Market Overview

Delek Logistics Partners, LP Reports Second Quarter 2018 Results

Share:
  • Declared quarterly distribution of $0.77 per limited partner unit; increased by 9.2% percent year-over-year
  • Reported second quarter 2018 net cash from operating activities of $28.0 million and distributable cash flow of $33.5 million
  • Distributable cash flow coverage ratio of for the second quarter 2018 was 1.34x

BRENTWOOD, Tenn., Aug. 07, 2018 (GLOBE NEWSWIRE) -- Delek Logistics Partners, LP (NYSE:DKL) ("Delek Logistics") today announced its financial results for the second quarter 2018. For the three months ended June 30, 2018, Delek Logistics reported net income attributable to all partners of $25.6 million, or $0.79 per diluted common limited partner unit. This compares to net income attributable to all partners of $19.0 million, or $0.59 per diluted common limited partner unit, in the second quarter 2017. Distributable cash flow was $33.5 million in the second quarter 2018, compared to $23.0 million in the prior-year period.

For the second quarter 2018, earnings before interest, taxes, depreciation and amortization ("EBITDA") was $45.4 million compared to $30.3 million in the prior-year period. The contribution from the Big Spring logistics assets acquired from Delek US effective March 1, 2018, higher gross margin per barrel in west Texas that benefited from increased crude oil drilling activity in the Permian Basin and improved performance from the Paline Pipeline were the primary factors in the year-over-year increase.

Uzi Yemin, Chairman and Chief Executive Officer of Delek Logistics' general partner, remarked: "Our Permian Basin strategy is paying off as we achieved a record quarterly EBITDA level in the second quarter 2018.  The successful completion of both the Big Spring acquisition and Paline Pipeline expansion in March 2018 helped drive our improved performance in the second quarter 2018. In addition, crude oil drilling activity in the Permian Basin continues to grow and is supporting strong performance in our west Texas operations. This has led to a robust distributable cash flow coverage ratio of 1.34x, which improved on a sequential and year-over-year basis.  Also, our leverage ratio improved to 4.4x."

Yemin concluded, "We are aggressively exploring potential opportunities to leverage our Permian Basin position to create long-term value for our unitholders. These include ways to partner with Delek US to support its Permian Basin crude oil supply needs and the high utilization rates in its refining system, as well as third party growth options.  We were pleased to announce the 9.2 percent year-over-year increase in our declared second quarter distribution. The combination of our financial flexibility provided by our balance sheet and our focus on growth initiatives should support a distribution per limited partner unit increase of at least 10% annually through 2019."

Distribution and Liquidity
On July 24, 2018, Delek Logistics declared a quarterly cash distribution for the second quarter of $0.77 per common limited partner unit, which equates to $3.08 per common limited partner unit on an annualized basis. This distribution will be paid on August 13, 2018 to unitholders of record on August 3, 2018. This represents a 2.7 percent increase from the first quarter 2018 distribution of $0.75 per common limited partner unit, or $3.00 per common limited partner unit on an annualized basis, and a 9.2 percent increase over Delek Logistics' second quarter 2017 distribution of $0.705 per common limited partner unit, or $2.82 per common limited partner unit annualized. For the second quarter 2018, the total cash distribution declared to all partners, including IDRs, was approximately $25.0 million. Based on the declared distribution for the second quarter 2018, the distributable cash flow coverage ratio for the second quarter was 1.34x.

As of June 30, 2018, Delek Logistics had total debt of approximately $737.1 million and cash of $5.2 million. Additional borrowing capacity, subject to certain covenants, under the $700.0 million credit facility was $206.1 million. The total leverage ratio for the second quarter 2018 was approximately 4.4x, which is within the current requirements of the maximum allowable leverage of 5.50x.

DKGP Joint Venture and Terminal Acquisition Update
On February 20, 2018, Delek Logistics and an affiliate of Green Plains Partners LP (NASDAQ:GPP) announced the formation of a 50/50 joint venture, DKGP Energy Terminals LLC ("DKGP"). DKGP signed a membership interest purchase agreement to acquire two light products terminals from an affiliate of American Midstream Partners, LP (NYSE:AMID). On August 1, 2018 the membership interest purchase agreement between DKGP and American Midstream was terminated according to the terms of the agreement due to delays in receiving federal regulatory approval for the acquisition.

Financial Results
Revenue for the second quarter 2018 was $166.3 million compared to $126.8 million in the prior-year period. The increase in revenue is primarily due to higher sales prices in the west Texas wholesale business, combined with the Big Spring acquisition that was effective March 1, 2018. Total operating expenses were $14.9 million in the second quarter 2018, compared to $10.0 million in the second quarter 2017. This increase was primarily due to the contribution from the acquired Big Spring assets and employee-related expenses.  Total segment contribution margin was $45.3 million in the second quarter 2018 compared to $31.8 million in the second quarter 2017. General and administrative expenses were $3.7 million for the second quarter 2018, compared to $2.7 million in the prior-year period primarily due to professional services.

Pipelines and Transportation Segment
Contribution margin in the second quarter 2018 was $22.6 million compared to $17.9 million in the second quarter 2017. This increase was primarily due to the contribution from the Big Spring acquisition in March 2018 and improved performance from the Paline Pipeline. Operating expenses were $9.9 million in the second quarter 2018 compared to $7.9 million in the prior-year period, primarily due to the Big Spring acquisition.

Wholesale Marketing and Terminalling Segment
During the second quarter 2018, contribution margin was $22.7 million, compared to $13.9 million in the second quarter 2017. This increase was primarily due to the contribution from the Big Spring acquisition in March 2018 and improved margin performance in the west Texas wholesale operations.  Operating expenses increased to $5.0 million in the second quarter 2018, compared to $2.0 million in the prior-year period primarily due to the Big Spring acquisition.

In the west Texas wholesale business, average throughput in the second quarter 2018 was 12,261 barrels per day compared to 13,422 barrels per day in the second quarter 2017. The wholesale gross margin in west Texas increased year-over-year to $8.06 per barrel and included approximately $0.8 million, or $0.71 per barrel, from renewable identification numbers (RINs) generated in the quarter.  During the second quarter 2017, the wholesale gross margin was $4.26 per barrel and included $1.2 million from RINs, or $1.00 per barrel.  On a year-over-year basis, continued growth in crude oil drilling activity in the Permian Basin increased fuel demand and improved the supply/demand balance, which led to improved performance in the west Texas wholesale business.

Average terminalling throughput volume of 162,383 barrels per day during the second quarter 2018 increased on a year-over-year basis from 128,111 barrels per day in the second quarter 2017 primarily due to the addition of the Big Spring terminal.  During the second quarter 2018, average volume under the East Texas marketing agreement with Delek US was 79,330 barrels per day compared to 77,878 barrels per day during the second quarter 2017. During the second quarter 2018, average volume under the Big Spring marketing agreement with Delek US was 80,536 barrels per day.

Second Quarter 2018 Results | Conference Call Information
Delek Logistics will hold a conference call to discuss its second quarter 2018 results on Wednesday, August 8, 2018 at 8:00 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. For those who cannot listen to the live broadcast, a telephonic replay will be available through November 8, 2018 by dialing (855) 859-2056, passcode 1262739. 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 2018 earnings conference call on Wednesday, August 8, 2018 at 9:00 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 within the meaning of 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; an inability of Delek US to successfully integrate the businesses of Delek US and Alon USA Energy, Inc., to grow as expected and realize the synergies and the other anticipated benefits of its merger with Alon, which became effective as of July 1, 2017, 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; expansion of the Paline Pipeline and potential benefits therefrom; distributions and the amounts and timing thereof; ability to create long-term value for our unit holders; financial flexibility and borrowing capacity; and distribution growth of 10% or at all. There can be no assurance that actual results will not differ from those expected by management or described in forward-looking statements of Delek Logistics. Delek Logistics undertakes no obligation to update or revise such forward-looking statements to reflect events or circumstances that occur, or which Delek Logistics becomes aware of, after the date hereof.

Non-GAAP Disclosures:
EBITDA (defined as net income (loss) 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 sales in our accompanying condensed consolidated statements of income), distributable cash flow and distributable cash flow coverage ratio are non-U.S. GAAP supplemental financial measures that management and external users of our combined 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 Delek Logistics' 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 from operations or any other measure of financial performance or liquidity presented in accordance with U.S. GAAP.  EBITDA, distributable cash flow and distributable cash flow coverage ratio 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. 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. Please see the tables below for a reconciliation of EBITDA and distributable cash flow to their most directly comparable financial measures calculated and presented in accordance with U.S. GAAP.  Also, please see the accompanying table providing the calculation of distributable cash flow coverage ratio.


Delek Logistics Partners, LP
Condensed Consolidated Balance Sheets (Unaudited)
    June 30,   December 31,
    2018   2017
         
    (In thousands)
ASSETS        
Current assets:        
Cash and cash equivalents   $ 5,177     $ 4,675  
  Accounts receivable   21,881     23,013  
Accounts receivable from related parties   9,651     1,124  
Inventory   12,715     20,855  
Other current assets   697     783  
Total current assets   50,121     50,450  
Property, plant and equipment:        
Property, plant and equipment   446,961     367,179  
Less: accumulated depreciation   (127,628 )   (112,111 )
Property, plant and equipment, net   319,333     255,068  
Equity method investments   106,432     106,465  
Goodwill   12,203     12,203  
Intangible assets, net   157,643     15,917  
Other non-current assets   4,617     3,427  
Total assets   $ 650,349     $ 443,530  
LIABILITIES AND DEFICIT        
Current liabilities:        
Accounts payable   $ 9,319     $ 19,147  
Excise and other taxes payable   4,590     4,700  
Tank inspection liabilities   902     902  
Pipeline release liabilities   1,037     1,000  
Accrued expenses and other current liabilities   5,282     6,033  
Total current liabilities   21,130     31,782  
Non-current liabilities:        
Long-term debt   737,139     422,649  
Asset retirement obligations   5,007     4,064  
Other non-current liabilities   16,035     14,260  
Total non-current liabilities   758,181     440,973  
Total liabilities   779,311     472,755  
Deficit:        
Common unitholders - public; 9,101,137 units issued and outstanding at June 30, 2018 (9,088,587 at December 31, 2017)   173,607     174,378  
Common unitholders - Delek; 15,294,046 units issued and outstanding at June 30, 2018 (15,294,046 at December 31, 2017)   (295,247 )   (197,206 )
General partner - 497,861 units issued and outstanding at June 30, 2018 (497,604 at December 31, 2017)   (7,322 )   (6,397 )
Total deficit   (128,962 )   (29,225 )
Total liabilities and deficit   $ 650,349     $ 443,530  


Delek Logistics Partners, LP
Condensed Consolidated Statements of Income (Unaudited)
    Three Months Ended June 30,   Six Months Ended June 30,
     
    2018   2017   2018   2017
                 
    (In thousands, except unit and per unit data)
Net sales:                
Affiliate   $ 53,080     $ 39,824     $ 114,724     $ 76,443  
Third-party   113,200     86,945     219,477     179,799  
Net sales   166,280     126,769     334,201     256,242  
Operating costs and expenses:                
Cost of goods sold   106,016     85,039     225,048     177,629  
Operating expenses   14,917     9,966     27,494     20,324  
General and administrative expenses   3,747     2,656     6,722     5,504  
Depreciation and amortization   7,019     5,742     13,019     10,935  
(Gain) loss on asset disposals   (129 )   (5 )   (69 )   7  
Total operating costs and expenses   131,570     103,398     272,214     214,399  
Operating income   34,710     23,371     61,987     41,843  
Interest expense, net   10,926     5,462     18,988     9,533  
Income from equity method investments   (1,899 )   (1,176 )   (2,757 )   (1,421 )
Income before income tax expense   25,683     19,085     45,756     33,731  
Income tax expense   101     108     179     159  
Net income attributable to partners   $ 25,582     $ 18,977     45,577     33,572  
Comprehensive income attributable to partners   $ 25,582     $ 18,977     $ 45,577     $ 33,572  
                 
Less: General partner's interest in net income, including incentive distribution rights   6,212     4,552     11,842     8,661  
Limited partners' interest in net income   $ 19,370     $ 14,425     $ 33,735     $ 24,911  
                 
Net income per limited partner unit:                
Common units - (basic)   $ 0.79     $ 0.59     $ 1.38     $ 1.02  
Common units - (diluted)   $ 0.79     $ 0.59     $ 1.38     $ 1.02  
                 
Weighted average limited partner units outstanding:                
Common units - basic   24,386,031     24,335,338     24,384,341     24,331,991  
Common units - diluted   24,394,103     24,375,946     24,391,760     24,371,540  
                 
Cash distribution per limited partner unit   $ 0.770     $ 0.705     $ 1.520     $ 1.395  


Delek Logistics Partners, LP
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
           
    Six Months Ended June 30,  
    2018   2017  
           
Cash Flow Data          
Operating activities   $ 51,643     $ 46,910    
Investing activities   (221,700 )   (8,303 )  
Financing activities   170,559     (33,767 )  
  Net Increase   $ 502     $ 4,840    


Delek Logistics Partners, LP
Reconciliation of  Amounts Reported Under U.S. GAAP
    Three Months Ended June 30,   Six Months Ended June 30,
($ in thousands)   2018   2017   2018   2017
Reconciliation of net income to EBITDA:                
Net income   $ 25,582     $ 18,977     $ 45,577     $ 33,572  
Add:                
Income tax expense   101     108     179     159  
Depreciation and amortization   7,019     5,742     13,019     10,935  
Amortization of customer contract intangible assets   1,803         2,404      
Interest expense, net   10,926     5,462     18,988     9,533  
EBITDA   $ 45,431     $ 30,289     $ 80,167     $ 54,199  
                 
Reconciliation of net cash from operating activities to distributable cash flow:                
Net cash provided by operating activities   $ 27,987     $ 23,436     $ 51,643     $ 46,910  
Changes in assets and liabilities   6,215     881     9,921     (2,681 )
Distributions from equity method investments in investing activities       501     660     501  
Maintenance and regulatory capital expenditures   (1,017 )   (2,070 )   (1,341 )   (4,313 )
Reimbursement from Delek for capital expenditures (1)   314     460     705     1,338  
Accretion of asset retirement obligations   (97 )   (73 )   (175 )   (146 )
Deferred income taxes       (94 )       (119 )
Gain (loss) on asset disposals   129     5     69     (7 )
Distributable Cash Flow   $ 33,531     $ 23,046     $ 61,482     $ 41,483  
                 

(1) During the year ended December 31, 2017, the reimbursed capital expenditure amounts in the determination of distributable cash flow were revised to reflect the accrual of reimbursed capital expenditures from Delek US rather than the cash amounts received for reimbursed capital expenditures during the three and six months period ended June 30, 2017.  This resulted in decreases to the distributable cash flow of $0.3 million and $2.5 million from the amounts presented on our Quarterly Report on Form 10-Q for the three and six months period ended June 30, 2017, respectively.

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   2018   2017   2018   2017
Limited partners' distribution on common units   $ 18,784     $ 17,175     $ 37,071     $ 33,962  
General partner's distributions   383     350     756     692  
General partner's incentive distribution rights   5,817     4,258     11,154     8,153  
Total distributions to be paid   $ 24,984     $ 21,783     $ 48,981     $ 42,807  
                 
Distributable cash flow   $ 33,531     $ 23,046     $ 61,482     41,483  
Distributable cash flow coverage ratio (1)   1.34x     1.06x     1.26x     0.97x  
(1) 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   Six Months Ended
    June 30,   June 30,
    2018   2017   2018   2017
Pipelines and Transportation                
Net revenues:                
  Affiliates   $ 34,030     $ 27,668     $ 63,492     $ 54,168  
  Third party   3,714     2,555     7,965     4,732  
  Total pipelines and transportation   37,744     30,223     71,457     58,900  
  Operating costs and expenses:                
  Cost of goods sold   5,195     4,403     9,636     8,808  
  Operating expenses   9,933     7,933     19,555     16,088  
  Segment contribution margin   $ 22,616     $ 17,887     $ 42,266     $ 34,004  
Total Assets   $ 439,311     $ 338,781          
                 
Wholesale Marketing and Terminalling                
Net revenues:                
  Affiliates (1)   $ 19,050     $ 12,156     $ 51,232     $ 22,275  
  Third party   109,486     84,390     211,512     175,067  
  Total wholesale marketing and terminalling   128,536     96,546     262,744     197,342  
  Operating costs and expenses:                
  Cost of goods sold   100,821     80,636     215,412     168,821  
  Operating expenses   4,984     2,033     7,939     4,236  
  Segment contribution margin   $ 22,731     $ 13,877     $ 39,393     $ 24,285  
Total Assets   $ 211,038     $ 76,751          
                 
Consolidated                
Net revenues:                
  Affiliates   $ 53,080     $ 39,824     $ 114,724     $ 76,443  
  Third party   113,200     86,945     219,477     179,799  
  Total consolidated   166,280     126,769     334,201     256,242  
  Operating costs and expenses:                
  Cost of goods sold   106,016     85,039     225,048     177,629  
  Operating expenses   14,917     9,966     27,494     20,324  
  Contribution margin   45,347     31,764     81,659     58,289  
  General and administrative expenses   3,747     2,656     6,722     5,504  
  Depreciation and amortization   7,019     5,742     13,019     10,935  
  Loss (gain) on asset disposals   (129 )   (5 )   (69 )   7  
  Operating income   $ 34,710     $ 23,371     $ 61,987     $ 41,843  
Total Assets   $ 650,349     $ 415,532          

(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   2018   2017   2018   2017
Maintenance capital spending   540     1,355     1,057     3,043  
Discretionary capital spending   286     305     1,177     754  
Segment capital spending   $ 826     $ 1,660     $ 2,234     $ 3,797  
Wholesale Marketing and Terminalling                
Maintenance capital spending   $ 436     $ 214     574     $ 417  
Discretionary capital spending   990     245     1,641     696  
Segment capital spending   $ 1,426     $ 459     $ 2,215     $ 1,113  
Consolidated                
Maintenance capital spending   $ 976     $ 1,569     $ 1,631     $ 3,460  
Discretionary capital spending   1,276     550     2,818     1,450  
Total capital spending   $ 2,252     $ 2,119     $ 4,449     $ 4,910  
                 


Delek Logistics Partners, LP
Segment Data (Unaudited)
         
    Three Months Ended June 30,   Six Months Ended June 30,
    2018   2017   2018   2017
Pipelines and Transportation Segment:                
Throughputs (average bpd)                
Lion Pipeline System:                
  Crude pipelines (non-gathered)   56,088     59,953     55,412     59,351  
  Refined products pipelines   48,013     49,820     48,879     50,583  
SALA Gathering System   16,738     15,957     16,705     16,242  
East Texas Crude Logistics System   16,902     13,591     17,478     14,876  
                 
Wholesale Marketing and Terminalling Segment:                
East Texas - Tyler Refinery sales volumes (average bpd) (1)   79,330     77,878     76,304     70,677  
Big Spring Marketing - Refinery sales volume (average bpd) (for period owned) (2)   80,536         79,165      
West Texas marketing throughputs (average bpd)   12,261     13,422     14,091     13,942  
West Texas marketing margin per barrel   $ 8.06     $ 4.26     $ 6.43     $ 3.44  
Terminalling throughputs (average bpd) (3)   162,383     128,111     154,917     122,026  

(1) Excludes jet fuel and petroleum coke.

(2) Throughputs for the six months ended June 30, 2018 are for the 122 days we marketed certain finished products produced at or sold from the Big Spring Refinery following the execution of the Big Spring Marketing Agreement, effective March 1, 2018.

(3) Consists of terminalling throughputs at our Tyler, Big Spring, Big Sandy and Mount Pleasant, Texas, our El Dorado and North Little Rock, Arkansas and our Memphis and Nashville, Tennessee terminals. Throughputs for the Big Spring terminal are for the 122 days we operated the terminal following its acquisition effective March 1, 2018.  Barrels per day are calculated for only the days we operated each terminal.  Total throughput for the six months ended June 30, 2018 was 26.0 million barrels, which averaged 143,593 bpd for the period.

Investor / Media Relations Contact:
Keith Johnson
Vice President of Investor Relations                       
615-435-1366

Primary Logo

View Comments and Join the Discussion!