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Delek Logistics Partners (NYSE:DKL)
Q1 2021 Earnings Call
May 05, 2021, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Good day and welcome to the Delek Logistics first-quarter 2021 earnings conference call. [Operator instructions] Please note, this event is being recorded. I would now like to turn the conference over to Blake Fernandez. Please go ahead.

Blake Fernandez -- Senior Vice President of Investor Relations and Market Intelligence

Good morning. I would like to thank everyone for joining us on this webcast to discuss Delek Logistics Partners' first-quarter 2021 financial results. Joining me on today's call will be Uzi Yemin, our general partners chairman and CEO; and Reuven Spiegel, CFO; as well as other members of our management team. As a reminder, this conference call may contain forward-looking statements as that term is defined under federal securities laws.

In addition to reporting financial results in accordance with generally accepted accounting principles, or GAAP, we report certain non-GAAP financial results. Investors are encouraged to review the reconciliation of these non-GAAP financial measures to the comparable GAAP results, which can be found in the press release, which is posted on the Investor Relations section of our website. Our prepared remarks are being made assuming that the earnings release has been reviewed, and we are covering less segment and market information than is incorporated into the first-quarter press release. On today's call, Reuven will begin with a financial overview, I will review results, and Uzi will offer a few closing strategic remarks.

With that, I will turn the call over to Reuven.

Reuven Spiegel -- Chief Financial Officer

Thank you, Blake. Our first-quarter performance on a year-over-year basis benefited from the contribution of asset drop-downs that occurred in 2020. That said, winterstorm Uri had a negative impact on results in the first quarter in addition to maintenance at the Paline pipeline. We expect these factors to normalize into the second quarter.

Our distributable cash flow was approximately $53 million in the first quarter of 2021, compared to $36 million in the first quarter of 2020. Net income attributable to all partners increased approximately 30% over the prior year period. Our DCF coverage ratio was 1.31 in the first quarter of 2021, compared to 1.15 in the prior year period. EBITDA was $59 million, which represented a 21% increase over the prior year period.

We increased our quarterly distribution to $0.92 per limited partner unit for the quarter ended March 31, 2021. This distribution is to be paid on May 14, 2021, and represents a 1.1% increase from the fourth-quarter 2020. This is our 32nd consecutive quarterly increase and is 3.4% higher than our first-quarter 2020 distribution. On March 31st, DKL had approximately $113 million of available capacity on our 850 credit facility.

Our total debt was approximately $1 billion and the total leverage ratio is 3.7 times, which is within the 5.25 times currently allowable under our credit facility. Now I will turn the call over to Blake to discuss the results.

Blake Fernandez -- Senior Vice President of Investor Relations and Market Intelligence

Thanks, Reuven. In our pipelines and transportation segment, the first-quarter 2021 contribution margin was $42 million, compared to $30 million in the first quarter of 2020. This increase was primarily attributable to the asset drop-downs, including Big Spring Gathering system dropped on March 31, 2020, and Trucking Assets drop on May 1, 2020. In our wholesale marketing and terminalling segment, the contribution margin was $16 million in the first quarter of this year, compared to $17 million in the prior year.

During the first quarter of 2021, equity income from our crude oil pipeline joint ventures was approximately $4 million compared to income of $6 million in the prior year period. Capital expenditures were approximately $7.8 million in the first quarter of 2021, which consisted of $7.3 million in discretionary spending and half a million dollars million for sustaining maintenance. For full year 2021, our total gross capital expenditure forecast is $28 million, which includes $14.7 million of discretionary and $13.1 million of maintenance capital. With that, I'll turn the call over to Uzi for closing comments.

Uzi Yemin -- Chairman, President, and Chief Executive Officer

Thank you, Blake, and good morning, everybody. First-quarter results were resilient considering the winter storm impact along the Gulf Coast and pipeline maintenance. We're expecting improvement into the second quarter and throughout the year as energy demand improves with the vaccination uptake and strong utilization rates at the Delek US refineries. Our long history of distribution growth continues, and we remain committed to delivering another 5% increase in 2021.

Our distribution coverage and leverage ratios remain healthy and create flexibility. Finally, we are pleased to announce an exclusive agreement with Baker Hughes, utilizing technology to meet IMO products to our blending capabilities. This offers a low capital, high-return opportunity that could be scalable, if successful. With that, operator, can you please open the call for questions.

Questions & Answers:


Operator

[Operator instructions] And the first question comes from Spiro Dounis with Credit Suisse. Please go ahead.

Spiro Dounis -- Credit Suisse -- Analyst

Good morning, everybody. Uzi, I wanted to ask you about the outlook for the rest of the year. It sounds like things are getting back to normal, which is good to hear. So far, first part of this year, it's fairly quiet for detail, especially when you look back at last year and all the activity and drop-downs you all were doing.

So obviously, some of this is market and storm related and turnaround related. But as we look forward to the rest of the year, should we expect an uptick in activity from the oil? And what form does that take? I know drop-downs are on the table at one point, where those stand? How do you see yourself hitting those growth goals? I think you're still committed to that 5% distribution growth level.

Uzi Yemin -- Chairman, President, and Chief Executive Officer

Yes, Spiro. Good morning. Well, there are several initiatives that are coming to fruition over the next few months, actually, quarter 2. First of all, the expansion of the Red River pipeline together with the Plains will come into effect over the next -- or during this quarter, a little bit next quarter.

Second, the Paline pipeline, we have an agreement that is coming to an effect early May to start shipping more on Paline. And third, the Baker Hughes agreement on the blending side, together with DK, which is just a start of something that can be very meaningful and not capital intense. So these are the three organic growth projects that give us the confidence to continue to say, coverage and leverage ratios will stay very healthy. On the M&A side, obviously, we need to be very nimble.

We are waiting on the sideline to see if something comes to fruition but leverage comes down toward the 3.5 mark. It's now 3.7, and the coverage will get healthier over the year -- over the period of the year -- during the period of the year or during the year because of these organic growth -- projects. Odely, I don't know if you want to add anything?

Odely Sakazi -- Senior Vice President

No, I think you hit all those marks.

Spiro Dounis -- Credit Suisse -- Analyst

OK. Great. And then on Baker Hughes, and then once again, just focusing on the DKL part of it. I guess, you helped frame out in terms of timing and when we start to see cash flows there.

You mentioned it being kind of a small capex number. Any sense you can give us around that front? Is this for DKL going to be a very much fee-based enterprise or how should we think about this structure?

Uzi Yemin -- Chairman, President, and Chief Executive Officer

Yes, it's a fee based for DKL. The money is coming in as we speak. More and more barrels. We're not ready to disclose the amount of barrels, but I will do it over the next couple of quarters.

But as we have more and more barrels coming in, the fees will continue to grow. It already started at the beginning of the year. And now it's getting stronger for the second quarter and third quarter will be even stronger. We're very optimistic that the 5% will meet -- will be met easily, like in the past, without any drop-down.

Probably we'll do -- over the next quarter 2, we'll give projected cash flow from that project as we get more and more of that blending and treatment capabilities in place.

Spiro Dounis -- Credit Suisse -- Analyst

OK. We'll wait and see on that one. Last one for me, just on West Texas Marketing margin, very strong again. It looks similar to 3Q of last year and so I'm sure RINs and RINs prices had a lot to do with that, but just curious if there's anything else you would call out there in that number.

Really just trying to get a sense that if RINs stay up at these levels, are those West Texas margins sustainable around these levels for the rest of the year?

Odely Sakazi -- Senior Vice President

Hey, Spiro. This is Odely. As you mentioned, as we also mentioned before, the Q4 was more from the hedging loss but really what we're seeing right now in Q1 is primarily from a RINs contribution and also flat on hedging, along with good production and throughput around the 10,000 interest margin becoming better than what we've seen in Q4. So it's primarily coming from the RINs and better utilization out of the West Texas Wholesale.

Spiro Dounis -- Credit Suisse -- Analyst

Very good. That's all I had. Thank you, gentlemen. Be well.

Operator

The next question comes from Ned Baramov with Wells Fargo. Please go ahead.

Ned Baramov -- Wells Fargo Securities -- Analyst

Hey. Good morning. Thanks for taking the question. With the Krotz refinery back online, could you maybe review what the approximate EBITDA generated by the Midstream assets in and around this facility? And also, has there been a change in how you think about the potential drop-down of these assets?

Uzi Yemin -- Chairman, President, and Chief Executive Officer

Good morning, Ned. This is Uzi. Thanks for taking the time to ask the question. The Krotz facility is now free cash flow from a DK standpoint.

What we are doing over there is, as I mentioned and we mentioned, the Baker Hughes agreement. That Baker Hughes agreement will enhance the profitability of Krotz and other places. We are waiting to see how much this is going to contribute, but it's in the millions. So it's not a small amount.

And then we see how the market shakes up to see if we're doing the drop-downs or stay away from the drop-downs for time being. The tall EBITDA from that drop-down is $30 million. With still have the -- as I mentioned earlier, we still have the three organic projects that are coming to fruition that will add money and will make the EBITDA even stronger in the near future but then we need to think about the next steps of DKL growth. As we said, our goal was 3.70, 3.95.

I think we are getting very close to achieving that, including the Wink to Webster and the Krotz Springs. Now we need to think about the next leg.

Ned Baramov -- Wells Fargo Securities -- Analyst

OK. Thanks. And then maybe one more on Paline. What is the latest on this? In the past, you had talked about further capacity increases? Are there any discussions on this front?

Uzi Yemin -- Chairman, President, and Chief Executive Officer

We have an agreement with a shipper that is starting May 1st. And we'll see how this goes. That shipper is a new shipper. They didn't ship before.

So we'll see how this goes. And if there's more demand, then there's a reason to believe that we want to expand that with a minimum capex.

Ned Baramov -- Wells Fargo Securities -- Analyst

OK. Got it. And maybe one more, if I may. Could you maybe talk about some of the projects included in your growth capex budget for 2021?

Uzi Yemin -- Chairman, President, and Chief Executive Officer

I'm sorry, I don't understand. Can you repeat the question?

Ned Baramov -- Wells Fargo Securities -- Analyst

Could you review some of the expansion projects included in your capex budget for 2021?

Odely Sakazi -- Senior Vice President

Sure. This is Odely, Ned. Specifically around this discretionary, as we gave the forecast, is primarily on the project that Uzi mentioned both on the JETTISON completion of the JETTISON connection on Paline, along with our project around Baker Hughes for [Inaudible] and also in DPG. So all those are primarily the items that's associated with the business development in our focus.

Ned Baramov -- Wells Fargo Securities -- Analyst

That's perfect. Thank you. That's all I had.

Reuven Spiegel -- Chief Financial Officer

Thank you, Ned.

Operator

[Operator instructions] It looks like we have no further questions. So this concludes our question-and-answer session. I would now like to turn the conference back over to management for any closing remarks.

Uzi Yemin -- Chairman, President, and Chief Executive Officer

Yes. I'd like to thank everybody that listened to the call this morning. I'd like to thank management around the table and in general for another good quarter despite the winterstorm Uri. I'd like to thank the unitholders and investors for their trust in us.

But mainly, I'd like to thank each one of the employees of this great company to make it what it is. Have a great day. We'll talk to you next time.

Operator

[Operator signoff]

Duration: 16 minutes

Call participants:

Blake Fernandez -- Senior Vice President of Investor Relations and Market Intelligence

Reuven Spiegel -- Chief Financial Officer

Uzi Yemin -- Chairman, President, and Chief Executive Officer

Spiro Dounis -- Credit Suisse -- Analyst

Odely Sakazi -- Senior Vice President

Ned Baramov -- Wells Fargo Securities -- Analyst

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