Delek Logistics Partners, LP Reports Second Quarter 2013 Results

BRENTWOOD, Tenn.--(BUSINESS WIRE)--Aug. 6, 2013-- Delek Logistics Partners, LP (NYSE: DKL) ("Delek Logistics"), a growth-oriented master limited partnership focused on owning and operating midstream energy infrastructure, today announced financial results for the quarter ended June 30, 2013.

For the second quarter 2013, Delek Logistics reported net income of $11.8 million, or $0.47 per diluted limited partner unit. Distributable cash flow of $12.8 million was approximately 18 percent better than the forecast provided in the prospectus filed with the Securities and Exchange Commission on November 1, 2012 (the “Prospectus”).

Distribution Update

On July 26, 2013Delek Logistics declared a regular cash distribution of approximately $9.7 million, or $0.395 per unit payable on August 13, 2013, which equates to $1.58 per unit on an annualized basis. This represents a 2.6 percent increase from the first quarter 2013 distribution of $0.385 per unit, or $1.54 per unit on an annualized basis, and is 5.3 percent higher than Delek Logistics' minimum quarterly distribution of $0.375 per unit, or $1.50 per unit on an annualized basis.

Uzi Yemin, Chairman and Chief Executive Officer of Delek Logistics' general partner, remarked: “We experienced higher volumes in our Texas marketing operations and from the SALA Gathering System. In addition, our wholesale gross profit also benefited from a higher price of RINs associated with ongoing ethanol blending activity in the west Texas operations. These factors resulted in both EBITDA and distributable cash flow exceeding our expectations during the second quarter 2013. The value of RINs has continued to increase into the third quarter and this should benefit our west Texas operations. In July, we completed our first acquisition of assets from Delek US since the Offering, which is expected to increase annual EBITDA by approximately 21 percent compared to the forecast provided in our Prospectus. In addition, we improved financial flexibility by increasing our credit facility lender commitments to $400 million from $175 million, which will support our ability to deliver both growth and value as we explore opportunities to expand.”

Financial Results

Delek Logistics commenced operations on November 7, 2012 upon the completion of its initial public offering (the “Offering”) and the concurrent contribution of certain assets from its sponsor, Delek US Holdings, Inc. (NYSE: DK) ("Delek US"). For accounting purposes, the results from operations prior to the Offering from the assets and entities that were contributed to Delek Logistics concurrent with the Offering, were attributed to Delek Logistics Partners, LP Predecessor (our “Predecessor”). Therefore, results from operations for the three and six months ended June 30, 2012 show the results of the Predecessor. Because management believes results presented from this prior year period are not directly comparable, this earnings release focuses on results from operations during the second quarter 2013.

Revenues for the second quarter 2013 were $230.1 million and contribution margin was $16.1 million. Total operating expenses of $6.1 million were higher than expected primarily due to outside services and tank maintenance related expenses. General and administrative expenses of $1.1 million were below expectations. For the second quarter 2013, earnings before interest, taxes depreciation and amortization (“EBITDA”) was $15.0 million.

Results from the Wholesale Marketing and Terminalling segment were better than previously forecast in the Prospectus primarily due to higher volumes and the ongoing benefit of ethanol blending activities. During the second quarter, volume under the East Texas Marketing Agreement of 64,973 barrels per day and volume of 19,082 barrels per day in west Texas were both higher than previously forecast in the Prospectus. Demand for refined products remained strong as economic growth in the west Texas area benefited from oil drilling activity. The margin per barrel was $2.20 and included approximately $2.1 million, or $1.23 per barrel, from renewable identification numbers (RINs) related to ongoing ethanol blending activities. A decline in wholesale fuel prices early in the second quarter 2013 reduced the average gross margin per barrel sequentially from the first quarter 2013. However, as fuel prices stabilized, the gross margin per barrel in west Texas improved through the remainder of the second quarter. During the first quarter 2013, wholesale fuel prices increased through that period, benefiting the gross margin per barrel in west Texas.

The Pipeline and Transportation segment's performance during this period primarily benefited from throughput of 22,661 barrels per day in the SALA Gathering System, which exceeded the forecast provided in the Prospectus. As expected the East Texas Crude Logistics System, which supports Delek US'sTyler, TX refinery, was below the minimum volume commitment level due to the reconfiguration of a third party pipeline that commenced service on April 1, 2013 to supply crude to this refinery.

As of June 30, 2013Delek Logistics had a cash balance of $27.3 million and total debt was $90.0 million. On July 9, 2013 our revolving credit facility was amended to increase lender commitment levels to $400 million from $175 million previously.

Recent Acquisitions

On July 26, 2013Delek Logistics acquired a tank farm and product terminal from a subsidiary of Delek US for $94.8 million in cash. These assets are expected to contribute approximately $10.5 million of EBITDA (earnings before interest, taxes, depreciation and amortization) annually. The tank farm has an aggregate shell capacity of approximately two million barrels and consists of 96 tanks and ancillary assets. The product terminal had an estimated total throughput of approximately 55,000 barrels per day in 2012 and has an estimated capacity of 72,000 barrels per day. These assets are located adjacent to Delek US'sTyler refinery and will continue to support that operation in the future. In connection with this transaction, among other agreements, an eight year throughput and tankage agreement for the terminal assets, storage tanks and related assets was entered into with the seller.

On July 19, 2013, an affiliate of Delek Logistics purchased an 8-inch diameter pipeline in Smith County, Texas from an affiliate of Enterprise Products Partners L.P. This pipeline connects to Delek Logistics'Big Sandy pipeline. Once the Tyler-Hopewell pipeline is refurbished over a three to four month period at an estimated cost of $1.3 million, Delek US's Tyler refinery will be able to supply refined products to our Big Sandy terminal allowing the terminal to be operational. Expected annual EBITDA from this asset is approximately $700,000. In connection with this transaction, a throughput agreement expiring in November 2017 with Delek US was amended to include this pipeline.

Second Quarter 2013 Results | Conference Call Information

Delek Logistics will hold a conference call to discuss its second quarter 2013 results on August 7, 2013 at 9:00 a.m. Central Time. Investors may listen to the conference call live via webcast at www.DelekLogistics.com by clicking on the Investor Relations tab. Please register at least 15 minutes prior to the call, and install any necessary software. For those who cannot listen to the live webcast, a telephonic replay will be available through November 7, 2013 by dialing (855) 859-2056, passcode 21216298. An archived version of the replay will also be available at www.DelekLogistics.com for 90 days.

About Delek Logistic Partners, LP

Delek Logistics Partners, LP, headquartered in Brentwood, Tennessee, was formed by Delek US Holdings, Inc. (NYSE: DK) to own, operate, acquire and construct crude oil and refined products logistics and marketing assets.

Safe Harbor Provisions Regarding Forward-Looking Statements

This press release contains “forward-looking” statements within the meaning of the federal securities laws. These statements contain words such as “possible,” “believe,” “should,” “could,” “would,” “predict,” “plan,” “estimate,” “intend,” “may,” “anticipate,” “will,” “if,” “expect” or similar expressions, as well as statements in the future tense, and can be impacted by numerous factors, including the fact that a substantial majority of Delek Logistics' contribution margin is derived from Delek US Holdings, thereby subjecting us to Delek US Holdings' business risks, risks relating to the securities markets generally, the impact of adverse market conditions affecting the business of Delek Logistics, adverse changes in laws including with respect to tax and regulatory matters and other risks as disclosed in our annual report on Form 10-K, quarterly reports on Form 10-Q and other reports and filings with the United States Securities and Exchange Commission. There can be no assurance that actual results will not differ from those expected by management or described in forward-looking statements of Delek LogisticsDelek Logistics undertakes no obligation to update or revise such forward-looking statements to reflect events or circumstances that occur, or which Delek Logistics becomes aware of, after the date hereof.

Factors Affecting Comparability

The following tables present financial and operational information for the three months and six months ended June 30, 2013 and 2012. Delek Logistics commenced operations on November 7, 2012 upon successful completion of its initial public offering (the "Offering") and the concurrent contribution of certain assets from its sponsor, Delek US. For accounting purposes, the results from operations prior to November 7, 2012 from the assets and entities that were contributed to us concurrent with the Offering, were attributed to Delek Logistics Partners, LP Predecessor (our “Predecessor”). Because many of these assets were historically a part of the integrated operations of Delek US, the Predecessor generally recognized the costs and most revenue associated with the gathering, pipeline, transportation, terminalling and storage services provided to Delek US on an intercompany basis or charged low or no throughput or storage fees for transportation.

Non-GAAP Disclosures

EBITDA and Distributable Cash Flow. Delek Logistics defines EBITDA as net income (loss) before net interest expense, income tax expense, depreciation and amortization expense. Distributable cash flow is defined as EBITDA less net cash paid for interest, maintenance capital expenditures and income taxes. Distributable cash flow will not reflect changes in working capital balances.

EBITDA and distributable cash flow are non-U.S. GAAP supplemental financial measures that management and external users of our combined financial statements, such as industry analysts, investors, lenders and rating agencies, may use to assess:

  • our operating performance as compared to other publicly traded partnerships in the midstream energy industry, without regard to historical cost basis or, in the case of EBITDA, financing methods;
  • the ability of our assets to generate sufficient cash flow to make distributions to our unitholders;
  • our ability to incur and service debt and fund capital expenditures; and
  • the viability of acquisitions and other capital expenditure projects and the returns on investment of various investment opportunities.

Delek Logistics believes that the presentation of EBITDA and distributable cash flow provide useful information to investors in assessing our financial condition, our results of operations and cash flow our business is generating. EBITDA and distributable cash flow should not be considered as alternatives to net income, operating income, cash from operations or any other measure of financial performance or liquidity presented in accordance with U.S. GAAP. EBITDA and distributable cash flow have important limitations as analytical tools because they exclude some, but not all items that affect net income and net cash provided by operating activities. Additionally, because EBITDA and distributable cash flow may be defined differently by other companies in our industry, Delek Logistics' definitions of EBITDA and distributable cash flow may not be comparable to similarly titled measures of other companies, thereby diminishing their utility. Please see the tables below for a reconciliation of EBITDA and distributable cash flow to their most directly comparable financial measures calculated and presented in accordance with U.S. GAAP.

 
Delek Logistics Partners, LP
Reconciliation of Amounts Reported Under U.S. GAAP
      Three Months Ended

June 30,

  Six Months Ended

June 30,

($ in thousands)     2013   2012   2013   2012
          Predecessor       Predecessor
Reconciliation of EBITDA to net income:                  
Net income     $ 11,755     $ 2,487     $ 23,960     $ 4,997  
Add:                  
Income taxes     118     826     240     2,746  
Depreciation and amortization     2,372     2,260     4,724     4,394  
Interest expense, net     752     622     1,569     1,110  
EBITDA     $ 14,997     $ 6,195     $ 30,493     $ 13,247  
                   
Reconciliation of EBITDA to net cash provided by (used in) operating activities:                  
Net cash provided by (used in) operating activities     $ 18,652     $ (3,087 )   $ 20,633     $ 3,449  
Amortization of unfavorable contract liability to revenue     667         1,334      
Amortization of deferred financing costs     (186 )   (47 )   (374 )   (94 )
Accretion of asset retirement obligations     (63 )   (28 )   (98 )   (53 )
Deferred taxes     16     1,742     17     8  
Loss on asset disposals         5          
Stock-based compensation expense     (112 )   (37 )   (112 )   (53 )
Changes in assets and liabilities     (4,847 )   6,199     7,284     6,134  
Income taxes     118     826     240     2,746  
Interest expense, net     752     622     1,569     1,110  
EBITDA     $ 14,997     $ 6,195     $ 30,493     $ 13,247  
                   
Reconciliation of distributable cash flow to EBITDA:                  
EBITDA     $ 14,997         $ 30,493      
Less: Cash interest, net     566         1,195      
Less: Maintenance and Regulatory capital expenditures     859         1,792      
Less: Capital improvement expenditures     194         537      
Add: Reimbursement from Delek for capital expenditures     153         463      
Less: Income tax expense     118         240      
Add: Non-cash unit based compensation expense     107         107      
Less: Amortization of deferred revenue     77         77      
Less: Amortization of unfavorable contract liability     667         1,334      
Distributable cash flow     $ 12,776         $ 25,888      
 
 
Delek Logistics Partners, LP
Condensed Consolidated Balance Sheets
      June 30,   December 31,
      2013   2012
      (Unaudited)    
      (In thousands)
ASSETS          
Current assets:          
Cash and cash equivalents     $ 27,303     $ 23,452  
Accounts receivable     38,009     27,725  
Inventory     15,574     14,351  
Deferred tax assets     14     14  
Other current assets     283     169  
Total current assets     81,183     65,711  
Property, plant and equipment:          
Property, plant and equipment     174,629     172,300  
Less: accumulated depreciation     (22,947 )   (18,790 )
Property, plant and equipment, net     151,682     153,510  
Goodwill     10,454     10,454  
Intangible assets, net     11,913     12,430  
Other non-current assets     3,590     3,664  
Total assets     $ 258,822     $ 245,769  
LIABILITIES AND EQUITY          
Current liabilities:          
Accounts payable     $ 31,691     $ 21,849  
Accounts payable to related parties     2,159     10,148  
Fuel and other taxes payable     5,989     4,650  
Accrued expenses and other current liabilities     5,323     3,615  
Total current liabilities     45,162     40,262  
Non-current liabilities:          
Revolving credit facility     90,000     90,000  
Asset retirement obligations     1,504     1,440  
Deferred tax liability         17  
Other non-current liabilities     8,574     9,625  
Total non-current liabilities     100,078     101,082  
Equity:          
Common unitholders - public; 9,237,563 units issued and outstanding at June 30, 2013 (9,200,000 in 2012)     183,051     178,728  
Common unitholders - Delek; 2,799,258 units issued and outstanding at June 30, 2013 (2,799,258 in 2012)     (126,095 )   (127,129 )
Subordinated unitholders - Delek; 11,999,258 units issued and outstanding at June 30, 2013 (11,999,258 in 2012)     57,306     52,875  
General Partner unitholders - Delek; 489,766 units issued and outstanding at June 30, 2013 (489,766 in 2012)     (680 )   (49 )
Total equity     113,582     104,425  
Total liabilities and equity     $ 258,822     $ 245,769  
 
 
Delek Logistics Partners, LP
Condensed Consolidated Statements of Income (Unaudited)
         

Three Months Ended

June 30,

     

Six Months Ended

June 30,

         
        2013   2012   2013   2012
            Predecessor       Predecessor
        (In thousands, except unit and per unit data)
Net sales       $ 230,141     $ 262,480     $ 441,036     $ 501,563
Operating costs and expenses:                    
Cost of goods sold       207,966     249,060     395,826     474,469
Operating expenses       6,067     4,884     11,929     9,094
General and administrative expenses       1,111     2,346     2,788     4,753
Depreciation and amortization       2,372     2,260     4,724     4,394
Gain on sale of assets           (5 )      
Total operating costs and expenses       217,516     258,545     415,267     492,710
Operating income       12,625     3,935     25,769     8,853
Interest expense, net       752     622     1,569     1,110
Income before income tax expense       11,873     3,313     24,200     7,743
Income tax expense       118     826     240     2,746
Net income       $ 11,755     $ 2,487     $ 23,960     $ 4,997
                     
Less: General partner's interest in net income (2%)       235         479      
Limited partners' interest in net income       $ 11,520         $ 23,481      
                     
Net income per limited partner unit:                    
Common units - (basic)       $ 0.48         $ 0.98      
Common units - (diluted)       $ 0.47         $ 0.97      
Subordinated units - Delek (basic and diluted)       $ 0.48         $ 0.98      
                     
Weighted average limited partner units outstanding:                    
Common units - basic       12,006,843         12,003,071      
Common units - diluted       12,159,084         12,128,764      
Subordinated units - Delek (basic and diluted)       11,999,258         11,999,258      
                     
Cash distribution per unit       $ 0.395         $ 0.780      
 
 
Delek Logistics Partners, LP
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
                   
              Six Months Ended

June 30,

              2013   2012
                  Predecessor
Cash Flow Data          
Cash flows provided by operating activities:     $ 20,633     $ 3,449  
Cash flows used in investing activities:     (2,329 )   (25,473 )
Cash flows (used in) provided by financing activities:     (14,452 )   22,674  
  Net increase in cash and cash equivalents     $ 3,852     $ 650  
 
 
Delek Logistics Partners, LP
Segment Data (Unaudited)
(In thousands)
      Three Months Ended June 30, 2013
     

Pipelines &

Transportation

 

Wholesale Marketing

& Terminalling

  Consolidated
Net sales     $ 13,666     $ 216,475     $ 230,141  
Operating costs and expenses:              
Cost of goods sold         207,966     207,966  
Operating expenses     4,727     1,340     6,067  
Segment contribution margin     $ 8,939     $ 7,169     16,108  
General and administrative expenses             1,111  
Depreciation and amortization             2,372  
Gain on disposal of assets              
Operating income             $ 12,625  
Total assets     $ 156,842     $ 101,980     $ 258,822  
               
Capital spending              
Maintenance capital spending     $ 184     $ 675     $ 859  
Expansion capital spending     181     13     194  
Total capital spending     $ 365     $ 688     $ 1,053  
                           
      Three Months Ended June 30, 2012

Predecessor

     

Pipelines &

Transportation

 

Wholesale Marketing

& Terminalling

  Consolidated
Net sales     $ 6,801     $ 255,679     $ 262,480  
Operating costs and expenses:              
Cost of goods sold         249,060     249,060  
Operating expenses     3,815     1,069     4,884  
Segment contribution margin     $ 2,986     $ 5,550     8,536  
General and administrative expenses             2,346  
Depreciation and amortization             2,260  
Gain on disposal of assets             (5 )
Operating income             $ 3,935  
Total assets     $ 111,214     $ 125,592     $ 236,806  
               
Capital spending              
Maintenance capital spending     $ 160     $ 412     $ 572  
Expansion capital spending     555     63     618  
Total capital spending     $ 715     $ 475     $ 1,190  
 
 
Delek Logistics Partners, LP
Segment Data (Unaudited)
(In thousands)
      Six Months Ended June 30, 2013
     

Pipelines &

Transportation

 

Wholesale Marketing

& Terminalling

  Consolidated
Net sales     $ 27,265     $ 413,771     $ 441,036
Operating costs and expenses:              
Cost of goods sold         395,826     395,826
Operating expenses     9,348     2,581     11,929
Segment contribution margin     $ 17,917     $ 15,364     33,281
General and administrative expenses             2,788
Depreciation and amortization             4,724
Gain on disposal of assets            
Operating income             $ 25,769
Total assets     $ 156,842     $ 101,980     $ 258,822
               
Capital spending              
Maintenance capital spending     $ 974     $ 818     $ 1,792
Expansion capital spending     519     18     537
Total capital spending     $ 1,493     $ 836     $ 2,329
                         
      Six Months Ended June 30, 2012

Predecessor

     

Pipelines &

Transportation

 

Wholesale Marketing

& Terminalling

  Consolidated
Net sales     $ 13,480     $ 488,083     $ 501,563
Operating costs and expenses:              
Cost of goods sold         474,469     474,469
Operating expenses     7,093     2,001     9,094
Segment contribution margin     $ 6,387     $ 11,613     18,000
General and administrative expenses             4,753
Depreciation and amortization             4,394
Gain on disposal of assets            
Operating income             $ 8,853
Total assets     $ 111,214     $ 125,592     $ 236,806
               
Capital spending              
Maintenance capital spending     $ 160     $ 887     $ 1,047
Expansion capital spending     931     225     $ 1,156
Total capital spending     $ 1,091     $ 1,112     $ 2,203
 
 
Delek Logistics Partners, LP
Segment Data (Unaudited)
         
     

Three Months Ended

June 30,

 

Six Months Ended

June 30,

      2013   2012   2013   2012
          Predecessor       Predecessor
Throughputs (average bpd)                  
Pipelines and Transportation Segment:                  
Lion Pipeline System:                  
Crude pipelines (non-gathered)     49,270     43,533     47,155     48,251
Refined products pipelines to Enterprise Systems     47,315     43,817     45,348     45,320
SALA Gathering System     22,661     20,764     22,396     20,237
East Texas Crude Logistics System     11,468     53,402     31,198     51,895
Wholesale Marketing and Terminalling Segment:                  
East Texas - Tyler Refinery sales volumes (average bpd)     64,973     55,358     59,062     54,443
West Texas marketing throughputs (average bpd)     19,082     16,670     17,820     16,026
West Texas marketing margin per barrel     $ 2.20     $ 1.52     $ 2.82     $ 1.85
Bulk Biofuels         6,039         5,124
Terminalling throughputs (average bpd)     13,961     15,552     13,898     16,806
 

 

Source: Delek Logistics Partners, LP

U.S. Investor / Media Relations Contact
Delek Logistics Partners, LP
Keith Johnson, 615-435-1366
Vice President of Investor Relations
or
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Chris Hodges, 312-445-2870
Founder & CEO