Q1 2020 Earnings Call

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Ladies and gentlemen, thank you for standing by and welcome to the Delek U.S. first quarters much like the earnings call. At this time all participants are independent would be moving after the speakers presentation, there will get western and after recession and ask the question. During this session usually depressed so I want.

Your telephone and PC advice that today's conference is being recorded.

You require any further assistant.

Let's start there and now I would like and had to conference where do you speaker to be mustard make Fernando. Thank you. Please go ahead sorry.

But I do want it looks like everyone for joining us on todays call vertical webcast to discuss Delek US holdings first quarter 2020 financial results joining me on todays call, whose email chairman president and CEO, Aussie Ginsburg, VP and CFO rooms people in calling me.

The CFO and lose a little below dvp and president of or funding as well as older men as members of our management team.

The presentation materials used during today's call can be found on the Investor Relations section of the Delek US website. As a reminder, this cough and cold may contain forward looking statements as a term as defined under federal Securities law.

Please see slide two for the Safe Harbor statement.

In addition to reported financial results in accordance with generally accepted accounting principles for gap, We report certain non-GAAP financial result.

Investors are encouraged to review the reconciliation of these non-GAAP financial measures.

To be comparable to GAAP result, which can be found in the press release, which is posted on the Investor Relations section of our website. Our prepared remarks are being made assuming that the earnings press release has been reviewed and we're covering less segment and market information that's incorporated into the first quarter press release.

On today's call our people review financial performance I will cover capitalization and guidance Lewis will cover operations as Capex and easy will offer a few closing strategic common with that I'll turn the call over to Aussie.

Thanks Blake.

On an adjusted basis for the first quarter 2020.

In the Qs reported net loss of $128 billion.

Yeah, Dollarsseventy four per ship.

Compared to income of $129.4 million or Buck 64 per share in the prior year period.

Our adjusted EBITDA loss was $29.7 billion into first quarter 2020, compared to $244.1 million game in the prior year period.

Adjusted results include $106.1 million of headwind or Buck 44 per share.

This is comprised of a pretax are their inventory levels of $90.8 billion.

I would like to point out did this is a separate from the LCM inventory charge that these already excluded.

Adjusted results.

It'd be surely there was a $36.1 million tax headwind.

Not seen fully blindly in your estimated effective tax rate to the quarterly result.

On page four we provide to catch the waterfall.

In the first quarter of 2020 would generate cash flow for approximately negative was negative $144 million from continuing operation.

Would you go to working capital benefits of $102 million.

Finally.

Cash capital expenditures in the quarter were $190 million, including the big spring turnaround.

With that I really don't turn it over to break.

Thanks, Dorothy Slide five highlights our capitalization. We ended the first quarter was 785 million of cash on a consolidated basis and 1.4 billion of net long term debt excluding that debt at Delek logistics of 936 million. We had net long term debt of approximately 496 million at March.

The first 20 Twond.

Moving to slide six we provide second quarter guidance for modeling based on actions taken to optimize operating costs and limiting overhead through hiring freeze, we expect a 10% reduction or 100 million improvement and cost structure on a full year basis in 2020 versus 2019 level. This is comprised of 75 million reduction and operate.

I'd call and 25 million decrease in overhead with that I'll now turn the call over to Louis to discuss operations in Capex.

Thanks, Blake during the first quarter, our total refining system crude oil throughput was approximately 240000 barrels per day, which reflects the major turnaround at big spring and downtime at tower for reformer work and then second quarter 2020, we expect crude oil throughput to average between.

In 230000 to 250000 barrels per day, approximately 80% utilization at the midpoint.

On slide seven I want to highlight our capital spending capital expenditures during the first quarter were $190 million, reflecting the major turnaround at big spring as a result of a market volatility we are lowering our full year 2020 capital program dropped.

Excuse me 200, do you mean.

This represents a 75 million reduction or 23% from prior guidance.

Recall cafe exclude JV investments like Red River as well as the Winked Webster connector wear off where our financing will be provided by joint venture.

The bulk of the spending reductions are coming from retail Permian gathering and deferring or canceled discretionary projects. The 2020 capital program is broken down by segment as outlined in the slot I would point out that roughly 75% of the full year capital.

Oh program was completed in the first quarter, leaving minimum outlay for the balance of the year.

Next I will turn the call over to using for closing comments.

Thank you Lewis good morning, everybody.

Good morning move to slide eight.

The energy industry is facing daughter head wind between demand the impact from Cobbett 19, and access global oil supply.

We're taking aggressive steps.

They prove our ability to compete well lower cost structure and spending profile, leading to a $175 million reduction collectively.

While macro conditions have been volatile our news product markets have remained somewhat insulated and the economy is opening up in our original footprint mainly Texas.

Feedstock advantages have moving in our favor, especially with the steep contango curve, where we benefit on every barrel run through our system. These factors are allowing us to run our system.

I bought the industry average utilization rates near tip.

In the midstream Delek recently told the big spring gathering visit to two decade. This transaction demonstrated demonstrate our support for decades and increases our ownership to 71 person, including the GP in place.

We're committed to maintaining a strong balance sheet.

The ample liquidity and we are well positioned to weakness to withstand macro volatility.

We're maintaining our quarterly dividend payment of 31 cents per share.

At this point I'd love to up I think I think is booked for long time with us as a company.

15 years with after the company, we're full of dedication smartness analog and I'd like to thank him again for everything you did for the company and I emphasize the our personnel personally friendship with Dod I'd like to welcome again, moving Spiegel, our incoming CFO.

I'm sure, we'll do great for our company.

Before we open the call for questions I would like to acknowledge that CVR energy has taken a position and our stock and we welcome them its shareholders.

We have no further comments in this regard so we would appreciate you coming at keeping your wishes to the first quarter results and outlook with Dod lead would you. Please open the call for questions.

[noise] reminder.

A question you really need to press star one on your telephone to withdraw your question first the fountain. Please standby well, we compile document in Boston.

And your first question comes from the light as Ryan Todd Your line is now open.

Great. Thanks.

Good morning, everybody maybe.

Maybe if I could.

Start with or we've seen a lot of volatility ample Midland differentials crude contango structure over the past month or so.

Could you talk a little bit about.

One I mean, I think whether you feel I think the market probably focus is too much on Midland Upton, but maybe not enough on contango, but can you talk about how you view the dynamics of those playing out in the coming months, how it relates to the export market.

And ER and then I've a follow up question.

Well good morning, Brian.

As discussed before we believed that we need to look at the value chain all day long form Midland to be export market.

As we've seen the marketplace.

Export today is anywhere between seven to $9.

So.

Hi, everybody can focus on one part, but nor do we need to see the poor picture you probably want to look at Midland contango as well as Brent WTI, which.

Depends on on the size of the Oh, which part of that value chain is is in favor on any given moment.

At this moment, Brent the eyes, and we all know around six Dollarssix thousand 50 cents in contango is around $2, a little more than $2 that brings up immediately.

Our strength not only to Midland, but if you look at what happens in any grade in United States, including the medium sour including Meyer.

That is limited in United States. All these grades are very very strong.

So Mark I think where you said there was a $25 affording chip this morning.

And so the value chain.

If you capture our every part of the value chain he doesn't mer actually where you get it now in our case.

We just need to remember that when we have Midland our premium now two dogs and 50 cents. A this is on a portion of the barrels.

We get the contango, which the cama, which has little less than $3, maybe around $3 on every barrel.

So oil overall the accordion vomit is actually very positive Afoura Delek US now I don't know how long it will lock button between Brent Ti I, Oh, $6 and contango $3 that more than offset the strength in the grades including Midland.

Right I appreciate the color there and then maybe or the second question.

I appreciate the guidance for the second quarter I mean, it looks like you're gonna be you're targeting a utilization rate, that's probably roughly around 80% unless you had another good is above the industry norm can you talk about.

Can you talk about what you're seeing in the strength that you're seeing in niche markets, maybe what you're seeing locally in terms of gasoline and distillate demand.

And how it in what ways you view those markets is being resilient you know whether from a pricing in or from a logistical access point of view a relative to other parts of the country.

Absolutely good morning, guys that he got so they are finally finally, they are basically selling in each market.

Obviously, because the U.S., we've seen less impact.

Well area, which I'll refineries walking it.

At the beginning we so.

Most of the impact of the gasoline side, but starting to take two weeks ago, we've seen that decline starting to come back up the beginning obviously, we saw some decline in diesel.

Which was less significantly because ilene, but there's a linear is obviously, leading the charge offs and this kind of calculated with what we see was there.

Yeah, you pick a number and at this point, we ever serving the niche market than they did the demand over there most of them because at least side.

He is working for favorable.

Thank you.

And your next question comes from the light at Red Hat frame. Your line is now.

Hey, good morning, everyone.

A question on inventories so it looked like in the first quarter. There were a lot of sales out of inventory can you talk I guess first of all about how those contributed to profitability in the quarter and then.

Sort of related you guys did have a working capital benefit during the quarter, which is sort of at odds with what other people are reporting so.

Can you explain the dynamics of that and if that's something that we should expect to reverse thanks.

Hey, Brad you know in the quarter, we had big spring turnaround. So that was obviously, a big component and tends to tends to throw things off in terms of inventory. We also had some reformer work at Tyler So utilization there was a bit off so I'm not sure specifically if you had some.

The new mine, but those are two things I would point out that may be skew things a bit in terms of sales versus typical utilization rates.

And then I think your second question was on working capital. Yeah. This is hybrid right in Colorado was impacted by to two tax credits. One was no credit one was a reversal well 52 million or fourth quarter axis fourth quarter provision and the other one was 85 million biodiesel.

Tax credit so the number that you see on slide four is 100 to do is just listening to these attacks with.

Okay that makes sense. Thanks for that and then just a question on detail. So you know obviously, it's it's recovered a lot, but it's still trading under 20% yield.

You know how do you see the value of that entity at this point is there a chance that if that's.