Delek Logistics Partners, LP (NYSE: NYSE:DKL), a growth-oriented master limited partnership focused on owning and operating midstream energy infrastructure assets, reported strong financial results for the fourth quarter of 2023, achieving record adjusted EBITDA and consecutively increasing quarterly distributions.
The company delivered a solid quarter with substantial growth in its mid and gathering operations, particularly in the Permian Basin, and maintained a commitment to safety and reliability.
Key Takeaways
- Delek Logistics Partners reported a record fourth quarter with over $100 million in adjusted EBITDA.
- The company saw significant growth in its mid and gathering operations, validating its strong position in the Permian Basin.
- The Board approved the 44th consecutive increase in the quarterly distribution to $1.055 per unit.
- Delek Logistics remains focused on growing third-party revenues and exploring natural gas opportunities in the Delaware Basin.
- The fourth quarter EBITDA included a $14.8 million goodwill impairment related to Delaware Gathering and processing assets, primarily due to a significant increase in interest rates.
- The long-term outlook for the Delaware Gathering System remains positive.
- The capital program for 2023 was $74 million, with $7 million funded by producers for growth projects.
- For 2024, the capital program is expected to be about $70 million, with a mix of sustaining and growth capital.
Company Outlook
- Delek Logistics Partners anticipates a capital program of approximately $70 million for 2024, including $20 million for sustaining and regulatory capital and $50 million for growth capital.
- The company is optimistic about consistent and constant improvements in its business and sees significant opportunities for growth, especially with the planned capital expenditures.
Bearish Highlights
- A $14.8 million goodwill impairment was recorded due to increased interest rates, impacting the fourth quarter EBITDA.
- The investment in pipeline joint venture segment decreased slightly to $8.5 million this quarter from $9 million in the same period of the previous year.
Bullish Highlights
- Record adjusted EBITDA of $100.9 million for the fourth quarter, up from $92.5 million in Q4 of 2022.
- Distributable cash flow was $65 million with a DCF coverage ratio of 1.4%.
- Segment-wise increases in adjusted EBITDA were observed, with Gathering and Processing at $53.3 million, Wholesale Marketing and Terminalling at $28.4 million, and Storage and Transportation at $17.5 million.
Misses
- Despite overall increases, there were slight decreases in volumes in the Midland and Delaware areas, with Midland volumes down sequentially due to natural declines after initial production peaks.
Q&A Highlights
- The three Bear assets, now DDG, are meeting expectations with additional opportunities, particularly in natural gas, identified in the region.
- The company is committed to streamlining expenses, with a notable reduction in corporate expenses this quarter.
- Delek Logistics Partners is actively examining instruments for refinancing debt maturing in 2025.
- The company's leverage ratio has been improving consistently and aims to be below four times.
Delek Logistics Partners continues to focus on operational excellence and financial discipline, positioning itself for sustained growth and value creation for its unitholders. With a confident outlook and strategic capital allocation, the company is poised to capitalize on opportunities within the dynamic energy sector.
InvestingPro Insights
Delek Logistics Partners, LP (NYSE: DKL) not only reported a record fourth quarter but also shows promising figures in terms of its financial health and investor returns as per recent InvestingPro data. With a market capitalization of approximately $1.98 billion and a solid adjusted P/E ratio of 12.82, the company stands out for its financial stability in the midstream energy infrastructure sector.
InvestingPro Tips highlight that Delek Logistics Partners operates with a significant debt burden, which is an important consideration for investors. However, the company's commitment to returning value to shareholders is evident with its impressive track record of having raised its dividend for 11 consecutive years and maintaining dividend payments for 12 consecutive years. This consistency is supported by a substantial dividend yield of 9.31%, which is particularly attractive in the current investment climate.
The company's revenue growth over the last twelve months as of Q3 2023 stands at 8.16%, indicating a healthy expansion in its operations. Moreover, the operating income margin of 24.92% suggests efficient management and profitability, which is further confirmed by the company being profitable over the last twelve months. Analysts predict that the company will continue to be profitable this year, which aligns with the positive outlook presented in the article.
For readers interested in a deeper dive into Delek Logistics Partners' financials and for more InvestingPro Tips, visit https://www.investing.com/pro/DKL. There are 6 additional tips available on InvestingPro for DKL, offering further insights into the company's performance and potential. To access these tips and more detailed analytics, use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
Full transcript - Delek Logistics Partners LP (DKL) Q4 2023:
Operator: Good morning, ladies and gentlemen, and welcome to the Delek Logistics Partners' Fourth Quarter 2023 Conference Call. [Operator Instructions] This call is being recorded on Tuesday, February 27, 2024. I would now like to hand the conference over to Rosy Zuklic, VP of Investor Relations. Please go ahead.
Rosy Zuklic: Good day, and welcome to the Delek Logistics Partners fourth 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 their respective dates. I'll now turn the call over to Avigal for opening remarks.
Avigal Soreq: Thank you, Rosy. Delek Logistics Partners finished 2023 strong. We delivered another record quarter and achieved a record year. DKL exceeds $100 million in adjusted EBITDA this quarter. We saw a substantial growth from our new connection in our mid and gathering operations further validating our strong position in the Permian Basin. I'm very proud of our employees, who are dedicated to making Delek Logistics succeed. It is their dedication to safe and reliable operation that makes our results possible. The team has gone without a lost time injury four years in a row and counting. We are also focused on growing third-party revenues, allocating capital in a disciplined manner and exploring natural gas opportunities in the Delaware Basin, where we see significant growth. In January, the Board approved the 44th consecutive increase in the quarterly distribution to $1.055 per unit. Delek Logistics has shown a strong track record of delivering value to unitholders. We feel confident in our ability to maintain competitive distribution to our investors. I will now hand it over to Reuven.
Reuven Spiegel: Thank you, Avigal. The fourth quarter of 2023 adjusted EBITDA was $100.9 million compared with $92.5 million in the same period of 2022. The fourth quarter EBITDA was $86.1 million, which included a $14.8 million goodwill impairment related to some of our Delaware Gathering and processing assets. The impairment was primarily driven by a significant increase in interest rates. Our long-term outlook of the Delaware Gathering System remains unchanged. Distributable cash flow was $65 million and the DCF coverage ratio was 1.4%. For the Gathering and Processing segment, adjusted EBITDA for the quarter was $53.3 million compared with $48.1 million in the fourth quarter of 2022. The increase was primarily due to higher throughput from Delek Logistics Premium Basin assets. Wholesale Marketing and Terminalling adjusted EBITDA in the fourth quarter of 2023 was $28.4 million compared with $23.3 million in prior year. The increase was primarily from higher terminal and utilization. Storage and Transportation adjusted EBITDA in the quarter was $17.5 million compared to $16.1 million in the fourth quarter of 2022. The increase was mainly driven by higher storage and transportation rates. And lastly, the investment in pipeline joint venture segment contributed $8.5 million this quarter compared with $9 million in the fourth quarter of 2022. Moving on to capital expenditures. The capital program for 2023 was $74 million. This includes $7 million of proceeds from producers to partially fund growth projects. Most of the spend throughout the year was for growth projects, namely advancing new connections in the Midland and Delaware gathering systems. For 2024, Delek Logistics Partners expects the capital program to be about $70 million. This includes approximately $20 million of sustaining and regulatory capital and $50 million of growth capital. We will continue to advance new connection in our gathering system for the volume growth at the partnership. With that we can open the call for questions.
Operator: Thank you. [Operator Instructions] Your first question comes from Doug Irwin from Citi. Please go ahead.
Doug Irwin: Hi. Thanks for the question. I just want to start with the Delaware Gathering and Processing assets. Understanding the long-term outlook is still on tax. Can you maybe just talk about how the three Bear assets are trending today just versus the initial expectations when you acquired them, I think the initial target for these assets when they acquired was $100 million of annual EBITDA. Is that still a good number to work with here near term?
Avigal Soreq: Hey, Doug, it's Avigal. Good morning. Thank you for joining our call. Generally speaking the three Bear now DDG is meeting our expectation. We also being over there in that area, give us insight for more opportunities we see in the region. And as you probably picked up on my prepared remarks and there is additional opportunity mainly on the natural gas. So that was a very good acquisition to get into and we are happy around it.
Doug Irwin: Okay. Got it. Thanks. And then just a second question just on the broader 2024 outlook. You gave -- last quarter you talked about exiting 2023 at $100 million quarterly EBITDA run rate, which you achieved this quarter. Are there any similar targets you can point to moving forward whether that's on EBITDA volume growth or some other metric just to kind of help frame the growth outlook for 2024?
Avigal Soreq: Yeah. So we are focusing to have a constant improvement and we are committed to keep improving our business. So we are very optimistic about what we see in the business on the opportunity we have seen a nice significant CapEx plan into the business that will enhance additional opportunities. But we are very optimistic, and we see a consistent and constant improvement in the business. So that's going to be what we can provide to - this 10 seconds.
Doug Irwin: Got it. I'll visit there. Thank you.
Avigal Soreq: Okay. Thank you for joining us today.
Operator: [Operator Instructions] There are no further questions at this time. I will turn -- we do have one more question, I apologize, from Paul Langlois from Lord Abbett. Please go ahead.
Paul Langlois: Yes. Hi. I was curious, it looked like the Midland volumes were down a little bit sequentially. And some of the gas and the water and the Delaware volumes were down a little bit sequentially. Forgive me if I missed that. What was -- why is that? And should we expect that trend to continue?
Avigal Soreq: Yeah. So thank you, Paul, for joining us today. The gathering, the Delaware volume are pretty much in line quarter-over-quarter. What we see in the Permian Basin is a touch lower. And you can expect that after producers adding new production, you probably know that as good as anyone that the new production in the beginning goes to very high and then stabilize over time. So that's what we see. As you probably picked up, we have a significant capital budget that will enhance additional volume and connection in the DPG, the Midland area, and we will see volume picked up along the year. Odely, do you want to add anything to that?
Odely Sakazi: Yeah, sure. And this is Odely. Hi, Paul, good morning. I just give a little bit more color from earlier on the Delaware side as Avigal mentioned. In Q4, we expedite some of our maintenance work that we plan to do in Q1 and decided to do it in Q4, that's actually help us to continue improving volumes. So this is why you see gas slightly lower compared to -- between Q4 and Q3 of this year. But if you look both in DPG and also in DDG on both sides. If you compare year-over-year, we obviously continue to improve our social performance. So for Q4, primarily, we had that work that was done that we expedited. It was planning to work on the most in the plan. But as we're looking right now in Q1, there is already an improvement compared both to Q3 and also Q4.
Paul Langlois: And that improvement is for both Midland and Delaware?
Odely Sakazi: Primarily, the Delaware is Midland. As Avigal mentioned, we do see the natural decline in the business compared to the peak we've seen or compared to the volume we've seen in Q3. With that said, we do have a capital program, as Avigal mentioned, also Reuven mentioned in his remarks of $50 million on connection. So we should start to see an increase Permian in the second half of the year, as we increment this project.
Paul Langlois: Okay. Great. And then I noticed corporate expenses were down a little bit sequentially. Could you talk about that a little bit?
Avigal Soreq: So it's – it's an effort we are doing across the company to streamline expenses. We had a big initiative on the parent company to reduce expenses recorded the zero-based budget with a target of $100 million. Some of that went all the way to DKL. So you see to our partnership. So you see the fruits of that. So we didn't put it on the beamboard here but we were happy to enjoy them.
Paul Langlois: Okay. Great. So we should expect expenses to kind of stabilize or maybe even continue to improve going forward?
Avigal Soreq: Yes. I don't think we are giving guidance but there is no reason it will go back.
Paul Langlois: Okay. And then you have a few debt maturities coming up in 2025. Any thoughts on those at this point in time?
Avigal Soreq: Yes absolutely. Maybe Reuven, CFO with Director.
Reuven Spiegel: Yes. We are actively examining various instruments. We will probably be in the market in the next few months to refinance some of the debt, especially the one that is coming quarter and between the term loan A – and the $250 billion yield. So some form of refinancing will happen this year.
Paul Langlois: Okay. Great. And then my last question you probably won't be able to say too much on it. But as you look at the sum of the parts and the strategic. Are there ways – what is your thoughts on leverage here at DKL? And are there ways that that could be improved as part of that? Anything you can kind of say on that subject?
Avigal Soreq: So you can probably see the trend all that we have seen with the leverage ratio was improving quarter-over-quarter. We will continue this trend that's our plan. And obviously, there are more ideas on the table but once we get into a higher level of resolution we communicate with the market. But I think that if you connect the dots that you have seen in the last year or so you can be very pleased with the improvement in leverage ratio. We are doing that consistently quarter-after-quarter.
Paul Langlois: Great. And do you think – should we think of your goal is four times or any thoughts on that?
Avigal Soreq: Yes we started – we are the market that we want to be below four and we're eventually going to get there.
Paul Langlois: Excellent. Okay. Thank you very much.
Avigal Soreq: Thank you, Paul
Operator: There are no further questions at this time. I will turn the call back over to Avigal for closing remarks.
Avigal Soreq: Thank you. I would like to thank my colleagues around the table to our Board of Directors, to our investor and mostly to our employees that are making this a great company it is and we'll talk again next quarter. Thank you so much.
Operator: Ladies and gentlemen, this concludes your conference call for today. Thank you for joining and you may now disconnect your lines. Thank you.
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