Calumet Specialty Products Partners, L.P. Stock

Good day, and welcome to the Calumet Inc. Second Quarter 2026 Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to John Kompa, Investor Relations. Please go ahead.

Thanks, David. Good morning. Thank you for joining our second quarter 2026 earnings call. With me on today's call are Todd Borgmann, CEO; David Lunin, EVP and Chief Financial Officer; Bruce Fleming, EVP, Montana Renewables and Corporate Development; and Scott Obermeier, President, Specialties. You may now download the slides that accompany the remarks made on today's conference call, which can be accessed in the Investor Relations section of our website at calumet.com. Also, a webcast replay of this call will be available on our site within a few hours.

Turning to the presentation. On Slide 2, you can find our cautionary statements. I'd like to remind everyone that during this call, we may provide various forward-looking statements. Please refer to our press release that was issued this morning as well as our latest filings with the SEC for a list of factors that may affect our actual results and cause them to differ from our expectations. As we turn to Slide 3, I'll now pass the call to Todd.

Thanks, John. Good morning, and welcome to today's call. The last time we were together, we expressed that this year was setting up a lot like 2022, and the second quarter delivered on that with $175 million of adjusted EBITDA with tax attributes despite starting the period with 3 planned turnarounds in Princeton, Cotton Valley and Montana Renewables. Just as important as the quarterly earnings is what they mean for Calumet's strategic positioning. Our restricted group leverage ratio is now below 4x. And with the first phase of our MaxCalf 150 expansion behind us and strong cash flows in all businesses, we're expecting to surpass 3x next quarter.

About a month ago, we called $100 million of notes. And last week, we terminated the sale leaseback of our CMR truck rack with $115 million repurchase, eliminating that high interest debt. The outlook is for continued and accelerated deleveraging from here. So the conversation today is increasingly about what our self-funding and growing platform does next.

Let's turn to Slide 4, and we'll start with our specialties business. We've long talked about our integrated specialty strategy. And this quarter, we saw it in spades. Our routinely high-margin specialty products are exposed to an extremely favorable market dynamic, we'll hit on momentarily. As we've discussed previously, our specialty products are sourced from crude oil, which is a competitive advantage as relying on sourcing intermediates in the current market is a challenging position given the value of those intermediates to fuels processors and the scarcity of them in general. Further, processing crude to generate specialties means we're exposed to the fuels and asphalt coproducts that are generated during production as well.

I'll take this a little deeper into the underlying drivers of the current specialty markets. Last quarter, we talked about the disruptions in the global energy market and their expected impact on diesel, which drives solvents pricing at Cotton Valley and lubes, which we make in varying forms at Shreveport and Princeton and then upgrade further at other sites. We've now seen this impact of global disruptions on the market in real time.

Historically, our industry produces a little over 700,000 barrels per day of paraffinic base oil globally. And at the highest level, it's been well balanced with demand. Today, over 10% of that capacity is off-line, leaving the market structurally imbalanced. Historically, the Middle East and United States were the 2 large export hubs, each of which we're supplying about half of the base oils imported elsewhere throughout the world. With 1/3 of Middle Eastern capacity fully or partially off-line from the Iranian war, that export capability has turned upside down. A disproportionate share of that is Group III, which is in even worse shape than the broader lube oil market, although the shortfall of Group II has meant changes in formulations, increasing Group II demand in motor oil segment. About half of Calumet's paraffinic base oils are Group 2.

Further, Europe has lost roughly 1/3 of its Group 1 base oil production during the Russia-Ukraine war, creating a shortage of that grade as well. Group 1 is typically tailored to industrial applications and represents the other half of Calumet's parffitic base oil production. Pre-war, Europe was essentially balanced in supply and demand, but has now joined Asia as an extremely short market. In short, there's simply not enough base oil to go around.

Further, logistics costs to ship oil around the globe have ballooned given the shortage of vessels and skyrocketing insurance costs. Combine these elements with the refining industry already running at record utilization with no room to process more, and you have a setup that is unlikely to be resolved quickly. Prime example is fortunate to land on the right side of each of these global dynamics. Our crude supply is largely domestic, nearby and readily available. Our customers will often being major global companies as a whole are typically domestic ships, and we're a fully integrated producer, so we capture the intermediate value that nonintegrated suppliers have to pay for.

Given this strong backdrop, accelerated deleveraging in action and a constructive outlook, we're also closely examining a pipeline of low-risk, high-return growth projects that we've been accumulating over the years as the majority of our discretionary capital was pointed towards building Montana Renewables and deleveraging. While we won't take our eye off completing the deleveraging, that's occurring more quickly than previously anticipated. So we're progressing this growth pipeline in a parallel and disciplined fashion.

We're expecting a good chunk of this pipe to clear the FEL process and be deployed in 2027 and 2028. I thank our specialties team for the execution today. It's great to be talking about high return growth CapEx again in this business and having a team that's rebuilt our operational and commercial foundation so successfully, albeit with little capital, adds to our conviction.

Turning to Slide 5. We see a similarly strong market at Montana Renewables as the RVO is working out exactly as expected. The index margin has moved sharply higher as it has to because the mandate requires biodiesel capacity to come back online. And as we said on prior calls, biodiesel producers have long memories and won't restart until they're confident. That's precisely what we're seeing, a measured rational restart that supports margin, which is what the administration intended to do when it set the RVO. Step back and the pattern is clear. There have been 2 decades of RVO targets since 2006. And every single one of them, except the 2024 CET1 er, EPA set the target at existing capacity plus growth and let American ingenuity fill the gap.

Plenty of opponents called the SEP 2 policy too big and unreachable. What we've actually seen with the SEP 2 rule is a 70% increase in biomass-based diesel production this year as the industry reignites. Also, the agriculture community is crushing more crop than ever. Soybean and canola crush are both at record levels, and we're seeing about 5% more crush capacity being added this year. Throughout the value chain, we're seeing a lot more American jobs making American energy. You can see it on the RINs data on this slide, and this dynamic is why this critical lag in energy policy has been a long-standing and bipartisan issue.

And last, let's turn to Slide 6 and talk Montana Renewables growth. David will walk through the financials in the segment review, but the gist at MRL is we made $17 million of adjusted EBITDA with tax attributes in Q2 despite over $40 million of foregone margin while we are offline completing the first stage of the MaXTA-150 expansion. And with July as an indication, we're on track to pace well ahead of the second quarter even after normalizing for the downtime. Also since we last talked, we completed our performance test of the newly installed MaxSAF catalyst, and it met or exceeded expectations across the board.

With the first step of MaxSAF behind us, we'll turn our efforts to the next steps of the expansion. First, I'll remind everyone that as we improve our project, we're also working with the DOE to ensure the supporting documents are updated. This is progressing well, and we'll disclose more details when that process concludes, which we expect will occur before our next call. Until then, I'll give a little more insight into how we're envisioning expansion in Montana, and we'll limit our comments on the further details until the full package is announced. Importantly, rather than a massive mega project, which includes transporting a second reactor from the Gulf Coast, we've identified a novel expansion. It's much cheaper, faster, lower risk and carries a much higher IRR.

We plan to reconfigure some assets that CMR is already operating in Great Falls with the anchor asset being a second reactor. Lining up the second reactor in SAF production will provide best-in-class SAF yields. The current industry standard practice for SAF production involves fractionating and isomerizing renewable diesel, which creates SAF, but also creates less valuable byproducts like naphtha and fuel gas. In times of strong renewable diesel margins, the net act of converting renewable diesel to SAF plus byproducts balances at an economic optimum of lower SAF output.

In fact, that's why you may hear industry participants at times saying the economics favor making RD even though there's a SAF premium. This second phase of our MaXSAF-150 project differentiates us by deploying the second reactor in a patent-pending polishing service instead of more severe cracking, which means minimal byproducts and in turn, an economic optimization that occurs at a much higher SAF output.

Furthermore, because the second reactor is repurposed from the crude refinery, we plan to have it running this winter. This reactor ultimately provides the capability to produce roughly 200 million gallons of SAF when we expand total fresh feed rate to 17,000 barrels a day over the next 2 years for a fraction of the capital originally expected. More imminently, it will pair with our existing reactor ramping up late this year and then producing 120 million to 150 million gallons of SAF next spring at an industry-leading yield and cost structure. And long term, we still have our Gulf Coast reactor, which will now be known as the third reactor available to us after we step through the series of project nodes that we'll discuss in more detail soon.

Swapping the reactor from fossil to renewable service requires about 2 weeks of downtime on the fossil side, and we're going to take that early this winter. In fact, we originally planned to do this tie-in midyear. But in the current market environment, we're expecting to earn over $50 million of EBITDA at CMR between now and the reconfiguration, which is a major upgrade to the original plan. So we'll capture that and run at a 60 million gallon SAF run rate for a few months as we finish out the retail asphalt season. While the Great Falls site reconfiguration will repurpose some CMR equipment for a step change increase in profitability, we'll continue to operate at CMR, keeping the jobs in the community, providing the shared services for MRL and producing world-class asphalt.

In summary, this capital-efficient project saves hundreds of millions of capital dollars, accelerates both increased SAF and throughput by years, derisk the construction and doing the site reconfiguration this winter allows us to capture an extra $50 million of unexpected CMR upside. We expect to make an economically optimum 60 million gallon run rate of SAF until we reconfigure later this year. Coming out of that, we expect to quickly ramp up to 80 million to 100 million gallon run rate by year-end, and we'll be running -- run rating over 120 million gallons by spring of 2027.

And most importantly, we're gaining another lasting competitive advantage at Montana Renewables, adding best-in-class SAF production yields to our top-tier position in location, feedstock flexibility, operating costs and our first half -- first-mover SAF marketing advantage. We look forward to sharing the full details of our expansion, the cost details and more on the multistep reconfiguration soon. And with that, I'll turn the call over to David. David?

Thanks, Todd, and good morning, everyone. I'll start with the headline.

We delivered $175 million of adjusted EBITDA with tax attributes this quarter, and we're very proud of that result. Both of our businesses, Specialties and Montana Renewables performed well, and we continue to operate in an incredibly attractive part of the market. Every segment participated, led by Specialty Products & Solutions. In STS, we executed across the board, both on the commercial and operational side despite a heavy turnaround period. That performance shows up not just in earnings but in cash generation, and we drove over $90 million of cash flow from operations during the quarter, which speaks to the underlying strength of the portfolio. And this is while we built $70 million of working capital as the value of our receivables increased substantially, which will naturally unwind itself.

I do want to talk through a few tactical items that affected the quarter because they were deliberate choices rather than surprises. First, we saw an offset from fuel hedges of around $20 million. As I mentioned last quarter, we put these hedges in place, roughly 20% of our fuel production intentionally to protect our cash flow and support our debt paydown commitments at historically attractive spreads, essentially trading some upside for certainty as we work through our deleveraging plan. We have 10,000 barrels a day of hedges on through early 2028 with 2027 levels at approximately $28 per barrel on a CBOB basis. This, combined with the near-term margin environment, provides ample confidence that our ultimate deleveraging success is in plain sight. In fact, this quarter, we saw restricted group leverage fall below 4x, and that's before we retired 115 more debt and expect to accelerate that through the second half of this year.

Second, we had a working capital draw, and it's worth breaking that into its components because they tell very different stories. About $30 million is from intentionally holding higher levels of crude inventory than normal. That was a deliberate decision to derisk our operations in an incredibly dynamic and evolving market for global oil. We expect that build to unwind naturally over time. Another $30 million came from an increase in accounts receivable, which was simply a function of higher prices across all of our SPS businesses. In other words, a good problem to have and not a sign of collection or credit issues. We've captured attractive margins across base oils, solvents, Penico and fuels.

We also saw roughly $20 million of build at MRL as the business ramped up and built inventory and accounts receivable following the completion of our expansion project. With Montana Renewables now back operating consistently at higher rates, that build should come down. All of these actions are concrete steps towards deleveraging. In July, we called $100 million of our 2028 MIRA notes and also retired our sale leaseback at the truck rack at CMR. Given our strong business performance and outlook for the rest of the year, we expect to continue at this accelerated pace. Taken together, we see this quarter as a continuation of the operational momentum we've built with a few timing-related working capital items that we expect to normalize and a continued unwavering focus on completing our debt reduction.

With that, let me walk through the performance by segment. Turning to Specialty Products & Solutions. Adjusted EBITDA of $161.7 million more than double that of the prior year. The strong results came from both sides of the integrated model. The more than 20 specialty price increases our commercial team pushed through during the first quarter's spike reached full realization with Shreveport running clean all quarter. Further, we started the quarter with turnarounds at Princeton and Cotton Valley, both of which were completed on time and on budget. We have no turnaround scheduled for the third quarter, and Shreveport will do its turnaround in the fourth quarter.

This quarter also marked our seventh consecutive quarter of specialty sales volume above 20,000 barrels per day and more importantly, a record specialty production quarter. Year-to-date, in 2026, our specialties volume has increased over 5% from the high milestone achieved last year in 2025. As we've highlighted in the past, our integrated business allows us to produce fuels and take advantage of the attractive high-margin fuel environment. The price increases that we've already implemented plus the elevated fuel margin environment continue to position us well for what we believe will be a strong second half of 2026.

Turning to Performance Brands. Adjusted EBITDA was $6.3 million, down about $6.2 million versus the prior year. This is timing, not demand. Volumes were up 18% in the quarter. Input costs spiked before our pricing actions caught up. And as we discussed last quarter, our retail-oriented customer base carries a typical 60- to 90-day lag before price increases flow through to margin. It's also worth remembering that all of our businesses are in a LIFO accounting. So the rapid cost inflation flowed straight into the quarter's cost of goods rather than being smoothed the way a typical FIFO finished products business would report it. That was a $7 million headwind for PV during the quarter.

As pricing action catches up and the inventory effect reverses, we expect the segment to recover. And frankly, this quarter is evidence that the same input cost move squeezing Performance Brands is what's benefiting the rest of Calumet. With STS production 35x greater than Performance Brands, it's a condition we'll gladly accept. Looking ahead to the third quarter, we continue to remain vigilant on the pricing front with select actions going forward.

In our Montana/Renewables segment, Todd covered Montana Renewables performance with $17 million of adjusted EBITDA with tax attributes despite the site being down all of April and half of May, with roughly $40 million of lost opportunity between the MAX SAF expansion and turnaround as well as the Powderad outage. Index margins are strong, approximately $2.60 per gallon and rising today. So we are excited as we've ever been to have MRL meaningfully contributing, and we expect the third quarter to be meaningfully higher as we show a full quarter of production and earnings. Strategically, we are pleased to complete the first step of our MaxSAF 150 expansion on time and stepping into the market that is extremely positive for both renewable diesel and SAF. Our industry-leading low-cost structure and geographic advantage continues to underpin Montana Renewables competitive advantage in the industry.

On the refining side, CMR generated $12.2 million of adjusted EBITDA, up about $10.9 million sequentially as the margin environment is well known. Asphalt margins lagged early in the quarter as rapid crude escalation squeezed asphalt margins. Pricing is caught up and the third quarter is peak asphalt season. So as Todd noted, CMR is set up for an outsized run between now and the November downtime.

In closing, let me reiterate, we entered the second half of 2026 with real momentum. The specialties environment is carrying forward. The third quarter is turnaround free and Montana Renewables is ramping its strong index margins with the staff share of our slate growing. Our priorities are simple: run safely, reliably and full to capture this market, finish the DOE modification and lay out the complete expansion, funding and site reconfigure details, which we expect to do well before our next earnings call and continue deleveraging ahead of schedule while begin deploying capital into high-return growth with discipline. Thank you for your time today. And with that, I'll turn the call back to the operator for questions.

[Operator Instructions] Our first question comes from Conor Fitzpatrick with Bank of America.

Across the energy sector, there's been pretty divergent outcomes as a result of the Iran war. Refined product crack spreads are around record levels and the strip declines only gradually into the future as capacity would struggle to rebuild inventories. Petrochemicals margins have normalized more rapidly, mostly as a result of crude and feedstock prices and availability normalizing as well. Base oil cracks are extremely high and have remained high.

But I wanted to get your perspective on how durable high base oil cracks will be. Damage tends to interrupt operations only for a couple of months at a time at the fuel refinery level, but undercapacity slows inventory rebuild. Is there kind of a similar story playing out for specialties and base oils? And how much of global margin gains in base oils are just the pass-through of feed costs like VGO?

Yes. This is Scott. Let me start with -- I think right now across the whole portfolio, and I'll get into base oils here in a second. But I think across our whole portfolio, I'd say we're certainly firing on all cylinders, as touched on in the script, production has been great, execution has been great, et cetera. And we think about the fuel crack market being historic specialties, again, across our whole portfolio are doing really well. So we feel good about that. We think in this current environment, it's not just a short-term situation. There's been a lot of structural impacts, if you will, that will take months and months to sort of stabilize.

So we don't view the overall market as just a short-term situation. So our outlook in the coming months is that I think results will be similar to how they were here in -- just to touch a little bit further on base oils, and maybe it will be helpful if I zoom out. It was touched by Todd in the script. But -- so CabMet produces Group 1 and Group II base oils. A lot of the early headlines with the Iran war was on Group II Middle East capacity and refineries being taken offline, et cetera. That has had some impact on Group 1 and Group 2 as customers and companies look to formulate up Group 1 and Group 2. So the demand has been really strong to try to replace some of the gap in Group II.

In addition, you have some of the larger global, I'll call it, more commodity refineries that make base oils as well that have been diverting to distillate due to the historic crack spread. And the third piece on base oils that we see going on, in fact, there was more reports this week of Russian refineries that were impacted by drone strikes from Ukraine. So there's a significant amount of capacity that just in the past couple of months has been taken offline. So long story short, I think overall and also specifically for base oils, we view the market as being tight, and we expect that to continue certainly in the coming months here through 2026.

And I guess the follow-up is capital structure has improved by over $100 million and MRL run rate operations should accelerate that further going forward, at least in the near term, along with specialties margins and surplus. So in the event that your deleveraging targets are achieved organically soon, does that change your approach to MRL regarding monetization or other options?

It's Todd. It's a good question. I think the answer is no, not long term. We still expect that separating monetizing Montana Renewables is the right long-term path for this business. I'd say what has changed, and you pointed this out in your question, is we no longer have to do it as a prerequisite to grow our specialties business, which I think is critical. Our business cash flow allows us to pay down debt much more quickly than we ever planned. So we're looking at MRL monetization purely through the lens of shareholder value optimization, which is exactly where you want to be when approaching a potential transaction of that size with the value creation potential that it has.

And the next question comes from Amit Dayal with H.C. Wainwright.

Amazing results. Congratulations on the execution. For 3Q '26, what is your confidence level to see sort of the full benefits of MRL come through? I know it's been start and stop over the last 2 years roughly. But for 3Q '26 and maybe for the second half of this year, can we expect the full contribution from MRL to come through?

It's Todd again. I'll start off and then see if Bruce wants to jump in. I think the answer is absolutely yes. In July, we saw Earnings continue to ramp positively. Obviously, we were down April, first half of May for the MaxSAF turnaround, which you don't shed the fixed costs in that environment. So earlier, we talked about probably a normalized run rate Q2, you would have thought about in the $60 million range, $17 million we did plus a little over $40 million on kind of foregone margin while we were down.

So I think you extend that to what we're seeing into Q3. We certainly expect to continue picking up on that pace in a meaningful way. So already demonstrating really strong margins return. It's great to see that. We've been talking about it for a while. We saw the RVO change. The market is reacting as we expected. We're seeing the increased staff and the impact of that. And going forward, we expect to continue that improvement.

And then just sort of a follow-up to that. The Gulf Coast reactor, just to clarify, could that allow you to go beyond the 200 million gallons?

Yes, it could. It's -- no reason it couldn't do what it was originally scheduled to do when we talked about this project, right? So I don't want to miscommunicate that the numbers that we talked about today are the end of the road or anything like that. What we're saying is the next step in the growth process here. I look -- really looking forward to sharing more details on this, particularly costs, et cetera, because it's just so much more capital efficient than we are planning on doing. But we're going to have the ability to increase to 17,000 barrels a day of total throughput and up to 200 million gallons of SAF. -- much more quickly, much more economically than previously planned. And from there, sure, we have the ability to add the third reactor if we want, and we'll make that decision as time gets closer.

And the next question comes from Josiah Knight with Goldman Sachs.

Maybe just on the outlook for SAF more broadly. I know you just press released $30 million to the Minneapolis Airport. Can you talk about the demand you're seeing from customers, whether domestically or abroad a little deeper?

Josiah, this is Bruce. Yes, happy to do that. The North American voluntary market and the European mandatory market are introducing some possible trade flows. And we've seen cargoes move on the water. So there's going to be industry dynamics associated with that. But at the moment, and our best understanding from all of our customer conversations is those markets are going to remain separate and behave separately. And so we've not found the bottom of the voluntary demand. We expect to continue to ramp sales up. We've prepositioned our production capability by the project we just installed and by the pivot of some fossil refinery assets that Todd just covered. So we're maintaining an attitude of thinking flexibly and being really good at managing the risks in a climate of external volatility.

Got it. That's helpful. And then a follow-up, just on mid-cycle. I know right now, there's a lot going on. Has your view of mid-cycle renewable diesel margins changed at all? Or has that been the same?

It has not. I mean I would draw everybody's attention to -- we call it the supply stack. It's on Slide 5 of the handout. If you want to bring capacity back into the market, which is a bipartisan effort, everybody on both sides of the aisle is in favor of domestic production. And in this case, it's the production of renewables, you're going to need cash margins to cover fully loaded costs. And that's where the market is or above. I mean the market may be a little above at the moment. And that's consistent with the 20 years of history, which we also show in here. So yes, we think last year was an aberration and error in the CET1 rule. And we think going forward, we're going to have typical behavior. On that basis, this remains a strong business for a domestic producer.

And the next question comes from Jason Gabelman with TD Cowen.

I want to ask about the reactor that you're taking from the Montana plant putting into MRL. Can you share anything around the cost of that project and then the yield that you'll lose at the conventional Montana plant?

Jason, it's Todd. Let's defer of talk on the extra details for just a little bit here. And like I said earlier, we expect to be out with more on that soon. But I will say it's safe to say a good chunk of the EBITDA CMRs made historically will be traded for a much larger number at MRL and the massive cost savings of the project. So I'll also say that it's not like CMR is underwater or anything like that. It's somewhere in between. So I'd keep it to that for now. It's important to our community. It's important to our employees. And quite frankly, it's important to Montana Renewables to continue to provide the shared benefits that MRL receives from sharing the underlying fixed costs and workforce. So CMR is going to be continued piece of the portfolio, but we are reconfiguring a decent chunk of it for obvious a high multiple of return at MRL.

I would add to that because you asked about the mix, I think. On the fossil side, we're going to keep the asphalt rack open. We're going to keep the gasoline rack open. We're going to keep the crude run going. We're going to keep the employment. We are going to have some rearrangement in the black oils, the CAF area. And we'll be able to get into that post some DOE activity and imminent conversation around the details.

Okay. My follow-up is kind of related to that. I mean it's a bit surprising that you're not running at MAX SAF until the reactor comes online. I think when you laid out the project, you only expected about 1,000 barrels a day of renewable naphtha. So has the yield that you've seen on the current MAX SAF configuration differed from what your expectations were and that's why you're deciding to run at higher renewable diesel until you have this other reactor. Does it have to do with when SAF contracts kick in? Just any more color would be helpful.

Yes, you bet. I don't want to say that the yields on renewable naphtha are higher than originally expected at all. I'd say as you crank up without the polishing service, as you crank up severity on the cracking, more and more RV goes to naphtha. And if we rewind the clock a few months, when RD is less valuable, losing some of that in the cracking process isn't too painful, right? And when CMR margins were lower, converting that second reactor sooner wasn't much of a lost opportunity either. And I think the reality now and fortunate for all of us is the economics are different.

So we're not incentivized to lose RD until we add the policy reactor. And at that point in time, our yields are going to go from, I'd say, normal industry at the margin to best-in-class. And we're happy to push that back a few months to capture this big $50 million prize sitting in front of us at CMR. So you kind of combine all of it to figure out the step that we're taking here. But I'd say altogether, it's a really nice step.

As far as the SAF contracts, there's nothing to do with kind of a ramp-up or something like that, that you mentioned in your -- both these things with some flexibility in the first place. We have the ability to ramp up. We have the ability to ramp down. So we'll kind of service the contracts in a way now that says, hey, we'll have $60 million -- or 60 million gallon run rate being pushed out the door until we make that switch, get the better yields, crank up the staff and then we'll exercise the flexibility that we have in them to continue to grow and obviously add more as well.

Got it. That's good color. If I could just squeeze in one more. The debt paydown subsequent to quarter end, was that funded by cash on hand? Did you have to draw on the -- or did you have to draw on the ABL?

Jason, it's David. It's predominantly cash generated just from the earnings of the quarter.

And the next question comes from Gregg Brody with Bank of America.

Just to stay on the question that Jason asked, can you tell us how we should think about the product yields from the MAX SAF 150 right now, how it's running beyond the SAF production?

Yes. I think the -- as far as the SAF, we'll lay out all of the yields and the volumes in more detail kind of as we step through the project here in not-too-distant future. But what we're saying now is we're running at about a 60 million gallon run rate now. I expect that to be the optimum. Obviously, if margin dynamics change one way or the other, then we'll be flexible as always. But expect that, that's the optimum now through the time when we do the reconfiguration. From there, we'll quickly ramp up by the end of the year, I think that we'll be 80 million, 100 million gallon SAF run rate. By the spring, we'll be at 120 million to 150 million gallon range. And then we'll step through some additional steps that we'll talk about later, ultimately getting to 200 million gallons of SAF by 2028.

I'd also say at the end of 2028, it's not just more SAF, it's more throughput, right, increasing from 12,000 barrels a day before. Right now, we're just around 13,000 barrels a day, and we're going to increase that further to 17,000 barrels a day of total throughput. So a number of positives here as we step up in a much more capital efficient way than we originally had discussed.

My question was on today's -- the 60-plus SAF that I'm looking at, what's the yields on the other parts? Is it mostly RD? Or is there greater naphtha?

Yes. No, it's mostly RD. Nothing's changed there from normal.

Bruce, you were about to say something I cut you off.

Yes. So let's do this chronologically. So today, we've shifted some RD to SAF. We're going to continue to run that journey as we have been for a couple of years. Remember, we started at 30 million gallons with Shell back at the outset, and we've been walking that up. What Todd has given you, and he just said it verbally, and I just want to draw your attention to the bottom of Slide 3, I think there's a note. We're providing additional color about the $150 million and breaking that into additional tactical steps that we're taking this year through this winter in order to maximize the site's cash contribution to the corporation. So we've got this additional tactical color that flows from accelerating the whole program that was originally designed with the DOE. So we're getting more, we're getting faster and now we're showing some additional step granularity. And we wanted that out ahead of what's expected to be a detailed discussion with a lot more color in the relatively near future.

Got it. Maybe just shifting gears. The $50 million of capital that you're talking about for at Specialties. Scott, congratulations. You finally got to put that to work. It's been a couple of years since you've been. I'm flashing back to being in that room in Montana, where we were surprised to have you talk for most of the time we were there. So it's just when should we expect that to start to trickle through? Is that this year? Or is that over time? Is it over this year and next? Just help me understand how much CapEx is going up at the restricted group.

I'd say the majority of that comes through next year, right? So where we're at right now is we have a pipeline of projects that we're reviewing. These are smaller projects in nature. So think of it as a portfolio, optimization type things, debottlenecking, small expansions that have been stacking up. So there's 5 or items, actually a little bit more, but 5 or 6 of size that make up that portfolio. Those are at the end of the FEL process. We're expecting to clear that, approve those in the not-too-distant future, at least most of those, right? So from there, we'd expect that the majority of that $50 million becomes part of the 2027 and 2028 capital budget that we'll announce. So we're not expecting additional CapEx out the door this year for growth.

Obviously, not all of that gets spent on day 1 of 2027. It will be a staged project. Some of them are things that tie in, for example, to turnarounds that are scheduled at the end of '27, et cetera. So I'd say from a cash flow, you're looking at just cash flow out the door. I don't want to give too many specifics, but maybe 2/3 plus '27, the remainder in '28.

So we won't see that show up in results until '28 most likely.

That's right. And maybe a little bit trickling in, in the second part of '27. But as a whole, I think '28.

Okay. And then just turning to MREL. So obviously, you're set up to generate a lot of cash. Should we expect a fair amount of that to go back to pay back to intercompany payables to start to work down?

We'll talk a little bit more about kind of the cash and the loan and all of that soon. So I don't want to get ahead of that. I'd expect the cash, first and foremost, to be going towards kind of the next steps of the project, which, like we said, are pretty capital efficient. So we'll go there first and then the rest will accumulate. But let's go into more details when we can talk with the full deal in front of us.

Got it. And just one last one for you. Obviously, with the higher stock price and cash flow, M&A is a greater possibility than it was in the past. What's your assessment of opportunity set out there? And is that something we should expect more of?

Yes. It's certainly something that we're paying attention to. We're not going to take our eye off of finishing the deleveraging. So we've said that. We've also got some nice organic growth CapEx that pretty low risk and we carry a lot of confidence in. But absolutely, we'll be watching actively the market and what's going on. And as always, if there's opportunities to create shareholder value, we're going to be all over them. We'll be looking for things that carry synergy with our broader specialties network. And you could say the same thing about Montana Renewables. So I think we're in a place to really start to look at what growth looks like in this company and excited to be stepping into that. But don't want to get ahead of our skis and send the wrong message, right? We're also going to be disciplined and complete the deleveraging, and we're doing those things in parallel.

This concludes our question-and-answer session. I would like to turn the conference back over to John Kompa for any closing remarks.

Okay. Thank you, David. On behalf of Todd and the entire management team, I'd just like to thank everyone again for their interest in Canyon, and have a great rest of the day. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Good day, and welcome to the Calumet Inc. First Quarter 2026 Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to John Kompa, Investor Relations. Please go ahead.

Thanks, Andrea. Good morning, everyone, and thank you for joining our first quarter 2026 earnings call. With me on today's call are Todd Borgmann, CEO; David Lunin, EVP and Chief Financial Officer; Bruce Fleming, EVP, Montana Renewables and Corporate Development; and Scott Obermeier, President, Specialties. You may now download the slides that accompany the remarks made on today's conference call, which can be accessed in the IR section of our website at calumet.com. Also, a webcast replay of this call will be available on our site within a few hours.

Turning to the presentation. On Slide 2, you can find our cautionary statements. I'd like to remind everyone that during this call, we may provide various forward-looking statements. Please refer to our press release that was issued this morning as well as our latest filings with the SEC for a list of factors that may affect our actual results and cause them to differ from our expectations. As we turn to Slide 3, I'll now pass the call to Todd.

Thanks, John. Good morning, and welcome to Calumet's First Quarter 2026 Earnings Call. The beginning of this year has certainly been an eventful and strategically pivotal period for Calumet. Late in the quarter, we saw the renewable fuels market take a major step forward following EPA's long-awaited Set 2 RVO announcement, and we entered one of the strongest margin environments we've seen across both traditional and renewable energy markets. Further, we brought down Montana Renewables for a turnaround in MaxSAF 150 expansion in early March and successfully commenced operations in early May. While these developments did not fully benefit first quarter financial results due to previously disclosed downtime at Shreveport and the planned expansion work in Montana, Calumet is exceptionally well positioned to capture these tailwinds, further accelerate deleveraging and continue our long-term growth and value creation strategy, which we'll discuss further in this call before David takes us through the quarter.

Let's turn to Slide 4 and begin with the outlook for our Specialties business. First, as we've seen historically, Calumet's integrated business is robust and performs throughout the business cycle, and is particularly well positioned for the current market with commodity spreads growing sharply due to global disruptions. We make fuels the co-product of our specialty production process. Typically, when cracks are lower, strong and stable specialty margins carry the day. When crack spreads are high as they are now, we're fully exposed to that upside. Long term, the Specialties business will take advantage of positive commodity environments to strategically deploy excess cash flow into specialties growth. Right now, it creates an accelerated deleveraging opportunity and also opens the door to target low-risk, high-return growth opportunities.

The recent volatility has also reminded us of the capability of our Specialties commercial excellence engine. In March, crude oil prices increased over 50% in the 2-week period and have moved further from there. Our commercial team rapidly executed on over 20 price increases across our product lines to counter the cost escalation, and our customers understand the uniqueness of this current environment. While we have some sales contracts tied to previous month pricing and further downstream and Performance Brands, we see a bit more lag. The fact that our SPS specialties business was able to demonstrate $54 a barrel margins this past quarter despite the rapid cost inflation is a testament to the nimbleness of this team, and the outlook improves on that with the increases now in.

The other pillar of commercial excellence is providing an exceptional customer experience. And despite the craziness in this market, Calumet's team went to great lengths to ensure our customers were as well serviced as evenly possible in this remarkable time. That didn't come without a bit of short-term financial costs, but our specialties enterprise is built on delivering a world-class customer experience.

Further, let's hit on what's going on in the broader specialties market. We all know that roughly 20% of the world's daily crude oil comes through the Strait of Hormuz by now. But what's less publicized is that about 10% of the global base oil supply does as well. Probably more importantly, a disproportionate amount of the world's LOOP crudes, as we call them, come from the Middle East. These are grades that have particularly good specialty qualities and yields and are purchased around the world, particularly in Asia. At Calumet, our crude supply is largely domestic and readily available. Further, we always value the fact that we're a fully integrated, fully dedicated producer of specialty products, which provides stable and quality control despite the market condition. And in strong commodity markets like this one, it also carries an even higher-than-normal economic benefit. Nonintegrated suppliers purchase intermediates like VGO or fuels like diesel and jet as specialty feedstocks to produce lubes and solvents. We're able to make these end products from crude oil, which means we capture the intermediate value of the distillate intermediates embedded in the product price. Further, we just completed 2 successful planned turnarounds at our Cotton Valley and Princeton facilities in April, and we're running at max volumes across the board to capture the current opportunity.

Let's turn to Slide 5. Making nearly as many headlines as the fossil energy market this past quarter was the EPA Set 2 RVO released in March, which has reset the outlook for the biofuels industry and the Montana Renewables. While this has felt like a new market environment given the past 2 years under the Set 1 rule, what we're actually seeing is the EPA applying the same tested and stable dynamic used historically that supports strong stable margins in this business. Many will remember the error in the 2023 Set 1 ruling was due to the EPA assuming feedstock would not be readily available. With that now corrected, after American farmers proved their right to challenge and produce the necessary feeds, the EPA resumed applying the methodology it's used for over a decade. In this, they evaluate prior year's biofuel capacity and increase the mandate to incentivize continued utilization growth.

We see this dynamic displayed through the 3 graphics on this slide. Starting on the bottom left hand of the slide, we're reminded that this industry has seen steady $2 a gallon index margins consistently for years, which is historically what has been required for the industry's biodiesel capacity to run. When biodiesel was not required during Set 1, this dynamic was broken, and we saw industry utilization at roughly 50%. MRL was able to break even in that environment, which demonstrated our unique position, but we're much more excited about this current market for both our business and the industry. Taking a look at the industry supply stack in the chart on the top right here, we see how efficient this market is as well. Post ruling, margins have rapidly increased to create incentive for all biomass-based diesel production to come back online. We also see the Set 2 RVO actually requires the industry to operate at higher than historically demonstrated utilization levels to meet it. And our view is there are 3 ways that industry can fill this gap.

First, the EPA understood there were carryforward RINs available from the small refinery exemptions announced last year. These carryforwards can satisfy most of the supply-demand gap in 2026, but they aren't nearly enough to settle 2027. Second, imports can fill the gap despite being disadvantaged to domestic biodiesel given they don't qualify for the PTC. The third is that this policy incentivizes industry to continue its utilization improvement journey. This journey certainly stalled over the past 3 years, but the administration knows that refineries typically run at slightly higher utilization levels and our industry in its early stages can also continue to improve. Efficiency improvement reduces the cost of biofuels, adds more reliable domestic energy and incentivizes the growth of more domestic agriculture, all while improving air quality. These results are right down the fairway for the current administration and also we expect to be supported in a bipartisan fashion as they always have been.

We believe the industry is up for this challenge. And while very high sustained utilization certainly won't happen overnight, especially given the level of damage done over the Set 1 days, it can happen over time. The third chart on this page is a little closer look at historic biomass-based diesel production levels in relation to the RVO on a monthly basis. The difference in production and demand call results in a build or draw on RIN bank. Again, we see how rapidly industry utilization plummeted during Set 1, and we also see how it's increased with today's more promising future, albeit with a long way to go to meet the Set 2 levels. In addition to a renewed outlook for renewable diesel, we also just commenced operations post our MaxSAF 150 expansion, which was a major step for Montana Renewables.

Let's turn to Slide 6 and further discuss this step in SAF's role in domestic energy growth. We've often discussed the promise of SAF and Montana Renewables' ability to capture the SAF premium given its first-mover marketing experience. Now that we started up our plant post the expansion, we turn our focus to producing increased SAF volumes. Through the initial operating period, we'll continue to condition the catalyst, complete a performance validation and deliberately and steadily ramp production to ensure consistent product quality for our existing customers and for our new customers to integrate into their supply chains over the next few months.

In addition to the internal focus on the expansion and the industry's response to the RVO, we've seen the current market conditions highlight a lasting dynamic in jet fuel, and we think it's important to note. The Iranian war is certainly an extreme moment in energy, but there's a natural experiment here in the event, and we've seen the industry is not equipped to meet a sustained increase in jet demand. Expected jet fuel demand has been growing and is expected to grow faster than all other liquid fuels combined is important. The number of refineries are decreasing, not increasing, and refineries don't just make jet, thus as gas demand slows, the jet shortage grows. SAF can be made at much higher yields and much more intentionally than traditional jet. And SAF receives the additional benefit of environmental energy credits and farmers are rewarded for growing more domestic feedstocks.

With an increase in SAF and the RVO, we can make more biofuels to supplement traditional energy, we generate environmental credits and American farmers grow more and make more money to sell us the feed. It's an extremely efficient and circular system with dramatic positive impact to our country, and Montana Renewables is in a perfect position to support this opportunity. With that, I'll turn the call to David.

Thanks, Todd. Let's get into our results. As Todd mentioned, the first quarter was a transformational quarter for the business as well as strategically. In terms of financial results, the company generated $50.1 million of adjusted EBITDA with tax attributes, slightly down from the $55 million generated in the first quarter of 2025. Despite the extraordinary margin environment for both of our businesses, we didn't fully capture the opportunity the market provided due to a previously disclosed operational event in Shreveport, which was ultimately resolved and the plant is now fully operational. Late in the quarter, organic chlorides were discovered in our crude stream, which caused a loss of about 750,000 barrels of production. Organic chlorides are a serious risk if not identified and managed appropriately. They're an inorganic contaminant not naturally found in crude oil, which appears in the naphtha fraction of the feed used to produce gasoline.

Our industry has seen serious consequences when these are carelessly blended into crude because they cause rapid erosion of steel and our Shreveport team noticed the corrosion, identified the cause and acted swiftly to manage the risk of placing the directly impacted naphtha processing equipment and examining the entire facility at caution. The event, which cost us over $30 million of lost opportunity given the elevated margins at the end of the quarter is now behind us. The plant is running about 50,000 barrels per day, has done so most of April, and I appreciate the team managing through this complex situation safely and urgently.

Turning to Slide 7 and our Specialty Products & Solutions segment. Our underlying business remains strong. We generated $44.3 million of adjusted EBITDA during the period compared to $56 million generated in Q1 2025. We believe that the unique elements of our business model, integrated assets that provide optionality combined with commercial excellence to capture value are well suited for periods of extreme volatility like we are in today. As a comparison, today's business environment is similar to 2022 when we saw similarly elevated crack spreads and specialty margin. In that year, the company generated over $400 million of adjusted EBITDA.

Our integrated business allows us to produce fuel and take advantage of the attractive high-margin fuel environment. Using current strips, the 2026 full year 2:1:1 is over $42 per barrel, nearly double what we saw on average over 2025. In addition, our Specialties business, we've now posted the sixth consecutive quarter of sales volume exceeding 20,000 barrels per day. This was accomplished despite the outage of Shreveport, which primarily impacted our fuels business. Specialty margins during the period were temporarily compressed due to the extreme spike in crude oil price. The commercial team acted quickly pushing through numerous price increases to offset the impact of rising feedstock costs. We put in place more than 20 price increases to date and anticipate seeing the future benefit of this in the second quarter.

These price increases put the elevated fuel margin environment position us well for what we will be -- what we believe will be a strong second quarter where we expect to generate additional cash flow during this attractive margin environment. To add to that and to fortify our ability to achieve our deleveraging targets, we've entered into crack spread hedges for portions of 2026 and 2027 fuels production. Currently, we have in place approximately -- hedges for approximately 10,000 barrels per day or around 25% of our fuel production on a 2:1:1 crack spread. We entered into a portion of these 2026 hedges at around $22 per barrel of the 2:1:1 crack using A grade or CBOB for the gasoline leg of the hedge. Note that CBOB trades at a $3 to $4 discount to Gulf Coast 87.

Those hedges position us -- those hedge positions were put in place at an attractive historical levels even before the large run-up driven by the conflict in the Middle East, and those cost us around $6 million of realized hedge losses during the period. The next tranche, which was added recently was 10,000 barrels of production for 2027 at levels closer to $27 a barrel also on a CBOB basis. Now how these hedges end up is a function of what happens from here in the Middle East. For us, it's about making sure we deliver on our strategic objectives, which is generating strong cash flows to accelerate deleveraging and derisking a portion of our fuels production at these extraordinarily high margins. This puts us in a place to support that goal while also leaving plenty of room for upside of our remaining fuels production.

Turning to Slide 8 in Performance Brands. We also continue to benefit from our commercial excellence strategy in this segment and a truly premium brand in TRUFUEL. We reported $12.6 million of adjusted EBITDA. The results were partially impacted by margin compression and the normal price lag associated with a more retail-oriented customer base. While we have been also implementing price action, this branded space takes about 60 to 90 days to fully reflect the increases compared to the less than 1-month lag in our SPS business. Taking a closer look at adjusted EBITDA on a like-for-like comparison basis, we've seen continued growth. As a reminder, the results of Royal Purple Industrial business are reflected in the first quarter of 2025 financials when we own that portion of the business and not included in the current period following the divestiture in March.

Last March, our commercial and operational teams in less than a year have successfully offset the lost EBITDA associated with Royal Purple industrial business through disciplined cost controls, growth of our trusted brands and our strong customer relationships. We announced that our TRUFUEL business in February had posted record monthly results and that momentum continued throughout the entire quarter as we posted record sales volume, and we posted another monthly volume record in April. Customers continue to place a premium on the value of our engineered fuels, our innovative packaging option and overall product reliability and convenience.

Turning to Slide 9 and our Montana/Renewables segment. Adjusted EBITDA with tax attributes was $10.2 million for the quarter compared to $3.3 million in Q1 2025. Renewables EBITDA with tax attributes on a Calumet-owned 87% basis was $8.8 million. As Todd mentioned, we've delivered the MaxSAF 150 expansion on time and on budget. With our new capacity, we are stepping into a market with significant tailwinds from a transformational product mix shift between renewable diesel and SAF that will deliver a four to fivefold increase in SAF volumes on an annual run rate basis. The business is incredibly well positioned as we ramp up production with the new RVO and a diversified portfolio of customers with a contractual SAF premium of $1 to $2 per gallon over renewable diesel, all of which is underpinned by our industry-leading low cost structure.

As these dynamics further take hold, our renewables business is at a positive inflection point, and we leverage the strategic investments we've made in the business over the last several years with an expectation of meaningful cash flow generation. As Todd mentioned, following the 2023 RVO and trough-like margins, the industry managed through but no further than the RINs pricing in 2026 to see that, that recovery was already in process prior to the extremely constructive RVO announcement in March from the current administration. Finally, capital expenditure during the quarter within MRL was approximately $15 million and funded entirely by cash within MRL on the balance sheet.

Before leaving this segment, our Montana asphalt results were in line with the prior year as first quarter 2026 reflected typical seasonality and price lag impacts in our wholesale asphalt business. We are moving into a seasonally stronger period in Q2 as well as an extremely supportive crack environment for fuels also in this segment. As we routinely said, we expect the site to produce $30 million to $50 million of annual EBITDA range in a normal environment, and we look forward to the opportunity at hand in today's stronger market environment. Let me now turn the call back to Todd for his concluding remarks.

Thanks, David. And before I turn the call back to our operator for questions, I wanted to remind those joining that we have filed our proxy materials and the voting window is open. For all shareholders listening, we appreciate your support. It's almost 2 years since our conversion from an MLP. We set out to create a stock with much higher liquidity and a broader investor base, and over the past few years, we appreciate the new investors that have joined us as our daily trading volume has increased over tenfold. Our strategy is focused on creating shareholder value, and we're always available to our investors to further discuss our proxy materials and our business strategy. Thank you for joining us today, and I'll turn the call back to Andrea for questions. Andrea?

[Operator Instructions] Our first question will come from Amit Dayal of H.C. Wainwright.

So the story seems to be in a really good place, guys. The demand and pricing environment is pretty solid. So I'm just trying to get a sense of the risks, are these primarily coming from the cost and input side of things or new supply coming online? Can you share any sort of drivers where we should be paying attention to that may provide any sort of unexpected surprises, I guess, in terms of how the setup is right now?

Amit, it's Todd. Thanks for the question. It's -- I'd say that we spoke a lot about the market today, and there's not a single element in the market in either renewables or specialties or kind of more broadly fuels that I'd point to and say has any singular risk that is keeping us up at night. I think the market is in really good shape. We talked about the reasons why, specialty markets supported by disruptions globally and it is just a normal strong, stable market in any environment.

I'd say if there's anything, it's just acknowledgment that it's very volatile out there. And there's still a meaningful conflict going on, and we could see pretty massive volatility. We've seen how quickly these markets can move. But as we sit here today, I think we have a lot of confidence in our commercial team to react accordingly no matter what happens. They've proven that. And price increases are in on the specialty side, so we feel pretty comfortable with where we're at. We'll see a little bit of margin tightening in Performance Brands while we kind of play through the lag there for the next couple of months. But other than that, we feel like we're positioned pretty well and really looking forward to the opportunity the market is offering.

Just next one for me is on the SAF side of the story. Your SAF contracts where you are getting the $1 to $2 premiums, how long are these in place for? And then do you think when these renew, you'll be able to get similar or better terms?

Amit, it's Bruce. Thank you for the question. So the term contracts are evergreens. The notice periods, we have a distribution of those at this point because we've been selling SAF for 3 years now. And as we step into these, we're going to kind of have different notice period dates. But what I can tell you is the ones that we roll have renewed within that guidance range. The new ones are a portfolio of kind of various next notice dates going forward, and then they stay with us as evergreen relationships.

And I'd just add a little bit of that. On average, these are typically 2-, 3-year type evergreens. But as Bruce stated, so far, they've all continued to roll forward. And as far as the margin environment and ability to renew, we feel quite comfortable with where those have been as we've rolled forward contracts historically, we've certainly not had a problem re-upping them and adding additional supply as we've been doing here recently over the last 6 months or so. We haven't seen any step back in margins. We think that the underlying fundamental support is there given all of the demand for the renewable energy credits, the underlying scope credits, et cetera. So pretty bullish on the outlook there and our ability to continue growing our marketing.

The next question comes from Conor Fitzpatrick of Bank of America.

I wanted to dig a bit into maybe an update or refresh on the second phase of SaaS capacity expansion. It's still a ways away, and it could maybe take a more modular form, but I was wondering if there was just any update on CapEx, build parameters, engineering. And obviously, the contracts coming in for this first phase are pretty bullish, pretty supportive of continued demand. It sounds like there's still the opportunity there to expand at a similar profitability to the first phase.

Conor, thanks for the question. It's Todd. Yes, look, we've been focused on the current phase. Obviously, we're just now commencing operations, so very excited with where we're at. We want to stay focused there. So we've got our team kind of head down operating -- focused on that operation. At the same time, we do have an independent project team that's certainly looking at the next phase of a modular opportunity. It's probably a little bit too early to get ahead of ourselves on announcing that. We hope to be able to talk more specifically to that soon.

I think in the past, we've said let's get a chance to get up, get through this commissioning, ramp up here over the next couple of months, and we'll certainly be out and looking forward to doing so in the not-too-distant future to talk about what's next and how the follow-up steps can play. But to your point, we certainly are bullish about the opportunity to continue to expand. We think the opportunity is there, it's readily available, and we're not seeing any demand gaps that would hinder that. So we're just going to kind of take it one step at a time here, but hope to be able to talk about our acceleration plan and next steps pretty soon.

Great. And I guess the follow-up is, it looks like there are maybe still some impediments to biodiesel capacity ramping to full or peak rates again, and I think there are various reasons to do with physically operating such as feed cost basis in the Midwest, diesel pricing and biodiesel pricing specifically in different regions of the U.S., ability to have the actual cash inflow from 45Z credits soon enough to incentivize production. So I was just wondering how far are we maybe from biodiesel producers, the marginal ones that will be needed to supply the market until profitability so that they can ramp up fully?

Conor, it's Bruce. So yes, I think you've got -- that was a good frame of what some of the issues and drivers are. There's 2 fundamental questions you asked, what about their volume and what about the economics that follow from that. So our supply stack says we're solidly back into a market environment where the prices are going to have to incentive the small biodiesel guys, the independent ones. And remember, some of them are running -- everybody's got their own specific, unique situation. That's why those stacked cost bars have arranged to them. And the question on volume is how fast and how many, so have these been permanently abandoned? And history shows us that it's kind of -- I call it ghost capacity, but it can come back faster than you think unless somebody just gave up and removed it, and we're going to find that out. But a lot of the analysts are calling for getting back into the 90% utilization range of biodiesel capacity by towards the end of this year.

The next question comes from Josiah Knight of Goldman Sachs.

Maybe on the feedstock side of the equation for MRL, how much pressure are you seeing? And then can you remind us of MRL's relative advantage and feedstock flexibility in navigating these costs?

Josiah, it's Bruce. Thank you for the question. We have essentially unlimited feedstock flexibility. We set it up that way on purpose. And the pretreater capability is what allows us to follow the market dynamics and pricing volatility. So we're pretty aggressive on our monthly re-optimization. We exist in the middle of the feedstock long area. So there's never been a question of any kind of physical shortage. And we seem to do better on optimization and re-optimization when we look at our capture percentages versus an industry index.

Got it. That's helpful. And then a follow-up, maybe on the base business, how are you thinking about the earnings outlook in the near and medium term, especially given some of the recent volatility for commodity prices?

Josiah, it's Todd. Look, I think as we talked about during the script period earlier, we're pretty confident in the outlook. Obviously, the fuel margin is incredibly positive right now. There's pretty meaningful supply disruption. We don't think this is something that just returns in a very short period of time. It's obviously not something that lasts forever. But it feels a lot like 2022 when you kind of just see the shock that we're seeing in the market and you look at inventories out there, and they're depleted not only here, but really throughout the globe. And on the specialty side, we've talked a lot about our ability to push price increases through rapidly.

Commercial team did over 20 of them in a very short period across the product line. So at current costs, we're quite bullish on the outlook for both fuels and specialties. Obviously, we could see increased volatility from here. And if we do, then we've demonstrated that we can react accordingly, and we'll do that. But I think big picture, the market is pretty constructive on a margin outlook basis no matter where you look. Our specialties business is -- has a domestic supply chain and access to feedstock and you just can't say that on a global basis right now. So we'll continue to serve the market.

The next question comes from Gregg Brody of Bank of America.

You referenced '22 as how to think about maybe specialty material margins and the environment you're in. Those margins got up to the $90 range during that period. And you mentioned you've been able to put through -- you've been able to pass price through. Is that the type of environment we're in right now? Or is it going to take -- do we have more steps we need to go to get there in terms of price increases?

Gregg, I don't think right now, we would look and say we're at $90 specialty margins going forward. I think when we talk about 2022, you're looking at kind of analogies to the whole demand period. Increasing crude costs create a little bit of lag in the specialty business. I think back in 2022, we were able to overcome that in a hurry. We've done the same here. We'll see what happens, right, with volatility in the back half of the year here, but feel pretty good about where we're at. So as we sit here right now, I'd say specialty margins are a tad lower than 2022 and fuel margins are a tad higher than 2022. And if you blend those together, then it's probably a good period. But we're not trying to draw too tight of an analogy here. We're just saying the market feels pretty similar where supply shocks are going to drive margins that are sustained for a period of time and provide the ability really to generate some excess cash flow and accelerate our deleveraging plan.

That's helpful. Are you seeing any response from the consumer as a result of the price spikes?

We really haven't right now as far as demand. Obviously, everybody is getting their arms around these rapid cost increases. But I think where we sit right now, there's just -- there's such supply disruption throughout the space that consumers need our product. This isn't something -- a lot of our products go into consumer necessities and staples and not things that have massive price elasticity. So we don't expect this to be something where we're seeing dramatic demand declines, et cetera. We even saw record growth period at some of the downstream performance brands. We talked about a TRUFUEL record, et cetera. So we've seen consumer demand continue to stay strong throughout the space. How long that continues is probably a function of just general consumer sentiment and market volatility. But as it sits right now, I think we're pretty positive on the outlook.

And you -- just shifting to the organic chloride issue, which is in the past. Is there any remedies you have to make to the facility to fix any damage that was done at some point or just going forward, what's the risk of something like this happening again?

No, there's a -- it's a good question. There's no further work needed at the facility. We took the event extremely seriously. We inspected the facility thoroughly. We made quite a few repairs at the time, and I'd say in a very conservative fashion. We weren't taking any risk with the situation. We took a big chunk of our naphtha train out of service and replaced it. And we've installed quite a bit of redundancy in the sampling and quality monitoring throughout the system just to ensure that this can't happen again.

What typically happens in these types of scenarios throughout industry is polarized and a small amount of them can do a lot of harm, sneak in with crate supply and bypass the upfront QC checks. And I think that's what happened here. We're still fully investigating the deals. We can figure out what happened there certainly -- we'd certainly be very aggressive with any culprit that created that. But as far as the current go-forward position, the facility is operating really, really well. There's no sustained damage. We aggressively attacked any repairs that need be made, and we've been up and running really strong for over a month now.

Got it. And just shifting to the deleveraging plan. You highlighted that you'll use cash to deleverage. Does -- you're clearly set up for a windfall here from both the restricted group assets and MRL. Does that change the way you're thinking about potentially monetizing MRL to pay down debt at the restricted group? Or is that still the plan right now?

No, I'd say the plan still remains as it has been. Ultimately, we think that Montana Renewables is going to present an opportunity to monetize. At some point, we're well on track to accomplish that. Obviously, this recent RVO was a major step in the right direction, so no game plan changes there. We think the next step here is just showcasing what the earnings power of this business is with both MaxSAF project that's up and running and a really positive RVO market. So that's what we're focused on here for the foreseeable future, next quarter or 2, and we'll go from there.

The next question comes from Jason Gabelman of TD Cowen.

You mentioned you're in a validation process of the MaxSAF expansion right now. So can you just talk about what the steps are to get it to a steady state or if it's already at steady state? And then in this type of margin environment since the asset has been running, what type of margin are you seeing coming out of it?

Jason, it's Bruce, I'll start us and see if I touch those 3 points. Just on the last one, the renewable diesel index margin hit over $3 a gallon at the end of the quarter. We're not calling for it to stay there. If you look at our supply stack, we think the renewable diesel industry structure, the equilibrated structure should be a bit north of $2. The SAF premium overlays above that. And so just with that as a reminder of structure, that's how we've always talked about it. In terms of the operational current performance, we did restream the unit after the extended turnaround plus capital projects. Those are the modifications that we've called MaxSAF 150.

We had a little bit of a sidestep on an unrelated electrical power interruption to the site, so we had to restream at a second time. With that behind us, we're finishing the ramp-up. We have a performance test design that's probably, maybe 4 weeks out. The catalyst comes with performance guarantees. We've modified the hardware, and we want to test that we've delivered the engineering expectations. And so I think we'll have more intelligence in a few weeks. But no reason, nothing that we see gives us any reason to think that we've underachieved in any way. So we're excited about the go forward.

Got it. And can you also remind me just from an OpEx standpoint, if there's any change on a unit OpEx relative to where the initial MRL was at?

So our track record of improving controllable costs, and we got down to something like $0.38 a gallon, that's a chart we published occasionally, is pretty compelling. We don't think that we have any kind of reversal on that just because we're fractionating more kerosene out of the total reactor products.

Got it. And then maybe just turning to liquidity. And we've -- there's been a lot of volatility in the market, and you've seen in some of your refining and biofuel peers, working capital derivative hedging kind of headwinds related to that commodity volatility that we've seen. Have you seen that to a large extent? Can you talk through impacts on cash flow as a result of the volatility and if you expect that to reverse over time?

Yes. So I'd just start out by saying that we kind of feel good about our liquidity position and the cash that we're kind of generating in the current environment kind of after some of the operational things that we saw at Shreveport during the quarter. We've obviously seen a big run-up in crude price. That does impact us a couple of different ways. One on the inventory cost that we need to buy. There's a little bit of a lag as we buy into the market. And then also accounts receivables. You may have seen that we were up over $100 million as kind of prices that are getting passed through at a premium to crude just roll into our AR. But there was kind of a big draw on working capital during the period from that run-up that was exacerbated by the downtime that we saw in Shreveport, and so we're already seeing kind of almost a total unwind of that. So we're already seeing it in April, and there'll be a little bit more into May.

And then just to touch a little bit on the liquidity path, we did this tack on for $150 million kind of earlier in the year. We thought about that as a way to kind of at a pretty cost neutral, even at a premium kind of pay off some of our 2028 when the call protection steps down in July. And so we're looking at this current volatile environment. We don't know how long it will last, but we were in an attractive position to kind of take from the market kind of pre-reduce that debt and use that extra cash to balance kind of the spike in crude. And so as we move forward here, I think we'll still use that cash to pay down debt. We'll just re-evaluate what the market looks like closer to July when our call protection steps down and what's happening in the world.

This concludes our question-and-answer session. I would like to turn the conference back over to John Kompa for any closing remarks.

Thank you, Andrea. And on behalf of Todd and the entire management team, I'd like to thank everyone for their time today and interest in Calumet. Have a great rest of the day. Thank you.

The conference has now concluded. Thank you for attending today's presentation, and you may now disconnect.

Good day, everyone, and welcome to the Calumet Inc. Fourth Quarter and Fiscal Year 2025 Earnings Conference Call. [Operator Instructions] Please also note today's event is being recorded. At this time, I'd like to turn the conference call over to John Kompa, Investor Relations. Sir, please go ahead.

Thanks, Jamie. Good morning, everyone. Thank you for joining our call today. With me on today's call are Todd Borgmann, CEO; David Lunin, EVP and Chief Financial Officer; Bruce Fleming, EVP, Montana Renewables and Corporate Development; and Scott Obermeier, President, Specialties. You may now download the slides that accompany the remarks made on today's conference call, which can be accessed in the Investor Relations section of our website at calumet.com. Also, a webcast replay of this call will be available on our site within a few hours.

Turning to the presentation. On Slide 2, you can find our cautionary statements. I'd like to remind everyone that during this call, we may provide various forward-looking statements. Please refer to our press release that was issued this morning as well as our latest filings with the SEC for a list of factors that may affect our actual results and cause them to differ from our expectations.

As we turn to Slide 3, I'll now pass the call to Todd.

Thanks, John. Good morning, and welcome to Calumet's Fourth Quarter 2025 Earnings Call. 2025 was a defining high-impact year here at Calumet. We began the year with a credible plan and large potential amidst deep market uncertainty. Throughout the year, risk was aggressively managed and execution of our strategy turned Calumet's potential to actualize results. We opened the year with a mandate to demonstrate critical strategic objectives.

First, we needed to demonstrate that our Specialties business would consistently generate durable free cash flow amidst large market uncertainty. Second, Montana Renewables needed to prove stand-alone financial resilience and a structural advantage. Third, we needed to receive the transformative DOE loan at Montana Renewables and last, accomplished material deleveraging of the balance sheet.

As we reflect on 2025 today, I believe Calumet achieved each of these strategic milestones. Over the course of the year, we reduced financial risk, expanded our structural earnings power and repositioned Calumet for long-term value creation. Let me walk you through some of the highlights, and we'll start with the balance sheet. We ended 2024 with restricted group leverage standing above 8x. We faced near-term maturities and elevated cash interest costs. Montana Renewables was awaiting DOE funding and the broad equity markets were hesitant to engage with fundamental value plays like ours. Today, that picture is very different.

For full year 2025, we delivered $293 million of adjusted EBITDA with tax attributes, nearly a 30% increase year-over-year. We reduced restricted debt by more than $220 million. Net recourse leverage improved from 8.2x to 4.9x. We eliminated our 2026 and 2027 debt maturities, and Montana Renewables successfully closed its DOE loan, removing roughly $80 million of annual cash debt service while also improving its leadership position in this industry.

The outcome was a fundamental shift in financial durability, and this outcome was driven by structural improvements. Across the system, we dramatically reduced costs and drove increased reliability. Fixed costs were down over $40 million. Water treatment costs at Montana Renewables were down over $20 million as were our crude transportation costs in the Specialties business, while greatly enhancing feed flexibility and our ability to dial in specific specialty products for our customers. And as a result of improved reliability and fewer repairs, capital spending was also reduced by roughly $20 million.

At the same time, our ops team increased production by roughly 1.3 million barrels on the year. Results like this come from an entire organization working towards a common goal. And I thank our employees for accepting the challenge to responsibly attack costs, which includes our 900-plus teammates in the field, our ops excellence team, which is relatively small, but pound for pound exceptional, our finance team that made a step change in partnering with our sites and making information readily available, more broadly, everyone who leaned into owning and accomplishing this company-changing priority.

Looking ahead, we believe there's more opportunity on both cost and reliability. Our company has been operating the current asset base for a little over 3 years. And during each of these, our team has delivered stronger production and lower operating costs, and we expect for that to continue in 2026 despite what's going to be a very heavy turnaround year.

Let's turn to Slide 4. The operational improvements we just discussed are more than just volume and costs. Layering that capability on top of our leading commercial platform, which has been built out over decades, provides our sales team more volume and flexibility to support customers. We produced record levels of product in our Specialty Products & Solutions segment in 2025, and our commercial engine more than kept up as we sustained material margins above historic norms despite softer macro conditions in the broader specialty chemicals industry.

Our team placed this material successfully to new homes consistently as specialty sales volumes exceeded 20,000 barrels per day during every quarter of the year. The continued results in this business reflect years of investment in commercial excellence, culture and talent, integration of Performance Brands, targeted reliability and mix improvement initiatives and disciplined capital deployment. Our integrated asset network and ability to dynamically shift production into the highest value markets continues to be an advantage, and our extremely high customer experience scores are the result of a differentiated passion for customers, which is a core Calumet value.

Turning to Slide 5. We see that Montana Renewables also entered 2026 in a much different position than a year ago. Throughout last year, we reached a new level of operational reliability and cost competitiveness, demonstrating a financial leadership position in one of the most compressed renewable diesel margin environments on record. Operating costs averaged $0.41 per gallon in the second half of the year, a 60% improvement over 2 years ago. And further, we monetized more than $90 million of production tax credits, which was essentially everything we made, and we are pleased to see the 45 deregulations progress in early 2026.

On the strategic front, 2 quarters ago, we announced our streamlined MaxSAF 150 expansion would be bringing 120 million to 150 million gallons of annual SAF capacity online at a fraction of the originally contemplated cost. And last quarter, we mentioned that roughly 100 million gallons of new SAF contracts at $1 to $2 per gallon premium over renewable diesel were in final review with the DOE. These contracts are now complete with more in process that will lay in to support our volume ramp.

These contracts are all multiyear, and they include increased take-or-pay volumes from existing customers, new physical SPK off-takers and blended SAF offtakes combined with contracts for Scope 1 and Scope 3 credits through Book and Claim, which opens up premium renewable markets globally that complement the strong local markets we serve in Illinois, Minnesota, the Rockies, Canada, the Pacific Northwest and California. Montana Renewables will begin its turnaround in MaxSAF 150 project next week and remain down through late April, at which point, we'll rebuild inventories and begin ramping up SAF production and serving these new customers.

The regulatory environment for biofuels also continues to improve. I mentioned the 45Z rules are now clarified and out for final comment. Further and with plenty of press, the new renewable volume obligation is expected imminently. We anticipate that a stronger RVO will improve industry utilization and margin improvement as idle facilities are expected to be required to restart to meet increased mandates. Restarting production to meet demand volume is a very different and much improved market dynamic than one where companies are hanging on at variable costs while waiting for the rules to shift.

In fact, we've already seen improvement in the index margin on both the back of this expectation and the 2024 RIN carryforward overhang drifting into history. An increased base level of industry RD margins would be a welcome change for all. And at Montana Renewables, we're excited to stack on top of that the added margin from increased SaaS as we complete our project in the second quarter.

With that, I'll turn the call over to David.

Thanks, Todd. Turning to Slide 6. Overall, our quarter and full year results were strong, both financially and strategically. We generated $69.3 million of adjusted EBITDA with tax attributes in the quarter and $293.3 million for the full year 2025. Each segment contributed meaningfully to our financial results. We saw continued momentum and record production, both in our SPS segment and Montana Renewables as well as continued outperformance and growth in our Performance Brands segment. Our strong earnings results during the quarter also allowed us to reduce restricted group indebtedness by nearly $80 million in addition to the $220 million that was reduced for the full year 2025.

Before I get into more details, I wanted to highlight our planned capital expenditures for 2026 as we are forecasting total CapEx of $115 million to $145 million for all of Calumet, of which $70 million to $90 million is in the restricted group. This is $30 million to $40 million higher than normal, primarily due to a heavy turnaround year, which is scheduled maintenance at Shreveport, Cotton Valley, Princeton, Karnes City and Great Falls. Despite this, we expect total company production to increase year-over-year on the reliability improvements implemented over the past few years.

Looking at our Specialty Products & Solutions segment on Slide 7. Both our quarterly and full year results reflected the continued benefits of our commercial excellence initiatives and totaled $88.5 million for the quarter and $291.8 million for the full year. The team continues to leverage the inherent optionality in our manufacturing network to place volumes where they can generate the most value while serving our diversified customer base. In fact, more than 50% of our customers buy more than one product line from Calumet and many are long-term customers because of our unique ability to meet their product specifications.

Both our quarter and full year reflect a favorable product mix and even with certain specialty markets demonstrating some softness, our sales team has continued to place our products at over $60 a barrel margin. The benefits of our past reliability investments can also be seen in our strong operations as we've had 5 consecutive quarters of specialty volume greater than 20,000 barrels per day. It was also the second consecutive quarter of record production. With our cost reduction initiatives and increased production, our fixed cost per barrel declined by over $1 per barrel versus the prior year period.

Finally, our steady production environment again enabled the capture of stronger crack environment as fuel margins increased significantly year-over-year, which we view as upside to our integrated model. As I mentioned last quarter, we gained access to a new crude oil supply chain earlier this year, including the ability to target specific segregated or blended crudes in Cushing and further north in the DJ Basin and at the same time, reduce our pipeline tariff. In 2025, this improvement drove a $19 million decrease in transportation costs and provides even further ability to dial in our assets and feed to a specific use.

In our Performance Brands segment on Slide 8, we also saw the benefit of our commercial excellence initiatives, strong and growing brands and integration capabilities. Adjusted EBITDA was $5.4 million for the quarter and $47.9 million for the full year 2025. Keep in mind that fiscal year 2024 includes a full year of Royal Purple Industrial results and that the Royal Purple Industrial business was sold at the end of Q1 2025. Adjusting for the divestiture and insurance proceeds received, 2025 was the third consecutive year of growth in the segment as we offset the loss contribution from RPI through growth and cost reduction.

One of our standout product lines is once again our TruFuel business, which posted another record year. This ready-to-use fuel engineered for outdoor power equipment is available for 4-cycle and 2-cycle engines, and the product continues to resonate with both consumers and first responders, considering its proven ability to protect small engines from the corrosive nature of ethanol while ensuring peak performance of the equipment.

Moving to Slide 9. Our Montana/Renewables segment fourth quarter 2025 adjusted EBITDA with tax attributes was negative $5.4 million and positive $31.3 million for the full year 2025. On the MRL side, the company worked through trough renewable fuel industry conditions for most of the year and was -- also the quarter was burdened with disproportionate transaction costs related to the $65 million of PTCs that we sold during the quarter. We expect to monetize our production tax credits more ratably as the market is now normalized.

On a full year 2025 basis, adjusted EBITDA with tax attributes for MRL was nearly breakeven even as margins remain compressed by the low 2025 RVO, offset by our significant cost reduction efforts. Notably, the full year results do not reflect an additional $8.4 million of 2025 generated PTCs, which occurred after final regulations were posted after quarter end. Our MaxSAF 150 plans remain unchanged, and we are set to begin the project as we head into March and combine the required changes to our kit with the turnaround. We expect to complete the expansion in the second quarter and then steadily ramp volumes moving into the third quarter to meet new customer contracts, including the notable agreement we announced recently with World Energy, previously announced contract with FEG and an increase in offtake with Shell, amongst others.

Finally, on the Montana Asphalt side, both the fourth quarter and fiscal year results improved on the strength of improved asphalt margins and cost reduction initiatives following years of site reconfiguration. Further, we are seeing a widening of the WCS differential into 2026. With the site back at reasonable cost level and more normalized WCS, we expect the site to continue producing in the $30 million to $50 million of EBITDA range we've discussed routinely.

Let me now turn the call back to Todd for his concluding remarks.

Thanks, David. We're entering 2026 with the same high level of energy and excitement of a year ago, but with a much improved underlying fundamental. In Specialties, we expect the cost discipline embedded over the past 2 years to be durable, along with our continued commercial leadership position. While 2025 was another step change in operational excellence, we believe further opportunity remains to expand earnings through incremental reliability gains and customer-focused growth.

In addition to that, David mentioned a heavy turnaround year, and I'll highlight that turnaround excellence is the next step in our evolution. Our operations team has been planning these for some time. And during these events, we're making critical improvements that will underpin the next step change in operational performance. At Montana Renewables, our objectives are clear: First, execute MaxSAF 150 safely, on time and on budget in the second quarter; second, continue improving our already strong cost levels; and third, continue to leverage our early mover advantage in SAF as we grow. We expect that accomplishing these will drive a step change financial improvement even in past trough market conditions and will be increasingly exciting if the market's growing assumptions surrounding an improved RVO play out as expected.

Last, on the back of these key items, we'll continue to evaluate strategic pathways to unlock long-term value as the platform demonstrates sustained performance. Across Calumet, our capital allocation priorities remain disciplined and consistent. We expect to continue to drive durable free cash flow that underpins enhanced deleveraging. We plan to grow both our specialties, widening our competitive moat and execute on our MaxSAF 150 strategy at Montana Renewables. And we plan to execute this strategy and continually develop it with an eye towards midterm shareholder value creation.

With that, thank you for your time today. I'll turn the call back to the operator and see if we have any questions. Operator?

[Operator Instructions] Our first question today comes from Alexa Petrick from Goldman Sachs.

We wanted to ask 2 parts maybe. First, can you talk about the macro setup from here? There is still some regulatory uncertainties, but we got a bit of an update yesterday. And then from there, talk about what you're doing at an operational level. What are the gating items at MaxSAF? And what should we expect from here?

Alexa, it's Bruce. Look, the regulatory uncertainty as a lot of us call it, is just a feature of the landscape. The global energy transition is a regulated market, but it's collective governments, many, many governments acting directionally. And we feel like that's a very robust framework. We also feel like it adds the equivalent of a lot of margin volatility on top of kind of the base energy. So with that said, if you want to survive in that environment, be a low-cost provider, be well positioned, be able to shift gears quickly, and we think we are all 3.

And Alexa, it's Todd. Maybe I'll pile on a little bit. One of the things that we think is so important and exciting about our MaxSAF project at Montana Renewables is it adds an element of this durability on top of the RD margin volatility that Bruce mentioned. So you can kind of think about it a lot like our specialties business relative to fuels in the other half of Calumet.

So we have contracted volumes with meaningful margin in them that even if we kind of rewind the clock to last year, we're generating pretty meaningful free cash flow at Montana Renewables with the addition of the SAF volume and the contracts that we have. So like Bruce said, then you get to layer on the improvements that we're expecting from the RVO, and it creates a really nice dynamic. But there's kind of the risk reward, I'd say both sides of that coin are really improved with the SAF project. So thanks for the question.

Our next question comes from Conor Fitzpatrick from Bank of America.

It looks like we're in the phase of the RINs market and demand step-up progressing where we should sometime soon begin to see producers ramp utilization. And I think one way to glean that is from moves in feed prices. And they've gone up, but a lot of that is raw soybean cost pass-through, through the crush spread. So I was just wondering, there's not been a lot of press releases of idle plants coming back online. There's not a ton of evidence of utilization coming back within the overall market. I was wondering if your views are similar or different as it relates to -- and it's particularly important to our views of the cost of producing RINs at 2026 demand levels.

Conor, it's Bruce. Thank you for the question.

Let me answer with a concept of time scale. So we think the industry is running at variable margin now. People are not covering fixed costs and half of the group that's in the high cost structure and have been closing. We have been running full. So you got to be tactical on where do you stand in the supply stack exactly. So that ghost capacity, which exists in biodiesel plants that can come back quickly and renewable diesel plants that are online and can speed up, that's available, but it's not going to be called into the market until we see the RVO come out. We're all waiting for that. We feel good about what we're hearing. And let's see what the facts are shortly, we hope.

Yes. And I'd add, Conor, the -- it's Todd. The likelihood that people turn back on when they're covering fixed costs by $0.01 after some of the decisions made more broadly in the industry over the past couple of years, we think is very favorable to the market. I talked about this kind of the last couple of quarters in the prepared comments. But like Bruce said, as we put on variable margin, you don't incur our normal kind of supply stack doesn't govern today because people aren't making long-term rational economic decisions.

They're hanging on based on expectations that they're going to recover the investments in the fixed cost losses in the near term. As we see people have to restart and make that decision to restart to cover increased demand, we don't think that they're going to do that for a $0.01. We think that people are going to be very thoughtful and cautious and it creates quite a constructive outlook if you believe that. So we'll see what the final RVO is. I know there's a lot of rumors going around out there. But when we do, we don't think that the industry just kind of ramps up overnight. We think it's going to be kind of a very thoughtful volume ramp-up over time that will be beneficial to those who are in and operating every day.

That's good color. And for what it's worth, if you look historically at the changing marginal producer back in time, that producer tends to earn like $0.20 to $0.30 per gallon, just if you do some rough math on it. And then I guess my follow-up question was just moving parts for fourth quarter Montana Renewables margin. There were some -- market margins were pretty fluctuant and they were up for some weeks and down for other weeks. I was wondering just how that translated into margin capture for the business and operations.

So we're -- Conor, it's Bruce again. We're pretty good at shifting gears there. Our inbound and outbound supply chains are pretty short in terms of days of shipping. And we do track capture. We don't publish it, but I'll tell you that we capture more than 100% of the renewable diesel index margin. And that's because of our ability to shift gears quickly. Now it's worth noting the fourth quarter managed to hit the lowest renewable diesel index margin ever recorded in the history of the world.

And we're very much looking forward to the current administration restoring reasonable industry structure through the proposed RVO. We're bullish on that. And I think that's going to bring things back to historical. Remember that these margins were $2 to $3 a gallon on an index basis as recently as 3 years ago. So we just need to resume that kind of an environment and we're going to have an entirely different view of our success here.

And our next question comes from Sameer Joshi from H.C. Wainwright.

So this capacity expansion that I think Todd said will start next week and is likely to complete by late April. When should we see capacity ramp up at full scale? And does this bring along with it, of course, capacity expansion, but also operational savings? Like would you be lower than 41 gallons -- sorry, $0.41 per gallon?

Sameer, it's Todd. Good questions. I think we are -- I'll start at the end. On the cost curve, we're obviously heading in the right direction and just continue to almost every quarter see improvement over the one previous. So we expect just continued incremental improvement there. We're going to keep getting more efficient over time. And yes, as we increase our volume, then we'll see more unit efficiencies drop to the bottom line as we progress. So I don't think there's anything in this specific MaxSAF project that would say, hey, there's a major cost out. But we're certainly going to be making more margins.

We continue to improve our costs in any -- regardless of the project, just in a steady state. And to the extent that we're ramping up volume, I guess, that it helps at the unit level on the bottom line. So that's probably one side of your question. I guess -- the other on the ramp-up. Look, we've previously guided to 120 million to 150 million gallons annually, and that's where we expect to stay. So we're not naive enough to say that everything goes perfect and we come out of this thing in May and the very first day, we're producing 150 million gallons, but we also don't have too technically challenging of a turnaround.

There's -- this is pretty well controlled. It's pretty well designed and it's implementing -- a lot of implementing and expanding equipment that we know a lot about and isn't a major kind of risk, I'd say, like the last major project that we have going on. So I think what you'll see is coming online, we'll have a really nice strong volume. We'll ramp up accordingly. Exactly how long it takes us to get to the 120 million, 150 million gallons run rate, we don't think it's going to be too long. So we'll come up in May and keep everybody up to speed on where we're going and think in the second half of the year that we're going to be at that level.

Got it. And then I think you mentioned 100 million gallons of contracted multiyear contracts, and they are indexed at $1 to $2 premium -- RD premium. Will you help us or remind us how does the feedstock pricing play into this? And how is that likely to impact pricing, I mean, profitability?

Sameer, it's Bruce. So it's worth noting that we're performing now under the SAF contracts. But until we deconstrain the unit during this upcoming turnaround, we can't get our rate up to where we want it. So we're going to have the acceleration Todd mentioned. So as we lean into that, the book of business that our marketing guys have created is very interesting. We've intentionally executed contracts one by one, which are different than the other contracts.

In other words, we're trying to have a portfolio that is robust to some of the dynamics we talked about with Alexa a minute ago. And with that in mind, I think the expectation should be that all of that feathers in, if we can hit the high end of the engineering ranges, then we'll get towards the 150 million. And if we hit the lower end, it will be towards the 120 million. But the contract volume, the differential that you asked about, that's and we've had those folks lifting already.

And I'd add a little bit more, Sameer, on the feedstocks you asked about. We've been pretty successful linking those to the contracts. So again, we're in a location in Great Falls where we have access to a broad range of feedstocks, including all of the low CI ones that the SAF market typically wants. So we've been pretty successful landing those on long-term contracts as well and feel quite confident in our ability to both continually add offtake and volume as we ramp up, but to match that with contracts on the feed side, just given kind of the robustness around our -- the number of options that we have in the region.

Sounds good. Congrats on the progress operationally and as well as leveraging.

[Operator Instructions] Our next question comes from Jason Gabelman from TD Cowen.

Maybe shifting over to the base business. The specialty margin was strong once again, above $60 a barrel. What's going on in the business that's enabling you to sustain those higher levels? And do you see that to continue to move higher over time? And then conversely, if you could just comment on the Performance Brands weakness in the quarter.

Jason, Scott here. So a few answers. In terms of the strength of the specialty piece within SPS, this hasn't just been like a 1 quarter or 1-year high performance. I think you've covered us for a while, you've seen the progression over the past 5 years and frankly, the transformation of the business, Todd talked about it in the prepared remarks, really, at the end of the day, our commercial excellence focus and the initiatives that we've done over the years and couple that with our integration and optionality has proven to be highly successful, highly durable through really almost any type of market and then the improving production reliability as well have added the volumes to it.

So we remain really positive and constructive overall within that piece of the business. As we look heading into the early part of this year, we expect our high performance to continue. Certainly, we've got some headwind early on in 2026 with the crude oil runoff, some short-term headwind. But overall, we feel really good about the business and the work that's been done in that business that it's going to continue to outperform the market.

I think on the Performance Brands, we were really pleased with the year. We think we're essentially at a place now, Jason, where we've essentially offset even as we said that we would do, offset the Royal Purple Industrial sale and the margin that went away with that. So feel really good about the year overall. We did see in the fourth quarter, though, as you pointed out, a lot of the customer base, retail, in particular, that really destocked late in the year. So some challenges there, but we're feeling good about the start of this year and the orders that we're seeing. So we're optimistic about the '26 results.

Got it. And just on the '26 outlook, you mentioned the turnaround, but you should have higher volumes despite that. Is there any impact to the margin outlook given those turnarounds and perhaps having to produce a different slate of products than you typically do?

Yes. I would say the simple answer is no. There shouldn't be much of an impact despite turnarounds and some of the volatility going on, no.

Got it. And my follow-up is just going back to the SAF contracts because I think one of the items we struggle with is just the confidence around that $1 to $2 a gallon premium that you've cited. And so I was hoping you could just clarify kind of how the contracts are structured. Is it -- when you talk about a premium over renewable diesel, are you indexing the contract to the renewable diesel margin, including the RIN, the LCFS credit, the PTC? Or is it more nuanced than that?

Jason, Bruce here. I'll give you a framework for that. So great question. Looking backwards, it was fully indexed. I mentioned earlier, we were intentionally diversifying the contract structures collectively. We want them to be different. So for example, FEG is a Scope 1 and 3 emissions certificate that we pull off. So that means we take that SAF, we sell it, we get all of the credits, RINs, LCFS, et cetera, producers tax credit. And on top of that, we get the certificate. So that stacks up a little differently. And I could go around the table.

And as I said, each one is intentionally designed to act differently in different market conditions. We think the portfolio will be more robust and more stable to prospective regulatory changes and evolution. So with that said, the guidance, we really don't want to start identifying specifics here, but the guidance has held for a long time. And one of the reasons for that is real simple.

SAF is an excellent renewable diesel blend component, super high-quality properties, and it cannot go into the market below RD. It can't. Every once in a while, I pick up some publication where somebody calculated -- we used to call this dry lab back in the chemistry class, somebody calculated that SAF is lower than diesel, and that's crazy because the operator is going to take the SAF tank, pump it into the diesel tank and capture that this afternoon on the day shift, right? So it's always more, and we're just arguing how much.

And I think if I could add just a little bit, the largest customer, I think your question around just the fixed dip, are the underlying components similar. Like Bruce said, we're intentionally diversifying. At the same time, we're quite confident in the $1 to $2 a gallon range just because of how these contracts come together. So a little more color on that. Our largest customers are very similar to kind of what you just said. There -- if you look at their contracts underlying the premium, it looks a lot like RD contracts plus the fixed premium on top of that.

So in those -- in that group, we're quite excited to have the exposure to the upside on the RD plus the fixed premium, which you're kind of alluding to earlier, that fixed premium plays out even in scenarios if we rewound back to last year and looked at kind of trough index margin environments. And then the other thing I'd say is Bruce highlighted on the Scope 1 and Scope 3 credit sales, there's naturally quite a correlation. We want diversification. We want exposure to those markets. And I think I've said in the past, we see it a lot like our specialties business where we can do some things that others probably don't want to when we're transacting in truckload volumes and controlling quality and transloading and doing those types of things on a -- that require a little bit more hands-on service.

So it fits us really well. That being said, there's obviously a high correlation between the value of those credits and the fixed premium that other customers are willing to pay. So it's no coincidence that as we look at both of those, they lie comfortably in the $1 to $2 a gallon range that we've talked about. And I'll highlight, these are fixed contracts, right? And we've -- I think that was probably part of your question, but this isn't a spot gasoline rack. These are contracts. They're multiyear contracts. They have commitments to perform on both sides. And we're quite confident in the ability to capture that margin.

And with that, we'll be concluding today's question-and-answer session. I'd like to turn the floor back over to John Kompa for closing remarks.

Thank you, Jamie. On behalf of Todd and the entire management team, I'd like to thank everyone for their interest today in Calumet. Have a great rest of the day. Thanks.

The conference has now concluded. We do thank you for attending today's presentation. You may now disconnect your lines.

Good morning, and welcome to the Calumet Inc. Third Quarter 2025 Results Conference Call. Please note, this event is being recorded. I would now like to turn the conference over to John Kompa, Investor Relations for Calumet. Please go ahead.

Thanks, Chloe. Good morning, everyone. Thanks for joining our call today. With me on today's call are Todd Borgmann, CEO; David Lunin, EVP and Chief Financial Officer; Bruce Fleming, EVP, Montana Renewables and Corporate Development; and Scott Obermeier, EVP of Specialties.

You may now download the slides that accompany the remarks made on today's conference call, which can be accessed in the IR section of our website at calumet.com. Also, a webcast replay of this call will be available on our site within a few hours.

Turning to the presentation. On Slide 2, you can find our cautionary statements. I'd like to remind everyone that during this call, we may provide various forward-looking statements. Please refer to our 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 results and cause them to differ from our expectations.

As we turn to Slide 3, I'll now pass the call to Todd.

Thanks, John, and welcome to Calumet's Third Quarter 2025 Earnings Call. This past quarter was a strong one, both financially and strategically. Calumet generated $92.5 million of adjusted EBITDA with tax attributes, and strategically, we're hitting the key milestones laid out earlier this year. At Montana Renewables, we remain on schedule for our MaxSAF expansion in the first half of 2026, and our SAF marketing plan is pacing well ahead of schedule as the team has roughly 100 million gallons of post-expansion volumes placed through contracts, which are fully complete or in the final review step within our DOE process. Across Calumet, our cost and reliability initiatives are outperforming expectations. Our commercial organization continues to sell growing production into stable high-margin accounts.

Let me dig deeper into these themes, starting with costs before turning it over to David for the financials. In the third quarter, Calumet removed another $24 million of operating costs from the system versus the same quarter last year. Quite frankly, operations improved rapidly throughout 2024, so much so that while we expected year-over-year progress to continue, we did expect a little tapering in the second half. Instead, the rate of savings accelerated this past quarter, which is a testament to the ops talent we have throughout the country and their willingness to take this initiative head on.

Year-to-date, operating costs are $60 million lower versus last year, and we've mapped out a couple more years worth of ops excellence opportunities to continue moving the ball forward from here. Deeply connected to costs and just as important is reliability, which has advanced as well. Year-to-date production is up nearly 600,000 barrels versus last year, much of which is in our specialties business. On a unit basis, the combination of cost and reliability initiatives have reduced operating costs by $3.37 a barrel throughout the system.

Specifically, to our Specialty Products & Solutions segment, the third quarter marked a record production quarter. Despite softness reported across much of the broader specialty chemicals world over the past year, our commercial team again sold over 20,000 barrels a day at margins well above $60 per barrel, while also rebuilding some inventory following the Freeport turnaround.

We also saw strong fuel performance on both the margin and volume front. This reinforces the core advantage of Calumet's integrated model. Specialties provide stable, strong and growing baseline earnings, while fuels deliver more variable upside. Today, that excess cash flow is being used to reduce debt. Over time, it will fund further specialties growth.

Last, in Specialties, I'd be remiss to not note continued growth in our Performance Brands segment. Year-to-date EBITDA is up versus last year despite divesting the Royal Purple Industrial business earlier in 2025. We've implemented our top-tier commercial excellence program across our brands and leveraged our deep specialties footprint, which is yielding tremendous results. Further, TRUFUEL is on track for another record EBITDA year even in a year that's been void of major Gulf Coast weather events as the brand continues to grow its position as a channel leader and is benefiting from capturing space to over 4,000 new Walmart stores.

Let's turn to Slide 4 and dig a little deeper into Montana Renewables. During the quarter, we saw more key regulatory signals towards the industry recovery. Specifically to MRL, we continue to fortify the advantage we have in all margin environments with great logistics costs and product mix. While the future is bright, the industry continued to see weakness in renewable diesel margins. In fact, during the third quarter, realized margins across the industry were actually a bit lower than even the normal index margin formula would suggest as the feedstock physical basis widened out, which means feedstocks were about $0.20 a gallon more expensive than the traditional CBOT marker would suggest across the industry. We've seen this revert back during October, and we're back to the more normal environment where CBOT index margin is the correct industry signal.

On an industry level, biomass-based diesel production remains cut back at roughly 60% utilization. 2025 industry production volumes seem to be stabilizing just above 350 million gallons a month, which on an annualized basis is right about -- is right for the currently roughly 4.5 billion gallon implied RVO, which is made up of about 3.5 billion gallons of D4 RVO, plus roughly 1 billion gallons of shortfall in other RIN classes, which are ultimately covered by D4 RINs.

Separately, the carryforward of 2024 RINs, which will expire shortly, creates temporary length in the D4 RIN market. Against this backdrop of low industry utilization, we continue to see shutdowns occurring in industry. We look forward to an environment where biomass-based diesel demand increases through a stronger RVO. Further, the regulators appear to be bullish on reallocation of the small refinery extensions, which would add to the RVO. These steps are expected to increase demand to the point where idle facilities would need to restart to meet the mandated demand.

These restart decisions mean biodiesel producers need to be convinced they can confidently cover fixed costs. If not, the RIN will need to go higher or feedstock lower than. This is a stark contrast to the past 2 years, where we've seen massive shutdowns, but also many hanging on at the margin and barely covering variable costs with the expectation of an improved future environment. Of course, in the past, we routinely saw stable margins incentivizing the small biodiesel players to run in order to fill the D4 RIN gap, and we're optimistic that when we see the finalized RVO, margins will revert positively as they've done historically before the prior administration's 2023 RVO error.

Next, during the quarter, we completed our first $25 million PTC sale, proving this method of monetizing PTCs is viable as expected. We subsequently sold another $15 million in October and continue to see our credits trending towards a more normal tax credit environment after the 45Z credit was extended through the Big Beautiful Bill. Finally, momentum continues to build as we approach the launch of our MaxSAF expansion in the first half of next year.

During the third quarter, we completed a test run to confirm our ability to generate 120 million to 150 million annual gallons of SAF. To complete this test, we slowed down the plant for about a week, which cost us a couple of million dollars worth of volume, but the test was successful and confirmed our ability to meet the 120 million to 150 million gallon SAF target and supplied important data that's being used in the final detailed engineering and optimization of our project.

In addition to the technical work to derisk the SAF project, the team also is tracking well ahead of plan in placing the expanded volume. As I mentioned earlier, we have approximately 75% of our MaxSAF expansion either contracted or within the final DOE review process as we sit here today, and we're comfortably positioned to have all of the volume placed the next time we talk.

Like we mentioned last quarter, our offtake is shaping up to be a diversified slate of direct physical customers, airlines, FBOs and Scope 3 customers of varying sizes, some of which are large multinationals who you might routinely envision when you think of carbon reduction initiatives and some of which are more boutique customers. In many ways, the SAF business highly resembles our Specialty Products business, where the ability to be flexible on logistics, go-to-market in varying ways to suit a wide range of customer needs and sell in all types of sizes make us preferred and differentiated supplier.

Unlike a large fuels business, this volume doesn't all just go in a pipe and disappear. It's a concerted sales effort where we work with one airport at a time, one airline at a time or one SAF credit buyer at a time. In the supply chain, we've managed individual railcars and trucks, carefully control quality and blend the product through a deep logistical network, that creates value in this business, and we at Calumet have been doing it for decades.

In fact, you may have seen a press release last week where our physical truck rack opens for SAF sales in Montana. What this means is that we can sell physical barrels in truckload volumes and in some cases, to the same regional outlets we've been selling for years. We can deliver the full physical barrel and leave the credits with the customer or pull off the Scope 1 and Scope 3 credits, sell those and generate the same SAF premium and save a lot of money on logistics.

Of course, we also continue to sell physical SAF barrels via rail into the West Coast, Midwest and Canada, and we expect it to continue as a large and important piece of our business. We could sell all of our volume to either of these markets. At the end of the day, we're optimizing across them to find the most diversified, stable and highest netback customer base for Montana Renewables. We continue to place the volume with the SAF premium in the $1 to $2 per gallon range we've discussed historically.

This SAF premium is one that's received a lot of discussion over time. We've discussed the chart on this slide before, which suggests that global supply and demand is largely balanced in 2025, and that turns to a supply deficit in 2026 as that gap grows each year as European mandates and other global mandates step up. Interestingly, early on, we received questions around this outlook, which really fit into 3 general categories. One, was will Europe really increase their volume mandate. Two, will voluntary demand grow; and three, weren't we underestimating new supply.

Let's start from the back. Our view when modeling the supply-demand balance was very conservative on voluntary demand, and therefore, the base model also doesn't add new build supply. We conservatively assume voluntary demand remained unchanged from 2024 throughout the graph. If that's the case, we would expect new supply to come online. In reality, what's occurred is a bit more bullish. We've seen cancellations or delays of global mega projects as a pause and observe international growth and domestic tariffs and rent policy.

Also, we've seen voluntary demand growing nicely. I mentioned earlier that we've adjusted our strategy to take advantage of this as we see a real opportunity with truck and railcar quantities that SAF in the voluntary markets across a broad range of airports and FBOs, and we're selling quite a few Scope 3 credits to airlines and large multinationals on a voluntary basis. In fact, Montana Renewables SAF has set up on every major Scope 1 and Scope 3 registry that exists. We believe this readiness, the relationships and the progress on logistics all equate to a meaningful early mover advantage, and we look forward to capturing this immediately upon startup of our MaxSAF 150 project.

The last question I mentioned above is European demand. I think we've seen clear signs that volume mandates are, in fact, increasing in Europe. In fact, we've seen European SAF prices increase approximately 60% over the past 6 months, while feedstock prices have remained essentially flat. We've even seen meaningful fines defined for participants that don't need their quotas, which have been said to be up to $2,700 per ton or for us Imperial measurement tinkers, nearly $8 a gallon. Even then, the participant doesn't shed a requirement to purchase the SAF.

We believe these developments mean that the SAF premiums we're contracting will continue to be strong, and we look forward to relying on our roots as a customer-focused and service-oriented provider and parlaying that with our first-mover advantage into a rapidly expanding leadership position in sustainable aviation fuel.

With that, I'll turn the call over to David to take us deeper into the quarter. David?

Thanks, Todd. Before I get into the quarter results, let me address an error in our reported Q1 and Q2 2025 cash flow statements, which we discussed in an 8-K filing this morning. In accounting for a series of transactions during the first quarter, we misclassified debt extinguishment costs and inventory financing flows as cash flow from operating activities rather than cash flow from financing activity. The correction of the error will result in an approximate $80 million increase to cash flows from operations for the first quarter. Total free cash flow, the income statement, balance sheet and adjusted EBITDA all remain unchanged, and we will restate Q1 and Q2 financials alongside our Q3 filing.

With that, let's get into the quarter. We reported $92.5 million of adjusted EBITDA during the quarter, which was the strongest quarter in a number of years. We were able to reduce our restricted group debt by over $40 million despite the third quarter being our largest cash interest period of the year. Deleveraging continues to be a strategic priority, which we expect to continue in Q4 given the strong business performance. Further, during the quarter and after the ruling on the small refinery exemptions, we reduced our outstanding balance sheet RIN obligation by over $320 million.

As Todd mentioned, we also sold our first $25 million of PTCs at MRL, demonstrating the ability to turn those into cash as the market has opened up and started to normalize following the passage of the One Big Beautiful Bill Act. We look forward to more ratable monetization of our tax credits over the coming periods.

Turning to Slide 5. Our Specialty Products & Solutions segment generated $80.2 million of adjusted EBITDA during the quarter. The third quarter of 2025 reflected the strong commercial momentum in our Specialty Products portfolio as well as the benefits of our overall improved reliability and cost discipline. This was the fourth consecutive quarter that our Specialty Products posted sales volume exceeding 20,000 barrels per day, and coupled with strong margins, we continue to demonstrate the resiliency of our specialty business.

Despite broad industry chatter over the year that specialty markets have been a little soft, our sales team has demonstrated the continued ability to take advantage of our integrated asset base and diversified markets to continue to place our products at over $60 a barrel. Further, we posted third quarter production volume gains of 8% compared to the prior year. Our production has grown reliably over the past few years as we've improved our operating discipline. We look forward to continuing that trend through the remainder of the year and into next year.

Our steady production environment also enabled the capture of stronger crack environment as fuel margins increased significantly year-over-year, which we view as upside in our integrated model as we continually optimize our crude slate and product yields to capture market opportunities. To begin this year, we gained access to a new crude oil supply chain, including the ability to target specific segregated or blended crudes in Cushing and further north in the DJ Basin, at the same time, reducing our pipeline tariff.

Year-to-date, this improvement has driven $15.3 million decrease in transportation costs and provides even further ability to dial in our assets and feed to a specific use. We remain focused on driving additional operational improvements in the segment and look to further reduce our cost per barrel in the segment. As we said during our second quarter earnings call, strong operations to not only increase volume and reduce costs, but also supports increased margin as well as it allows our commercial team to place more volume to secure contracted homes rather than relying on spot market sales.

Moving to Slide 6 and our Performance Brands segment. We are pleased to post another strong quarter driven by our commercial excellence program and growing recognition of our brands. You'll remember that we sold the Royal Purple Industrial business earlier this year, and despite that EBITDA being fully reflected in the prior year financials and not this quarter, the segment was essentially flat year-over-year. We also continue to benefit from our integration strategy as we gear up to target markets that best unlock the intrinsic value that exists in our ability to vertically integrate where and when it makes sense to do so.

Last, as Todd mentioned earlier, the third quarter results reflected strong volumes and margins in our TRUFUEL brand. Not only is TRUFUEL growing on the shelves and with brand awareness, it's also benefiting from favorable procurement initiatives as the team has successfully leveraged its growing volume over the past couple of years.

Moving to Slide 7. Our Montana/Renewables segment generated adjusted EBITDA with tax attributes of $17.1 million in the third quarter compared to $14.6 million in the prior year period. Montana Renewables specifically posted slightly negative EBITDA with tax attributes of $3.5 million for our 87% share. As I mentioned earlier, we successfully monetized $25 million of PTCs during the third quarter and continue to monetize PTCs at improving price levels as we continue to expect to trend towards roughly 95% capture on those sales.

Earlier, you heard about the SAF test run that was important to derisking our project, and this run meant the units slowed down temporarily during the quarter, resulting in a couple of million dollars of lost margin alongside some wider-than-normal feedstock basis, which increased feed costs temporarily more than RIN offsets, and this has reset to more normal levels here recently.

While we've gained a lot of regulatory clarity this year, the industry is now just waiting for the rules to be finalized. With that in hand, we believe the business is set up for a strong recovery in 2026 based on the preliminary RVO targets that were announced by the Trump EPA. Fortunately, the core building blocks of our renewables business, marquee customers, cost-advantaged assets, unmatched feedstock and end market proximity and an improving yield slate remain intact. Combined with our relentless focus on cost reduction, we remain well positioned for the rebound that we expect to inevitably occur once we see the EPA land, the proverbial plane on the RVO. In fact, our operating costs, excluding SG&A, reached $0.40 per gallon and was our eighth straight quarter of improvement, excluding a turnaround in the fourth quarter of 2024.

In the interim, we continue to increase our outlets for SAF as demonstrated by our recent announcement of on-site blending and shipping capabilities. Initial distribution is through AEG's fuels network, and they are already proving to be a strong partner. On-site blending capabilities enables MaxSAF sales from the truck rack to local and regional service, further broadens the SAF market outside of major airports. This investment also allows us to strip credits and monetize SAF outside of direct offtakers.

On the Montana asphalt side, the third quarter is typically a good one. This quarter, in particular, we saw one of the strongest quarters in recent memory and a $14 million year-over-year gain. Our polymer modified asphalt business continues to be an advantage as well as the niche fuels distribution and with costs dramatically improved, we are pleased to see the impact on the bottom line this quarter.

Thank you for your time today. We remain focused on driving meaningful free cash flow generation as we conclude 2025 while steadily marching towards major value-creating opportunities that rest ahead for our shareholders.

With that, I'll turn the call back to the operator for any questions.

[Operator Instructions] The first question comes from Alexa Petrick with Goldman Sachs.

My first question is just on as we think about the MaxSAF expansion, and I think you've also talked about being on track to do 120 million to 150 million gallons of annualized SAF production in 2Q. What are the gating items? Just as we think about operations on the ground, what are some of the checklist items?

Alexa, this is Bruce. Very little, frankly. The unit as we stood it up back in 2022 was known to have some latent capacity. We've got a couple of tactical constraint removal things that we'll do during the scheduled turnaround, a few tens of millions of dollars. We're pretty excited about the leverage that implies on our cost of goods sold, including the capital charge. The reason we've ranged the output is we'll see about catalyst performance in the new configuration. Probably, we're being a little conservative there, but give us some room to grow into that maybe.

Then can you talk a little bit about some of these offtake agreements? I think there's also some commentary that you've been in some final conversations as well. Where do those stand?

Bruce again, thank you. The way that we've set this up is the same thing we did in 2022 pre-commissioning of the whole business. Last April, I asked our marketing team to go ahead and presell the increase in SAF that will be coming in spring. We're halfway through that 12-month program to get it placed, and we're well above halfway through signing people up. There's a mixture of executed and in-service contracts. There are a couple of material contracts that are effectively complete, but require the DOE to approve them, and so they're with the DOE.

Then we've got a pipeline of additional origination that we're pretty excited about. As I said a second ago, as we probably grow into maybe more capability than we've advertised, we've got the customer standing by to pick that up. The market shows every characteristic of being supply short. Again, I can't overemphasize how exciting this is.

The next question comes from Amit Dayal with H.C. Wainwright.

Congrats on the pretty solid results. For Montana Renewables, I know you touched on it, Todd, a little bit, but the gross margin issue, is it primarily just stemming from the current market conditions? Or is there anything in the sort of production ramp that you are playing with that may be causing near-term pressure?

Amit, it's Todd. No, I think nothing outside of what I talked about in the prepared remarks earlier. I'd say there were a couple of things abnormal to the quarter, one to us and one to industry as a whole. The one to us was we talked about something the volume a little bit to run the test that Bruce was talking about, which should give us a lot of confidence around our ability going forward on MaxSAF. That cost a couple of million gallons. Obviously, that's back to full capacity.

Then the other one that was more, I'd say, just broader industry is typically, all feed just trade off of an index to CBO. There's always a little bit of lag, and there can be volatility from time-to-time that over time just balances out. What we saw during the quarter was a lot of the physical basis. Feedstock was, we said in the call earlier, about $0.20 a gallon more expensive than our normal index margin thinking would imply.

Basically, $0.20 outside of CI parity. Now that's fixed. There'll be times when it's a little bit better than that, right? There's a little bit of volatility, of course, between the grains, and that's something that gives us an advantage to switch, quite frankly, over time. The industry did see that in the quarter. Again, you kind of add that to the downtime in volume, and that really speaks to probably the difference between this quarter and last quarter.

Just a follow-up sort of on that. What's the primary feedstock you're using for the MRL right now?

This is Bruce. To be honest, there's not a primary feedstock. One of our key competitive advantages is short supply chains that can access any of the principal classes of feed. We are very, very dynamic as we reoptimize each month. We think that we're gaining competitive advantage versus some of our peers with longer supply chains and we shift gears very, very quickly. With that said, if you wanted to think broadly, you can think 1/3 vegetable oil, 1/3 corn oil and 1/3 tallow and protein oils.

Just last one for me. When you sort of look at 2026, it looks like the operating side of the story is running pretty well. Are most of the risks and opportunities based on how the macro plays out for you guys?

Yes. I think as a whole, as we step into 2026, we're quite excited for a number of reasons. One, -- and you mentioned it, operationally, we've made some real improvements and expect to not only keep those, but build on those improvements going forward.

Then, of course, as we look at the regulatory environment, the overhang that's been in Montana Renewables specifically and all of biofuels, quite frankly, is being removed. The RVO that's plagued us for '24, '25 is going to get finalized here soon and will -- as we've said kind of routinely, expect to lift up industry margins. That's a major deal, right? We've barely been floating above breakeven this year, which we're happy to do in an extremely depressed environment, but as the whole industry returns with better macro environment, we're really going to be able to take advantage of that.

Then, of course, third is outside of index margin, just the ability to add SAF is a major ability, right? It's major upside, and it's also major derisking because it'll be less susceptible to just general already index margins going forward because of the SAF premium.

The next question comes from Jason Gabelman with TD Cowen.

I don't believe there was much talk about small refinery exemptions in your prepared remarks. Just wondering how that impacts, one, your financials directly? Two, your view on the RIN balances moving forward?

Jason, Bruce, I think that's probably a 2-parter, but redirect me if I'm off target. Our 2 small refineries, you could call them micro refineries by industry scale, have always qualified on the merits. We're confident we will continue to do so. Look, when you come to carry forward, we're all waiting for the EPA to process the public comments, which I'm sure they've received 17 terabytes of, but that's a policy question, and we'll all find out together. Am I responsive to your interest?

Yes. I guess I'm just wondering more directly, if there's any impact from the exemptions that were granted, if there was any financial impact to you, positive or negative?

Well, David covered that as you're aware, the balance sheet has had an inventory accounting style accrual while all of our cases were pending now that they've been resolved generally favorably. We've extinguished 80-plus percent of that and figure, I believe David was $329 million.

Jason, so you'll see that we reduced our outstanding RIN obligation related to the granted small refinery exemptions. It was kind of roughly a $320 million reduction in that outstanding obligation as reported on the balance sheet.

Then on the comments around kind of feedstocks impacting 3Q MRL results. It sounds like that's been alleviated in the near term here. I'm wondering what do you think caused that feedstock tightness? If we get a ramp-up in renewable diesel capacity as a result of a more bullish 2026 RVO, is there a potential that feedstock prices can tighten again and impact your margins? Or do you see the 3Q impacts as very transitory in nature?

Jason, it's Todd. I'll start off and see if Bruce wants to jump in. We think it's a transitory, but it happens, right? There's a general lag on the physical side that happens from time to time. We see the same thing in the crude oil markets when you get an overbuild or shortness just due to kind of a physical near-term [Glatter] shortage in like Cushing, for example.

I don't think that it's anything that we should think about changing any sort of long-term view. In fact, if you go back over time, there's never been a lasting difference to CBO outside of CI parity, and we wouldn't expect that to change. This is kind of just normal volatility. We've seen times where it's helpful this quarter, it was negative for the industry, but I don't see anything that would impact that going forward. In fact, we have so much more capacity and availability of feedstocks than even the currently forecasted RVO would suggest that it's hard to imagine a feedstock shortage. Even if there was, you should see that play out through kind of the base COP margin and not some sort of physical basis differential.

[Operator Instructions] The next question comes from Greg Brody with Bank of America.

I don't normally do this, but congrats. A lot of great developments this quarter. In particular, probably removing the Gregg Brody slide is one of the big ones. Just operationally, you guys really demonstrated a lot of improvement, so congrats to everybody. Maybe you mentioned the deleveraging is still the priority. You're starting to generate cash. Can you talk a little bit about what you think is next to sort of help address the maturities? Just to give us a sense of how you're thinking about it today?

Yes, sure. I'll take it and see if David wants to jump in. I think mentioned last quarter, we expect cash flow from the business, particularly in the second half to be strong. That, along with the RPI sale earlier in the year is adequate to knock out the '26 notes. We kind of look past that. As you think about '27 maturity management after that and our ability to delever, it includes cash flows from organic operations. It includes potential strategic activity, like we said, as long as it's accretive to both the debt and equity and doesn't take away anything from our integrated story. That remains an option.

Of course, ultimately, it's a partial monetization of Montana Renewables. Not a lot has changed there. We're just working the game plan here as we look forward to an ultimate -- taking that ultimate step on MRL. As we talked about a lot during the call, the next milestone in doing that is demonstrating the success of this MaxSAF expansion and seeing the RVO firmed up and I think with a couple of strong quarters on the heels of those events, we'll be in place to take that final step.

You're refinancing some of the '27s. -- is that's part of the equation potentially?

Yes. Look, I think refinancings are always and just managing the timing are always part of just the general menu. As we sit right here today, we don't have anything active or anything specifically in the plan. Bigger picture, we're looking to execute the longer-term deleveraging strategy, which is a reduction of an additional $600 million to $800 million of debt. We have plenty of opportunities to do that.

If there was some sort of opportunity or reason to have refinancing as part of that, then we'd certainly be happy to do that in a step of optimization, but most importantly, we're focused on kind of the organic cash flows, potential strategic activity and monetization of Montana Renewables to permanently reduce that debt.

One last one for you. You mentioned you've started to be able to monetize the PTCs. What's been the realizations on those in terms of the -- how much of a discount to the actual PTC EBITDA are they -- are you realizing?

Yes. You have to go back, the PTCs were kind of new at the beginning of this year and kind of weren't fully clarified until kind of the Big Beautiful Bill. Even today, some of the ultimate kind of final rules are even completed. I think we expect over time to kind of monetize kind of closer to 95%. I think the initial monetizations were probably closer to 90% and then we continue to close the gap as we monetize more and have more term sheets as we look further out. We've seen the market get a lot deeper and a lot more interest as they normalize earlier in the year was still new for people to digest.

IT seems like the activity picked up in monetization. Should we expect it pretty consistently now every quarter? Or are there some market dynamics we need to think about?

No. I think we expect to kind of monetize them more ratably. Todd mentioned in his remarks that we also monetized a portion in October. We're just kind of working through them.

This concludes our question-and-answer session. I would like to turn the conference back over to John Kompa, Investor Relations for Calumet for any closing remarks.

Thank you, Chloe. On behalf of Todd and the entire management team, I'd like to thank our shareholders for joining our call today and our continued support. Have a great rest of the day. Thanks.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.