Delek US Holdings, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; unaudited. Delek is an integrated downstream energy company operating refining, logistics and retail businesses. It owns 72.7% of consolidated Delek Logistics and operated 250 convenience stores at quarter-end.
Financial performance
| Metric | Q1 2024 | Q1 2023 |
|---|---|---|
| Revenue | $3,227.6 million | $3,924.3 million |
| Operating income | $32.7 million | $142.8 million |
| Net income (loss) attributable to Delek | $(32.6) million; $(0.51) per share | $64.3 million; $0.96 per share |
| EBITDA attributable to Delek (non-GAAP) | $143.1 million | $240.0 million |
| Operating cash flow | $166.7 million | $395.1 million |
| Capital spending | $45.9 million | $192.1 million |
Revenue declined 17.8%. Refining margin was $268.4 million versus $335.7 million, and refining EBITDA fell to $101.1 million from $192.1 million. Logistics EBITDA increased to $99.7 million from $91.4 million; retail EBITDA was $6.5 million versus $6.4 million. The filing cites weaker gasoline and ULSD prices and lower wholesale activity as revenue headwinds. Lower crack spreads pressured refining, partly offset by higher volumes following prior-year Tyler turnaround activity and lower natural gas costs. Logistics benefited from rate increases and higher Tyler-related throughput.
Operating expenses rose to $239.6 million from $197.8 million, primarily reflecting maintenance and employee costs. Net interest expense increased to $87.7 million from $76.5 million. Refining results also included an $81.8 million loss from commodity-price changes in the Inventory Intermediation Agreement repurchase obligation; the filing identifies this as a cost-of-materials item.
Cash, debt and liquidity
Cash and cash equivalents were $753.4 million at March 31, 2024, down from $822.2 million at year-end. Total reported liquidity was approximately $2.2 billion, comprising cash and $1,424.3 million of unused revolving credit capacity. The company reported $2,558.3 million of debt principal ($2,496.9 million net of discount and deferred financing costs), plus a $492.7 million non-current Inventory Intermediation Agreement obligation. Debt principal decreased $99.0 million from December 31, 2023. The company was in compliance with its debt covenants at quarter-end.
Operating cash flow was lower year over year. Investing used $41.6 million, compared with $222.1 million, largely because prior-year spending included Tyler turnaround projects. Financing used $193.9 million, and cash decreased by $68.8 million during the quarter. The filing forecasts $330 million of 2024 capital spending; actual first-quarter spending was $45.9 million.
Material changes, outlook and risks
- Delek Logistics issued $650 million of 8.625% notes due 2029 in March, using proceeds to redeem its 2025 notes, repay its term loan and reduce revolver borrowings. It also completed a $132.3 million net common-unit offering, proceeds of which repaid revolver borrowings. On April 17, after quarter-end, it issued an additional $200 million of the 2029 notes; proceeds were used to reduce revolver borrowings.
- Management described refining margins and product demand as robust, while noting lower year-over-year crack spreads and near-term uncertainty from geopolitical instability. It expects typical seasonal gasoline and diesel demand into the spring and summer driving season; the filing provides no specific earnings guidance.
- Management plans a major Krotz Springs refinery turnaround in 2024 and is pursuing cost efficiency, financial flexibility and “sum of the parts” initiatives, which may include monetizing retail operations or part of its Delek Logistics investment. A Big Spring carbon-capture pilot was selected by the DOE to negotiate a cost-sharing agreement; the program provides for up to $95 million of federal funding at a 70% cost share, subject to agreement and project development.
- Key risks include volatile crude, product and RIN prices; refinery reliability, turnarounds and maintenance costs; environmental and regulatory obligations; interest-rate and financing-market exposure; and potential changes in demand or logistics volumes. A 1% change in interest rates would change annual interest expense by approximately $15.1 million on quarter-end floating-rate debt of $1,508.3 million.
- Environmental liabilities were approximately $113.4 million, with about $2.9 million expected to be spent within 12 months and most of the balance by 2032, though some costs may extend up to 30 years. Management said pending proceedings are not expected to have a material adverse effect; the filing notes ongoing litigation concerning a terminal/property indemnification arrangement and uncertainty around related exposure.
- The board declared a $0.250-per-share dividend payable May 24, 2024. No Delek common shares were repurchased in Q1; $185.1 million remained authorized. Disclosure controls were reported effective, with no material changes to internal control over financial reporting.
Investor verification points
- Verify the drivers and sustainability of the sharp decline in refining EBITDA, including crack spreads, refinery utilization, turnaround costs and the $81.8 million intermediation-related fair-value loss.
- Review cash conversion and working-capital movements, given operating cash flow declined to $166.7 million and cash fell by $68.8 million.
- Assess debt-service costs and refinancing implications, including the 8.625% 2029 notes, Delek’s term-loan effective rate of 10.15%, and the remaining intermediation obligation.
- Track RIN obligations, environmental remediation estimates, the terminal-property dispute and any additional compliance costs.
- Confirm the timing, funding and expected returns of the Krotz Springs turnaround, planned capital spending, proposed carbon-capture project and strategic monetization initiatives.