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Delek Logistics Partners (DKL) 6 Nov 24 2024 Q3 Earnings call transcript

AInvestWednesday, Nov 6, 2024 9:30 pm ET
2min read

Delek Logistics Partners (DKL) recently held its third quarter earnings call, highlighting a record quarter with $107 million in adjusted EBITDA, marking a significant increase from the previous year. This strong performance is attributed to a series of strategic transactions and acquisitions that have enhanced DKL's position in the prolific Permian Basin, underscoring the company's commitment to growth and value creation for unitholders.

Strategic Acquisitions and Expansions

DKL's strategic acquisitions during the quarter include extending contracts with DK for seven years, acquiring Delek's portion in Wink to Webster Pipeline, and purchasing H2 Midstream. These transactions have significantly boosted DKL's overall asset quality and market position. The acquisition of Wink to Webster Pipeline, a premier crude oil pipeline backed by investment-grade counterparties, has increased DKL's capacity and enhanced its permanent position. The acquisition of H2 Midstream has also presented several cross-selling opportunities, making DKL's combined offering in the Midland Basin more attractive to customers.

Growth Opportunities and Strategic Investments

DKL is exploring several organic and inorganic growth opportunities, including the expansion of its gas processing plant and the acquisition of sour gas opportunities. The company is taking a prudent approach to growth, ensuring a balance between liquidity, leverage, and growth opportunities. DKL's capital expenditures for the third quarter were $65.2 million, with $53.4 million allocated to the new gas processing plant expansion. The company is expected to spend a total of $90 million to $100 million in the second half of 2024 on the new gas processing plant.

Financial Performance and Outlook

DKL's third-quarter adjusted EBITDA was $107 million, up from $98.2 million in the same period last year. The company's distributable cash flow as adjusted was $62 million, with a DCF coverage ratio of approximately 1.1x. DKL aims to steadily move back above its long-term objective of 1.3x in the second half of 2025, as it realizes the benefits of its strategic initiatives.

Investor Questions and Management's Response

During the earnings call, investors and analysts raised questions about DKL's progress on its processing plant, the potential sour gas opportunities, and the impact of the H2 Midstream acquisition on DKL's Midland volumes. Management provided updates on these topics, highlighting the progress made on the processing plant and the potential for sour gas opportunities in the Delaware Basin. The acquisition of H2 Midstream has been integrated well into DKL's operations, and the company is seeing significant synergies and cross-selling opportunities from this acquisition.

Conclusion

Delek Logistics Partners' third quarter earnings call underscored the company's strong financial performance and strategic growth initiatives. With a record quarterly adjusted EBITDA of $107 million and strategic acquisitions that have enhanced DKL's position in the Permian Basin, the company is well-positioned for continued growth and value creation for its unitholders. DKL's prudent approach to growth, coupled with its focus on optimizing its operations and exploring strategic opportunities, bodes well for the company's future prospects.

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