Delek US Holdings, Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. Delek is an integrated downstream energy company with refining, logistics and retail segments. Financial amounts are in millions unless noted.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $2,956.5 | $2,062.9 | $7,540.2 | $5,419.6 |
| Operating income (loss) | $45.8 | $(75.2) | $(119.7) | $(413.9) |
| Net income (loss) attributable to Delek | $18.1 | $(88.1) | $(161.6) | $(314.8) |
| Diluted EPS | $0.24 | $(1.20) | $(2.19) | $(4.28) |
| Operating cash flow | Not separately presented for the quarter | $210.2 | $(399.8) |
- Q3 refining contribution margin was $91.4, versus a loss of $17.8 a year earlier; logistics margin was $67.2 in both periods, and retail margin was $17.9 versus $18.3.
- Nine-month refining contribution margin improved to $50.3 from a loss of $248.5. Logistics margin rose to $189.1 from $175.9; retail margin rose to $56.7 from $54.9.
- Q3 revenue rose 43.3%, primarily reflecting higher refined-product prices and higher fuel selling prices. Nine-month revenue rose 39.1%. Higher crude and RIN costs also increased cost of materials.
- Cash and equivalents were $830.6 at September 30, 2021, compared with $787.5 at December 31, 2020. Total assets were $6,766.9 and stockholders’ equity was $977.6.
- Debt carrying value was $2,222.2, including $63.4 current and $2,158.8 long-term. The company reported approximately $2.1 billion of total liquidity: $830.6 cash plus $721.7 unused Delek revolver commitments and $589.1 unused Delek Logistics facility commitments.
- Capital spending was $161.6 for the nine months; management forecast full-year 2021 capital spending of $207.0, including $155.5 for refining.
Material changes and notable items
- Q3 returned to consolidated profitability, compared with a loss in Q3 2020; the nine-month net loss narrowed substantially year over year but remained significant.
- Refining margins benefited from stronger crack spreads and lower comparative inventory-valuation headwinds, but higher RIN costs constrained results. Average crude prices were materially higher year over year.
- Operating cash flow improved by $610.0 year over year to $210.2, helped by working-capital movements, including higher accounts payable and supply/offtake obligations. Cash used in investing was $143.2; financing used $23.9.
- Delek Logistics issued $400.0 of 7.125% senior notes due 2028. Delek’s term-loan principal was $1,263.3; Delek Logistics facility borrowings were $260.9. The company reported compliance with debt covenants at quarter-end.
- Dividends remained suspended, and the share repurchase program remained suspended. No common-stock repurchases or dividends were paid in the nine-month period.
Outlook, risks and contingencies
- Management described an economic recovery and improved fuel demand versus 2020, but cautioned that COVID-19, variants and the pace of recovery continued to create uncertainty. No earnings or margin guidance was provided; the filing gives a 2021 capital-spending forecast.
- Management is developing a long-term sustainability framework focused on operational efficiency, cost and waste reduction, digital transformation, investment returns and reassessing the long-term business model.
- RIN prices, regulatory decisions and pending small-refinery exemption applications remain material uncertainties. The September 30 net RIN obligation deficit was $92.7; RIN product-financing liabilities of $342.5 were due by December 31, 2021. Potential exemption benefits were not quantifiable.
- Winter Storm Uri disrupted refinery operations and caused damage; the company recorded $28.4 of related operating expense for the nine months and $17.0 of insurance receivables in Q3. El Dorado refinery fire-related worker-compensation losses were $3.8 and accelerated depreciation was $1.0; additional insurance and business-interruption claims remained pending.
- Environmental liabilities were approximately $112.1, with most expected spending extending through 2032 or longer. The company self-reported RIN compliance issues after a review and said potential penalties were not expected to be material relative to its total RIN obligation.
- Other key exposures include volatile refining margins and commodity prices, natural disasters and operating reliability, floating-rate debt, customer/counterparty credit, regulatory change, and access to capital. A 1% interest-rate increase was estimated to raise annual interest expense by about $15.5.
- A shareholder lawsuit settlement of $44.8 was approved October 29, 2021; insurers were expected to fund approximately $42.5. The company stated that pending proceedings were not expected to have a material adverse effect.
Important facts for investors to verify
- Whether improved refining margins and demand persisted, and whether RIN costs or policy changes materially affected subsequent results and cash flows.
- Timing and recovery of insurance claims for Winter Storm Uri and the El Dorado fire, and any remaining operational or repair costs.
- Funding and repayment of the $342.5 RIN product-financing liabilities due by year-end 2021, and any supply/offtake price adjustments or accelerated payments.
- Liquidity and covenant headroom, refinancing needs, and exposure to floating interest rates and debt maturities.
- Full-year capital spending versus the $207.0 forecast, and any change to the dividend suspension or repurchase program.
- Outcomes of small-refinery exemption applications, EPA compliance matters, environmental remediation estimates and pending litigation.