Delek US Holdings Reports Third Quarter 2019 Results

• Reported third quarter net income of $51.3 million and Adjusted EBITDA of $163.1 million
• Significant cash generation helped fund a $75.3 million investment in Wink to Webster Joint Venture
• Increased dedicated acreage on Big Spring Gathering system to over 275,000 acres
• Record quarter contribution margin from the logistics segment
• El Dorado positioned for IMO, post vacuum tower design change, with distillate yield enhancement
• Increasing regular quarterly dividend by $0.01 or 3.5% to $0.30 per share
• Expect to repurchase approximately $30 million of stock during the fourth quarter 2019

BRENTWOOD, Tenn., Nov. 04, 2019 (GLOBE NEWSWIRE) — Delek US Holdings, Inc. (NYSE: DK) (“Delek US”) today announced financial results for its third quarter ended September 30, 2019. Delek US reported third quarter 2019 net income of $51.3 million, or $0.68 per diluted share, versus a net income of $179.8 million, or $2.03 per diluted share, for the quarter ended September 30, 2018.  On an adjusted basis, Delek US reported adjusted net income of $58.7 million, or $0.78 per diluted share for the third quarter 2019. This compares to adjusted net income of $186.4 million, or $2.15 per diluted share, in the prior-year period. Adjusted earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”) was $163.1 million compared to Adjusted EBITDA of $325.5 million in the prior-year period. Reconciliations of net income reported under U.S. GAAP to adjusted net income and Adjusted EBITDA are included in the financial tables attached to this release.

Adjusted quarterly results include a net income benefit of approximately $5.6 million or $0.07 per share. This consists of a net before tax gain of $20.7 million related to RIN waivers, partially offset by a refining inventory valuation headwind of $13.5 million, separate from the effect of a lower of cost or market loss. The overall decrease in year-over-year results were primarily driven by a lower crude differential environment where the realized Midland to Cushing differential declined from $10.40 per barrel in the third quarter 2018 to $0.94 per barrel in the third quarter of 2019. The effect from a lower crude oil differential was partially offset by the alkylation unit at Krotz Springs that began operating in the second quarter 2019 and an increase in income from joint ventures.

Uzi Yemin, Chairman, President and Chief Executive Officer of Delek US, stated, “Cash generation in the quarter was significant and allowed us to fund an approximate investment of $75.3 million in the Wink to Webster project and return cash to shareholders. We continue evaluating project financing as a funding option for Wink to Webster and, if successful, we expect limited equity contributions beyond the investments in the third quarter. Our Big Spring Gathering system continues expanding, where we now have over 275,000 dedicated acres. Our gathering system build-out positions us uniquely among refiners with access to crude, in excess of our refining capability. The Wink to Webster pipeline compliments this “long crude position” by providing increased optionality to place barrels at the most attractive destination points, including the Gulf Coast.”

Mr. Yemin continued, “The macro environment is moving toward our competitive advantage underpinned by strong distillate margins. With a design change completed at El Dorado at the beginning of October, this facility is now positioned to run at improved utilization rates with enhanced product yield, largely driven by higher distillate output. Finally, we remain committed to returning cash to shareholders. Our quarterly dividend is being increased by 3.5% from the second quarter 2019, marking the sixth increase since the dividend paid during the first quarter of 2018. We have continued to repurchase shares, which resulted in a 16% reduction in our weighted average share count in the third quarter 2019, compared to the peak in the second quarter 2018. As we continue to balance our capital allocation program between investing in our business and returning cash to shareholders, we expect to repurchase approximately $30 million of our common stock in the fourth quarter 2019.”

Regular Quarterly Dividend and Share Repurchase
Delek US announced today its Board of Directors declared a regular quarterly cash dividend of $0.30 per share. This represents a 3.5% increase from our previous regular quarterly dividend. Shareholders of record on November 18, 2019 will receive this cash dividend payable on December 2, 2019.

During the third quarter 2019, Delek US repurchased approximately 1.2 million shares of Delek US common stock for approximately $43.0 million, with an average price of $34.76 per share. On a year to date basis, Delek US repurchased approximately 4.2 million shares for approximately $147.8 million with an average price of $35.39 per share. At September 30, 2019, there was approximately $261.9 million of total available authorization remaining to repurchase shares. Delek US expects additional repurchases of approximately $30.0 million of Delek US common stock during the fourth quarter 2019.

Liquidity
As of September 30, 2019, Delek US had a cash balance of $1,006.4 million and total consolidated debt of $1,999.9 million, resulting in net debt of $993.5 million.  As of September 30, 2019, Delek Logistics Partners, LP (NYSE: DKL) (“Delek Logistics”) had $840.8 million of total debt and $6.4 million of cash, which is included in the consolidated amounts on Delek US’ balance sheet. Excluding Delek Logistics, Delek US had approximately $1,000.0 million in cash and $1,159.1 million of debt, or a $159.1 million net debt position.

Refining Segment
Refining segment contribution margin was $127.5 million in the third quarter 2019 compared to $319.5 million in the third quarter 2018. On a year-over-year basis, results were negatively impacted by a lower crude differential environment. Taking into account the timing effect between the purchase price of Permian Basin crude oil and when it is realized as finished products are sold, the Midland-Cushing differential in the reported results was a realized discount of approximately $0.94 per barrel in the third quarter 2019 compared to a realized discount of approximately $10.40 per barrel in the prior year period.  Contango in the oil futures market was $0.08 per barrel in the third quarter 2019, compared to backwardation of $1.27 per barrel in the third quarter 2018.

Third Quarter results were negatively impacted by planned downtime at El Dorado. A design change was completed on the vacuum tower at the end of the quarter. The facility is now positioned to run at higher utilization rates, with potential to improve the distillate yield over 4%, along with increased flexibility to run West Texas Sour crude.

In August 2019, the El Dorado, Arkansas, Krotz Springs, Louisiana and Tyler, Texas refineries received approval from the Environmental Protection Agency for a small refinery exemption from the requirements of the renewable fuel standard for the 2018 calendar year. This waiver resulted in approximately $20.7 million of benefit with $7.4 million of RINs expense reduction at El Dorado, $4.9 million at Krotz Springs and $8.4 million at Tyler.

Logistics Segment
The logistics segment contribution margin was a record in the third quarter 2019, with an increase to $46.6 million compared to $43.1 million in the third quarter 2018. Strong results in the third quarter 2019 benefited from improved performance in the Paline Pipeline and SALA gathering system, which was partially offset by a lower gross margin in west Texas.

Retail Segment
For the third quarter 2019, contribution margin was $18.6 million compared to $15.3 million in the prior year period for the retail segment. Merchandise sales were approximately $81.5 million with an average retail margin of 30.5% in the third quarter 2019, compared to merchandise sales of approximately $89.7 million with an average retail margin of 31.3% in the prior year period. Approximately 54.9 million retail fuel gallons were sold at an average margin of $0.31 per gallon in the third quarter 2019 compared to 56.0 million retail fuel gallons sold at an average margin of $0.23 per gallon in the third quarter 2018. In the third quarter 2019, the average store count was 263 compared to 295 in the prior year period.  On a same store sales basis in the third quarter 2019, merchandise sales decreased 1.5% and fuel gallons sold increased 3.0% compared to the prior-year period.

Corporate/Other
Contribution margin from Corporate/Other was $10.6 million in the third quarter 2019 compared to a loss of $17.2 million in the prior-year period. This year over year increase was driven by a combination of commercial initiative contributions, including Permian gathering and asphalt, along with approximately $13 million of unrealized hedging income, that is adjusted from reported net income.

Third Quarter 2019 Results | Conference Call Information
Delek US will hold a conference call to discuss its third quarter 2019 results on Tuesday, November 5, 2019 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 five minutes prior to the start of the call. For those who cannot listen to the live broadcast, a telephonic replay will be available through February 5, 2020 by dialing (855) 859-2056, passcode 4964936. An archived version of the replay will also be available at www.DelekUS.com for 90 days.

Investors may also wish to listen to Delek Logistics’ (NYSE: DKL) third quarter 2019 earnings conference call that will be held on Tuesday, November 5, 2019 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 are 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 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 63% (including the 2% 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 business is the largest 7-Eleven licensee in the United States and operates approximately 263 convenience stores in central and 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; share repurchases; returning cash to shareholders; payments of dividends; growth; investments into our business; the performance and execution of our midstream growth initiatives, including the Big Spring 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; 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; 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; management’s ability to execute its strategy of growth through acquisitions and the transactional 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; changes in the scope, costs, and/or timing of capital and maintenance projects; the ability to grow the Big Spring 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 southern United States; 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.

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:

• Adjusted net income (loss) – calculated as net income attributable to Delek US adjusted for certain identified infrequently occurring items, non-cash items and items that are not attributable to our on-going operations (collectively, “Adjusting Items”) recorded during the period;
• Adjusted unrealized hedging (gains) losses – calculated as GAAP unrealized (gains) losses on commodity derivatives that are economic hedges but not designated as hedging instruments adjusted to exclude unrealized (gains) losses where the instrument has matured but where it has not cash settled as of the balance sheet date. This adjustment more appropriately aligns matured commodity derivatives gains and losses with the recognition of the related cost of materials and other. There are no premiums paid or received at the inception of the derivative contracts, and upon settlement there is no cost recovery associated with these contracts;
• 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 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;
• Refining margin – calculated as the difference between total refining revenues and total cost of materials and other; and
• 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.

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 comparability between periods 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.

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 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.

⁽¹⁾  Net revenues and cost of materials and other for the quarter and nine months ended September 30, 2018 reflect a correction of an intercompany elimination which resulted in an increase in those accounts of $273.7 million and $347.1 million, respectively, not previously reflected on the unaudited consolidated financial statements in our September 30, 2018 Quarterly Report on Form 10-Q filed on November 9, 2018. Such amounts are not considered material to the financial statements and had no impact to operating income or net income for those periods. See Note 23 to our annual audited consolidated financial statements included in Part II, Item 8 of our 2018 Annual Report on Form 10-K as amended and filed on June 27, 2019, for further discussion.

⁽²⁾   Income tax benefit for the nine months ended September 30, 2018 reflects a correction made in our 2018 Annual Report on Form 10-K (filed on March 1, 2019) to record additional deferred tax expense totaling $5.5 million related to the recognition of a valuation allowance on deferred tax assets recognized in connection with the Big Spring Logistic Assets Acquisition (see Note 5) not previously reported in our September 30, 2018 Quarterly Report on Form 10-Q filed on November 09, 2018. Such amount is not considered material to the financial statements or the trend of earnings for that period. See Note 23 to our annual audited consolidated financial statements included in Part II, Item 8 of our 2018 Annual Report on Form 10-K as amended and filed on June 27, 2019, for further discussion.

⁽¹⁾  Refining segment and consolidated net revenues and cost of materials and other for the quarter and nine months ended September 30, 2018 reflect a correction of an intercompany elimination which resulted in an increase in those accounts of $273.7 million and $347.1 million, respectively, not previously reflected on the unaudited consolidated financial statements in our September 30, 2018 Quarterly Report on Form 10-Q filed on November 9, 2018. Such amounts are not considered material to the financial statements and had no impact to operating income or segment contribution margin for those periods. See Note 23 to our annual audited consolidated financial statements included in Part II, Item 8 of our 2018 Annual Report on Form 10-K, as amended and filed on June 27, 2019, for further discussion.

⁽¹⁾  Includes inter-refinery sales and sales to other segments which are eliminated in consolidation. See tables below.

Included in the refinery statistics above are the following inter-refinery and sales to other segments:

⁽¹⁾  For our Tyler and El Dorado refineries, we compare our per barrel refining product margin to the Gulf Coast 5-3-2 crack spread consisting of WTI Cushing crude, U.S. Gulf Coast CBOB and U.S, Gulf Coast Pipeline No. 2 heating oil (high sulfur diesel).  For our Big Spring refinery, we compare our per barrel refined product margin to the Gulf Coast 3-2-1 crack spread consisting of WTI Cushing crude, Gulf Coast 87 Conventional gasoline and Gulf Coast ultra-low sulfur diesel, and for our Krotz Springs refinery, we compare our per barrel refined product margin to the Gulf Coast 2-1-1 crack spread consisting of LLS crude oil, Gulf Coast 87 Conventional gasoline and U.S, Gulf Coast Pipeline No. 2 heating oil (high sulfur diesel).  The Tyler refinery’s crude oil input is primarily WTI Midland and east Texas, while the El Dorado refinery’s crude input is primarily a combination of WTI Midland, local Arkansas and other domestic inland crude oil. The Big Spring refinery’s crude oil input is primarily comprised of WTS and WTI Midland. The Krotz Springs refinery’s crude oil input is primarily comprised of LLS and WTI Midland.

⁽¹⁾  Adjusted refining margin per barrel is presented to provide a measure to evaluate performance excluding inventory valuation adjustments and other items at the individual refinery level. Delek US believes that the presentation of adjusted measures provides useful information to investors in assessing its results of operations at each refinery. Because adjusted refining margin per barrel may be defined differently by other companies in its industry, Delek US’ definition may not be comparable to similarly titled measures of other companies.

⁽²⁾  Tyler adjusted refining margins exclude the following items.

Net inventory valuation benefit/loss – There was approximately $11.3 million and $0.0 million of valuation loss in the third quarter 2019 and 2018, respectively. There was approximately $26.9 million and $0.9 million of valuation benefit for the nine months ended September 30, 2019 and 2018, respectively. These amounts resulted from lower of cost or market adjustments on LIFO inventory in the respective periods.

Biodiesel tax credit allocation – There was approximately $15.4 million related to the biodiesel tax credit that was allocated to Tyler in the first quarter of 2018 that is included in the renewables portion of the refining segment for the nine months ended September 30, 2018.

RIN waiver – In August 2019, the Tyler,Texas refinery received approval from the Environmental Protection Agency for a small refinery exemption from the requirements of the renewable fuel standard for the 2018 calendar year. This waiver equated to a benefit of approximately $8.4 million recognized in the third quarter 2019.

⁽³⁾  El Dorado adjusted refining margins exclude the following items.

Net inventory valuation loss – There were $6.8 million and $0.04 million of valuation losses in the third quarter 2019 and 2018, respectively. There was approximately $10.2 million and $0.08 million of valuation losses for the nine months ended September 30, 2019 and 2018, respectively. These amounts resulted from lower of cost or market adjustments on FIFO inventory in the respective periods.

RIN waiver – In August 2019, the El Dorado, Arkansas refinery received approval from the Environmental Protection Agency for a small refinery exemption from the requirements of the renewable fuel standard for the 2018 calendar year. This waiver equated to a benefit of approximately $7.4 million recognized in the third quarter 2019.  In March 2018, the El Dorado refinery received approval from the Environmental Protection Agency for a small refinery exemption from the requirements of the renewable fuel standard for the 2017 calendar year. This waiver equated to a benefit of approximately $59.3 million recognized in the first quarter 2018.

Biodiesel tax credit allocation – There was approximately $6.0 million related to the biodiesel tax credit that was allocated to El Dorado in the first quarter of 2018 that is included in the renewables portion of the refining segment for the nine months ended September 30, 2018.

⁽⁴⁾  Big Spring adjusted refining margins exclude the following items.

Net inventory valuation loss – There were approximately $1.7 million and $0.3 million of valuation losses in the third quarter 2019 and 2018, respectively.  There was approximately $4.7 million and $0.5 million of valuation losses for the nine months ended September 30, 2019 and 2018, respectively. These amounts resulted from lower of cost or market adjustments on FIFO inventory in the respective periods.

⁽⁵⁾  Krotz Springs adjusted refining margins exclude the following items.

Net inventory valuation loss – There were $4.3 million and $0.1 million of valuation losses in the third quarter 2019 and 2018, respectively. There was approximately $11.0 million and $0.15 million of valuation losses for the nine months ended September 30, 2019 and 2018, respectively. These amounts resulted from lower of cost or market adjustments on FIFO inventory in the periods.

RIN waiver – In August 2019, the Krotz Springs, Louisiana refinery received approval from the Environmental Protection Agency for a small refinery exemption from the requirements of the renewable fuel standard for the 2018 calendar year. This waiver equated to a benefit of approximately $4.9 million recognized in the third quarter 2019. In March 2018, the Krotz Springs refinery received approval from the Environmental Protection Agency for a small refinery exemption from the requirements of the renewable fuel standard for the 2017 calendar year. This waiver equated to a benefit of approximately $31.6 million recognized in the first quarter 2018.

⁽¹⁾  Excludes jet fuel and petroleum coke.

⁽²⁾  Throughputs for the nine months ended September 30, 2018 are for the 214 days we marketed certain finished products produced at or sold from the Big Spring Refinery following the execution of the Big Spring Marketing Agreement, effective March 1, 2018.

⁽³⁾  Consists of terminalling throughputs at our Tyler, Big Spring, Big Sandy and Mount Pleasant, Texas, our El Dorado and North Little Rock, Arkansas and our Memphis and Nashville, Tennessee terminals. Throughputs for the Big Spring terminal are for the 214 days we operated the terminal following its acquisition effective March 1, 2018.  Barrels per day are calculated for only the days we operated each terminal.  Total throughput for the nine months ended September 30, 2018 was 41.4 million barrels, which averaged 151,646 barrels per day for the period.

⁽¹⁾  Retail fuel margin represents gross margin on fuel sales in the retail segment, and is calculated as retail fuel sales revenue less retail fuel cost of sales. The retail fuel margin per gallon calculation is derived by dividing retail fuel margin by the total retail fuel gallons sold for the period.

⁽²⁾  Same-store comparisons include period-over-period increases or decreases in specified metrics for stores that were in service at both the beginning of the earliest period and the end of the most recent period used in the comparison.

⁽¹⁾  The tax calculation is based on the appropriate marginal income tax rate related to each adjustment and for each respective time period, which is applied to the adjusted items in the calculation of adjusted net income in all periods.

⁽²⁾  Delek US had a convertible note hedge transaction in effect to offset the economic dilution of the additional shares from the Convertible Notes that matured on September 17, 2018.

Investor/Media Relations Contacts:
Blake Fernandez, Senior Vice President of Investor Relations and Market Intelligence, 615-224-1312
Jeb Bachmann, Manager of Investor Relations and Market Intelligence, 615-224-1118
Lenny Raymond, Manager of Investor Relations and Market Intelligence, 615-224-0828

Keith Johnson, Vice President of Investor Relations, 615-435-1366

Media/Public Affairs Contact:
Michael P. Ralsky, Vice President – Government Affairs, Public Affairs & Communications, 615-435-1407