Delek Logistics Partners Q4 2023 Earnings Call Transcript

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February 27, 2024

There are 7 speakers on the call.

Operator

Good morning, ladies and gentlemen, and welcome to the Delek Logistics Partners 4th Quarter 2023 Conference Call. At this time, all lines are in a listen only mode. Following the presentation, we will conduct a question and answer session. This call is being recorded on Tuesday, February 27, 2024. I would now like to turn the conference over to Rosie Zulek, VP of Investor Relations.

Operator

Please go ahead.

Speaker 1

Good day, and welcome to the Delek Logistics Partners 4th quarter earnings conference call. Participants on today's call will include Avigail Thoric, President Joseph Israel, EVP, Operations Ruben Spiegel, EVP and Chief Financial Officer and Odeli Sakhazi, 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 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 ks and quarterly report on Form 10 Q filed with the SEC, along with the press release associated with this call.

Speaker 1

The partnership assumes no obligation to update any forward looking statements or information, which speak as of their respective dates. I'll now turn the call over to Abigail for opening remarks.

Speaker 2

Thank you, Rosy. Delek Logistics partner finished 2023 strong. We delivered another record quarter and achieved a record year. DKL exceed $100,000,000 in adjusted EBITDA this quarter. We saw a substantial growth from our new connection in our Midland Gathering operations further validating our strong position in the Permian Basin.

Speaker 2

I'm very proud of our employees who are dedicated to making Delek Logistics succeed. It is their dedication to safe and reliable operations that makes our results possible. The team has gone without a lost time injury 4 years in a row 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 1.55 dollars per unit.

Speaker 2

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.

Speaker 3

I will now hand it over to Ruben. Thank you, Abigail. The Q4 of 2023 adjusted EBITDA was $100,900,000 compared with $92,500,000 in the same period of 2022. The 4th quarter EBITDA was $86,100,000 which included a $14,800,000 goodwill impairment related to some of our Delaware gathering and processing assets. The impairment was primarily driven by a significant increase in interest rates.

Speaker 3

Our long term outlook of the Delaware Gathering system remains unchanged. Distributable cash flow was $65,000,000 and the DCF coverage ratio was 1.4. For the Gathering and Processing segment, adjusted EBITDA for the quarter was $53,300,000 compared with $48,100,000 in the Q4 of 'twenty two. The increase was primarily due to higher throughput from Delek Logistics' Permian Basin assets. Wholesale marketing and terminalling adjusted EBITDA in the Q4 of 2023 was $28,400,000 compared with 23 $300,000 in prior year.

Speaker 3

The increase was primarily from higher terminalling utilization. Storage and transportation adjusted EBITDA in the quarter was $17,500,000 compared to $16,100,000 in the Q4 of 2022. The increase was mainly driven by higher storage and transportation rates. And lastly, the investment in pipeline joint venture segment contributed $8,500,000 this quarter compared with $9,000,000 in the Q4 of 2022. Moving on to capital expenditures.

Speaker 3

The capital program for 2023 was $74,000,000 This includes $7,000,000 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 2024, Delek Logistics Partner expects the capital program to be about 70,000,000 dollars This includes approximately $20,000,000 of sustaining and regulatory capital and $50,000,000 of growth capital. We will continue to advance new connection in our gathering system for the volume growth at the partnership. With that, we can open the call for questions.

Operator

Thank Your first question comes from Doug Arwin from Citi. Please go ahead.

Speaker 4

Hi, thanks for the question. I just want 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 3 Bear assets are trending today just versus the initial expectations when you acquired them? I think the initial target for these assets when they were acquired was $100,000,000 of annual EBITDA. Is that still a good number to work with here near term?

Speaker 2

Hey, Doug. It's Avigail. Good morning. Thank you for joining our call. Generally speaking, the 3 Bear now DDG is meeting our expectation.

Speaker 2

We also being over there in that area give us insight for more opportunities we see in the region. And as you probably picked up on my prepared remark, there is additional opportunity mainly on the natural gas. So that was a very good position to get into and we are happy around it.

Speaker 4

Okay. Got it. Thanks. And then just second question just on the broader 'twenty four outlook. You gave last quarter you talked about exiting 'twenty three at $100,000,000 quarterly EBITDA run rate, which you achieved this quarter.

Speaker 4

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 2024? Yes. So

Speaker 2

we are focusing to have a constant improvement and we are committed to keep improving our business. So we are very optimistic about what we see in the business on the 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 going to be what we

Speaker 5

can provide in these 10 seconds.

Speaker 4

Got it. I'll leave it there. Thank you.

Speaker 5

Thank you for joining us today.

Speaker 2

There are no further questions at

Operator

this time. I will turn we do have one more question, I apologize, from Paul Longos from Lord Abbott. Please go ahead.

Speaker 6

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. What was why is that?

Speaker 6

And should we expect that trend to continue?

Speaker 2

Yes. So thank you, Paul, for joining us today. The gathering, the downward 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 producer adding new production. You probably know that as good as anyone that the new production in the beginning goes to a very high and then stabilize over time.

Speaker 2

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 Midland area, and we'll see volume picked up along the year. Oderiv, do you want to add anything to that?

Speaker 4

Yes, sure.

Speaker 5

And this is Adelio. Hi, Paul. Good morning. I'll just give a little bit more coloring from earlier on the Valor side as Abhijal mentioned. In Q4, we expedite some of our maintenance work that

Speaker 2

we plan to do in Q1 and decided to do

Speaker 5

it in Q4. That 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

Speaker 2

you look both in DPG and also in DDG

Speaker 5

in both sides, if you compare it year over year, we obviously continue to improve our associate performance. So Q4 primarily, we had that work that was done

Speaker 2

that we expedited. It was planned to

Speaker 5

work on the most even the plan. But as we're looking right now in Q1, those numbers are already improving compared both to Q3 and also Q4.

Speaker 6

And that improvement is for both Midland and Delaware?

Speaker 5

Primarily the Delaware and Midland, as Abhijal mentioned, we do see the natural decline in the 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 Abhijal mentioned also Ruben mentioned in his remarks of $50,000,000 on connection. So we should start to see an increase primarily in the second half of the year as we implement those projects.

Speaker 6

Okay, great. And then I noticed corporate expenses were down a little bit sequentially. Could you talk about that a little bit?

Speaker 2

It's a we are doing across the companies to streamline expenses. We had a big initiative on the parent company to reduce expenses. We call it the 0 based budget with a target of $100,000,000 some of that went all the way to DKL. So you see to our partnership, so you see the fruits of that. So we didn't put it on the billboard here, but we were able to enjoy that.

Speaker 6

Okay, great. So we should expect expenses to kind of stabilize or maybe even continue to improve going forward?

Speaker 2

Yes, I don't think we are giving guidance, but there is no reason that we go back.

Speaker 6

Okay. And then you have a few debt maturities coming up in 2025. Any thoughts on those at this point in time?

Speaker 2

Yes, absolutely. Maybe moving to CFO will address it. Yes, 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 current between the Term Loan A and the €250,000,000 high yield. So some form of refinancing will happen this year.

Speaker 6

Okay, great. And then my last question, you probably won't be able to say too much on it, but as you look at the sum of the parts and the strategic, are there ways what is your thoughts on leverage here at DKL and are there ways that that could be improved as part of that? Anything you can kind of say on that subject?

Speaker 2

So you can probably see the trend, Paul, that we have seen with the leverage ratio was 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 more 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 also, you can be very pleased with the improvement in leverage ratio.

Speaker 2

We are doing that consistently quarter after quarter.

Speaker 6

Great. And you think should we think of your goal is 4x or any thoughts on that?

Speaker 2

Yes. We started we addressed the market that we want to be below 4 and we eventually going to get there.

Speaker 6

Excellent. Okay, thank you very much.

Speaker 2

Thank you, Paul. There are no further questions at this time. I will turn

Operator

the call back over to Abigail for closing remarks.

Speaker 2

Thank you. I would like to thank my colleagues around the table, to our Board of Directors, to our investors and mostly to our employees that are making this as a great company it is. And we'll talk again next quarter. Thank you so much.

Operator

Ladies and gentlemen, this concludes your conference call for today. Thank you for joining, and you may now disconnect your lines. Thank you.

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Earnings Conference Call
Delek Logistics Partners Q4 2023
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