Delek US(DK) - 2023 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements (unaudited) Unaudited Q2 2023 financial statements show a net loss of $8.3 million, a significant decline from Q2 2022's $361.8 million net income, reflecting decreased profitability Condensed Consolidated Balance Sheets Total assets decreased to $7.77 billion as of June 30, 2023, from $8.19 billion at year-end 2022, driven by lower current assets and liabilities Condensed Consolidated Balance Sheet Highlights (in millions) | Account | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total Current Assets | $3,196.1 | $3,716.9 | | Total Assets | $7,769.5 | $8,192.8 | | Total Current Liabilities | $2,914.6 | $3,086.4 | | Total Liabilities | $6,706.6 | $7,123.3 | | Total Stockholders' Equity | $1,062.9 | $1,069.5 | Condensed Consolidated Statements of Income Q2 2023 saw a net loss of $8.3 million, or ($0.13) per share, a significant decline from Q2 2022's $361.8 million net income, primarily due to lower net revenues Statement of Income Highlights (in millions, except per share data) | Metric | Q2 2023 | Q2 2022 | YTD 2023 | YTD 2022 | | :--- | :--- | :--- | :--- | :--- | | Net Revenues | $4,195.6 | $5,982.6 | $8,119.9 | $10,441.7 | | Operating Income | $50.1 | $493.3 | $192.9 | $540.0 | | Net (Loss) Income Attributable to Delek | $(8.3) | $361.8 | $56.0 | $368.4 | | Diluted (Loss) Income Per Share | $(0.13) | $5.05 | $0.84 | $5.07 | Condensed Consolidated Statements of Cash Flows Net cash from operations decreased to $490.2 million for the six months ended June 30, 2023, while investing activities used less cash and financing activities reversed to a net outflow Cash Flow Summary (in millions) | Activity | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $490.2 | $585.9 | | Net cash used in investing activities | $(279.9) | $(720.9) | | Net cash (used in) provided by financing activities | $(230.0) | $523.1 | | Net (decrease) increase in cash | $(19.7) | $388.1 | | Cash and cash equivalents at end of period | $821.6 | $1,244.6 | Notes to Condensed Consolidated Financial Statements Notes detail segment reporting, the $628.3 million Delaware Gathering acquisition, inventory intermediation, $2.8 billion long-term debt, derivatives, environmental liabilities, and shareholder equity activities - Delek Logistics completed the acquisition of Delaware Gathering (formerly 3 Bear) on June 1, 2022, for a purchase price of $628.3 million, expanding its operations in the Delaware Basin[33][34] Segment EBITDA Attributable to Delek (in millions) | Segment | Q2 2023 | Q2 2022 | YTD 2023 | YTD 2022 | | :--- | :--- | :--- | :--- | :--- | | Refining | $110.5 | $587.9 | $302.6 | $667.9 | | Logistics | $90.9 | $62.6 | $182.3 | $126.8 | | Retail | $15.0 | $12.5 | $21.4 | $22.8 | | Corporate, Other & Eliminations | $(58.7) | $(89.2) | $(108.6) | $(127.3) | | Total EBITDA | $157.7 | $573.8 | $397.7 | $690.2 | - On December 22, 2022, Delek entered into a new Inventory Intermediation Agreement with Citigroup, replacing a previous agreement with J. Aron. This agreement provides up to $800 million of working capital capacity. The outstanding obligation under this agreement was $453.4 million as of June 30, 2023[77][78] - As of June 30, 2023, the company had total long-term debt of $2.87 billion in principal, with the largest components being the Delek Term Loan ($945.3 million) and the Delek Logistics Revolver ($811.0 million)[86] - The company recorded an environmental liability of approximately $114.7 million as of June 30, 2023, primarily for remediation costs at refineries and terminals[119] - During the six months ended June 30, 2023, the company repurchased and cancelled 1.81 million shares of common stock for a total of $40.4 million. The Board also declared quarterly dividends, including $0.23 per share paid in May 2023[134][135] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the profitability decline to lower refining margins, while Logistics showed strong growth, with a focus on operations, cost improvements, and shareholder returns, maintaining $1.6 billion in liquidity Executive Summary and Strategic Overview Management emphasizes strong but lower refining margins, operational challenges, and a strategic focus on safe operations, shareholder returns, and business model evolution through key leadership appointments - The company's near-term focus is on safe and reliable operations, shareholder returns including debt reductions, and unlocking the 'sum of the parts' value of its business[154] - Key strategic initiatives for 2023 include improving outage spend discipline, implementing a zero-based budget, reducing debt, and enhancing safety through a new Safety Action Plan[172] - The company is progressing a business transformation to improve cost structure efficiency and is positioning itself for potential economic headwinds and long-term energy transition pressures[152] Results of Operations Consolidated net loss of $1.5 million in Q2 2023, down from $368.6 million net income in Q2 2022, was driven by lower net revenues and higher interest expense, despite reduced material costs Consolidated Results Comparison (Q2 2023 vs Q2 2022, in millions) | Item | Q2 2023 | Q2 2022 | Change | Change % | | :--- | :--- | :--- | :--- | :--- | | Net Revenues | $4,195.6 | $5,982.6 | $(1,787.0) | (29.9)% | | Cost of Materials and Other | $3,766.6 | $5,082.6 | $(1,316.0) | (25.9)% | | Operating Income | $50.1 | $493.3 | $(443.2) | (89.8)% | | Interest Expense, Net | $80.4 | $43.6 | $36.8 | 84.4% | | Net (Loss) Income | $(1.5) | $368.6 | $(370.1) | (100.4)% | Segment Performance Q2 2023 segment performance varied, with Refining EBITDA plummeting due to lower crack spreads, while Logistics EBITDA grew significantly from the Delaware Gathering acquisition, and Retail saw a modest increase Refining Segment Highlights (Q2 2023 vs Q2 2022) | Metric | Q2 2023 | Q2 2022 | | :--- | :--- | :--- | | Refining Margin ($M) | $269.2 | $778.4 | | EBITDA ($M) | $110.5 | $587.9 | | Total Throughput (avg bpd) | 295,481 | 297,304 | | Gulf Coast 5-3-2 Crack Spread ($/bbl) | $25.54 | $44.03 | Logistics Segment Highlights (Q2 2023 vs Q2 2022) | Metric | Q2 2023 | Q2 2022 | | :--- | :--- | :--- | | Revenues ($M) | $246.9 | $266.7 | | EBITDA ($M) | $90.9 | $62.6 | | Delaware Gathering Crude Throughput (avg bpd) | 117,017 | 78,011 | Retail Segment Highlights (Q2 2023 vs Q2 2022) | Metric | Q2 2023 | Q2 2022 | | :--- | :--- | :--- | | EBITDA ($M) | $15.0 | $12.5 | | Retail Fuel Margin ($/gallon) | $0.342 | $0.329 | | Change in Same-Store Merchandise Sales | 0.1% | 0.1% | Liquidity and Capital Resources As of June 30, 2023, the company maintained strong liquidity of $1.6 billion, with $2.8 billion in long-term debt, and forecasts $350.5 million in capital expenditures for 2023 - Total liquidity as of June 30, 2023, was $1.6 billion, including $821.6 million in cash and cash equivalents[274] 2023 Capital Spending (in millions) | Segment | 2023 Forecast | YTD 2023 Actual | | :--- | :--- | :--- | | Refining | $201.8 | $177.1 | | Logistics | $81.3 | $55.5 | | Retail | $31.1 | $8.0 | | Corporate and Other | $36.3 | $12.7 | | Total | $350.5 | $253.3 | Contractual Cash Requirements Summary (in millions) | Obligation | < 1 Year | 1-3 Years | > 3 Years | Total | | :--- | :--- | :--- | :--- | :--- | | Long-term debt & notes | $49.5 | $546.5 | $2,277.8 | $2,873.8 | | Interest | $228.7 | $401.2 | $437.2 | $1,067.1 | | Operating leases | $57.0 | $75.8 | $56.0 | $188.8 | | Purchase commitments | $562.3 | $0.0 | $0.0 | $562.3 | Quantitative and Qualitative Disclosures about Market Risk The company faces market risks from commodity prices, interest rates, and inflation, managing commodity risk with derivatives and noting a $22.2 million impact for every 1% change on its $2.2 billion floating-rate debt - The company has market exposure on approximately $2.2 billion of floating-rate debt. A hypothetical 1% change in interest rates would change annual interest expense by about $22.2 million[300] - The company uses commodity derivatives to manage price risk. As of June 30, 2023, open non-trading derivative positions included 152.6 million barrels of crude oil and refined products and 81.1 million RINs[299][104] - Inflationary factors, including higher labor costs and supply chain disruptions, negatively affected results in the first half of 2023 and are expected to persist[302] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2023, with no material changes to internal control over financial reporting during Q2 2023 - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the reporting period[306] - No changes occurred during Q2 2023 that materially affected or are reasonably likely to materially affect the company's internal control over financial reporting[307] PART II. OTHER INFORMATION Legal Proceedings The company is involved in various legal proceedings but management does not anticipate any material adverse effects on its business or financial condition - The company states that it does not expect any currently pending legal proceedings to have a material adverse effect on its financial statements[310] Risk Factors No material changes to the risk factors identified in the fiscal 2022 Annual Report on Form 10-K were reported for the six months ended June 30, 2023 - No material changes to risk factors were reported for the six months ended June 30, 2023[311] Unregistered Sales of Equity Securities and Use of Proceeds In Q2 2023, the company repurchased 1.8 million shares for $40.0 million, with $230.1 million remaining authorized for future repurchases as of June 30, 2023 Common Stock Repurchases (Q2 2023) | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | April 2023 | 1,184,067 | $22.93 | | May 2023 | 611,268 | $20.94 | | June 2023 | — | $— | | Total | 1,795,335 | $22.25 | - As of June 30, 2023, $230.1 million remained authorized for share repurchases[313] Other Information No directors or officers adopted or terminated a Rule 10b5-1 trading plan or non-Rule 10b5-1 trading arrangement during Q2 2023 - No directors or officers adopted or terminated a Rule 10b5-1 trading plan during Q2 2023[314] Exhibits This section lists exhibits filed with the Form 10-Q, including agreements with Citigroup, incentive plan amendments, and CEO/CFO certifications Signatures