Q1 2024 Delek Logistics Partners LP Earnings Call
Regina: Hello, and thank you for standing by. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Delek Logistics Partners first quarter 2024 earnings conference call. All lines have been placed on mute to prevent any background noise.
Hello, and thank you for standing by my name is Regina and I will be your conference operator today at this time I would like to welcome everyone to the Delek logistics partners first quarter 'twenty 'twenty four earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a class.
Regina: After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press star and then the number one on your telephone keypad. If you would like to withdraw your question, press star one again. I would now like to turn the conference over to Rosy Zuklic, Vice President of Investor Relations. Please go ahead.
Rosy Zuklic: <unk> and answer session, if you'd like to ask a question. During this time simply press Star then the number one on your telephone keypad. If you would like to withdraw your question Press Star One again I would now like to turn the conference over to Rosy do Glick Vice President Investor Relations. Please go ahead.
Rosy Zuklic: Good morning and welcome to the Delek Logistics Partners first quarter earnings conference call. Participants on today's call will include Avigal Soreq, President, Joseph Israel, EVP of Operations, Reuven Spiegel, EVP and Chief Financial Officer, and Odely Sakazi, SVP of 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 outlook. These statements involve risks and uncertainties that may cause actual results to differ from our forecast.
Rosy Zuklic: Good morning, and welcome to the Delek Logistics partners first quarter earnings Conference call participants on today's call will include avid golf sore It President Joseph Israel, EVP operation, Reuven, Spiegel, EVP, and Chief Financial Officer, and O Deli circa Avi SVP Delek logistics.
Rosy Zuklic: 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 outlook.
Rosy Zuklic: 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.
Rosy Zuklic: Carl.
Rosy Zuklic: Partnership assumes no obligation to update any forward looking statements or information, which speak as of their respective date.
Rosy Zuklic: 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 the respective date. I'll now turn the call over to Avigal for opening remarks. Avigal?
Avigal Soreq: I'll now turn the call over to avid golfer opening remarks ethical. Thank you Robby Delek logistics partners reported strong first quarter.
Avigal Soreq: Thank you, Rosy. Delek Logistics Partners reported a strong first quarter. We once again exceeded $100 million in quarterly EBITDA. I'm pleased with our consistent performance. We saw continued strong performance from our midland gathering operations, and our operation in the Delaware Basins has started to exceed our expectations on a consistent basis. This validates our strong position in the parent base. We have come a long way with DKL. Delek Logistics started back in 2012. It's a classic drop-down story.
Avigal Soreq: We once again exceeded $100 million quarterly EBITDA.
Avigal Soreq: With our consistent performance.
Avigal Soreq: We saw continued strong performance from our Midland gathering operation and our operation in the Delaware Basin.
Avigal Soreq: Target to exceed our expectations on a consistent basis.
Avigal Soreq: This validates our strong position in the Permian Basin.
Avigal Soreq: We have come a long way with DKNY. This logistics, both with back in 2012.
Avigal Soreq: The classic dropdown story it.
Avigal Soreq: It has evolved into something bigger. We started to develop third-party business back in 2016, focusing on the Midland and the Delaware Basin. Today, approximately 50% of our EBITDA is from third-party business. Our growth efforts have been focused on the gathering and processing sector. Our Midland Gathering system is a premier asset in the heart of the Midland Basin and will build this system organically. It's now gathering up to 230,000 barrels per day and has around 350,000 of dedicated acreage contracted until 2030.
Avigal Soreq: It has evolved into something.
Avigal Soreq: We started to develop third party business back in 2016 focuses in the Midland and the Delaware basins today, approximately 50% of our EBITDA is from third party business.
Avigal Soreq: Our golf effort has been focused on the gathering and processing segment.
Avigal Soreq: Our Midland gathering system is premier asset in the heart of the Midland Basin, we built the system.
Avigal Soreq: Honestly.
Avigal Soreq: It's now up to 230000 barrels per day and visit all 350000 dedicated acreage contracted until 2030.
Avigal Soreq: It's an attractive asset that provides the growth engine of our midland, midstream operations, moving to the Delaware Gathering business. We are building this business inorganically and organically. The system provides complete food, gas, and water gathering to our customers. We have significant growth opportunities in our system. In terms of capital structure, we improve Delek Logistics' financial strength and flexibility. Reuven will speak to this. The debt and equity offering improved our liquidity to approximately $800 million. I'm proud of the team for successfully executing this transaction.
Avigal Soreq: It's an attractive asset.
Avigal Soreq: Worldwide the growth engine of our Midland Midstream operation.
Avigal Soreq: Moving to the Delaware gathering business.
Avigal Soreq: We build this business inorganically and organically the system provides complete crude gas and water gathering to our customers.
Avigal Soreq: We have significant growth opportunities in our system.
Avigal Soreq: On the capital structure, we improved delek logistics financial strength and flexibility.
Avigal Soreq: Dan will speak to this.
Avigal Soreq: The debt and equity offerings improved our liquidity to approximately $800 million.
Avigal Soreq: I'm proud of the team for successfully executing these transactions.
Avigal Soreq: In May, the Board approved the 45th consecutive increase in the quarterly distribution to $1.07 per unit. Delek Logistics has shown a strong track record of delivering value to our unit holders. We feel confident in our ability to maintain strong distributions to our investors. I will now hand it over to Reuven.
Avigal Soreq: In may.
Avigal Soreq: The board approved a 4%.
Reuven: Consecutive increase in quarterly distributions to $1 <unk> per unit.
Reuven: Logistics has shown strong track record of delivering value to our unit holders.
Reuven: We feel confident in our ability to maintain strong distribution two hour and vessels.
Reuven: I will now hand, it over to <unk>.
Reuven Avraham Spiegel: Thank you, Avigal. Before I start the financial highlights, I wanted to give a little color on the recent debt and equity audit. The combination of the primary equity issuance and extending our debt to 2029 improved Delek Logistics' ability to pursue its growth plans through improved leverage and financial equality. It also increased the float in the units, attracting new investors and increasing the daily volume traded. As Avigal mentioned, we increased liquidity to approximately $800 million.
Reuven: Thank you <unk> before I start the financial highlights I wanted to give a little color on the recent debt and equity offerings.
Reuven Avraham Spiegel: The combination of the primary equity issuance and extending our debt through 2029 improves delek logistics ability to pursue its growth plans through improved leverage and financial liquidity.
Reuven Avraham Spiegel: It also increased float in the units, attracting new investors and increasing the daily volume traded.
Reuven Avraham Spiegel: Avocado mentioned, we increased liquidity to approximately $800 million.
Reuven Avraham Spiegel: This was about $300 million prior to this transaction. In addition, we reduced the leverage ratio to 4.01 from 4.34 last quarter. We see a pathway to continue improvement in the leverage ratio through the balance of the year. Moving on to the quarterly results. The first quarter EBITDA was $101.5 million, compared to $93.2 million in the same period of 23 years. Distributable cash flow was $68 million, and the DCF coverage ratio was 1.35 times.
Reuven Avraham Spiegel: This was about 300 million prior to these transactions.
Reuven Avraham Spiegel: In addition, we reduced the leverage ratio to 401 from $4 three for last quarter, we see a pathway to continued improvement in the leverage ratio through the balance of the year.
Reuven Avraham Spiegel: For the gathering and processing segment, EBDAP for the quarter was $57.8 million compared to $55.4 million in the first quarter of 2020. The increase was primarily due to higher throughput from Delek Logistics' Perimian Basin. Wholesale Marketing and Terminaling EBITDA in the first quarter was $25.3 million compared with $22 million in the prior year. The increase was primarily from higher terminal utilization. Storage and transportation EBITDA for the quarter was $18.1 million, compared with $13.4 million in the first quarter of 2013.
Reuven Avraham Spiegel: Moving on to the quarter results. The first quarter EBITDA was $101 5 million compared to $93 2 million in the same period of 'twenty three distributable.
Reuven Avraham Spiegel: Distributable cash flow was $68 million in the DCF coverage ratio was 135 times for.
Reuven Avraham Spiegel: For the gathering and processing segment EBITDA for the quarter was $57 8 million compared to $55 4 million in the first quarter of 'twenty three.
Reuven Avraham Spiegel: The increase was primarily due to higher throughput from Delek logistics premium basin assets.
Reuven Avraham Spiegel: Wholesale marketing and Terminalling EBITDA in the first quarter was $25 3 million compared with $22 million in the prior year.
Reuven Avraham Spiegel: The increase was primarily from higher terminal and utilization.
Reuven Avraham Spiegel: <unk> transportation EBITDA in the quarter was $18 1 million compared with $13 4 million in the first quarter of 'twenty three.
Reuven Avraham Spiegel: The increase was mainly driven by higher storage and transportation rates. And lastly, the investment in pipeline joint venture segments contributed $8.5 million in this quarter, compared with $6.3 million in the first quarter of 2020. Moving on to capital expenditures, the capital program for the first quarter of 2004 was $15 million. Most of the spend in the quarter was for growth projects, namely advancing new connections in the Midland and Delaware gathering states. With that, we can open the call to questions.
Reuven Avraham Spiegel: The increase was mainly driven by higher storage and transportation rates.
Reuven Avraham Spiegel: And lastly, the investment in pipeline joint venture segment contributed $8 5 million in this quarter compared with $6 3 million in the first quarter of 'twenty three.
Reuven Avraham Spiegel: Moving onto capital expenditures the capital program for the first quarter of 'twenty four was $15 million most.
Reuven Avraham Spiegel: Most of the spend in the quarter was for growth projects, namely advancing new connections in the Midland and Delaware gathering systems with that we can open the call for questions.
Regina: We will now begin the question and answer session. Our first question will come from the line of Doug Irwin with Citigroup. Please go ahead.
Reuven Avraham Spiegel: We will now begin the question and answer session. Our first question will come from the line of Doug <unk> with Citigroup. Please go ahead.
Douglas Baker Irwin: All right, thanks for the question. I just want to start with the recent offerings. Could you maybe provide a little bit more context just into the decision to issue DKL equity, and then maybe if you could just talk about the flexibility and some of the growth opportunities that this increased liquidity might allow going forward. And then just to follow up on that, as you kind of recently issued another shelf offering, are there any plans to issue more equity going forward? Are you kind of comfortable with where the balance sheet is today?
Douglas Baker Irwin: Alright, thanks for the question.
Douglas Baker Irwin: Wanted to start with the recent offerings.
Douglas Baker Irwin: Could you maybe provide a little bit more context, and so the decision to issue detail Dk all equity.
Douglas Baker Irwin: And maybe if you could just talk to the flexibility and some of the growth opportunities of this increased liquidity might allow going forward.
Douglas Baker Irwin: And then.
Douglas Baker Irwin: Just to follow up on that you kind of recently issued another shelf offering are there any plans to issue more equity going forward or are you kind of comfortable with where the balance sheet is today.
Avigal Soreq: Thank you, Doug. It's Avigal.
Speaker Change: Thank you Barry Doug until we got I'll start and then well then that can add more color into that so.
Avigal Soreq: I will start and then Reuven can add more color to that. So our offering that Reuven and his team did actually checks all the boxes that we need. It's improving leverage ratio, improving availability, and getting more float on the public unit. So it checks many boxes to enhance the great activity that we have on the operation side. So it's a complementary action to a...
Avigal Soreq: Our other offering.
Avigal Soreq: As Tim did actually checks check all the boxes that we needed is improving the leverage ratio improving availability and the guests more flow.
Avigal Soreq: The public units so it checks many boxes in.
Avigal Soreq: And hence the great the activity that we have on the operation side. So.
Avigal Soreq: Complementary.
Avigal Soreq: <unk> two two.
Reuven: So the operation side to enhance the equity side and the balance sheet side on the shelf offering that we have obviously, that's a best practice to have a good.
Avigal Soreq: Chunk of offering.
Speaker Change: For many reasons Holden I don't know if you want to is towards into.
Reuven Avraham Spiegel: Yeah, the equity offering actually has a history. On June 30th, 2022, we closed on 3BAR, and we communicated back then to the market that we intend to finance the acquisition with $400 million of FI yield and $200 million of equity issuance. However, both the IEU market and the equity issuance were shut down at the time, so we had to be patient and look for the right time and the right opportunity, which we found in the last equity issuance.
Avigal Soreq: The equity offering actually has a history on June 32022, we closed on three bear and we communicated back then to the market.
Reuven Avraham Spiegel: We intend to finance the acquisition.
Reuven Avraham Spiegel: $400 million of high yield into a $100 million of equity issuance. However, both value of market NDA quotations were shut down at the time and we have to be patient and look for the right time and the right opportunity, which we found.
Reuven Avraham Spiegel: And the last equity issuance.
Reuven Avraham Spiegel: Given that it was the first one we couldnt go all the way through to 100, but I think we're happy with the <unk>.
Reuven Avraham Spiegel: Given it was the first one, we couldn't go all the way to $200 million, but I think we're happy with the outcome of the first one. And I think going forward, we'll just be opportunistic about it.
Reuven Avraham Spiegel: Outcome of the first one and I think going forward, we'll just be opportunistic about it.
Reuven Avraham Spiegel: Okay.
Avigal Soreq: Great, that's some helpful context around three there. And then, maybe, pivoting to the growth outlook, could you maybe just talk about the opportunities that you're seeing for the T&P business moving forward, as growth may be geared more towards Delaware or the Midlands? And then maybe you could just talk about how you're thinking about organic growth versus maybe the opportunity to do some additional acquisitions moving forward.
Speaker Change: Great Thats some helpful context around three there and then just as a follow up thank you pivot into the growth outlook.
Avigal Soreq: Could you maybe just talk about the opportunities that youre seeing from the G&P business moving forward.
Avigal Soreq: May be geared more towards the Delaware, where the Muslim.
Avigal Soreq: And then maybe if you could just talk about how youre thinking about organic growth versus maybe the opportunity to do some additional acquisitions moving forward.
Avigal Soreq: Yeah, Doug, that's another great question. I will start, and then I will let Odely finish the answer. So it's easier to talk about the past versus the future, for obvious reasons, but I think that we demonstrate to the market that we actually know how to do both ways, inorganically and organically. We demonstrate that the DPG assets in the Permanent Basin can be very attractive, and we have developed them over time into something we are really proud of. And we also developed the Delaware asset and exceeded our expectations as well. So we have a good track record.
Speaker Change: Yes, Doug Thats another great question I'll start and then I'll, let the daily finished down so so it's easier to talk about the possibilities of the future.
Avigal Soreq: From obvious reasons, but I think that we demonstrate to the market that we actually know to do both ways Inorganically and organically, we demonstrated the <unk> assets.
Avigal Soreq: In the Permian basin can be very attractive and redevelop that over time to something we are really proud of.
Odely: We also develop the Delaware asset two and exceeded our expectation a switch. So we have a good <unk>. We are in a point that we address that.
Odely Sakazi: We are at a point where we are aggressive around it, but we always want to make sure that whatever we are doing is attractive to both the DKL unit holder and also to our shareholders. As Avigal mentioned, I think that in the inorganic, we're always opportunistic and always look for an opportunity, and we're going to continue to do that. And obviously, it has to be something that makes sense and also a credit for us, so we're always going to continue to look at that.
Odely Sakazi: Around it but we always want to make sure that we are doing whatever we are doing is attractive to both.
Odely Sakazi: The detail unitholder, but also to our shareholders and of course, our daily. Please. Thank you Avi and good to hear from you to daily.
Odely Sakazi: I think I mentioned I think that on the inorganic we are always optimistic that always looking at opportunity and we're going to continue to do that then obviously it has to be something that.
Odely Sakazi: Makes sense and also accretive for us so we always going to continue to look at that on the organic side definitely as you know both the Delaware and also the Midland or both of the location. We will continue to put capital in and we see a significant opportunity from a growth.
Odely Sakazi: On the organic side, definitely, as you know, both the Delaware and also the Midlands are both of the locations where we continue to put capital in, and we see a significant opportunity from a growth opportunity standpoint. Specifically, in Delaware, we feel that there is needed infrastructure pretty much in all lines, on the water side, the gas, and the crude. We're able to execute that across the board and all our segments in the Delaware side of our DDG, and we see from our producers the continued need, specifically in the location where we have our corn and acreage with the tree bear formula acquisition, to continue to focus on that location on all tree streams. I think this is an area where it's very needed for continued growth that we're definitely going to continue to look for organic opportunity in all streams.
Odely Sakazi: Opportunity standpoint, specifically on the Delaware and we feel that there is a needed infrastructure are pretty much in all lines on the water side, the gas and the crude we're able to execute that across the board in all of our segments in the Delaware side on the DDG and we see from our producers continue to need specifically in the location, where we have acquired acreage with the <unk>.
Odely Sakazi: <unk> Formula acquisition.
Odely Sakazi: To continue to focus on that location on all three streams I think this is an area, where it's a very needed.
Odely Sakazi: We'll continue to grow that we are definitely going to continue to look on organic opportunity in all streams.
Douglas Baker Irwin: Great, that's helpful. Thanks for your time.
Speaker Change: Great. That's helpful. Thanks for your time.
Avigal Soreq: Thank you. Doug, thank you. Thank you for your support.
Speaker Change: Absolutely. Thank you. Thank you for your support.
Regina: Your next question will come from the line of Neil Dingman with Truist Securities. Please go ahead.
Avigal Soreq: Your next question will come from the line of Neal Dingmann with <unk> Securities. Please go ahead.
Neil Dingman: Good morning guys. Let me just talk about your MVC contracts. Any update, particularly on Tyler or Eldorado, and then just again just how the other sorts of you are looking at other contracts. Are you continuing to try to extend the duration, or where do you sit with most of these other, you know, maybe prospective MVC contracts?
Neal David Dingmann: Good morning, guys. Thank.
Neil Dingman: Let me just talk about your <unk>.
Neil Dingman: MVC contracts any any update, particularly on Tyler or El Dorado, and then just again just how.
Neil Dingman: The other sort of caught you are looking at other contracts or you continue to try to extend the duration or where do you sit with most of these other.
Neil Dingman: Maybe perspective NBC contracts.
Avigal Soreq: Yes, so Anil, the intent of... (inaudible) to renew this contract, and that's something that Decal is working on.
Neil Dingman: Yes.
Avigal Soreq: In terms of.
Avigal Soreq: <unk> two.
Avigal Soreq: Is to renew this contract and that's something that the detail is.
Avigal Soreq: Walking it.
Avigal Soreq: Okay.
Regina: And is there any timeline for the Tyler or El Dorado negotiations?
Avigal Soreq: Yes.
Avigal Soreq: Is there any timeline for the Tyler or El Dorado negotiations.
Avigal Soreq: So obviously, that requires conflict committees between DK and DKL, so this is a process, but you understand the intention. Sure.
Regina: So obviously that's required the conflicts committees between Dk indicators so.
Avigal Soreq: Yes.
Avigal Soreq: This is a process, but you understand the intention.
Neil Dingman: Sure, okay. And then, just lastly, kind of bolt on to the prior question, what kind of opportunities up by 3Bear do you seem to be advancing up there? Are there opportunities to, you know, bolt on some assets, or I guess maybe, let me ask another way, is there any need to bolt on any assets, do you believe, up there? And, you know, sort of what are you doing to boost the margins in that area?
Speaker Change: Okay, and then just lastly kind of pulse on the prior.
Neil Dingman: Prior question.
Neil Dingman: Hello opportunities up up by three bear you seem to be advancing up there are there opportunities to.
Neil Dingman: Bolt on some assets or I guess, maybe ask let me ask another way is there any need to bolt on any assets do you believe up there and sort of what are you doing to boost the margins in that area.
Neil Dingman: Yeah.
Avigal Soreq: I'm not going to talk about the margin. The margin is where the text is in this area.
Neil Dingman: We're not going to talk about the margin the margin is where the margin is in this area. What I can speak that we see a significant growth in <unk>.
Avigal Soreq: What I can say is that we see significant growth and opportunities in the area, and we will elect to do something that's going to be accretive to our unit owners. We see the demand for the service that we know how to provide. Obviously, as I said before, we know to provide crude, gas, and water in the area. That's a pretty unique value proposition. Our infrastructure in the area is a unique strategic location.
Avigal Soreq: Opportunities in the area and we will elect to do something that is going to be accretive to our unit holders.
Avigal Soreq: We see the demand for the services.
Avigal Soreq: Know how to provide obviously as I said before we know to provide in the area code.
Avigal Soreq: Yes, and water, that's a pretty unique value proposition our infrastructure in the area is in a unique strategic location. So if we see something which is synergetic and make a lot of sense with the current offering we have and the physical asset.
Avigal Soreq: So if we see something which is synergetic and makes a lot of sense with the current offering we have and the physical asset, we will not hesitate to do something as long as it's accretive to a unit owner.
Avigal Soreq: Not hesitate to do something as long as it's accretive to.
Avigal Soreq: Unit holders.
Neil Dingman: Great to hear, guys. I think that's the right strategy. Thank you.
Speaker Change: Great can you guys angle right strategy. Thank you.
Regina: We have no further questions at this time. I will now hand the call back to Avigal for a closing remark.
Speaker Change: We have no further questions at this time I will now hand, the call back to <unk> for closing remarks.
Avigal Soreq: So thank you. I want to thank our employees for their commitment and hard work. I want to thank our unit holders for their trust and interest in our partnership. I want to thank our customers for trusting us. And I want to thank our Board of Directors for their continuous support. And we'll talk next in the next quarter. Thank you.
Avigal Soreq: So thank you <unk>.
Avigal Soreq: Thank our employees for their commitment and hard work I want to thank to our unit holders for their trust and the interest in our partnership I want to thanks to our customers for trusting in us and I want to talk to thanks to our board of directors for their continuous continued support.
Avigal Soreq: And we'll talk next in the next quarter. Thank you.
Regina: This will conclude our call today. Thank you all for joining us. You may now disconnect.
Speaker Change: And this will conclude our call today. Thank you all for joining you may now disconnect.
Regina: Okay.
Regina: Yeah.
Regina: Yeah.
Regina: Yeah.
Regina: Yes.