Delek Logistics Partners, LP — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; unaudited. The Partnership provides gathering, processing, transportation, storage, wholesale marketing and terminalling services, mainly in the Permian Basin and Gulf Coast. Many assets support Delek Holdings’ refineries, and a substantial portion of revenue is from affiliates.
Financial performance and position
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Revenue | $252.1 million | $243.5 million | +3.5% |
| Operating income | $64.5 million | $63.9 million | +1.0% |
| Net income | $32.6 million | $37.4 million | −12.6% |
| Basic earnings per unit | $0.74 | $0.86 | Down $0.12 |
| EBITDA (non-GAAP) | $101.5 million | $93.2 million | +8.9% |
| Distributable cash flow (non-GAAP) | $68.0 million | $61.8 million | +10.1% |
| Operating cash flow | $43.9 million | $29.2 million | +$14.7 million |
- Margins and costs: The filing does not present a headline operating or EBITDA margin. Operating expenses increased $7.2 million and depreciation and amortization rose $5.4 million; lower G&A and materials costs partly offset these increases. Net interest expense increased $7.6 million.
- Cash and investment: Cash was $9.7 million at quarter-end, versus $3.8 million at December 31, 2023. Investing cash outflow was $9.9 million, including $11.3 million of property, plant and equipment purchases.
- Debt and liquidity: Debt principal was $1.615 billion at March 31, 2024 ($1.601 billion net of unamortized costs), down $96.6 million from year-end principal. The revolving facility had $565.2 million outstanding at an 8.18% weighted-average rate; the $1.15 billion facility matures in October 2027. Reported quarter-end liquidity was $594.5 million, including $584.8 million of unused third-party revolver commitments and $9.7 million cash. Management separately said liquidity improved to approximately $800 million after subsequent financing transactions.
- Distributions: Q1 distribution was $1.070 per unit, compared with $1.025 a year earlier. A $1.070-per-unit distribution was declared for payment May 15, 2024.
Material changes versus prior year
- Revenue increased mainly due to higher terminalling and marketing fees and volumes associated with Tyler Refinery operations, which had been affected by turnaround activity in the prior-year quarter.
- Segment EBITDA increased in gathering and processing ($57.8 million versus $55.4 million), wholesale marketing and terminalling ($25.3 million versus $22.0 million), storage and transportation ($18.1 million versus $13.4 million), and pipeline joint ventures ($8.5 million versus $6.3 million). Corporate and other costs increased to $8.1 million from $4.0 million.
- Net income declined despite higher EBITDA, chiefly reflecting higher interest expense, including $3.6 million of debt-extinguishment costs, interest on the new notes, and higher revolver rates.
- Operating cash flow improved, while investing outflow fell from $27.0 million to $9.9 million, primarily because capital spending was lower than in the prior-year quarter.
Financing, outlook and risks
- In March, the Partnership issued $650 million of 8.625% senior notes due 2029 and used proceeds to redeem its 2025 notes, repay its term loan, and reduce revolver borrowings. It also issued 3.58 million common units at $38.50 each, receiving $132.3 million net, used to repay revolver borrowings. The unit offering increased the public unit count.
- After quarter-end, it issued an additional $200 million of 8.625% notes at 101.25%, using net proceeds to reduce revolver borrowings. The partnership and Delek Holdings authorized termination of their intercompany loan agreement, expected on or around May 31, 2024.
- Management expects operating cash to support working capital, distributions and capital spending for the next 12 months, but gives no specific earnings or distribution-growth guidance. It cited minimum-volume commitments and dedicated acreage agreements as protections against downturns, while noting that sustained lower demand or prices could affect activity, contract renewals and customer credit.
- Key risks include dependence on Delek Holdings and its refinery operations, commodity and wholesale-margin volatility, floating-rate debt, environmental and pipeline-safety obligations, operational disruptions, and access to financing. A 1-percentage-point change in rates on quarter-end floating-rate debt would change annual interest expense by approximately $5.7 million. The Partnership reported compliance with debt covenants and no material changes to its previously disclosed risk factors.
- Management reported no pending legal proceeding expected to have a material adverse effect. It expects ongoing environmental and safety compliance spending; the amount is not clearly quantified. No off-balance-sheet arrangements were reported.
Important facts for investors to verify
- Reconcile the reported $594.5 million quarter-end liquidity with management’s approximately $800 million post-financing figure, including the timing and effect of the additional 2029 notes.
- Assess debt service costs and refinancing risk: the new 2029 notes carry an 8.625% coupon, while $565.2 million of quarter-end debt was floating-rate.
- Monitor reliance on Delek Holdings, affiliate revenue and purchases, refinery throughput, and the renewal of commercial agreements that management says are under negotiation.
- Compare distributable cash flow with distributions and planned capital expenditures; the filing reports $68.0 million of Q1 distributable cash flow and forecasts $69.8 million of full-year 2024 capital spending.
- Evaluate the impact of the public unit issuance on per-unit results and the sustainability of distribution growth; the filing does not provide a formal distribution-coverage ratio or full-year earnings guidance.