Delek US Holdings Reports First Quarter 2021 Results

BRENTWOOD, Tenn., May 4, 2021 /PRNewswire/ -- Delek US Holdings, Inc. (NYSE: DK) ("Delek US") today announced financial results for its first quarter ended March 31, 2021. Delek US reported a first quarter 2021 net loss of $(98.6) million, or $(1.34) per share, versus net loss of $(314.4) million, or $(4.28) per diluted share, for the quarter ended March 31, 2020. On an adjusted basis, Delek US reported an Adjusted net loss of $(125.2) million, or $(1.69) per share, for the first quarter 2021. This compares to Adjusted net loss of $(119.7) million, or $(1.63) per share, in the prior-year. Adjusted earnings before interest, taxes, depreciation and amortization ("Adjusted EBITDA") was $(41.4) million for the first quarter compared to Adjusted EBITDA of $(19.0) million in the prior year. Reconciliations of net income (loss) reported under U.S. GAAP to Adjusted net income (loss) and Adjusted EBITDA are included in the financial tables attached to this release.

Adjusted quarterly results include approximately $(20.5) million (after-tax), or $(0.28) per share, of headwinds which is comprised of the following: a net unfavorable impact of $(10.3) million (pre-tax) from negative "other inventory impact" which is outlined on page 12 and other net inventory hedging losses in the amount of $(16.2) million (pre-tax), outlined by segment in the table on page 9.

Uzi Yemin, Chairman, President and Chief Executive Officer of Delek US, stated, "Despite Winter Storm Uri, a continued challenging economic environment, and turnaround activities, we had improved EBITDA performance quarter over quarter. Our headline earnings reflect a lower tax benefit due to improving internal forecasts and the preliminary expectation that our annual tax rate will be better than statutory rates. Our retail business continues delivering strong results with record first quarter performance providing a layer of stability and growth within the portfolio."

Mr. Yemin continued, "In the refining segment, improving margins prompted us to re-start the Krotz Springs refinery. Our major planned maintenance for the year is now complete positioning us to run at strong utilization rates. We are excited to announce an exclusive agreement with Baker Hughes utilizing proprietary intellectual property allowing us to meet IMO regulations through blending competencies. This creates an attractive organic growth opportunity with minimal capital requirements and attractive return potential." 

Liquidity
As of March 31, 2021, Delek US had a cash balance of $793.5 million and total consolidated long-term debt of $2,367.8 million, resulting in net debt of $1,574.3 million.  As of March 31, 2021, Delek Logistics Partners, LP (NYSE: DKL) ("Delek Logistics") had $983.4 million of total debt and $13.4 million of cash, which is included in the consolidated amounts on Delek US' balance sheet. Excluding Delek Logistics, Delek US had approximately $780.1 million in cash and $1,384.4 million of debt, or a $604.3 million net debt position. We maintain a federal income tax receivable totaling $156 million as of March 31, 2021, related to the federal net operating loss carryback, of which we expect to collect approximately $136 million in 2021.

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Refining Segment
Refining contribution margin improved to $(21.2) million in the first quarter 2021 from $(290.4) million in the first quarter 2020, while Adjusted refining contribution margin was $(56.8) million in the first quarter 2021 compared to $(23.1) million in the first quarter 2020. The current period adjusted refining contribution margin reflects $(6.6) million of unfavorable other inventory impact and $(15.5) million additional inventory hedging losses. Other inventory impacts, aside from lower of cost or market/net realizable value ("LCM"), are outlined by refinery in the tables on page 12.

On a year-over-year basis, adjusted contribution margin was negatively impacted by Winter Storm Uri resulting in lower throughput coupled with elevated energy costs. Additionally, Delek had a planned turnaround at the Krotz Springs refinery and proactively decided to pull-forward the El Dorado turnaround following the aforementioned winter storm.  

Logistics Segment
The logistics segment contribution margin in the first quarter 2021 was $57.7 million compared to $47.3 million in the first quarter 2020. Results improved on a year-over-year basis primarily due to the drop down of the Big Spring Gathering System (dropped on March 31, 2020) and Trucking Assets (dropped on May 1, 2020). This was partially offset by lower throughput primarily due to lower refinery utilization caused by Winter Storm Uri and the El Dorado turnaround. Additionally, planned maintenance on the Paline pipeline impacted throughput for the first quarter.

Retail Segment
For the first quarter 2021, contribution margin was $16.9 million compared to $12.3 million in the prior-year period for the retail segment. Merchandise sales were approximately $74.6 million with an average retail margin of 32.7% in the first quarter 2021, compared to merchandise sales of approximately $71.7 million with an average retail margin of 31.6% in the prior-year period. Approximately 39.8 million retail fuel gallons were sold at an average margin of $0.35 per gallon in the first quarter 2021 compared to 48.0 million retail fuel gallons sold at an average margin of $0.31 per gallon in the first quarter 2020. In the first quarter 2021, the average merchandise store count was 253 which is consistent with the prior-year period. On a same store sales basis in the first quarter 2021, merchandise sales increased 4.2% and fuel gallons sold decreased 17.0% compared to the prior-year period.

Corporate/Other
Contribution margin from Corporate/Other was a loss of $16.0 million in the first quarter 2021 compared to a loss of $13.1 million in the prior-year period. Gross margin decreased primarily due to less revenue from Big Spring Gathering assets that were dropped down to Delek Logistics at the end of the first quarter of 2020. This decrease was partially offset by a favorable change in operating expenses, primarily due lower labor and benefit costs. The current period adjusted corporate/other contribution margin reflects $(3.7) million of unfavorable other inventory impact compared to $(3.1) million in the prior period, and is described on page 12.

The Wink to Webster crude oil pipeline, in which Delek has an equity interest, continues to progress, with segments and assets expected to come online throughout 2021. The 36-inch diameter pipeline, of which 100% of the contractible capacity is committed with minimum volume commitments (MVCs), will originate in the Permian Basin and have destination points in the Houston market.

First Quarter 2021 Results | Conference Call Information
Delek US will hold a conference call to discuss its first quarter 2021 results on Wednesday, May 5, 2021 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 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) first quarter 2021 earnings conference call that will be held on Wednesday, May 5, 2021 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.

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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 80% (including the 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; cost reductions; 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; 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; 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.

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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:

• 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 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 attributable to Delek 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;
• Adjusted segment contribution margin - calculated as Segment contribution margin adjusted for the identified Adjusting Items in Adjusted net income (loss) that impact Segment contribution margin;
• 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 the relevant identified Adjusting items in Adjusted net income (loss) that impact refining margin and that, where applicable, can be identified and/or are measured and recognized at the refinery level;
• 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; and
• Adjusted 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 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.

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, and Adjusted Segment Contribution 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.

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Other Items Impacting Refining Margin:

In addition to the items that were reflected as adjustments for deriving our Adjusted refining margin, which then was used to calculate Adjusted refining margin per barrel presented on page 14, there were other items that were recognized during the periods that impacted our Refining margins at the refineries. The primary items are as follows:

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 NYMEX WTI purchase cost and per barrel cost of materials and other for the period recognized on a FIFO basis. It assumes no beginning or ending inventory, so that the current period average market price reflects the weighted average NYMEX WTI purchase cost for the current period only, without giving effect to any build or draw on beginning inventory. These amounts are based on management estimates using a methodology including these assumptions, and are not intended to be a true representation of results under LIFO. However, this analysis provides management with a means to compare hypothetical refining margins to current crack spreads, as well as provides a means to better compare our results to peers, the majority of which value inventory on a LIFO basis.

Other Items Impacting Contribution Margin:

In addition to the items that were reflected as adjustments for deriving our Adjusted contribution margin (as presented on page 18), there were other items that were recognized during the periods that impacted our Contribution margins (excluding those impacting refining margin, which are disclosed above). The primary items are as follows:

Other Inventory Impact: We also carry FIFO inventory, which may include crude, feedstock, intermediates and refined product, relating to certain wholesale operations and  immaterial blending operations, which are subject to similar pricing exposures as the refining segment and that many of our peers also value on a LIFO basis. These operations are included in the corporate and other contribution margin in our segment disclosures and therefore the "other inventory impact" does not impact refining margin. However,  it does impact our overall results of operations in comparison to peers. Such other inventory impact is presented below and was estimated in a manner similar to that described in the 'Other Items Impacting Refining Margin' section above.

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

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