Q4 2024 Delek Logistics Partners LP Earnings Call
J.L.: Thank you for standing by. My name is J.L. and I will be a conference operator today. At this time, I would like to welcome everyone to the DKL 4th Quarter 2024 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session.
Speaker Change: If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad.
J.L.: If you would like to withdraw your question, simply press star 1 again.
J.L.: I would now like to turn the conference over to Robert Wright, Deputy CFO. You may begin.
Speaker Change: Good morning and welcome to the Dellec Logistics Partners Fourth Quarter Earnings Conference Call. Participants joining me on today's call will include Avigal Soreq, President, Reuven Spiegel, EVP, Mark Hobbs, EVP.
Speaker Change: As a reminder, this conference call will contain forward-looking statements as defined under the federal securities laws, including statements regarding guidance and future business outlook.
Speaker Change: Any forward-looking statements made during today's call involve risks and uncertainties that may cause actual results to differ materially from today's comments.
Speaker Change: Factors that could cause actual results to differ are included in our FCC filings.
The company assumes no obligation to update any forward-looking statements.
Speaker Change: I will now turn the call over to Avigal for opening remarks. Avigal? Thank you, Robert. Telek Logistics partner had another record quarter.
We reported approximately $107 million in quarterly adjusted EBITDA.
2024 has been a transformational year for Dellec Logistics.
and we are pleased with its continued strong performance.
Speaker Change: In 2024, DKL is taking key steps to becoming a premier pool service, crude, natural gas, and water provider in the prolific Permanent Basin, and we expect to make further progress in 2025.
Speaker Change: I would like to take a moment to reflect on the things we were able to accomplish in 2024.
We increased the financial and trading liquidity of DKL.
Speaker Change: We were also the first MLP to do two primary offerings in a year since 2017.
Speaker Change: We amend and extend contact between DKL and DK for a period of up to seven years, providing certainty around cash flows.
Thank you very much.
Speaker Change: We completed the acquisition of Telek portion in Wink2Webster pipeline which increased the overall asset quality at DKL and enhanced DKL permanent position.
Speaker Change: We announce two acquisitions in the Midland Basin, edge-to-oar midstream and gravity-water midstream enhance our competitive position in the Midland Basin significantly.
Speaker Change: We are excited about our combined offering and we are extremely pleased with the initial success we have seen so far.
Speaker Change: In the Delaware Basin, we are also making good progress in our processing plant expansion.
Speaker Change: The expansion is set to complete on time and on budget in the first half of 2025.
Speaker Change: As we complete the plant expansion, we also announced an FID on acid-gas injection at the Libby Complex.
Speaker Change: AGI wells and sour gas treating capabilities enhance our competitive position in the Delaware and provide a good runway of growth for DELEC logistics in the future.
Speaker Change: Looking forward, in 2025, we will continue to grow the partnership through prudent management of leverage and coverage.
Speaker Change: DKL also initiated a strong 2025 EBITDA guidance of $480 to $520 million.
This represents around 20% growth over 2024 adjusted EBITDA.
Speaker Change: ZKL continues to provide one of the best combinations of yield and growth in the entire ANZI Index.
Speaker Change: Thank you for watching. I hope you enjoyed the video. If you did, please subscribe to my channel. I post weekly. I also post weekly videos on my YouTube channel. I hope you enjoyed the video. I'll see you in the next video.
Speaker Change: We will continue to increase our economic separation with our sponsor DK.
Speaker Change: We are progressing the economic separation in a few different ways and today we have announced an additional tool to enable the deconsolidation.
Speaker Change: Our Board of Directors have authorized up to $150 million buyback from our sponsor DK to enhance value for the DKL unit holders.
Speaker Change: To conclude, we are very excited about the prospect of telecogistics.
Speaker Change: We expect to continue on our value creation path moving forward, and we will continue to grow our distribution in the future.
I will now hand it over to Mark.
Thank you for watching. See you next time.
Mark Hobbs: Thank you. As Avigal mentioned, we are growing Dellec Logistics with a prudent management of liquidity and leverage. We manage our financial liquidity throughout 2024 by accessing both the debt and equity markets.
Mark Hobbs: Post the close of our acquisition of Gravity Water Midstream, we have approximately $530,000,000 in liquidity.
Mark Hobbs: We are also managing our leverage as we complete several important organic growth projects this year.
Moving on to our fourth quarter results.
Mark Hobbs: The fourth quarter adjusted EBITDA was $107.2 million compared to $100.9 million in the same period of 2023.
Mark Hobbs: Distributable cash flow as adjusted was 69.5 million dollars and the DCF coverage ratio was approximately 1.2 times. As mentioned previously, we expect this ratio to steadily move back to our long-term objective of 1.3 times in the second half of 2025.
Mark Hobbs: As for the gathering and processing segment, adjusted EBITDA for the quarter was $66 million compared to $53.3 million in the fourth quarter of 2023. The increase was primarily due to higher throughput from Delwick Logistics Permian Basin assets and contribution from H2O Midstream.
Mark Hobbs: Wholesale Marketing and Terminaling adjusted EBITDA was $21.2 million compared to $28.4 million in the prior year. The decrease was primarily due to lower wholesale margins and impact of intercompany transactions.
Mark Hobbs: Storage and transportation adjusted EBITDA in the quarter was $17.8 million, compared with $17.5 million in the fourth quarter of 2023. The increase was mainly driven by higher storage and transportation rates.
Mark Hobbs: And lastly, the Investments and Pipeline Joint Ventures segment contributed $11.3 million this quarter, compared with $8.5 million in the fourth quarter of 2023.
Mark Hobbs: The increase was primarily due to the contribution from the Wheat-to-Webster drop-down in August of last year.
Mark Hobbs: Moving on to capital expenditures. The capital program for the fourth quarter was $49.4 million, of which $42.1 million was allocated to the new gas processing plant. The remainder of the spend in the quarter was for growth projects, namely advancing new connections in the Midland and Delaware gathering system.
Thank you very much.
Mark Hobbs: Along with initiating our full year EBIDTA guidance of approximately $500 million at the midpoint, we have also announced today our 2025 capital guidance.
Mark Hobbs: In 2025, we expect to spend a total of approximately $75 million on completing our Libby Processing Plan expansion and approximately $160 million on growth and maintenance projects. With that, we can open the call for questions.
Mark Hobbs: Thank you. The floor is now open for questions. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue.
Mark Hobbs: If you would like to withdraw your question, simply press star 1 again. If you are called upon to ask a question and are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question.
Speaker Change: We do ask that for today's session that you please restrict yourself to one question and one follow-up.
Speaker Change: Your first question comes from the line of Doug Irwin of Citi. Your line is open.
Hey, good morning Doug. Hey, thanks for the questions. Morning.
I'm just going to leave it at that guidance here.
Speaker Change: Looking at some of the prior benchmarks he's put around the acquisitions and the processing plant expectations.
Speaker Change: points to a relatively conservative guide, at least at the low end of the range. So I was just curious if we could maybe talk a little bit about what might drive the high-end versus the low-end here, and then maybe kind of where you see yourself exiting the year, given some of the moving pieces throughout.
Speaker Change: Hey, Doug, thanks for the question and listen, that's the first time we're giving guidance.
Speaker Change: DKL obviously is a growing company as we demonstrate and as you can very well see. Obviously we are increasing the economical separation between DK and DKL in every step that we are doing and for sure with the step that we announced today of the $150 million buyback from our sponsor.
Speaker Change: and we want to help you and others to model us better and that's what we try to do today. We feel confident with the guidance we gave today.
Speaker Change: And obviously, we are looking forward to update you down the road. If there is more modeling questions, obviously, you can follow up with Mohit for more detailed questions on how to get the exact model, but that's where we are today. And obviously, there is always...
opportunities in the future.
Thank you.
Understood. Yeah, appreciate the first time guidance.
Speaker Change: fund it all internally with free cash flow? Or are you maybe willing to use debt here given the discounted yield relative to where the equity is trading? And if so, just curious where you see leverage over the near term.
Speaker Change: and what we see here today at $40 is close to $11. So that's obviously very beneficial from a free cash flow standpoint for Decal and that's something that our partnership...
Speaker Change: Also, you can for sure appreciate that the Deconsolidation Effort is an initiative for both companies, both DKL and DK, and the reason is that
Speaker Change: it will allow DKL to completely fulfill its potential without sponsors. So those two initiatives are very well embedded in that. We are not going to give guidance, specific guidance.
Speaker Change: And obviously, that will be in place as long as the DKL share price makes sense from free cash flow accretive for the company.
Understood. Thanks.
Thank you.
Speaker Change: Your next question comes from a line of Neil Dingman of True Securities. Your line is open.
Thank you, and good morning.
Speaker Change: Morning, thanks for the time guys. My question is a little bit about the same, love to see the guidance, obviously looks great on EBITDA. I'm just wondering, besides you mentioned release,
Speaker Change: It's nice to see the upside that's going to happen around the Libby plant expansion. Could you speak to maybe other notable drivers you would share with us that's driving this upside potential around the EBITDA that you're showing this year?
Yeah, so we have many
Speaker Change: Chips in this guidance, right? We obviously finished the gravity deal, we finished the H2O deal, we announced the Libby plant, we announced the AGL and the Sauer effort.
Speaker Change: and obviously there are synergies among all of that and we have W2W. So there is really a mix of transactions that we have done and we felt, Neil, that it's very much necessary to give you guys...
Our currency is cheap.
versus the entire ANCI Index.
Speaker Change: So I think that's the reason we decided to give that, because of the amount of transaction we did, and to reflect more how discounted we think our currency is. So that's the reason we did it, and I'm sure that you can appreciate it.
Speaker Change: I would definitely appreciate it and the discount is definitely obviously seen out there right now. And then just my follow-up would be on the key three-bear assets here, which continue to be so good. I'm just wondering, when you look at those assets, I'm just wondering, how is demand and utilization of these assets looking?
Speaker Change: Yeah, so we would not expand those assets if you wouldn't see a strong demand.
Obviously, the gas in the Delaware area looks very good.
Speaker Change: We have many discussions with our producer that we have accreditation with. But another point I would like to highlight for you, Neil, is our comprehensive offering of crude gas and water proved itself very nicely in the Delaware, and that's part of the reasoning that we implemented the same concept.
Speaker Change: also in the Midland Basin. So that's paying us dividends, and we are very happy about that. That's the reason we felt confident with Libby 2 or the expansion, and we went also to the source. So we feel confident to the tactics and also to the strategy.
Very good. Thank you.
You're better.
Thank you. Thank you.
Speaker Change: With no further questions, that concludes our Q&A session. I will now turn the conference back over to Avigal Soreq for closing remarks.
Avigal Soreq: Absolutely. Thank you today. I would like to thank my colleagues around the table. I would like to thank the entire Dell Logistics employees, our Board of Directors, and for you, investors, and we'll meet again in the next quarter. Thank you.
Avigal Soreq
This concludes today's conference call. You may now disconnect.
[music]