Q1 2021 Delek Logistics Partners LP Earnings Call

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Good day and welcome to the Delek Logistics first quarter 2021 earnings conference call. All participants will be in a listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.

After todays presentation, there will be an opportunity to ask questions to ask a question Press Star then one on a touchtone phone to withdraw your question Press Star then two please note. This event is being recorded.

I would now like to turn the conference over to Blake Fernandez. Please go ahead.

Good morning, I would like to thank everyone for joining us on this webcast to discuss Delek logistics partners first quarter 2021 financial results. Joining me on today's call will be Uzi, you mean, our general partners, Chairman and CEO and Reuven Spiegel CFO as well as other members of our management team.

As a reminder, this conference call may contain forward looking statements as that term is defined under federal Securities laws. In addition to reporting financial results in accordance with generally accepted accounting principles or GAAP. We report certain non-GAAP financial results investors are encouraged to review the reconciliation of these non-GAAP financial measures to the comparable GAAP results, which can be found in.

On the press release, which is posted on the Investor Relations section of our website.

Our prepared remarks are being made assuming that the earnings release has been reviewed and we are covering less segment and market information that is incorporated into the first quarter press release on today's call Ruben will begin with a financial overview I will review results and <unk> will offer a few closing strategic remarks with that I will turn the call over to Ruben.

Thank you Blake.

Our first quarter performance on a year over year basis benefited from the contribution of vessel Dropdowns that occurred in 2020 debt.

That said winter storm Yuri had a negative impact on results in the first quarter. In addition to maintenance at the <unk> pipeline we.

We expect these factors to normalize into the second quarter, our distributable cash flow was approximately $53 million in the first quarter of 2021 compared to $36 million in the first quarter of 2020.

Net income attributable to all partners increased approximately 30% over the prior year period, our DCF coverage ratio was 131 in the first quarter of 2021 compared to 1.15 in the prior year period, EBITDA was 59 million, which represents a 21% increase over the prior year period.

We increased our quarterly distribution to <unk> 92 per limited partner unit for the quarter ended March 31 2021.

This distribution is to be paid on May 14, 2021, and represents a one 1% increase from the fourth quarter 2020.

This is our 30 <unk> consecutive quarterly increase and a three 4% higher than our first quarter 2020 distribution.

On March 31 detail has approximately $113 million of available capacity on our 850 credit facility. Our total debt was approximately $1 billion and the total leverage ratio is three seven times, which is within the 525 times currently allowable under our credit facility.

Now I will turn the call over to Blake to discuss our results. Thanks, Ruben and our pipelines and transportation segment. The first quarter 2021 contribution margin was $42 million compared to $30 million on the first quarter of 2020. This increase was primarily attributable to the asset drop downs, including the Big Spring gathering system dropped on March 31, 2020 and trucking ask.

Net drop on May one 2020.

In our wholesale marketing and Terminalling segment. The contribution margin was $16 million in the first quarter of this year compared to $17 million in the profit.

During the first quarter of 2021 equity income from our crude oil pipeline joint ventures was approximately $4 million compared to income of $6 million in the prior year period.

Capital expenditures were approximately $7 $8 million on first quarter of 2021, which consisted of $7 $3 million on discretionary spending and $5 million for sustaining maintenance for full year 2021, our total growth capital expenditure forecast is $28 million, which includes $14 7 million of discretionary and $13 1 million.

Maintenance capital with that I'll turn the call over to <unk> for closing comments. Thank you Blake and good morning, everybody.

First quarter results were resilient, considering the winter storm impact along the Gulf Coast and pipeline maintenance, we're expecting improvement into the second quarter.

Throughout the year as energy demand improve with vaccination uptake and strong and utilization rates at Delek U S refineries.

Our long history of distribution growth continues and we remain committed to delivering another 5% increase in 2021, our distribution coverage and leverage ratios remained healthy and create flexibility. Finally, we are pleased to announce an exclusive agreement with Baker Hughes.

Utilizing technology to meet iron ore products through our blending capabilities.

<unk> offers a low capital high return opportunity that could be scalable infrastructure with.

With that operator can you. Please open the call for questions.

Okay.

Thank you.

Now begin the question and answer session to ask a question Press Star then one on a touchtone phone.

If you are using a speakerphone please pick up your handset before pressing the keys.

If at any time your question has been addressed and you'd like to withdraw. Your question Press Star then two at this time, we will pause momentarily to assemble our roster.

Okay.

And the first question comes from Spiro <unk> with Credit Suisse. Please go ahead.

Hey morning, everybody.

I wanted to ask you about the outlook for the rest of the year. It sounds like things are getting back to normal which is good to hear.

So far first part of this year fairly quiet for detail, especially when you look back at last year and early activity on Dropdowns you all were doing.

So obviously some of this is market and storm related and turnaround related.

So as you look forward to the rest of the year should we expect an uptick in activity from your oil and what form does that take.

<unk> Downs were on the table at one point, where those stand how do you see yourself hitting those growth goals I think youre still committed to that 5% distribution growth level.

Thanks, Bill good morning.

<unk>.

There are several initiatives that are coming to fruition.

Over the next few months actually quarter two.

First of all the expansion of the Red River.

Pipeline to wherewithal planes.

Coming to effect over the next.

During this quarter.

Next were second.

Palin pipeline, we have an agreement that is coming to an effect.

Early may to start shipping more on pay line and third.

Baker Hughes agreement on the.

On the blending side to hear with Dk, which.

This is just the start of something that can be.

Very meaningful and not capital intense. So these are the three organic growth projects that give us the.

Confidence to continue to say.

Coverage and leverage ratios, where they are very healthy.

On the <unk>.

M&A side.

Obviously, we need to be very nimble.

Or waiting on the on the sideline.

To see if something comes to fruition.

But leverage comes down toward the three five mark now to be seven and the <unk>.

Sure.

<unk> coverage.

Net healthier over the year.

During the period of the year or during the year because of visa organic growth.

Projects or daily I don't know if you want to add anything.

Think you hit all those on those marks.

Okay, Great and then on Baker Hughes and then once again, just focusing on the detail part of it I guess can you help frame out in terms of timing of when we start to see cash flows. There you mentioned it being kind of a small capex number.

Any sense, you can give us around that front and is this for <unk> all going to be a very much fee based enterprise or how should we think about the structure.

Yeah, it's a fee based for a decade.

The money is coming in as we speak.

More and more wells, we're not ready to disclose the nine month above but but.

We'll do it over the next couple of quarters, but as we have more and more growth coming in the fees will continue to grow it already started to being over beginning of the year and now it's getting stronger for the second quarter and third quarter will be even stronger.

We're very optimistic that the.

5% would be met.

Like in the past without.

Any dropdown.

Probably we'll do over the next quarter, we'll give.

Projected cash flow from that project.

As we get more and more.

Of that blending in.

Treatment capabilities.

Hey.

Okay, we'll wait and see on that one.

Last one from me just on West, Texas marketing margins very strong again, it looks similar to <unk> of last year.

And so I'm sure Rins prices.

Just had a lot to do with that but just curious if there's anything else you would call out there on that number.

Just trying to get a sense that if rates stay up at these levels are those west Texas margin sustainable around these levels for the rest of the year.

The acos into the early <unk>.

As you mentioned as well as I mentioned before the Q4 was more from a hedging loss, but really what we're seeing right. Now on Q1 is primarily from marine contribution and also flat on hedging along with good production in throughput or on the 10000 and.

And just margin.

Becoming better than what we've seen in Q4 sales per million coming from the room.

Better.

On utilization now within us wholesale.

Perfect.

Thank you gentlemen.

Okay.

The next question comes from net <unk> with Wells Fargo. Please go ahead.

Hey, good morning, Thanks for taking the question.

With the crops refinery back online could you maybe review, what's the approximate EBITDA generated by the midstream assets in and around this facility and also has there been a change in how you think about the potential dropdown on these assets.

Good morning net debt.

Thanks for taking the time to ask a question.

The.

<unk>.

Across facilities.

Free cash flow from.

Dk standpoint, what we're doing over there.

I mentioned and we mentioned the.

Vicki was agreement.

That Vicki with agreement will enhance the profitability of course in other places we are waiting to see how much this is going to contribute but it's in the millions.

So.

It's such a small amount.

And then we see how the market shakes up to see if we're doing the.

Dropdown goes day.

We're from the dropdown.

The total EBITDA from that drop down $30 million.

Still have the as I mentioned earlier, we still have to through organic projects that are coming to fruition that will add.

And we'll bring the EBITDA, even stronger than in the near future. But then we need to think about the next steps of <unk> growth as we said.

Our goal was $373 five I think we are getting very close to achieving that including the wink to Webster.

The crossing now we need to think about the next leg.

Okay. Thanks, and then maybe one more on on pay line. What is the what is the latest on this in the past you had talked about further capacity increases are there any discussions on this front.

We have an agreement with the shipper that is starting may.

<unk>.

<unk>.

We'll see how this growth.

She brings a new shipper day didn't ship before so we'll see how this goes on if there's more demand than.

There is no reason to believe that we want to expand that.

With minimum Capex capex.

Okay got it and maybe maybe one more if I may could you maybe talk about some of the projects included in your <unk>.

Growth Capex budget for 2021.

I'm sorry.

On.

Can you repeat the question.

Could you review some of the expansion projects included in your Capex budget for 2021.

Sure.

As a daily net.

Around this discretionary as we gave the forecast is primarily on debt project debt.

<unk> mentioned bolt on to Jefferson completion of debt just as on connection on pay line along with.

On a project around Baker Hughes' opportunity and also on Tpg's all of those are primarily the item that's associated with the business development.

In our focus.

That's perfect. Thank you.

All I had thanks.

Ed.

Yes.

Again as a reminder, if you have a question press Star then one to be joined into the queue.

It looks like we have no further questions. So this concludes our question and answer session I would now like to turn the conference back over to management.

For any closing remarks.

Yes, I'd like to thank everybody, who listened to the call. This morning, I'd like to thank management on the table and in general for another.

Good quarter despite the.

Winter storm.

<unk>.

I'd like to think.

On the unit holders and investors for their trust in us, but mainly I would like to thank each one of the employee.

A great company is making.

Have a great day, we'll talk to you next time.

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

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