Delek US Holdings, Inc. (NYSE: DK) — FY2023 Form 10-K
Reporting period: Year ended December 31, 2023. This is an annual filing; the supplied text does not provide a clear standalone fourth-quarter income statement or cash flow.
Business context
Delek operates four Gulf Coast refineries with combined nameplate capacity of 302,000 barrels per day, a logistics business consolidated through its 78.7%-owned Delek Logistics Partners, LP, and 250 convenience stores concentrated in West Texas and New Mexico. The 2022 acquisition of Delaware Gathering expanded its Permian Basin gathering, gas processing and water services.
Key financial results
| Metric | FY2023 | FY2022 |
|---|---|---|
| Net revenue | $16.917 billion | $20.246 billion |
| Operating income | $279.9 million | $489.5 million |
| Net income attributable to Delek | $19.8 million | $257.1 million |
| Basic / diluted EPS | $0.30 / $0.30 | $3.63 / $3.59 |
| Operating cash flow | $1.014 billion | $425.3 million |
| Investing cash flow | $(408.0) million | $(931.6) million |
| Financing cash flow | $(624.7) million | $491.1 million |
- Revenue fell 16.4%, primarily reflecting lower refined-product prices and reduced wholesale activity. Refining revenue was $16.407 billion versus $19.763 billion.
- Refining margin was $1.165 billion versus $1.350 billion; refining EBITDA declined to $529.4 million from $719.1 million. Average crack spreads were lower than in 2022, while lower natural-gas costs partly offset the pressure.
- Logistics EBITDA rose to $363.0 million from $304.8 million, benefiting from Delaware Gathering and higher throughput. Retail EBITDA increased to $46.9 million from $44.1 million.
- Refinery throughput averaged 294,229 barrels per day, up from 291,763; utilization was 92.1%, versus 93.1%. Management reported record throughput for the year.
- Interest expense increased 62.9% to $318.2 million, reflecting higher borrowing rates and average borrowings. Asset impairments totaled $37.9 million: $14.8 million of Delaware Gathering goodwill and $23.1 million on Canadian leased crude-oil tanks.
Liquidity, debt and capital returns
- At year-end, cash and cash equivalents were $822.2 million, unused credit availability was $1.084 billion and reported total liquidity was approximately $1.9 billion. Current assets were $2.666 billion and current liabilities were $2.685 billion.
- Debt principal was $2.657 billion, down approximately $463.2 million during 2023; debt net of unamortized discount and financing costs was $2.600 billion. The company also reported a $407.6 million inventory-intermediation obligation and $224.2 million of product-financing liabilities, primarily related to RINs, due within 12 months.
- Operating cash flow improved substantially, helped by working-capital movements, including lower receivables and inventories. Capital expenditures were $389.1 million as reported; excluding insurance proceeds and customer reimbursements, the filing gives $372.1 million.
- Delek returned $145.7 million to shareholders through $85.4 million of repurchases and $60.3 million of dividends. The Board approved a quarterly dividend of $0.245 per share in February 2024; future dividends remain discretionary.
Outlook, management commentary and material risks
- Management expects additional refinery capacity in 2024 to increase gasoline and diesel inventories and potentially pressure crack spreads. It cited geopolitical uncertainty, regulatory changes and commodity volatility as continuing sources of uncertainty.
- The 2024 capital-spending forecast is $330 million, including $220 million for refining. Priorities include a major Krotz Springs turnaround, operational reliability, cost efficiency and balanced debt reduction and shareholder returns.
- Management is targeting sustainable annual run-rate cost reductions of $100 million. It reported $37.8 million of restructuring costs in 2023 and expects restructuring activities to conclude by the end of 2024.
- The company is evaluating strategic options to unlock the value of its businesses, potentially including monetizing retail operations or part of its Delek Logistics investment. The filing gives no assurance that a transaction will occur or create value.
- Delek was selected to negotiate a DOE cost-sharing agreement for a Big Spring carbon-capture pilot. The program offers a 70% cost share of up to $95 million; the proposed project targets capture of 145,000 metric tons of CO2 annually. This is a negotiation, not a disclosed completed award.
- Key exposures include volatile refining margins and crude differentials, RIN prices and regulatory obligations, refinery outages and severe weather, environmental compliance and remediation, variable-rate debt and refinancing needs. The filing reports $113.9 million of environmental liabilities, with most spending expected by 2032, though some remediation may continue longer.
- Delek Logistics’ $250 million notes mature in 2025; related term-loan and revolving-facility provisions can accelerate maturities if those notes remain outstanding. The company said it had the ability and intent to refinance, but completion is not assured.
- Other notable contingencies include continuing claims and insurance work related to refinery fires, including an approximately $10 million net impact after insurance for the El Dorado fire settlement and claims. Management does not believe currently pending legal proceedings will materially affect the company.
Most important facts for investors to verify
- Whether refining margins and cash generation remain adequate if 2024 crack spreads weaken, and how the planned Krotz Springs turnaround affects throughput.
- Debt and near-term financing obligations, especially the 2025 Delek Logistics notes, facility acceleration provisions, RIN-related financing and the inventory-intermediation agreement.
- Progress toward the $100 million annual cost-reduction target and whether strategic alternatives produce a transaction, proceeds or measurable value.
- RIN obligation and pricing exposure, environmental remediation estimates, and the ultimate costs and recoveries associated with refinery-fire claims.
- Execution, funding and economics of the proposed Big Spring carbon-capture pilot and the 2024 capital-spending plan.
Ernst & Young issued unqualified opinions on the consolidated financial statements and internal control over financial reporting.