Delek US Holdings, Inc. — Q1 2022 Form 10-Q
Business context and reporting period. Unaudited results for the three months ended March 31, 2022, compared with Q1 2021. Delek operates refining, logistics and retail businesses; its four refineries had combined nameplate capacity of 302,000 barrels per day. Delek consolidated Delek Logistics, in which it held a 78.9% interest.
Financial highlights
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Net revenues | $4,459.1 million | $2,392.2 million |
| Operating income (loss) | $46.7 million | $(47.4) million |
| Net income (loss) | $14.8 million | $(62.7) million |
| Net income (loss) attributable to Delek | $6.6 million; $0.09 per diluted share | $(70.0) million; $(0.95) per diluted share |
| Cash provided by (used in) operations | $26.8 million | $(34.3) million |
| Cash used in investing activities | $30.2 million | $46.1 million |
| Cash provided by financing activities | $1.0 million | $86.4 million |
Revenue rose 86.4%, reflecting higher refined-product prices and volumes. Refining contribution margin was $96.9 million versus $10.4 million; logistics was $62.3 million versus $56.9 million; retail was $13.8 million versus $16.7 million. Refinery crude-throughput utilization was 95%, up from 64%.
At March 31, cash and cash equivalents were $854.1 million; gross long-term debt and notes payable, net of financing costs and discounts, were $2,212.8 million. Management reported approximately $2.1 billion of total liquidity, including cash and unused availability of $637.5 million under Delek’s revolver and $585.9 million under Delek Logistics’ facility. Current assets of $4,192.4 million were below current liabilities of $4,304.0 million. Separately, $589.3 million of supply-and-offtake obligations and $319.7 million of product-financing liabilities were reported as due within 2022.
Changes and notable items
- Results improved substantially year over year as refining margins, product prices and refinery utilization increased. Q1 2021 had been affected by refinery turnaround activity, the El Dorado fire and Winter Storm Uri.
- Delek changed Tyler refinery inventory costing from LIFO to FIFO effective January 1, 2022, retrospectively adjusting prior periods. The filing says the change increased Q1 2022 reported net income attributable to Delek by $96.8 million versus the result calculated using LIFO; on that basis, the comparable LIFO result would have been a $90.2 million loss. The change also reduced beginning 2021 retained earnings by $8.7 million.
- Q1 2022 included $4.3 million of business-interruption insurance gain related to the El Dorado fire and $5.7 million related to Winter Storm Uri. Management also cited realized hedge gains as a principal driver of higher other operating income.
- Delek spent $64.0 million to purchase and cancel 3,497,268 shares from the Icahn Group. The transaction was separate from its suspended public share-repurchase program.
Outlook, risks and contingencies
Management described downstream market conditions as strong, citing recovering fuel demand and supply constraints associated with the Russia-Ukraine war. It expected to run refineries at or near nameplate capacity in Q2 and, absent unforeseen disruptions, at optimized utilization for the rest of 2022 while favorable crack spreads persisted. This is operating commentary, not quantified earnings guidance. Management cautioned that results remain exposed to commodity prices, crack spreads, refinery reliability and outages, RIN costs, natural-gas costs, inflation, regulation, geopolitical events and derivative volatility. RIN costs continued to constrain margin capture; the company was pursuing small-refinery exemptions through available legal and regulatory channels.
After quarter-end, Delek Logistics agreed to acquire 3 Bear Delaware Holding–NM for $624.7 million, subject to customary adjustments and closing conditions, with closing expected around mid-2022. It paid a $31.2 million deposit. The filing identifies integration, financing, regulatory approval and realization of anticipated benefits as risks.
Other exposures include approximately $111.9 million of recorded environmental liabilities, including a $78.5 million liability associated with a terminal/property subject to litigation, and a $177.5 million RIN-obligation deficit. The company had self-reported certain RIN compliance matters to the EPA; management said potential penalties were not expected to be material relative to the total RIN obligation, but their amount was not yet estimable. The company reported compliance with debt covenants at quarter-end. Its revolving credit facility matured in March 2023, while the Reliant Bank revolver matured June 30, 2022 and the Hapoalim term loan December 31, 2022.
CEO succession was planned for June 9, 2022, with Avigal Soreq succeeding Ezra Uzi Yemin, who was to become Executive Chairman. The company reported effective disclosure controls and procedures.
Investor verification points
- Assess the sustainability of refining margins and high utilization, including sensitivity to crude/product differentials, RIN prices and fuel costs.
- Reconcile FIFO-reported earnings with the substantial inventory-accounting effect and distinguish it from underlying operating performance.
- Review near-term cash needs and refinancing plans for supply-and-offtake, product-financing and maturing debt obligations, alongside liquidity and covenant headroom.
- Track the 3 Bear acquisition’s closing, funding, integration and realized contribution against its $624.7 million purchase price.
- Monitor environmental remediation, EPA/RIN compliance exposure, insurance recoveries and the status of related litigation.