Q4 2023 Delek Logistics Partners LP Earnings Call
Operator: www.larryweaver.com Good morning, ladies and gentlemen, and welcome to the Delek Logistics Partners 4-Quarter 2023 conference call. At this time, all lines and the listen only will be closed. Following the presentation, we'll conduct a question and answer session. If at any time during this call you require immediate assistance, please press star zero for the operator.
Good morning, ladies and gentlemen, and welcome to the Delek Logistics partners first quarter 2023 conference call.
At this time all lines in a listen only mode.
Following the presentation, we will conduct a question and answer session.
If at any time during this call you require immediate assistance. Please press star zero for the operator.
Operator: This call is being recorded on Tuesday, February 27, 2024. I would now like to hand the conference over to Rosy Zuklic, VP of Investor Relations. Please go ahead.
This call is being recorded on Tuesday February 27, 'twenty 'twenty four I would now like turn the conference over to a rosy CLEC VP of Investor Relations. Please go ahead.
Rosy Zuklic: Good day and welcome to the Delek Logistics Partners 4th Quarter Earnings Conference Call. Participants on today's call will include Avigal Thorik, President; Joseph Israel, EVP, Operations; and Rueben Spiegel, EVP.
Good day and welcome to the Delek Logistics partners fourth quarter earnings Conference call participants on today's call will include avid go through Reich, President Joseph Israel EVP operations.
Reuven Spiegel, EVP, and Chief Financial Officer, and O'deli said, Kasi SVP Delek logistics.
Rosy Zuklic: Financial Officer, and Odele Sakkazi, SVP, Delek Logistics. As a reminder, this conference call will contain forward-looking statements as defined under the federal securities laws, including, without limitation, statements regarding guidance and future business outcomes. These statements involve risks and uncertainties that may cause actual results to differ from our forecast. For more information, please refer to the risk factors discussed in the Partnership's most recently filed annual report on Form 10-K and quarterly report on Form 10-Q filed with the SEC, along with the press release associated with this call. The partnership assumes no obligation to update any forward-looking statements or information, which speak as of their respective days.
As a reminder, this conference call will contain forward looking statements as defined under the federal securities laws, including without limitations statements regarding guidance and future business outlook. These statements involve risks and uncertainties that may cause actual results to differ from our forecasts.
For more information please refer to the risk factors discussed in the Partnership's. Most recently filed annual report on Form 10-K, and quarterly report on Form 10-Q filed with the SEC along with the press release associated with this call.
The partnership assumes no obligation to update any forward looking statements or information, which speak as of their respective dates.
Abigail: I'll now turn the call over to Abigail for opening remarks. Delek Logistics Partners Finish 2023, Tronco. We delivered another record quarter and achieved a record year. Decal exceeded 100 million dollars in adjusted EBITDA this quarter. We saw substantial growth from our new connection in our Midland Gathering operation, further validating our strong position in the Permanent Basin. I'm very proud of our employees who are dedicated to making Delek Logistics succeed, with their dedication to safe and reliable operations that make our results passable. The team has gone without a lost time injury four years in a row and counts, and is also focused on growing third-party revenue, allocating capital in a disciplined manner, and exploring natural gas opportunities in the Delaware Basin, where we see significant growth. In January, the board approved the 44th consecutive increase in the quarterly distribution to $1.05 per unit.
I'll now turn the call over to avid golfer opening remarks, Thank you Jose.
Medical logistics partner finished 2023 dong.
We delivered another record quarter and achieved a record year.
They can exceed 100 million dollar <unk>.
That EBITDA this quarter.
We saw substantial growth from a new connection Midland gathering operations.
It'll validating our strong position in the Permian basin.
I'm very proud of our employees, who are dedicated to making delek logistics succeed.
If his dedication to safe and reliable operation that makes other results possible.
Team has gone without a lost time injury fully as you know and counting.
We're also focused on growing third party revenues.
Allocating capital in a disciplined manner and exploring natural gas opportunities in the Delaware Basin, where we see significant growth.
In January the board approved the 44th consecutive increase in the quarterly distribution to one dollar and $5.05 per unit.
Abigail: Delek Logistics has shown a strong track record of delivering value to unit holders. We feel confident in our ability to maintain competitive distribution to our employees. I will now hand it over to you. Thank you, Abhigay.
Delek logistics has shown a strong track record of delivering value to unit holders.
We feel confident in our ability to maintain competitive distribution to our investors.
I will now hand, it over to ward.
Thank you Avi go.
Unnamed Speaker: The fourth quarter of 2023 adjusted EBITDA was $100.9 million compared with $92.5 million in the same period of 2012. The fourth quarter EBITDA was $86.1 million, which included a $14.8 million goodwill impairment related to some of our Delaware gathering and processing. The environment was primarily driven by a significant increase in interest rates.
The fourth quarter of 2023, adjusted EBITDA was $100 9 million compared with $92 5 million in the same period of 2022.
The fourth quarter EBITDA was $86 1 million, which included $14 8 million goodwill impairment related to some of our Delaware gathering and processing assets. The impairment was primarily driven by a significant increase in interest rates, our long term outlook of the Delaware gathering system remains unchanged.
Unnamed Speaker: Our long-term outlook for the Delaware gathering system remains uncertain. Distributable cash flow was $65 million, and the DCF coverage ratio was 1.5. For the gathering and processing segment, adjusted EBITDA for the quarter was $53.3 million compared with $48.1 million in the fourth quarter of 2020. The increase was primarily due to higher throughput from Delek Logistics' premium basin assets. Wholesale marketing and terminaling adjusted EBITDA in the fourth quarter 2023 was $28.4 million compared with $23.3 million in prior years. The increase was primarily from higher terminaling utilization. Storage and Transportation Adjusted EBDI in the quarter was $17.5 million, compared to $16.1 million in the fourth quarter of 2020. The increase was mainly driven by higher storage and transportation.
Distributable cash flow was $65 million in the DCF coverage ratio was one four.
For the gathering and processing segment adjusted EBITDA for the quarter was $53 3 million compared with $48 1 million in the fourth quarter of 'twenty to.
The increase was primarily due to higher throughput from Delek logistics premium basin assets.
Wholesale marketing and Terminalling adjusted EBITDA in the fourth quarter 2023 was $28 4 million compared with $23 3 million in prior year. The increase was primarily from higher terminalling utilization.
Storage and transportation adjusted EBITDA in the quarter was $17 5 million compared to $16 1 million in the fourth quarter of 2000 to.
The increase was mainly driven by higher storage and transportation rates.
Unnamed Speaker: And lastly, the investment in pipeline joint venture segment contributed $8.5 million this quarter, compared with $9 million in the fourth quarter of 2020. Moving on to capital, the capital program for 23 was $74 million.
And lastly, the investments in pipeline joint venture segment contributed $8 $5 million this quarter compared with $9 million in the fourth quarter of 'twenty two.
Moving onto capital expenditures the capital program for 'twenty. Three was 74 million. This includes $7 million of proceeds from producers to partially fund growth projects. Most of the spend throughout the year was for growth projects, namely advancing new connections in the Midland and Delaware gathering systems for two.
Unnamed Speaker: This includes $7 million of proceeds from producers to partially fund growth projects. Most of the spend throughout the year was for growth projects, namely advancing new connections in the Midland and Delaware gatherings. For 2024, Delek Logistics Partners expects the capital program to be about $70 million.
<unk> thousand and 24, Delek logistics partner expects the capital program to be about $70 million. This includes approximately $20 million of sustaining and regulatory capital and $50 million of growth capital. We will continue to advance new connection in our gathering system for the volume growth at the partnership.
Operator: This includes approximately $20 million of sustaining and regulatory capital and $50 million of growth capital. We will continue to advance new connections in our gathering system for volume growth at the part. With that, we can open the call for questions. Thank you. Ladies and gentlemen, should you have a question, please press the star followed by the one on your touch tone. If you'd like to withdraw your question, please press. Please ensure you lift the handset before pressing any key.
With that we can open the call for questions.
Thank you ladies and gentlemen, so do you have a question. Please press the star followed by the one on your Touchtone phone if you'd like to withdraw your question. Please press star two please ensure you lift the handset before pressing any keys one moment. Please for your first question.
Operator: One moment, please, for your first question. Your first question comes from Doug Arwin from Citi. Please go ahead. Hi, thanks for the question. I just want to start with the Delaware gathering and processing asset.
Your first question comes from Doug <unk> from Citi. Please go ahead.
Alright. Thanks for the question I, just wanted to start with the Delaware gathering and processing assets understanding the long term outlook is still intact can you maybe just talk about how the three bear assets are trending today and just firstly initial expectations. When you acquired then.
Avigad: Understanding the long-term outlook is still untaxed. You maybe just talk about how the three bear assets are trending today, just first the initial expectations when you acquired them. I think the initial target for these assets when they were acquired was 100 million of annual EBITDA. Is that still a good number to work with here in your term? Hey, Doug. It's Avigad. Good morning.
I think the initial target for these assets when they acquired was a 100 million of annual EBITDA is that still a good number to work with here in near term.
Hey, Doug it's that we got this.
Good morning, Thank you for joining the joining our call generally speaking.
Avigad: Thank you for joining our call. Generally speaking, the 3BAR, now DDG, is meeting our expectations. We also, being over there in that area, give us insight into more opportunities we see in the region. And, as you probably picked up on my prepared remark, there is an additional opportunity, mainly for natural gas. So that was a very good position to get into, and we are happy around it. Okay, yeah, thanks, thanks.
The Bill now DDG is meeting our expectation.
We are also being overdue.
Yeah give us insights for more opportunities we see in the in the region.
As you probably picked up we might be building mark and there is a decent opportunity mainly on the natural gas. So this was a very good position to get into and we are.
And all of it.
Okay got it. Thanks, and then just second question just on the broader 24 outlook.
Avigad: And then just the second question just on the broader 24 outlook. You gave, last quarter you talked about exiting 23 at a 100 million quarterly EBITDA run rate, which you achieved this quarter. Are there any similar targets you can point to moving forward, whether that's on EBITDA volume growth or some other metric, just to kind of help frame the growth outlook for 24?
You gave last quarter, you talked about exiting 23, yet at 100 million quarterly EBITDA run rate, which you achieved this quarter.
Are there any similar targets you can point to moving forward, whether that's on EBITDA volume growth or some other metric just to kind of help frame the growth outlook for 2004.
Yeah. So.
Avigad: Yeah, so... We are focusing on constant improvement, and we are committed to keep improving our business. So we are very optimistic about what we see in the business as an opportunity. We have seen a nice, significant CAPEX plan into the business that will enhance additional opportunities. But we are very optimistic, and we see consistent and constant improvement in the business. So that's what we can provide in these 10 seconds. Got it.
We are focusing with the constant improvement.
We are committed to keep improving our business.
So we're very optimistic about what we see in the business on the opportunity you have seen a nice significant capex plan into the business that will enhance additional opportunities.
But we are very optimistic and we see continued consistent and constant improvement in the business.
That's going to be a let's begin provides a distant second.
Avigad: I'll leave it there. Thank you. But thank you for joining us today.
Got it I'll leave it there thank you.
Thank you for joining us today.
Ladies and gentlemen, as a reminder, should you have a question. Please press star one on your telephone keypad.
Operator: Ladies and gentlemen, as a reminder, should you have a question, please press star 1 on your telephone keypad. There are no further questions at this time. I will turn, oh, we do have one more question, I apologize, from Paul Longwell on behalf of Lord Abbott. Please go ahead.
There are no further questions at this time I will turn up we do have one more question I apologize from Paul <unk> from Lord Abbett. Please go ahead.
Paul Longwell: Yes, hi. I was curious; it looked like the Midland volumes were down a little bit sequentially, and some of the gas and the water and the Delaware volumes were down a little bit sequentially. Forgive me if I missed that. Why is that, and should we expect that trend to continue? Yeah, so thank you, Paul, for joining us today. The gathering, and the dollar volume are pretty much in line quarter over quarter. What we see in the Permanent Basin is a touch lower, and you can expect it after producer adds new production.
Yes, hi.
I was curious it looked like.
The Midland volumes were down a little bit sequentially and.
Some of the the gas and the water in the Delaware volumes were down a little bit sequentially forgive me if I missed that what was why is that and should we expect that trend to continue.
Yes, so thank you Paul for joining us today.
The dominant or the volume are pretty much in line quarter over quarter.
What we see in the Permian Basin is a touch lower and you can expect it after a producer of adding a new production you probably know this is lucas anyone that the new production in the beginning it goes to it to the vet.
Unnamed Speaker: You probably know that as well as anyone that new production in the beginning goes to a very high and then stabilizes over time. So that's what we see. As you probably picked up, we have a significant capital budget that will enhance additional volume and connection in the DPG, the median area, and we'll see volume picked up throughout the year. Odele, do you want to add anything to that? Yeah, sure. And this is Odele.
Hi, and then stabilize over time, so that's what we see as you probably picked up we have a significant capital budget that's really it.
Hence the additional volume and connection in the.
<unk>, the Midland area, and we will see a volume in.
It picked up along deal.
David you want to add anything yeah sure. This is a daily hi, Paul.
Odele: Hi Paul. Great morning. I'll just give you a little bit more coloring. Familiar on the Valor side, as Abigail mentioned.
Good morning.
Give a little bit more coloring familiar on the Delaware side of the Gall mentioned in Q4, we expedite air expedite some of our maintenance work that we plan to do in Q1 and decided to do it in Q4, it's actually help us to continue improving volumes and this is why you see slightly lower compared to Q between Q4.
Odele: In Q4, we expedited some of our maintenance work that we planned to do in Q1 and decided to do it in Q4. That has actually helped us to continue improving volumes, so this is why you see gas slightly lower compared to between Q4 and Q3 of this year. But if you look both in DPG and also in DDG, on both sides, if you compare year over year, we obviously continue to improve our associated performance. So for Q4 primarily, we had that work that was done that we expedited that was planned to work on the most in the plan, but as we're looking right now in Q1, those numbers are already improving compared both to Q3 and also Q4. Oh, and that improvement is for both Midland and Delaware? Primarily in Delaware is Midland.
In Q3 of this year, but if you look both in <unk> and also in DDG in both side, if you compare it year over year, we obviously continue to improve.
Our associated performance. So Q4, primarily we had that work that was done at an expedited who has been working on the most of it in the plan, but as we're looking right now in Q1, those numbers already an improvement compared to Q3 and also Q4.
Oh and that improvement is for both Midland and Delaware.
Primarily in the Delaware Midland and I think I mentioned, we do see the natural decline in business compared to the peak, we've seen an hour compared to the volumes in Q3, but that said we do have kept up program has undergone mentioned also Willy mentioned in his remarks, a $50 million on connection so we should start to.
Odele: As Abigail mentioned, we do see a natural decline in business compared to the peak we've seen or compared to the volume we've seen in Q3. With that said, we do have a capital program, as Abigail mentioned, and Ruben mentioned in his remark, of $50 million on connection. So we should start to see an increase primarily in the second half of the year as we implement this project. Okay, great. And then I noticed corporate expenses were down a little bit sequentially. Could you talk about that a little bit?
<unk> increased.
In the second half of the year as we implement this project.
Okay, Great and then yeah.
I noticed corporate expenses were down a little bit sequentially.
Could you talk about that a little bit.
Okay.
So I'd say its an effort yet.
Unnamed Speaker: It's an effort we are doing to cause companies to streamline expenses. We had a big initiative at the parent company to reduce expenses. We call it the zero base budget with a target of 100 million dollars. Some of that went all the way to DKL, to our partnership, so you see the fruits of that. We didn't put it on the billboard here, but we were able to enjoy it.
What we are doing it it goes the companies to streamline expenses.
A big initiative on the <unk>.
For the company to reduce expenses recorded the zero based budget with a target of $100 million. Some of that went all the way to detail so youll see it.
Our partnership so you'll see the fruits of that.
So we didn't put it on the beautiful deal, but we were able to enjoy that.
Okay, great. So we should expect that.
Unnamed Speaker: Okay, great. So we should expect the rate expenses to kind of stabilize or maybe even continue to improve going forward? I don't think we are giving guidance, but there is no reason that we go back. Okay, and then you have a few debt maturities coming up in 2025. Any thoughts on those at this point in time? Yeah, absolutely. Maybe we'll then see if we'll be the directors.
<unk> expenses.
Expenses to kind of stabilize or maybe even continue to improve going forward.
Yeah, I don't think we're giving guidance.
But there is no isn't it we go back.
Okay, and then you have a few debt maturities coming up in 25 any thoughts on those at this point in time.
Yes, absolutely maybe move into Cfos, but yeah, we are.
<unk>.
Actively.
Unnamed Speaker: Yeah, we are actively examining various instruments. We'll probably be in the market in the next few months to refinance some of the debt, especially the one that is coming due between the term loan A and the 250 billion I yield. So some form of refinancing will happen this year.
Examining various instruments will probably be in the market in the next few months too.
Refinance some of the desert, especially the one that is coming correlate between the terminal.
The $250 million high yield so.
Some form of refinancing will happen this year.
Okay, Great and then my last question, you probably won't be able to say too much on it but you know as you look at the sum of the parts and the strategic eight are there ways.
Unnamed Speaker: Okay, great. And then my last question, you probably won't be able to say too much about it, but you know, as you look at the sum of the parts and the strategic plan, are there ways, you know, what are your thoughts on leverage here at DKL? And are there ways that that could be improved as part of that?
You know what is your thoughts on leverage here a D. K L and are there ways that that could be improved as part of that anything you can kind of stay on that subject.
Unnamed Speaker: Anything you can kind of say on that side? So you can probably see the trend; all that we have seen with the leverage ratio has been improving quarter over quarter. We will continue this trend; that's our plan. And obviously, there are more ideas on the table, but once we get into a higher level of resolution, we communicate with the market. But I think that if you connect the dots that you have seen in the last year or so, you can be very pleased with the improvement in the leverage ratio. We are doing that consistently, quarter over after quarter.
So you can already see the trend that we've seen with the leverage ratio was improving quarter over quarter.
We will continue this but that's our plan and obviously there are more.
Ideas on the table, but once we got into it.
I had a level of dilution will communicate with the market.
I think that if you connect the dots.
We have seen in the last deal. So you can be very pleased with the improvement in leverage ratio well doing that consistently called optical.
Great and do you think we should we think of your goal is four times or well any thoughts on that.
Yes, we started with.
We have.
The market is we want to be below Poland. We are eventually going to get them.
Excellent okay. Thank you very much.
Unnamed Speaker: Great. And you think, should we think of your goal as four times four, or any thoughts on that? Yeah, we we we we started. We have the market that we want to be below four, and we're eventually going to get there.
Thank you Paul.
There are no further questions at this time I will turn the call back over to <unk> for closing remarks.
Thank you I would like to thank my colleagues around the table to our board of directors to invest though in mostly to our employees that they are making the assist the great company. It is and we'll talk again next quarter. Thank you so much.
Unnamed Speaker: Excellent, okay. Thank you very much. But, thank you for... There are no further questions at this time. I will turn the call back over to Abigail for closing remarks. Thank you. I would like to thank my colleagues around the table, our Board of Directors, our investors, and, especially, our employees who are making this a great company it is. And we'll talk again next quarter. Thank you so much. Ladies and gentlemen, this concludes your conference call for today. Thank you for joining us, and you may now disconnect your lines. Thank you. Assaf Ginzburg, Rosy Zuklic, Ezra Yemin, Delek Logistics Partners LP
Ladies and gentlemen, this concludes your conference call for today. Thank you for joining and you may now disconnect your lines. Thank you.
Yeah.
[music].
Sure.
[music].