David Lunin: We moved into underwriting several months back. I’m reasonably confident we announced that. And that process is substantially advanced. I think I’m going to leave it there.
Operator: Our next question comes from Neil Mehta from Goldman Sachs.
Neil Mehta: I really like that slide you showed on the cost curve for renewable diesel and biodiesel. And at current pricing, a lot of stuff is off that stack. So I just love your perspective of do you think we see industry rationalization here to help bring the market into balance if we don’t get a firming up of LCFS and RINs and we saw some evidence of that this week. But any perspective on that would be great.
Bruce Fleming: Sure. I’ll start. A couple of things to keep in mind. So first of all, we’re already seeing industry rationalization. We’ve had 4 biodiesel plant closures in the last 6 months. We’ve now amazingly got a renewable diesel producers switching back to fossil. These are not sustainable and a couple of things are going to happen. So we’ll have more closures. We’ll have the EPA reset the RVO and we’re going to have crop prices continue to collapse. If you pull a history of a marker like the soybean oil priced off the Chicago board, that’s fallen 50% in the last 18 months. These are going to draw a regulatory response somewhere. So the speculation is just who moves and when and how fast. But right now, to be clear, the EPA has set up a commission where the entire existing North American industry has to run something like 65% of utilization. That is absolutely going to sort out the players according to this cost stack.
Todd Borgmann: I think what I’d add to that Neil, is to Bruce’s point, we’re well below where the fundamentals would show on the supply stack. So we haven’t seen shutdowns happen as quickly as we would need to kind of balance out the curve. If you look at 4.5 billion gallons, you would say, hey, that should be set. Are that volumes met by large biodiesel? And the current index margin is much lower than it needed to generate cash by that group. One thing that we’ve heard quite a bit about is how hedging plays into this. When you think about a crop cycle and hedges that are going summer to summer, we have a little bit of probably irrationality and day-to-day decision-making which as that rolls off, that group of people will have to make different economic decisions. And to Bruce’s point on crop prices or an equal opposite reaction in any of the other margin elements would be needed or else we wouldn’t see continued production there.
Neil Mehta: And Todd, I appreciate the comments at the beginning about the importance of the C-Corp conversion. Certainly agree with that view. Can you just kind of share some investor perspectives on do you think that as you’re going around and talking to folks, there’s the potential for more engagement as you convert to C-Corp. And then remind us again what are the gating items to get there and is mid-2024 still the best stick to follow here.
Todd Borgmann: Yes, you bet. So yes, mid-2024 is still the time line. We’ve checked a lot of boxes along the process. It’s been a very efficient process. We filed the S-4. So we’ll get the final amendment out. We’ll schedule a unitholder vote. And those are really the major 2 steps left to getting this done which is what gives us confidence that it’s kind of in the near term. As far as investor perspective, they’ve been quite positive and also eye-opening as to the restriction of the MLP. If we go back, we’ve done for some time that MLPs were out of favor. And that at some point in time, this decision would be ahead of the general partner and the conflicts committee, et cetera. I think what we probably didn’t appreciate was just the amount of investors that are simply unable to invest in MLPs due to charter.
So a lot of the institutions that we’ve talked to have said, we really like the Calumet story, have been following it generally. I know that it’s a catalyst-driven story and also know that our supportive of the 2 long-term fundamental businesses and the growth trajectories. But we really haven’t been able to invest in it. So I think they’re off doing work and getting deeper into the name now. And they’re not a magic bullet that happens on conversion day where all of a sudden, our trading liquidity quintuples or something. But we certainly do expect a combination of new institutional investors who otherwise couldn’t have invested in before but would like to coming into the name and the help that we’ll get from just the passive indexes adding us.
And those things have become quite big. 50% of the general equity market has held under passive strategies right now which is just an astonishing amount of money, investment dollars that Calumet doesn’t have access to.
Operator: And our next question comes from Amit Dayal from H.C. Wainwright.
Amit Dayal: With respect to the pressure on the index margins right now guys, how should we think about your utilization strategy for MRL for the near term, at least?
Bruce Fleming: Amit, it’s Bruce. I’ll simply point out that if we’re the low-cost producer, we’re going to run full.
Amit Dayal: Okay. Understood. That’s what I was hoping to hear. And then with respect to 2Q performance, do you see MRL continuing to be a little bit of a drag on EBITDA levels or do you think you should see a little bit more support from MRL in the near term at least?
David Lunin: We think that it’s going to continue to stay in the positive, right? What we saw in Q1 and we highlighted this through positive EBITDA in March was we saw continued strain in February and January from the old feed build-out and that started to change in March and continued into April. So we’re certainly continuing to expect positive EBITDA contribution from Montana Renewables. Like we put out at the Analyst Day and reference to the supply stack, the quantum of that EBITDA is going to be a function of how the broader index margin improves. We think that our EBITDA is largely going to be about $0.85 a gallon below the soybean index margin in the near term and that’s going to continue to improve over-time. So if we see an index margin stay where it is right now, we’re certainly in positive EBITDA territory.
And as it improves throughout the summer, our EBITDA will go with it. And like Bruce said, the most critical point is we’re at the right place on the stack. So given that the market is lower than fundamentals should suggest that it will, the market is going to rationalize which is what markets do. And ultimately, the amount of EBITDA that we’re generating from that will continue to increase.
Operator: And ladies and gentlemen, with that, we’ll be concluding today’s question-and-answer session. I’d like to turn the floor back over to John Kompa, Investor Relations for Calumet for any closing remarks.
John Kompa: Thanks, Jamie. And on behalf of the Calumet management team, I’d like to thank everyone for their time this morning and your continued interest in this company. Have a great weekend. Thank you, again, very much.
Operator: And ladies and gentlemen, with that we’ll conclude today’s conference call. We thank you for attending today’s presentation. You may now disconnect your lines.
