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Delek Logistics Partners, LP Reports First Quarter 2017 Results

  • Increased drilling activity in the Permian Basin benefiting operations 
  • Declared quarterly distribution of $0.69 per limited partner unit; increased by 13.1 percent year-over-year
  • Reported first quarter 2017 net cash from operating activities of $23.5 million and distributable cash flow of $20.6 million

BRENTWOOD, Tenn., May 08, 2017 (GLOBE NEWSWIRE) -- Delek Logistics Partners, LP (NYSE:DKL) ("Delek Logistics") today announced its financial results for the first quarter 2017. For the three months ended March 31, 2017, Delek Logistics reported net income attributable to all partners of $14.6 million, or $0.43 per diluted common limited partner unit. This compares to net income attributable to all partners of $15.4 million, or $0.54 per diluted common limited partner unit, in the first quarter 2016. Distributable cash flow was $20.6 million in the first quarter 2017, compared to $20.4 million in the prior-year period. 

For the first quarter 2017, earnings before interest, taxes, depreciation and amortization ("EBITDA") was $23.9 million compared to $23.7 million in the prior-year period. Improved performance in the wholesale marketing and terminalling segment, led by a higher gross margin per barrel in west Texas, were the primary factors offsetting the effect of lower performance on a year-over-year basis from the SALA Gathering System and the Paline Pipeline, as well as the effect of sixteen days of planned downtime at Delek US' Tyler, Texas refinery during the first quarter 2017.

Uzi Yemin, Chairman and Chief Executive Officer of Delek Logistics' general partner, remarked: "During the first quarter, our position in the Permian Basin benefited from increased drilling activity, which has translated into better margins in our west Texas wholesale operation and increased volumes on our RIO joint venture crude oil pipeline.  Also, late in the first quarter, volume on the Paline Pipeline benefited from crude oil price differentials widening, as the price environment supported third party crude oil shipments to the Gulf Coast. The Caddo joint venture crude oil pipeline, which began operations in January, quickly increased throughput during the first quarter.  We maintained financial flexibility, ending the quarter with approximately $301 million of capacity on our credit facility and a leverage ratio of 3.8 times. Our financial position supported the 13.1 percent year-over-year increase in our declared first quarter distribution."

Yemin concluded, "We have continued to experience the benefits from our Permian Basin position into the second quarter, as drilling activity and crude oil production have continued to increase. Once Delek US has successfully completed the acquisition of the remaining outstanding common stock of Alon USA Energy, Inc. that it does not already own, it should create additional growth opportunities through future potential drop downs and the ability to provide logistics support to a refining system with significant access to the Permian Basin. We remain focused on creating long term value for our unit holders, as we evaluate potential third party growth opportunities and partnering with Delek US.  We anticipate that the financial flexibility provided by our balance sheet and focus on growth initiatives should support a distribution per limited partner unit increase of at least 10% annually through 2019."

Distribution and Liquidity
On April 24, 2017, Delek Logistics declared a quarterly cash distribution for the first quarter of $0.69 per limited partner unit, which equates to $2.76 per limited partner unit on an annualized basis. This distribution is expected to be paid on May 12, 2017 to unitholders of record on May 5, 2017. This represents a 1.5 percent increase from the fourth quarter 2016 distribution of $0.68 per limited partner unit, or $2.72 per limited partner unit on an annualized basis, and a 13.1 percent increase over Delek Logistics’ first quarter 2016 distribution of $0.61 per limited partner unit, or $2.44 per limited partner unit annualized. For the first quarter 2017, the total cash distribution declared to all partners, including IDRs, was approximately $21.0 million. Based on the declared distribution for the first quarter 2017, the distributable cash flow coverage ratio for the first quarter was 0.98x.

As of March 31, 2017, Delek Logistics had total debt of approximately $392.0 million. Additional borrowing capacity, subject to certain covenants, under the $700.0 million credit facility was approximately $300.5 million.

Financial Results
Revenue for the first quarter 2017 was $129.5 million compared to $104.1 million in the prior year period. The increase in revenue is primarily due to higher prices in the west Texas wholesale business. On a year-over-year basis the performance from the operations was stable. Total operating expenses were $10.4 million, which was in line with $10.5 million in the first quarter 2016. Total segment contribution margin was $26.5 million in the first quarter of 2017 compared to $26.8 million in the first quarter 2016. General and administrative expenses were $2.8 million for the first quarter 2017, in line with $2.9 million in the prior-year period.

Pipelines and Transportation Segment
The contribution margin in the first quarter 2017 was $16.1 million compared to $20.3 million in the first quarter 2016. This change was primarily due to reduced performance in the Paline Pipeline.  During the first quarter 2017, the Paline Pipeline was a FERC regulated pipeline with a tariff established for potential shippers, compared to the prior year period when the pipeline capacity was under contract with two third-parties for a monthly fee.  Also, lower volume on the SALA Gathering System on a year-over-year basis was a factor in the change in contribution margin. Operating expenses were $8.2 million in the first quarter 2016 compared to $7.7 million in the prior year period.

Wholesale Marketing and Terminalling Segment
During the first quarter 2017, contribution margin was $10.4 million, compared to $6.6 million in the first quarter 2016. This increase was primarily due to improved performance in the west Texas wholesale operations and lower operating expenses on a year-over-year basis. Operating expenses decreased to $2.2 million in the first quarter 2017, compared to $2.7 million in the prior year period.

In the west Texas wholesale business, average throughput in the first quarter 2017 was 14,467 barrels per day compared to 14,370 barrels per day in the first quarter 2016. The wholesale gross margin in west Texas increased year-over-year to $2.72 per barrel and included approximately $1.1 million, or $0.86 per barrel, from renewable identification numbers (RINs) generated in the quarter.  During the first quarter 2016, the wholesale gross margin was $0.53 per barrel and included $1.5 million from RINs, or $1.18 per barrel.  On a year-over-year basis, the gross margin per barrel benefited from higher drilling activity in the Permian Basin that increased fuel demand and improved the supply/demand balance.

Average terminalling throughput volume of 114,900 barrels per day during the quarter decreased on a year-over-year basis from 118,218 barrels per day in the first quarter 2016 primarily due to lower throughput at the Tyler, Texas terminal. During the first quarter 2017, average volume under the east Texas marketing agreement with Delek US was 63,396 barrels per day compared to 66,414 barrels per day during the first quarter 2016. Both fees from the east Texas marketing agreement and Tyler terminal volumes were lower due to sixteen days of planned downtime at Delek US' Tyler, Texas refinery during the first quarter 2017.

First Quarter 2017 Results | Conference Call Information
Delek Logistics will hold a conference call to discuss its first quarter 2017 results on Monday, May 8, 2017 at 4:00 p.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 August 8, 2017 by dialing (855) 859-2056, passcode 8261987. 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) first quarter 2017 earnings conference call on Monday, May 8, 2017 at 4:30 p.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 Holdings, thereby subjecting us to Delek US Holdings' 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; uncertainty regarding the outcome of Delek US Holdings' agreement to acquire the remaining outstanding common stock of Alon USA Energy, Inc.; 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. 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, 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 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)
 
    March 31,   December 31,
    2017   2016
         
    (In thousands)
ASSETS        
Current assets:        
Cash and cash equivalents   $ 33     $ 59  
Accounts receivable   23,812     19,202  
Accounts receivable from related parties       2,834  
Inventory   6,328     8,875  
Other current assets   804     1,071  
Total current assets   30,977     32,041  
Property, plant and equipment:        
Property, plant and equipment   345,172     342,407  
Less: accumulated depreciation   (96,263 )   (91,378 )
Property, plant and equipment, net   248,909     251,029  
Equity method investments   102,975     101,080  
Goodwill   12,203     12,203  
Intangible assets, net   14,154     14,420  
Other non-current assets   4,385     4,774  
Total assets   $ 413,603     $ 415,547  
LIABILITIES AND DEFICIT        
Current liabilities:        
Accounts payable   $ 13,117     $ 10,853  
Accounts payable to related parties   343      
Excise and other taxes payable   4,535     4,841  
Tank inspection liabilities   1,013     1,013  
Pipeline release liabilities   1,072     1,097  
Accrued expenses and other current liabilities   2,315     2,925  
Total current liabilities   22,395     20,729  
Non-current liabilities:        
Revolving credit facility   392,000     392,600  
Asset retirement obligations   3,845     3,772  
Other non-current liabilities   14,348     11,730  
Total non-current liabilities   410,193     408,102  
Total liabilities   432,588     428,831  
Deficit:        
Common unitholders - public; 9,131,036 units issued and outstanding at March 31, 2017 (9,263,415 at December 31, 2016)   181,775     188,013  
Common unitholders - Delek; 15,197,571 units issued and outstanding at March 31, 2017 (15,065,192 at December 31, 2016)   (194,419 )   (195,076 )
General partner -  496,502 units issued and outstanding at March 31, 2017 (496,502 at December 31, 2016)   (6,341 )   (6,221 )
Total deficit   (18,985 )   (13,284 )
Total liabilities and deficit   $ 413,603     $ 415,547  
                 


Delek Logistics Partners, LP  
Condensed Consolidated Statements of Income (Unaudited)  
   
    Three Months Ended March 31,
 
    2017   2016  
           
    (In thousands, except unit
and per unit data)
Net sales:          
Affiliate   $ 36,619     $ 38,760    
Third-Party   92,854     65,296    
Net sales   129,473     104,056    
Operating costs and expenses:          
Cost of goods sold   92,590     66,753    
Operating expenses   10,358     10,464    
General and administrative expenses   2,848     2,913    
Depreciation and amortization   5,193     4,996    
Loss (gain) on asset disposals   12     (44 )  
Total operating costs and expenses   111,001     85,082    
Operating income   18,472     18,974    
Interest expense, net   4,071     3,199    
(Income) loss from equity method investments   (245 )   229    
Income before income tax expense   14,646     15,546    
Income tax expense   51     98    
Net income attributable to partners   14,595     15,448    
Comprehensive income attributable to partners   $ 14,595     $ 15,448    
           
Less: General partner's interest in net income, including incentive distribution rights   4,109     2,253    
Limited partners' interest in net income   $ 10,486     $ 13,195    
           
Net income per limited partner unit:          
Common units - (basic)   $ 0.43     $ 0.54    
Common units - (diluted)   $ 0.43     $ 0.54    
Subordinated units - Delek (basic and diluted)   $     $ 0.54    
           
Weighted average limited partner units outstanding: (1)          
Common units - basic   24,328,607     17,024,490    
Common units - diluted   24,380,770     17,115,198    
Subordinated units - Delek (basic and diluted)       7,252,299    
           
Cash distribution per limited partner unit   $ 0.690     $ 0.610    


Delek Logistics Partners, LP
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
                   
            Three Months Ended
March 31,
 
            2017   2016  
                   
Cash Flow Data          
Net cash provided by operating activities   $ 23,474     $ 26,374    
Net cash used in investing activities   (5,414 )   (16,555 )  
Net cash used in financing activities   (18,086 )   (9,615 )  
  Net (decrease) increase in cash and cash equivalents   $ (26 )   $ 204    
                     


Delek Logistics Partners, LP  
Reconciliation of  Amounts Reported Under U.S. GAAP  
   
    Three Months Ended
March 31,
 
($ in thousands)   2017   2016  
Reconciliation of net income to EBITDA:          
Net income   $ 14,595     $ 15,448    
Add:          
Income tax expense   51     98    
Depreciation and amortization   5,193     4,996    
Interest expense, net   4,071     3,199    
EBITDA   $ 23,910     $ 23,741    
           
Reconciliation of net cash from operating activities to distributable cash flow:          
Net cash provided by operating activities   $ 23,474     $ 26,374    
Changes in assets and liabilities   (3,562 )   (5,401 )  
Maintenance and regulatory capital expenditures   (2,243 )   (736 )  
Reimbursement from Delek for capital expenditures   3,051     209    
Accretion of asset retirement obligations   (73 )   (67 )  
Deferred income taxes   (25 )      
(Loss) gain on asset disposals   (12 )   44    
           
Distributable Cash Flow   $ 20,610     $ 20,423    
           


Delek Logistics Partners, LP  
Distributable Coverage Ratio Calculation  
(In thousands)  
    Three Months Ended
March 31,
 
Distributions to partners of Delek Logistics, LP   2017   2016  
Limited partners' distribution on common units   $ 16,787     $ 14,809    
General partner's distributions   342     302    
General partner's incentive distribution rights   3,895     1,984    
Total Distributions to be paid   $ 21,024     $ 17,095    
           
Distributable Cash Flow   $ 20,610     $ 20,423    
Distributable cash flow coverage ratio (1)   0.98x     1.19x    
(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
    March 31,
    2017   2016
Pipelines and Transportation        
Net sales:        
Affiliate   $ 26,500     $ 26,306  
Third party   2,177     6,477  
Total pipelines and transportation   28,677     32,783  
Operating costs and expenses:        
Cost of goods sold   4,405     4,776  
Operating expenses   8,155     7,740  
Segment contribution margin   16,117     20,267  
Total Assets   $ 338,072     $ 298,984  
         
Wholesale Marketing and Terminalling        
Net sales:        
Affiliate   $ 10,119     $ 12,454  
Third party   90,677     58,819  
Total wholesale marketing and terminalling   100,796     71,273  
Operating costs and expenses:        
Cost of goods sold   88,185     61,977  
Operating expenses   2,203     2,724  
Segment contribution margin   $ 10,408     $ 6,572  
Total Assets   $ 75,531     $ 80,216  
         
Consolidated        
Net sales:        
Affiliate   $ 36,619     $ 38,760  
Third party   92,854     65,296  
Total consolidated   129,473     104,056  
Operating costs and expenses:        
Cost of goods sold   92,590     66,753  
Operating expenses   10,358     10,464  
Contribution margin   26,525     26,839  
General and administrative expenses   2,848     2,913  
Depreciation and amortization   5,193     4,996  
Loss (gain) on asset disposals   12     (44 )
Operating income   $ 18,472     $ 18,974  
Total Assets   $ 413,603     $ 379,200  


Delek Logistics Partners, LP  
Segment Capital Spending  
(In thousands)  
    Three Months Ended
March 31,
 
Pipelines and Transportation   2017   2016  
Maintenance capital spending   $ 1,688     $ 511    
Discretionary capital spending   449     195    
Segment capital spending   $ 2,137     $ 706    
Wholesale Marketing and Terminalling          
Maintenance capital spending   $ 203     $ 16    
Discretionary capital spending   451     362    
Segment capital spending   $ 654     $ 378    
Consolidated          
Maintenance capital spending   $ 1,891     $ 527    
Discretionary capital spending   900     557    
Total capital spending   $ 2,791     $ 1,084    
           


Delek Logistics Partners, LP  
Segment Data (Unaudited)  
   
    Three Months Ended
March 31,
 
    2017   2016  
Pipelines and Transportation Segment:          
Throughputs (average bpd)          
Lion Pipeline System:          
Crude pipelines (non-gathered)   58,744     56,342    
Refined products pipelines   51,355     53,779    
SALA Gathering System   16,531     19,001    
East Texas Crude Logistics System   16,176     9,346    
El Dorado Rail Offloading Rack          
           
Wholesale Marketing and Terminalling Segment:          
East Texas - Tyler Refinery sales volumes (average bpd)   63,396     66,414    
West Texas marketing throughputs (average bpd)   14,467     14,370    
West Texas marketing margin per barrel   $ 2.72     $ 0.53    
Terminalling throughputs (average bpd)   114,900     118,218    


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

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