Delek Logistics Partners LP

NYSE:DKL

Earnings Call Analysis

Record EBITDA and Increased Distribution

Delek Logistics Partners reported a record quarter, with a surge in EBITDA to over $98 million, and forecasted to surpass $100 million in the next quarter. The company's strategy focused on growing third-party revenues and long-term MVC contracts. Midland Gathering saw record throughput, doubling from the previous year. The Delaware system aided in diversifying revenue streams. A quarterly distribution increase of 5.6% to $1.045 per unit reflects confidence in performance. Growth capital expenditures for 2023 are forecasted at $75-80 million, with total CapEx projected at $85-90 million, indicating ongoing investment in strategic growth.

Delek Logistics Continues Its Growth Trajectory in Q3 2023

Delek Logistics Partners, LP reported robust financial results for the third quarter of 2023, delivering a record EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) of over $98 million. This performance is attributable to the company's strategic initiatives, such as boosting third-party revenues and maintaining multiyear minimum volume commitment (MVC) contracts. The executives highlighted that this success is a return on their investments, particularly in the Midland Gathering system, which saw record throughput, doubling from the previous year's figures. In recognition of their operational excellence, the team also received an award from the National Safety Council.

Financial Overview: A Story of Growth and Stability

The company's financial health appears strong, with a year-over-year increase in EBITDA from $89 million in Q3 2022 to $98 million in the same quarter of 2023. Distributable cash flow (DCF) increased to $61 million, and the coverage ratio, an indicator of the ability to cover distributions, was at a healthy 1.35x. Each segment of the company contributed positively to the results: the Gathering and Processing segment increased its throughput significantly, the Wholesale Marketing and Terminalling segment improved due to better terminal utilization and margins in wholesale, and the Storage and Transportation segment gained from fee escalations. These numbers underline the company's increasing operational efficiency and market strength.

Investments in Infrastructure Paying Dividends

Delek demonstrated that their strategic capital investments, especially in the Permian assets, are starting to pay off. The management pointed out that the double in throughput in the Midland system as compared to the previous year resulted from these purposeful investments. There was a slight lag in the Delaware system's performance due to extreme weather conditions that affected the region, but the issue did not dampen the overall positive outlook. Overall, these actions underline the company's commitment to growth and operational stability.

Commitment to Shareholder Value

Highlighting their commitment to delivering shareholder value, Delek announced a 5.6% increase in the quarterly distribution to $1.045 per limited partner unit for the third quarter. This decision reflects the company's confidence in its ongoing financial performance and its dedication to sharing the fruits of success with its unitholders.

Future Outlook: Guidance and Expectations

Looking ahead, management has set the ambition to exceed a $100 million quarterly EBITDA run rate by the fourth quarter of 2023. Capital expenditures for the year are forecasted to be in the range of $75 million to $80 million, net of contributions from producers. This is indicative of the management team's expectation for continued growth and their plan to sustainably fund future investments.

Conclusion: Building Upon a Strong Foundation

In closing, Delek Logistics Partners appears to be in a positive position with a proven record of delivering strong financial results. Their practical approach to investing in infrastructure and new connections within their gathering systems is shaping the company to maintain its upward trajectory. With a commitment to safety, operational excellence, and returning value to its investors, Delek progresses towards the end of the year with confidence and a road map for growth that holds promise for its unitholders.

Earnings Call Transcript 2023-Q3

[Operator]

Good day, and welcome to the Delek Logistics Partners' Third Quarter 2023 Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Rosy Zuklic, Vice President of Investor Relations. Please go ahead.

[Rosy Zuklic, executive]

Good day, and welcome to the Delek Logistics Partners' Third Quarter Earnings Conference Call.

Participants on today's call will include Avigal Soreq, President; Joseph Israel, EVP Operations; Reuven Spiegel, EVP and Chief Financial Officer; and Odely Sakazi, 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 forecast. For more information, please refer to the risk factors discussed in the company'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 company 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 Avigal for opening remarks. Avigal?

[Avigal Soreq, executive]

Thank you, Rosy. Delek Logistics Partners delivered another record quarter with over $98 million in EBITDA. We have been pleased to see the consistent performance of our team and assets. We are very proud to be able to deliver that value back to our unitholders. This is a result of our dedication to the company's strategic objectives, growing third-party revenues, maintaining multiyear MVC contracts and keeping a focus on growth opportunities.

Midland Gathering achieved a record throughput this quarter as a result of our investment in the system. With the Delaware Gathering system, we were able to support our objective, diversifying revenue stream and increasing third-party business. Given our strong performance this quarter, we are confident in our ability to exceed $100 million in a quarterly EBITDA run rate by Q4 of this year.

I'm also very proud to say that DKL recently received operational award of excellence from the National Safety Council, demonstrating our team's dedication to safety and operational excellence. On October 25, our Board of Directors approved 5.6% increase in the quarterly distribution from prior year to $1.045 per limited partner unit for the third quarter of this year, highlighting our commitment to increasing the quarterly distribution.

I will now hand it over to Reuven.

[Reuven Spiegel, executive]

Thank you, Avigal. Total EBITDA for DKL was $98 million for the third quarter of '23 compared with $89 million for the same period in '22. For the third quarter of '23, distributable cash flow was $61 million and the DCF coverage ratio was 1.35x. For the Gathering and Processing segment, EBITDA this quarter was $53 million. The EBITDA for the third quarter of '22 was $57 million, which benefited from a onetime credit. Excluding this, third quarter '23 results were higher than last year due to increased throughput from our Permian assets.

Throughput of Midland Gathering averaged approximately 250,000 barrels per day for the third quarter, more than twice the average of 121,000 barrels per day in the third quarter of '22. The Wholesale Marketing and Terminalling segment EBITDA was $28 million for the quarter compared to $20 million in the third quarter of '22. The increase was due to higher utilization in our terminaling operations and improved margins in wholesale.

The Storage and Transportation segment EBITDA was $18 million in the quarter compared with $15 million in the third quarter of '22. This segment benefited from recent industry-wide fee escalations. And lastly, the investment in pipeline joint venture segment contributed $9 million toward the second quarter of '23, slightly up from third quarter of '22.

Moving on to capital expenditures. Third quarter '23 capital spending was $15 million. Most of that spend was for growth projects, namely advancing new connection in both the Midland and Delaware Gathering systems. For '23, we expect capital expense to be in the range of $85 million to $90 million, with approximately $10 million of growth CapEx to be partially funded by the producers. Including this, net capital expenditures for the year is in the range of $75 million to $80 million.

With that, we can open the call for questions.

[Operator]

[Operator Instructions] Our first question comes from Doug Irwin with Citi.

[Douglas Irwin, analyst]

I just want to start with Permian volumes. You saw some really strong results in the Midland this quarter, but if you look at the Delaware, it lagged a little bit. I'm just curious if [indiscernible] some of the same issues around extreme heat and compression constraints that we've heard some peers talk about this cycle? And if so, have these issues been resolved?

[Avigal Soreq, executive]

Doug, it's Avigal. Thanks for jumping on the call. And we are not going to be specific on the numbers, but we are going to give you some highlights. We've seen the Permian base and DPG legacy gathering system is performing very well, and we are very pleased with the acreage we have and our investment over the years are yielding us very nicely. So that investment is absolutely going as we wanted. On the DPG former 3 Bear, we're also seeing a very stable operation. We are pleased with the progress of the team and the assets and it's trending in the right direction for sure. I allow Odely to give you more color. If you can?

[Odely Sakazi, executive]

Yes. Thank you, Avigal. And Doug, good to hear you again. This is Odely. So talking about those 2 segments as you mentioned, around the Midland gathering, as you've seen, we got our volume almost double than last year and also exceeded last quarter. This is basically benefiting us from the previous capital deployment we had both this year and also last year. So we start to benefit those on the volume side in DPG and also the associated infrastructure is very solid, close to our refinery and what we built in the recent years, so we kind of start to benefit that.

And to your question around the DG around the Delaware Gathering assets, we still have been able to perform better than last year but slightly lower than last quarter. And this is, I think, something that you probably also heard from others as we face both us and also our producers as well and also the area with a lot of issue from a weather situation, both on the storm impact and also excessive heat during this time that impact both electricity and also availability for producers. So that's something that kind of impact everything. With that said [Technical Difficulty].

[Operator]

This concludes our question-and-answer session. I would like to turn the conference back over to Avigal Soreq for any closing remarks. We were having technical difficulties, and I am bringing in Avigal Soreq for any closing remarks.

[Avigal Soreq, executive]

Thank you, Dave, for the call. Thank you to the team over here in the room that prepared and worked so hard. Thank you for the Board of Directors, our employees and the unitholders, and we are very excited about where DKL is and looking forward talking to you again next quarter. Thank you, Dave.

[Operator]

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.