Delek US Holdings, Inc. Price & Performance (DK)

Abigail? Thank you, all, Milton. Good morning and thank you for joining us today. Despite the challenging refining margin environment, which we believe was around $6 below mid cycle in Q4 of twenty twenty four twenty twenty four was transformational year We have vastly improved our operational performance made significant progress on our some of the past efforts [indiscernible] implemented key plan to increase the overall profitability our company. I would like to highlight the progress we have made First, safe and reliable operations. We have made great progress in improving the operations towards our company. We have successfully completed a major turnaround at KSR in the fourth quarter. Coming out of the turnaround, the refinery is showing improved operational performance. The asset is running well and we look forward to a strong contribution from KSR twenty twenty five. Moving to Big Spring, In 2024, we have significantly improved [indiscernible] We have consistently been running over 70,000 barrels per day, Looking forward, in 2025, we have no major turnaround planned in our system and we expect to continue our improvement Now, I would like to discuss our sum of the parts strategy. In 2024, we made great progress in unlocking the sum of the parts value inherent in our assets.

In September, we sold our retail asset for $390,000,000 and we are extremely happy with the timing and the value we received. The timely sale has allowed us to continue to progress our initiative in a refining environment. We have also made great progress in making Delek Logistics a strong independent midstream company leveled to the growth in the Permian Basin. In 2024, we successfully executed economic swap of assets between DK and DK, The swap will improve the profitability of our refineries going forward. At the same time, the swap brings more certainty to DKL cash flow through the contract extension by up to seven years. Our economic separation from DKL is encasing and at the same time, the distribution DKL received from DKL continue to grow. VKL also announced two accretive acquisitions to add around $100,000,000 in third party EBITDA. After DKL acquisition of Gravity Midstream, DKL ownership in DKL has come down to 63.6%. DKL is progressing its capacity expansion in the Livy Gas Processing Complex and expect to complete the expansion in the first half of twenty twenty five as previously communicated. Additionally, Vikel announced an FID on acid gas injection at the Libya complex December, these steps highlight DKL's progress in becoming an attractive high goals midsize midstream company benefiting from the natural gas growth in the Permian Basin.

This is reflected in the strong guidance that Delek Logistics has provided today. Despite this great move, DKL continued to trade at discount versus its peers and very limited, if any of this value is reflected in DK shares. We are in process of taking additional steps such that the value of greater than $350,000,000 in third party EBITDA in DKK is fully reflected in DKL share price and DKL unit price. We are confident that we'll complete the DKL deconsolidation in methodical manner and create value for both shareholder and unit holders. In 2024, we have made progress in improving overall profitability of the company. We completed our zero based budget initiative which allowed us to save around $100,000,000 in cost through our system. We completed this program in the second quarter twenty twenty four ahead of our regional of completion by the end of twenty twenty four. Our WVU effort laid the foundation for our enterprise optimization plan, or EOP. POP aims to improve DK cash flow by $80,000,000 to $120,000,000 starting in the second half of twenty twenty five. I'm pleased to announce that we have made great progress with EOP And now we expect to be closer to the top end of our cash flow improvement [indiscernible] Despite our initial success, we are not standing still.

And look forward for further improved our cash generation power as we progress Final piece of our strategy is being a shareholder friendly having strong balance sheet.

During the quarter, we paid $16,000,000 in dividend and bought back $22,000,000 of our shares We remain committed to a disciplined and balanced approach to capital allocation.

Now would like to make the comment about small refinery exemption. As you know, the DC Circuit Court overturned the EPA denial of our small refinery exemption petition under the RFS in July of twenty twenty four. Our petitions were sent back to the EPA for reconsideration. We're optimistic that the EPL will revise following the court ruling and grant us We hope the recent tooling on SREs along with Supreme Court ruling on Chevron deference case will reduce unneeded bureaucracy and allow for predictable approach to the SRE petition review. In closing, I would like to thank our entire team for their hard work and dedication. We are excited about the prospects of DK twenty twenty five beyond Now, I will turn the call over to Joseph who will provide additional color on our operations. Thank you, Abigail. First, I'd like to congratulate our team on another safe, reliable and environmentally compliant year.

Our focus in hiring the right people developing good processes and proactively managing our equipment is well reflected in the field. And is giving us a strong foundation to perform, optimize and grow our business. In Tyler, total throughput in the fourth quarter was approximately 66,000 barrels per day.

Production margin in the quarter was $6.66 per barrel and operating expenses were $5.51 dollars per barrel. During the first quarter, we are executing our plant maintenance in the Alky unit. Including an upgrade scoop which will allow us to increase production of high value products by approximately 500 barrels per day. For the first quarter, our estimated total throughput in Tyler is in the sixty five nine thousand barrels per day range. In El Dorado, total throughput in the fourth quarter was approximately 77,000 barrels per day. Our production margin was $0.56 per barrel and operating expenses were $4.78 per barrel.

Estimated throughput for the first quarter is in the 73 to 76,000 barrels per day range. On the strategic front, we are making good progress with our EOP initiatives which are expected to add by midyear $50,000,000 of annual EBITDA run rate in the El Dorado integrated system The incremental approximately $2.02 barrel of net margin will support El Dorado cash flow generation through the cycles. In Big Spring, total throughput for the quarter was approximately 73,000 barrels per day.

Our production margin was $5.04 per barrel and operating expenses were $6.29 per barrel. Including approximately $0.5 per barrel of winterization and maintenance special activities.

Focus in Big Spring well reflected in the numbers. Total throughput in 2024 increased over 10% compared to 2023 due to improved reliability. Cost structure is approaching our target and as important it is mostly driven now by routine and proactive agenda rather than reactive.

In the first quarter, we are replacing catalyst in our reformer and diesel hydro treater per plant As a result, estimated throughput for the first quarter is in the 57 to 61,000 barrels per day range. In Cross Springs, the team successfully completed the planned major turnaround. Since start up, we have demonstrated improved crude capacity product mix and liquid yield recovery capabilities Consistent with our plans, Total throughput in the fourth quarter was approximately 50,000 barrels per day. Our production margin was $2.71 per barrel, and operating expenses in the quarter were $5.27 per barrel.

Our planned throughput for the first quarter is in the eighty three to eighty six thousand barrels per day range.

Our implied system throughput target for the first quarter is in the two seventy eight to two ninety two thousand barrels per day range.

Moving on to the commercial front, In the fourth quarter, supply and marketing contributed a loss of $34,600,000 Of that approximately $12,000,000 loss was generated by Wholesale Marketing driven by seasonal load demand trends around our system racks. Dollars 22,000,000 loss was attributed to supply and a negative $500,000 contribution was generated by asphalt. In summary, we continue to execute well on the fundamentals of our business. After successfully addressing reliability gaps, Our teams continue to focus on operational excellence and commercial optimization initiatives, as we position ourselves for the coming gasoline season, and the future cycles. I will now turn the call over to Robild, Thank you, Joseph. I will start by referring to Slide 14.

For the fourth quarter, Delek had a net loss of $414,000,000 or negative $6.55 per share. Included within this is a partial impairment of our goodwill balance of $212,000,000 Adjusted net loss was $161,000,000 negative $2.54 per share and adjusted EBITDA was a loss of $23,000,000 On Slide 15, the waterfall of adjusted EBITDA from third quarter of twenty twenty four to the fourth quarter of twenty twenty four shows that the decline is primarily because of lower refining contribution The $80,000,000 decrease in refining is primarily attributable a lower margin environment in the fourth quarter relative to the third quarter. As for the Logistics segment, we continue to have another strong quarter delivering $107,000,000 in adjusted EBITDA.

Moving to Slide 16 to discuss cash flow.

Cash flow from operations was a use of $164,000,000 Within this amount is our net loss for the period in addition to an outflow of approximately $71,000,000 of timing related working capital movement, which include the impacts of the inventory intermediation agreement Investing activities of $216,000,000 includes capital asset purchases of $191,000,000 and a $23,000,000 deposit paid for the Gravity acquisition, which closed on 01/02/2025.

Financing activities of $77,000,000 reflects the DKL equity offering and timing of accruals. This also includes $22,000,000 in share repurchases $16,000,000 in dividend payments and $19,000,000 in distribution payments On Slide 17, we have the actual results of the 2024 capital program. Fourth quarter capital expenditures were $198,000,000 $140,000,000 of this spend was in the Refining segment, a large portion of which was related to the successful completion of the KSR turnaround. The remaining amount is largely spent associated with the construction of the Olivia 2 gas plant which remains on track from a timing and cost perspective. As we have previously announced, our standalone DK Capital outlook for 2025 is approximately $150,000,000 to $170,000,000 Our net cash position is broken out between Delek and Delek Logistics Slide 18, during the quarter, we drew approximately $300,000,000 of cash primarily due to anticipated capital expenditures on growth projects Additional unfavorable impacts included working capital timing differences and the overall market conditions impacting our recognized EBITDA results for the period. Excluding Delek Logistics, we finished the year with an increase of $82,000,000 in net debt, We are pleased with the relatively modest increase in net debt for the year especially considering the broader market conditions and the impact on our peers.

Many of whom have experienced substantial increases, Moving now to Slide 19, where we cover outlook items In addition to the guidance Joseph provided, for the first quarter of twenty twenty five, we expect operating expenses to be between $220,000,000 and $235,000,000 G and A to be between $55,000,000 and $60,000,000 G and A is expected to be between $100,000,000 and $105,000,000 and net interest expense to be between $78,000,000 and $88,000,000 We will now open the call for questions. Thank you. Floor is now open for questions. Your first question comes from the line of Manav Gupta of UBS. Your line is open.

Good morning, guys. I wanted to focus a little bit on Slide 10. Obviously, you are making a lot of improvements on Del Dorado. Help us understand what more can be done to make this truly competitive asset, something which can be performing in line with probably Tyler here.

Yes. Manav, good morning. Thanks you for your question. Endoado is a big focus for us. Joseph leading debt with a lot of talent and I will allow Joseph to chime in.

Yes, the El Dorado is the most significant beneficiary of our EOP focus on the product mix, we started to make and sell jet fuel through the rack We are looking to convert heavy bottoms to light products. Process efficiency, we are focused on liquid yield recovery, mainly in the reformer FCC and asphalt areas On the logistics front, we put together new logistics and we are already shipping more products away from the local market to optimize the netbacks Bottom line, Munaf, considering our strong refinery team out there, The asset flexibility and the $50,000,000 of flow hanging fruits we are confident about our ability to translate this progress to numbers sooner than later.

Perfect guys. Quick follow-up here is, looks like you're growing DTL EBITDA, although you're divesting it down slowly, is the strategy here to look for smaller both bolt on deals, whether it's water, crude, gas, and basically continue to grow the company at the DKL level and at the same time try and bring down the ownership below 50%? Yes. So Manav, I will take that question And I would like to give you a bigger answer than that about some of the part effort we are doing. And some of the part together with EOP are the most strategic initiative we have for DC, right?

Deconsolidation, I want to make it crystal clear, is happening and will happen as we speak. So it's very, very clear And I want to take a moment and reflect on 2024 actions that we did around the type So in 2024, we sold retail, as we wanted. We continue to make progress in the deconsolidation, right? We took the ownership of us from 79 to below 64% today We grew the EBITDA while we are doing all of that from three eighty five not very long ago to over 400 this year, 2024 to 500 guidance for 2025, which is another step. And we increased the third party EBITDA from 40% to 70%. Manav, while we were doing all of that, we also increased the distribution that DK gets from DKF. So it's many, many boxes that we are checking the box on. And today, I don't know if you know that we announced another efficient tool in our toolbox to allow basically efficient tax way for decay DK to sell back their units to DKL. So we announced it today for $150,000,000 up to $150,000,000 So the other and that's benefit for DK for the efficient way it's also benefit for DKL because of free cash flow.

Right? You are boarding at seven, you are boarding at seven and you are avoiding the cost of ten or eleven. So that's very beneficial for both companies. And the last point I want to make that The deconsolidation is the goal of both companies. Because it will allow DKL to grow over time and then allow DK to fulfill to get the whole value in the asset. With that said, the mark was very busy this year with all the deals we had and the plan is that he was going to be very busy in 2025 as well.

So I'll let Mark chime in. Yes. Thanks, Abigail. And look, Manav, we're very happy with our some of the parts efforts in 2024. And we're very active in in the year in advancing our deconsolidation efforts. Both H2O and Gravity checked all the boxes and what we look at for acquisitions. Highly strategic and highly synergistic with our Midland Basin operations and what we're trying to do out there as a full service midstream provider. Immediately accretive to free cash flow, improved our leverage and increased our coverage ratio. We also initiated organic growth projects in the Delaware to add to our gas process capacity also add critical sour gas capabilities. And finally, drop down Wink to Webster, our 15% in Wink to Webster. And when you take all of those combined, we're adding significant third party EBITDA to DKL. Which is driving this economic separation between DKL and DKL that we're talking about.

If you layer on top of that, we also continue to see premium valuations paid in the private markets by midstream companies for midstream assets over the past few months. And in particular, those tied to the Permian Basin, which is you know is the core of our DKL [indiscernible] And as Abigail said, our focus is that we're going to continue our measured approach to deconsolidation and the focus is going to continue on enhancing and maximize value for both DK shareholders and DKO unitholders. Your next question comes from the line of Matthew Blair of TPH. Your line is open.

Thank you and good morning. Was hoping you could go into the supply and marketing dynamics a little bit more in the fourth quarter.

I understand there's some seasonality with wholesale, but you help us understand why is that just an outright negative EBITDA contribution And does there need to be any structural changes there? And then how are these supply and marketing dynamics trending so far in the first quarter?

Hey, May, good morning. Thank you for the question. First of all, I'm very happy on the progress that DKTS are doing. If you are comparing that [indiscernible] fourth quarter of last year, the market conditions back then was better versus this quarter, but DKTS achieved $10,000,000 better this quarter versus last quarter. So that's a very good step on the right direction. I will let Pat Riley, our Chief Commercial Officer to chime in into that answer and give you some color.

Thank you, Ivigal.

Fourth quarter DQTS performance was impacted seasonal inland demand weakness led by the group, and a one time major turnaround across. With that said, DKTS made significant progress on our 2024 initiatives. As Abigail just mentioned, supply and trading market conditions in Q4 was significantly weaker relative to the same time period in 2023. So as an example, group diesel weakened by $0.14 per gallon at almost $6 a barrel year on year.

Now despite these headwinds, DKK has outperformed fourth quarter twenty twenty three by $10,000,000 Peak NTS will play a crucial role in delivery of the 2025 EOP and our strategy actually simple. It's intelligently streamlined operations thereby reducing costs further increase our margins on the back of optimization of supply and trading Leading to our partnership with our assets to flex our broader product offering and further matured the ETF's newfound and expanded market reach. We're excited the commitment and the challenge.

Sounds good. And then on the RD side, have you made a decision on whether to invest in the Bakersfield renewable diesel plant? That's not to an outtable distant second If something change, we'll definitely let you know, but it's not and maybe Mohit, you want to chime in on that?

Yes, Matt, that option is still available to us you and I have discussed in the past, the team over there has to show that they have had healthy operations for around three months. And then we have around ninety days to exercise our option.

And we are obviously going to be looking at it once we are asked to look at that option. [indiscernible] that option is still available to us and we are just hoping for the team to have those operations in order before we start making our decisions.

Sounds good. Thank you.

Your next question comes from the line of John Royall of JPMorgan. Line is open.

Hi, good morning. Thanks for taking my question. So my first question is on the My first question is on the OpEx guide for 1Q. We noticed a step up from where you had guided to 4Q, but it's also in the context of things going well with EOP. So, I was hoping you could help us bridge the difference maybe how should we think about that OpEx number as we progress further into 2025 beyond that 1Q guide?

Absolutely, John. Thank you for the question. Mohit was putting the guidance together, so I will let him chime in.

Yes, John. Thanks for the question. So as far as our company is concerned, OpEx and cost reduction, we are taking a lot of pride in it. And you're seeing the results through EOP, have seen the results through ZBB. As far as your specific question around Q1, guidance is concerned, so there are four factors which are influencing the guidance. The first one is, as you know, that we closed Gravity Water Midstream presented the guidance on a consolidated basis. So you're seeing some OpEx coming from Gravity Water Midstream, Second, we are running higher throughput quarter over quarter. So that's also influencing our OpEx number. Third piece is natural gas. As you've seen natural gas prices have gone a little bit higher. So that's also influencing our OpEx numbers. And finally, we have some planned maintenance at Big Spring in 1Q, which is reflected in our throughput guidance. So that is also impacting our overall OpEx. As I started my answer, OpEx and cost to We're very excited about how OpEx reductions are contributing to EOP in our cash flow generation. And we look forward to updating you guys more on that.

Great. Very helpful. Thanks Mohit. And then my follow-up is another one on guidance. Maybe just on the DKL EBITDA guidance. Just trying to bridge from the run rate of about I think it's about $430,000,000 annually in 4Q to this guide that's about $50,000,000 to $90,000,000 above that. If you could just walk us through some of those moving pieces. I know obviously there's gravity, there's the gas plant coming on mid year, maybe some other things on the organic side. Just a little bit of detail on how you get from the $4.30 to $4.80 to $5.20?

Million dollars Yes, absolutely. So first of all, John, we need to take a step back and talk about DKL in a broader context. DKL is a growing story And obviously, as we speak, we are increasing the economic separation between the companies and we are doing that very methodically and to benefit both unitholder and shareholder as you see by all the actions that we have done in the last eighteen months or so. That's very, very important. Decided to allow you guys to have guidance for DKL because we want everyone to model that company, right? And to be able to understand the value creation that was done here. So we're taking a lot of pride of what we are doing here. We think the guidance we gave you is solid and good. And Mohit, do you want to chime into that as well? If there is more modeling question, we can take it offline Yes. I think, Abigail, you covered most of it. But John, I can definitely help you walk through the moving pieces on a we can do a one on one call after this. So maybe we should take that offline.

Great. Thank you.

Thank you.

Your next question comes from the line of Doug Leggate of Wolfe Research. Your line is open. [indiscernible] I think you guys saw in some of the commentary that's already been had. In addition to the EOP, you guys have quite a few options in terms of being able to lease value from DKL. Where are you in the process, for example, with the solid gas permitting And is there a kind of line of sight on potentially other saleable assets going forward?

Yes. So you started your question with the OP. So I will start my answer with the EOP. And I will give you some more broader context around that. But So Especially on the refinery environment that we are at, EOP is all about free cash flow. Period, end of story. That's what we are after, right? We obviously today is a happy day around that because we felt comfortable enough to take our guidance towards the end of the range we gave in the past. So that's a happy moment for us.

We have seen a significant progress on the cost side already been signed and we will see them executed and coming to fruition over the next few months. And as Pat mentioned, see a good progress also on the margin improvement that we see on EOP. But I want to ensure you that we are not stopping here. We're not standing we always have more options and more things that we are working on and adding to that that very important initiative. And we are very optimistic about that. The last comment I want to make that it's Preaching neutral to market condition and all the actions that we are doing here are new actions that was not done in the past. So we are very optimistic. And Reuben, is very close to that and help managing that very nicely and I will let him chime in on that. That. Thank you, Avigal. So the EOP plan includes a bank of projects from all areas of the company and I will address specifically your question about DKL at the end. Each project has to be validated two ways. One, that it's a sustainable and two, that is for the most part market agnostic.

Once vetted, it builds into execution and added to the projection. You can see on the deck that were provided, it's reflected in Slide nine in the green boxes.

Each project has a different timeframe for each and that is why we are measuring third and fourth quarter run rate. As for DKL, we have the sour gas plant which our team is executing on time, on budget and it's expected to flow in the second quarter. And that gives us a whole new dimension and flexibility around gas ground gas, sorry.

Thank you for Your next question comes from the line of Jason Gabelman of TD Kellen. Your line is open. Hey, good morning. Thanks for taking my question. Hey, Jason. Good morning. For joining us today.

I wanted to ask about the DKL repurchase program of DK units. I'm wondering, one, what the timeline is to deploy that buyback cash and two, once DK gets that cash, what what it's going to use that cash for?

Yes. Thank you for the question. The timeline that we put that program in is all the way up in 2026. Obviously, it's a detailed option, but we are very close to that. So we do that when time is right. You probably can appreciate that that's another tool in our toolbox that benefit the deconsolidation for both companies and help free cash flow of both companies. So that's checks many, many boxes. And it's very tax efficient. I think you can be part of a very creative way how to create deconsolidation with no tax impact basically. But I want to take the other part and then to talk about the capital allocation program we have. And I want to give a broader discussion around that. So we said many times and we are saying that today that we are maintaining dividends towards the cycle We are doing that. We've done that and we will do it in the future. And then we have a balanced approach between taking care of the balance sheet and buyback. We did buyback in Q3 We did buybacks in Q4 and we are doing buybacks at Q1 of twenty twenty five. At the current valuation of our share price, we see a huge value in our share price.

And we are acting on that just to make it very clear.

So that's kind of that's where we are. [indiscernible] the color on the capital allocation. The other question is just back to Group three dynamics and it sounds like in a weaker inland margin environment, you see some weakness in that supply line item. I wonder kind of post COVID, we've seen inland markets become more seasonal, whether weaker in the winter. So should we expect that that supply line is weaker in 4Q and 1Q kind of in line where it was this this past quarter or maybe I guess a little better. Based on what's going on in the EOP program? Or I guess how should we think about the seasonality of that supply line? Yes.

So listen, there are two different question here. Market observation there is some truth that there is a weakness in the winter and strength in the summer. But we are not going to provide we are not going to provide the guidance for DKPS We didn't do that in the past, and I don't think it's best practice in the markets. We are not going to deviate from that today. But I'm going to tell you, and Jason, you need to know that very well that We are moving very well with the things that we are controlling. Like different products that we are start moving and different markets that we are moving towards And I can be only very pleased with the progress we are doing about what we can control. So and I will leave it to that.

Okay. That concludes our Q and A session. I will now turn the conference back over to Avigal Sorek for closing remarks. Yes.

So I would like to thank my colleagues around the table for a great safe and reliable year.

I want to thank the entire Delek employees for a great and a great commitment for the company and I'm very pleased with that.

To thank our Board of Directors and to thank you investors believing in our story and our journey With that, I would conclude the call. Will see you in the next quarter.

This concludes today's conference call. You may now disconnect.