Q4 2023 Delek Logistics Partners LP Earnings Call
Participants
Rosy Zuklic; Vice President of Investor Relations and Market Intelligence; Delek Logistics Partners LP
Avigal Soreq; President; Delek Logistics Partners LP
Reuven Spiegel; EVP & CFO; Delek Logistics Partners LP
Doug Irwin; Analyst; Citigroup Inc.
Paul Langlois; Analyst; Lord, Abbett & Co. LLC.
Presentation
Operator
Good morning, ladies and gentlemen, and welcome to the Delek Logistics Partners fourth quarter 2023 conference call. At this time, all lines are in a listen-only mode. Following the presentation, we'll conduct a question and answer session. If at any time during this call you require immediate assistance, please press star zero for operator. This call is being recorded on Tuesday, February 27th, 2024.
I will now like turn the conference over to Rosy, like VP of Investor Relations. Please go ahead.
Rosy Zuklic
Good day and welcome to the Delek Logistics Partners fourth-quarter earnings conference call. Participants on today's call will include Avoca direct President, Joseph Israel, EVP Operations, proving Spiegel, EVP and Chief Financial Officer, and DAILIES Takashi SVP, Delek Logistics. As a reminder, this conference call will contain forward-looking statements as defined under the federal securities laws, including without limitation, statements regarding guidance and future business outlook. These statements involve risks and uncertainties that may cause actual results to differ from our forecast. For more information, please refer to the risk factors discussed in the Partnership's most recently filed annual report on Form 10 K and quarterly report on Form 10 Q filed with the SEC. Along with the press release associated with this call. The Partnership assumes no obligation to update any forward-looking statements or information which speak as of their respective day.
I'll now turn the call over to Abigail for opening remarks.
Avigal Soreq
Thank you, all. Those logistics partners finished 2020 strong. We delivered another record quarter and achieved a record year. Dkl exceeded $100 million in adjusted EBITDA this quarter. We saw a substantial growth form a new connection in our Midland gathering operations validated validating our strong position in the Permian Basin. I'm very proud of our employees who are dedicated to making Delek Logistics succeed. His dedication to safe and reliable operation that makes our results possible. The team has gone without a lost time injury for the years in a row and counting. We are also focused on growing third party revenues, allocating capital in a disciplined manner and exploring natural gas opportunities in the Delaware Basin where we see significant growth. In January, the Board approved the 44th consecutive increase in the quarterly distribution to $1.055per unit. Delek Logistics has shown a strong track record of delivering value to unit holders. We feel confident in our ability to maintain competitive distribution to our investors.
I will now hand it over to David.
Reuven Spiegel
Thank you, Abigail. Fourth quarter of 2023 adjusted EBITDA was $100.9 million compared with $92.5 million in the same period of 2022. The fourth quarter, EBITDA was $86.1 million, which included a $14.8 million goodwill impairment related to some of our Delaware gathering and processing assets. The impairment was primarily driven by a significant increase in interest rates. Our long-term outlook of the Delaware gathering system remains unchanged. Distributable cash flow was $65 million and the DCF coverage ratio was 1.4.
For the gathering and processing segment. Adjusted EBITDA for the quarter was $53.3 million compared with $48.1 million in the fourth quarter of 22. The increase was primarily due to higher throughput from Delek Logistics, Permian Basin assets, Wholesale Marketing and Terminalling. Adjusted EBITDA in the fourth quarter 2023 was $28.4 million compared with $23.3 million in prior year. The increase was primarily from higher terminalling utilization, storage and transportation.
Adjusted EBITDA in the quarter was $17.5 million compared to $16.1 million in the fourth quarter of 22. The increase was mainly driven by higher storage and transportation rates. And lastly, the investment in pipeline joint venture segment contributed $8.5 million this quarter compared with $9 million in the fourth quarter of 22.
Moving on to capital expenditures, the capital program for '23 was $74 million. This includes $7 million of proceeds from producers to partially fund growth projects. Most of the spend throughout the year was for growth projects, namely advancing new connections in the Midland and Delaware gathering systems for 2020 for Delek logistics partner expects the capital program to be about $70 million. This includes approximately $20 million of sustaining and regulatory capital and $50 million of growth capital. We will continue to advance new connection in our gathering system for the volume growth at the partnership.
With that, we can open the call for questions.
Question and Answer Session
Operator
(Operator Instructions) Doug Irwin, Citi.
Doug Irwin
Thanks for the question. I just want to start with the Delaware gathering and processing assets, understanding though the long-term outlook is still on tax, can you maybe just talk about how the three bear assets are trending today? Just first, the initial expectations when you acquired them. I think the initial target for these assets from their acquired was $100 million of annual EBITDA is that's still a good number to work with here near term.
Avigal Soreq
Hey, Doug, it's a big guns morning. Thank you for joining and joining our call. Generally speaking here, I the three bills now the DDG. is meeting our expectation and we are also being over there in that area, give us insight for more opportunities we see in the in the region. And as you probably picked up on my prepared remark, there is the additional opportunity mainly on the natural gas. So that was a very good position to get into and we are happy on that.
Doug Irwin
Okay. Yes, thanks. And then just a second question, just on the broader 24 outlook. And you gave last quarter, you talked about exiting 23 at $100 million quarterly EBITDA run rate, which you achieved this quarter. Are there any similar targets you can point to moving forward, whether that's on EBITDA volume growth or some other metric? Just to kind of help frame the growth outlook for 24?
Avigal Soreq
Yes. So we are focusing to have there could be some improvement, and we are committed to keep improving our business in some way. We are very optimistic about what we see in the business on the opportunity. We have seen a nice significant CapEx plan into the business that will enhance additional sale opportunities, but we are very optimistic and we see consistent consistent and constant improvement in the business. So that said, that's going to be a once we can provide a distant second Got it.
Operator
(Operator Instructions) There are no further questions at this time, I will turn -- We do have one more question. Paul Langlois, Lord Abbett.
Paul Langlois
Yes, hi. I was curious, it looked like the Midland volumes were down a little bit sequentially and some of the gas and the water and the Delaware volumes were down a little bit sequentially. Forgive me if I missed that. What was why is that? And should we expect that trend to continue?
Avigal Soreq
Yeah. So thank you very much for joining us today. Countering the downward volume are pretty much in line quarter-over-quarter. What we see in the Permian Basin is a touch lower and you can expect that after producer adding a new production, you probably know this as good as anyone that the new production, the beginning a goes a way to a very high and then stabilize over time. So that's what we see as you probably picked up. We have a significant capital budget. It will enhance additional volume and connection in the AMDPG., the Midland area. And we will see volume picked up along the way. Again, if you want to add anything to that.
Hi, Paul, and good morning. I'll just give a little bit more coloring familiar on our side, as I think I mentioned in Q4, we expedite expedite some of our our maintenance work that we plan to do in Q1 and decided to do it in Q4 that actually help us to continue improving volumes. And this is why you see, yes, slightly lower compared to Q2 between Q4 and Q3 of this year. But if you look both at ZPG. and also in DDG in both sides. I mean, if you compare year over year, we obviously continue to improve our associate performance.
So for Q4, primarily we had that work that was done that we expedited was plan working on the most even the plan that is looking right now, Q1 numbers already are improving comparable to Q3 and also Q4, oh, and that improvement is for both Midland and Delaware, primarily in the Delaware and Midland. As I think I mentioned, we do see the natural decline in business compared to the peak we've seen or compared to the volumes in Q3.
With that said, we do have a capital program, as I think I mentioned also Louis mentioned in his remark of $50 million on connection. So we should start to see an increase from in the second half of the year as we implement this project.
Paul Langlois
Okay, great. And then yes, I noticed corporate expenses were down a little bit sequentially. Could you talk about that a little bit?
Avigal Soreq
Yes, I would say it's a little bit. It's an what we are doing it because the companies to streamline expenses where the big initiative in the Company to reduce expenses recorded a zero-based budget with a target of $100 million, some of that went all the way to DKL. So you see to our partnerships, so you'll see the fruits of that. And so we didn't put it on the billboard here, but we were able to enjoy it.
Paul Langlois
Okay, great. So we should expect that the rate expenses to kind of stabilize or maybe even continue to improve going forward?
Avigal Soreq
I don't think we're giving guidance, but there's no reason as we go back.
Paul Langlois
Okay. And then you have a few debt maturities coming up in 25. Any thoughts on those at this point in time
Avigal Soreq
Yes, absolutely. Maybe Reuven will see probably answer.
Reuven Spiegel
Yeah, we are actively examining various instruments. So we will probably be in the market in the next few months to refinance some of the debt, especially the one that is coming current between the Term Loan A. and the [250 million]. So some form of refinancing will happen this year.
Paul Langlois
Okay, great. And then my last question, you probably won't be able to say too much on it. But you know, as you look at the sum of the parts and the strategic gains. Are there ways I have what is your thoughts on leverage here at DKL? And are there ways that that could be improved as part of that? Anything you can kind of say on that subject.
Avigal Soreq
So you can probably see the trend that we have seen with the leverage ratio was improving quarter-over-quarter. We will continue this trend. That's our plan and obviously, there are more ideas on the table, but once we get into a more a higher level of resolution will communicate with the market. But as I think that if you connect the dots that you have seen in the last year or so, you can be very pleased with the improvement in liberalization doing that consistently called out of the of the gold.
Paul Langlois
Great. And you think we should we think of your goal is four times or any thoughts on that?
Avigal Soreq
Yeah. We started we have that we have of the market because we want to be below fall and there we're eventually going to get them.
Operator
There are no further questions at this time, I will turn the call back over to Avigal from for closing remarks.
Avigal Soreq
Yes, thank you. I would like to thank my colleagues around the table to both direct to investor and mostly to our employees that they are making. This is a great company. It is and we'll talk again next quarter. Thank you so much, sir.
Operator
Ladies and gentlemen, this concludes your conference call for today. Thank you for joining, and you may now disconnect your lines. Thank you.
