DKL - Delek Logistics Partners LP Reports Third Quarter 2021 Results

November, 04 2021 04:15 PM Delek Logistics Partners L.P. representing Limited Partner Interests

-- Reported third quarter net income attributable to all partners of $43.6 million

-- EBITDA of $69.9 million represented an increase of 3% y/y

-- Third quarter distributable cash flow coverage ratio of 1.34x and total leverage ratio of approximately 3.4x

-- Performance demonstrates stability and continuity of existing asset base

-- Declared third quarter distribution of $0.95 per limited partner unit; reflects 5.0% increase y/y

-- On-track to deliver 5% distribution growth in 2021 versus 2020 distributions

-- Unit price recently hit all-time high leading to improved cost of capital

PR Newswire

BRENTWOOD, Tenn. , Nov. 4, 2021 /PRNewswire/ --- Delek Logistics Partners, LP (NYSE: DKL) ("Delek Logistics") today announced its financial results for the third quarter 2021. For the three months ended September 30, 2021 , Delek Logistics reported net income attributable to all partners of $43.6 million , or $1.00 per diluted common limited partner unit. This compares to net income attributable to all partners of $46.3 million , or $1.26 per diluted common limited partner unit, in the third quarter 2020. Net cash from operating activities was $74.8 million in the third quarter 2021 compared to $62.3 million in the third quarter 2020. Distributable cash flow was $55.5 million in the third quarter 2021, compared to $59.1 million in the third quarter 2020.

For the third quarter 2021, earnings before interest, taxes, depreciation and amortization ("EBITDA") was $69.9 million compared to $67.8 million in the third quarter 2020.

Uzi Yemin , Chairman, President and Chief Executive Officer of Delek Logistics' general partner, remarked: "DKL continues delivering stable performance. Strong demand for oil and oil products is driving healthy utilization rates of both refining and logistics assets thereby benefiting the DKL portfolio."

"The recent increase in the quarterly distribution to $0.95 /unit, keeps us on-track for a 5% distribution increase on a full-year basis in 2021. Even with a long history of continuous distribution growth to shareholders, our leverage and coverage ratios remain healthy and broadly in-line with most midstream peers. DKL units recently traded at an all-time high reflecting investor confidence in our company and leading to a lower cost of capital."

Distribution and Liquidity

On October 26, 2021, Delek Logistics declared a quarterly cash distribution of $0.95 per common limited partner unit for the third quarter 2021, which equates to $3.80 per common limited partner unit on an annualized basis. This distribution will be paid on November 10, 2021 to unitholders of record on November 5, 2021. This represents a 1.1% increase from the second quarter 2021 distribution of $0.94 per common limited partner unit, or $3.76 per common limited partner unit on an annualized basis, and a 5.0% increase over Delek Logistics' third quarter 2020 distribution of $0.905 per common limited partner unit, or $3.62 per common limited partner unit annualized. For the third quarter 2021, the total cash distribution declared to all partners was approximately $41.3 million , resulting in a distributable cash flow coverage ratio of 1.34x.

As of September 30, 2021 , Delek Logistics had total debt of approximately $901 .4 million and cash of $4.9 million . Additional borrowing capacity, subject to certain covenants, under the $850.0 million credit facility was $589.1 million , which was enhanced by the recent notes offering. The total leverage ratio was well within the requirements of the maximum allowable leverage ratio under the credit facility.

Financial Results

Contribution margin in the third quarter 2021 was $67.2 million compared to $67.3 million in the third quarter 2020. Overall performance benefited from higher pipeline throughput offset by expenses related to pipeline integrity work.

Pipelines and Transportation Segment

Contribution margin in the third quarter 2021 was $47.4 million compared to $46.4 million in the third quarter 2020. Compared to year-ago levels, pipeline throughput was higher, partially offset by higher expenses related to pipeline integrity work.

Wholesale Marketing and Terminalling Segment

During the third quarter 2021, contribution margin was $19.8 million compared to $21.0 million in the third quarter 2020. Overall performance was broadly in line with year-ago levels.

Third Quarter 2021 Results | Conference Call Information

Delek Logistics will hold a conference call to discuss its third quarter 2021 results on Friday, November 5, 2021 at 7:00 a.m. Central Time . Investors will have the opportunity to listen to the conference call live by going to www.DelekLogistics.com . Participants are encouraged to register at least 15 minutes early to download and install any necessary software. An archived version of the replay will also be available at www.DelekLogistics.com for 90 days.

Investors may also wish to listen to Delek US' (NYSE: DK) third quarter 2021 earnings conference call on Friday, November 5, 2021 at 8:00 a.m. Central Time and review Delek US' earnings press release. Market trends and information disclosed by Delek US may be relevant to Delek Logistics, as it is a consolidated subsidiary of Delek US. Investors can find information related to Delek US and the timing of its earnings release online by going to www.DelekUS.com .

About Delek Logistics Partners, LP

Delek Logistics Partners, LP, headquartered in Brentwood, Tennessee , was formed by Delek US Holdings, Inc. (NYSE: DK) to own, operate, acquire and construct crude oil and refined products logistics and marketing assets.

Safe Harbor Provisions Regarding Forward-Looking Statements

This press release contains forward-looking statements that are based upon current expectations and involve a number of risks and uncertainties. Statements concerning current estimates, expectations and projections about future results, performance, prospects, opportunities, plans, actions and events and other statements, concerns, or matters that are not historical facts are "forward-looking statements," as that term is defined under the federal securities laws. These statements contain words such as "possible," "believe," "should," "could," "would," "predict," "plan," "estimate," "intend," "may," "anticipate," "will," "if," "expect" or similar expressions, as well as statements in the future tense, and can be impacted by numerous factors, including the fact that a substantial majority of Delek Logistics' contribution margin is derived from Delek US, thereby subjecting us to Delek US' business risks; risks relating to the securities markets generally; risks and costs relating to the age and operational hazards of our assets including, without limitation, costs, penalties, regulatory or legal actions and other effects related to releases, spills and other hazards inherent in transporting and storing crude oil and intermediate and finished petroleum products; the impact of adverse market conditions affecting the utilization of Delek Logistics' assets and business performance, including margins generated by its wholesale fuel business; the impact of the COVID-19 outbreak on the demand for crude oil, refined products and transportation and storage services; uncertainties regarding future decisions by OPEC regarding production and pricing disputes between OPEC members and Russia ; an inability of Delek US to grow as expected as it relates to our potential future growth opportunities, including dropdowns, and other potential benefits; the results of our investments in joint ventures; adverse changes in laws including with respect to tax and regulatory matters; and other risks as disclosed in our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and other reports and filings with the United States Securities and Exchange Commission. Forward-looking statements include, but are not limited to, statements regarding future growth at Delek Logistics; distributions and the amounts and timing thereof; potential dropdown inventory; expected earnings or returns from joint ventures or other acquisitions; expansion projects; ability to create long-term value for our unit holders; financial flexibility and borrowing capacity; and distribution growth of 5% or at all. Forward-looking statements should not be read as a guarantee of future performance or results and will not be accurate indications of the times at, or by, which such performance or results will be achieved. Forward-looking information is based on information available at the time and/or management's good faith belief with respect to future events, and is subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in the statements. Delek Logistics undertakes no obligation to update or revise any such forward-looking statements to reflect events or circumstances that occur, or which Delek Logistics becomes aware of, after the date hereof, except as required by applicable law or regulation

Non-GAAP Disclosures:

Our management uses certain "non-GAAP" operational measures to evaluate our operating segment performance and non-GAAP financial measures to evaluate past performance and prospects for the future to supplement our GAAP financial information presented in accordance with U.S. GAAP. These financial and operational non-GAAP measures are important factors in assessing our operating results and profitability and include:

Earnings before interest, taxes, depreciation and amortization ("EBITDA") - calculated as net income before net interest expense, income tax expense, depreciation and amortization expense, including amortization of customer contract intangible assets, which is included as a component of net revenues in our accompanying condensed consolidated statements of income.
Distributable cash flow - calculated as net cash flow from operating activities plus or minus changes in assets and liabilities, less maintenance capital expenditures net of reimbursements and other adjustments not expected to settle in cash. Delek Logistics believes this is an appropriate reflection of a liquidity measure by which users of its financial statements can assess its ability to generate cash.

EBITDA and distributable cash flow are non GAAP supplemental financial measures that management and external users of our condensed consolidated financial statements, such as industry analysts, investors, lenders and rating agencies, may use to assess:

Delek Logistics' operating performance as compared to other publicly traded partnerships in the midstream energy industry, without regard to historical cost basis or, in the case of EBITDA, financing methods;
the ability of our assets to generate sufficient cash flow to make distributions to our unitholders;
Delek Logistics' ability to incur and service debt and fund capital expenditures; and
the viability of acquisitions and other capital expenditure projects and the returns on investment of various investment opportunities.

Delek Logistics believes that the presentation of EBITDA, distributable cash flow and distributable cash flow coverage ratio provide useful information to investors in assessing its financial condition, its results of operations and the cash flow its business is generating. EBITDA, distributable cash flow and distributable cash flow coverage ratio should not be considered in isolation or as alternatives to net income, operating income, cash flow from operating activities or any other measure of financial performance or liquidity presented in accordance with U.S. GAAP.

Non-GAAP measures have important limitations as analytical tools, because they exclude some, but not all, items that affect net income and net cash provided by operating activities. These measures should not be considered substitutes for their most directly comparable U.S. GAAP financial measures. Additionally, because EBITDA and distributable cash flow may be defined differently by other partnerships in its industry, Delek Logistics' definitions of EBITDA and distributable cash flow may not be comparable to similarly titled measures of other partnerships, thereby diminishing their utility. See the accompanying tables in this earnings release for a reconciliation of these non-GAAP measures to the most directly comparable GAAP measures.

Delek Logistics Partners, LP
Condensed Consolidated Balance Sheets (Unaudited)
(In thousands, except unit and per unit data)


September 30, 2021

December 31, 2020
ASSETS




Current assets:




Cash and cash equivalents

$
4,864


$
4,243

Accounts receivable

18,421


15,676

Accounts receivable from related parties

—


5,932

Inventory

2,222


3,127

Other current assets

1,081


331

Total current assets

26,588


29,309

Property, plant and equipment:




Property, plant and equipment

704,905


692,282

Less: accumulated depreciation

(256,696)


(227,470)

Property, plant and equipment, net

448,209


464,812

Equity method investments

251,919


253,675

Operating lease right-of-use assets

22,911


24,199

Goodwill

12,203


12,203

Marketing contract intangible, net

118,380


123,788

Rights-of-way

37,062


36,316

Other non-current assets

13,271


12,115

Total assets

$
930,543


$
956,417






LIABILITIES AND DEFICIT




Current liabilities:




Accounts payable

$
7,441


$
6,659

Accounts payable to related parties

44,574


—

Interest payable

17,037


2,452

Excise and other taxes payable

3,798


4,969

Current portion of operating lease liabilities

7,364


8,691

Accrued expenses and other current liabilities

7,830


5,529

Total current liabilities

88,044


28,300

Non-current liabilities:




Long-term debt

901,404


992,291

Asset retirement obligations

6,361


6,015

Operating lease liabilities, net of current portion

15,489


15,418

Other non-current liabilities

23,998


22,694

Total non-current liabilities

947,252


1,036,418

Total liabilities

1,035,296


1,064,718

Equity (Deficit):




Common unitholders - public; 8,713,195 units issued and outstanding at September 30, 2021 (8,697,468 at December 31, 2020)

165,281


164,614

Common unitholders - Delek Holdings; 34,745,868 units issued and outstanding at September 30, 2021 (34,745,868 at December 31, 2020)

(270,034)


(272,915)

Total deficit

(104,753)


(108,301)

Total liabilities and deficit

$
930,543


$
956,417

Delek Logistics Partners, LP
Condensed Consolidated Statements of Income (Unaudited)
(In thousands, except unit and per unit data)

Three Months Ended September 30,

Nine Months Ended September 30,

2021

2020

2021

2020
Net revenues:







Affiliate
$
123,519


$
95,410


$
308,435


$
289,739

Third-party
66,108


46,858


202,583


133,567

Net revenues
189,627


142,268


511,018


423,306

Cost of sales:







Cost of materials and other
105,129


60,692


274,995


205,877

Operating expenses (excluding depreciation and amortization presented below)
16,830


13,694


45,201


39,271

Depreciation and amortization
9,666


8,931


29,393


22,957

Total cost of sales
131,625


83,317


349,589


268,105

Operating expenses related to wholesale business (excluding depreciation and amortization presented below)
515


536


1,741


2,152

General and administrative expenses
6,141


6,122


17,018


16,973

Depreciation and amortization
490


528


1,469


1,495

Other operating expense (income), net
273


—


54


(107)

Total operating costs and expenses
139,044


90,503


369,871


288,618

Operating income
50,583


51,765


141,147


134,688

Interest expense, net
14,529


10,360


35,924


32,854

Income from equity method investments
(7,261)


(4,860)


(17,952)


(16,875)

Other (income) expense, net
(115)


105


(118)


103

Total non-operating expenses, net
7,153


5,605


17,854


16,082

Income before income tax (benefit) expense
43,430


46,160


123,293


118,606

Income tax (benefit) expense
(194)


(168)


156


67

Net income attributable to partners
$
43,624


$
46,328


$
123,137


$
118,539

Comprehensive income attributable to partners
$
43,624


$
46,328


$
123,137


$
118,539









Less: General partner's interest in net income, including incentive distribution rights
—


—


—


18,724

Limited partners' interest in net income
$
43,624


$
46,328


$
123,137


$
99,815









Net income per limited partner unit:







Common units - basic
$
1.00


$
1.26


$
2.83


$
3.30

Common units - diluted
$
1.00


$
1.26


$
2.83


$
3.30









Weighted average limited partner units outstanding:







Common units - basic
43,454,535


36,889,761


43,447,739


30,290,051

Common units - diluted
43,468,289


36,894,043


43,457,857


30,292,261









Cash distribution per limited partner unit
$
0.950


$
0.905


$
3.800


$
2.695

Delek Logistics Partners, LP
Condensed Consolidated Statements of Cash Flows (Unaudited) (In thousands)


Nine Months Ended September 30,


2021

2020
Cash flows from operating activities




Net income

$
123,137


$
118,539

Adjustments to reconcile net income to net cash provided by operating activities:




Depreciation and amortization

30,862


24,452

Non-cash lease expense

6,967


2,236

Amortization of customer contract intangible assets

5,408


5,408

Amortization of deferred revenue

(1,475)


(1,418)

Amortization of deferred financing costs and debt discount

2,169


1,786

Income from equity method investments

(17,952)


(16,875)

Dividends from equity method investments

14,849


17,572

Other non-cash adjustments

1,413


1,495

Changes in assets and liabilities:




Accounts receivable

(2,745)


(4,268)

Inventories and other current assets

109


12,714

Accounts payable and other current liabilities

12,323


(7,638)

Accounts receivable/payable to related parties

47,483


(19,002)

Non-current assets and liabilities, net

(272)


(347)

Changes in assets and liabilities

56,898


(18,541)

Net cash provided by operating activities

222,276


134,654

Cash flows from investing activities




Asset acquisitions from Delek Holdings, net of assumed liabilities

—


(100,527)

Purchases of property, plant and equipment

(12,352)


(6,918)

Proceeds from sales of property, plant and equipment

275


107

Purchases of intangible assets

(746)


—

Distributions from equity method investments

6,245


2,723

Equity method investment contributions

(1,393)


(11,804)

Net cash used in investing activities

(7,971)


(116,419)

Cash flows from financing activities




Proceeds from issuance of additional units to maintain 2% General Partner interest

—


10

Distributions to general partner

—


(27,635)

Distributions to common unitholders - public

(24,153)


(23,653)

Distributions to common unitholders - Delek Holdings

(96,246)


(46,220)

Distributions to Delek Holdings unitholders and general partner related to Trucking Assets Acquisition

—


(47,558)

Distribution to general partner for conversion of its interest and IDR elimination

—


(45,000)

Proceeds from revolving credit facility

236,000


515,900

Payments on revolving credit facility

(721,700)


(343,600)

Proceeds from issuance of senior notes

400,000


—

Deferred financing costs paid in connection with debt issuances

(6,216)


—

Payments on finance lease

(1,369)


—

Net cash used in financing activities

(213,684)


(17,756)

Net increase in cash and cash equivalents

621


479

Cash and cash equivalents at the beginning of the period

4,243


5,545

Cash and cash equivalents at the end of the period

$
4,864


$
6,024

Supplemental disclosures of cash flow information:




Cash paid during the period for:




Interest

$
19,170


$
26,895

Income taxes

$
—


$
141

Non-cash investing activities:




Increase (decrease) in accrued capital expenditures and other

$
1,638


$
(948)

Equity issuance to Delek Holdings unitholders in connection with Big Spring Gathering Assets Acquisition

$
—


$
109,513

Non-cash financing activities:




Sponsor contribution of property, plant and equipment

$
—


$
1,378

Non-cash lease liability arising from obtaining right of use assets during the period

$
8,750


$
16,644

Delek Logistics Partners, LP
Reconciliation of Amounts Reported Under U.S. GAAP
(In thousands)

Three Months Ended September 30,

Nine Months Ended September 30,

2021

2020

2021

2020
Reconciliation of Net Income to EBITDA:







Net income
$
43,624


$
46,328


$
123,137


$
118,539

Add:







Income tax (benefit) expense
(194)


(168)


156


67

Depreciation and amortization
10,156


9,459


30,862


24,452

Amortization of customer contract intangible assets
1,802


1,803


5,408


5,408

Interest expense, net
14,529


10,360


35,924


32,854

EBITDA
$
69,917


$
67,782


$
195,487


$
181,320









Reconciliation of net cash from operating activities to distributable cash flow:







Net cash provided by operating activities
$
74,752


$
62,273


$
222,276


$
134,654

Changes in assets and liabilities
(16,256)


(2,458)


(56,898)


18,541

Non-cash lease expense
(2,460)


(1,596)


(6,967)


(2,236)

Distributions from equity method investments in investing activities
845


1,033


6,245


2,723

Maintenance and regulatory capital expenditures
(850)


(27)


(3,712)


(760)

Reimbursement from Delek Holdings for capital expenditures
11


26


1,588


81

Accretion of asset retirement obligations
(116)


(106)


(346)


(320)

Deferred income taxes
(138)


(47)


(203)


(990)

Other operating (expense) income, net
(273)


—


(54)


107

Distributable Cash Flow
$
55,515


$
59,098


$
161,929


$
151,800

Delek Logistics Partners, LP
Distributable Coverage Ratio Calculation
(In thousands)

Three Months Ended September 30,

Nine Months Ended September 30,
Distributions to partners of Delek Logistics, LP
2021

2020

2021

2020
Limited partners' distribution on common units
$
41,286


$
39,307


$
122,100


$
87,536

General partner's distributions
—


—


—


986

General partner's incentive distribution rights
—


—


—


17,632

Total distributions to be paid ⁽¹⁾
$
41,286


$
39,307


$
122,100


$
106,154









Distributable cash flow
$
55,515


$
59,098


$
161,929


$
151,800

Distributable cash flow coverage ratio ⁽²⁾
1.34x


1.50x


1.33x


1.43x

(1)

The distributions for the three and nine months ended September 30, 2020 reflect the impact of the distribution waiver that waived all of the distributions for the first quarter
of 2020 on the 5.0 million Additional Units, related to the Big Spring Gathering Assets transaction, with respect to base distributions and the IDRs. In addition, the distributions
for the three months ended March 31, 2020 reflect the waiver of distributions in respect of the IDRs associated with the Additional Units for at least two years. Subsequently, the
IDRs were eliminated in the Restructuring Transaction on August 13, 2020.

(2)

Distributable cash flow coverage ratio is calculated by dividing distributable cash flow by distributions to be paid in each respective period.

Delek Logistics Partners, LP
Segment Data (unaudited)
(In thousands)

Three Months Ended September 30,

Nine Months Ended September 30,

2021

2020

2021

2020
Pipelines and Transportation







Net revenues:







Affiliate
$
70,879


$
68,444


$
199,591


$
168,285

Third party
5,323


3,035


12,021


14,587

Total pipelines and transportation
76,202


71,479


211,612


182,872

Cost of sales:







Cost of materials and other
15,170


14,342


42,595


31,622

Operating expenses (excluding depreciation and amortization)
13,680


10,749


34,710


31,936

Segment contribution margin
$
47,352


$
46,388


$
134,307


$
119,314

Capital spending
$
2,570


$
2,552


$
9,946


$
3,424









Wholesale Marketing and Terminalling







Net revenues:







Affiliates ⁽¹⁾
$
52,640


$
26,966


$
108,844


$
121,454

Third party
60,785


43,823


190,562


118,980

Total wholesale marketing and terminalling
113,425


70,789


299,406


240,434

Cost of sales:







Cost of materials and other
89,959


46,350


232,400


174,255

Operating expenses (excluding depreciation and amortization)
3,665


3,481


12,232


9,487

Segment contribution margin
$
19,801


$
20,958


$
54,774


$
56,692

Capital spending
$
1,566


$
676


$
4,580


$
3,494









Consolidated







Net revenues:







Affiliates
$
123,519


$
95,410


$
308,435


$
289,739

Third party
66,108


46,858


202,583


133,567

Total consolidated
189,627


142,268


511,018


423,306

Cost of sales:







Cost of materials and other
105,129


60,692


274,995


205,877

Operating expenses (excluding depreciation and amortization presented below)
17,345


14,230


46,942


41,423

Contribution margin
67,153


67,346


189,081


176,006

General and administrative expenses
6,141


6,122


17,018


16,973

Depreciation and amortization
10,156


9,459


30,862


24,452

Other operating expense (income), net
273


—


54


(107)

Operating income
$
50,583


$
51,765


$
141,147


$
134,688

Capital spending
$
4,136


$
3,228


$
14,526


$
6,918

(1)

Affiliate revenue for the wholesale marketing and terminalling segment is presented net of amortization expense pertaining to the marketing contract intangible we acquired in
connection with the Big Spring acquisition.

Delek Logistics Partners, LP
Segment Capital Spending
(In thousands)

Three Months Ended September 30,

Nine Months Ended September 30,
Pipelines and Transportation
2021

2020

2021

2020
Maintenance capital spending
$
215


$
28


$
1,141


$
467

Discretionary capital spending
2,355


2,524


8,805


2,957

Segment capital spending
$
2,570


$
2,552


9,946


3,424

Wholesale Marketing and Terminalling







Maintenance capital spending
$
674


$
118


1,394


1,480

Discretionary capital spending
892


558


3,186


2,014

Segment capital spending
$
1,566


$
676


4,580


3,494

Consolidated







Maintenance capital spending
$
889


$
146


2,535


1,947

Discretionary capital spending
3,247


3,082


11,991


4,971

Total capital spending
$
4,136


$
3,228


$
14,526


$
6,918

Delek Logistics Partners, LP




Segment Data (Unaudited)





Three Months Ended September 30,

Nine Months Ended September 30,

2021

2020

2021

2020
Pipelines and Transportation Segment:







Throughputs (average bpd)







El Dorado Assets:







Crude pipelines (non-gathered)
81,929


78,244


60,344


76,750

Refined products pipelines to Enterprise Systems
62,263


55,740


42,733


55,315

El Dorado Gathering System
14,086


13,659


14,056


13,520

East Texas Crude Logistics System
18,644


22,591


24,045


15,705

Big Spring Gathering System
84,325


90,719


79,251


85,845

Plains Connection System
131,571


104,314


120,905


96,961









Wholesale Marketing and Terminalling Segment:







East Texas - Tyler Refinery sales volumes (average bpd) ⁽¹⁾
71,847


73,417


72,791


70,376

Big Spring marketing throughputs (average bpd)
81,880


78,659


76,680


73,701

West Texas marketing throughputs (average bpd)
10,560


9,948


10,033


11,718

West Texas gross margin per barrel
$
3.33


$
3.42


$
3.64


$
2.37

Terminalling throughputs (average bpd) ⁽²⁾
144,355


160,843


142,959


145,240

(1)

Excludes jet fuel and petroleum coke.

(2)

Consists of terminalling throughputs at our Tyler, Big Spring, Big Sandy and Mount Pleasant, Texas, El Dorado and North Little
Rock, Arkansas and Memphis and Nashville, Tennessee terminals.

Information about Delek Logistics Partners, LP can be found on its website ( www.deleklogistics.com ), investor relations webpage (ir.deleklogistics.com), news webpage ( www.deleklogistics.com/news ) and its Twitter account (@DelekLogistics).

SOURCE Delek Logistics

Company Name:	Delek Logistics Partners L.P. representing Limited Partner Interests
Stock Symbol:	DKL
Market:	NYSE
Website:	deleklogistics.com