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Delek Logistics Partners (DKL) Q1 2019 Earnings Call Transcript

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Delek Logistics Partners (NYSE: DKL)
Q1 2019 Earnings Call
May. 06, 2019, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Good morning. We would like to welcome everyone to the Delek Logistics first-quarter earnings call. I would now like to turn the call over to Mr. Keith Johnson.

Please, go ahead.

Keith Johnson -- Vice President, Investor Relations

Thank you, Charlie. Good morning. I would like to thank everyone for joining us on this webcast to discuss DKL's of first-quarter 2019 results. Joining me on today's call will be Uzi Yemin, our general partners chairman and CEO; Assaf Ginsburg, CFO; Daniel Gordon, executive vice president, 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. For this purpose, any statements made during this call that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing the word believes, anticipates, plans, suspects, and similar expressions are intended to identify forward-looking statements. You were cautioned that these statements may be affected by important factors set forth in our filings with the Securities and Exchange Commission, and in our latest earnings release.

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As a result, actual operations or results may differ materially from results discussed in the forward-looking statements. We undertake no obligation to publicly update any forward-looking statements whether as a result of new information, future or otherwise. In addition to reporting financial results in accordance with Generally Accepted Accounting Principles or GAAP, what's certain with non-GAAP financial results. Investors are encouraged to review the reconciliation of these non-GAAP financial measures to the comparable GAAP measures which can be found in the press release, which is posted on the Investor Relations section of our website.

On today's call, Uzi will begin with financial overview and Danny will review results. Then Uzi will offer a few closing strategic remarks. With that, I'll turn the call over to Uzi.

Uzi Yemin -- General Partners Chairman and Chief Executive Officer

Thank you, Kieth. Our first-quarter performance benefited from Big Spring Logistics Assets acquired effective March 1st, 2018, which drove the first-quarter 2019 improvement compared to prior-year period. Our DCF was approximately $29.0 million in the first-quarter 2019, compared to $28.0 million in the first quarter 2018. Our DCF coverage ratio was 1.06 times for the first quarter of 2019, compared to 1.16 in a prior-year period.

EBITDA increased by thirteen and a half percent to $39.4 million, compared to $34.7 million in the prior-year period. Based on our performance, we increased our quarterly distribution to $0.82 per limited partner unit for the first quarter ended March 31st, 2019. This distribution will be paid on May 14th, 2019, and is a 1.2% increase from the fourth-quarter 2018 distribution per unit. This is our 25th consecutive quarterly increase and is a 9.3% higher than our first quarter 2018 distribution per unit. On March 31st, 2019, DKL had approximately $389 million of available capacity on our $850 million credit facility.

Our total debt was approximately $705 million, in total leverage ratio of 4.2 times is well within the 5.25 times currently allowable under our credit facility. Now, I will turn the call over to Daniel, to discuss the results.

Daniel Gordon -- Executive Vice President

Thanks, Uzi. For the first quarter of 2019, Delek Logistics reported net income attributable to all partners of $19.7 million, which compares to $20 million in the prior-year period. Limited partners' interest in net income of $12.4 million, or $0.51 per unit, compared to $14.4 million, or $0.59 per unit in the prior-year period. I do want to note that lower throughput on our assets which was primarily related to the turnaround at Delek US'El Dorado refinery reduced our performance in the first quarter of 2019 by approximately $1.2 million, on a year-over-year basis. In our Pipelines and Transportation segment, the first quarter 2019 contribution margin was $24.2 million, compared to $19.7 million in the first quarter of last year.

This increase was primarily attributable to the Big Springs acquisition, which was partially offset by lower throughput in the Lion Oil Pipeline system due to reduced operating rates at Delek US'El Dorado refinery. Operating expenses increased to $10.8 million in the first quarter of this year from $9.6 million, in the prior-year period, primarily due to the Big Spring acquisition. In our Wholesale Marketing and Terminalling segment. The contribution margin was $15.9 million in the first quarter of this year, which was a decrease from $16.7 million in the prior-year period. This decrease was due to; lower west Texas gross margin, partially offset by benefit from the Big Spring acquisition. Operating expenses increased to $5.2 million in the first quarter of 2019 from $3.0 million in the prior-year period, primarily due to the acquisition.

Our west Texas wholesale gross margin was $3.56 per barrel in the first quarter of this year, compared to $5.16 per barrel in the first quarter of the prior year. Throughput in west Texas was $13,314 barrels per day, compared to $15,942 barrels per day in the prior year. During April, the gross margin in west Texas averaged approximately $5.40 per barrel, and volumes averaged approximately $11,400 barrels per day. During the first quarter of 2019, our equity income from our joint venture crude oil pipelines was approximately $2.0 million, compared to income of $900,000 in the prior-year period.

Capital expenditures were approximately $900,000 in the first quarter of 2019, and included $400,000 of discretionary spending, and $500,000 on maintenance. During the first quarter of 2019, approximately $800,000 was reimbursed by  Delek US. In the first quarter of 2018, total capital expenditures were $2.2 million. For the full year of 2019, our total gross capital expenditure forecast is $12.2 million, which includes $400,000 of discretionary, an $11.8 million of maintenance capital before reimbursement by  Delek US.

We expect to approximately $2.3 million, of the maintenance capital expenditures to be reimbursed in 2019. With that, I would turn the call over to Uzi for his closing comments.

Uzi Yemin -- General Partners Chairman and Chief Executive Officer

Thank you, Danny and good morning. We increased our EBITDA year over year in the first quarter and have generated in (LTM) EBITDA of approximately $169 million. Our operations continue to benefit from the Permian Basin. Our ethics as wholesale business is benefiting as crude oil prices have recovered through the first quarter 2019.

The crude oil differentials in the market support demand for the Paline pipeline. In addition, this pipeline will benefit from a higher tariff after the incentive rate expired at the end of February. This increased tariff should add approximately $900,000 a month of EBITDA. We believed that our financial flexibility should allow us to use debt to fund the next step in our growth plan.

We're exploring opportunities to grow through organic and third party options. In addition, partnering with Delek US may offer additional growth as we continue to develop midstream assets. This includes the Big Spring gathering system in the Permian Basin that is being developed and a potential long haul pipeline investment. Also, we continue to evaluate the potential dropdown of the Krotz Spring Logistics Assets from Delek US.

These assets have the ability to generate $30 million to $34 million of annual EBITDA. With this strategy, we believe that we should be able to create long-term value for our unitholders. They should continue to support our annual distribution growth per limited partner unit of at least 10% to 2019, while maintaining appropriate annual distribution coverage. With that, Charlie, could you please open the call for questions.

Questions & Answers:


Operator

Ladies and gentlemen we will now begin the Q&A session. [Operator instructions]. Your first question comes from the line of Justin Jenkins with Raymond James. Your line is now Open.

Justin Jenkins -- Raymond James -- Analyst

Thanks. Morning, everyone. I want to start with the Paline Pipeline. Seems like a lot of good things going on with that pipe in 2019.

Can you remind us with the growth plan is here related to that. We have max capacity for that system.

Uzi Yemin -- General Partners Chairman and Chief Executive Officer

Paline is running very close to capacity for a while now depending on on terminalling on the other side of it. I'm going by memory we rent $36,000, $37,000 in the first quarter and we shouldn't expect materially change to capacity of 40,000. We do look at other opportunities to expand the Paline Pipeline, but for now they're $900,000 that we mentioned either directly drop to the bottom line.

Justin Jenkins -- Raymond James -- Analyst

And I guess follow-up questions on the growth strategy. You mentioned a number of items here and seemingly the Krotz Spring strap down is the most visible. Can you give us a better sense of the debate points for pursuing organic growth or third party M&A versus a dropdown growth in 2019 here.

Uzi Yemin -- General Partners Chairman and Chief Executive Officer

Let's talk about two aspects here. The first one is organic. The gathering system that is being built under the Delek US umbrella is maturing quicker than we thought. And there may be an opportunity to look at that in the next year or two as we increase the number of dedicated acreage, and the number of produces that we use.

That's on one side. Also obviously, the long haul idea may come into play over the next couple of years as we look at other announced pipelines. So these are the two areas that we look materially on organic side. On the acquisition side, we feel that there are a couple of opportunities.

We maintain committed. We maintain our commitment not to pay more than six to eight times EBITDA for any assets on day one. Let's be clear, we don't want to pay 12 times or 14 times. And also we want to create some synergies that may come into a play over the next few months.

Justin Jenkins -- Raymond James -- Analyst

Thanks. I'll leave it there.

Operator

[Operator instructions]. We have no further question at this time. I will now turn the call back to the management for closing remarks

Uzi Yemin -- General Partners Chairman and Chief Executive Officer

Thank you, Charlie. I'd like to thank my colleagues around the table for another great work. I'd like to thank you or any investor for your trust in our company. I'd like to thank the board of directors that continue to believe in us.

But mainly, I'd like to thank our employees, all the employees that make this company the great company it is. Thank you. We'll talk to you soon.

Operator

[Operator signoff]

Duration: 15 minutes

Call participants:

Keith Johnson -- Vice President, Investor Relations

Uzi Yemin -- General Partners Chairman and Chief Executive Officer

Daniel Gordon -- Executive Vice President

Justin Jenkins -- Raymond James -- Analyst

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