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Delek Logistics Partners (DKL 1.46%)
Q4 2023 Earnings Call
Feb 27, 2024, 12:30 p.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Good morning, ladies and gentlemen, and welcome to the Delek Logistics Partners’ fourth quarter 2023 conference call. [Operator instructions] This call is being recorded on Tuesday, February 27, 2024. I would now like to hand the conference over to Rosy Zuklic, VP of investor relations. Please go ahead.
Rosy Zuklic — Vice President, Investor Relations and Market Intelligence
Good day, and welcome to the Delek Logistics Partners fourth quarter earnings conference call. Participants on today’s call will include Avigal Soreq, president; Joseph Israel, EVP operations; Reuven Spiegel, EVP and chief financial officer; and Odely Sakazi, SVP Delek Logistics. As a reminder, this conference call will contain forward-looking statements as defined under the federal securities laws, including without limitation, statements regarding guidance and future business outlook. These statements involve risks and uncertainties that may cause actual results to differ from our forecast.
For more information, please refer to the risk factors discussed in the partnership’s most recently filed annual report on Form 10-K and quarterly report on Form 10-Q filed with the SEC, along with the press release associated with this call. The partnership assumes no obligation to update any forward-looking statements or information, which speak as of their respective dates. I’ll now turn the call over to Avigal for opening remarks.
Avigal Soreq — President
Thank you, Rosy. Delek Logistics Partners finished 2023 strong. We delivered another record quarter and achieved a record year. DKL exceeds $100 million in adjusted EBITDA this quarter.
We saw a substantial growth from our new connection in our mid and gathering operations further validating our strong position in the Permian Basin. I’m very proud of our employees, who are dedicated to making Delek Logistics succeed. It is their dedication to safe and reliable operation that makes our results possible. The team has gone without a lost time injury four years in a row and counting.
We are also focused on growing third-party revenues, allocating capital in a disciplined manner and exploring natural gas opportunities in the Delaware Basin, where we see significant growth. In January, the board approved the 44th consecutive increase in the quarterly distribution to $1.055 per unit. Delek Logistics has shown a strong track record of delivering value to unitholders. We feel confident in our ability to maintain competitive distribution to our investors.
I will now hand it over to Reuven.
Reuven Spiegel — Executive Vice President, Operations
Thank you, Avigal. The fourth quarter of 2023 adjusted EBITDA was $100.9 million compared with $92.5 million in the same period of 2022. The fourth quarter EBITDA was $86.1 million, which included a $14.8 million goodwill impairment related to some of our Delaware gathering and processing assets. The impairment was primarily driven by a significant increase in interest rates.
Our long-term outlook of the Delaware gathering system remains unchanged. Distributable cash flow was $65 million and the DCF coverage ratio was 1.4%. For the gathering and processing segment, adjusted EBITDA for the quarter was $53.3 million compared with $48.1 million in the fourth quarter of 2022. The increase was primarily due to higher throughput from Delek Logistics Premium Basin assets.
Wholesale Marketing and Terminalling adjusted EBITDA in the fourth quarter of 2023 was $28.4 million compared with $23.3 million in prior year. The increase was primarily from higher terminal and utilization. Storage and Transportation adjusted EBITDA in the quarter was $17.5 million compared to $16.1 million in the fourth quarter of 2022. The increase was mainly driven by higher storage and transportation rates.
And lastly, the investment in pipeline joint venture segment contributed $8.5 million this quarter compared with $9 million in the fourth quarter of 2022. Moving on to capital expenditures. The capital program for 2023 was $74 million. This includes $7 million of proceeds from producers to partially fund growth projects.
Most of the spend throughout the year was for growth projects, namely advancing new connections in the Midland and Delaware gathering systems. For 2024, Delek Logistics Partners expects the capital program to be about $70 million. This includes approximately $20 million of sustaining and regulatory capital and $50 million of growth capital. We will continue to advance new connection in our gathering system for the volume growth at the partnership.
With that we can open the call for questions.
Questions & Answers:
Operator
Thank you. [Operator instructions] Your first question comes from Doug Irwin from Citi. Please go ahead.
Doug Irwin — Citi — Analyst
Hi. Thanks for the question. I just want to start with the Delaware gathering and processing assets. Understanding the long-term outlook is still on tax.
Can you maybe just talk about how the three Bear assets are trending today just versus the initial expectations when you acquired them, I think the initial target for these assets when they acquired was $100 million of annual EBITDA. Is that still a good number to work with here near term?
Avigal Soreq — President
Hey, Doug, it’s Avigal. Good morning. Thank you for joining our call. Generally speaking the three Bear now DDG is meeting our expectation.
We also being over there in that area, give us insight for more opportunities we see in the region. And as you probably picked up on my prepared remarks and there is additional opportunity mainly on the natural gas. So that was a very good acquisition to get into and we are happy around it.
Doug Irwin — Citi — Analyst
OK. Got it. Thanks. And then, just a second question just on the broader 2024 outlook.
You gave — last quarter you talked about exiting 2023 at $100 million quarterly EBITDA run rate, which you achieved this quarter. Are there any similar targets you can point to moving forward whether that’s on EBITDA volume growth or some other metric just to kind of help frame the growth outlook for 2024?
Avigal Soreq — President
Yeah. So we are focusing to have a constant improvement and we are committed to keep improving our business. So we are very optimistic about what we see in the business on the opportunity we have seen a nice significant capex plan into the business that will enhance additional opportunities. But we are very optimistic, and we see a consistent and constant improvement in the business.
So that’s going to be what we can provide to-this 10 seconds.
Doug Irwin — Citi — Analyst
Got it. I’ll live it there. Thank you.
Avigal Soreq — President
OK. Thank you for joining us today.
Operator
[Operator instructions] There are no further questions at this time. I will turn — we do have one more question, I apologize, from Paul Langlois from Lord Abbett. Please go ahead.
Paul Langlois — Lord Abbett and Company — Analyst
Yes. Hi. I was curious, it looked like the Midland volumes were down a little bit sequentially. And some of the gas and the water and the Delaware volumes were down a little bit sequentially.
Forgive me if I missed that. What was — why is that? And should we expect that trend to continue?
Avigal Soreq — President
Yeah. So thank you, Paul, for joining us today. The gathering, the Delaware volume are pretty much in line quarter-over-quarter. What we see in the Permian Basin is a touch lower.
And you can expect that after producers adding new production, you probably know that as good as anyone that the new production in the beginning goes to very high and then stabilize over time. So that’s what we see. As you probably picked up, we have a significant capital budget that will enhance additional volume and connection in the DPG, the Midland area, and we will see volume picked up along the year. Odely, do you want to add anything to that?
Odely Sakazi — Senior Vice President, Delek Logistics
Yeah, sure. And this is Odely. Hi, Paul, good morning. I just give a little bit more color from earlier on the Delaware side as Avigal mentioned.
In Q4, we expedite some of our maintenance work that we plan to do in Q1 and decided to do it in Q4, that’s actually help us to continue improving volumes. So this is why you see gas slightly lower compared to — between Q4 and Q3 of this year. But if you look both in DPG and also in DDG on both sides. If you compare year over year, we obviously continue to improve our social performance.
So for Q4, primarily, we had that work that was done that we expedited. It was planning to work on the most in the plan. But as we’re looking right now in Q1, there is already an improvement compared both to Q3 and also Q4.
Paul Langlois — Lord Abbett and Company — Analyst
And that improvement is for both Midland and Delaware?
Odely Sakazi — Senior Vice President, Delek Logistics
Primarily, the Delaware is Midland. As Avigal mentioned, we do see the natural decline in the business compared to the peak we’ve seen or compared to the volume we’ve seen in Q3. With that said, we do have a capital program, as Avigal mentioned, also Reuven mentioned in his remarks of $50 million on connection. So we should start to see an increase Permian in the second half of the year, as we increment this project.
Paul Langlois — Lord Abbett and Company — Analyst
OK. Great. And then, I noticed corporate expenses were down a little bit sequentially. Could you talk about that a little bit?
Avigal Soreq — President
So it’s – it’s an effort we are doing across the company to streamline expenses. We had a big initiative on the parent company to reduce expenses recorded the zero-based budget with a target of $100 million. Some of that went all the way to DKL. So you see to our partnership.
So you see the fruits of that. So we didn’t put it on the beamboard here but we were happy to enjoy them.
Paul Langlois — Lord Abbett and Company — Analyst
OK. Great. So we should expect expenses to kind of stabilize or maybe even continue to improve going forward?
Avigal Soreq — President
Yes. I don’t think we are giving guidance but there is no reason it will go back.
Paul Langlois — Lord Abbett and Company — Analyst
OK. And then, you have a few debt maturities coming up in 2025. Any thoughts on those at this point in time?
Avigal Soreq — President
Yes absolutely. Maybe Reuven, CFO with director.
Reuven Spiegel — Executive Vice President, Operations
Yes. We are actively examining various instruments. We will probably be in the market in the next few months to refinance some of the debt, especially the one that is coming quarter and between the term loan A – and the $250 billion yield. So some form of refinancing will happen this year.
Paul Langlois — Lord Abbett and Company — Analyst
OK. Great. And then, my last question you probably won’t be able to say too much on it. But as you look at the sum of the parts and the strategic.
Are there ways – what is your thoughts on leverage here at DKL? And are there ways that that could be improved as part of that? Anything you can kind of say on that subject?
Avigal Soreq — President
So you can probably see the trend all that we have seen with the leverage ratio was improving quarter over quarter. We will continue this trend that’s our plan. And obviously, there are more ideas on the table but once we get into a higher level of resolution we communicate with the market. But I think that if you connect the dots that you have seen in the last year or so you can be very pleased with the improvement in leverage ratio.
We are doing that consistently quarter after quarter.
Paul Langlois — Lord Abbett and Company — Analyst
Great. And do you think – should we think of your goal is four times or any thoughts on that?
Avigal Soreq — President
Yes we started – we are the market that we want to be below four and we’re eventually going to get there.
Paul Langlois — Lord Abbett and Company — Analyst
Excellent. OK. Thank you very much.
Avigal Soreq — President
Thank you, Paul.
Operator
There are no further questions at this time. I will turn the call back over to Avigal for closing remarks.
Avigal Soreq — President
Thank you. I would like to thank my colleagues around the table to our board of directors, to our investor and mostly to our employees that are making this a great company it is and we’ll talk again next quarter. Thank you so much.
Operator
[Operator signoff]
Duration: 0 minutes
Call participants:
Rosy Zuklic — Vice President, Investor Relations and Market Intelligence
Avigal Soreq — President
Reuven Spiegel — Executive Vice President, Operations
Doug Irwin — Citi — Analyst
Paul Langlois — Lord Abbett and Company — Analyst
Odely Sakazi — Senior Vice President, Delek Logistics
