News Releases

INDIANAPOLIS, March 5, 2020 /PRNewswire/ -- Calumet Specialty Products Partners, L.P. (NASDAQ: CLMT) (the "Partnership," "Calumet," "we," "our" or "us"), a leading independent producer of petroleum-based specialty products, today reported results for the fourth quarter and year ended December 31, 2019, as follows:

For the fourth quarter 2019, the Partnership's $38.6 million Net loss, or $0.48 of net loss per unit, and Adjusted EBITDA of $53.8 million included a $3.9 million favorable net impact related to the non-cash lower of cost or market ("LCM") inventory adjustments and the liquidation of last-in, first-out ("LIFO") inventory layers. Excluding the impact of LCM, LIFO and other non-cash and non-recurring items, Adjusted net loss, Adjusted net loss per unit, and Adjusted EBITDA (excluding LCM/LIFO) were $17.8 million, $0.23 per unit, and $49.9 million, respectively.

For the full year 2019, the Partnership's $43.6 million Net loss, or $0.55 of net loss per unit, and Adjusted EBITDA of $304.6 million included a $41.8 million favorable net impact related to the non-cash lower of cost or market ("LCM") inventory adjustments and the liquidation of last-in, first-out ("LIFO") inventory layers. Excluding the impact of LCM, LIFO and other non-cash and non-recurring items, Adjusted net loss, Adjusted net loss per unit, and Adjusted EBITDA (excluding LCM/LIFO) were $5.2 million, $0.07 per unit, and $262.8 million, respectively.

Investors are advised to review the Partnership's annual report on Form 10-K that will be filed today for further details on the 2019 results, as well as the investor relations section of the website where an updated investor presentation for the fourth quarter 2019 has been provided. For detailed information on Adjusted net income (loss), Adjusted net income (loss) per unit, Adjusted EBITDA, Adjusted EBITDA (excluding LCM/LIFO), Adjusted EBITDA margin, Adjusted net income (loss) per unit, Specialty products segment gross profit (excluding LCM/LIFO), Fuel products segment gross profit (excluding LCM/LIFO) and a reconciliation of such measures to the nearest comparable U.S. GAAP measure for the periods presented above, please see the sections of this release entitled "Non-GAAP Financial Measures" and "Non-GAAP Reconciliations."

Management Commentary

"During the fourth quarter, Calumet delivered on key strategic priorities, including the refinancing of our 2021 notes and the divestment of our San Antonio fuels refinery" said Tim Go, Chief Executive Officer of Calumet. "Our leverage ratio improved to 4.0x net debt to trailing twelve month Adjusted EBITDA (or 4.6x excluding LCM/LIFO), down from 5.6x net debt to trailing twelve month Adjusted EBITDA (or 4.9x excluding LCM/LIFO) at the end of 2018. Calumet delivered another strong quarter of financial and operational performance, with strong utilization in both our Specialty and Fuel Products segments, overcoming seasonally softer demand and market headwinds, to deliver $49.9 million of Adjusted EBITDA (excluding LCM/LIFO) in the fourth quarter."

Go added, "For the full year, Calumet delivered $262.8 million of Adjusted EBITDA (excluding LCM/LIFO) and $191.9 million of cash flow from operations. Our Specialty Products segment contributed $207.9 million of Adjusted EBITDA (excluding LCM/LIFO), which was up 24% year-over-year. This helped to partially offset the lower Fuel Products segment contribution of $152.5 million of Adjusted EBITDA (excluding LCM/LIFO), which was down year-over-year, due primarily to the weaker crude differentials. In addition, our Specialty Products gross profit per barrel increased 7.2% to $34.41, and our Specialty Products EBITDA margins (excluding LCM/LIFO) increased 320 basis points to 15.4% driven by volume growth in solvents, naphthenic oils, & finished lubricants and our margin-enhancing self-help initiatives. In particular, our rationalization of low-margin SKUs shed 2,100 bpd of low profitability business and has freed up our commercial team to focus on growing our higher margin business. Finally, in 2019, we reduced total long-term debt by over $390 million and lowered our interest expenses by roughly $21 million.

Go concluded, "Looking ahead to 2020, Calumet remains firmly committed to our transformation, carrying the momentum of our improved profitability and strengthened balance sheet to drive top- and bottom-line growth in our core specialties business.  We have taken the next step in our portfolio transformation and started the process of reviewing strategic options for our remaining fuels refinery in Great Falls, Montana and expect to execute upon an option, which could occur as early as this year. In addition, I am pleased to announce that Calumet completed the strategic acquisition of Paralogics, LLC during the first quarter, which expands our presence in the wax blending and packaging market. In conclusion, we remain focused on executing against our 2020 Self-Help efforts, which we expect to deliver $40 million in incremental Adjusted EBITDA. When combined with our other strategic priorities, we believe these efforts should help us expand our Specialty Products gross profit to over $40 per barrel and our Adjusted EBITDA Margins over 15%."

Specialty Products Segment | Results Summary

During the fourth quarter 2019, Specialty Products segment gross profit was $69.2 million and Adjusted EBITDA was $48.9 million, which included $6.1 million of favorable impact related to LCM and LIFO adjustments. Excluding these non-cash charges, fourth quarter segment gross profit (excluding LCM/LIFO) of $63.3 million declined 8.1%, while Adjusted EBITDA (excluding LCM/LIFO) of $42.8 million decreased 5.3%, each as compared to the fourth quarter 2018, as production volumes and Adjusted EBITDA were negatively impacted by turnaround activity at Shreveport in the quarter. These results were driven by strong operating performance and higher feedstock runs but were offset by planned downtime at our Shreveport refinery. Additionally, healthy growth across solvents, naphthenic base oils, and finished lubricants and chemicals helped offset the negative impacts of continued weakness in the paraffinic base oil market. Adjusted EBITDA margin was 16.2%, or 14.2% (excluding LCM/LIFO) improved versus the prior year period, as the rationalization of low-margin products more than overcame the volatility in crude oil prices and the impact of downtime at the Shreveport refinery.

Fuel Products Segment | Results Summary

During the fourth quarter 2019, Fuel Products segment gross profit was $21.6 million, a decrease of 50.6% compared to the prior year period, and Adjusted EBITDA was $26.5 million, a decrease of 39.6% compared to the prior year period. In each case, this included $2.2 million of unfavorable impact from LCM and LIFO adjustments. Excluding these non-cash charges, segment gross profit (excluding LCM/LIFO) of $23.8 million and Adjusted EBITDA (excluding LCM/LIFO) of $28.7 million, both decreased compared to the year-ago period. These results were primarily due to the tightening of the WCS/WTI heavy crude differential, which tightened $15.50 per barrel compared to last year's fourth quarter, in addition to the decrease in the benchmark Gulf Coast 2/1/1 crack spread. These headwinds were partially offset by strong throughput volumes across the fuels business, which grew nearly 17% compared to last year's fourth quarter, as Self-Help and debottlenecking projects conducted throughout the year helped increase production, despite the downtime taken at the Shreveport refinery during the quarter.

Partnership Liquidity

As of December 31, 2019, the Partnership had total liquidity of $378.5 million, comprised of $19.1 million of cash on hand, plus approximately $359.4 million of availability under its revolving credit facility. The borrowing base under the revolving credit facility was approximately $401.9 million and the Partnership had $42.5 million in outstanding standby letters of credit and no outstanding borrowings. The Partnership believes it will continue to have sufficient liquidity from cash on hand, cash flow from operations, borrowing capacity and other means by which to meet its financial commitments, debt service obligations, contingencies and anticipated capital expenditures.

2020 Outlook

For fiscal 2020, total capital spending is expected to be between $80 million to $90 million. Included in the forecast is maintenance capital, expected turnaround activity and smaller growth capital projects.

The Partnership recently provided an update for Phase II of its self-help program that was originally launched in early 2019. Phase II remains on track to deliver the $100 million of incremental Adjusted EBITDA by year-end 2021. Management expects to deliver approximately $40 million of incremental Adjusted EBITDA in 2020.  Half, or approximately $20 million, will come from Specialty Products growth initiatives, including two debottlenecking projects, further rationalization and replacement of low margin tolling agreements, and additional finished lubricant expansion projects.  The other half, or roughly $20 million, will come from an expense reduction plan designed to right-size General and Administrative spending.  The Partnership is expected to incur approximately $10 million in one-time costs in 2020 to implement this expense reduction plan.   Due to the unknown effect, timing and potential significance of certain income statement items, the Partnership is unable to provide a reconciliation of these projected Adjusted EBITDA amounts to projected net income (loss), the most comparable financial measure calculated in accordance with GAAP.

Operations Summary

The following table sets forth information about our combined operations, excluding the results of discontinued operations. Facility production volume differs from sales volume due to changes in inventories and the sale of purchased fuel product blendstocks such as ethanol and biodiesel and the resale of crude oil in our fuel products segment.

About the Partnership

Calumet Specialty Products Partners, L.P. (NASDAQ: CLMT) is a master limited partnership and a leading independent producer of high-quality, specialty hydrocarbon products in North America. Calumet processes crude oil and other feedstocks into customized lubricating oils, solvents and waxes used in consumer, industrial and automotive products; produces fuel products including gasoline, diesel and jet fuel. Calumet is based in Indianapolis, Indiana, and operates ten manufacturing facilities located in northwest Louisiana, northern Montana, western Pennsylvania, Texas, New Jersey and eastern Missouri.

Cautionary Statement Regarding Forward-Looking Statements

Certain statements and information in this press release, may constitute "forward-looking statements." The words "believe," "expect," "anticipate," "plan," "intend," "foresee," "should," "would," "could" or other similar expressions are intended to identify forward-looking statements, which are generally not historical in nature. The statements discussed in this press release that are not purely historical data are forward-looking statements, including, but not limited to, the statements regarding (i) our expectation regarding our business outlook, cash flows and forecasted gross profit and Adjusted EBITDA margin results, (ii) our expectation regarding anticipated capital expenditures and strategic initiatives, including our expense reduction plan and timing of the execution on a possible transaction involving our Great Falls refinery, and (iii) our ability to meet our financial commitments, debt service obligations, contingencies and anticipated capital expenditures. These forward-looking statements are based on our current expectations and beliefs concerning future developments and their potential effect on us. While management believes that these forward-looking statements are reasonable as and when made, there can be no assurance that future developments affecting us will be those that we anticipate. All comments concerning our expectations for future sales and operating results are based on our forecasts for our existing operations and do not include the potential impact of any future acquisition or disposition transactions. Our forward-looking statements involve significant risks and uncertainties (some of which are beyond our control) and assumptions that could cause our actual results to differ materially from our historical experience and our present expectations or projections. Known material factors that could cause actual results to differ materially from those in the forward-looking statements include: the overall demand for specialty hydrocarbon products, fuels and other refined products; the level of foreign and domestic production of crude oil and refined products; our ability to produce specialty products and fuels products that meet our customers' unique and precise specifications; the impact of fluctuations and rapid increases or decreases in crude oil and crack spread prices, including the resulting impact on our liquidity; the results of our hedging and other risk management activities; our ability to comply with financial covenants contained in our debt instruments; the availability of, and our ability to consummate, acquisition or combination opportunities and the impact of any completed acquisitions; labor relations; our access to capital to fund expansions, acquisitions and our working capital needs and our ability to obtain debt or equity financing on satisfactory terms; successful integration and future performance of acquired assets, businesses or third-party product supply and processing relationships; our ability to timely and effectively integrate the operations of acquired businesses or assets, particularly those in new geographic areas or in new lines of business; environmental liabilities or events that are not covered by an indemnity, insurance or existing reserves; maintenance of our credit ratings and ability to receive open credit lines from our suppliers; demand for various grades of crude oil and resulting changes in pricing conditions; fluctuations in refinery capacity; our ability to access sufficient crude oil supply through long-term or month-to-month evergreen contracts and on the spot market; the effects of competition; continued creditworthiness of, and performance by, counterparties; the impact of current and future laws, rulings and governmental regulations, including guidance related to the Dodd-Frank Wall Street Reform and Consumer Protection Act; the costs of complying with the Renewable Fuel Standard, including the prices paid for RINs; shortages or cost increases of power supplies, natural gas, materials or labor; hurricane or other weather interference with business operations; our ability to access the debt and equity markets; accidents or other unscheduled shutdowns; and general economic, market or business conditions.

For additional information regarding known material factors that could cause our actual results to differ from our projected results, please see our filings with the Securities and Exchange Commission ("SEC"), including our latest Annual Report on Form 10-K and Current Reports on Form 8-K.

Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date they are made. We undertake no obligation to publicly update or revise any forward-looking statements after the date they are made, whether as a result of new information, future events or otherwise.

Non-GAAP Financial Measures

Our management uses certain non-GAAP performance measures to analyze operating segment performance and non-GAAP financial measures to evaluate past performance and prospects for the future to supplement our U.S. GAAP financial information presented in accordance with U.S. GAAP. These financial and operational non-GAAP measures are important factors in assessing our operating results and profitability and include performance and liquidity measures along with certain key operating metrics.

We use the following performance and liquidity measures:

EBITDA: We define EBITDA for any period as net income (loss) plus interest expense (including debt issuance costs), income taxes and depreciation and amortization.

Adjusted EBITDA: We define Adjusted EBITDA for any period as: EBITDA adjusted for (a) impairment; (b) unrealized gains and losses from mark to market accounting for hedging activities; (c) realized gains and losses under derivative instruments excluded from the determination of net income (loss); (d) non-cash equity-based compensation expense and other non-cash items (excluding items such as accruals of cash expenses in a future period or amortization of a prepaid cash expense) that were deducted in computing net income (loss); (e) debt refinancing fees, premiums and penalties; (f) any net loss realized in connection with an asset sale that was deducted in computing net income (loss) and (g) all extraordinary, unusual or non-recurring items of gain or loss, or revenue or expense.

Distributable Cash Flow: We define Distributable Cash Flow for any period as Adjusted EBITDA less replacement and environmental capital expenditures, turnaround costs, cash interest expense (consolidated interest expense less non-cash interest expense), income (loss) from unconsolidated affiliates, net of cash distributions and income tax expense (benefit).

Adjusted EBITDA Margin: We define Adjusted EBITDA Margin for any period as Adjusted EBITDA divided by sales.

Adjusted net income (loss): We define Adjusted net income (loss) for any period as: net income (loss) adjusted for (a) impairment; (b) unrealized losses from mark to market accounting for hedging activities; (c) realized gains under derivative instruments excluded from the determination of net income (loss); (d) non-cash equity-based compensation expense and other non-cash items (excluding items such as accruals of cash expenses in a future period or amortization of a prepaid cash expense) that were deducted in computing net income (loss); (e) debt refinancing fees, premiums and penalties; (f) any net loss realized in connection with an asset sale that was deducted in computing net income (loss) and (g) all extraordinary, unusual or non-recurring items of gain or loss, or revenue or expense; (h) lower of cost or market ("LCM") inventory adjustments; (i) the impact of liquidation of LIFO inventory layers and (j) until third quarter of 2019, the amortization of turnaround costs.

Adjusted net income (loss) per unit: We define Adjusted net income (loss) per unit for any period as Adjusted net income (loss) divided by average limited partner units (diluted).

Adjusted EBITDA (excluding LCM/LIFO): We define Adjusted EBITDA (excluding LCM/LIFO) for any period as Adjusted EBITDA excluding the impact of LCM inventory adjustments and the impact of liquidation of LIFO inventory layers.

Specialty products segment gross profit (excluding LCM/LIFO): We define Specialty products segment gross profit (excluding LCM/LIFO) for any period as Specialty products segment gross profit excluding the impact of LCM inventory adjustments and the impact of liquidation LIFO inventory layers.

Fuel products segment gross profit (excluding LCM/LIFO): We define Fuel products segment gross profit (excluding LCM/LIFO) for any period as Fuel products segment gross profit excluding the impact of LCM inventory adjustments and the impact of liquidation of LIFO inventory layers.

The definitions of Adjusted EBITDA and Distributable Cash Flow that are presented in this press release are consistent with the calculation of "Consolidated Cash Flow" contained in the indentures governing our 7.625% senior notes due January 15, 2022, that were issued in November 2013 (the "2022 Notes"), our 7.75% senior notes due April 15, 2023, that were issued in March 2015 (the "2023 Notes") and our 11.00% senior notes due April 15, 2025, that were issued in October 2019 (the "2025 Notes"). We are required to report Consolidated Cash Flow to the holders of our 2022 Notes, 2023 Notes and 2025 Notes and Adjusted EBITDA to the lenders under our revolving credit facility, and these measures are used by them to determine our compliance with certain covenants governing those debt instruments. Please see our filings with the SEC, including our most recent Annual Report on Form 10-K and Current Reports on Form 8-K, for additional details regarding the covenants governing our debt instruments.

These non-GAAP measures are used as supplemental financial measures by our management and by external users of our financial statements such as investors, commercial banks, research analysts and others, to assess:

• the financial performance of our assets without regard to financing methods, capital structure or historical cost basis;
• the ability of our assets to generate cash sufficient to pay interest costs and support our indebtedness;
• our operating performance and return on capital as compared to those of other companies in our industry, without regard to financing or capital structure;
• the viability of acquisitions and capital expenditure projects and the overall rates of return on alternative investment opportunities; and
• our operating performance excluding the non-cash impact of LCM and LIFO inventory adjustments.

We believe that these non-GAAP measures are useful to analysts and investors as they exclude transactions not related to our core cash operating activities and provide metrics to analyze our ability to pay distributions and interest costs. We believe that excluding these transactions allows investors to meaningfully analyze trends and performance of our core cash operations.

EBITDA, Adjusted EBITDA, Distributable Cash Flow, Adjusted net income (loss), Adjusted net income (loss) per unit, Adjusted EBITDA (excluding LCM/LIFO) and segment gross profit (excluding LCM/LIFO) should not be considered alternatives to Net income (loss), Operating income (loss), Net cash provided by (used in) operating activities, gross profit or any other measure of financial performance presented in accordance with U.S. GAAP. In evaluating our performance as measured by EBITDA, Adjusted EBITDA, Distributable Cash Flow, Adjusted net income (loss), Adjusted net income (loss) per unit, Adjusted EBITDA (excluding LCM/LIFO) and segment gross profit (excluding LCM/LIFO) management recognizes and considers the limitations of these measurements. EBITDA, Adjusted EBITDA and Adjusted EBITDA (excluding LCM/LIFO) do not reflect our obligations for the payment of income taxes, interest expense or other obligations such as capital expenditures. Accordingly, EBITDA, Adjusted EBITDA, Distributable Cash Flow and Adjusted net income (loss), Adjusted net income (loss) per unit, Adjusted EBITDA (excluding LCM/LIFO) and segment gross profit (excluding LCM/LIFO) are only a few of several measurements that management utilizes. Moreover, our EBITDA, Adjusted EBITDA, Distributable Cash Flow, Adjusted net income (loss), Adjusted net income (loss) per unit, Adjusted EBITDA (excluding LCM/LIFO) and segment gross profit (excluding LCM/LIFO) may not be comparable to similarly titled measures of another company because all companies may not calculate EBITDA, Adjusted EBITDA, Distributable Cash Flow, Adjusted net income (loss), Adjusted net income (loss) per unit, Adjusted EBITDA (excluding LCM/LIFO) and segment gross profit (excluding LCM/LIFO) in the same manner. Please see the section of this release entitled "Non-GAAP Reconciliations" for tables that present reconciliations of EBITDA, Adjusted EBITDA, Distributable Cash Flow and Adjusted net income (loss) to Net income (loss), our most directly comparable U.S. GAAP financial performance measure; Distributable Cash Flow to net cash provided by (used in) operating activities, our most directly comparable U.S. GAAP liquidity measure, for each of the periods indicated; and segment gross profit (excluding LCM/LIFO) to segment gross profit, our most directly comparable U.S. GAAP financial performance measure.

Further, management and various investors use the ratio of net debt (defined below) to trailing twelve month Adjusted EBITDA, or "net debt leverage," as a measure of our financial strength and ability to incur incremental indebtedness when making key investment decisions and evaluating us against peers. Net debt is defined as borrowed long-term debt and capital lease obligations, less cash.