Delek Logistics Partners, LP (NYSE:DKL) Q1 2024 Earnings Call Transcript May 7, 2024
Delek Logistics Partners, LP isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Hello, and thank you for standing by. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Delek Logistics Partners First Quarter 2024 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Rosy Zuklic, Vice President, Investor Relations. Please go ahead.
Rosy Zuklic: Good morning, and welcome to the Delek Logistics Partners First Quarter Earnings Conference Call. Participants on today’s call will include Avigal Soreq, President; Joseph Israel, EVP, Operations; Reuven Spiegel, EVP and Chief Financial Officer; and Odely Sakazi, SVP, Delek Logistics. As a reminder, this conference call will contain forward-looking statements as defined under the federal securities laws, including, without limitation, statements regarding guidance and future business outlook. These statements involve risks and uncertainties that may cause actual results to differ from our forecast. For more information, please refer to the risk factors discussed in the partnership’s most recently filed annual report on Form 10-K and quarterly report on Form 10-Q filed with the SEC, along with the press release associated with this call.
The partnership assumes no obligation to update any forward-looking statements or information, which speak as of the respective date. I’ll now turn the call over to Avigal for opening remarks. Avigal?
Avigal Soreq: Thank you, Rosy. Delek Logistics Partners reported a strong first quarter. We once again exceeded $100 million of the quarterly EBITDA. I’m pleased with our consistent performance. We saw continued strong performance from our Midland Gathering operations and our operation in the Delaware basin has started to exceed our expectations on a consistent basis. This validates our strong position in the Permian Basin. We have come a long way with DKL. Delek Logistics started back in 2012 as a classic drop-down story. It has evolved into something bigger. We started to develop third-party business back in 2016, focusing in the Midland and the Delaware Basins. Today, approximately 50% of our EBITDA is from third-party business.
Our growth efforts have been focused on gathering and processing segment. Our Midland Gathering system has premier assets in the heart of the Midland Basin. We built this system organically. It’s now gathered up to 230,000 barrels per day and has around 350,000 of dedicated acreage contracted until 2030. It’s an attractive asset that provides a growth engine of our Midland midstream operation. Moving to the Delaware Gathering business. We built this business inorganically and organically. The system provides complete crude, gas and water gathering to our customers. We have significant growth opportunities in our system. On a capital structure, we improved Delek Logistics financial strength and flexibility. Reuven will speak to this. The debt and equity offering improved our liquidity to approximately $800 million.
I’m proud of the team for their successfully executing these transactions. In May, the Board approved the 45th consecutive increase in the quarterly distribution to $1.07 per unit. Delek Logistics has shown strong track record of delivering value to our unitholders. We feel confident in our ability to maintain strong distribution to our investors. I will now hand it over to Reuven.
Reuven Spiegel: Thank you, Avigal. Before I start the financial highlights, I wanted to give a little color on the recent debt and equity offerings. The combination of the primary equity issuance and extending our debt to 2029 improved Delek Logistics’ ability to pursue its growth plans through improved leverage and financial liquidity. It also increased float in the units, attracting new investors and increasing the daily volume traded. As Avigal mentioned, we increased liquidity to approximately $800 million. This was about $300 million prior to these transactions. In addition, we reduced the leverage ratio to 4.01 from 4.34 last quarter. We see a pathway to continued improvement in the leverage ratio through the balance of the year.
Moving on to the quarter results. The first quarter EBITDA was $101.5 million compared to $93.2 million in the same period of ‘23. Distributable cash flow was $68 million and the DCF coverage ratio was 1.35x. For the Gathering and Processing segment, EBITDA for the quarter was $57.8 million compared to $55.4 million in the first quarter of ‘23. The increase was primarily due to higher throughput from Delek Logistics Permian Basin assets. Wholesale Marketing and Terminalling EBITDA in the first quarter was $25.3 million compared with $22 million in the prior year. The increase was primarily from higher terminalling utilization. Storage and Transportation EBITDA in the quarter was $18.1 million compared with $13.4 million in the first quarter of ‘23.
The increase was mainly driven by higher storage and transportation rates. And lastly, the investment in pipeline joint venture segment contributed $8.5 million in this quarter compared with $6.3 million in the first quarter of ‘23. Moving on to capital expenditures. The capital program for the first quarter of ‘24 was $15 million. Most of the spend in the quarter was for growth projects, namely advancing new connections in the Midland and Delaware Gathering systems. With that, we can open the call for questions.
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