Q3 2021 Delek Logistics Partners LP Earnings Call

Good morning, and welcome to the Delek logistics third quarter 2021 conference call.

All participants will be in listen only mode should you need assistance. Please signal conference specialist by pressing the star key followed by zero.

After todays presentation, there will be an opportunity to ask questions. Please note. This event is being recorded.

Now I'd like to turn the conference over to Blake Fernandez. Please go ahead.

Uh huh.

Good morning, I would like to thank everyone for joining us on this webcast to discuss Delek logistics partners third quarter 2021 financial result.

Joining me on today's call will be Uzi, <unk>, our general partners, Chairman and CEO and Ruben 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.

Pastors are encouraged to review the reconciliation of these non-GAAP financial measures to the comparable GAAP results, 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 release has been reviewed and we are covering less segment and market information that is incorporated into the third quarter release.

On today's call Rubin will begin with the financial overview I will review results and Uzi will offer a few closing strategic remarks with that I will turn the call over to Ruben. Thank.

Thank you Blake our distributable cash flow was approximately $56 million in the third quarter of 'twenty, one compared to $59 million in the third quarter of 'twenty. Our DCF coverage ratio was 134 times in the third quarter compared to one five times prior year period.

EBITDA was $70 million, which represents a 3% increase over our prior year period.

Our board approved an increase in the quarterly distribution to <unk> 95 per limited partner unit for the quarter ended September 30th. This search of distribution is to be paid on November 10, 2021 to unitholders of record on November 15, and represents a one 1% increase from the second quarter and a 5%.

The increase from the third quarter 2020.

At September 30th 2021, <unk> had approximately $589 million available capacity on our $850 million credit facility. Our total debt was approximately $901 million and the total leverage ratio is three four times, which is well within the five to five times currently allowable.

Under our credit facility now I will turn the call over to Blake to discuss the results. Thanks, Ruben and our pipelines and transportation segment. The third quarter 'twenty, one contribution margin was $47 million compared to 46 million in the third quarter of last year. The increase was primarily attributable to higher pipeline throughput partially offset by.

Related to pipeline integrity work in our wholesale marketing and Terminalling segment. The contribution margin was $20 million in the third quarter. This year compared to $21 million in third quarter of 2020 results were broadly in line with the results year ago. During the third quarter of 21 equity income from our oil pipeline JV was approximately 7 million.

Dollars compared to $5 million in the prior year period capital expenditures were approximately $4 $1 million in third quarter of 2021, which consisted of $3 2 million of gross spending 900000 for sustaining maintenance for full year 'twenty. One our total gross capital expenditure forecast is $25 million, which includes $19 $6 million of growth.

And $5 million of maintenance capital with that I will turn the call over to Uzi for his closing comments.

Thank you Blake and good morning, everybody.

Our performance remains stable and we expect a consistent EBITDA profile over the coming quarters. The industry backdrop has improved driven by strong demand and inventories of oil and oil products trading below historical averages.

The combination of these factors is resulting in higher commodity prices and margins.

Drive utilization rates of refining and logistics assets.

We are optimistic in the outlook for a decade and the recent increase in the quarterly distribution to <unk> 95 per unit keeps keeps us on pace to deliver a 5% increase this year.

Our distribution coverage remains healthy and our leverage ratio continues to decline.

Finally, <unk> units recently traded at all time highs, reflecting investor confidence and resulting in a lower cost of capital for our company.

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

Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.

If you're using a speakerphone please pick up your handset before pressing the keys to withdraw your question. Please press Star then two at this time, we will pause momentarily to assemble our roster.

Our first question is from Spiro <unk> from Credit Suisse. Please go ahead.

Thanks, operator, good morning, guys.

I'll start.

Hey.

Want to start predictably, I guess with what the dropdown outlook. It seems like your cost of capital is sort of back in great shape, maybe normal levels here and so I'm. Just curious if you could just talk to the cadence of kind of what's left to dropdown and how youre thinking about the timing and any sort of gating issues to get there.

Great question Spiro.

The biggest can that for dot is the wink to Webster.

<unk>.

Our partners are starting the line.

In the line very shortly.

And obviously there is a ramp up period.

But.

We as you know the pipeline is fully subscribed.

So and that's a that's a big amount.

We said that the investment is around $360 million and we are exceeding our threshold of 15% well exceeding 15%. So.

We need to watch for the ramp up and then we'll look at it very carefully.

Great that's helpful color.

And then is your last call. You said you had expected more M&A in the midstream space and it looks like you're sort of proven to be right. We've seen some recent activity here lately I imagine there's more to come but would love to get your updated thoughts on that and then more specifically around <unk> and your appetite for M&A.

Guess, what sort of assets do you think you'd be in the market for what you think would fit well in the system that you don't currently have now.

Well first of all.

We worked very hard spear as you know because you challenged us.

18 months ago, 24 months ago about the cost of capital. If you look at our cost of capital now I know that yesterday, we got little hit but over the last market have been hovering around 7%.

On the equity side and on the debt side because of our leverage going down every quarter. As you know three four were around 6% even.

A little bit lower than that.

We feel good about the cost of capital and you know the Mlps are all around cost of capital. We think that we're competitive now with the pickup in the Permian and your upcoming name, but I'll ask you I'll answer it.

And the second part of my my answer.

In the in.

In the Permian as you know the activity is picking up as you well know <unk> dropped down to.

To detail.

A year ago, a little more than a year ago and still under MVC Buck.

We see more and more activity in the Permian, we have more dedicated acreage and more people signing in.

And more a people bring rigs and wells. So we see the activity of this.

<unk> picking up and maybe hit the <unk>.

<unk> Mark over the next year or so.

So if thats the case then.

We overbuilt.

That asset or rebuild it to to support much more than 100, 120 150000 barrels so that's without much much investment.

If you think about that then you say to yourself now.

The most important thing is to protect the cost of capital.

We won't do any deal that will.

We will be leveraging the balance sheet.

We are but at the same time, we say to ourselves okay.

Leverage is coming down the organic projects are bringing more to.

To the table and maybe start to look at.

Some kind of acquisition.

I want to be very careful in light of the annual energy.

Transformation and in light of the fact that we don't know what the future is.

Even if we touch an acquisition it should be very accretive not leveraging the balance sheet.

And making sure that their synergies already to the assets. We have just because of the fact that we have a bright future with <unk>.

Both <unk>.

Pay line and.

Other assets as well as the dropdown of Ww.

Especially in light of the activity in the Permian. So I'll answer it is a long way, but if I didn't.

I Didnt answer directly.

Clarified more.

No no that was good that was a helpful framework in a way to think about it so I appreciate that.

One more if I could sneak it in just with respect to distribution on track for 5% growth it's great.

You guys have always sort of been kind of a first quartile grower with respect to distribution. So 5% I think is probably one of the highest among peers as you look forward to 2022 and beyond.

I guess, how are you thinking about distribution growth in terms of what's sustainable and what keeps you youre leveraging track what allows you to grow do you still expect to be one of these first quartile growing names just curious how youre thinking about it longer term.

We think that we impacted being consistent and persistent even during the pandemic Spiro I remember you'll note from a year ago or I forgot when we said.

We're going to.

We continue to grow the distribution.

We think investors like it we see the returns that we see how.

Investors and analysts treat us I don't see any reason to change different things.

Something that actually works, it's our job as management to produce EBITDA to support the growth, but honestly in this environment.

I see us continuing doing this.

Perfect. That's all I had to.

Hey, guys. Thanks for the time.

Thank you Spiro.

There are no more questions in the queue. This concludes our question and answer session I would like to turn the conference back over to Uzi Yemen for any closing remarks.

Yeah.

Thank you Jason I'd like to thank my colleagues around the table here I'd like to thank our employees for another great quarter.

Think that detail continues to show.

Good operator, we are on the midstream side.

I'd like to thank our investors for the confidence in us and bring us to new highs.

And also of course, the board of directors and as I said, mainly I'd like to think.

Our employees for making the great company. It is thank you and have a great day.

Okay.

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

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Yeah.

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