Delek Logistics Partners LP (DKL) 2024 Q4 法說會逐字稿

Thank you for standing by. My name is Jay, and I will be a conference operator today. At this time, I would like to welcome everyone to the Delek fourth quarter 2024 earnings call. (Operator Instructions) And I'd like to turn the conference over to Robert Wright, Deputy CFO. You may begin.

Good morning and welcome to the Delek 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. 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.

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. Factors that could cause actual results to differ are included in our SEC filings. The company assumes no obligation to update any forward-looking statements. I will now turn the call over to Avigal for opening remarks. Avigal.

Thank you, Robert. Delek Logistics Partner had another record quarter. We reported approximately $107 million in quarterly adjusted EBITDA. 2024 has been a transformational year for Delek Logistics, and we are pleased with its continued strong performance. In 2024, DKL is taking key steps to becoming a premier full service, crude, natural gas, and water provider in the Perman Basin, and we expect to make further progress in 2025.

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. We were also the first MLP to do two primary offerings in a year since 2017. We amend and extend contact between DKL and DK for a period of up to 7 years, providing certainty around cash flows.

We completed the acquisition of Delek portion in Wing to Webster pipeline, which increased the overall asset quality at DKL and enhanced DKL permit position. We announced to a position in the Midland Basin, edge to midstream and Gravity Water midstream, enhance our competitive position in the Midland Basin significantly.

We are excited about our combined offering, and we are extremely pleased with the initial success we've seen so far. In the Delaware Basin, we are also making good progress in our processing plant expansion. The expansion is set to complete on time and on budget in the first half of 2025. As we complete the plant expansion, we also announced an FID on acid gas injection at the Libby complex.

AGI wells and so gas treating capabilities enhance our competitive position in the Delaware and provide a good runway of growth for logistics in the future. Looking forward in 2025, we will continue to grow the partnership to prudent management of leverage and coverage. DKL also initiate a strong 2025 EBITDA guidance of $480 million to $520 million. This represents around 20% growth over 2024 adjusted EBITDA.

DKL continues to provide one of the best combinations of yield and growth in the entire ANCI index. We'll continue to increase our economic separation with our sponsor DK. We are progressing the economic separation in a few different ways, and today we have announced an additional tool to enable the deconsolidation.

Our board of directors have authorized up to $150 million buyback from our sponsor DK to enhance value for the DKL unit holders. I'm also pleased to announce that the board of directors has approved the 48 consecutive increase in the quarterly distribution to [$1.10. $0.05] per unit. To conclude, we are very excited about the prospect of logistics.

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. As Avigal mentioned, we are growing delicate logistics with a prudent management of liquidity and leverage. We managed our financial liquidity throughout 2024 by accessing both the debt and equity markets. Post the close of our acquisition of Gravity Water Midstream, we have approximately $530 million of liquidity.

We're also managing our leverage as we complete several important organic growth projects this year. Moving on to our fourth quarter results. The fourth quarter adjusted EBITDA was $107.2 million compared to $100.9 million in the same period of 2023. Distributable cash flow as adjusted was $69.5 million 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. 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 Delek Logistics, Permian Basin assets, and contribution from H2O Midstream.

Wholesale marketing and terming adjusted EBITDA with $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. 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.

And lastly, the investments in pipeline joint venture segment contributed $11.3 million this quarter compared with $8.5 million in the fourth quarter of 2023. The increase was primarily due to the contribution from the Wein to Webster drop down in August of last year. 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 systems. Along with initiating our full year EBITDA guidance of approximately $500 million at the midpoint, we've also announced today our 2025 capital guidance.

In 2025, we expect to spend a total of approximately $75 million on completing our levy processing plan expansion and approximately $160 million on growth and maintenance projects. With that, we can open the call for questions.

Thank you. (Operator Instructions).

Your first question comes from the line of Doug Irwin of Citi. Your line is open.

Hey, good morning.

Hey thanks for the questions. Good morning.

I just that guidance here, just looking at some of the prior benchmarks you've put around the acquisitions and the processing plant expectations, it 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 for the low end here and then maybe kind of where you see yourself exiting the year given some of the moving pieces throughout.

Hey Doug, thanks for the question. And listen, that's the first time we're giving guidance. DKL obviously is a growing company as we demonstrate and as you can well, 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.

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 and obviously we are looking forward to update you down the road. If there is more modeling question, obviously you can follow up with more for more detailed question how to get the exact model, but that's where we are today and obviously there is always opportunities in the future.

Understood and yeah, I appreciate the first-time guidance. Maybe a follow up on the buyback program, maybe a two-part question here. Just first, just curious how quickly you expect to be able to execute on that $150 million and then second, just how you're thinking about funding these buybacks.

Are you looking to potentially fund it all internally with free cash flow or you may be 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.

Yeah, absolutely. So if we're looking at that from a free cash flow standpoint, again, I'm sure that you can appreciate it. Our cost of capital on the debt side is around 7%, and what we see here today at $40 is close to 11. So that's obviously a very beneficial from a free cash flow standpoint for DKL, and that's something that our partnership. It likes a lot.

Also, you can for sure appreciate that the deconsolidation effort is an initiative of both companies, both DKL and DK, and the reason is that 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. It's going to be subject to market conditions and DKL are offering that to DK, but that's something that we definitely look very closer and they're working hard on that. But I will let the Reuven to chime in more debt and to give some more colours.

Well, just two bullet points. One, it's a two-year program, and we have to do execute that while complying with the company covenant and lever ratio leverage ratio targets. And obviously that will be in place as long as, the DKL share price makes sense from free cash flow accredited for the company.

Understood thanks.

Thank you.

Your next question comes from a line of Neal Dingmann of Truist Securities. Your line is open.

Hey neal Good Morning

morning. Thanks for the time, guys. My question is a little bit about the same good love to see the guidance, obviously looks great on, but I'm just wondering, besides you mentioned release it's nice to see the, upside that's going to happen around the libby plant expansion, could you speak to maybe just maybe other notable drivers you would share with us, that's driving this upside, potential around the EBITDA out you're showing this year.

Yeah, so, we have many a chip in this guidance site we obviously finished the gravity deal, we finished the H2O deal. We announced the libby plants. We announced the AGI & Sour effort, 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 Neal that it's very much necessary to give you guys a clear guidance and making your life just a little bit easier in terms of where we land. And I think it's very important to investors to see how much our currency is cheap versus the entire ANZI index and how good of a position it is.

So I think that that's the reason we decided to give that because of the amount of transactions 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.

I would definitely appreciate that the discount is definitely, obviously seeing out there right now and then my just my follow up would be on the key three bare assets here which continue to be so good. Just wondering how is, when you look at those assets, just wondering how is demand and utilization of these assets looking.

Yeah, so we would not expand those assets if you wouldn't see a strong demand. Obviously the gas in the dolo area looks very good. We have many discussions with our producer that we have adjudication with, but another point I would like to highlight for you, Neal, is our comprehensive offering of food, gas, and water.

It proves itself very nicely in the Delaware, and that's part of the reasoning that we implemented the same concept. Also on 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 too, all the expansion, and we went also to the south. So we are, we feel confident and to our tactics and also to the strategy.

Very good thank.

With no further questions, that concludes our Q&A session. I will now turn the conference back over to Avigal Soreq for closing remarks.

Yeah, absolutely. Thank you today. I would like to thank my colleagues around the table. I would like to thank the entire Delek Logistics employees, our board of directors, and for you investors, and we'll meet again in the next quarter. Thank you.

This concludes today's conference call. You may now disconnect.