PR Newswire | Aug 4, 2020 04:43PM EDT

08/04 15:42 CDT

Delek Logistics Partners, LP Reports Second Quarter 2020 Results- Reported second quarter net income attributable to all partners of $44.4 million; EBITDA increased 44.9% year-over-year- Limited Partners' interest in net income increased approximately 107% y/y- Second quarter distributable cash flow coverage ratio of 1.58x and total leverage ratio below 4.1x- Exceeded year-end distribution coverage target of 1.4 - 1.5x in the second quarter- Recent asset drop downs, business initiatives and asset optimization lead to improving outlook in 2H20- Jefferson agreement supports Paline Pipeline and creates flexibility for customers- Declared second quarter distribution of $0.90 per limited partner unit; reflects 5.9% percent increase year-over-year- Reiterating 5% distribution growth in 2020 versus year-ago levels BRENTWOOD, Tenn., Aug. 4, 2020

BRENTWOOD, Tenn., Aug. 4, 2020 /PRNewswire/ -- Delek Logistics Partners, LP (NYSE: DKL) ("Delek Logistics") today announced its financial results for the second quarter 2020. For the three months ended June 30, 2020, Delek Logistics reported net income attributable to all partners of $44.4 million, or $1.18 per diluted common limited partner unit. This compares to net income attributable to all partners of $24.9 million, or $0.69 per diluted common limited partner unit, in the second quarter 2019. Net cash from operating activities was $37.5 million in the second quarter 2020 compared to $24.8 million in the second quarter 2019. Distributable cash flow was $57.0 million in the second quarter 2020, compared to $31.2 million in the second quarter 2019. Reconciliation of net cash from operating activities as reported under U.S. GAAP to distributable cash flow is included in the financial tables attached to this release.

For the second quarter 2020, earnings before interest, taxes, depreciation and amortization ("EBITDA") was $64.8 million compared to $44.8 million in the second quarter 2019. Results improved on a year-over-year basis primarily due to the drop down of the Big Spring Gathering System and Trucking Assets, increased crude gathering, operating expense reductions and an increase in income from equity method investments. This was partially offset by a lower West Texas gross margin on a year-over-year basis. Reconciliation of net income attributable to all partners as reported under U.S. GAAP to EBITDA is included in the financial tables attached to this release.

Uzi Yemin, Chairman, President and Chief Executive Officer of Delek Logistics' general partner, remarked: "Despite continued macro volatility stemming from COVID-19, Delek Logistics delivered stellar financial performance in the second quarter, with EBITDA and Limited Partners interest in net income increasing approximately 45% and 107%, respectively, versus last year. Second quarter distribution growth was 5.9% on a year-over-year basis.

The combination of recent asset drop downs from our sponsor Delek US Holdings, Inc. (NYSE: DK) ("Delek US") along with internal business initiatives, asset optimization efforts and the Red River pipeline expansion, which is currently underway, should lead to improving performance in the second half of the year. I am pleased to announce an agreement with Jefferson Energy, that will provide Jefferson's Beaumont Terminal with direct connection to the Paline Pipeline. This agreement expands Paline's reach by giving shippers increased destination points for their crude leading to better flexibility for our customers."

Mr. Yemin continued, "Our strong outlook gives us confidence in delivering 5% distribution growth on a year-over-year basis in 2020. We have already exceeded our distribution coverage target in the second quarter, well in advanced of our guidance to achieve this by year-end and we remain confident in reducing the leverage ratio below 4.0x before the end of the year."

Distribution and Liquidity

On July 24, 2020, Delek Logistics declared a quarterly cash distribution of $0.90 per common limited partner unit for the second quarter 2020, which equates to $3.60 per common limited partner unit on an annualized basis. This distribution will be paid on August 12, 2020 to unitholders of record on August 7, 2020. This represents a 1.1% increase from the first quarter 2020 distribution of $0.89 per common limited partner unit, or $3.56 per common limited partner unit on an annualized basis, and a 5.9% increase over Delek Logistics' second quarter 2019 distribution of $0.85 per common limited partner unit, or $3.40 per common limited partner unit annualized. For the second quarter 2020, the total cash distribution declared to all partners, including incentive distribution rights (IDRs), was approximately $36.0 million. Based on the distribution for the second quarter 2020, the distributable cash flow coverage ratio for the second quarter was 1.58x.

As of June 30, 2020, Delek Logistics had total debt of approximately $995.2 million and cash of $16.2 million. Additional borrowing capacity, subject to certain covenants, under the $850.0 million credit facility was $100.0 million. The total leverage ratio, calculated in accordance with the credit facility, for the second quarter 2020 was below 4.1x, which is within the current requirements of the maximum allowable leverage ratio of 5.5x.

Financial Results

Revenue for the second quarter 2020 was $117.6 million compared to $155.3 million in the prior-year period. The decrease in revenue is primarily due to lower commodity prices and average throughput volumes. Total operating expenses were $12.4 million in the second quarter 2020, compared to $17.3 million in the second quarter 2019. The decrease was primarily due to cost control measures put in place at the end of the first quarter 2020. Total contribution margin was $61.3 million in the second quarter 2020 compared to $44.2 million in the second quarter 2019, mainly driven by the contribution from new assets and lower expenses. General and administrative expenses were $4.7 million for the second quarter 2020, compared to $5.3 million in the prior-year period.

Pipelines and Transportation Segment

Contribution margin in the second quarter 2020 was $42.5 million compared to $24.1 million in the second quarter 2019. The recent drop down of Big Spring Gathering System and the Trucking Assets were the primary drivers behind the year over year growth. Operating expenses were $9.7 million in the second quarter 2020 compared to $12.7 million in the prior-year period.

Wholesale Marketing and Terminalling Segment

During the second quarter 2020, contribution margin was $18.8 million, compared to $20.0 million in the second quarter 2019. This decrease was primarily due to lower terminalling throughput and gross margin in west Texas. Operating expenses of $2.7 million in the second quarter 2020 were lower than the $4.6 million in the prior-year period.

Lower demand negatively impacted volumes and margins in the west Texas wholesale business. Average throughput in the second quarter 2020 was 9,143 barrels per day compared to 11,404 barrels per day in the second quarter 2019. The west Texas gross margin per barrel decreased year-over-year to $0.64 per barrel and included approximately $0.6 million, or $0.76 per barrel, from renewable identification numbers (RINs) generated in the quarter. During the second quarter 2019, the west Texas gross margin per barrel was $6.25 per barrel and included $0.3 million from RINs, or $0.25 per barrel.

Average terminalling throughput volume of 138,593 barrels per day during the second quarter 2020 decreased on a year-over-year basis from 156,922 barrels per day in the second quarter 2019. During the second quarter 2020, average volume under the East Texas marketing agreement with Delek US was 65,028 barrels per day compared to 71,123 barrels per day during the second quarter 2019.

Second Quarter 2020 Results | Conference Call Information

Delek Logistics will hold a conference call to discuss its second quarter 2020 results on Wednesday, August 5, 2020 at 7:30 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. 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 2020 earnings conference call on Wednesday, August 5, 2020 at 8:30 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 that are based upon current expectations and involve a number of risks and uncertainties. Statements concerning current estimates, expectations and projections about future results, performance, prospects, opportunities, plans, actions and events and other statements, concerns, or matters that are not historical facts are "forward-looking statements," as that term is defined under 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; the impact of the COVID-19 outbreak on the demand for crude oil, refined products and transportation and storage services; uncertainties regarding future decisions by OPEC regarding production and pricing disputes between OPEC members and Russia; an inability of Delek US to grow as expected as it relates to our potential future growth opportunities, including dropdowns, and other potential benefits; the results of our investments in joint ventures; the ability of the Red River joint venture to complete the expansion to increase the Red River pipeline capacity; 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; distributions and the amounts and timing thereof; potential dropdown inventory and the evaluation of incentive distribution rights; expected earnings or returns from joint ventures or other acquisitions; expansion projects; ability to create long-term value for our unit holders; financial flexibility and borrowing capacity; and distribution growth of 5% or at all. Forward-looking statements should not be read as a guarantee of future performance or results and will not be accurate indications of the times at, or by, which such performance or results will be achieved. Forward-looking information is based on information available at the time and/or management's good faith belief with respect to future events, and is subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in the statements. Delek Logistics undertakes no obligation to update or revise any such forward-looking statements to reflect events or circumstances that occur, or which Delek Logistics becomes aware of, after the date hereof, except as required by applicable law or regulation

Non-GAAP Disclosures:

Our management uses certain "non-GAAP" operational measures to evaluate our operating segment performance and non-GAAP financial measures to evaluate past performance and prospects for the future to supplement our GAAP financial information presented in accordance with U.S. GAAP. These financial and operational non-GAAP measures are important factors in assessing our operating results and profitability and include:

* Earnings before interest, taxes, depreciation and amortization ("EBITDA") - calculated as net income 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 revenues in our accompanying condensed consolidated statements of income. * Distributable cash flow - calculated as net cash flow from operating activities plus or minus changes in assets and liabilities, less maintenance capital expenditures net of reimbursements and other adjustments not expected to settle in cash. Delek Logistics believes this is an appropriate reflection of a liquidity measure by which users of its financial statements can assess its ability to generate cash.

EBITDA and distributable cash flow are non-U.S. GAAP supplemental financial measures that management and external users of our condensed consolidated 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 our 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 flow from operating activities or any other measure of financial performance or liquidity presented in accordance with U.S. GAAP.

Non-GAAP measures 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. These measures should not be considered substitutes for their most directly comparable U.S. GAAP financial measures. 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, thereby diminishing their utility. See the accompanying tables in this earnings release for a reconciliation of these non-GAAP measures to the most directly comparable GAAP measures.

Delek Logistics Partners, LP

Condensed Consolidated Balance Sheets (Unaudited)

(In thousands, except unit and per unit data)

June 30, 2020 December 31, 2019

ASSETS

Current assets:

Cash and cash equivalents $ 16,196 $ 5,545

Accounts receivable 15,907 13,204

Inventory 2,140 12,617

Other current assets 499 2,204

Total current assets 43,497 33,570

Property, plant and equipment:

Property, plant and equipment 680,969 461,325

Less: accumulated depreciation (207,225) (166,281)

Property, plant and equipment, net 473,744 295,044

Equity method investments 255,323 246,984

Operating lease right-of-use assets 18,884 3,745

Goodwill 12,203 12,203

Marketing Contract Intangible, net 127,393 130,999

Rights-of-way 35,698 15,597

Other non-current assets 6,995 6,305

Total assets $ 973,737 $ 744,447

LIABILITIES AND DEFICIT

Current liabilities:

Accounts payable $ 1,795 $ 12,471

Accounts payable to related parties - 8,898

Interest payable 2,596 2,572

Excise and other taxes payable 4,330 3,941

Current portion of operating lease 5,793 1,435liabilities

Accrued expenses and other current 3,461 5,765liabilities

Total current liabilities 17,975 35,082

Non-current liabilities:

Long-term debt 995,200 833,110

Asset retirement obligations 5,802 5,588

Deferred tax liabilities 1,158 215

Operating lease liabilities, net of current 13,091 2,310portion

Other non-current liabilities 18,826 19,261

Total non-current liabilities 1,034,077 860,484

Total liabilities 1,052,052 895,566

Equity (Deficit):

Common unitholders - public; 8,687,371 unitsissued and outstanding at June 30, 2020 160,870 164,436(9,131,579 at December 31, 2019)

Common unitholders - Delek Holdings;20,745,868 units issued and outstanding at (235,961) (310,513)June 30, 2020 (15,294,046 at December 31,2019)

General partner - 600,678 units issued andoutstanding at June 30, 2020 (498,482 at (3,224) (5,042)December 31, 2019)

Total deficit (78,315) (151,119)

Total liabilities and deficit $ 973,737 $ 744,447

Delek Logistics Partners, LP

Condensed Consolidated Statements of Income (Unaudited)

(In thousands, except unit and per unit data)

Three Months Ended June 30, Six Months Ended June 30,

2020 2019 2020 2019

Net revenues:

Affiliate $ 87,629 $ 61,918 $ 194,328 $ 124,883

Third-party 30,008 93,424 86,710 182,942

Net revenues 117,637 155,342 281,038 307,825

Cost of sales:

Cost of materials and 43,892 93,854 145,185 190,119other

Operating expenses(excluding depreciation 11,623 16,521 25,577 31,828and amortizationpresented below)

Depreciation and 8,223 6,188 14,026 12,312amortization

Total cost of sales 63,738 116,563 184,788 234,259

Operating expensesrelated to wholesalebusiness (excluding 826 806 1,616 1,557depreciation andamortization presentedbelow)

General and 4,721 5,293 10,851 9,766administrative expenses

Depreciation and 471 451 967 901amortization

Other operating income, - (27) (107) (25)net

Total operating costs 69,756 123,086 198,115 246,458and expenses

Operating income 47,881 32,256 82,923 61,367

Interest expense, net 10,670 11,354 22,494 22,655

Income from equity (6,462) (4,515) (12,015) (6,466)method investments

Total non-operating 4,206 7,300 10,477 16,650expenses, net

Income before income tax 43,675 24,956 72,446 44,717expense

Income tax (benefit) (740) 71 235 136expense

Net income attributable $ 44,415 $ 24,885 $ 72,211 $ 44,581to partners

Comprehensive income $ 44,415 $ 24,885 $ 72,211 $ 44,581attributable to partners

Less: General partner'sinterest in net income, 9,647 8,079 18,724 15,348including incentivedistribution rights

Limited partners' $ 34,768 $ 16,806 $ 53,487 $ 29,233interest in net income

Net income per limitedpartner unit:

Common units - basic $ 1.18 $ 0.69 $ 1.98 $ 1.20

Common units - diluted $ 1.18 $ 0.69 $ 1.98 $ 1.20

Weighted average limitedpartner unitsoutstanding:

Common units - basic 29,427,298 24,409,359 26,953,934 24,408,270

Common units - diluted 29,430,555 24,414,343 26,956,523 24,414,077

Cash distribution per $ 0.900 $ 0.850 $ 1.790 $ 1.670limited partner unit

Delek Logistics Partners, LP

Condensed Consolidated Statements of Cash Flows (Unaudited)

(In thousands)

Six Months Ended June 30,

2020 2019

Cash flows from operating activities

Net cash provided by operating activities $ 72,381 $ 51,823

Cash flows from investing activities

Net cash used in investing activities (114,242) (136,556)

Cash flows from financing activities

Net cash provided by financing activities 52,512 85,651

Net increase in cash and cash equivalents 10,651 918

Cash and cash equivalents at the beginning of the 5,545 4,522period

Cash and cash equivalents at the end of the period $ 16,196 $ 5,440

Delek Logistics Partners, LP

Reconciliation of Amounts Reported Under U.S. GAAP

(In thousands)

Three Months Ended June 30, Six Months Ended June 30,

2020 2019 2020 2019

Reconciliation of NetIncome to EBITDA:

Net income $ 44,415 $ 24,885 $ 72,211 $ 44,581

Add:

Income tax (benefit) (740) 71 235 136expense

Depreciation and 8,694 6,639 14,993 13,213amortization

Amortization of customercontract intangible 1,803 1,802 3,605 3,605assets

Interest expense, net 10,670 11,354 22,494 22,655

EBITDA $ 64,842 $ 44,751 $ 113,538 $ 84,190

Reconciliation of netcash from operatingactivities todistributable cash flow:

Net cash provided by $ 37,545 $ 24,806 $ 72,381 $ 51,823operating activities

Changes in assets and 19,345 7,133 20,999 9,489liabilities

Non-cash lease expense (366) (393) (640) (1,409)

Distributions fromequity method 1,580 - 1,690 804investments in investingactivities

Maintenance andregulatory capital (98) (963) (726) (1,781)expenditures

Reimbursement from DelekHoldings for capital 16 670 55 1,384expenditures

Accretion of asset (107) (99) (214) (198)retirement obligations

Deferred income taxes (943) 3 (943) 3

Other operating income, - 27 107 25net

Distributable Cash Flow $ 56,972 $ 31,184 $ 92,709 $ 60,140

Delek Logistics Partners, LP

Distributable Coverage Ratio Calculation

(In thousands)

Three Months Ended June 30, Six Months Ended June 30,

Distributions topartners of Delek 2020 2019 2020 2019Logistics, LP

Limited partners'distribution on common $ 26,490 $ 20,755 $ 48,229 $ 40,769units

General partner's 542 423 986 831distributions

General partner'sincentive distribution 8,937 7,736 17,632 14,752rights

Total distributions to $ 35,969 $ 28,914 $ 66,847 $ 56,352be paid ^(2)

Distributable cash flow $ 56,972 $ 31,184 $ 92,709 $ 60,140

Distributable cash flow 1.58x 1.08x 1.39x 1.07xcoverage ratio ^(1)

^(1) Distributable cash flow coverage ratio is calculated by dividingdistributable cash flow by distributions to be paid in each respective period.

^(2) The distributions for the six months ended June 30, 2020 reflect theimpact of the distribution waiver that waived all of the distributions for thefirst quarter of 2020 on the 5.0 million Additional Units, related to the BigSpring Gathering Assets transaction, with respect to base distributions and theIDRs. In addition, the distributions for the three and six months ended June30, 2020 reflect the waiver of distributions in respect of the IDRs associatedwith the Additional Units for at least two years.

Delek Logistics Partners, LP

Segment Data (unaudited)

(In thousands)

Three Months Ended June 30, Six Months Ended June 30,

2020 2019 2020 2019

Pipelines andTransportation

Net revenues:

Affiliate $ 61,394 $ 36,731 $ 99,897 $ 73,390

Third party 2,032 7,477 11,496 11,451

Total pipelines and 63,426 44,208 111,393 84,841transportation

Cost of sales:

Cost of materials and 11,182 7,357 17,280 12,924other

Operating expenses(excluding depreciation 9,731 12,728 21,187 23,562and amortization)

Segment contribution $ 42,513 $ 24,123 $ 72,926 $ 48,355margin

Total Assets $ 836,510 $ 525,070

Wholesale Marketing andTerminalling

Net revenues:

Affiliates ^(1) $ 26,235 $ 25,187 $ 94,431 $ 51,493

Third party 27,976 85,947 75,214 171,491

Total wholesalemarketing and 54,211 111,134 169,645 222,984terminalling

Cost of sales:

Cost of materials and 32,710 86,497 127,905 177,195other

Operating expenses(excluding depreciation 2,718 4,599 6,006 9,823and amortization)

Segment contribution $ 18,783 $ 20,038 $ 35,734 $ 35,966margin

Total Assets $ 137,227 244,240

Consolidated

Net revenues:

Affiliates $ 87,629 $ 61,918 $ 194,328 $ 124,883

Third party 30,008 93,424 86,710 182,942

Total consolidated 117,637 155,342 281,038 307,825

Cost of sales:

Cost of materials and 43,892 93,854 145,185 190,119other

Operating expenses(excluding depreciation 12,449 17,327 27,193 33,385and amortizationpresented below)

Contribution margin 61,296 44,161 108,660 84,321

General and 4,721 5,293 10,851 9,766administrative expenses

Depreciation and 8,694 6,639 14,993 13,213amortization

Other operating income, - (27) (107) (25)net

Operating income $ 47,881 $ 32,256 $ 82,923 $ 61,367

Total Assets $ 973,737 $ 769,310

^(1) Affiliate revenue for the wholesale marketing and terminalling segment ispresented net of amortization expense pertaining to the marketing contractintangible 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 2020 2019 2020 2019Transportation

Maintenance capital $ 119 $ 818 $ 430 $ 1,228spending

Discretionary capital 298 - 433 14spending

Segment capital spending $ 417 $ 818 863 1,242

Wholesale Marketing andTerminalling

Maintenance capital $ 232 $ 302 1,362 409spending

Discretionary capital 3 222 1,456 595spending

Segment capital spending $ 235 $ 524 2,818 1,004

Consolidated

Maintenance capital $ 351 $ 1,120 1,792 1,637spending

Discretionary capital 301 222 1,889 609spending

Total capital spending $ 652 $ 1,342 $ 3,681 $ 2,246

Delek Logistics Partners, LP

Segment Data (Unaudited)

Three Months Ended June 30, Six Months Ended June 30,

2020 2019 2020 2019

Pipelines andTransportation Segment:

Throughputs (averagebpd)

El Dorado Assets:

Crude pipelines 79,066 37,625 75,995 33,179(non-gathered)

Refined productspipelines to Enterprise 56,093 29,893 55,110 26,511Systems

El Dorado Gathering 9,447 14,315 13,449 14,798System

East Texas Crude 10,275 19,550 12,224 18,835Logistics System

Big Spring Gathering 105,162 - 105,162 -Assets

Wholesale Marketing andTerminalling Segment:

East Texas - TylerRefinery sales volumes 65,028 71,123 68,839 69,857(average bpd) ^(1)

Big Spring marketingthroughputs (average 76,004 82,964 71,195 85,339bpd)

West Texas marketingthroughputs (average 9,143 11,404 12,612 12,418bpd)

West Texas gross margin $ 0.64 $ 6.25 $ 1.96 $ 4.84per barrel

Terminalling throughputs 138,593 156,922 136,961 154,643(average bpd)

^(1) Excludes jet fuel and petroleum coke.

Information about Delek Logistics Partners, LP can be found on its website (www.deleklogistics.com), investor relations webpage (ir.deleklogistics.com), news webpage (www.deleklogistics.com/news) and its Twitter account (@DelekLogistics).

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SOURCE Delek Logistics Partners, LP