Calumet Specialty Products Partners, L.P.
Q4 2009 Earnings Call Transcript

Published: 17 Feb 2010

[Operator:]

Good day ladies and gentlemen and welcome to the fourth quarter 2009 Calumet Specialty Products earnings conference call. (Operator Instructions) I would now like to turn the presentation over to your host for today’s call, Ms. Jennifer Straumins, Executive Vice President; please proceed.

[Jennifer Straumins:]

Good afternoon and welcome to the Calumet Specialty Products Partners investors call to discuss our fourth quarter 2009 financial results. During this call Calumet Specialty Products Partners will be referred to as the Partnership or Calumet. Also participating in this call will be William Grube, our President and CEO and Patrick Murray, our CFO. Following the presentation we will hold the line open for a question-and-answer session. During the course of this call we will make various forward-looking statements within the meaning of Section 21(NYSE

[Patrick Murray:]

Thank you Jennifer, net income for the fourth quarter of 2009 was $8.2 million, compared to net income of $18.5 million for the same period in 2008. The partnership’s net income quarter over quarter decreased by $10.4 million due primarily to both a decrease of $46.6 million in gross profit and an increase of $4.3 million in selling, general and administrative expenses, partially offset by increased derivative gains of $39.7 million. We believe the non-GAAP measures of EBITDA, adjusted EBITDA, and distributable cash flow are important financial performance measures for the partnership. EBITDA and adjusted EBITDA as defined by our credit agreements, were $32.2 million and $26.8 million respectively for the fourth quarter of 2009 as compared to $44.2 million and $13.6 million respectively for the same period in 2008. The partnership’s distributable cash flow for the quarter ended December 31, 2009 was $18.4 million as compared to $3.1 million for the same period in 2008. The increase in adjusted EBITDA quarter over quarter was primarily due to increases in realized derivative gains of $51 million to a gain of $5.1 million in 2009, offset by lower gross profit of $46.6 million. We encourage investors to review the section of the earnings press release found on our website entitled, non-GAAP financial measures in the attached tables for discussion and definitions of EBITDA, adjusted EBITDA, and distributable cash flow financial measures and reconciliation of these non-GAAP measures to the comparable GAAP measures. Gross profit by segment for the fourth quarter of 2009 for specialty products and fuel products was $27.5 million and $7.1 million respectively compared to $77.7 million and $3.5 million respectively for the fourth quarter of 2008. Specialty products segment gross profit quarter over quarter was primarily impacted by lower overall specialty product selling prices in relation to crude oil prices due to lower demand resulting from the economic downturn, partially offset by increased sales volume of specialty products. The increase in fuel products segment gross profit was due to higher gasoline cracks price on our unhedged gasoline sales in the fourth quarter as compared to the same period in 2008. This increase was partially offset by lower crack spreads on our unhedged diesel and jet fuel sales quarter over quarter as well as a larger deferral of crude oil hedging losses in the fourth quarter of 2008 as compared to the fourth quarter of 2009 in our fuel products segment. Selling, general, and administrative expenses increased $4.3 million to $8.9 million in the fourth quarter of 2009 from $4.6 million in the fourth quarter of 2008. This increase is primarily due to increased incentive compensation costs in the fourth quarter as compared to the same period in 2008. Interest expense decreased $1.3 million to $8.2 million in the fourth quarter of 2009 from $9.6 million in the fourth quarter of 2008 as a result of reduced interest rates and lower balances being carried on our revolver and term loan at December 31, 2009 as compared to the prior year. The increased derivative gains of $39.7 million quarter over quarter was due primarily to the 2008 settlement of certain crude oil derivative instruments that experienced a significant decline in value as crude oil prices declined in the fourth quarter of 2008. As of December 31, 2009 total capitalization consisted of partners capital in the amount of $485.3 million and outstanding debt of $401.1 million comprised of borrowings of $371.2 million under the term loan facility with an unamortized discount of $13 million on the loan, borrowings of $39.9 million under the revolving credit facility, and a long-term capital lease obligation of $2.9 million. The $12.1 million increase in partners capital from December 31, 2008 to December 31, 2009 was primarily due to net income of $61.8 million and $52.3 million in net proceeds related to our December public equity offering, offset by $59.3 million in distributions to our partners and a $42.9 million decrease in other comprehensive income primarily due to a decrease in the fair market value of our derivative instruments. At December 31, 2009 we had availability under our revolving credit facility of $107.3 million based on $194 million borrowing base, $46.9 million in outstanding standby letters of credit, and outstanding borrowings of $39.9 million. We believe that we have sufficient cash flow from operations and borrowing capacity to meet our financial commitments, debt service obligations, contingencies, and anticipated capital expenditures. However we are subject to business and operational risks that could materially effect our cash flows. For example a material decrease in our cash flow from operations or a significant sustained decline in crude oil prices would likely produce a corollary material adverse effect on our borrowing capacity under our revolver and potentially our ability to comply with the covenants under our credit agreements. Substantial declines in crude oil prices is sustained, will materially diminish our borrowing base which is based in part on the value of our crude oil inventory which could result in a material reduction in our borrowing capacity under our revolver. A significant increase in crude oil prices is sustained, it would likely result in increased working capital funded by borrowings under our revolver. Now I’ll turn the call over to William.

[William Grube:]

Thank you Patrick and Jennifer, this concludes our remarks. We will now be happy to answer any questions you may have.

[Operator:]

(Operator Instructions) Your first question comes from the line of Darren Horowitz – Raymond James

[Darren Horowitz:]

Just a few quick questions if I could, first based on what you see today within the specialty products market, what can you do on the cost line to offset the impact that crack spreads are having on gross margin.

[Jennifer Straumins:]

What we’re trying to do is focus more on specialty products as we always have and as crude oil moved up into the low 80’s earlier this year we were able to implement price increases across all of our product lines. And that has helped some as well. We are running our Shreveport refinery at levels where it is profitable based on where we’re hedged for our crack spreads. Our hedging program is working great. Right now basically we’re producing just the amount of fuels that were hedged.

[Darren Horowitz:]

And in terms of capacity utilization what’s that number at Shreveport.

[Jennifer Straumins:]

We’re about 75% capacity utilization at Shreveport right now.

[Darren Horowitz:]

And did you mention the costs that are associated with the repair at Shreveport.

[Jennifer Straumins:]

We do not have those numbers yet.

[Darren Horowitz:]

Last quarter you had mentioned that you had expected to spend about $10 million this year to diversify your product mix, is that still the goal.

[Jennifer Straumins:]

Ten million dollars is our gross CapEx for the year, yes.

[Darren Horowitz:]

And can you just remind me what your maintenance CapEx for full year 2010 is please.

[Jennifer Straumins:]

Roughly $20 million.

[Operator:]

Your next question comes from the line of [David Burd] - Unspecified Company

[[David Burd]:]

I also had a question about the cost to repair the damage, I know you don’t have those yet are you expecting to disclose those numbers before next quarter or do you think that will come through—

[Jennifer Straumins:]

We don’t expect those numbers to be material.

[William Grube:]

It’ll be a couple of million dollars at the most probably.

[Jennifer Straumins:]

It would be $1.2 million at the most. It will just fall under our normal CapEx type of program.

[[David Burd]:]

And what about the effect on base oil and process oil production, can you give us an estimate of volumes that were lost there.

[Jennifer Straumins:]

We will have been down two weeks. We did go, luckily we did have quite a bit of inventory at the time of the event and have continued to sell out of inventory during the past several weeks.

[[David Burd]:]

The unit that was damaged, does that effect mainly base oil production or process oil production or—

[Jennifer Straumins:]

Its and environmental unit so what it does is it impacts the amount of sulfur that we can release into the atmosphere and so that has caused us to have to shut down our hydra treating and any catalytic [dewaxing] type of units. We continue to produce gasoline and run crude during this period so we’ve got quite a bit of work in process, inventory built up in front of our [inaudible] producing units which we, as soon as we’re started up we’ll be able to run at full rates and make up capacity there.

[Operator:]

There are no additional questions at this time; I would like to turn it back over to management for any additional or closing comments.

[Jennifer Straumins:]

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