Delek Logistics Partners (DKL) Q4 2021 Earnings Call Transcript

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Delek Logistics Partners (DKL 1.17%)
Q4 2021 Earnings Call
Feb 24, 2022, 8:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day, and welcome to the Delek Logistics fourth quarter 2021 conference call. [Operator instructions] Please note this event is being recorded. I would now like to turn the conference over to Mr. 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 fourth quarter '21 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 the 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 posted on the Investor Relations website. Our prepared remarks are being assumed that the earnings press release has been reviewed and we're covering last segment and market information then is incorporated into the press release. On today's call, Reuven will begin with financial overview.

I will review results, and he will offer a few closing strategic remarks. With that, I'll turn the call over to Reuven.

Reuven Spiegel

Thank you, Blake. Our distributable cash flow was approximately $54 million in the fourth quarter, compared to $56 million in the fourth quarter of 2020. Our DCF coverage ratio was 1.27 times for the fourth quarter, compared to 1.41 in the prior-year period. EBITDA was $70 million, which represents a 9% increase over the prior-year period.

Our board approved an increase in the quarterly distribution to $0.975 for a limited 14 unit for the quarter ended December 31st. This distribution was paid on February 8. The unit holders of record on February 1st and represents a 2.6% increase from the third quarter and a 7.1% increase from the fourth quarter of 2020. At December 31, 2021, DKL had $592 million of available capacity on our $850 million credit facility.

Our total debt was $899 million and total leverage ratio is 3.35 times, which is well within the 5.25 times currently allowable under our credit facility. Now, I will turn the call over to Blake to discuss the review.

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

Thanks Reuvin. And our pipelines and transportation segment, the fourth quarter '21 contribution margin with $50 million, compared to $44 million in the fourth quarter of 2020. The increase was primarily attributable to higher pipeline throughput, partially offset by expenses related to pipeline integrity work. In our wholesale marketing and terminalling segment contribution margin of $17 million in the fourth quarter of this year, compared to $18 million in the fourth quarter of 2020.

Results were broadly in line with year ago levels. During the fourth quarter '21, equity income from our crude oil pipeline JVs was approximately $7 million, compared to $6 million in the prior-year. Capital expenditures were approximately $12.9 million in the fourth quarter of '21, which consisted of $8.2 million of growth spending and $4.8 million of sustaining maintenance. On a full-year basis, our '21, total gross capital expenditure was $27.5 million, which includes $20.2 million of growth, and $7.3 million of maintenance capital.

The outlook for 22 includes total gross capital expenditures of $70.8 million, including $59 million of growth and $11.8 million of maintenance capital. With that, I'll turn the call over to Uzi.

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

Thank you, Blake. And good morning, everybody. DKL delivered another strong performance in 2021, despite a personal tough time at multiple delicate facilities during the year. The lack of major planned turnaround activity for Delek, Houston in 2022, could benefit DKL with strong volume going toward our assets this year.

Permian activity is once again accelerating and DLK is put to benefit with increased demand in our gathering system. We plan to expand this assets with a step up in growth capital in 2022. We delivered on our 5% distribution growth commitment for 2021 with the recent volume distribution increase. We expect another 5% increase in 2022, when the full-year basis.

With that, operator could you please open the call for question?

Questions & Answers:

Operator

Yes, sir. [Operator instructions] And the first question will come from Spiro Dounis with Credit Suisse. Please go ahead.

Spiro Dounis -- Credit Suisse -- Analyst

Thanks, operator. Morning, guys. First question on growth capex, you just mentioned it, the $59 million sounds like a lot of that's going to be directed toward the Permian gathering system. Can you give us a sense, maybe for what else is actually in that number? Is that really all directed there? And then just as you think about the commodity environment, I think that guidance came out in December, commodity obviously vastly improved even since then.

So curious if you see any sort of upside skew or bias that number as the year progresses.

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

OK, Spiro. First of all, Good morning. The $59 million dollars number essentially is all toward the DPG, with few exceptions, but very few of them. Now let me share with you what we see in the independent.

It's basically moving toward, for the most part, our existing producers that came with their plan and share them with us in our agreement with them. We're going to accommodate them. Now, if there will be new producers, which we believe there will be more dedicated acreage in the in the future because I think that is going on, that number may go higher, but we just need to remember that with $100, $90, or $80 involvement, the spread, the gathering spreads are getting bigger. So we're meeting handsomely 15% and 17% percent threshold.

So, and just to give you a point of reference, I know that everybody's trying to get what will be the production in 2022. We see until a week ago, which probably may change now to the upside we saw, if you look at the press release, we were gathering 8,300 barrels in the fourth quarter. In the first quarter were already 125 or so. Force to trucking because we need to build the infrastructure.

And then we expect in the fourth quarter as we exited the year as of two weeks ago, 10 days ago because we haven't updated the numbers with produces to double that 83 number and go over 160,000 leaving the or exiting 2022. So essentially, in our case, doubling production within the year was the whole idea until 10 days ago.

Spiro Dounis -- Credit Suisse -- Analyst

Wow, OK. That's sample color, thanks. To the second question, just going to something from the Delek press release. Talk a little bit about some opportunistic divestures of the DKL stock that probably continue to happen just given the success of that program so far.

I guess just curious, is there a target ownership level that you all have in mind that Delek really just any color there and how you're thinking about executing these divestures would be helpful?

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

Well, we set $4,344 is a good number. We obviously have a limit to the downside if something happens to the units, but so far it's holding OK. I think we actually have an upside based on today's numbers and the color we're providing both on the DPG thing and also the Snorri project. So we will continue to do that, we don't think that we should be holding 79%, 80%, we'll do that in a timely manner.

You probably saw DKL press release. There's no need of cash over. As a matter of fact, price of crude going up so working capital will continue to be very positive for decades, so we'll do that as long as we think there's value in it. But certainly, we don't think that 80% is the right number but I don't see us going out with big blocks anytime soon.

We'll just do it in a timely manner and under under the ATM program.

Spiro Dounis -- Credit Suisse -- Analyst

Got it. OK, that's helpful. Last one, if I could sneak it in just with respect to some of the customer contracts. Looks like you had a few expire in November in Greenville.

I think there's a few more coming up in April at Big Springs, just looking for any color you can provide in terms of how to think about the impact, the renewal process, and anything you can share on those.

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

Sure Spiro, say good morning to daily. So basically, all those contracts are going to be renewed and working toward all our Conflict Committee between both Dekey and DKL. We don't expect to have really an impact either from the associated volume that we seeing over there and also what we've seen so far and also from the V standpoint. So really, we don't see any impact going forward for those two.

Spiro Dounis -- Credit Suisse -- Analyst

Got it, and it's great. It's all I have today, guys. Thanks for the time.

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

Thanks, Spiro.

Operator

[Operator instructions] This concludes our question and answer session. I would like to turn the conference back over to the Uzi Yemin for any closing remarks. Please go ahead, Sir.

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

Thank you so much. I'd like to thank my colleagues around the table, I'd like to thank the board of directors and you investors and all for your interests in our company. This was a unique year for DKL. We actually performed very well in the stock market.

But at the same time, we also had the same time we built the foundation for future growth. I think the price of crude and the things that are happening in the energy sector, especially in the Permian, should benefit us and mostly I'd like to thank each one of the employees from this great company. Have a great day, and we'll talk to you soon. Thank you.

Operator

[Operator signoff]

Duration: 12 minutes

Call participants:

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

Reuven Spiegel

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

Spiro Dounis -- Credit Suisse -- Analyst

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