8-K: Delek Logistics Reports Solid First Quarter 2024 Results, Boosted by Strategic Offerings

Delek Logistics announced a net income of $32.6 million and EBITDA of $101.5 million for the first quarter of 2024, supported by successful debt and equity offerings.

Summary

• Delek Logistics Partners, LP reported a net income attributable to all partners of $32.6 million for the first quarter of 2024, a decrease from $37.4 million in the same period last year, primarily due to higher interest expenses.
• The company's EBITDA for the quarter was $101.5 million, up from $93.2 million in the first quarter of 2023, driven by increased contributions from the Delaware Gathering systems, terminalling, and marketing rate increases.
• Distributable cash flow was $68.0 million, compared to $61.8 million in the first quarter of 2023, resulting in a distributable cash flow coverage ratio of 1.35x.
• Delek Logistics successfully executed an $850 million debt offering and a $138 million equity offering in 2024, improving liquidity from approximately $300 million to $800 million.
• The company's leverage ratio improved to 4.01x from 4.34x at the end of 2023, and they added 3.6 million units for a total of 47.2 million outstanding units.
• A quarterly cash distribution of $1.070 per common limited partner unit was declared, marking the 45th consecutive increase in quarterly distributions.

Sentiment

Score: 7

Explanation: The sentiment is positive due to the successful debt and equity offerings, improved liquidity, and continued distribution growth. However, the decrease in net income and increased operating expenses temper the overall sentiment.

Positives

• EBITDA increased by $8.3 million year-over-year, driven by higher contributions from the Delaware Gathering systems, terminalling, and marketing rate increases.
• Net cash provided by operating activities increased to $43.9 million from $29.2 million in the first quarter of 2023.
• The company successfully executed debt and equity offerings, significantly improving its financial strength and flexibility.
• The leverage ratio was reduced to 4.01x, indicating improved financial health.
• The company has demonstrated a commitment to returning value to unitholders with 45 consecutive quarters of distribution growth.
• Increased throughput from Permian Basin assets contributed to higher EBITDA in the Gathering and Processing segment.
• Higher terminalling utilization led to increased EBITDA in the Wholesale Marketing and Terminalling segment.
• Increased storage and transportation rates boosted EBITDA in the Storage and Transportation segment.

Negatives

• Net income attributable to all partners decreased to $32.6 million from $37.4 million in the first quarter of 2023, primarily due to higher interest expenses.
• Corporate EBITDA showed a loss of $8.1 million, compared to a loss of $4.0 million in the first quarter of 2023.
• Operating expenses increased due to the growth in operations, partially offsetting the increase in revenue.
• The company's net income per limited partner unit decreased from $0.86 to $0.73.

Risks

• A significant portion of Delek Logistics' revenue is derived from Delek US, subjecting it to Delek US' business risks.
• The company faces risks related to the age and operational hazards of its assets, including potential spills and other hazards.
• Adverse market conditions could affect the utilization of Delek Logistics' assets and business performance.
• The company is exposed to risks and uncertainties related to the integration of the 3 Bear business following the recent acquisition.
• Uncertainties regarding future decisions by OPEC could impact production and pricing.
• The company's future growth opportunities are dependent on Delek US' ability to grow as expected.
• Adverse changes in laws, including tax and regulatory matters, could impact the company.
• The company's forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially.

Future Outlook

The company's forward-looking statements include expectations for future growth, distributions, potential dropdown inventory, benefits from the Delaware Gathering acquisition, and financial flexibility. However, these statements are subject to risks and uncertainties.

Management Comments

• Avigal Soreq, President of Delek Logistics' general partner, stated that the company had a strong quarter, delivering solid financial and operational performance.
• Mr. Soreq expressed pride in the team for successfully executing the debt and equity offerings during the quarter.
• Mr. Soreq noted that the transactions improved DKL's financial strength and flexibility.
• Mr. Soreq highlighted the increase in new investor interest and increased volume activity in the units.
• Mr. Soreq concluded that the Board continued its commitment to return value to unitholders by approving the 45th consecutive increase in the quarterly distribution.

Industry Context

This announcement reflects the ongoing activity in the midstream energy sector, where companies are focused on optimizing their operations, managing debt, and returning value to unitholders. The successful debt and equity offerings indicate investor confidence in Delek Logistics' strategy and financial health.

Comparison to Industry Standards

• Delek Logistics' leverage ratio of 4.01x is within the requirements of its credit facility, which is a common benchmark for midstream companies.
• The distributable cash flow coverage ratio of 1.35x indicates a healthy ability to cover distributions, which is a key metric for master limited partnerships (MLPs).
• The company's 45 consecutive quarters of distribution growth is a positive sign compared to peers that may have inconsistent distribution policies.
• Compared to companies like MPLX and Enterprise Products Partners, Delek Logistics is smaller but is showing strong growth in key areas like the Delaware Basin.
• The increase in EBITDA and distributable cash flow is a positive trend compared to some peers that may be facing headwinds in certain segments.

Stakeholder Impact

• Shareholders will benefit from the increased distribution and improved financial health of the company.
• Employees may see increased job security and opportunities due to the company's growth.
• Customers will benefit from the company's continued investment in infrastructure and services.
• Suppliers may see increased business opportunities due to the company's growth.
• Creditors will benefit from the company's improved financial health and reduced leverage.

Next Steps

• Delek Logistics will hold a conference call to discuss its first quarter 2024 results on Tuesday, May 7, 2024 at 11:30 a.m. Central Time.
• The company will continue to focus on operational performance and financial flexibility.
• The company will continue to evaluate potential growth opportunities.

Key Dates

Keywords

Delek Logistics, Midstream Energy, EBITDA, Distributable Cash Flow, Debt Offering, Equity Offering, Leverage Ratio, Distribution Growth, Permian Basin, Gathering and Processing, Terminalling, Crude Oil, Natural Gas