Delek US Holdings, Inc. Q2 FY2023 Earnings Call

Good morning and welcome to the Delek US Holdings Second Quarter earnings Conference Call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please also note this event is being recorded. I would now like to turn the conference over to Rosy Zuklic, Vice President of Investor Relations. Please go ahead.

Good morning and welcome to the Delek US second quarter earnings conference call. Participants on today's call will include Avigal Soreq, President and CEO; Joseph Israel, EVP, Operations; Reuven Spiegel, EVP and Chief Financial Officer; Mark Hobbs, EVP, Corporate Development. Today's presentation material can be found on the Investor Relations section of the Delek US website. Slide two contains our Safe Harbor statement regarding forward-looking statements. We'll be making forward-looking statements during today's call. These statements involve risks and uncertainties that may cause actual results to differ materially from today's comments. Factors that could cause actual results to differ are included here as well as in our SEC filings. The company assumes no obligation to update any forward-looking statements. I will now turn the call over to Avigal for opening remarks.

Good morning and thank you for joining us today. During the second quarter, we delivered solid financial results. Our team executed well and stayed focused on our key objectives. We continue to do what we said we will do. We kept our commitment to return value to shareholders. We target a dividend that is competitive and sustainable. Given the market outlook, our share buyback program gives us the ability to further reward our investors in the near and mid-term. Year-to-date, we have returned $95 million, both in dividends and share buybacks. Since June of last year to the end of this week, we have returned close to $275 million to investors. We also recognize there is value in a strong balance sheet and financial flexibility. We continue to improve the efficiency of our cost structure. G&A improved this quarter, and OpEx will follow. I'm pleased with our progress. Rosy will give more details in the financial section. Turning to the operation during the quarter, we ran well to most of our system, improving the safety and reliability of our Refining system is fundamental. During the quarter, we made steps in the right direction. We continue to make good progress. Our Refining segment reflects strong contributions from our wholesale and asphalt businesses, driven by local market demand. In addition, our Altus business benefited from higher location differentials. We see these trends continuing. From a macro standpoint, in the month of July, our benchmark US Gulf Coast tax rate improved by approximately $5 per barrel, which further improved our outlook for the year. Crude is also a good story for us. We see the heavy-light differential continue to compress, which is favorable for our configuration as our system is fully balanced at 95% light with no excess naphtha. In addition, with the growth we see in the Permian production, we expect to be favorable in the Midland differential. Our Logistics segment delivered strong results, with adjusted EBITDA of $91 million this quarter. Our prime acreage is outperforming the Permian Basin. We now forecast around $100 million a quarter from this segment starting in Q4 of this year. Retail also supported a solid quarter. This was driven by higher fuel volume, increased average margin, and higher in-store sales. In closing, our team continued to successfully advance our strategy. I want to thank each and every team member for their contribution. There is still value to unlock as we continue to execute on our strategic initiative. Now, I would like to turn the call over to Joseph, who will provide additional color on our operations.

Thank you, Avigal. In the second quarter, our team safely processed 295,000 barrels per day of total throughput. Supported by favorable market conditions in our markets, the Refining system generated $201 million of adjusted EBITDA. In Tyler, throughput in the second quarter was approximately 77,000 barrels per day. Production margin in the quarter was $13.87 per barrel, and operating expenses were $3.78 per barrel. In the third quarter, the estimated total throughput in Tyler is in the 74,000 to 78,000 barrels per day range. In El Dorado, total throughput in the quarter was approximately 73,000 barrels per day, short of our guidance, mainly due to a third-party transformer failure which led to a power outage-related shutdown. Our production margin was $6.06 per barrel, including an unfavorable impact of approximately $1.50 per barrel due to the power outage. Operating expenses were $5 per barrel. Estimated throughput for the third quarter is in the 76,000 to 80,000 barrels per day range. In Big Spring, total throughput for the quarter was approximately 62,000 barrels per day, approximately 8,000 barrels per day under our guidance, mostly due to unplanned diesel hydrotreater catalyst change and vacuum unit maintenance. Production margin was $11.55 per barrel, including an estimated unfavorable $4.30 per barrel impact from the unplanned events. Operating expenses in Big Spring were $8.91 per barrel, including approximately $0.50 per barrel of the unplanned maintenance activities. To support safe and reliable operations in Big Spring, we are investing this year in mechanical integrity and sustaining regulatory items. In the second quarter, approximately $2.30 per barrel of our reported operating expense was related to that important initiative. Our planned cost going forward is approximately $1 per barrel through the third and fourth quarter of this year. The estimated third quarter throughput in Big Spring is in the 64,000 to 70,000 barrels per day range. In Cross Springs, total throughput was approximately 83,000 barrels per day. Our production margin was $6.21 per barrel, and operating expenses were $4.74 per barrel. Planned throughput in the third quarter is in the 78,000 to 82,000 barrels per day range. Compared with the first quarter, the system benefited mainly from the improved gasoline crack spreads and reduced RVO cost in the second quarter, while jet fuel and NGL crack spreads provided some evidence. Strong asphalt and wholesale marketing added $82 million to our second quarter Refining segment earnings. Outside of our reported margins at each of the refineries and their associated capture rates, approximately $30 million of that added value was generated in Krotz Springs, driven by light-cycle oil, high sulfur diesel, and alkylate sales. $14 million were generated by Tyler wholesale marketing. Approximately $27 million was generated in El Dorado, and close to $11 million in Big Spring, both driven by asphalt and wholesale marketing. Overall, estimated systems throughput in the third quarter is in the 292,000 to 310,000 barrels per day range. We continue to focus on safety, reliability, and environmental compliance as our top priorities, and we expect margin capture and cost performance to follow. With regards to DKN, as mentioned by Avigal, we are clearly beneficiaries of the strong Permian Basin growth also at the Logistics business level. The Midland Gathering System volumes have more than doubled from a year ago, and our team has demonstrated solid operations and growth, which are well reflected in the financial results. I will now turn the call over to Rosy for the financial variance.

Thanks, Joseph. I'll start on slide five of our presentation material. For the second quarter of 2023, Delek US had a net loss of $8 million or $0.13 per share. Adjusted net income was $65 million or $1 per share, and adjusted EBITDA was $259 million. Cash flow from operations was $95 million. On slide six, we provide a waterfall of our adjusted EBITDA by segment from the first quarter to the second quarter of 2023. The decrease was primarily from lower results in Refining, largely reflecting the decrease in crack spreads. The Gulf Coast 532 crack averaged $25.54 for the quarter, down from $32.55 in the first quarter. Strong performance from our wholesale and asphalt businesses as well as draws on inventory at quarter end partly offset the lower cracks. Retail improved versus last quarter as crude prices fell, improving pricing at the retail level. In addition, volumes were higher, consistent with the season. Moving to slide seven to discuss cash flow. We drew $43 million in cash during the quarter, ending the second quarter with $822 million in cash. The $95 million in operating activities includes approximately $80 million of cash outflows for the inventory draws executed late in the quarter. The timing of the inventory draws is the primary reason net debt increased this quarter. We received the cash for these sales in July. Investing activities of $58 million is mainly for capital expenditures. Financing activities of $81 million primarily reflects returns to shareholders. This includes $40 million in buybacks, $15 million in dividends, and $10 million in distribution payments. On slide eight, we show capital expenditures. Year-to-date, we have spent $253 million. We estimate the full year to remain at approximately $350 million. Net debt is broken out between Delek and Delek Logistics on slide nine. During the quarter, consolidated net debt increased by $79 million. The last slide covers outlook items for the third quarter of 2023. In addition to the throughput guidance Joseph provided, we expect operating expenses to be between $210 million and $220 million. This includes $10 million to $15 million related to the mechanical integrity work at the Big Spring refinery. G&A is expected to be between $65 million and $70 million. D&A is expected to be between $85 million and $90 million, and we expect net interest expense to be between $80 million and $85 million. Before we open the line for questions, a comment on our cost initiative efforts. Second quarter G&A as reflected on the income statement was $7.8 million. This includes $4.3 million of restructuring costs. Excluding this one-time expense, adjusted G&A for the second quarter was in line with the first quarter of 2023. As provided in the guidance, we expect third quarter D&A to be lower in the range of $65 million to $70 million and now expect fourth quarter 2023 to be approximately $65 million. We are on track to meet our annual run rate cost savings of $90 million to $100 million as we exit 2024. We will now open the line for questions.

We will now begin the question-and-answer session. Our first question comes from Manav Gupta with UBS. Please go ahead.

Good morning, guys. My only question here is the other inventory impacts was a big number, about $96 million. Can you help us understand all the components that went into that $96 million other inventory number? Thank you.

Hey, Manav. Good morning. How are you? It's Avigal. Thanks for joining us today. Manav, you know that we are working at FIFO, and the whole point of the inventory is to bring us back to LIFO. So, when we are showing the adjusted EBITDA at $260 million, that's the way to compare us to our peers. So, that's the headline here, right? The headline is we are FIFO. We want to go back to LIFO to be comparable. That's what we actually did on the adjustment, simple and easy.

So, just to be clear, no other adjustments just from FIFO to LIFO.

Right.

Thank you so much for taking my question.

The next question is from Matthew Blair with Tudor, Pickering, Holt. Please go ahead.

Hey, good morning. Is there any update to the some of the parts efforts? Is the goal still to get the DKL debt off the DK balance sheet? Are there some smaller things you can do in the meantime? And is there any update on the timing on all of this?

Yes, thank you for joining us today. I'll begin, and then I'll hand it over to Mark Hobbs, who is here with me. To provide some high-level comments, we are very focused on certain aspects of management compensation related to these parts. We are acutely aware of the inherent value of our assets, particularly in logistics and retail, as well as our W2W and biodiesel plant. We are actively working on executing the plan, and then I will let Mark speak.

Yes, of course. Thank you for the question, Matt. As we've mentioned previously, we still believe that our current share price does not accurately reflect the value of our business segments. We have assessed all available options and feel confident there is a clear path for the actions we need to take, and we are diligently working to implement that plan. While we cannot disclose anything at this moment, I assure you that we are actively pursuing this initiative, which is complex and takes time. We will not rush into unlocking the value of any of our business segments, as we've discussed before. However, we are committed to this endeavor and to acting in the best interest of all our stakeholders. When considering aspects like midstream, retail, and Wink to Webster, all these elements are under evaluation. As I mentioned, we do have a clear path forward that we are focusing on. I'll leave it at that.

Okay. Sounds good. And then the trading and supply contribution of $115 million in Q2 seemed quite large, especially relative to the loss in Q1. Could you talk about what drove that gain? For example, was the wholesale side due to better retail fundamentals? And then the asphalt contribution, was that due to just the falling crude price in the quarter? Could you also talk about how that's trending in Q3? And then finally, would you say that this is your regular business operations or does it involve taking some risk on your side? Thank you. Thank you for your comprehensive question. I appreciate the opportunity to provide clarity. Joseph did an excellent job in his prepared remarks outlining $82 million of the $114 million, specifying it by asset and business stream. We view all these assets as part of our core business, particularly those that support the Refinery, which is a consistent and repeatable process. Now, I'll let Joseph elaborate on this further and share his thoughts as well. Please, Joseph.

Yes, Matt. We mentioned the numbers per side in our prepared remarks. Let me add you some information as we are making progress with visibility here and transparency. So, we move around 210,000 barrels per day of a light product through our rack. In a typical quarter, we make $45 million to $50 million of a contribution coming from the wholesale marketing. Obviously, different things create some volatility ups and downs. This quarter was really good, with $60 million of the $82 million being wholesale-related. Most of it is really just the location advantage that we have in the markets we operate in. And then on the asphalt side, we do have a 750,000 tons per year type of asphalt. Approximately 75% of it is in El Dorado, driven by Oklahoma, Arkansas type of pricing; 25% left is more of a Big Spring. In a good quarter, obviously, in the season, we're making approximately $20 million of contribution. And in the off-season, the way how our transfer price works, it's probably around $5 million of positive contribution. This will give you a good start for the modeling efforts. I hope you all see it's real. The numbers outside of the $82 million are more inventories and derivative-type numbers. Did I answer your question, Matt?

Got it. Thank you very much.

Thank you.

Yes. Thank you, Joseph.

The next question is from Neil Mehta with Goldman Sachs. Please go ahead.

Hi. This is Nicolette Slusser on for Neil Mehta. Thanks for taking the time. So, the first question here is on the more macro side of things. Just any views you can share on the current product market and any additional thoughts around Midland spreads and where differentials may be trending? Thank you.

Thank you, Nicolette, for joining us today. We're seeing a positive trend with diesel and gasoline prices nearing a five-year low, alongside an increase in demand. The recessionary factors that impacted us in the first half of the year are beginning to diminish, which has positively affected our cost of goods sold spread. We're also anticipating a heavy turnaround season in the third and fourth quarters, although we're not part of it. The heavy-light differentials are compressing, which benefits us. Overall, it's a favorable time for refiners, with trending indicators and strong card spreads giving us a positive outlook. Regarding Midland, the market appears to be underestimating production levels and their potential impact on differentials. We expect to see movement in that area, leading to a widening of the Midland differential as production increases, particularly on our own acreage where we're experiencing significant growth compared to last year. Overall, this is good news for us, and we're well-positioned with a strong configuration, solid demand, and low inventory levels. All of these factors are very constructive.

That's very helpful color. Thank you. And then the follow-up here is unrelated, but just wanted to ask about shareholder return and the $25 million of share repurchases seen here subsequent to quarter-end. Can you share any thoughts around the buyback cadence and what you may be seeing from either the macro or in the current share price that is contributing to the repurchase levels?

Yes, Nicolette. I'll provide a broader perspective on capital allocation. We view the dividend as competitive and sustainable throughout the business cycle, and we plan to maintain it. If opportunities arise in the future, we might even consider increasing it. That's an area we consistently monitor. We've also set guidance for buybacks, and if opportunities present themselves, we will certainly pursue them. We are taking a balanced approach regarding buybacks, dividends, and debt reduction. Overall, we see a promising 2023 ahead, which enables us to deliver a solid return to investors through all three avenues I mentioned.

The next question is from Doug Leggate with Bank of America. Please go ahead.

Thanks. Good morning.

Morning.

Avigal or Joe, I'm not sure who wants to take this, but Joe, you've been there for about four months now. You've had a good opportunity to examine the operations by asset. I'm curious if you could share your high-level thoughts on what you might do differently going forward. What have you noticed that presents margin opportunities, cost reduction prospects, or maybe even chances to enhance the portfolio? Any insights you could provide based on your observations? I have a follow-up as well.

So, Doug, that's a great question for Joseph. He's excited about it. Thanks for joining us today. Please Joseph.

Thank you, Doug, and I'll take the operations angle of it. So, we spoke about the two events in Big Spring this quarter, right? So, we made the appropriate repairs and we moved on. But I think more importantly, we have shifted gears with a much more proactive reliability approach here and we are fully, fully focused on three key aspects of our operations; people, processes, and the equipment. With regards to people, we were able to fill key positions in the past couple of months with really strong industry talent and with more people around to understand what good looks like. The foundation is very sound, to really build on it, right? Procedures, training, very important, especially with the young workforce. And really lastly, equipment. In our prepared remarks, we discussed the $2.3 per barrel spent in Q2 under mechanical integrity. Most of the scope has been around inspections and eliminations of the racks tools really to mitigate our risk. The plan is to continue in this second half of 2023 with approximately $1 per barrel budget to knock the high priority items out really of the lease. When you look back, Delek has gone through a similar program in El Dorado in the past with really good results. El Dorado really ranks well these days. In case of mechanical availability has trended up in the past couple of years, and you can see high rates more consistently. I personally ran Big Spring as a Chief Operating Officer 15 years ago under a different company, and I know what Big Spring and its workforce are capable of. So, taking everything together, Doug, I'm very confident about our direction here and I'm sure reliability and capture will follow.

I appreciate the insights, Joseph. Thank you. My follow-up question might be directed to Rosy, but I'm open to anyone who wants to address it. The contributions from trading and supply have already been covered by several of my peers. However, I want to inquire about the movements in July. Looking ahead, should we anticipate a different level or magnitude in this regard? Or do you view the recent events, including July, as more of a one-off occurrence? How should we approach this moving forward?

Hey Doug, it's Avigal. Joseph was trying to highlight how to approach things moving forward, and most of the assets there are sustainable and come from a niche market. I'm sure once you hear Joseph's answer, it will make perfect sense. And if it doesn't, I'm sure Rosy would be happy to follow up.

Yes. We want you guys to understand the 2Q results, and we want you to be able to model them going forward. And Rosy has all the tools to support you there.

All right. Okay. I'll follow-up. Thanks, guys.

Next question is from Ryan Todd with Piper Sandler. Please go ahead.

Hey, thanks. Maybe a question on CapEx to start. I know 2023 CapEx is front-end loaded because of the turnaround work, but are you still on pace to hit your $250 million target for 2023? And then I know it's a little early, but as you look forward to 2024, how are you thinking about the put and takes in terms of what the 2024 budget may look like?

Yes. So, thanks for the question. We said that the $350 million is the number that we're at. And therefore, 2024 numbers, it's a bit early to talk about it. We're obviously just starting budget season now. So, I'm sure that we will be able to disclose the data on in the process. So, thanks for the great question.

Okay. Thanks. And I guess one on the expense side, operating expense and corporate expense were both lower than we expected this quarter. I know you talked some about the G&A trends expected to the end of the year. OpEx back up a little higher on guidance in 3Q. I mean, can you talk about directionally what you saw in second quarter, the trend on operating expenses going forward, and how all of this fits within the context of your cost reduction and efficiency goals? How far along are you on hitting those targets?

Yes, definitely. Reuven, our CFO, will share some highlights about our zero-based budgeting process, and then Joseph will provide some comments regarding operating expenses. Please go ahead, Reuven.

Thank you, and thank you for the question. So, during the discovery process, we looked at DK and DKL, and we challenged the organization structures and how we can streamline them. By using technology implementation, too many functions, various operation initiatives such as Stream and system improvement, heater health, and maintenance and reliability. In addition to that, we worked on optimizing our transportation segment, particularly trucking. We divided the execution into three stages, as some of the projects require more preparation and technology implementation and execution time. Phase 1 was executed in June with most of the impact on the G&A. We're working on execution in Phase 2 in the fourth quarter and Phase 3 in the first half of 2024. For 2023, as Rosy said in her prepared remarks, we expect to achieve approximately $46 million in cost savings, a split of 40% to 60% between G&A and operations. And those initiatives plus the ones planned for the first half of 2024 will put us on track for a run rate of approximately $100 million savings.

$5.43 per barrel might be competitive when you look into peers, but it's really not acceptable for us. We find our run rate closer to the $4.75 to $5 per barrel type of range for our entire system. Obviously, in Q2, the elephant in the room was Big Spring. I want to make sure we all know how to model that going for the $0.50 per barrel related to the outage is non-recurring. And then the $2.30 per barrel related to the mechanical integrity is also non-recurring. You take those from the $8.90 that we reported, and we are at approximately $6. $6 is still $1 per barrel higher than the run rate in Big Spring. Most of it is really just low throughput and the inefficiencies around it. You cannot bring down a variable cost as efficiently. You cannot turn down heaters, et cetera. So, $5 per barrel in Big Spring run rate. El Dorado also with outage-type work was approximately $1 per barrel higher than the run rate. KSR and Tyler had a good quarter in the range.

As you consider the guidance for the third quarter, are you suggesting that those figures remain relatively high, or is there another factor influencing the operational expense guidance?

Yes, we mentioned $1 per barrel less in Big Spring for the second half. So, take the $5 in Big Spring, add $1, so $6 there is probably a good way to go. The rest of the system, yes, should be in the run rate.

Okay. Thank you.

Thank you.

Thank you.

The next question is from Roger Read with Wells Fargo. Please go ahead.

Good morning. I would like to continue the discussion on cost savings and consider the next steps, if it's not too early to bring it up. Clearly, cost control is important for you, and it's essential to operate efficiently. Have you begun looking at or thinking about optimization opportunities? I understand that there is limited flexibility with feedstocks due to inland units and pipelines in many instances. However, to the extent that there could be adjustments on the feedstock side or improvements in yield or commercial viability, I am curious about how those aspects are developing.

Yes, Roger. We obviously, once we announce something and execute something, we are thinking about the next step. We have other plans coming up, but that we are not going to give numbers and timeline for the adjuster. But we have a few other initiatives that we are working extremely diligently on to be able to share with you guys. One thing, we've finished is mature, like, the zero-based budget process was, before it's mature, we will come back to you with another leg of initiatives and numbers and be more diligent around that and specific. So, the answer is yes, and we'll come back to you when it's ready. Joseph, you want to add to that?

Yes. Correcting our reliability, Roger, is definitely our best project. So, we are doing it, and we feel good about it. And for the 24 CapEx, we will bring some great ideas. We have several projects that are 50% and up in the IRR and return. Most of them are refining-related, like prior units and liquid recovery-type upside for our plans. We do have those optimization projects lined up for us in the next year to two years to execute.

Thank you for the information. I have another question regarding the potential increase in the dividend. However, when I reviewed the cash flow statement and balance sheet for this quarter, it didn't really seem to support a justification for raising the dividend. I'm curious about what factors are behind the numbers that give confidence to increase the dividend now.

Yes, I will start, and then Reuven will follow. We see a very strong cash flow environment and our performance is solid. The cash flow may fluctuate slightly because of the timing of product receipts and payables, but this is not a major concern. It’s just minor adjustments over a few days and does not alter our overall perspective on the business. This is why we remain very confident about the business and our ability to increase the dividend. Reuven.

Well, just one add-on. The June 30th is a cutoff date, with the inventory draw of $82 million in the last couple of days of the quarter, we had the $82 million already coming in July. So, that kind of made us determine that there should not be any change in our policy.

Okay. So, cash flows are stronger than what they look like in terms of the cut-off there?

Correct.

Okay. Appreciate that. Thank you. Thank you, Roger.

The next question is from Paul Cheng with Scotiabank. Please go ahead.

Hi, good morning. I have two questions. First, considering all your cost reduction initiatives, when we look at your corporate adjusted EBITDA projections for 2024, what should we expect as the typical figure in that line?

Hey Paul, it's Avigal. Good morning. Thank you for joining us today. Looking at the G&A, remember that a couple of quarters ago we indicated that we would be at $70 million or lower by the end of the year. We've since upgraded our guidance and expect a better figure. We plan to provide more precise guidance for 2024 next quarter. Regarding G&A, it's still a bit early for specifics. We want to ensure that all the projects we have lined up are developing as anticipated before offering tighter guidance for G&A in 2024.

Have you made a decision on when you will decide about the investment in the Fairmont Refinery in California? Additionally, one of your peers recently chose to terminate their inventory arrangement with their vendor, citing significantly higher financing costs and believing they can perform better on their own. Has the company considered whether to maintain the inventory arrangement with an external partner?

Yes. So, let me answer the first and the second. Second, so in terms of Bakersfield and the renewable diesel over there, it's obviously a free option, and we are obviously looking into that. At this point, we didn't make any decision. We didn't make any decision, but once there is a decision around that, we'll obviously let you know. At this point, it's not a major item on our list. If we option this opportunity presented that we definitely will definitely be there. Around the intermediate agreement, we obviously improve our situation by moving from one vendor to another; we are looking on the capital allocation extensively. And if we'll assume that we have better ways to act around it. Obviously, that agreement is shorter and the reason shorter is part of that is to allow flexibility in the future if you choose to.

For the option on the Bakersfield facility, is there a timeline in terms of when you have to make a decision at all that you use the option or your separate? Can you remind us?

Yes. There is no timeline for that. The option exists, and there is no way timeline for us to make a decision. It's more when the opportunity presents itself, if we find that the constructive and beneficial for shareholders, we do it and vice versa.

All right. We do.

Yes.

Thank you.

The next question is from Jason Gabelman with Cowen. Please go ahead.

Hey, Jason. Thanks.

Hey, morning. Just wanted to clarify something on Paul's question. Is the Bakersfield Renewable Diesel asset? Is that up and running? because I thought there was the kind of option is once it's up and running. So, just to clarify that.

No. It's not. There's still no planning.

All right. Thanks. My questions, the first one is going back to the trading supply and other line item, and I appreciate all the color and the run rate guidance forward is helpful, but I guess if I look last year, 1Q 2022 was over negative $100 million each quarter versus kind of the $60 million positive run rate you would expect. So, I was hoping you could elaborate on what drove that massive delta between the expected run rate and what you reported in the first half of 2022. And even in 1Q 2023, that would be helpful. Thanks.

Yes. We have made some changes to how we present DKTS over the last year and a half. I believe that the guidance Joseph provided moving forward will enable you to model this better than before when we were focusing on past figures. Previously, the objectives related to different entities were varied, but streamlining our processes has clarified things. This is part of why Joseph was able to offer much clearer guidance. You can be assured that it pertains to the asset, and a significant portion of it is sustainable.

Okay. So, if I understand what you're saying, there were other activities within that bucket that you're no longer engaging in to the same extent you were over the past year and a half. Is that fair?

That's fair.

Okay. Thanks. And then my follow-up is just on the strategic reorg. Mark, thanks for the color. Should we expect an update before the end of the year? Is that a reasonable expectation for the market?

So, I said that in my remarks earlier that the executive compensation has a big component around the sum of the parts. So, you understand that everyone's motivation is around that, and everyone focus is around that. But we are going to make the right transaction for the company, and we try to balance between fast and the right transaction. So, we're on the same boat. So, we want it. We have the right incentive in place to make everyone want it. We have the right plan in place to make it work. We just need to make sure that that's what we committed and that's what we want to happen. So, it's a big decision. We're going to make it right.

Okay. Thanks for that.

This concludes our question-and-answer session. I would like to turn the conference back over to Avigal Soreq for any closing remarks.

Yes, thank you. So, I want to thank my friends around the table here, the executive team, and all of Delek employees that had a very good quarter. I am very proud of our safe and reliable operation. Our ability to be safe and reliable is key, and I'm very proud of the great progress that the operations team is making this quarter. I want to thank the Board of Directors for the support and for you, shareholders, for the great support. Delek is up for a great journey, and we are all very excited, and we'll talk soon in the next quarter. Thank you so much.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.