Delek US Holdings, Inc. (NYSE: DK) — FY 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. Although the request references 2022 Q4, this filing is an annual report; it also presents unaudited quarterly results. Delek operates refining, logistics and retail businesses and owned 78.8% of Delek Logistics Partners at year-end.
Financial performance
| Metric | FY 2022 | FY 2021 |
|---|---|---|
| Net revenue | $20.25 billion | $10.65 billion |
| Operating income (loss) | $489.5 million | ($34.7 million) |
| Net income (loss) attributable to Delek | $257.1 million; $3.63 per basic share | ($128.3 million); ($1.73) per basic share |
| EBITDA attributable to Delek (non-GAAP) | $803.3 million | $231.0 million |
| Cash from operating activities | $425.3 million | $371.4 million |
| Capital spending | $343.1 million | $227.1 million |
Refining margin, a company-defined non-GAAP measure, was $1.35 billion, or 6.8% of refining revenue, versus $553.3 million, or 5.4%, in 2021. Average refinery crude throughput was 291,763 barrels per day, up from 262,937; utilization was 93.1%, versus 83.0%. The company attributed the stronger results principally to sharply improved crack spreads and higher sales volumes, partly offset by higher feedstock, energy, labor, operating and RIN costs.
Segment EBITDA was $719.1 million in Refining (2021: $69.2 million), $304.8 million in Logistics (2021: $258.0 million), $44.1 million in Retail (2021: $51.1 million), and negative $264.7 million in Corporate, Other and Eliminations (2021: negative $147.3 million). Retail fuel revenue rose with higher pump prices, while fuel margin per gallon slipped to $0.327 from $0.341; merchandise revenue was $314.7 million, slightly below 2021.
Liquidity, debt and capital allocation
At December 31, 2022, cash and cash equivalents were $841.3 million. The company reported approximately $542.1 million of unused borrowing availability and total liquidity of about $1.4 billion. Total debt carrying value was $3.05 billion, compared with $2.22 billion a year earlier; contractual principal maturities totaled $3.12 billion. Letters of credit were $287.4 million. Interest expense increased to $195.3 million from $136.7 million.
Delek reported net cash used in investing activities of $931.6 million, including $625.6 million for the 3 Bear acquisition. Financing activities provided $491.1 million, largely reflecting borrowing proceeds. The company reinstated its quarterly dividend in 2022, paid a special $0.20-per-share dividend, and repurchased 4.26 million shares for $129.6 million. The quarterly dividend was raised to $0.22 per share in February 2023.
Material changes and notable items
- 3 Bear acquisition: Delek Logistics acquired Delaware Basin gathering, processing, transportation and water-handling assets for $628.3 million on June 1, 2022. The acquired business contributed $123.7 million of revenue and $14.2 million of net income for the portion of the year consolidated. Purchase-price allocation, including a $210 million customer-relationships intangible, was preliminary.
- Inventory accounting: Delek changed Tyler refinery inventory accounting from LIFO to FIFO and retrospectively adjusted prior periods. The change increased FY 2022 net income attributable to Delek by $8.5 million versus LIFO, or $0.12 per basic share.
- Financing: Delek amended and extended its revolving and term loan facilities. A new Citi inventory intermediation agreement provides up to $800 million of working-capital capacity and replaced the J. Aron agreements. The related year-end obligation was $541.7 million.
- Restructuring and systems: The company recorded $12.5 million of restructuring costs in 2022, primarily consulting and severance, and expects restructuring activities to conclude by the end of 2024. A new ERP system was implemented in the fourth quarter.
- Quarterly result: Unaudited Q4 2022 revenue was $4.48 billion, but Delek recorded an operating loss of $103.5 million and net loss attributable to Delek of $118.7 million, or $1.73 per basic share.
Outlook, risks and contingencies
Management’s 2023 capital spending forecast was $350.5 million, including $201.8 million for Refining, $81.3 million for Logistics and $31.1 million for Retail. Management described strong refined-product demand but noted the possibility of economic weakness, ongoing commodity volatility, inflation and continuing cost and supply-chain pressures. Its stated priorities include safe, reliable operations, cost discipline, operational optimization, digital investment, shareholder returns, and evaluating strategic investments and options to unlock the value of the business, including possible monetization of part of its Delek Logistics investment. These are plans and expectations, not guaranteed outcomes.
Key exposures include volatile refining margins and crude differentials; RIN obligations and pricing; natural gas, labor and other input costs; refinery concentration and operating interruptions; debt and variable-rate interest; and environmental and regulatory requirements. The company reported a $295.5 million consolidated net RIN obligation deficit, $258.0 million of product-financing liabilities due within 12 months, and $114.6 million of accrued environmental liabilities. It expects about $3.1 million of environmental-liability spending in the next 12 months, with most of the remainder expected by 2032, though some remediation may extend longer. Management said pending litigation was not expected to have a material adverse effect. The 10-K also notes that internal-control testing excluded the newly acquired 3 Bear business, which represented 8.3% of year-end assets and 0.6% of annual revenue; the auditor gave an unqualified opinion on the financial statements and internal controls within the stated scope.
Important facts for investors to verify
- Whether refining margins and throughput can remain strong as crack spreads, crude differentials, RIN prices and energy costs change.
- 3 Bear’s realized and prospective contribution, integration progress, and final acquisition fair-value allocations and synergies.
- Debt repayment capacity and liquidity after considering maturities, interest costs, letters of credit, inventory financing and near-term RIN product-financing obligations.
- The sustainability of dividends and repurchases in light of operating cash flow, capital needs, debt covenants and management’s strategic review.
- Potential changes to RIN requirements and environmental liabilities, and completion of 3 Bear’s integration into Delek’s internal-control framework.