DK Delek US Holdings Inc New

BRENTWOOD, Tenn., Feb. 23, 2022 /PRNewswire/ -- Delek US Holdings, Inc. (NYSE: DK) ("Delek US") today announced financial results for its fourth quarter ended December 31, 2021. Delek US reported a fourth quarter 2021 net loss of $(41.9) million, or $(0.57) per share, versus net loss of $(293.2) million, or $(3.98) per share, for the quarter ended December 31, 2020. On an adjusted basis, Delek US reported Adjusted net loss of $(44.9) million, or $(0.61) per share, for the fourth quarter 2021. This compares to Adjusted net loss of $(204.0) million, or $(2.77) per share, in the prior year. Adjusted earnings before interest, taxes, depreciation and amortization ("Adjusted EBITDA") was $58.2 million for the fourth quarter compared to Adjusted EBITDA of $(137.6) million in the prior year.

Net income and Adjusted net income for the fourth quarter 2021 include approximately $5.5 million (after-tax), or $0.07 per share, of net tailwinds which is comprised of the combined net effect of a favorable estimated "other inventory impact" and an unfavorable other net inventory hedging impact, as outlined on page 14. See further discussion in the Consolidated Results section below.

Uzi Yemin, Chairman, President and Chief Executive Officer of Delek US, stated, "Macro trends continue improving with robust post pandemic demand, coupled with industry refining capacity rationalization. Activity in the Permian Basin is accelerating, providing additional tailwinds to our regional footprint. We are optimistic moving into 2022 with an outlook for strong margins and no major turnaround activity planned in the Delek refining system."

Mr. Yemin continued, "In the midstream, DKL delivered 5% distribution growth on a full-year basis and expects another 5% increase in 2022. In December, Delek announced a partial divestiture program of DKL units to highlight the underlying value of its ownership and enhance the liquidity and float of DKL. Given the success of this program, and depending on pricing, we will continue to explore options to embark upon additional sales into the future. A re-acceleration of Permian activity in the industry creates growth options in the gathering business and compliments our investment in the Wink to Webster pipeline JV, which is progressively ramping up throughout this year. Finally, as part of our ongoing ESG efforts, we have a target to reduce scope 1 and 2 emissions by 2030, which sets Delek as a leader among small and mid cap refining companies."

Liquidity

As of December 31, 2021, Delek US had a cash balance of $856.5 million and total consolidated long-term debt of $2,218.0 million, resulting in Net debt of $1,361.5 million.  As of December 31, 2021, Delek Logistics Partners, LP (NYSE: DKL) ("Delek Logistics") had $4.3 million of cash and $899.0 million of total long-term debt, which are included in the consolidated amounts on Delek US' balance sheet. Excluding Delek Logistics, Delek US had approximately $852.2 million in cash and $1,319.0 million of long-term debt, or a $466.8 million Net debt position.

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Consolidated Results

Net loss attributable to Delek in the fourth quarter 2021 was $(41.9) million compared to $(293.2) million net loss in the fourth quarter 2020. On an adjusted basis, Adjusted net loss was $(44.9) million in the fourth quarter 2021 compared to Adjusted net loss of $(204.0) million in the fourth quarter 2020.

The $159.1 million improvement in the current quarter Adjusted net loss compared to the prior year quarter is primarily attributable to the following (all after-tax): $112.3 million favorable change attributable to improvements in refining operating results and contribution margins compared to the prior year quarter; a $36.2 million favorable net other inventory impact compared to the prior year quarter; a net unfavorable impact of $(3.9) million related to other inventory/commodity hedging gains/losses compared to the prior year quarter; and property and casualty and business interruption insurance recoveries that related to expenses and expenditures we incurred and as reimbursement for economic losses we experienced in prior quarters, totaling approximately $14.5 million[1]. See below for further discussion of operating results and contribution margin across our segments.

Refining Segment Results

Refining contribution margin increased to $32.1 million in the fourth quarter 2021 from $(82.0) million in the fourth quarter 2020, while Adjusted segment contribution margin was $36.9 million in the fourth quarter 2021 compared to $(126.9) million in the fourth quarter 2020. The current period Adjusted refining contribution margin reflects $33.1 million of favorable other inventory impact and $(24.1) million additional inventory hedging losses compared to $(13.6) million and $(24.3) million, respectively, in the fourth quarter 2020. Other inventory impacts, excluding lower of cost or market/net realizable value ("LCM"), are outlined by refinery in the tables on page 14.

On a year-over-year basis, results increased primarily due to increased demand, attributable in part to low clean product inventories, and improving crack spreads.  During the fourth quarter 2021, Delek US's benchmark crack spreads were up an average of approximately 136.8% from prior-year levels. The refineries ability to capture the full crack spread increase was negatively impacted by higher RIN costs year over year and the continued burden of the RFS program on our small refineries.

Logistics Segment Results

The logistics segment contribution margin in the fourth quarter 2021 was $66.6 million compared to $62.2 million in the fourth quarter 2020, where Adjusted segment contribution margin was $66.8 million compared to $62.9 million in the prior year quarter. Higher  utilization on assets supporting the refineries and West Texas Wholesale contributed to the improvement.

Retail Segment Results

For the fourth quarter 2021, contribution margin, on both a GAAP and Adjusted basis, was $15.3 million compared to $12.7 million and $13.0 million on a GAAP and Adjusted basis, respectively, in the prior-year period for the retail segment. Merchandise sales were approximately $75.5 million with an average retail margin of 33.6% in the fourth quarter 2021, compared to merchandise sales of approximately $75.9 million with an average retail margin of 30.1% in the prior-year period. Approximately 42.3 million retail fuel gallons were sold at an average margin of $0.30 per gallon in the fourth quarter 2021 compared to 41.5 million retail fuel gallons sold at an average margin of $0.33 per gallon in the fourth quarter 2020. In the fourth quarter 2021, the average merchandise store count was 248 compared to 253 in the prior-year period. On a same-store-sales basis in the fourth quarter 2021, merchandise sales increased 0.7% and fuel gallons sold increased 3.0% compared to the prior-year period.

Corporate and Other Activity

Contribution margin from Corporate, Other and Eliminations was a loss of $36.6 million in the fourth quarter 2021 compared to a loss of $25.4 million in the prior-year period, where Adjusted contribution margin was a $35.4 million loss compared to a  $24.7 million loss in the same quarter of 2020, where these amounts include inter-segment eliminations.

The Wink to Webster crude oil pipeline, currently flowing through the consolidated equity method investment line, is expected to ratably increase throughout the year. The 36-inch diameter pipeline, which is fully contracted with minimum volume commitments ("MVCs"), will originate in the Permian Basin and have destination points in the Houston market.

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Fourth Quarter 2021 Results | Conference Call Information

Delek US will hold a conference call to discuss its fourth quarter 2021 results on Thursday, February 24, 2022 at 8:30 a.m. Central Time. Investors will have the opportunity to listen to the conference call live by going to www.DelekUS.com and clicking on the Investor Relations tab. Participants are encouraged to register at least 15 minutes early to download and install any necessary software. Presentation materials accompanying the call will be available on the investor relations tab of the Delek US website approximately ten minutes prior to the start of the call. For those who cannot listen to the live broadcast, the online replay will be available on the website for 90 days.

Investors may also wish to listen to Delek Logistics' (NYSE: DKL) fourth quarter 2021 earnings conference call that will be held on Thursday, February 24, 2022 at 7:30 a.m. Central Time and review Delek Logistics' earnings press release. Market trends and information disclosed by Delek Logistics may be relevant to the logistics segment reported by Delek US. Both a replay of the conference call and press release for Delek Logistics will be available online at www.deleklogistics.com.

About Delek US Holdings, Inc.

Delek US Holdings, Inc. is a diversified downstream energy company with assets in petroleum refining, logistics, renewable fuels and convenience store retailing. The refining assets consist primarily of refineries operated in Tyler and Big Spring, Texas, El Dorado, Arkansas and Krotz Springs, Louisiana with a combined nameplate crude throughput capacity of 302,000 barrels per day.

The logistics operations primarily consist of Delek Logistics Partners, LP (NYSE: DKL). Delek US Holdings, Inc. and its affiliates own approximately 79.2% (including the general partner interest) of Delek Logistics Partners, LP. Delek Logistics Partners, LP is a growth-oriented master limited partnership focused on owning and operating midstream energy infrastructure assets. 

The convenience store retail operates approximately 250 convenience stores in West Texas and New Mexico.

Safe Harbor Provisions Regarding Forward-Looking Statements

This press release contains forward-looking statements that are based upon current expectations and involve a number of risks and uncertainties. Statements concerning current estimates, expectations and projections about future results, performance, prospects, opportunities, plans, actions and events and other statements, concerns, or matters that are not historical facts are "forward-looking statements," as that term is defined under the federal securities laws. These statements contain words such as "possible," "believe," "should," "could," "would," "predict," "plan," "estimate," "intend," "may," "anticipate," "will," "if", "potential," "expect" or similar expressions, as well as statements in the future tense. These forward-looking statements include, but are not limited to, statements regarding throughput at the Company's refineries; crude oil prices, discounts and quality and our ability to benefit therefrom; cost reductions;  growth; scheduled turnaround activity; investments into our business; the performance and execution of our midstream growth initiatives, including the Permian Gathering System, the Red River joint venture and the Wink to Webster long-haul crude oil pipeline, and the flexibility, benefits and the expected returns therefrom; RINs waivers and tax credits and the value and benefit therefrom; cash and liquidity; emissions reductions; opportunities and anticipated performance and financial position.

Investors are cautioned that the following important factors, among others, may affect these forward-looking statements. These factors include, but are not limited to: uncertainty related to timing and amount of future share repurchases and dividend payments; risks and uncertainties with respect to the quantities and costs of crude oil we are able to obtain and the price of the refined petroleum products we ultimately sell, uncertainties regarding future decisions by OPEC regarding production and pricing disputes between OPEC members and Russia; uncertainty relating to the impact of the COVID-19 outbreak on the demand for crude oil, refined products and transportation and storage services; Delek US' ability to realize cost reductions; risks related to Delek US' exposure to Permian Basin crude oil, such as supply, pricing, gathering, production and transportation capacity; gains and losses from derivative instruments; risks associated with acquisitions and dispositions; acquired assets may suffer a diminishment in fair value as a result of which we may need to record a write-down or impairment in carrying value of the asset; the possibility of litigation challenging renewable fuel standard waivers; changes in the scope, costs, and/or timing of capital and maintenance projects; the ability to grow the Permian Gathering System; the ability of the Red River joint venture to complete the expansion project to increase the Red River pipeline capacity; the ability of the joint venture to construct the Wink to Webster long haul crude oil pipeline; operating hazards inherent in transporting, storing and processing crude oil and intermediate and finished petroleum products; our competitive position and the effects of competition; the projected growth of the industries in which we operate; general economic and business conditions affecting the geographic areas in which we operate; and other risks described in Delek US' filings with the United States Securities and Exchange Commission (the "SEC"), including risks disclosed in our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and other filings and reports with the SEC.

Forward-looking statements should not be read as a guarantee of future performance or results and will not be accurate indications of the times at, or by, which such performance or results will be achieved.  Forward-looking information is based on information available at the time and/or management's good faith belief with respect to future events, and is subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in the statements.  Delek US undertakes no obligation to update or revise any such forward-looking statements to reflect events or circumstances that occur, or which Delek US becomes aware of, after the date hereof, except as required by applicable law or regulation.

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Non-GAAP Disclosures:

Our management uses certain "non-GAAP" operational measures to evaluate our operating segment performance and non-GAAP financial measures to evaluate past performance and prospects for the future to supplement our GAAP financial information presented in accordance with U.S. GAAP. These financial and operational non-GAAP measures are important factors in assessing our operating results and profitability and include:

• Adjusting items - certain identified infrequently occurring items, non-cash items, and items that are not attributable to or indicative of our on-going operations or that may obscure our underlying results and trends;
• Adjusted net income (loss) - calculated as net income attributable to Delek US adjusted for relevant Adjusting items recorded during the period;
• Adjusted net income (loss) per share - calculated as Adjusted net income (loss) divided by weighted average shares outstanding, assuming dilution, as adjusted for any anti-dilutive instruments that may not be permitted for consideration in GAAP earnings per share calculations but that nonetheless favorably impact dilution;
• Earnings before interest, taxes, depreciation and amortization ("EBITDA") - calculated as net income attributable to Delek adjusted to add back interest expense, income tax expense, depreciation and amortization;
• Adjusted EBITDA - calculated as EBITDA adjusted for the relevant identified Adjusting items in Adjusted net income (loss) that do not relate to interest expense, income tax expense, depreciation or amortization, and adjusted to include income (loss) attributable to non-controlling interests;
• Adjusted segment contribution margin - calculated as Segment contribution margin adjusted for the identified Adjusting Items in Adjusted net income (loss) that impact Segment contribution margin;
• Refining margin - calculated as the difference between total refining revenues and total cost of materials and other;
• Adjusted refining margin - calculated as refining margin adjusted for the relevant identified Adjusting items in Adjusted net income (loss) that impact refining margin and that, where applicable, can be identified and/or are measured and recognized at the refinery level;
• Refining margin per sales barrel - calculated as refining margin divided by our average refining sales in barrels per day (excluding purchased barrels) multiplied by 1,000 and multiplied by the number of days in the period;
• Adjusted refining margin per sales barrel - calculated as adjusted refining margin divided by our average refining sales in barrels per day (excluding purchased barrels) multiplied by 1,000 and multiplied by the number of days in the period; and
• Net debt - calculated as long-term debt including both current and non-current portions (the most comparable GAAP measure) less cash and cash equivalents as of a specific balance sheet date.

We believe these non-GAAP operational and financial measures are useful to investors, lenders, ratings agencies and analysts to assess our ongoing performance because, when reconciled to their most comparable GAAP financial measure, they provide improved relevant comparability between periods, to peers or to market metrics through the inclusion of retroactive regulatory or other adjustments as if they had occurred in the prior periods they relate to, or through the  exclusion of certain items that we believe are not indicative of our core operating performance and that may obscure our underlying results and trends. "Net debt," also a non-GAAP financial measure,  is an important measure to monitor leverage and evaluate the balance sheet.

Non-GAAP measures have important limitations as analytical tools, because they exclude some, but not all, items that affect net earnings and operating income. These measures should not be considered substitutes for their most directly comparable U.S. GAAP financial measures.  Additionally, because Adjusted net income or loss, Adjusted net income or loss per share, EBITDA and adjusted EBITDA, and Adjusted Segment Contribution Margin or any of our other identified non-GAAP measures may be defined differently by other companies in its industry, Delek US' definition may not be comparable to similarly titled measures of other companies. See the accompanying tables in this earnings release for a reconciliation of these non-GAAP measures to the most directly comparable GAAP measures.

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Significant Transactions During the Quarter Impacting Results:

Insurance Recoveries

During 2021, we received insurance recoveries related to the fire and freeze events that occurred during the first quarter 2021, and which unfavorably impacted our results during the first two quarters of 2021. For the three months ended December 31, 2021, we have recognized approximately $9.5 million ($7.4 million after-tax) of insurance recoveries related to property and casualty claims, of which $9.0 million related to replacement cost coverage on property losses and which helps offset corresponding capital expenditures. For the year ended December 31, 2021, we have recognized approximately $30.9 million ($23.9 million after-tax) of insurance recoveries related to property and casualty claims, $13.4 million of which related to replacement cost coverage on property losses and which helps offset corresponding capital expenditures, and the remaining $17.5 million of which relates to repairs and other operating expenses incurred in connection with our property and casualty damages. Neither property and damage repairs and expenses impacting operating expenses, nor related insurance recoveries, meet our requirements for Adjusting items in Adjusted net income or Adjusted EBITDA. We have additional property and casualty claims that are outstanding and still pending, and which are expected to be recognized in future quarters. The proceeds related to recovery of property and casualty related operating expenses have no economic impact on Adjusted net income or Adjusted EBITDA for the year ended December 31, 2021 because they are 100% offset by related expenses we incurred during that period.

Additionally, during the first half of 2021, the fire and freeze events caused us to experience operational disruptions that significantly affected our results. While we cannot know what our EBITDA would have been, we submitted business interruption insurance claims for covered economic losses based on our insurance policies. For the three months and year ended December 31, 2021, we have recognized $9.9 million ($7.7 million after-tax) of business interruption insurance recoveries, which were recorded in other operating income on the consolidated statement of income, and we have additional business interruption claims that are outstanding and still pending which are expected to be recognized in future quarters. Because business interruption losses are economic in nature rather than recognized, the related insurance recoveries are included as an Adjusting item in Adjusted net income and Adjusted EBITDA.

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Other Significant Items Impacting Adjusted Contribution Margin:

In addition to the items that were reflected as adjustments for deriving our Adjusted segment contribution margin (as presented on pages 12 and 13), there were other items that were recognized during the periods that impacted our Segment contribution margins. The primary items are as follows:

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