us improve our gross profit per barrel in the specialties business as well. So all of that is per our initiatives and our plans to continue to grow our specialties business.

When you think about the adjusted EBITDA in the quarter, the $82 million, was there anything in there that was, call it, onetime in nature? If anything, 1Q is seasonally a weaker period for the refining side of the business at least, and it sounds like you had turnaround. Or should we look at this and saying this is a run rate that we should sort of build off of going forward because it's a -- again, this is a -- that's a big number?

Yes. Thanks, Neil. Again, we're very pleased with the strong start that we had for the year. But sure, there are a lot of onetime events. It is a noisy quarter. I'd say both positive and negative. So if you think about the turnaround impacts, we've talked all along over the last couple of years about how 2018 and 2019 were going to be heavy turnaround periods. The Shreveport turnaround was pretty heavy. And as you can see in our numbers, in our volumes, it impacted our specialty volumes fairly significantly. We do have another turnaround in the third quarter. That's going to be associated with, again, our Great Falls refinery, so that is probably the majority of our heavy turnaround work in the year. And then in 2019, if you remember, we spread out our turnarounds so that they were over several years instead of just concentrated in one year. We'll have some more turnaround work in 2019 as well. So on the negative side, we certainly had those onetime adjustments. In our acquisition of Biosynthetics, we had some acquisition costs that were negative impacts to overall specialties as well, that some of you guys can see in the numbers. And then, of course, we did get some help on the RINs side both -- there's really 3 effects with lower RINs prices that helps us on a mark-to-market standpoint. It helps us on an ongoing occurrence basis in terms of the liabilities associated with ongoing run rates of RINs, and then it helps us on an obligation standpoint in the sense that we did get some RINs hardships in the first quarter similarly so what we've done in the past in some of the past quarters.

One last -- that's great. I don't want to hog up the call here so one last question for me, which is WCS obviously was phenomenal in the first quarter. It's tightened up here in 2Q. We think it will blow back out as you get through the year with Fort Hills ramping up and you get through some of these turnarounds. Can you just talk about the Great Falls refiner and the incremental EBITDA you see coming from a wider WCS spread? And then just in general in terms of asset monetization as you think about the refining business the way that you were able to sell Superior, are there assets in the portfolio on the refining side that you would look to take advantage of? Or is the bid/ask too wide especially in a world where nobody knows how to price in IMO 2020?

Yes. There's a lot in that question, Neil. And in fact, let me say a few words, and then I'll turn it over to Bruce to kind of get at your second part of your question. But yes, we're continuing to watch the WCS spread with interest. We agree with you that once production comes back online after the maintenance work here in the first quarter, that the spread should widen again. We feel very good about the position the Great Falls refinery is in to be able to take advantage of that. And as West mentioned earlier, we ran 23,000 barrels a day of WCS-based crudes in the first quarter, and we expect to do as good or better here in the second quarter. So that's all very positive. We're pleased to be able to take advantage of the market now. And then let me turn it over to Bruce because your second question is getting into more of a strategic question about the asset itself.

Okay. Thanks, Tim. Just to build on Tim's comments, the Great Falls refinery runs 100% heavy Canadian sour. That's its capability and that price is with all the other Canadian heavy sours. So if you get $1.00 differential move in the WCS, we're going to get that at Great Falls, just to be clear in your modeling. So with that known, we agree, we think the differential holds wide for some time to come. The futures market has it out a couple of years. And if the IMO rules do anything in the middle of the continent, they'll have the effect of keeping that wide or wider. So with all that said, we really like our position. We've got a 5-year plan. We're continuing to improve the site itself. And I think I said, it's a good asset for the stockholders right now. It's not a contiguous asset. We have a number of things in our system that are synergistic with each other, especially in Texas and Louisiana, and Great Falls is off by itself. So should we run into a case where somebody's got a view, a strategic view or an integration view coming down the line from Canada that assign a greater value, we'd certainly entertain the conversation. We've been pretty good over the last 2 years at finding the one natural strategic buyer. We did it in the Dakota Prairie refinery exit. We feel like we did it at the 2 deals last fall. So we imagine that somebody is going to come along eventually, and we're not -- we're going to be disciplined and not being in a hurry.

Our next question comes from Roger Read with Wells Fargo.

I guess, let's dive into a couple of things here, maybe go back to your opening comments, Tim, the whole thing on the Biosynthetic. Commerciality on something like that, is this -- it's already here. We're talking -- it doesn't sound like that's the case, but are we talking 3 years, 5 years, 18 months? I'm just trying to get a feel for -- you spent quite a lot of time describing it but didn't really give us an idea, maybe some of the numbers that can come out of that.

Yes. Roger, I'll take a shot at that. We're very excited about again the full pipeline of products that can come out of this technology. And quite honestly, when you asked your question about timing, it's really kind of all of the above depending on the different product and different state of development it's in. When we were in discussions with Biosynthetic Technologies, what we realized was we had an asset in our esters Missouri facility that was basically suited to commercialize this technology with little investment. And so where we believe we have a significant advantage in almost a unique situation versus any of the other people who might have considered Biosynthetic as a partner is that rather than having to build a new plant to commercialize the technology, we already have one that's running that we can take advantage of. So we think in the short term, we should be able to get at least some products tested and commercialized through our operations in Missouri. On the other hand, there are still some others that we want to keep looking at in the lab and continue to perfect kind of our technology before looking at doing any type of commercialization. Those are probably in the 3 to 4-plus type year range. I'd say the other ones are much closer than that. The reason I hesitate a little bit is there is a certification and formulation time frame that you do need to also consider as you start putting this product available to some of these customers and some of these markets. They do have to go through a whole certification process and testing phase and formulation phase, just like, for example, Group III when we introduced that last year. That had to go through similar types of certifications and product approvals. So even though we think we're going to be able to get producing some of these estolides here in the short term, we still will need to go through a normal length approval process, which can take anything from 6 to 12 months.

Okay. And then maybe just trying to get back to the idea of exactly what the right baseline was for Q1. As we look at -- I recognized the last question, you didn't really give a specific answer kind of what RINs relief really was as to what kind of a clean refining margin was in Q1. But also as we look at the -- in the specialties, you had the maintenance, which took volumes down, but then you mentioned that you recaptured the volumes that have been lost post the hurricane. Kind of what was maybe the run rate of, I guess, the volumes that you recaptured in Q1 so as to give us an idea of kind of how significant the turnaround impact was? And then is there anything on the turnaround schedule in specialties that has any impacts in the rest of this year? I know you mentioned Great Falls in the third quarter on the fuel side.

Yes. Let me try to knock off some of those, Roger. I'd say, look, on a run-rate basis, let's take the specialties business. We reported $37.7 million EBITDA -- adjusted EBITDA here in the first quarter. $4 million of acquisition costs were included in that number, so I think you could add $4 million back into that number to get a better run rate. If you look at our overall ERP cost that we're reporting on, that's split between fuels and specialties. But if you assume something in the $2 million range is holding back specialties right now until we can get through ERP, I would add that back to the run rate. And then if you -- what I can do is just probably give you an overall number if you look at the Shreveport turnaround -- by the way, we also had a third-party towing supplier who had significant reliability issues during the first quarter as well. That all was part of the lower specialty volumes. So if you consider the impacts of that, plus the impacts of catching up on our backlogs and all that in the first quarter, I'd say that had a net impact of, call it, roughly $10 million to maybe as high as $15 million into the quarter. So you can probably add that back in to kind of give you a feel for what the run rate would look like. I still think run rates of $50 million, maybe $55 million, if things are going really well in our specialty business today, is what you guys should be factoring in. That's consistent with what we've told you guys in the past. And I would also say though that as we continue to focus on our specialties business, we've got our teams organized and focused on driving and improving that specialties business.

Okay, great. And then just one follow-up on the ERP implementation. West, you gave kind of an idea of some of the things that haven't happened yet. But as we think about the self-help numbers that are out there, does the ERP system, the opportunities it should allow you to take advantage of included in self-help or in addition to the self-help?

No. So we're really looking at the ERP implementation to really open up a new frontier for us on the self-help. As Tim mentioned or I mentioned, we really achieved in a relatively short period of time the low end of the full range that we anticipate achieving with respect to self-help, a little over $150 million to $200 million associated with self-help. We expect the ERP implementation to give us a great deal of information that, quite honestly, we haven't had previously. It's going to give us opportunities to really understand in much more detail what our product profitability is, ability to optimize our supply chain. Believe it or not, we have not done a tremendous amount in terms of central purchasing. I alluded to transportation, optimizing that on a central basis. We are just now beginning to take advantage of a lot of these different things that it's relatively straightforward but you have to have the systems and information to be able to do it. The ERP implementation is going to enable us to do that. Having better customer service metrics so that we know how we're serving our customers and how that all works in the distribution channels and monitoring those to see how we're doing in terms of penetrating the market. So we expect as we advance during this year and then maybe late this year, but I would fully expect us at some stage to provide some future guidance with respect to self-help, especially as we get close to the $200 million level. Because it will be a natural question, "Okay. Now what?"

Yes, we're big on the now what side on Wall Street for sure. Okay, great. I guess, we'll just basically see that ERP flow through as better margins within the segments, right? I mean, ultimately, maybe even some higher sales. Would that really be the right way to think about it long term?

A lot of it is going to be improving margins. You're absolutely right, but you're also going to see some incremental sales. So self-help, the new product introductions and innovations, those are very much sort of self-help things. Things that we did proactively is not responding to the market, but it's proactively doing that creates an incremental value. So at some point, the Biosynthetic Technologies acquisition, we expect that to start generating some incremental benefits for us.

Next question comes from Sean Sneeden with Guggenheim.

Tim, on specialty, you guys called out, I think, in the release and some of the prepared remarks, the Branded was especially strong, and it was nice to see some growth there. Just look from the volume information that volumes actually were down year-over-year. And I was just curious how much -- was that driven at all by turnaround and how we should think about just kind of the magnitude of the growth that you've seen in margin uplift versus a year ago, if we're trying to make more of like an apples-to-apples comparison there?

Yes. Sean, I'd be happy to answer that. So Branded Products sales volumes were down, but it was only like a 1% or something on a sales volume standpoint. And so we would basically call that flat. There was nothing really driving that other than -- I think in the last year's quarter, we were actually building more inventory in line for the second quarter than what we had to do this year, so I wouldn't read anything into that as we still feel very good about our Branded Products group and look forward to a good strong second quarter here.

Okay, that's helpful. And just for clarification, you said that -- I know you had a price -- a set of price increases in first quarter. Was there another round recently that you talked about?

Yes, we did another round here in April. So again, as you saw, if you just kind of follow crude price, if you remember in the first quarter, it made a run and then it kind of backed off a little bit. And then in April, it kind of made a run again. And so as we look at our cost and as we try to understand how that impacts our business, we're working with our customers to help them understand and pass along those higher raw material costs to the business. And I think everyone -- it's so transparent out there in the marketplace that I think people understand that these things have to happen as crude price continues to climb.

Okay, that makes sense. And then on the Biosynthetic, it seems like that's a very interesting and promising development for you guys. How much should we think about in terms of CapEx to get some of those products, especially on the Missouri esters side, to kind of commercial scale? Is that -- I assume that's all included within the guidance that you've laid out but just kind of curious what the kind of magnitude is there.

This is Bruce. Let me take that one. So yes, the CapEx, the current CapEx is within the guidance so no change there. If you go back to Tim's remarks and you think about timescale, the Biosynthetic Technologies prior to our acquisition had gone quite far and they had many years, so very good results in the passenger car motor oil space. And that had gone as far as them securing a USDA loan guarantee to build plant #1, which was going to be a newbuild plant. Something like that is going to cost more and happen on a longer timescale. The step prior would be our commercial proof-of-concept work in Missouri. And we think the chemistry is very, very attractive. And when we confirm readiness of this technology in the plant, which we intend to do this year, then it's off to the races, and that will be limited by strong front-end loading process and a good business case. But more broadly, and I want to reinforce Tim's comments on our new product innovation center, passenger car motor oil is sort of a halo effect, but we think we can find uses for this new chemistry in most of our existing businesses. And Tim took you through 4 of the industry segments that have an obvious application. We think there will be more beyond that. So with our partnership with The Heritage Group and with a bunch of good R&D people behind this, it's more a question of serial justifications of the forward potential and we really are very excited.

That's helpful. And then maybe just kind of one housekeeping question. West, can you give us a sense of how much divested EBITDA was in the LTM figures? I know you were citing the nice improvement in credit metrics. I'm just trying to look at what kind of the run rate business looks like at this point.

Yes. Are you talking about the first quarter last year?

Yes. Or even for trying to take a look at what the leverage profile looks like today, if you exclude Superior and Anchor, what that might look like.

No, that's a great question. So you're looking at in terms of debt metric, debt-to-EBITDA, it would be about 6.4x on a pro forma basis, if you pulled everything, looked at it apples-to-apples and then -- or put another way, you've got about $75 million-or-so of sort of trailing 12-months EBITDA adjustment associated with our adjusted EBITDA that you would have to make if you want to pull up Superior.

Okay. So $75 million from Superior. Okay, that's helpful.

Well, Superior and Anchor together actually in aggregate.

Our next question comes from Mike Gyure with Janney.

Yes. Can you guys touch a little bit on some of the self-help benefits that you've achieved and kind of how you think about RINs within that? I assume there's sort of the nonrecurring RINs and then there's also kind of the blending capabilities in some of the renewable stuff you're talking about going forward. Can you just kind of sort of frame the 2 together?

This is Tim. When we think about self-help, we think about structural improvements that we're making to our business that are sustainable. So things that just happen through fluctuations in the marketplace, for example, WCS spreads and Midland TI spreads, we don't consider that part of self-help. We're really looking at things and efforts that we're making to structurally change our earnings potential. So from a RINs standpoint, the blending things that you're talking about to the extent that we can get more biodiesel into blends, to the extent that we can take advantage of generating RINs themselves structurally, we would include that in self-help but we wouldn't include anything like hardships or mark-to-market price drops or anything like that. In terms of what we think about when we do self-help, we really think about 3 types of drivers. We think about raw material improvements, things that we can do to help lower the cost of our raw materials, and a lot of that is again not just market fluctuation. We don't include that. But to the extent that we enter a new agreement with a pipeline or we create some rail capability where we can bring in some advantaged crudes or to the extent that we're in our specialties business resetting our raw materials quality or feedstocks so that we could take advantage of a quality differential in our raw materials, those are things that we're looking at in our self-help for raw materials. The second category is really around operating cost and operating efficiency, how we can continue to lower our footprint in terms of cost per barrel, both on a fixed and variable basis. And then the third category is really product upgrades, how can we continue to offer a higher margin, higher valued, more specialty product that can command the higher netbacks and the higher premiums. And so for example at Shreveport, we set another unleaded premium gasoline record at the site here in the first quarter as we continue to look for those opportunities to upgrade our products. I'd say a year ago, we weren't making any premium at Shreveport. Now we're making quite a significant amount just through, again, the self-help initiatives of upgrading our products. So that's kind of how we think about it, and those are some of the examples of some of the things we've made here in the first quarter as well as in the last 2 years in the program.

Great, that's helpful. And maybe on the debt side of things and potential deleveraging. Obviously, you've taken out the notes here in the second quarter. I guess, how should we think about deleveraging as you move to the rest of the year with some of the additionally EBITDA you guys have generated specifically in the first quarter here or the rest of the year?

No, that's a great question. So we are -- the primary driver you're going to see us on our self-help is -- I'm sorry, in terms of deleveraging is going to be through improving our EBITDA, and so our self-help initiatives are really a big portion of that. What I'd also say is, Tim alluded to it, but during his last quarter, we changed our work structure to really focus greater effort on our specialties business and put in place folks who are each in charge of each of our different lines of business. So we have a group that's focused only on our solvents business; a group that's only focused on our base oils business; another group that's working only on the specialty oils, so that's white oils, pets and gels; and then another group that's focused only on our finished lubricants and specialty chemicals business, or our Branded and Packaged business as we've often referred to it. And our belief is that by having people focus only on that -- in those individual businesses and looking at the full gamut of the activity from the customer service side to the production to delivery of the product, et cetera, to the customers, we're going to see improvements in terms of the overall performance of each one of those individual lines of business.

Yes. Let me just jump in here too, Mike. What West is describing is a big part of what we consider to be our business transformation process, so we've talked a little bit about that this quarter as well as last quarter. And from an outside perspective, I know you guys are focused on some of the portfolio changes and some of the balance sheet changes that we've made as a transformation. But what West is talking about is we're transforming from the inside out, and that means changing the way we do business internally. These 4 business units that West talked about is now how we've set ourselves up. We rolled this out in January and each of these are led by a business unit leader, general manager, per se, who has P&L responsibility for base oils, P&L responsibility for solvents, P&L responsibility for the white oils, pets and gels and waxes, P&L responsibility for finished products. And we believe that is the first step we need to do. Some of you guys have asked in the past what kind of cultural changes and what kind of organizational changes we were making in order to get better results or different results than what we've done in the past. And so this was a big move for us internally. It's going to help us focus not only on the P&L for the business but it's going to help drive accountability and responsibility for results, and so we're very excited about this. And really the answer to your question is we're going to have to transform our business this way to drive the growth that we're looking for in our specialties business and drive the cash flow that we're going to need to deliver. So that's the -- it's not sexy but it's the way we're going forward.

Ladies and gentlemen, this does conclude the Q&A portion of today's conference call. I'd like to turn the call back over to our host.

Thank you again for joining us today. We have several investor conferences coming up over next few months, including a number of specialty chemicals-focused conferences, and we hope to see many of you there. Have a great day, and thanks again for your continued support.

Ladies and gentlemen, this does conclude today's presentation. You may now disconnect, and have a wonderful day.