Executive Summary / Key Takeaways

• Calumet has undergone a significant transformation, converting to a C-Corp to broaden its investor base and executing strategic financial maneuvers, including securing a $1.44 billion DOE loan and selling non-core assets, to accelerate deleveraging and fund high-growth initiatives.
• The company operates a resilient Specialty Products and Solutions business, characterized by strong operational reliability, cost reduction initiatives, and a "new mid-cycle" margin profile around $60-$70 per barrel, providing a stable base for cash flow generation.
• The Montana Renewables segment, now de-risked operationally with costs stabilized at $0.70 per gallon (fully loaded), is positioned for transformative growth via the MaxSAF expansion, targeting 120-150 million gallons of SAF capacity by early 2026 for a significantly lower capital cost ($20-$30 million) than initially projected.
• Calumet is actively pursuing its deleveraging strategy, aiming for an $800 million restricted debt target through free cash flow, MRL cash generation, asset sales, and potential future monetization of a portion of Montana Renewables, significantly improving its financial flexibility.
• While navigating industry-wide challenges like RFS compliance costs and volatile renewable diesel index margins, Calumet's unique asset integration, technological advantages in SAF production, and strategic positioning in niche and high-growth markets provide a competitive edge and underpin its long-term value creation potential.

Calumet's Strategic Transformation and Dual Engine Business Model

Calumet, Inc. (NASDAQ: CLMT), with roots tracing back to 1919, has evolved into a diversified energy company focused on specialty products and renewable fuels. The company operates a network of twelve facilities across North America, strategically positioned to serve a broad range of consumer and industrial markets. A pivotal moment in its recent history was the completion of the C-Corporation conversion on July 10, 2024. This structural change was designed to unlock access to a wider pool of investors, including passive indices and large institutional funds previously restricted from holding master limited partnerships, thereby enhancing trading liquidity and broadening the company's appeal.

The company's strategic focus has sharpened around two core pillars: aggressive deleveraging of its balance sheet and demonstrating the significant cash flow generation potential of its distinct business segments. This strategy is underpinned by a dual-engine business model comprising a resilient Specialty Products and Solutions segment and a high-growth Montana Renewables segment, complemented by the Performance Brands business.

In the competitive landscape, Calumet operates alongside much larger integrated energy companies such as Valero Energy (VLO), Phillips 66 (PSX), Marathon Petroleum (MPC), and HF Sinclair (DINO). These rivals often possess greater scale in conventional refining and broader distribution networks. However, Calumet carves out its niche through specialized product offerings, integrated asset optimization, and a focused approach to high-margin markets. While competitors like VLO and PSX may exhibit higher overall revenue growth and potentially more robust balance sheets with lower debt-to-equity ratios (VLO ~0.6, PSX ~0.7 vs. CLMT's TTM -2.70, reflecting its equity structure post-conversion and losses), Calumet's strength lies in its ability to generate strong margins in its specialty areas and its emerging leadership in specific renewable fuel markets like SAF. Its integrated asset base allows for dynamic shifts in production and feedstock utilization, providing a degree of agility that differentiates it from larger, more standardized operations.

Competitive Edge Through Technology and Operational Excellence

Calumet's competitive positioning is significantly bolstered by its operational capabilities and technological advancements, particularly within the Montana Renewables segment. The company has invested heavily in improving reliability across its network, notably at the Shreveport facility, which achieved specialty production records in the latter half of 2024. These efforts are yielding tangible results, with total system operating costs reduced by nearly $5 per barrel year-over-year in the first quarter of 2025, contributing to a $22 million reduction despite higher natural gas costs. The Specialty Products business specifically saw operating costs improve by roughly $1.50 a barrel in Q1 2025, supported by a $5 million quarterly reduction in fixed costs and an 8% increase in production volume.

Within Montana Renewables, the focus on operational efficiency has been dramatic. Costs have been driven down from approximately $1.30 per gallon at the start of 2024 to a stabilized target of $0.70 per gallon fully loaded (including SG&A, insurance, and overhead). Site operating costs are even lower, at $0.50 per gallon, with a target to reach $0.40 this year. This cost structure is believed to be best-in-class, positioning MRL favorably against competitors whose breakeven levels relative to the soybean index may be higher.

The core technological differentiator lies in MRL's processing capabilities, particularly its pre-treatment technology and ability to produce Sustainable Aviation Fuel (SAF). While precise, directly comparable efficiency metrics against all competitors are not publicly detailed, Calumet's technology enables it to process a wide variety of renewable feedstocks and achieve high SAF yields. The MaxSAF expansion project, centered around enhancing the existing MRL reactor and supporting assets, is a testament to this capability. This initiative is expected to dramatically increase SAF yields from the current ~2,000 barrels per day to a range of 8,000 to 10,000 barrels per day by early 2026. This expansion is projected to require only $20 million to $30 million in capital, a significantly lower investment than initially anticipated for reaching 120-150 million gallons of annual SAF capacity. This capital efficiency provides a quantifiable advantage, accelerating the timeline and reducing the financial burden of scaling SAF production compared to building new, large-scale facilities, which is a challenge for many competitors.

The strategic "so what" of this technological edge is profound. It positions Calumet as an early mover and potential leader in the rapidly growing SAF market, which commands a significant premium ($1 to $2 per gallon over renewable diesel) and is supported by increasing global mandates and airline commitments. This technological capability and cost advantage in a high-value market segment provide a critical competitive moat, enhancing MRL's profitability potential and contributing significantly to Calumet's long-term growth strategy and value proposition for investors.

Performance, Financial Transformation, and Deleveraging

Calumet's recent financial performance reflects both the resilience of its core businesses and the impact of strategic initiatives and market dynamics. In the first quarter of 2025, the company reported a net loss of $162.0 million. However, Adjusted EBITDA with Tax Attributes, a metric management uses to better reflect cash generation by excluding non-cash items like RINs incurrence expense and including the notional value of Production Tax Credits (PTCs), stood at $55.0 million. This compares to a net loss of $41.6 million and Adjusted EBITDA of $28.1 million in Q1 2024 (Adjusted EBITDA with Tax Attributes was also $28.1 million in Q1 2024 under the revised definition).

Segment performance in Q1 2025 showed strength in specialties despite some commodity headwinds. The Specialty Products and Solutions segment generated $56.3 million in Adjusted EBITDA, benefiting from higher production volumes and operational improvements, though gross profit was impacted by lower commodity margins and RINs accounting effects. The Performance Brands segment posted $15.8 million in Adjusted EBITDA, driven by strong volume growth, particularly in the TruFuel brand, and continued commercial improvements. The Montana Renewables segment recorded $13.6 million in Adjusted EBITDA, but $3.3 million in Adjusted EBITDA with Tax Attributes, reflecting the impact of the BTC to PTC transition and continued focus on cost efficiency, which helped offset the adverse impact of tightening WCS-WTI discounts on the asphalt side.

A major catalyst for Calumet's financial transformation was the funding of the first tranche of the $1.44 billion DOE loan facility on February 18, 2025, providing approximately $781.8 million. This funding was instrumental in cleaning up MRL's balance sheet, repaying approximately $392.2 million of expensive project financing debt, $83.8 million under the MRL Term Loan, $26.7 million under the MRL Revolving Credit Agreement, and $32.5 million under the MRL Supply and Offtake Agreement. This eliminated roughly $80 million in annual cash debt service at MRL, significantly improving its cash flow profile and ability to fund the equity portion of the MaxSAF expansion. Additionally, MRL repaid $188 million of intercompany debt to Calumet, though approximately $350 million remains outstanding, on which MRL is expected to pay Calumet about $27 million per year in cash interest.

Further supporting the deleveraging strategy, Calumet completed the sale of the industrial portion of its Royal Purple business for $110 million in cash on March 31, 2025. This divestiture, completed at an accretive 10 times EBITDA multiple, allows the company to reduce debt while expecting to recapture the majority of the sold EBITDA over the next two years through operational efficiencies.

Calumet's liquidity position has strengthened considerably. As of March 31, 2025, total liquidity stood at $542.7 million, including $123.4 million in unrestricted cash, $80.0 million in restricted cash, and $339.3 million in availability under its credit facilities. This is a substantial increase from $211.8 million at March 31, 2024, providing ample flexibility to meet near-term obligations and fund planned capital expenditures.

Outlook, Growth Catalysts, and Risks

The outlook for Calumet is centered on executing its strategic priorities: continued deleveraging and leveraging the growth potential of Montana Renewables, particularly SAF. Management expects the current margin environment for specialty and fuel products to persist into Q2 2025, alongside a planned turnaround at the Shreveport facility. Healthy demand is anticipated to continue, supported by stabilizing input costs.

The primary growth catalyst is the accelerated MaxSAF expansion. The breakthrough allowing 120-150 million gallons of SAF capacity by early 2026 for significantly lower capital ($20-$30 million) is a game-changer. This first phase, MaxSAF 150, is expected to dramatically increase SAF yields and contribute substantial additional margin, given the premium SAF commands. The larger goal remains 300 million gallons of SAF capacity at project completion, funded by the DOE loan (55%) and MRL's retained earnings (45%). Management expects to increase SAF sales to a 50 million gallon annual run rate this summer and is marketing the additional volumes from MaxSAF 150.

In the renewable diesel market, while index margins have been challenged, management anticipates normalization as higher-cost producers rationalize capacity and RVO levels are adjusted to reflect industry production capacity. They believe MRL's low-cost position and feedstock flexibility will allow it to generate positive EBITDA even in challenging markets and benefit significantly as margins recover.

Calumet's capital spending forecast for 2025 is $60 million to $90 million, excluding MaxSAF expenditures, which are projected at $40 million to $60 million in 2025, funded primarily by the DOE loan and MRL cash flow. The ultimate goal is to reach $800 million in restricted debt, a target management believes is achievable through free cash flow generation (estimated $95-$115 million annually from restricted assets at mid-cycle), MRL cash flow ($65-$85 million annually at $1.50/gallon index margin, plus SAF upside), asset sales, and potential future MRL monetization.

Key risks include the ongoing uncertainty and litigation surrounding RFS compliance and Small Refinery Exemptions, which could necessitate significant RINs purchases. Commodity price volatility remains a factor, although derivative instruments are used to mitigate exposure. The DOE loan, while transformative, is subject to customary covenants and conditions for future draws. Despite these, management expresses confidence in navigating the regulatory and market environment, citing past successes in litigation and the bipartisan support for renewable fuels initiatives.

Conclusion

Calumet has successfully executed a significant strategic transformation, pivoting to a C-Corp structure and fundamentally reshaping its balance sheet through the DOE loan and asset divestitures. This has created a more financially flexible company laser-focused on debt reduction and leveraging its core strengths. The investment thesis centers on the combination of a stable, high-margin Specialty Products business that provides consistent cash flow and a de-risked Montana Renewables segment poised for substantial growth, particularly in the high-value SAF market, driven by its technological advantages and cost efficiency. While challenges in the broader renewable fuels market and regulatory uncertainties persist, Calumet's strategic positioning, operational improvements, and clear path to deleveraging, coupled with the accelerated MaxSAF expansion, offer compelling potential for value creation. The focus on achieving the $800 million restricted debt target and capitalizing on the expected normalization of renewable fuel margins and the burgeoning SAF market are critical factors for investors to monitor as Calumet continues its journey.