Participants

Robert Wright; Deputy Chief Financial Officer; Delek US Holdings Inc

Avigal Soreq; President, Chief Executive Officer, Director; Delek US Holdings Inc

Joseph Israel; Executive Vice President - Operations; Delek US Holdings Inc

Mark Hobbs; Executive Vice President of Corporate Development; Delek US Holdings Inc

Patrick Reilly; Executive Vice President, Chief Commercial Officer; Delek US Holdings Inc

Mohit Bhardwaj; Senior Vice President of Strategy and Growth; Delek US Holdings Inc

Manav Gupta; Analyst; UBS

Matthew Blair; Analyst; TPH

John Royall; Analyst; JPMorgan

Doug Leggate; Analyst; Wolfe Research

Jason Gabelman; Analyst; TD Cowen

Presentation

Operator

Thank you for standing by. My name is Jay and I will be a conference operator today. At this time, I would like to welcome everyone to the Delek fourth quarter 2024 earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session (Operator Instructions)
Now let's turn the conference over to Robert Wright, Deputy Chief Financial Officer. You may begin.

Robert Wright

Good morning and welcome to the Delek US fourth quarter earnings conference call. Participants joining me on today's call will include Abigail Sorek, President and CEO, Joseph Israel, EVP Operations; Ruben Siegel, EVP and Chief Financial Officer, and Mark Hobbs, EVP Corporate Development.
Today's presentation material can be found on the investor relations section of the Dele US website. Slide 2 contains our safe harbor statement regarding forward-looking comments.
Any forward-looking information shared during today's call will involve risks and uncertainties that may cause actual results that differ materially from today's comments.
Factors that could cause actual results to differ are included here as well as within our FCC filings. The company assumes no obligation to update any forward-looking statements.
I will now turn the call over to Avigal Soreq for opening remarks. Avigal.

Avigal Soreq

Thank you, Robert. Good morning and thank you for joining us today. Despite the challenging refining margin environment which we believe was around $6 below mid cycle in Q4 of 2024 was transformational year for us.
We have vastly improved our operational performance, made significant progress on some of the past efforts, and implemented key plans to increase the overall profitability of our company.
I would like to highlight the progress we have made on our key priorities. First, safe and reliable operations. We have made great progress in improving the operations to our company. We have successfully completed a major turnaround at KSR in the fourth quarter.
Coming out of the turnaround, the refinery is showing improved operational performance. The asset is running well, and we look forward to a strong contribution from KSR in 2025.
Moving to big in 2024, we have significantly improved its reliability. We have consistently been running over 70,000 barrels per day. Looking forward in 2025, we have no major turnaround planned in our system, and we expect to continue our improvement journey.
Now I would like to discuss some of the strategy. In 2024 we made great progress in unlocking the sum of the parts value inherent in our assets.
In September we sold our retail asset for $390 million and we are extremely happy with the timing and the value we received. The timely sell has allowed us to continue to progress our initiative in a tough refining environment.
We have also made great progress in making Delek logistics a strong, independent midstream company levered to the growth in the Perman Basin.
In 2024 we successfully executed economic swap of assets between DK and DKL. The swap will improve the stability of our refineries going forward. At the same time, the swap brings more certainty to DKL cash flow to the contract extension by up to seven years.
Our economic separation from DKL is increasing and at the same time, the distribution decay received from DKL continues to go.
Also announced two acquisitions to add around $100 million in third party IDA.
After DKL acquisition of gravity midstream, DK ownership in DKL has come down to 63.6%. DKL is progressing its capacity expansion in the ligas processing complex and expects to complete the expansion in the first half of 2025 as previously communicated.
Additionally, the announced an FID on acid gas injection at the Libe complex in December.
These steps Highlight DKL progress in becoming an attractive, high growth mid-sized midstream company benefiting from the natural gas growth in the Perman Basin.
This is reflected in the strong guidance that Dale logistics has provided today.
Despite this great move, DKL continues to trade at discount versus its peers and very limited, if any, of this value is reflected in DK shares.
We are in the process of taking additional steps such that the value of greater than $350 million in third party EBA in DKL is fully reflected in DK share price and DKL unit price.
We are confident that we will complete the DKL deconsolidation in a methodical manner and create value for both shareholders and.
In 2024 we have made progress in improving overall stability of the company.
We completed our zero-based budget initiative which allowed us to save around $100 million in cost through our system.
We completed this program in the second quarter of 2024 ahead of our original target of completion by the end of 2024.
Our effort laid the foundation for enterprise optimization plan or EOP. Aims to improve cash flow by 80 to $120 million per year starting in the second half of 2025. I'm pleased to announce that we have made great progress with EOP and now we expect to be closer to the top end of our cash flow improvement guidance.
Despite our initial success, we are not standing still and look forward to further improve our cash generation power as we progress through the deal. Final piece of our strategy is being a shareholder friendly and having strong balance sheet.
During the quarter we paid $16 million in dividend and bought back $22 million of shares. We remain committed to a disciplined and balanced approach to capital allocation. Now, I would like to make the comment about small refinery exemption.
As the DC Circuit court other than the EPA denial of our small refinery exemption petition under the RFS in July of 2024. Our positions were sent back to the EPA for reconsideration.
We're optimistic that the EPA will revise its approach following the court ruling and grant us. We hope the recent ruling on SREs, along with the Supreme Court ruling on Chevron deference case, will reduce unneeded bureaucracy and allow for a predictable approach to the SRE petition review.
In closing, I would like to thank our entire team for their hard work and dedication. We are excited about the prospects of DK in 2025 and beyond.
Now, I will turn the call over to Joseph Israel, who will provide additional color on our operations.

Joseph Israel

Thank you, Avigail. First, I'd like to congratulate our team on another safe, reliable, and environmentally compliant year.
Our in hiring the right people, developing good processes, and proactively managing our equipment is well reflected in the field and is giving us a strong foundation to perform, optimize, and grow our business. In Tyler, total throughput in the fourth quarter was approximately 66,000 barrels per day.
Production margin in the quarter was $6.66 per barrel, and operating expenses were $5.51 per barrel.
During the first quarter, we are executing our plant maintenance in the algae unit, including an upgrade scoop which will allow us to increase production of high value products by approximately 500 barrels per day.
For the first quarter, our estimated total throughput in Tyler is in the 65 to 69,000 barrels per day range. In El Dorado, total throughput in the 4th quarter was approximately 77,000 barrels per day. Our production margin was $0.56 per barrel and operating expenses were $4.78 per barrel.
Estimated throughput for the first quarter is in the 73 to 76,000 barrels per day range.
On the strategic front, we are making good progress with our EOP initiatives. Which are expected to add by mid-year $50 million of annual EBITDA run rate in the El Dorado integrated system.
The incremental approximately $2 per barrel of net margin will support El Dorado cash flow generation through the cycles.
In Big Spring, total throughput for the quarter was approximately 73,000 barrels per day.
Our production margin was $5.04 per barrel, and operating expenses were $6.29 per barrel, including approximately $0.50 per barrel of winterization and maintenance special activities.
Bogus in big spring is well reflected in the numbers. Total throughput in 2024 increased over 10% compared to 2023 due to improved reliability.
Cost structure is approaching our target and as important, it is mostly driven now by a routine and proactive agenda rather than reactive.
In the 1st quarter, we are replacing catalysts in our reformer and diesel hydrotrier per plant.
As a result, estimated throughput for the first quarter is in the 57 to 61,000 barrels per day range.
In Cro Springs, the team successfully completed the planned major turnaround. Since startup, we have demonstrated improved crude capacity.
Product mix and liquid yield recovery capabilities consistent with our plans.
Total throughput in the fourth quarter was approximately 50,000 barrels per day.
Our production margin was $2.71 per barrel, and operating expenses in the quarter were $5.27 per barrel.
Our planned throughput for the first quarter is in the 83 to 86,000 barrels per day range.
Our implied system throughput target for the first quarter is in the 278 to 292,000 barrels per day range.
Moving on to the commercial front in the fourth quarter, supply and marketing contributed a loss of $34.6 million.
Of that, approximately $12 million dollar loss was generated by wholesale marketing driven by seasonal low demand trends around our system racks.
$22 million dollar loss was attributed to supply and a negative $50 million dollar contribution was generated by asphalt.
In summary, We continue to execute well on the fundamentals of our business.
After successfully addressing the reliability gaps, our teams continue to focus on operational excellence and commercial optimization initiatives as we position ourselves for the coming gasoline season and the future cycles.
I will now turn the call over to Oil for the financial variances.

Robert Wright

Thank you, Joseph. I will start by referring to slide 14. For the fourth quarter, Delek had a net loss of $414 million or negative $6.55 per share.
Included within this is a partial impairment of our goodwill balance of $212 million.
Adjusted net loss was $161 million or negative $2.54 per share, and adjusted that was a loss of $23 million.
On slide 15, the waterfall of adjusted EBITA from the 3rd quarter of 2024 to the 4th quarter of 2024 shows that the decline is primarily because of lower refining contribution. The $80 million dollar decrease in refining is primarily attributable to a lower margin environment in the fourth quarter relative to the 3rd quarter.
As to the logistics segment, we continue to have another strong quarter delivering 107 million in adjusted EIA.
Moving to slide 16 to discuss cash flow from operations was the use of $164 million. Within this amount is our net loss for the period, in addition to an outflow of approximately $71 million of timing-related working capital movements, which include the impacts of the inventory intermediation agreement.
Investing activities of $216 million includes capital asset purchases of $191 million and a $23 million deposit paid for the Gravity acquisition, which closed on January 2, 2025.
Financing activities of $77 million reflects the DKL equity offering and timing of accruals. This also includes $22 million in share repurchases, $16 million in dividend payments, and $19 million in distribution payments.
On slide 17 we have the actual results of the 2024 capital program.
Fourth quarter capital expenditures were $198 million. $140 million of this spend was in the refining segment, a large portion of which was related to the successful completion of the KSR turnaround.
The remaining amount is largely spent associated with the construction of the Libby2 gas plant, which remains on track from a timing and cost perspective.
As we have previously announced, our stand-alone DK Capital Outlook for 2025 is approximately $150 to $170 million.
Our net cache position is broken out between Delek and Delek Logistics on flight 18.
During the quarter, we drew approximately $300 million of cash primarily due to anticipated capital expenditures on growth projects and the turnaround at KSR.
Additional unfavorable impacts included working capital timing differences and the overall market conditions impacting our recognized EIO results for the period.
Excluding De logistics, we finished the year with an increase of $82 million in net debt.
We are pleased with the relatively modest increase in net debt for the year, especially considering the broader market conditions and the impact on our peers, many of whom have experienced substantial increases.
Moving now to slide 19 where we cover Outlook items. In addition to the guidance Joseph provided for the first quarter of 2025, we expect operating expenses to be between $220 and $235 million.
GNA to be between $55.60 million. DNA is expected to be between $100 and $105 million and net interest expenses to be between $78.88 million dollars.
We will now open the call for questions.

Question and Answer Session

Operator

(Operator Instructions) Your first question comes from the line of Manav Gupta of UBS. Your line is open.

Manav Gupta

Guys. I wanted to focus on a little bit on slide 10. Obviously, you are making a lot of improvements on Erado. Help us understand what more can be done to make this a truly competitive asset something which can be performing in line with probably Tyler here. At least.

Avigal Soreq

Yeah, good morning. Thank you for the question. Erado is a big focus for us. Joseph is leading that with a lot of talent and will allow Joseph to chime in.

Joseph Israel

The Edo is the most significant beneficiary of our EOP focus on the product mix. We started to make and sell jet fuel through the rack.
We are looking to convert heavy bottoms to light products process efficiency, we are focused on liquid yield recovery, mainly in the reformer, FCC and asphalt areas.
On the logistics front, we put together a new logistics. And we are already shipping more products away from the local market to optimize the banks. Bottom line, considering our strong refinery team out there, the asset flexibility and the $50 million of low hanging fruits, we are confident about our ability to translate this to numbers sooner than later.

Manav Gupta

Perfect guys. A quick follow up here is looks like you're growing DTLeta, although you're divesting it down slowly. It's the strategy here to look for smaller boat on deals whether it's water, coal, gas, and basically continue to grow the company at the DKL level, and at the same time TRY and bring down the ownership below 50%.

Avigal Soreq

I will take that question and I would like to give you a bigger answer than that about some of the part we are doing and some of the parts together with the EOP are the most strategic initiative we have for this year and deconciliation, I want to make it crystal clear, is happening and will happen as we speak, so it's very clear. And I want to take a moment to reflect on 2024 action that we did around that time.
So in 2024, we sold retail as we wanted. We continue to make progress in the deconsolidation, right? We took the ownership of us from 79%.
To below 64% today we grew the IDA while we are doing all of that from 385 not very long ago to over 400 this year, 2024 to 500 guidance for 2025, which is another step, and we increased the third party IA from 40% to 70% while we were doing all of that.
We also increased the distribution that DK gets from DKL, so it's many boxes that we are checking the box on. And today, I don't know if you know that we announced another efficient tool in our toolbox to allow basically efficient tax. a way for DK to sell back their units to DKL. So we announced it today for $150 million up to $150 million.
So the other and that's benefit for DKA for the efficient way, and it's also a benefit for DKL because of free cash flow, right? You're borrowing at 7, you are borrowing at 7, and you are avoiding the cost of 10 or 11.
So that's very beneficial for both companies. And the last point I want to make is that the deconsolidation is the goal of both companies.
Because it will allow to go over time and then allow D to fulfill to get the whole value in the asset.
With that said, the market was very busy this year with all the deals we had and the plan that was going to be very busy in 2025 as well.
So I'll let the market chime in. Yeah.

Mark Hobbs

Thanks. Look, we're very happy with some of the parts efforts in 2024, and we're very active in the year in advancing our deconsolidation efforts, both H2O and Gravity checked all the boxes and what we look at for acquisitions, highly strategic and highly synergistic.
With our Midland Basin operations and what we're trying to do out there as a full-service midstream provider immediately created a free cash flow, improved our leverage, and increased our coverage ratio.
We also initiated organic growth projects in the Delaware to add to our gas processing capacity and also add critical sour gas capabilities. And finally we dropped down Wink to Webster, our 15% interest in to Webster, and when you take all of those combined. We're adding significant third party IBADA to DKL, which is driving this economic separation between DK and DKL that we're talking about.
If you layer on top of that, we also continue to see premium valuations paid in the private markets by midstream companies for midstream assets over the past few months, and in particular those tied to the Permian Basin, which, as is the core of our detail operations.
And as Aveal said, our focus is that we're going to continue our measured approach to deconsolidation, and the focus is going to continue on enhancing and maximizing value for both DK shareholders and DA unit holders.

Operator

Matthew Blair of TPH.

Matthew Blair

Thank you and good morning. I was hoping you could go into the supply and marketing dynamics a little bit more in the fourth quarter.
I understand there's some seasonality with wholesale, but could you help us understand why is that just an outright negative a contribution? And does there need to be any structural changes there? And then how are these supply and marketing dynamics trending so far in the first quarter? Thanks.

Avigal Soreq

Good morning. Thank you for the question. First of all, I am very happy on the DTS are doing. If you are comparing that to the fourth quarter of last year, the market condition back then was better versus this quarter, but $10 million. This quarters last quarter, so that's a very good step in the right direction, and
I will let Patrick Rilley, our Chief Commercial Officer.

Patrick Reilly

To chime in into that answer and give you some 4th quarter DTS performance was impacted primarily by seasonal inland demand weakness led by the group.
And a one time major turnaround across. With that said, DKT has made significant progress on our 2024 initiatives. As Avool just mentioned, supply and trading marketing conditions in Q4 was significantly weaker relative to the same time period in 2023. So as an example, Group diesel weakened by $0.14 per gallon. That's almost $6 a barrel year on year.
Now, despite these headwinds, EKT has outperformed the fourth quarter of 2023 by nearly $10 million.
DKTS will play a crucial role in the delivery of the 2025 EOP, and our strategy is actually simple. To intelligently streamline operations, thereby reducing costs, further increase our margins on the back of optimization of supply and trading, leading to our partnership with our assets to flex our broader product offering and further mature the ETS's newfound and expanded market reach. We're excited for the commitment and the challenge.

Matthew Blair

Sounds good. And then on the on the RD side, have you made a decision on whether to invest in the Bakersfield renewable diesel plant?

Avigal Soreq

Yeah, that's not on our ten seconds. If something changes, we'll definitely let but it's not. And maybe you want to chime in on this?

Robert Wright

Matt, that option is still available to us as you and I have discussed in the past, the team over there has to show that they have had healthy operations for around three months, and then we have around 90 days to exercise their options.
And we are obviously going to be looking at it once we are asked to look at that option, but as of right now, that option is still available to us and we're just hoping for the team to have those operations in order before we start making our decisions.

Matthew Blair

Sounds good. Thank.

Operator

John Royall of JPMorgan.

John Royall

Hi, good morning. Thanks for taking my question. So my first question is on the OpEx guide for 1. We noticed a step up from where you would guide it to 4Q, but it's also in the context of things going well with the EOP. So I was hoping you could help us bridge the difference and maybe how should we think about that opEx number as we progress further into 2025 beyond that one cu guide.

Avigal Soreq

Absolutely, John.
Thank you for the question. Mohit was putting the guidance together, so I will let him chime in.

Mohit Bhardwaj

Mohit. John, thanks for the question. So as far as our company is concerned, OE and cost reduction, we're taking a lot of pride in it, and you know you're seeing the results through EOP. You have seen the results through ZBB.
As far as your specific question around Q1 guidance is concerned, so there are four factors which are influencing the guidance. The first one is, as that we closed gravity. Water midstream and you're presenting the guidance on a consolidated basis, so you're seeing some OpEx coming from Gravity Water midstream.
Second, we are running higher throughput quarter over quarter, so that's also influencing our, OpEx number. Third piece is natural gas, as you've seen, natural gas prices have gone a little bit higher, so that's also influencing our OpEx.
Numbers and finally we have some planned maintenance at VIs in one cu which is reflected in our throughput guidance so that is also impacting our overall OpEx.
But as I started my answer, OE and cost reduction is an extremely positive story for Delek. We're very excited about how OE reductions are contributing to EOP and our free cash flow generation, and we look forward to updating you guys more on that.

John Royall

Great, very helpful. Thanks, Mohit. And then my follow up is another one on guidance maybe just on the DKL EBITDA guidance, just trying to bridge from the run rate of about, I think it's about 430 million. Annually in 4Q to this guy that's about $50 million to $90 million above that.
If you could just walk us through some of those moving pieces, I know obviously there's gravity, there's the gas plant coming on mid-year, maybe some other things on the organic side, just a little bit of detail on how you get from the 430 to 480 to 520.

Avigal Soreq

Yeah, absolutely. So first of all, John, we need to take a step back and talk about the DKL in a broader context. DKL is a growing story and obviously we, as we speak, we are increasing the economical separation between the companies.
And we are doing that very methodically and to benefit both unit holders and shareholder as you see by all the actions that we have done in the last 18 months or so. That's very important.
We decided to allow you guys to have guidance for DKL because we want everyone to model that company right and to be able to understand. Value creation that was done here so we're taking a lot of pride of what we are doing here. We think the guidance we gave you is solid and good.

Mohit Bhardwaj

And you want that as well if there is more we can take it off I think we got most of it, but I can definitely help you walk through the moving pieces we can do one call after this that offline.
Okay, thank you.

Operator

Thank you Your next question comes from a line of Doug Leggett of Wolf Research. Your line is open.

Doug Leggate

Hi, this is McKinley for Doug. He sends his guards. He's, traveling at the moment. My first question, kind of, piggybacks on some of the, commentary that's already been had. In addition to, the EOP, you guys have quite a few options in terms of being able to release value from DKL. Were you in the process, for example, with the, so gas permitting, and, is there a kind of line of sight on potentially other sellable assets going forward?

Avigal Soreq

Yeah, so, you started your question, with the EOP, so I will start my answer with the EOP, and I will give you some more broader context around that, right. So, especially on the refinery environment that we are at.
EOP is all about free cash flow, period, end of story. That's what we are after, right?
We obviously today is a happy day around that because we felt comfortable enough to take our guidance towards the end of the range we gave in the past. So that's a happy moment for us.
We've seen a significant progress on the coast side already been signed and we will see them executed and coming to fruition over the next few months. As Pat mentioned, we see a good progress also on the margin improvement that we see on the EP, but I want to assure you that we are not stopping here. We are not standing still.
We always have more options and more things that we are working on and adding to that very important initiative, and we are very optimistic about that. The last comment I want to make is that it's neutral to market conditions and all the actions that we are doing here are new action that was not done in the past, so we are very optimistic and Ruben.
Is very close to that and managing that very nicely and I will let Abigail.

Mohit Bhardwaj

So the EO plan includes a bank of projects from all areas of the company and I will address specifically your question about DKL at the end. Each project has to be validated in two ways one, that it's sustainable, and two, that is for the most part market agnostic.
Once vetted it into execution and added to the projections.
You can see on the deck that we provided, it's reflected in slide 9 in the green. Boxes. Each project has a different time frame for fruition. That is why we're measuring 3rd and 4th quarter run rates. As for DKL, we have the sour gas plant which our team is executing on time, on budget, and it's expected to flow in the 2nd quarter, and that gives us a whole new dimension and flexibility around gas gas.

Operator

But thank you for Your next question comes from a line of Jason Gelman of TD Kellen. Your line is open.

Jason Gabelman

Hey, morning.

Avigal Soreq

Thanks for taking my question. Hey Jason, good morning. Thanks for joining us today.

Jason Gabelman

I wanted to ask about the DKL repurchase program of DK units.
I'm wondering what the what the timeline is to deploy that buy back cash, and two, once once DK gets that cash, what it's going to use that cash for.

Avigal Soreq

Thank you for the question. The timeline that we put the program in is all the way until 2026. Obviously it's a detail option, but we are very close to that, so we'll do that when time is right.
You probably can appreciate that that's another tool in our toolbox that benefits the deconsolidation for both companies and help free cash flow of both companies. So that checks many boxes. And it's very tax efficient.
I think you can be part of a very creative way how to create deconsolidation with no tax impact, basically. But I want to take the other part and to talk about the capital allocation program we have, and I want to give a broader discussion around that.
So we said many times and we are saying that today that we are maintaining dividends to all the cycle. We are doing that, we've done that and we will do it in the future. And then we have a balanced approach between taking care of the balance sheet and buyback. We did buyback in Q3, we did buyback in Q4, and we are doing buyback at Q1 of 2025.
At the current valuation of our share price, we see a huge value in our share price, and we are acting on that just to make it very clear. So that's kind of that's where we are.

Jason Gabelman

Great. No, yeah, I appreciate the color on the capital allocation. The other question is just back to Group three dynamics, and it sounds like in a weaker inland margin environment, you see some weakness in that supply line item.
And I wonder, kind of post-COVID we've seen inland markets become more seasonal where they're weaker in the winter. So should we expect that that supply line is weaker in 4Q and 11 kind of in line where it where it was this past quarter or maybe I guess a little better based on what's going on in the EOP program. Program or I guess how should we think about the seasonality of that supply line. Thanks.

Avigal Soreq

Yeah, so listen, there are two different questions here market observation. There is some truth that there is a weakness in the winter and strength in the summer, but I'm not going to, we are not going to provide guidance for DKPS.
We didn't do that in the past and I don't think it's best. We are not going to deviate from that today, but I'm going to tell you and Jason, you need to know very well that we are moving very well with the things that we are controlling like different products that we are start moving and different markets that we are moving towards, and I can be only very pleased with the progress we are doing about what we can control and I will leave it to that.

Jason Gabelman

Okay, understood, thanks for the answers.

Operator

That concludes our Q&A session. I will now attend the conference back over to Abigail Sorek for closing remarks.

Avigal Soreq

I would like to thank my colleagues around the table for a great safe and reliable. I want to thank the entire Delek employees for a great execution and a great commitment for the company, and I'm very pleased with that to thank our board of directors and to thank you investors for believing in our story and our journey. With that.
I will conclude the call and we'll see you next in the next quarter. Thank you.

Operator

This concludes today's conference call. You may now disconnect.