Delek US Holdings Reports First Quarter 2020 Results

Reported first quarter net loss of $(314.4) million and Adjusted EBITDA of $(29.7) millionReducing 2020 capital expenditures by approximately $75 million representing a 23% decreaseImproving cost structure with 10% reduction (~$100 million) in operating & overhead expenses 2020 vs. 2019Currently benefiting from steep crude contango, niche product markets and regional demand recoveryExpect refining throughput in 2Q20 to be approximately 80% utilizationCompleted drop-down of Big Spring Gathering System to DKL increasing DK ownership of DKL to 71%Maintain strong liquidity with $785 million of cash as of March 31, 2020BRENTWOOD, Tenn., May 05, 2020 (GLOBE NEWSWIRE) — Delek US Holdings, Inc. (NYSE: DK) (“Delek US”) today announced financial results for its first quarter ended March 31, 2020. Delek US reported first quarter 2020 net loss of $(314.4) million, or $(4.28) per diluted share, versus a net income of $149.3 million, or $1.90 per diluted share, for the quarter ended March 31, 2019.  On an adjusted basis, Delek US reported Adjusted net loss of $(128.0) million, or $(1.74) per share for the first quarter 2020. This compares to Adjusted net income of $129.4 million, or $1.64 per share, in the prior-year period. Adjusted earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”) was $(29.7) million compared to Adjusted EBITDA of $244.1 million in the prior-year period. Reconciliations of net income reported under U.S. GAAP to Adjusted net income and Adjusted EBITDA are included in the financial tables attached to this release.Adjusted quarterly results include a negative after-tax impact of $(106.1) million or $(1.44) per share. This is comprised of an “other inventory” headwind in the amount of $(90.8) million pre-tax, or $(70.0) million after-tax, related to FIFO accounting. This inventory detriment was driven by the precipitous decline in commodity prices in the quarter, stemming from COVID-19 and excess global oil supply from OPEC+. Note, “other inventory” is separate from LCM inventory impacts that are excluded from adjusted results. Additionally, adjusted results include a $(36.1) million elevated tax headwind resulting from applying the annual estimated effective tax rate to quarterly results.Uzi Yemin, Chairman, President and Chief Executive Officer of Delek US, stated, “Covid-19 is having a meaningful impact on near-term demand trends within our industry. That said, we have taken steps to maintain safe and reliable operations and continue supporting the communities that we serve. In an effort to adjust to the prevailing environment, we are reducing capital spending by approximately $75 million or 23% from previous 2020 guidance of $325 million. Separately, we expect to reduce our overall cost structure by roughly $100 million or 10% versus 2019 levels. This is driven through ongoing optimization of operating costs and implementation of a hiring freeze to minimize overhead.“Despite enormous macro volatility, we have seen bright spots in the second quarter with the crude curve moving into steep contango. Additionally, our niche product markets tend to be more resilient during a downturn and the regions where we conduct business appear to be on-pace for re-opening from COVID-19. The combination of these factors should allow us to run at refinery utilization rates above the industry average in the second quarter.”Mr. Yemin continued, “On March 31st, Delek US sold the Big Spring Gathering assets to Delek Logistics through a combination of cash and equity. This increased DK’s ownership of DKL to approximately 71%, including the GP interest. Finally, our balance sheet remains strong with $785 million of cash as of March 31st.”Regular Quarterly Dividend
Delek US announced today its Board of Directors declared a regular quarterly cash dividend of $0.31 per share. Shareholders of record on May 20, 2020 will receive this cash dividend payable on June 3, 2020.Liquidity
As of March 31, 2020, Delek US had a cash balance of $784.9 million and total consolidated long-term debt of $2,216.9 million, resulting in net debt of $1,432.0 million.  As of March 31, 2020, Delek Logistics Partners, LP (NYSE: DKL) (“Delek Logistics”) had $940.0 million of total debt and $4.2 million of cash, which is included in the consolidated amounts on Delek US’ balance sheet. Excluding Delek Logistics, Delek US had approximately $780.7 million in cash and $1,276.9 million of debt, or a $496.2 million net debt position.Refining SegmentRefining contribution margin decreased to $(290.4) million in the first quarter 2020 from $301.9 million in the first quarter 2019. On a year-over-year basis, results were reduced primarily by inventory impacts due to the precipitous commodity price decline that occurred in March of 2020. The total inventory charge was $360.1 million in first quarter 2020 compared to a benefit of $129.9 million in first quarter 2019. Of this amount there was $277.8 million lower of cost or market (“LCM”) valuation charge from product and crude oil prices in the first quarter 2020. This compares to a LCM valuation benefit of $52.2 million in the prior year period. Separate from LCM, there was a negative impact from “other inventory” in the amount of $79.2 million pre-tax, driven by FIFO accounting and the drop in commodity prices. Additional drivers were a lower crude oil differential and crack spread environment, coupled with reduced operating performance at the Big Spring refinery due to the major turnaround. Further, during the first quarter 2020, the realized Midland-Cushing crude oil premium was $0.79 per barrel compared to a realized discount of $4.26 per barrel in the prior year period.Logistics Segment
The logistics segment contribution margin in the first quarter 2020 was $47.3 million compared to $40.1 million in the first quarter 2019. Results improved on a year-over-year basis primarily due to a $3.6 million increase to income from equity method investments, as well as increased contributions from the Paline Pipeline, the Lion Pipeline System and the Gathering Assets. This was partially offset by lower West Texas gross margin on a year-over-year basis.Retail Segment
For the first quarter 2020, contribution margin was $12.3 million compared to $10.2 million in the prior year period for the retail segment. Merchandise sales were approximately $71.7 million with an average retail margin of 31.6% in the first quarter 2020, compared to merchandise sales of approximately $75.3 million with an average retail margin of 31.0% in the prior-year period. Approximately 48.0 million retail fuel gallons were sold at an average margin of $0.31 per gallon in the first quarter 2020 compared to 53.9 million retail fuel gallons sold at an average margin of $0.19 per gallon in the first quarter 2019. In the first quarter 2020, the average merchandise store count was 253 compared to 281 in the prior year period.  On a same store sales basis in the first quarter 2020, merchandise sales increased 1.7% and fuel gallons sold decreased 8.2% compared to the prior-year period.Corporate/Other
Contribution margin from Corporate/Other was a loss of $13.1 million in the first quarter 2020 compared to a loss of $18.4 million in the prior-year period. Note, hedging gains (losses) related to the refining segment have been reclassified from the corporate and other segment to the refining segment in the first quarter of 2020 and have been retrospectively reclassified in the first quarter of 2019 for comparison purposes.First Quarter 2020 Results | Conference Call Information
Delek US will hold a conference call to discuss its first quarter 2020 results on Wednesday, May 6, 2020 at 8:30 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 five 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) first quarter 2020 earnings conference call that will be held on Wednesday, May 6, 2020 at 7:30 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 are 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, renewable fuels and convenience store retailing.  The refining assets consist 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 primarily consist of Delek Logistics Partners, LP (NYSE: DKL).  Delek US Holdings, Inc. and its affiliates own approximately 71% (including the 2% general partner interest) of Delek Logistics Partners, LP.  Delek Logistics Partners, LP is a growth-oriented master limited partnership focused on owning and operating midstream energy infrastructure assets.The convenience store retail operates approximately 253 convenience stores in central and west Texas and New Mexico.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; share repurchases; returning cash to shareholders; payments of dividends; growth; investments into our business; the performance and execution of our midstream growth initiatives, including the Big Spring 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; RINs waivers and tax credits and the value and benefit therefrom; cash and liquidity; 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; including uncertainties regarding future decisions by OPEC regarding production and pricing disputes between OPEC members and Russia; uncertainty relating to the impact of the COVID-19 outbreak on the demand for crude oil, refined products and transportation and storage services; 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; management’s ability to execute its strategy of growth, including risks associated with acquisitions and dispositions; 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 Big Spring Gathering System; the ability of the Red River joint venture to complete the expansion project to increase the Red River pipeline capacity; the ability of the joint venture to construct the Wink to Webster long haul crude oil pipeline; 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 GAAP financial information presented in accordance with U.S. GAAP. These financial and operational non-GAAP measures are important factors in assessing our operating results and profitability and include:Adjusted net income (loss) – calculated as net income attributable to Delek US adjusted for certain identified infrequently occurring items, non-cash items and items that are not attributable to our on-going operations (collectively, “Adjusting Items”) recorded during the period;Adjusted unrealized hedging (gains) losses – calculated as GAAP unrealized (gains) losses on commodity derivatives that are economic hedges but not designated as hedging instruments adjusted to exclude unrealized (gains) losses where the instrument has matured but where it has not cash settled as of the balance sheet date. This adjustment more appropriately aligns matured commodity derivatives gains and losses with the recognition of the related cost of materials and other. There are no premiums paid or received at the inception of the derivative contracts, and upon settlement there is no cost recovery associated with these contracts;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 attributable to Delek adjusted to add back interest expense, income tax expense, depreciation and amortization;Adjusted EBITDA – calculated as EBITDA adjusted for the 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 the difference between total refining revenues and total cost of materials and other;Adjusted refining margin — calculated as refining margin adjusted for certain identified infrequently occurring items, non-cash items and items that are not attributable to our on-going refining operations recorded during the period;Refining margin per sales barrel – calculated as refining margin divided by our average refining sales in barrels per day (excluding purchased barrels) multiplied by 1,000 and multiplied by the number of days in the period; andAdjusted refining margin per sales barrel – calculated as adjusted refining margin divided by our average refining sales in barrels per day (excluding purchased barrels) multiplied by 1,000 and multiplied by the number of days in the period;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 comparability between periods 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.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 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.












Included in the refinery statistics above are the following inter-refinery and sales to other segments:


















 

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