Delek US Holdings Reports Fourth Quarter 2024 Results

Business Wire 25-Feb-2025 7:00 AM

• Net loss of $413.8 million or $(6.55) per share, adjusted net loss of $160.5 million or $(2.54) per share, adjusted EBITDA of $(23.2) million
• Closing a transformational 2024 with additional steps to improve DK's profitability. During 2024:
  • DK made significant progress in achieving our Sum of the Parts ("SOTP") goals
    • Sold our retail assets for proceeds of $390 million
    • Progressed DKL deconsolidation reducing DK's interest in DKL from 78.7% in January 2024 to 63.6% currently
  • DK & Delek Logistics (DKL) executed the intercompany amendments and extensions
  • DK completed the drop-down of Wink to Webster ("W2W") pipeline into DKL
  • DKL closed the acquisition of H2O Midstream, further adding to its third party cash flows
  • DKL achieved another record quarterly Adjusted EBITDA of $107.2 million
  • Completed a successful five-year turnaround at its Krotz Springs refinery
  • Achieved the $100 million cost reduction run rate through our zero based budget ("ZBB") efforts
  • Announced the Enterprise Optimization Plan ("EOP") to increase overall profitability by at least $100 million
  • Repurchased ~$42 million in shares
• We have also started 2025 on a strong note. Since the start of the year:
  • DKL closed the acquisition of Gravity Water Midstream
  • EOP expected to be at the high end of the range - $120 million
  • DKL announced a strong full year EBITDA guidance of $480 to $520 million
  • DKL announced authorization to buyback common units up to $150 million from DK through 2026
    • Adds another tax efficient way for DK to progress SOTP
    • Accretive to DKL's free cash flow
• Paid $16.1 million of dividends and announced regular quarterly dividend of $0.255 per share in February

Delek US Holdings, Inc. (NYSE:DK) ("Delek US", "Company") today announced financial results for its fourth quarter ended December 31, 2024.

"Despite challenging market conditions, 2024 was a transformation year during which we have made significant progress in achieving our Sum of the Parts goals and improving the overall profitability of the company," said Avigal Soreq, President and Chief Executive Officer of Delek US. "After announcing the EOP plan in September we have already made significant progress towards our goals of increasing the profitability of the company by $100 million and now expect to be at the high end of original target run-rate in 2H'2025. Delek Logistics is also a completely different company versus where it started the year. On a pro-forma basis ~70% of its cash flows will be coming from third-party sources."

"Looking ahead, we will continue to execute on our priorities of running safe and reliable operations, and making further progress on midstream deconsolidation, our EOP efforts, and delivering shareholder value while maintaining our financial strength and flexibility," Soreq concluded.

Delek US Results

Refining Segment

The refining segment Adjusted EBITDA was $(69.6) million in the fourth quarter 2024 compared with $(4.4) million in the same quarter last year, which reflects other inventory impacts of $43.9 million and $48.6 million for fourth quarter 2024 and 2023, respectively. The decrease over 2023 is primarily due to lower refining crack spreads and turnaround activities at the Krotz Springs refinery. During the fourth quarter 2024, Delek US's benchmark crack spreads were down an average of 13.1% from prior-year levels.

Logistics Segment

The logistics segment Adjusted EBITDA in the fourth quarter 2024 was $107.2 million compared with $99.4 million in the prior-year quarter. The increase over last year's fourth quarter was driven by strong contributions from Delaware Gathering systems, annual rate increases, the impact of the W2W dropdown and incremental contribution due to the H2O Acquisition on September 11, 2024, partially offset by lower wholesale margins.

Corporate and Other Activity

Adjusted EBITDA from Corporate, Other and Eliminations was a loss of $(60.3) million in the fourth quarter 2024 compared with a loss of $(43.8) million in the prior-year period. The increased losses were driven primarily by the impact of the W2W dropdown and higher Corporate expenses.

Shareholder Distributions

On February 18, 2025, the Board of Directors approved the regular quarterly dividend of $0.2550 per share that will be paid on March 10, 2025 to shareholders of record on March 3, 2025.

Liquidity

As of December 31, 2024, Delek US had a cash balance of $735.6 million and total consolidated long-term debt of $2,765.2 million, resulting in net debt of $2,029.6 million. As of December 31, 2024, Delek Logistics Partners, LP (NYSE:DKL) ("Delek Logistics") had $5.4 million of cash and $1,875.4 million of total long-term debt, which are included in the consolidated amounts on Delek US' balance sheet. Excluding Delek Logistics, Delek US had $730.2 million in cash and $889.8 million of long-term debt, or a $159.6 million net debt position.

Fourth Quarter 2024 Results | Conference Call Information

Delek US will hold a conference call to discuss its fourth quarter 2024 results on Tuesday, February 25, 2025 at 10:00 a.m. Central Time. Investors will have the opportunity to listen to the conference call live by going to www.DelekUS.com and clicking on the Investor Relations tab. Participants are encouraged to register at least 15 minutes early to download and install any necessary software. Presentation materials accompanying the call will be available on the investor relations tab of the Delek US website approximately ten minutes prior to the start of the call. For those who cannot listen to the live broadcast, the online replay will be available on the website for 90 days.

Investors may also wish to listen to Delek Logistics' (NYSE:DKL) fourth quarter 2024 earnings conference call that will be held on Tuesday, February 25, 2025 at 11:30 a.m. Central Time and review Delek Logistics' earnings press release. Market trends and information disclosed by Delek Logistics may be relevant to the logistics segment reported by Delek US. Both a replay of the conference call and press release for Delek Logistics will be available online at www.deleklogistics.com.

About Delek US Holdings, Inc.

Delek US Holdings, Inc. is a diversified downstream energy company with assets in petroleum refining, logistics, pipelines, and renewable fuels. The refining assets consist primarily of refineries operated in Tyler and Big Spring, Texas, El Dorado, Arkansas and Krotz Springs, Louisiana with a combined nameplate crude throughput capacity of 302,000 barrels per day.

The logistics operations include Delek Logistics Partners, LP (NYSE:DKL). Delek Logistics Partners, LP is a growth-oriented master limited partnership focused on owning and operating midstream energy infrastructure assets. Delek US Holdings, Inc. and its subsidiaries owned approximately 63.6% (including the general partner interest) of Delek Logistics Partners, LP at January 2, 2025.

Safe Harbor Provisions Regarding Forward-Looking Statements

This press release contains forward-looking statements that are based upon current expectations and involve a number of risks and uncertainties. Statements concerning current estimates, expectations and projections about future results, performance, prospects, opportunities, plans, actions and events and other statements, concerns, or matters that are not historical facts are "forward-looking statements," as that term is defined under the federal securities laws. These statements contain words such as "possible," "believe," "should," "could," "would," "predict," "plan," "estimate," "intend," "may," "anticipate," "will," "if", "potential," "expect" or similar expressions, as well as statements in the future tense. These forward-looking statements include, but are not limited to, statements regarding throughput at the Company's refineries; crude oil prices, discounts and quality and our ability to benefit therefrom; cost reductions; growth; scheduled turnaround activity; projected capital expenditures and investments into our business; liquidity and EBITDA impacts from strategic and intercompany transactions; the performance and execution of our midstream growth initiatives, including the Permian Gathering System, the Red River joint venture and the Wink to Webster long-haul crude oil pipeline, and the flexibility, benefits and the expected returns therefrom; projected benefits of the Delaware Gathering, Acquisition H2O Midstream and Gravity Water Midstream acquisitions, renewable identification numbers ("RINs") waivers and tax credits and the value and benefit therefrom; cash and liquidity; emissions reductions; opportunities and anticipated performance and financial position.

Investors are cautioned that the following important factors, among others, may affect these forward-looking statements. These factors include, but are not limited to: uncertainty related to timing and amount of future share repurchases and dividend payments; risks and uncertainties with respect to the quantities and costs of crude oil we are able to obtain and the price of the refined petroleum products we ultimately sell, uncertainties regarding future decisions by the Organization of Petroleum Exporting Countries ("OPEC") regarding production and pricing disputes between OPEC members and Russia; risks and uncertainties related to the integration by Delek Logistics of the Delaware Gathering, H2O Midstream or Gravity business following their acquisition; Delek US' ability to realize cost reductions; risks related to Delek US' exposure to Permian Basin crude oil, such as supply, pricing, gathering, production and transportation capacity; gains and losses from derivative instruments; risks associated with acquisitions and dispositions; risks and uncertainties with respect to the possible benefits of the retail and H20 Midstream and Gravity transactions; acquired assets may suffer a diminishment in fair value as a result of which we may need to record a write-down or impairment in carrying value of the asset; the possibility of litigation challenging renewable fuel standard waivers; changes in the scope, costs, and/or timing of capital and maintenance projects; the ability to grow the Permian Gathering System; the ability of the Red River joint venture to complete the expansion project to increase the Red River pipeline capacity; operating hazards inherent in transporting, storing and processing crude oil and intermediate and finished petroleum products; our competitive position and the effects of competition; the projected growth of the industries in which we operate; general economic and business conditions affecting the geographic areas in which we operate; and other risks described in Delek US' filings with the United States Securities and Exchange Commission (the "SEC"), including risks disclosed in our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and other filings and reports with the SEC.

Forward-looking statements should not be read as a guarantee of future performance or results and will not be accurate indications of the times at, or by, which such performance or results will be achieved. Forward-looking information is based on information available at the time and/or management's good faith belief with respect to future events, and is subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in the statements. Delek US undertakes no obligation to update or revise any such forward-looking statements to reflect events or circumstances that occur, or which Delek US becomes aware of, after the date hereof, except as required by applicable law or regulation.

Non-GAAP Disclosures:

Our management uses certain "non-GAAP" operational measures to evaluate our operating segment performance and non-GAAP financial measures to evaluate past performance and prospects for the future to supplement our financial information presented in accordance with United States ("U.S.") Generally Accepted Accounting Principles ("GAAP"). These financial and operational non-GAAP measures are important factors in assessing our operating results and profitability and include:

• Adjusting items - certain identified infrequently occurring items, non-cash items, and items that are not attributable to or indicative of our on-going operations or that may obscure our underlying results and trends;
• Adjusted net income (loss) - calculated as net income (loss) attributable to Delek US adjusted for relevant Adjusting items recorded during the period;
• Adjusted net income (loss) per share - calculated as Adjusted net income (loss) divided by weighted average shares outstanding, assuming dilution, as adjusted for any anti-dilutive instruments that may not be permitted for consideration in GAAP earnings per share calculations but that nonetheless favorably impact dilution;
• Earnings before interest, taxes, depreciation and amortization ("EBITDA") - calculated as net income (loss) attributable to Delek US adjusted to add back interest expense, income tax expense, depreciation and amortization;
• Adjusted EBITDA - calculated as EBITDA adjusted for the relevant identified Adjusting items in Adjusted net income (loss) that do not relate to interest expense, income tax expense, depreciation or amortization, and adjusted to include income (loss) attributable to non-controlling interests;
• Refining margin - calculated as gross margin (which we define as sales minus cost of sales) adjusted for operating expenses and depreciation and amortization included in cost of sales;
• Adjusted refining margin - calculated as refining margin adjusted for other inventory impacts, net inventory LCM valuation loss (benefit), unrealized hedging (gain) loss and intercompany lease impacts;
• Refining production margin - calculated based on the regional market sales price of refined products produced, less allocated transportation, Renewable Fuel Standard volume obligation and associated feedstock costs. This measure reflects the economics of each refinery exclusive of the financial impact of inventory price risk mitigation programs and marketing uplift strategies;
• Refining production margin per throughput barrel - calculated as refining production margin divided by our average refining throughput in barrels per day (excluding purchased barrels) multiplied by 1,000 and multiplied by the number of days in the period; and
• Net debt - calculated as long-term debt including both current and non-current portions (the most comparable GAAP measure) less cash and cash equivalents as of a specific balance sheet date.

We believe these non-GAAP operational and financial measures are useful to investors, lenders, ratings agencies and analysts to assess our ongoing performance because, when reconciled to their most comparable GAAP financial measure, they provide improved relevant comparability between periods, to peers or to market metrics through the inclusion of retroactive regulatory or other adjustments as if they had occurred in the prior periods they relate to, or through the exclusion of certain items that we believe are not indicative of our core operating performance and that may obscure our underlying results and trends. "Net debt," also a non-GAAP financial measure, is an important measure to monitor leverage and evaluate the balance sheet.

Non-GAAP measures have important limitations as analytical tools, because they exclude some, but not all, items that affect net earnings and operating income. These measures should not be considered substitutes for their most directly comparable U.S. GAAP financial measures. Additionally, because Adjusted net income or loss, Adjusted net income or loss per share, EBITDA and Adjusted EBITDA, Adjusted Refining Margin and Refining Production Margin or any of our other identified non-GAAP measures may be defined differently by other companies in its industry, Delek US' definition may not be comparable to similarly titled measures of other companies. See the accompanying tables in this earnings release for a reconciliation of these non-GAAP measures to the most directly comparable GAAP measures.

Significant Transactions During the Quarter Impacting Results:

Transaction Costs

We incurred $3.8 million ($2.9 million after-tax) of additional transaction related costs in connection with the previously announced acquisition of interests in H2O Midstream Intermediate, LLC, H2O Midstream Permian LLC, and H2O Midstream LLC (the "H2O Midstream Acquisition"), intercompany agreement amendments, sale of our retail business and acquisition of interests in Gravity Water Intermediate Holdings LLC ("Gravity Acquisition") during the three months ended December 31, 2024.

Restructuring Costs

In 2022, we announced that we are progressing a business transformation focused on enterprise-wide opportunities to improve the efficiency of our cost structure. For the fourth quarter 2024, we recorded restructuring costs totaling $3.3 million ($2.6 million after-tax) associated with our business transformation. Restructuring costs $3.1 million are recorded in general and administrative expenses and $0.2 million are included in operating expenses in our condensed consolidated statements of income.

Other Inventory Impact

"Other inventory impact" is primarily calculated by multiplying the number of barrels sold during the period by the difference between current period weighted average purchase cost per barrel directly related to our refineries and per barrel cost of materials and other for the period recognized on a first-in, first-out basis directly related to our refineries. It assumes no beginning or ending inventory, so that the current period average purchase cost per barrel is a reasonable estimate of our market purchase cost for the current period, without giving effect to any build or draw on beginning inventory. These amounts are based on management estimates using a methodology including these assumptions. However, this analysis provides management with a means to compare hypothetical refining margins to current period average crack spreads, as well as provides a means to better compare our results to peers.

Intercompany Leases

As a result of amendments to intercompany lease agreements in August 2024, we had to reassess lease classification for the agreements that contain leases under Accounting Standards Codification 842. As a result of these lease assessments, certain of these agreements met the criteria to be accounted for as sales-type leases for Delek Logistics and finance leases for the Refining segment. Therefore, portions of the minimum volume commitments under these agreements subject to sales-type lease accounting are recorded as interest income with the remaining amounts recorded as a reduction in net investment in leases. Prior to the amendments, these agreements were accounted for as operating leases and these minimum volume commitments were recorded as revenues in the Logistics segment. Similarly, these minimum volume commitments were previously recorded as costs of sales for the Refining segment, as the underlying lease was reclassified from an operating lease to a finance lease, and these payments are now recorded as interest expense and reductions in the lease liability. These accounting changes have no impact to the Delek US consolidated results as these amounts eliminate in consolidation.