Delek US Holdings Reports Second Quarter 2021 Results

BRENTWOOD, Tenn., Aug. 3, 2021 /PRNewswire/ -- Delek US Holdings, Inc. (NYSE: DK) ("Delek US") today announced financial results for its second quarter ended June 30, 2021. Delek US reported a second quarter 2021 net loss of $(81.1) million, or $(1.10) per share, versus net income of $87.7 million, or $1.18 per diluted share, for the quarter ended June 30, 2020. On an adjusted basis, Delek US reported an Adjusted net loss of $(65.2) million, or $(0.88) per share, for the second quarter 2021. This compares to Adjusted net loss of $(121.7) million, or $(1.66) per share, in the prior year. Adjusted earnings before interest, taxes, depreciation and amortization ("Adjusted EBITDA") was $2.0 million for the second quarter compared to Adjusted EBITDA of $(99.6) million in the prior year.

Adjusted quarterly results include approximately $25.3 million (after-tax), or $0.34 per share, of tailwinds which is comprised of the following: a net favorable estimated "other inventory impact" of $51.5 million (pre-tax) as outlined on page 14, as well as other net inventory hedging gains in the amount of $1.8 million (pre-tax) and outlined by segment in the table on page 10, partially offset by a charge of approximately $(12.3) million (pre-tax) related to a RINs inventory true-up adjustment at the El Dorado Refinery, and a charge of approximately $(8.3) million (pre-tax) relating to the accrual of an unrecoverable crude wholesale contract fee. Separate from items outlined above, multiple factors impacted operations during the quarter, including residual effects of the first quarter freeze and fire, as well as the Colonial pipeline shutdown. While we cannot know what our EBITDA would have been, these events caused us to experience operational disruptions and incur incremental costs related to property damages that significantly affected our results. The incremental expenses, combined with second quarter-related business interruption insurance claims prepared to-date, totaled roughly $40-$45 million. We are actively working with insurance carriers on both our property damage and business interruption claims, and recoveries will be recognized in the coming quarters.

Uzi Yemin, Chairman, President and Chief Executive Officer of Delek US, stated, "Results were negatively affected by a host of factors including turnaround activity, lingering winter weather and fire impacts, third-party pipeline outages and elevated RIN prices. We are working with our insurance carriers to offset financial impacts relating to the freeze and fire at El Dorado and we are actively pursuing small refinery exemptions. Separately, we received the full $156 million federal tax refund in the third quarter. The combination of the tax refund, insurance proceeds and possibility for small refinery exemptions have the potential to generate significant cash for our company in the near-term."

Mr. Yemin continued, "Our retail business continues delivering strong results and we are pleased to resume our growth campaign in this segment with two New-to-Industry "NTI" stores in the planning phase. We expect to break ground on these stores at the beginning of the year with operations anticipated around mid-year 2022. We expect these stores to validate our NTI concept, which has proven successful to-date. Delek Logistics (DKL) successfully raised $400 million of debt through a senior notes offering, creating balance sheet flexibility and extending our debt maturities. Distribution growth at DKL remains on-track for a 5% increase year-over-year. We remain confident in the outlook for our business as global economic growth accelerates."

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Liquidity
As of June 30, 2021, Delek US had a cash balance of $833.0 million and total consolidated long-term debt of $2,244.3 million, resulting in Net debt of $1,411.3 million.  As of June 30, 2021, Delek Logistics Partners, LP (NYSE: DKL) ("Delek Logistics") had $928.7 million of total long-term debt and $2.2 million of cash, which are included in the consolidated amounts on Delek US' balance sheet. Excluding Delek Logistics, Delek US had approximately $830.8 million in cash and $1,315.6 million of long-term debt, or a $484.8 million Net debt position.

Refining Segment
Refining contribution margin decreased to $(19.9) million in the second quarter 2021 from $59.7 million in the second quarter 2020, while Adjusted refining contribution margin was $(5.0) million in the second quarter 2021 compared to $(126.6) million in the second quarter 2020. The current period Adjusted refining contribution margin reflects $47.9 million of favorable other inventory impact and $2.3 million additional inventory hedging losses. Other inventory impacts, excluding lower of cost or market/net realizable value ("LCM"), are outlined by refinery in the tables on page 14. Additionally, the aforementioned RINs inventory true-up adjustment at the El Dorado Refinery had a negative effect on the facilities margin in the quarter.

On a year-over-year basis, results increased primarily due to higher crack spreads as higher vaccination rates and a global economic recovery led to an increase in demand. During the second quarter 2021, Delek US's benchmark crack spreads were up an average of approximately 150.7% from prior-year levels. However, the refineries ability to capture the full crack spread increase was negatively impacted by higher RIN costs.

Logistics Segment
The logistics segment contribution margin in the second quarter 2021 was $64.2 million compared to $61.4 million in the second quarter 2020. Higher refinery utilization and increased demand resulted in improved year-over-year performance in our assets. Additionally, contributions from the drop-down of the trucking assets (dropped on May 1st, 2020) led to improved results on a year-over-year basis.

Retail Segment
For the second quarter 2021, contribution margin was $21.9 million compared to $24.3 million in the prior-year period for the retail segment. Merchandise sales were approximately $84.5 million with an average retail margin of 32.7% in the second quarter 2021, compared to merchandise sales of approximately $89.4 million with an average retail margin of 30.8% in the prior-year period. Approximately 43.0 million retail fuel gallons were sold at an average margin of $0.39 per gallon in the second quarter 2021 compared to 42.4 million retail fuel gallons sold at an average margin of $0.45 per gallon in the second quarter 2020. In the second quarter 2021, the average merchandise store count was 252 compared to 253 in the prior-year period. On a same-store-sales basis in the second quarter 2021, merchandise sales decreased (5.4)% and fuel gallons sold increased 1.3% compared to the prior-year period.

Corporate/Other
Contribution margin from Corporate/Other was a loss of $31.6 million in the second quarter 2021 compared to a loss of $15.5 million in the prior-year period. Gross margin decreased primarily due to hedging losses recognized during the period coupled with the previously mentioned charge of approximately $(8.3) million (pre-tax) relating to the accrual of an unrecoverable crude wholesale contract fee. The current period corporate/other Adjusted contribution margin reflects $3.6 million of favorable other inventory impact compared to a nominal amount in the prior period, and is described on page 14.

The Wink to Webster crude oil pipeline continues to progress towards its final construction phases, with segments and assets expected to continue to come online throughout 2021. The 36-inch diameter pipeline, which is fully contracted with minimum volume commitments (MVCs), will originate in the Permian Basin and have destination points in the Houston market.

Second Quarter 2021 Results | Conference Call Information
Delek US will hold a conference call to discuss its second quarter 2021 results on Wednesday, August 4, 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) second quarter 2021 earnings conference call that will be held on Wednesday, August 4, 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 will be 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 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 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 250 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, 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;
• 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; 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, 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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