Delek Logistics Partners, LP Reports Second Quarter 2020 Results

BRENTWOOD, Tenn., Aug. 4, 2020 /PRNewswire/ — Delek Logistics Partners, LP (NYSE: DKL) (“Delek Logistics”) today announced its financial results…

BRENTWOOD, Tenn., Aug. 4, 2020 /PRNewswire/ — Delek Logistics Partners, LP (NYSE: DKL) (“Delek Logistics”) today announced its financial results for the second quarter 2020. For the three months ended June 30, 2020, Delek Logistics reported net income attributable to all partners of $44.4 million, or $1.18 per diluted common limited partner unit. This compares to net income attributable to all partners of $24.9 million, or $0.69 per diluted common limited partner unit, in the second quarter 2019. Net cash from operating activities was $37.5 million in the second quarter 2020 compared to $24.8 million in the second quarter 2019. Distributable cash flow was $57.0 million in the second quarter 2020, compared to $31.2 million in the second quarter 2019. Reconciliation of net cash from operating activities as reported under U.S. GAAP to distributable cash flow is included in the financial tables attached to this release.

For the second quarter 2020, earnings before interest, taxes, depreciation and amortization (“EBITDA”) was $64.8 million compared to $44.8 million in the second quarter 2019. Results improved on a year-over-year basis primarily due to the drop down of the Big Spring Gathering System and Trucking Assets, increased crude gathering, operating expense reductions and an increase in income from equity method investments. This was partially offset by a lower West Texas gross margin on a year-over-year basis. Reconciliation of net income attributable to all partners as reported under U.S. GAAP to EBITDA is included in the financial tables attached to this release.

Uzi Yemin, Chairman, President and Chief Executive Officer of Delek Logistics’ general partner, remarked: “Despite continued macro volatility stemming from COVID-19, Delek Logistics delivered stellar financial performance in the second quarter, with EBITDA and Limited Partners interest in net income increasing approximately 45% and 107%, respectively, versus last year. Second quarter distribution growth was 5.9% on a year-over-year basis.

The combination of recent asset drop downs from our sponsor Delek US Holdings, Inc. (NYSE: DK) (“Delek US”) along with internal business initiatives, asset optimization efforts and the Red River pipeline expansion, which is currently underway, should lead to improving performance in the second half of the year. I am pleased to announce an agreement with Jefferson Energy, that will provide Jefferson’s Beaumont Terminal with direct connection to the Paline Pipeline. This agreement expands Paline’s reach by giving shippers increased destination points for their crude leading to better flexibility for our customers.”

Mr. Yemin continued, “Our strong outlook gives us confidence in delivering 5% distribution growth on a year-over-year basis in 2020. We have already exceeded our distribution coverage target in the second quarter, well in advanced of our guidance to achieve this by year-end and we remain confident in reducing the leverage ratio below 4.0x before the end of the year.”

Distribution and Liquidity

On July 24, 2020, Delek Logistics declared a quarterly cash distribution of $0.90 per common limited partner unit for the second quarter 2020, which equates to $3.60 per common limited partner unit on an annualized basis. This distribution will be paid on August 12, 2020 to unitholders of record on August 7, 2020. This represents a 1.1% increase from the first quarter 2020 distribution of $0.89 per common limited partner unit, or $3.56 per common limited partner unit on an annualized basis, and a 5.9% increase over Delek Logistics’ second quarter 2019 distribution of $0.85 per common limited partner unit, or $3.40 per common limited partner unit annualized. For the second quarter 2020, the total cash distribution declared to all partners, including incentive distribution rights (IDRs), was approximately $36.0 million. Based on the distribution for the second quarter 2020, the distributable cash flow coverage ratio for the second quarter was 1.58x.

As of June 30, 2020, Delek Logistics had total debt of approximately $995.2 million and cash of $16.2 million. Additional borrowing capacity, subject to certain covenants, under the $850.0 million credit facility was $100.0 million. The total leverage ratio, calculated in accordance with the credit facility, for the second quarter 2020 was below 4.1x, which is within the current requirements of the maximum allowable leverage ratio of 5.5x.

Financial Results

Revenue for the second quarter 2020 was $117.6 million compared to $155.3 million in the prior-year period. The decrease in revenue is primarily due to lower commodity prices and average throughput volumes. Total operating expenses were $12.4 million in the second quarter 2020, compared to $17.3 million in the second quarter 2019. The decrease was primarily due to cost control measures put in place at the end of the first quarter 2020. Total contribution margin was $61.3 million in the second quarter 2020 compared to $44.2 million in the second quarter 2019, mainly driven by the contribution from new assets and lower expenses. General and administrative expenses were $4.7 million for the second quarter 2020, compared to $5.3 million in the prior-year period.

Pipelines and Transportation Segment

Contribution margin in the second quarter 2020 was $42.5 million compared to $24.1 million in the second quarter 2019.  The recent drop down of Big Spring Gathering System and the Trucking Assets were the primary drivers behind the year over year growth. Operating expenses were $9.7 million in the second quarter 2020 compared to $12.7 million in the prior-year period.

Wholesale Marketing and Terminalling Segment

During the second quarter 2020, contribution margin was $18.8 million, compared to $20.0 million in the second quarter 2019. This decrease was primarily due to lower terminalling throughput and gross margin in west Texas. Operating expenses of $2.7 million in the second quarter 2020 were lower than the $4.6 million in the prior-year period.

Lower demand negatively impacted volumes and margins in the west Texas wholesale business. Average throughput in the second quarter 2020 was 9,143 barrels per day compared to 11,404 barrels per day in the second quarter 2019. The west Texas gross margin per barrel decreased year-over-year to $0.64 per barrel and included approximately $0.6 million, or $0.76 per barrel, from renewable identification numbers (RINs) generated in the quarter. During the second quarter 2019, the west Texas gross margin per barrel was $6.25 per barrel and included $0.3 million from RINs, or $0.25 per barrel.

Average terminalling throughput volume of 138,593 barrels per day during the second quarter 2020 decreased on a year-over-year basis from 156,922 barrels per day in the second quarter 2019.  During the second quarter 2020, average volume under the East Texas marketing agreement with Delek US was 65,028 barrels per day compared to 71,123 barrels per day during the second quarter 2019.

Second Quarter 2020 Results | Conference Call Information

Delek Logistics will hold a conference call to discuss its second quarter 2020 results on Wednesday, August 5, 2020 at 7:30 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) second quarter 2020 earnings conference call on Wednesday, August 5, 2020 at 8:30 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; the ability of the Red River joint venture to complete the expansion to increase the Red River pipeline capacity; 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 and the evaluation of incentive distribution rights; 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-U.S. 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)



June 30, 2020


December 31, 2019

ASSETS





Current assets:





Cash and cash equivalents


$

16,196



$

5,545


 Accounts receivable


15,907



13,204


Inventory


2,140



12,617


Other current assets


499



2,204


Total current assets


43,497



33,570


Property, plant and equipment:





Property, plant and equipment


680,969



461,325


Less: accumulated depreciation


(207,225)



(166,281)


Property, plant and equipment, net


473,744



295,044


Equity method investments


255,323



246,984


Operating lease right-of-use assets


18,884



3,745


Goodwill


12,203



12,203


Marketing Contract Intangible, net


127,393



130,999


Rights-of-way


35,698



15,597


Other non-current assets


6,995



6,305


Total assets


$

973,737



$

744,447







LIABILITIES AND DEFICIT





Current liabilities:





Accounts payable


$

1,795



$

12,471


Accounts payable to related parties




8,898


Interest payable


2,596



2,572


Excise and other taxes payable


4,330



3,941


Current portion of operating lease liabilities


5,793



1,435


Accrued expenses and other current liabilities


3,461



5,765


Total current liabilities


17,975



35,082


Non-current liabilities:





Long-term debt


995,200



833,110


Asset retirement obligations


5,802



5,588


Deferred tax liabilities


1,158



215


Operating lease liabilities, net of current portion


13,091



2,310


Other non-current liabilities


18,826



19,261


Total non-current liabilities


1,034,077



860,484


Total liabilities


1,052,052



895,566


Equity (Deficit):





Common unitholders – public; 8,687,371 units issued and outstanding at June 30, 2020 (9,131,579 at December 31, 2019)


160,870



164,436


Common unitholders – Delek Holdings; 20,745,868 units issued and outstanding at June 30, 2020 (15,294,046 at December 31, 2019)


(235,961)



(310,513)


General partner – 600,678  units issued and outstanding at June 30, 2020 (498,482 at December 31, 2019)


(3,224)



(5,042)


Total deficit


(78,315)



(151,119)


Total liabilities and deficit


$

973,737



$

744,447


 

Delek Logistics Partners, LP

Condensed Consolidated Statements of Income (Unaudited)

(In thousands, except unit and per unit data)


Three Months Ended June 30,


Six Months Ended June 30,


2020


2019


2020


2019

Net revenues:








Affiliate

$

87,629



$

61,918



$

194,328



$

124,883


Third-party

30,008



93,424



86,710



182,942


Net revenues

117,637



155,342



281,038



307,825


Cost of sales:








Cost of materials and other

43,892



93,854



145,185



190,119


Operating expenses (excluding depreciation and amortization presented below)

11,623



16,521



25,577



31,828


Depreciation and amortization

8,223



6,188



14,026



12,312


Total cost of sales

63,738



116,563



184,788



234,259


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

826



806



1,616



1,557


General and administrative expenses

4,721



5,293



10,851



9,766


Depreciation and amortization

471



451



967



901


Other operating income, net



(27)



(107)



(25)


Total operating costs and expenses

69,756



123,086



198,115



246,458


Operating income

47,881



32,256



82,923



61,367


Interest expense, net

10,670



11,354



22,494



22,655


Income from equity method investments

(6,462)



(4,515)



(12,015)



(6,466)


Total non-operating expenses, net

4,206



7,300



10,477



16,650


Income before income tax expense

43,675



24,956



72,446



44,717


Income tax (benefit) expense

(740)



71



235



136


Net income attributable to partners

$

44,415



$

24,885



$

72,211



$

44,581


Comprehensive income attributable to partners

$

44,415



$

24,885



$

72,211



$

44,581










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

9,647



8,079



18,724



15,348


Limited partners’ interest in net income

$

34,768



$

16,806



$

53,487



$

29,233










Net income per limited partner unit:








Common units – basic

$

1.18



$

0.69



$

1.98



$

1.20


Common units – diluted

$

1.18



$

0.69



$

1.98



$

1.20










Weighted average limited partner units outstanding:








Common units – basic

29,427,298



24,409,359



26,953,934



24,408,270


Common units – diluted

29,430,555



24,414,343



26,956,523



24,414,077










Cash distribution per limited partner unit

$

0.900



$

0.850



$

1.790



$

1.670


 

Delek Logistics Partners, LP

Condensed Consolidated Statements of Cash Flows (Unaudited)

(In thousands)



Six Months Ended June 30,



2020


2019

Cash flows from operating activities





Net cash provided by operating activities


$

72,381



$

51,823


Cash flows from investing activities





Net cash used in investing activities


(114,242)



(136,556)


Cash flows from financing activities





Net cash provided by financing activities


52,512



85,651


Net increase in cash and cash equivalents


10,651



918


Cash and cash equivalents at the beginning of the period


5,545



4,522


Cash and cash equivalents at the end of the period


$

16,196



$

5,440


 

Delek Logistics Partners, LP

Reconciliation of  Amounts Reported Under U.S. GAAP

(In thousands)


Three Months Ended June 30,


Six Months Ended June 30,


2020


2019


2020


2019

Reconciliation of Net Income to EBITDA:








Net income

$

44,415



$

24,885



$

72,211



$

44,581


Add:








Income tax (benefit) expense

(740)



71



235



136


Depreciation and amortization

8,694



6,639



14,993



13,213


Amortization of customer contract intangible assets

1,803



1,802



3,605



3,605


Interest expense, net

10,670



11,354



22,494



22,655


EBITDA

$

64,842



$

44,751



$

113,538



$

84,190










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








Net cash provided by operating activities

$

37,545



$

24,806



$

72,381



$

51,823


Changes in assets and liabilities

19,345



7,133



20,999



9,489


Non-cash lease expense

(366)



(393)



(640)



(1,409)


Distributions from equity method investments in investing activities

1,580





1,690



804


Maintenance and regulatory capital expenditures

(98)



(963)



(726)



(1,781)


Reimbursement from Delek Holdings for capital expenditures

16



670



55



1,384


Accretion of asset retirement obligations

(107)



(99)



(214)



(198)


Deferred income taxes

(943)



3



(943)



3


Other operating income, net



27



107



25


Distributable Cash Flow

$

56,972



$

31,184



$

92,709



$

60,140


 

Delek Logistics Partners, LP

Distributable Coverage Ratio Calculation

(In thousands)


Three Months Ended June 30,


Six Months Ended June 30,

Distributions to partners of Delek Logistics, LP

2020


2019


2020


2019

Limited partners’ distribution on common units

$

26,490



$

20,755



$

48,229



$

40,769


General partner’s distributions

542



423



986



831


General partner’s incentive distribution rights

8,937



7,736



17,632



14,752


Total distributions to be paid (2)

$

35,969



$

28,914



$

66,847



$

56,352










Distributable cash flow

$

56,972



$

31,184



$

92,709



$

60,140


Distributable cash flow coverage ratio (1)

1.58x


1.08x


1.39x


1.07x


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


(2) The distributions for the six months ended June 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 and six months ended June 30, 2020 reflect the waiver of distributions in respect of the IDRs associated with the Additional Units for at least two years.

 

Delek Logistics Partners, LP

Segment Data (unaudited)

(In thousands)


Three Months Ended June 30,


Six Months Ended June 30,


2020


2019


2020


2019

Pipelines and Transportation








Net revenues:








Affiliate

$

61,394



$

36,731



$

99,897



$

73,390


Third party

2,032



7,477



11,496



11,451


Total pipelines and transportation

63,426



44,208



111,393



84,841


     Cost of sales:








Cost of materials and other

11,182



7,357



17,280



12,924


Operating expenses (excluding depreciation and amortization)

9,731



12,728



21,187



23,562


Segment contribution margin

$

42,513



$

24,123



$

72,926



$

48,355


Total Assets

$

836,510



$

525,070














Wholesale Marketing and Terminalling








Net revenues:








   Affiliates (1)

$

26,235



$

25,187



$

94,431



$

51,493


Third party

27,976



85,947



75,214



171,491


Total wholesale marketing and terminalling

54,211



111,134



169,645



222,984


     Cost of sales:








Cost of materials and other

32,710



86,497



127,905



177,195


Operating expenses (excluding depreciation and amortization)

2,718



4,599



6,006



9,823


Segment contribution margin

$

18,783



$

20,038



$

35,734



$

35,966


Total Assets

$

137,227



244,240














Consolidated








Net revenues:








Affiliates

$

87,629



$

61,918



$

194,328



$

124,883


Third party

30,008



93,424



86,710



182,942


Total consolidated

117,637



155,342



281,038



307,825


Cost of sales:








Cost of materials and other

43,892



93,854



145,185



190,119


Operating expenses (excluding depreciation and amortization presented below)

12,449



17,327



27,193



33,385


Contribution margin

61,296



44,161



108,660



84,321


General and administrative expenses

4,721



5,293



10,851



9,766


Depreciation and amortization

8,694



6,639



14,993



13,213


Other operating income, net



(27)



(107)



(25)


Operating income

$

47,881



$

32,256



$

82,923



$

61,367


Total Assets

$

973,737



$

769,310







(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 June 30,


Six Months Ended June 30,

Pipelines and Transportation

2020


2019


2020


2019

Maintenance capital spending

$

119



$

818



$

430



$

1,228


Discretionary capital spending

298





433



14


Segment capital spending

$

417



$

818



863



1,242


Wholesale Marketing and Terminalling








Maintenance capital spending

$

232



$

302



1,362



409


Discretionary capital spending

3



222



1,456



595


Segment capital spending

$

235



$

524



2,818



1,004


Consolidated








Maintenance capital spending

$

351



$

1,120



1,792



1,637


Discretionary capital spending

301



222



1,889



609


Total capital spending

$

652



$

1,342



$

3,681



$

2,246


 

Delek Logistics Partners, LP





Segment Data (Unaudited)






Three Months Ended June 30,


Six Months Ended June 30,


2020


2019


2020


2019

Pipelines and Transportation Segment:








Throughputs (average bpd)








El Dorado Assets:








    Crude pipelines (non-gathered)

79,066



37,625



75,995



33,179


    Refined products pipelines to Enterprise Systems

56,093



29,893



55,110



26,511


El Dorado Gathering System

9,447



14,315



13,449



14,798


East Texas Crude Logistics System

10,275



19,550



12,224



18,835


Big Spring Gathering Assets

105,162





105,162












Wholesale Marketing and Terminalling Segment:








East Texas – Tyler Refinery sales volumes (average bpd) (1)

65,028



71,123



68,839



69,857


Big Spring marketing throughputs (average bpd)

76,004



82,964



71,195



85,339


West Texas marketing throughputs (average bpd)

9,143



11,404



12,612



12,418


West Texas gross margin per barrel

$

0.64



$

6.25



$

1.96



$

4.84


Terminalling throughputs (average bpd)

138,593



156,922



136,961



154,643



















(1) Excludes jet fuel and petroleum coke.

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).

 

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SOURCE Delek Logistics Partners, LP