Q1 2020 Earnings Call

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Ladies and gentlemen, thank you for standing by and welcome to the Delek logistics first quarter earnings call. At this time, all participants are they listen only mode. After the speaker's remarks, they will.

<unk> question and answer session to ask a question. During this session you will need to press star one on your telephone keypad. As a reminder, this conference is being recorded today may six 2020.

I'd now like to hand, the conference over to your speaker today like Hernandez.

Thank you may begin.

Thank you and good morning, I would like to thank everyone for joining us on this webcast to discuss Delek logistics partners first quarter 2020 financial result.

Joining me on the cold today will be who do you mean, our general partners Chairman and CEO and also Ginsburg, CFO Rubin Spiegel incoming CFO as well as other members of our management team.

As a reminder, this call is being recorded it will be made and make forward looking statements as the terms defined under federal Securities laws.

In addition to reporting financial results in accordance with generally accepted accounting principles are gap. We report certain non-GAAP financial result, investors are encouraged to review the reconciliation of these non-GAAP financial measures to the comparable GAAP result, which can be found in the press release, which is posted on the Investor Relations section of our website our prepared remark.

<unk> are being made assuming that the earnings press release had been reviewed and we're covering less segment and market information that is incorporated in the first quarter press release.

On today's call our people again with financial overview, I will be resolved and who the will offer a few closing strategic remarks with that I'll turn the call over to Odyssey.

[laughter] things make our first quarter performance on a year over year basis benefited from improved results from Dubailand part of time.

These Texas marketing El Dorado assets, and our gathering assets.

Oh DCF was approximately $35.5 million in the first quarter 2020.

Compared to $29.8 million into first quarter 2019.

The limited partners interest net income equals approximately 51% over the prior year period.

DCF coverage, which was approximately 1.15 for the first quarter 2020.

Compared to approximately 1.1 in the prior year period.

He be that was $49 million, which represent a 23.5% increase over the prior year period.

Based on our performance and outlook, we agree so quarterly distribution to 89 cents per limited partner units for the quarter ended March 31st 2020.

This distribution would be paid on me tours and represent <unk>, 0.6% inquiries from the fourth quarter 2019.

This is now 29th consecutive quarterly increase and is eight and a half person are you then our first quarter 2018 distribution.

It's must study first went to 20.

And after completion of the DPG drove down.

The care and had approximately $155 million off available capacity on our $850 million square facility.

Our total debt was approximately $940 million and still to leverage ratio 4.1 times either within the 5.5 times called the allowable under our credit facility.

And a decrease from the four and a half times leverage in a prior quarter.

No I will turn over the cold to Blake to discuss the results.

Thanks, opting for the first quarter 2020, Delek logistics reported net income attributable to all partners of 27.8 million.

Compared to 19.7 million in the prior year period.

It is partner's interest to net income in the fourth quarter was 18.7 or 76 cents per unit compared to 12.4 million or 51 cents per unit in the prior year, representing an approximate 51% increase year over year.

And our pipelines and transportation segment first quarter 2020 contribution margin was 30.4 million compared to 24.2 million in the first quarter 2019. This increase was primarily attributable to strong performance from our gathering assets and strong margins at the pay line pipeline operating expenses increased to 11.5 million in the first quarter.

2020 from 10.8 million.

And our wholesale marketing and Terminalling segment contribution margin was 17 million in the first quarter. This year, which is an increase from 15.9 million in the prior year operating expenses of 3.3 million were lower than the prior year period.

Our west, Texas wholesale gross margin was $2 and seven per barrel in the first quarter compared to $3.56 per barrel in the first quarter of the prior year. However, throughput in West, Texas was up to 15000 barrels per day compared to 30000 barrels per day in the prior year period. During the first quarter 2020, our equity income from joint venture crude oil.

Outlined with approximately 5.6 million compared to 2 million in the prior year period.

Capital expenditures were approximately 3 million in the first quarter 2020, and included 1.4 million of discretionary spending and 1.6 million of sustaining maintenance for full year 2020, our total gross capital expenditure forecast has been reduced from 22.7 million to 17.6 million, which includes 11.7 million of discretionary and.

5.9 million of maintenance capital with that I will turn call over to easy for his closing comments.

Thank you Blake and good morning, everybody.

Delek logistics delivered strong financial performance into first quarter with EBITDA and limited partner interest in net income increasing approximately 24% and 51%.

Respectively.

Versus last year.

First quarter distribution growth with over 8.5% on a year over year basis. The recent acquisition of the Permian gathering based business from our sponsor decay in the next step in growth for decades.

And if any did well in part of our expanding midstream well footprint.

We expect increased cash flow generation in the second half of the year from the Red River parts on expansion.

We recently reiterated our expectation three grief the LP distribution distribution, 5% this year compared to 2019. This decision was based on our outlook for an improving distribution coverage ratio throughout the year, even after factoring in the disparate distribution increase.

We expect our coverage ratio through improved significantly from where the industry average the wood throughout the year and plan to use the access cash flow to reduce leverage over time and maintain strong financial flexibility.

We also continue to explore potential dropdown opportunities from our sponsor decay.

Well demonstrated strong support for do you care to attractive asset sale.

Before I open the call for questions I'd like to pick up a few minutes or few moments and think ought to give people are exiting CFO oil service well within our company for the last 15 years.

Obviously has demonstrated tremendous amounts of dedication bought miss.

And his ability to help our leading DKL over the last few years.

It contributed significantly to its success.

And also I'd like to with welcome our new CFO.

What was big at what I'm sure, we'll do great for off with Dod operator, Please open the.

Call for questions.

Thank you at this time, if he would like to ask questions simply press Star then the number one on your telephone keypad again that star wanting to ask a question well pause for just a moment to compile the Q1 day roster.

Your first question comes from the line of Spiro Dounis.

Hi, good morning, everyone.

Congrats to soften Rubin.

Just wanted to maybe get better understanding of the impact that detail for the rest year. When it comes to cover demand impact as well as some of the lower drilling activity in impact on West, Texas volumes with the <unk> you just talk about improving the coverage ratio.

Looking for you to marry that comment with the current headwinds and just how you're thinking about the timing of when distribution coverage really starts to go away.

Well good morning.

It has the.

The oak wasn't asked of us component that we would like to answer this morning.

First of all.

The macro environment, even towards not comfortable.

For.

The industry actually DKL, if a more than five in duct involvement.

Especially in light of the sad that we are still have several projects that would come into fruition over the next a few quarters our goal and we said at the very strongly to get the would industry.

Average, if you will more than coverage as well as a leverage and Oh, we hope to get would a couple of ideas that we have around drove down.

As well as <unk>.

Investments that we have donnie not awesome that's.

That would come to fruition over the next few board.

Both the coverage and the leverage a will improve significantly.

Over the next few quarters I, just want to say that we would not we would have not raised the dividend had we didn't see oh internally how good the luxury leverage into coverage can be toward the end of the year.

Okay understood so read like.

Yes, I would just as to you met with the drop.

We're basically you're going to have about 75% to 85%.

Mbcs underpinned by Dallas, whose obviously our strong sponsors so that obviously helped lock in love that EBITDA.

Yeah, No thats a it's a good point and then just just on the West Texas volumes I guess, a hearing about some pretty significant shut ins or in the Permian. So far hitting in May just curious if you guys are starting to see some that run off yet on the volumes there.

[laughter] I feel good morning itself again, so we've seen some decline in demand in there with Texas doing the math offensively.

But in the last two weeks ago. So we've been demand starting to pick back up and now we on an island and 50% more or less for May and what we see what we consider savages demand for the area. So obviously as they begin to decline now.

And then I think it nicely them like we've seen the go do it.

Okay good to know.

Just last one from me and some of your peers are talking about the limited opportunities in midstream to invest year, not necessarily something new they've been sort of saying that last quarter or two but now little more from than ever.

You guys have always been able to really kind of find places to grow you. Obviously mentioned the dropdowns, but just curious if you see opportunities even this market.

To grow organically and maybe augment that Mitch strategy for the new state energy here.

Well, we always said all along that our goal is to be around between 375 and $395 million of EBITDA over the next two three years.

The drove down of the midstream or the a gathering system is another step we do have a few more ideas about a drop downs businesses that we grew over the years.

The fifth midstream.

Don't be surprised that even if we come with a couple of these ideas in the near future I know that the market really like the valuation where the dropdown happened. We believe that that's of both dk and DKL as reflected in the conflict Committee.

So would we do things that are happening.

We're still confident that we can a workout with up to the 400 million dollar Mark.

Oh EBITDA over the next two to three years.

Great. That's it for me thanks, everyone.

As a reminder to ask a question. Please press star one on your telephone keypad again that star wanting to ask a question.

Your next question comes from the line as Ned.

Yes.

The question could you maybe elaborate a little bit more or the potential timing of a future drop downs in weather.

Such a transaction would have the same contractual protection.

In the former take or pay provisions as seen in the last dropdown.

Oh, well looking into that.

Don't be surprised if it's going to happen over the next or in the near future. We are we still need to look at the.

The tax consequences of a a drug now I'm going to remind you that there was no attacks or very meaningful Tac.

Leakage when we did the Oh, the drop down all the or the gathering dropdown, which was a great achievement.

We did with great timing, so we need to look at that we don't want any tax leakage as well as the conflict committee need to approve.

These transactions, but we're looking that got very carefully.

As we said we want to be a EUR 400 million dollar growth of $4 million EBITDA with industry or average both on coverage and leverage and we believe that this is another tool in our toolbox.

Two or to get us towards these goals.

Great and then on the potential IDR elimination are you still thinking of this transaction is part of Oh.

Have a dropdown deal.

The Oh IDR transaction need to make sense, both for Dk and DKL, that's not especially in today's market. It's not in a I transaction that was as straightforward a few months ago. We Oh, we will need to look at the returns both and and to make.

Sure that makes sense for both companies that's not in a an easy production at this point, but we're looking at that almost every week.

Got you and then last question for me a strong margins on the pay align pipeline was one of the drivers behind your Q1 results could you maybe provide additional details on the throughput and fees you're seeing on the pipeline.

Hey, good morning, So if we got it so pay line if you're looking on that now and you're looking on the because they.

I don't view it obviously cushion is the lowest.

It's a lot as Dave.

On the board.

We are only about two weeks to finish the expansion on libertyville someone somewhere around Q3, but we feel putting one plus one together do you see a very bright future to pay like.

Well you can use the expansion that we are finishing on Q3, we though partner they have playing into it to put the two together and that when the self pay down very nice in the future.

Got it thank you.

We have no further questions at this time I'll turn it back over to your presenters for any closing remarks.

I'd like to thank everybody, especially in Charlie in these challenging time for your confidence in off I'd like to think our employees for.

Their dedication working for them staying healthy.

I'd like to thank my colleagues around the table and the management team.

Oh, so I'd like to think obviously the board of directors and you invested in yeah.

For your confidence in us banks, and we talk to you.

Thank you for participating in today's conference call you may now disconnect.