Calumet Inc (CLMT) 2020 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Second Quarter 2020 Calumet Specialty Products Partners Earnings Conference Call. (Operator Instructions) I will now like to hand the conference over to your speaker today, Mr. Joseph Caminiti with Investor Relations. Please go ahead, sir.

Thank you. And good morning, everyone, and thank you for joining us today for our second quarter earnings results call. With us on today's call are Steve Mawer, CEO; Keith Jennings, CFO; Bruce Fleming, EVP of Strategy and Growth; and Scott Obermeier, EVP of Commercial. 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 assurances 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 the website at www.calumetspecialty.com. Also, a webcast replay of this call will also be available on our website within a few hours, and you can contact Alpha IR Group for Investor Relations support at (312) 445-2870.

And with that, I'll pass the call to Steve. Steve?

Good morning, everyone, and thank you for joining us. We will start our presentation on Slide 3. The second quarter was one of the toughest quarters for our market and also the broader economy in recent history. However, I'm very proud of our organization from top to bottom as we collectively navigated this extreme event to deliver results for our unitholders. And we did so while driving progress against some of the more important elements of the partnership's strategic priorities. Having now been in the CEO role for 4 months, I wanted to briefly share some perceptions and thoughts about Calumet. April seems like a very long time ago and becoming CEO has a very steep learning curve in normal times, but ironically to assume the seat during a time of crisis helps accelerate that learning experience.

In my career, I've been on teams that successfully managed through multiple commodity market cycles, and I've seen a lot of extreme volatility. When I began my new role as CEO of Calumet, I knew the team well and I was comfortable in knowing that they were both capable and well prepared. But I have to say in a time when superb execution was truly needed, this team delivered. Most specifically, in our business, our #1 measure of execution is safety. And during this time of crisis, our safety record was the best it has ever been. We also set multiple operational records during the second quarter. As the pandemic unfolded, we gave our team the daunting must achieve objectives of generating positive free cash flow from our business in 2020. Through a combination of accelerating our cost reduction program, consistent plant operations, decisive hedging and some very agile commercial execution, the team ensured that Calumet weathered this 100-year storm.

In addition, we've created runway and optionality through our recent debt exchange and aligned our cost structure for the current level of business activity. We are now shifting a large element of our focus from execution and risk management back to our long-term strategy. I think it's also important to point out that the shift to remote work has actually gone very smoothly. We've observed clear process improvement and productivity remains high. At the end of our prepared remarks, I'll talk more about strategy.

But finally, in this introduction, I think it's very important to recognize each and every member of the Calumet team for their dedication, sacrifice and outstanding performance over the last few months. I can't thank the team enough. Please turn to Slide 4, where we provide a high-level snapshot of our business highlights for the recently completed quarter as well as the year this far to date.

Calumet delivered another solid quarter of financial performance, with continued execution against our specialty products-focused strategy. During the second quarter, Calumet earned $41 million in total adjusted EBITDA. This consolidated result was comprised of $56.1 million of adjusted EBITDA from our core specialty products segment and $1.9 million from our fuel segment. These were partly offset by $17 million of net costs in the company's corporate segment. Corporate costs saw a significant step down compared to the $28.2 million in the prior year quarter, and that was led primarily by lower SG&A.

As we talked about last quarter, we remain focused on managing both the commercial and operational side of our businesses -- of our business, for the express purpose of generating positive free cash flow. We achieved that goal during the second quarter as we generated over $70 million of cash flow from operating activity. This helped support our liquidity position, which ended the quarter at roughly $249 million, comprised of $105 million of cash on hand and $144 million of available borrowing capacity on the company's revolving credit facility. While down quarter-over-quarter, liquid capital available to the partnership showed a very healthy step-up from the liquidity update we provided through April 30.

Part of our enterprise risk management approach has been to model the consequences of a severe economic downturn and consciously use diversified sources of liquidity to create a buffer to withstand stress events. The events of the last months are less extreme than our stress planning. And at this time, we see our liquidity strategy as combat proven.

Additionally, we have successfully extended the maturity on $200 million of debt that was set to mature in 2022, pushing out debt obligation to additional years to 2024.

Another key highlight I want to touch on is the continued improvement in margin performance within our core specialty products segment. During the quarter, we captured adjusted EBITDA margins of 24.1%, that's up 440 basis points versus the first quarter. Adjusted gross profit per barrel results of $44.52 also grew meaningfully, up 7.7% versus first quarter results. These results reflect much of the hard work we have undertaken to improve the profitability of our core segment, combined with focused actions through the pandemic to specifically manage the business for margin enhancement. And we'll touch later on the call on that.

What makes this particularly gratifying is that this margin performance took place during one of the fastest rallies in crude prices on record. Between late April and the end of June, WTI prices increased by almost $25 a barrel. That is the largest 2-month increase in the price of our feedstocks since 2011. So to be able to sustain specialty margins during the confluence of such a rally and a weak demand period is a pleasing result. On a year-to-date basis, Calumet has generated $124.7 million of adjusted EBITDA. Of that, our specialty segment has delivered $120.6 million in adjusted EBITDA, which is up 6% compared to the first 6 months of 2019. Thus far in 2020, our focus on execution and cost management has produced $22 million of cumulative free cash flow, a key focal point of our strategy. This cash flow performance is being supported by year-over-year outperformance in our consumer-facing specialty products, where some of our product lines continued to grow through the crisis. We also continue to advance our strategic review process with the Great Falls refinery. While the global pandemic has certainly not made the logistics of a strategic review process any easier, we have made solid progress given the considerations that need to be met, while also maintaining the safety and health of our team at the facility. We look forward to providing a more comprehensive update as we get closer to the conclusion of that process.

Finally, on a year-to-date basis, we have seen our margin profile in our core specialty business grow meaningfully as we capture the benefits of commercial and operational execution against our specialty-focused strategy. Specialty adjusted EBITDA margin for the first half of the year was 21.6%, up 530 basis points versus the first half of 2019, while our adjusted gross profit per barrel results of $42.81 grew more than 18% versus the same period last year. This margin expansion is being driven largely through the uplift associated with our ongoing sales mix enrichment efforts. So with that, I'll now turn the call over to Keith, who will give a more detailed look at our financial results for the quarter. Keith?

Thank you, Steve. Slide 5 reflects our headline consolidated results for the second quarter. Given the nature of the economic environment created by the pandemic, my comments on our results will primarily focus on sequential comparisons. We are using the sequential comparisons because it is more appropriate to focus on the current environment, management decisions and actions.

For the quarter, revenue and adjusted EBITDA were $453.7 million and $41 million, respectively. Revenues declined 34% versus the prior quarter. Specialty revenues declined 29%; and fuels, 40%. These results primarily reflected 2 major impacts. First, pandemic-related softening in demand for industrial specialty products that more than offset growth in consumer specialties. Second, secularly weak transportation fuel cracks that began late in the first quarter and persisted through the second quarter as demand for fuels declined to record low levels. The 34% decline in revenues fell through to our consolidated adjusted EBITDA results, which were down 50% compared to the prior quarter.

Adjusted loss per unit for the second quarter was $0.25 versus the adjusted net earnings of $0.14 and $0.28 of net earnings in the prior quarter. The decline in adjusted earnings was driven by the exclusion of favorable net impact related to noncash LCM inventory adjustments.

On Slide 6, we bridge our consolidated adjusted EBITDA results relative to the prior quarter. The primary driver in the quarter-over-quarter decrease in adjusted EBITDA was the meaningful margin compression in our fuels business, where gasoline and diesel crack spreads declined significantly. Margin performance in our core specialty business grew by over $2 million in a very difficult quarter, driven by our consumer specialties. The $24.1 million headwind from specialty volumes declining reflected industrial production slowing and customers working to managing their inventories. We continue to align our corporate expenses with a changing environment. We were able to reduce operating costs by over $26 million, driven by lower costs across our operating sites. Plant operating cost savings were partially offset by higher RINs mark-to-market cost. Our cost reduction efforts yielded an additional $6 million of various corporate expenses, including transportation mode savings and a $7 million onetime property tax agreement reflected here in the other category. Further tightening in corporate costs contributed $3.9 million in savings from lower SG&A. These focused management actions brought our consolidated adjusted EBITDA totals for the quarter to $41 million.

Slide 7 reflects the results of our core specialty segment. Our second quarter adjusted EBITDA result of $56.1 million reflects growth of 2% compared to the prior year and down 13% versus the sequential quarter. Specialty adjusted EBITDA margins of 24.1% were very strong results for our businesses on an absolute and relative basis. In the second quarter, margins grew by 440 basis points of margin -- of growth relative to the strong first quarter. First quarter gross profit per barrel results of $4.52 per barrel marked a meaningful improvement, growing by 7.7% compared to the sequential quarter.

Turning to Slide 8. We bridged our second quarter specialty adjusted EBITDA to the prior quarter. Specialty margin continued to expand, driven by focused execution in both specialty oils and waxes and our finished lubricants business units, both offsetting challenges from rising feedstock costs in base oils and solvents. While this $2 million of EBITDA margin growth was more than offset by the $24 million of earnings decline from net lower volumes across all specialty business units, the continued growth of TruFuel and the recovery for our Canada waxes contributing meaningfully to stemming the decline. Plant operating costs across the business decreased quarter-over-quarter by $7.4 million, which was primarily attributed to a reduction in fixed costs and actions taken to align staffing with the demand environment. These lower operating expenses, combined with the $6.1 million improvement in other and SG&A brought our first quarter adjusted EBITDA total to $56.2 million. This commendable performance across our specialty business was driven by a number of factors.

While net specialty volumes declined sequentially, we benefited from strong sales volume growth in our higher-margin consumer-facing specialties, particularly in our engineered fuels business, which has delivered record sales and margin performance year-to-date. New customer growth, which has been capitalized by our investments in merchandising and enhanced brand awareness. Strong margin management as we align order filling with our broader margin uplift strategy. And in our base oils business, which while EBITDA was down both year-over-year and sequentially, given its exposure to a number of industrial-focused end markets, the business unit was actually able to offset some of that decline by growing in new niche end markets, such as agriculture and water treatment.

Turning to Slide 9. We are providing a bit more information on this occasion to add a bit more context to our performance in the quarter and/or specialty transition. Year-to-date, our adjusted gross profit per barrel results are more than 18% higher when indexed to the average gross profit per barrel of margins in 2019. Applying the same index approach, volumes were in line with 2019 through Q1, but are now on a cumulative year-to-date basis, roughly 14% below 2019 and 10% on a pro forma basis.

April and May volumes declined as we -- and we believe troughed as the impact of the pandemic worked through economic activity in our end markets. As local economies across the U.S. began to reopen, our sales volumes began rebounding in June and our margins leveled off. We recently implemented price adjustments across multiple specialty product lines in response to improving demand as well as the rapid rise in crude cost. These pricing adjustments have held so far, therefore, further positioning the business to produce strong unit margins as volumes rebound. We believe our multiyear strategy improved the unit margins of specialty product portfolio braced our performance in Q2 and will continue to deliver for us going forward.

I would like to commend the specialty segment employees for their strong execution that is reflected in the year-to-date adjusted EBITDA results of 6% growth versus 2019.

Slide 10 highlights our fuel segment results. Adjusted EBITDA results of $2 million reflected a decrease of greater than 95% when compared to both the prior year and sequential quarters driven by the significant decline in crack spreads. Production volume averaged 61,600 barrels per day of throughput, which was a decline of 4.8% compared to the prior quarter. The year-over-year decline in production volumes is a function of the divestment of our San Antonio refinery, which was sold at the end of October in the prior year. This negative impact on volume from divesting San Antonio was partially offset by improved throughput at both Great Falls and Shreveport, reflecting investments made to enhance utilization across our assets.

Gross profit per barrel results of negative $3.69 per barrel for the second quarter reflected the weak margin environment. We have realized value from our increased hedging activity and locked in values for crude differentials and product crack spreads at levels more attractive than the spot market. This is somewhat offset by a significant tightening of key crude differentials, specifically WCS to WTI.

On Slide 11, we bridged the fuels adjusted EBITDA performance to the prior quarter. The most significant driver of our lower quarter-over-quarter performance was a $47.2 million decline in fuels product margin driven primarily by the tighter WCS differential, combined with the significant decline in crack spreads for diesel and gasoline during the quarter. This weak market environment for fuels was partially offset by maintaining utilization of our plants to absorb fixed costs and maintaining fuels volume sales as we managed to continue placing product into our niche local markets. We captured a $2 million tailwind of lower operating costs, which primarily reflects the net impact of lower fixed plant level expenses, partially offset by higher RINs mark-to-market costs compared to the prior quarter. Additionally, we captured almost $8 million improvement through cost management and a property tax settlement. These operational improvements, combined with marginal SG&A reductions for the segment rounds out our total adjusted EBITDA results to a positive $1.9 million for the quarter. Given these market circumstances, this is a competitive outcome. Despite our fuel segment reporting a negative gross profit as a whole, our Great Falls refinery maintained solid profitability during the quarter.

On Slide 12, we reconciled our sources and uses of cash year-to-date. We opened 2020 with $19.1 million of cash on hand and generated over $90 million from cash operating earnings. To date, we have seen an approximately $16 million headwind from net changes in working capital due mostly to the significant volatility in crude prices we saw across the end of the first quarter and into April and its impact on our payables. We increased net debt by approximately $67 million due to seasonality as we drew down on our revolver to fund operating expenses and CapEx earlier in the year. Capital expenditures, including turnarounds, are almost $45 million, and we incurred $10.2 million of net cash used for settling the working capital true-up of the San Antonio divestiture and acquiring Paralogics.

This leaves our cash balance at the end of the second quarter at $105.4 million. Before discussing our credit metrics, I want to walk over investors and analysts through the recently completed exchange of debt detailed on Slide 13.

We recently closed the transaction to exchange $200 million of principal of our bonds set to mature in 2022, thereby improving the partnership's maturity profile. We exchanged $200 million of unsecured notes due in 2022 for $200 million of new secured notes maturing in 2024. Our annual interest costs will increase by approximately $3 million. The partnership expects to repay the $150 million of remaining principal for the unsecured notes maturing in 2022, utilizing either future cash on hand, proceeds from potential asset divestitures or through a refinancing. The details of the debt exchange are listed on the slide. I'd like to thank our 2022 bondholders that participated in the exchange and the holders of the 2025 notes, whose consent allowed for the exchange. I'd also like to thank the professional services providers, such as our banking partners and external legal support with diligence and advice help ensure the successful exchange.

Slide 14 provides a snapshot of our credit metrics as of quarter end. Since the start of this pandemic, we have engaged in a highly focused strategy to improve and maintain position of ample liquidity to maintain our business effectively. As communicated in our pre-announcement on July 6, 2020, we ended the second quarter with available liquidity of $249 million, between $105 million of cash on hand and approximately $144 million of available borrowing capacity on the partnership's credit facility. It is worth noting that despite significant softening of demand across our business segments in the second quarter, we have successfully managed through the seasonal low point of our liquidity, which also included debt service payments and significant crude settlements in April and June.

We are operating with a positive free cash flow charter. We believe we have ample liquidity to effectively manage our business well within the stress testing limits. Our leverage and fixed charge coverage ratios paused from continuous improvement, driven by the decline in our trailing 12 months of adjusted EBITDA. Leverage reduction and balance sheet improvement continues to be a focal point in our strategy. With that, I'll turn the call back over to Steve.

Thanks, Keith. I'd like to make some comments on Calumet's outlook and strategy going forward. But briefly before then, we've had a lot of questions about TruFuel, rapidly growing, market-leading engineered fuel products. So we thought you might be interested to go a little deeper into that product.

Slide 15 provides an overview of the engineered fuels market and long-term growth strategy. As the market leader in engineered fuels, TruFuel continued its recent record of greater than 25% year-over-year volume growth during the first half of 2020. The TruFuel brand has become synonymous with the engineered fuel category. In engineered fuels, we offer the consumer a variety of easy-to-use, especially formulated high performance, long-life deals in multiple package sizes. This convenience is a complete contrast to the messy, dangerous and unpleasurable experience of self-mixing and the potential for damage to expense equipment.

So for those of you who have experienced these kind of challenges, you all appreciate why we have an incredibly loyal and rapidly growing customer base. These 25% to 30% growth rates have been driven by our continued working in collaboration with key major retail partners. This work has seen us expand our in-store footprint significantly with extensive use of display units, shelf space and end caps. This has generated further awareness and has been supported by our own marketing investment in campaigns across digital and other media for the category and the brand.

Our research shows that we're still in the early stages of market penetration. Despite battery adoption in smaller demand and less consistent use segments of the market, most equipment sold remains gas powered. Additionally, as users discover the performance and convenience benefits of the product through our core market of outfill power equipment, we believe our share will continue to accelerate. Furthermore, as the product benefits are increasingly understood, we're seeing adoption in large adjacent markets, including first responder services, power sports enthusiasts and some marine applications. As these continue to expand, the addressable market potential for TruFuel to support our existing growth rates into the foreseeable future. We hope that a deeper dive into one of our consumer-facing products was interesting and a good demonstration of the commercial acceleration of Calumet.

So turning to Slide 16, where we've outlined our updated outlook for the rest of the year. In our core specialty business, we expect that our performance and growth will generally be in alignment with our end markets. While we expect to still face headwinds for our volumes in the third quarter in the more industrial sectors, some of this downside will be mitigated by the underlying diversity of product and customer mix as well as the wide array of end markets that we serve.

Recent price increases have been accepted by the market. And finally, we expect to capture the benefits of continued growth in our consumer-facing specialties. In our fuels business, we reiterate that our performance will be supported by the hedging activity we have in place. We expect to run our Great Falls refinery at high utilization rates given that our local niche continues to sustain itself well. And at the Shreveport complex, we continue to optimize in accordance with the fluctuating market signals in this more competitive market.

Concluding our outlook on our strategic front, we will continue to drive free cash flow generation through the remainder of the year. Furthermore, we expect to continue acting on opportunities to optimize our working capital, and finally, we will maintain a keen focus on identifying and acting on opportunities to manage our long-term balance sheet liabilities in a way that best serves our strategic needs.

So in closing, I'd like to add some comments on Calumet's strategy going forward. First, we continue to believe that our highly diversified specialty products business is our core. This was further demonstrated in the quarterly results, and the resilience that the business has shown in the face of extreme economic adversity as well as headwinds from increasing feedstock costs.

Our multiple still does not reflect the fact that the majority of our earnings come from our specialty segment. And in total, more than 1/3 of our earnings this year have come from consumer-facing products.

Indeed, in this consumer-facing area, earnings are tracking ahead of 2019 despite the economic challenges. We're now operating a more agile Calumet than in the past. Commercially, those efforts be the clearer business strategies, step change reductions in quality giveaway, SKU rationalizations, mix enhancements, inventory management or product development, all of these strategies make us more resilient. It's really about a better understanding of what our customers value and leveraging our knowledge of the workings of the markets we serve.

One element of this maturation is that we now also have a clearer picture of how and where we can grow even in periods of weaker demand, and a lot of that growth potential lies in our consumer-facing markets. As we did the work, we surprised ourselves just how much growth potential there is in Calumet, even without setting stretch goals or hoping for a V-shape recovery. At the same time, we recognize that COVID has slowed the cadence of our deleveraging process and made access to capital given our credit ratings much more complicated. It's a challenge we're working on. Our debt exchange was the final step in our dealing with immediate COVID-created execution priorities, allowing us to now begin the shift back to a strategic debate on what Calumet can be. Despite the travel limitations of COVID, the leadership team has spent considerable time listening to both our unitholders and our bondholders. Your views are important to us, and we appreciate your willingness to share and advice, just as we greatly appreciate you owning our units and bonds. We're also committed to providing a clearer window in Calumet and appreciate the feedback that our last few presentations, this effort has been noticed and valued.

Finally, I wanted to communicate that this is the last Calumet earnings call that Keith will be on. He's decided to pursue other interests closer to his family in Texas and will be with us through the end of August. Keith and I quickly formed a strong and enjoyable working relationship, and I'd like to thank him for the major contributions he's made to Calumet, most particularly in being a thought leader in helping shape our strategic vision and in doing an excellent job of creating optionality for Calumet despite the challenges of COVID.

We'll communicate transition plan in due course. Our last senior executive transition was described by one of our analysts as "seamless" and that's our plan again this time. Keith, we wish you well in your future endeavors. And with that, I'd like to turn the call over to the operator to open up the line for Q&A. Operator?

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

Well, Keith might have been a short run, but you can't say it wasn't an eventful one.

It was fun or it is -- it's still fun.

If we could maybe dig a little bit more into the -- what you did here in terms of restructuring the balance sheet, maybe what we should think of as some of the longer-term debt goals. Obviously, we expect you to continue to market the process on Great Falls and presuming what you get out of that, I would imagine 100% of those funds go towards debt reduction. But as you move even more and more heavily to the specialty business, what's the right way for us to think about the debt levels that, that business could and should sustain over time? I'm going way back to some of Tim's original thoughts when he was CEO in '18, where he talked about 4x EBITDA, which is probably a little too high in this environment. Just curious what you think of as the right sort of structure of this business, say, in '22, '23 time frame when the world normalizes?

Well, Roger, I do hope the world normalizes before then. But I think in terms of Calumet, we're taking it one day at a time. Our first target at this time is to get it below 4x. That's what we think we would like to get to operationally on our own. If we are able to execute a transaction on Great Fall that will help greatly, and maybe then we can even get down to 3x.

If you look into the public markets for U.S. specialty products and chemical companies, I think the average debt level that the market appreciates, the type of companies that we are aspiring to be amongst, I think it's about 2 to 3x. And so that is where we're going because that's what the strategy for the type of business we are running will support and the market will appreciate, but we have to deal with our reality and get there in a step-wise fashion.

Understood. And then looking at the Great Falls sales process, is there -- I know this is kind of a strange time in the overall business, but you mentioned that this unit has actually been running at fairly high levels. There was another refining company that mentioned interest in PADD 4 over PADD 2 as they were thinking about M&A. What -- any update on the process? Anything you can provide or maybe a number of companies that are kicking the tires and so forth?

So the process continues well. We are still in what we consider our round 2 with our short list. We've had half the interested parties so far visit the site. And I would say those are the domestic parties. The international parties have not been able to get to the site given COVID and travel restrictions and so forth. So we still have high interest. No one has dropped out of the process. We are trying to ensure that we maintain the process in such a way that we do not put the business at risk because it's running well. PADD 4 remains to be still a very attractive part of the market for refineries. So we continue to believe that we have a great asset that is delivering value to our unitholders. It may not be a part of our strategic future, but it's still a great asset, nonetheless. Steve?

I don't really have much to add to that. I mean you laid out the situation well, and we continue to run hard in the second quarter. Actually, in the second quarter, we ran 4 barrels a day. It's not 4,000 barrels a day. That's 4 barrels a day less than the first quarter run rate. So we maintain high levels. Bruce, do you want to add anything?

Yes. I think given where Roger's thoughts are trending, the industry has been aware for a long time that the Rockies or the PADD 4 region is a super place to do business. And the fact that we could run full through the pandemic is proof in the put in. You can pull whatever crack spread indicators you like to use, and you can see that this place is head and shoulders above anywhere else in the country in terms of attractiveness for in-place refiner.

Okay. Great. If I could get one more question just because of your discussion on the consumer-facing side and the TruFuel's side. So normal-ish world, you're going to generate maybe 25,000 barrels a day within the specialty segment. As you think about that, how much can you really grow TruFuel? I mean my understanding is its relatively small part. Do we look at this as 25-plus growth in TruFuels? Or within the 25,000 assuming that's a fair kind of volume to use, do we think about you moving other products to have the flexibility to shift in what you're making and go to a better margin product over a lower margin product, favorable mix shift?

Well, I guess I would start by saying that TruFuel is integrated with the rest of our specialties business, but it's not hyper integrated. So the way I look at it is as TruFuel grows, it's not the diversion from one specialties market to another, it's all incremental. And although -- I mean the volumes compared to our biggest focus, most industrial areas are clearly less, we don't see why that 25% growth rate is not sustainable for a number of years. And as you know, Roger, anything that's got a 25% growth rate gets big quickly. We -- if you look at the slide, what we touch on there is if you define the market as the whole space where people using gasoline for powered equipment, we're still below 2% market share. So I don't know if that's helpful. Scott, would you like to add?

Yes. Roger, let me just add, Scott Obermeier here, just to tack on to Steve's point. I mean TruFuel has been certainly a growth story for Calumet now for multiple years in a row. But just to build on the consumer-facing specialties, Roger, when we talk on a consumer specialties piece, we've had very good performance this year as we've looked into the food space, in the pharmaceuticals, into the personal care, right? We can even go down the path of our charcoal lighter fluid business, et cetera. So really, just the whole broader consumer specialties segment for Calumet has been a real success story for us this year and something that we've intentionally pivoted to over the past couple of years that have more focus in that area.

Our next question comes from the line of Neil Mehta with Goldman Sachs.

And Keith, it's been a pleasure working with you and wish you well in your future endeavors. The first question I had for you guys was just on margins. We've seen crude tick up here pretty ratably over the course of the last couple of months. And how have you been able to sustain your margins? And any quantification on the specialty side of -- historically, you've talked about a range on a dollar per barrel basis. How are you tracking relative to the range on a real time basis?

Neil, Scott Obermeier. So just to maybe step back a little bit in time, if you go back a couple of years ago and you look through our performance as we focused on really driving the value over volume in our specialties business and the predictability of that, we really started from a number, Neil, in the upper 20s per barrel. And as you look through the past couple of years, you've seen that continue to climb up within Calumet in the low 30s and then really the mid-30s. As we look at 2020 so far this year, we have -- to your point, Neil, we've received some tailwind with the drop in crude in the first half of the year and also the strength of our consumer business having an impact on our margins. I think if we look for the rest of this year, we still expect to have a good -- continue to generate good, predictable profit. As we look for the rest of the year, we do expect it, though, Neil, to start to normalize going forward as crude doubled in Q2. And as we start to see our industrial business start to ramp back up, we do expect our margins to start to normalize moving forward for the second half of the year.

And any quantification, Scott, of where you are on a dollar per barrel basis right now versus the historical range you've talked about?

I would say without feeling comfortable predicting too far into the future, Neil. I would just say, in the near term, I think you'll see numbers above where we finished 2019. But I think you'll again start to see the current GP per barrel, I think, in Q2 was about $47. I think you'll see that come down to a little bit more of a normalized number.

If I could just add a couple of comments. Neil, if I can add a couple of comments. I mean the thing is that, 2 things. First of all, as Scott said, every day, we'll take every day as it comes right now in this market, although things are feeling better. But if you look at that $47 a barrel margin in the second quarter, we were really -- we were pleased with that. I'd reiterate that, as I say, if you forget about the negative crude price event in April, it's just an -- whatever aberration it was. After that contract, the May contract expired, the market just rallied consistently for the last 65 to 70 days of the quarter. And that $25 a barrel rally, I went back and since the Gulf war, which was, what, 30 years ago, so 30 years ago, there's only been 3 events where we've had that kind of price acceleration. So bad amount of rally in a 2-month period. So from a feedstock cost pressure standpoint, this was arguably a worst-case scenario, and yet we managed to maintain margin. And so we're pleased with that.

Just adding to Scott's comment, I think that as industrial demand comes back, we expect volumes to increase and the margin on some of those more industrial products is lower than the commercial. So I think I would say that we do expect margin to come down as a result of that. But total profitability go up, right? So we're just going to move to a different point on the margin times volume curve.

Yes. Neil, this is Keith. It's hard for us to think about what we would say about gross profit per barrel at the moment because of the changing mix effects from period. So we know that the crude compression has given us some [math] that has expanded it. We know that the mix effect of the consumer specialties holding up better and continuing to grow versus the industrial specialties has also contributed to that. So we are relooking at where we're going from here. But as Steve said, we don't want to say that the -- where we are at $44, $45 a barrel right now is sustainable because we know that once industrial recovers, that will compress even though absolute dollars will grow.

Yes. No, that's great. And one of the things I know we've talked about through the years with your organization is finding ways to improve the trading liquidity of your stock and to attract, as a result, a more generalist investor -- institutional investor. And one of the constraints, of course, has been the MLP structure. So I'd be curious on your guys' thoughts about C-corp conversion, whether there's merit to it, what the tax implications could be of that? And then put that also in the context of we have an election coming up where a lot can change. So there are a lot of moving pieces to it, but the overarching objective I would think would be to get multiple expansion to your earlier point through inviting more shareholders to participate in the story.

Yes, Neil, this is Steve. Yes, totally agree. What I would say is, that sort of thing that as a management team and a Board, we're in continuous review and dialogue. And I would say that COVID has created some changes to capital markets and so on and so forth. So we have been focused on execution over the last few months. That was essential to make sure we weathered the storm, and we think we weathered the storm very effectively. But as you move away from execution, the role of management team becomes more strategic in nature. And so I think the kind of questions you're raising, we're going to continue to debate and probably debate a lot more than pre COVID. We're in a different world. So we need to understand how we configured for this different world.

(Operator Instructions) And your next question comes from the line of Gregg Brody with Bank of America.

Keith, good luck with the next steps. I mean they ask us where -- do you have -- do you know where you're going? Or is it just decided to move back to Texas?

So COVID has changed a lot of dynamics for everyone, I think, globally. And it has also changed some of the dynamics in my personal life and family life. And so one of the things that I -- and my wife and kids have agreed on, is that for me to get back into balance. One of the things that needs to happen, given this change in how COVID and the dynamics around us would happen is that we all need to be back home in Texas. And so I think what Steve and I have done over the past few months that I worked here with him, while he was on the Board and also in the seat as my partner and CEO, the exchange, I think, has lowered our refinancing risk and profile. It has given us true timetable and run rate. We have a strong finance team that we've put in to deal with our material weaknesses and so forth. And so it's a good time. Let's take a little breather and solve my personal things and allow Steve an opportunity to continue the journey. So it was my decision and my decision based upon just the changing dynamics that have affected my family.

I appreciate that. My wife is listening to this conversation, and what's been worth a little less. Maybe that will -- this will help. But I really appreciate that. This has been unusual times, but it's good to hear you're able to take care of personal, and it does feel like we're around the other side of this. Maybe I could just ask a couple of questions. So obviously, a lot going on this quarter. There are some questions about debt reduction. Maybe you could just walk us through how you think about addressing the remaining stub piece in the '22 and appreciate that the assets on -- that you're marketing the refining business, but maybe give us a sense of timing on that? And then if that doesn't go through, what are your next steps?

Sure. So I think that we're viewing the $150 million as manageable. So in the worst-case scenario, let's say that the capital markets and the high-yield markets for debt don't normalize to where our credit profile can access it again. We think that the $150 million is manageable staying current. It's going to be a very low coupon relative to what could be afforded in the market even if we were able to refinance it. And so it goes out to 2022, and it's serviceable.

On the other hand, if we continue with the Great Falls process and the option -- one of the options play out because it is strategic options, right? We never said sale, so outright. So it's a possibility that, that could be the option or a different option. So whatever options Great Falls brings us, allows us to delever in that sense. There are also other options. When we look at our collateral trust agreement that is supporting the new secured bonds, they do not include Great Falls. Great Falls is actually pledged into the ABL. It's getting an advanced rate, I think, that started at about $100 million and stepping down amortizing because it's just not the type of asset for that type of structure.

So it's underappreciated in those terms. So we could structurally move to take Great Falls out of the ABL. We could put a term loan or a secured loan on Great Falls, which would be at a higher level cash flow based, make it portable in case there is a potential buyer that could pick it up and lift it and take it all. So it gives us a lot of options. The second half of this year, if the U.S. economy finds a way to manage the vaccine, could see an improvement in economic activity, and that could then return activity to transportation fuels, widening spreads. And then cash flow starts to roll through fuels again.

So we have lots of options. We think -- we see this as, as Steve put it, something we can move to the back of the mind right now as we move back to what are we doing strategically with the portfolio.

And do you -- in terms of cash flow from your underlying business, did you -- do you think that you can generate much cash flow in the second half of this year to have this...

That is our charter. Our charter is not to add leverage. And so far, this year, we have not done that. We are running this business whereby our thought process is positive to breakeven free cash flow. And so far, year-to-date, we're at $22 million positive free cash flow.

Got it. So you're not expecting significant cash flow in the second half of the year, I would expect at this point?

We expect -- if you look at the history of this business, Q2 and Q3 have been our best seasonal quarters. So we think we're looking for Q3 that should be as strong as our Q2 or even slightly stronger, given the things we've done to manage our portfolio. And then Q4 has always been the seasonal low. But if it's in a rebound environment, then that could be a good point.

So it's -- we are optimistic about the second half. We're not saying it's going to be a robust year by any means, but we think our plan of how to get to 2021 is still intact.

That's helpful. And then if you were to take a guess, as early as you can get your international parties that are interested in the refinery to come see the asset, when do you think that is today?

I think...

Gregg, this is Bruce. Let me support that question. We're not going to hazard a guess on the time line.

Okay. Maybe just moving on to the refining business. I'm sorry, if you hear my kids there in the background. There is -- you've talked about a normalized number for the fuel products business. Given what's happening with RINs and just the movement in cracks and differentials, where do you think that is today?

When you say normalized number, are you talking about a full year run rate EBITDA for our fuel segment?

Yes. I think you -- at a conference, I think you gave a number like $125 million to $175 million for fuel products.

That was pre-COVID. That was pre-COVID.

Yes, I mean, Gregg, I apologize if it sounds glib, but the world is still abnormal, really struggling to give a normalized number in an abnormalized world.

You can't play my gut for it -- for asking. I appreciate.

I hope the conference guys are saying no.

I don't. I appreciate that. It's -- I figured I'd give it a shot. I know someone's hitting me up with this question, so I'll just ask it on their behalf. They're trying to understand the hedge gain this quarter. Do you have a split between fuel products and specialty segment?

Most of our hedge gains, I would say, 90%, 95% are in the fuels business.

Got it. Keith, good luck. I'm glad you're able to take care -- [needs] to take care of life. We all appreciate that.

Thanks. Thank you. Steve?

Okay. I think we're done with question.

Operator, do we have any more questions out there? Or...

We do not have any further questions. I would like to turn the call back over to Mr. Steve Mawer, our CEO, for closing remarks.

Well, thank you very much. I'm just going to close the call by thanking everybody for participating. And again, expressing my appreciation for what the whole Calumet team accomplished in the second quarter. We met the challenge of the pandemic, and I'd like to wish everybody to stay safe. And again, thank you. Have a good day.

And ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.