8-K: Delek Logistics Reports Record Second Quarter Results, Announces Strategic Acquisitions

Delek Logistics announced record second quarter 2024 results, including a net income of $41.1 million and EBITDA of $102.4 million, alongside strategic acquisitions and contract extensions.

Summary

• Delek Logistics reported a record second quarter in 2024, with net income attributable to all partners reaching $41.1 million, or $0.87 per diluted common limited partner unit.
• This is an increase from the $31.9 million, or $0.73 per diluted common limited partner unit, reported in the second quarter of 2023.
• The company's EBITDA for the quarter was $102.4 million, up from $92.8 million in the same period last year.
• Distributable cash flow was $67.8 million, compared to $60.5 million in the second quarter of 2023, resulting in a DCF coverage ratio of 1.32x.
• Delek Logistics announced the acquisition of H2O Midstream for $230 million and the acquisition of Delek US' interest in the Wink to Webster pipeline.
• They also amended and extended agreements with Delek US for up to seven years and made a final investment decision on a new gas processing plant.
• The company's leverage ratio improved to 3.81x from 4.34x at the end of 2023.
• A quarterly cash distribution of $1.090 per common limited partner unit was declared, representing a 1.9% increase from the previous quarter and a 5.3% increase year-over-year.

Sentiment

Score: 8

Explanation: The document conveys a positive sentiment due to record results, strategic acquisitions, and increased distributions. The company is clearly on a growth trajectory and is making moves to improve its financial position.

Positives

• Net income increased to $41.1 million in Q2 2024, up from $31.9 million in Q2 2023.
• EBITDA rose to $102.4 million in Q2 2024, compared to $92.8 million in Q2 2023.
• Distributable cash flow increased to $67.8 million in Q2 2024, up from $60.5 million in Q2 2023.
• The company's leverage ratio improved to 3.81x, down from 4.34x at the end of 2023.
• The quarterly distribution increased to $1.090 per unit, a 5.3% increase year-over-year.
• Net cash provided by operating activities was $87.6 million in Q2 2024, compared to $34.6 million in Q2 2023.
• The company has $819.8 million in additional borrowing capacity under its credit facility.

Negatives

• Corporate EBITDA was a loss of $7.1 million in Q2 2024, although this is an improvement from a loss of $10.1 million in Q2 2023.
• Total assets decreased from $1,642.2 million at the end of 2023 to $1,623.3 million as of June 30, 2024.
• Total liabilities decreased from $1,804.1 million at the end of 2023 to $1,674.6 million as of June 30, 2024.

Risks

• A significant portion of Delek Logistics' revenue is derived from Delek US, subjecting it to Delek US' business risks.
• There are risks related to the age and operational hazards of the company's assets, including potential spills and releases.
• Adverse market conditions could affect the utilization of Delek Logistics' assets and business performance.
• There are risks and uncertainties regarding the timing and benefits of the H2O Midstream transaction and the integration of the 3 Bear business.
• Future decisions by OPEC regarding production and pricing could impact the company.
• Changes in laws, including tax and regulatory matters, could adversely affect the company.
• The company's future growth opportunities are dependent on Delek US' growth.

Future Outlook

Delek Logistics aims to become an independent, largely third-party cash flow company with a strong growth profile and competitive distribution yield. The company expects to benefit from recent acquisitions and expansions in the Permian Basin.

Management Comments

• These strategic actions position Delek Logistics as a premier, full-service, midstream provider in the prolific Permian Basin, said Avigal Soreq, President of Delek Logistics' general partner.
• These actions also move Delek Logistics toward becoming an independent, largely third-party cash flow company with a strong growth profile and extremely competitive distribution yield, Mr. Soreq continued.
• In July, the Board continued its commitment to return value to unitholders and approved the 46th consecutive increase in the quarterly distribution to $1.090 per unit, Mr. Soreq concluded.

Industry Context

The announcement reflects a trend in the midstream energy sector towards consolidation and expansion in key production areas like the Permian Basin. Delek Logistics is positioning itself to capitalize on increased activity and demand for midstream services in this region.

Comparison to Industry Standards

• Delek Logistics' EBITDA of $102.4 million is comparable to other mid-sized midstream companies such as MPLX which reported $1.5 billion in EBITDA for the same quarter, however MPLX is a much larger company.
• The DCF coverage ratio of 1.32x is within the typical range for midstream MLPs, indicating a healthy ability to cover distributions.
• The leverage ratio of 3.81x is also within the acceptable range for the industry, although some peers may have lower leverage.
• The distribution increase of 5.3% year-over-year is competitive with other midstream companies that are focused on returning value to unitholders.

Related Party Transactions

• Delek US Holdings, Inc. owns the general partner interest as well as a majority limited partner interest in Delek Logistics, and is also a significant customer.
• Delek Logistics & Delek US amended and extended certain contracts for a duration of up to seven years.
• The acquisition of Delek US' interest in the Wink to Webster pipeline is a related party transaction.

Stakeholder Impact

• Shareholders will benefit from increased distributions and potential long-term value creation.
• Employees may see increased opportunities due to the company's growth and expansion.
• Customers will benefit from the company's enhanced service offerings and capabilities.
• Suppliers may see increased business opportunities due to the company's growth.
• Creditors will benefit from the company's improved financial position and reduced leverage.

Next Steps

• The company will hold a conference call to discuss the second quarter results on August 6, 2024.
• The acquisition of H2O Midstream and Delek US' interest in the Wink to Webster pipeline are expected to close in the near future.
• The new gas processing plant will be constructed and brought online.
• The company will continue to execute its strategy to become a premier, full-service, midstream provider.

Key Dates

Keywords

Midstream, Logistics, EBITDA, Distributable Cash Flow, Acquisition, Permian Basin, Pipeline, Gas Processing, Distribution, Leverage Ratio