Good morning, ladies and gentlemen, and welcome to the Delek US Fourth Quarter Earnings Conference Call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question-and-answer session. This call is being recorded on Tuesday, February 27th, 2024. I would now like to turn the conference over to Rosy Zuklic, VP Investor Relations. Please go ahead.

Good morning and welcome to the Delek US fourth 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 2 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.

Thank you, Rosy. Good morning and thank you for joining us today. During the fourth quarter, our operation ran well at the higher end of our guidance. We did a good job of focusing on what we could control. With that, I would like to thank each member of the Delek team. From a market perspective, during the quarter, we saw a weakness in product demand, consistent with the seasonal trends. In refining, we achieved record total throughput in the quarter, but still see opportunities for further operational improvement. Joseph will provide the details of our refinery operation and progress at Big Spring. We delivered another record quarter in our logistics segment. The consistent strong performance from our logistics segment validates our favorable position in the Permian Basin. Our logistics segment reported its best Q4 outside of COVID year 2020. Turning to the full year, 2023 was a strong year for Delek. We achieved $950 million of adjusted EBITDA. We made significant progress on our key objectives. As a reminder, they are operational excellence, financial strength and shareholder return, and executing our strategic initiatives. In terms of operational excellence, our team delivered a solid performance across all businesses this year. We made strategic investments in our people and operations. This improved our foundation for profitable and sustainable growth. Our planned major turnaround of the Tyler refinery was completed on time, on budget, and with no recordable incidents. The result was improved reliability, yield recovery, and stronger capture rate. We are very focused on our safety practices and pushing for constant improvement. I'm pleased to report that 2023 was our best year on record for safety performance. This includes personnel and processes. Turning to financial strength and shareholder return. We continue to be shareholder friendly. In 2023, we returned $146 million to shareholders through dividends and share buybacks. We also improved our financial position by using our strong cash flow to reduce debt by $454 million. We made progress on our strategic initiatives. As a result of our cost reduction effort, we find more efficient ways of working. This has delivered tangible results. For example, our inventory management has resulted in improvements in both earnings and debt levels. We are making progress to reach our goal of $100 million run rate cost reduction. Lastly, significant headway was made toward unlocking value intrinsic in our business. Now, turning to Slide 24. Our key priorities have not wavered. We'll continue our drive towards operational excellence, staying focused on safe and reliable operations. We have a turnaround of our Krotz Springs Refinery scheduled for Q4 of 2024. Joseph will give context on the improvements we expect post turnaround. Financial strength and shareholder returns will remain key. We believe we are well positioned to capture opportunities. We'll continue our disciplined capital allocation with the best interest of our stakeholders in mind. We look to deliver strong portfolio performance and results. We'll continue to optimize the balance sheet and remain committed to sustainable and competitive shareholder returns. In 2023, we returned $146 million to shareholders, with $85 million of this as share buybacks. As we demonstrated in 2023, we are committed to shareholder returns based on free cash flow. If we execute well in 2024, we will maintain this approach. We'll continue to balance improving our financial strength with shareholder returns. Our estimated CapEx for 2024 is approximately $330 million, which reflects a reduction from 2023 levels. The capital program shows our dedication to maintaining safe, reliable operations, enhancing our portfolio with strategic growth projects, and delivering shareholder value while maintaining our financial strength and flexibility. In 2024, we will continue to explore opportunities in the energy transition space to meet our return on capital objectives. We announced earlier this month that our Big Spring Refinery was selected by the Department of Energy for a project that will advance carbon capture technology in a safe and environmentally responsible manner. This project will serve our industry well into the decades to come. Now, I would like to turn the call over to Joseph, who will provide additional detail on our operations.

Thank you, Avigal. Moving to slides 5 through 7. In the fourth quarter, our team processed a back-to-back record high of 306,000 barrels per day of total throughput. In Tyler, total throughput in the fourth quarter was approximately 79,000 barrels per day. Production margin for the quarter was $11.54 per barrel, and operating expenses were $5.13 per barrel, which reflects approximately $0.55 per barrel of an employee benefit accrual and accelerated Tank Farm work. In the first quarter, the estimated total throughput in Tyler is in the range of 71,000 to 74,000 barrels per day. In El Dorado, total throughput in the quarter was approximately 88,000 barrels per day, marking a record high throughput from the plants. Our production margin was $4.94 per barrel, with operating expenses of $4.58 per barrel. Estimated throughput for the first quarter is in the range of 82,000 to 85,000 barrels per day. After working on the El Dorado fundamentals over the past several years and improving reliability, the team is focused on profit improvement opportunities primarily in the areas of crude sourcing, asphalt, and wholesale. By accessing heavier grades in El Dorado, we will leverage the existing refinery configuration to improve asphalt capabilities and optimize margins. Additionally, by increasing regional sales of our pipeline on the light products side, we will improve commercial optionality. In Big Spring, total throughput for the quarter was approximately 58,000 barrels per day, driven by maintenance work mostly reflected in our guidance, but with additional discoveries that we have addressed. Our production margin was $6.5 per barrel, which includes an estimated unfavorable impact of $3.40 per barrel from maintenance activities. Operating expenses in Big Spring were $8.98 per barrel, which includes approximately $1.90 per barrel related to additional maintenance, $1.40 per barrel for the integrity program, and $0.40 per barrel related to employee benefit accruals. Estimated throughput for the first quarter is in the range of 63,000 to 66,000 barrels per day. In Krotz Springs, total throughput was approximately 81,000 barrels per day. Our production margin was $4.93 per barrel and operating expenses were $4.83 per barrel. The Krotz Springs team is preparing for the fourth quarter turnaround, which will include regular maintenance as well as major upgrades to our FCC unit. Execution cost is estimated at $115 million and the expected return from the upgrades is approximately $30 million per year, mainly from yield and rate flexibility improvements and energy efficiency. Plant throughput for the first quarter is in the range of 73,000 to 76,000 barrels per day, and our entire refining system's implied throughput target is in the range of 289,000 to 301,000 barrels per day as we position our oil sales for the gasoline season. In the fourth quarter, wholesale marketing contributed a loss of approximately $20 million, which reflects a $40 million negative variance from the third quarter. The decrease reflects seasonal trends along with challenging Mid-Con supply/demand dynamics and lowering prices. We are expecting our commercial initiatives to provide us with better optionality in the future. Asphalt marketing contributed approximately $5 million compared with $15 million in the third quarter, consistent with our seasonal trends. In summary, 2023 was an important and successful year for our system in many ways. Our focus on people, processes, and equipment is giving us a strong foundation to optimize our operations and position our system for growth. While Tyler, Krotz Springs, and El Dorado have optimized operations over the years, we remain confident about our progress in Big Spring regarding reliability ahead of the upcoming gasoline season. US refining market dynamics for 2024 are constructive and we are well-positioned to capture this opportunity.

Thanks, Joseph. Starting on slide 8. For the fourth quarter of 2023, Delek US had a loss of $165 million or $2.57 per share. Adjusted net loss was $93 million or $1.46 per share and adjusted EBITDA was $61 million. Cash flow from operations was $91 million. On slide 9, the waterfall of adjusted EBITDA from the third quarter to the fourth quarter of 2023 showed that the primary driver for the lower results was from refining. This reflects significantly lower cracks in the fourth quarter relative to the third quarter. Logistics set a new record quarter at over $99 million. Retail was down largely due to seasonal trends, although we were in a falling crude environment. We saw lower margins but maintained strong volumes at our stores. Corporate segment costs improved compared to last quarter largely due to lower employee benefit expenses. Moving on to slide 10 to discuss cash flow. We generated $80 million in cash during the quarter, ending the fourth quarter with a balance of $822 million. Cash flow from operations, as I said, was $91 million. Included in this amount is a positive $223 million from working capital. This was largely from improved inventory management and lower product prices reflected in receivables. Investing activities of $69 million were mainly for capital expenditures. Financing activities of $101 million primarily reflect paydowns of debt and returns to shareholders. This includes $41 million in debt repayment, $20 million in buybacks, $15 million in dividends, and $10 million in distribution payments. On slide 11, we have the breakout of the 2023 capital program and guidance for 2024. Full year 2023 capital expenditures were $372 million. Approximately 80% of the spend was for sustaining and regulatory projects, which include the major turnaround at the Tyler refinery and reliability work at the Big Spring refinery. Our forecasted 2024 capital program is $330 million, which includes $255 million for sustaining and regulatory projects and $75 million for growth projects. In refining, we plan to invest $220 million, with 93% of the capital dedicated toward sustaining and regulatory projects, most of which is for the Krotz Springs refinery major turnaround scheduled for the fourth quarter of 2024, as well as projects at the Big Spring refinery to improve capture rates. In logistics, the Company expects the capital program to be approximately $70 million, with $50 million for growth projects. Growth projects will advance new connections in both the Midland and Delaware gathering systems, enabling continued volume growth at the partnership. The retail segment capital expenditures are expected to be approximately $15 million. Funds are dedicated to maintaining Delek's 250 convenience stores, which include interior renovations and rebranding initiatives. The corporate and other segment includes approximately $25 million of capital expenditures, which is primarily to fund IT improvements. Net debt is broken out between Delek and Delek's logistics on slide 12. During the quarter, we drew $80 million in cash and paid down $41 million of debt, ending the quarter with a net debt position of $78 million. Finally, slide 13 covers outlook items. In addition to the guidance Joseph provided, for the first quarter of 2024, we expect operating expenses to be between $215 million and $225 million, G&A to be between $60 million and $65 million, D&A to be between $90 million and $95 million, and net interest expense to be between $80 million and $85 million. We will now open the line for questions.

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. One moment please for your first question.

Yes. Thank you so much, team. I guess the first question is just an update on the sum-of-the-parts unlock. I know Avigal, it's something you've talked about over the last couple of years since your latest thinking around that and the milestones we should be watching.

Hey Neil, how are you? We have made significant headway in the sum-of-the-parts analysis. Mark, would you like to add more?

Yes, Neil. At this point, I would say that although we don't have anything specific to update per se at this time, we remain committed to highlighting the value that's intrinsic in our business, and we're working hard towards that. What I would emphasize is that anything we may do will be focused on enhancing not only our balance sheet across all of our businesses but also positioning our company to generate and deliver attractive shareholder returns for the foreseeable future. So we are taking all of those factors into consideration.

Okay.

Just to add a little bit, I appreciate it.

Yeah, we'll stay tuned. The follow-up is just on the quarter, which was a little bit softer than what we expected. I guess, I just love your perspective on maybe some one-time impact. It sounds like marketing could be a dynamic there. And as we think about the sequential build from Q4 to Q1, as Mid-Con margins have strengthened a little through the quarter, is there anything that you would want us to keep in mind as we think about incrementals and decrements?

Yeah. So Neil, you can see that we had a record during the quarter, and the investment needs were all aligned in terms of G&A and OpEx. Overall, we had very strong cash flow. Supply and marketing obviously faced some weakness, which aligns with the seasonal trends — and we've seen that supply marketing fared better than the previous quarter. We anticipate a big positive in Q2 due to seasonality. So, there is some seasonality in that line, which is more market-driven. But listen, we are focusing on what we can control, and we did a good job during the quarter. Joseph, do you have anything to add?

Yeah, the wholesale marketing contributed a negative $20 million in quarter compared to a positive $5 million, consistent with the seasonal trend. Wholesale marketing was challenged, as you heard regarding the market dynamics that impacted it particularly in December. The other element in Q4 included the normal reproduction dynamics that affected filing capture. As for the inventory situation in Mid-Con, we've worked towards most of the supply/demand products — and we've emphasized that the commercial optionality focus in El Dorado that we discussed in the prepared remarks would position us better for future volatility.

Thanks, Joseph. Thanks, Team.

Thank you.

Thank you.

Hi. Good morning. Thanks for taking my question. So my first question is on working capital. You've talked about the inventory management side, and you mentioned there wouldn't be a reversal of Q3's tailwind. It looks like not only did it not reverse, but you had an even bigger tailwind in Q4 despite the falling crude price. Can you speak a little bit more to your efforts around working capital and inventory management? And is there more to go there? Should we expect further working capital tailwinds going forward, all other things equal?

Yeah, absolutely, John. I would ask Reuven to provide some more detail.

Sure. Good morning and thank you for the question. We took a more holistic view of our balance sheet health from the beginning of the year. So Q3 and Q4 were the culmination of some initiatives we have been pursuing, with managing and optimizing inventory being one of them. We executed a significant portion of this in Q3, but completed the work in Q4, contributing roughly $190 million to working capital. In addition to this, we implemented a zero-based budget effort that has resulted in about $80 million in savings for the year, of which $57 million were realized in 2023, mostly in Q3 and Q4. Our focus was also on reducing debt. We reduced debt by roughly $450 million, which, along with our reliability and safety efforts, contributed to the end results in working capital. Regarding the future, we have kind of reached an equilibrium in terms of the level of inventory we want to manage. So, it will more depend on quarterly events that will impact working capital going forward.

Okay. That's really helpful detail. Thank you. And then could you talk about some of the opportunities you mentioned around energy transition? I think you mentioned carbon capture at Big Spring. Is this committed at this point? And is there any capital in the 2024 budget for this? And can you also remind us just on the status of the option you've had on the renewable side that you've spoken to in the past?

Yes, absolutely, John. At this point, we have elected to negotiate with the DOE, but there is no material CapEx planned for 2024. We will do everything we can to meet our cost of capital benchmarks. We're aiming to meet these metrics without exceeding them. From a holistic standpoint, you can see that we have a good system running at Big Spring, and we are closely monitoring our marketing efforts. We were also selected by the DOE for our Tulsa refinery to advance energy transition, which is a significant opportunity. We believe these projects will lead to further advancements in the future, and we'll make capital decisions based on our evaluations of the capital benchmark. As for the renewable diesel option we have, we're examining it very closely. It's a cost-effective option for us to acquire a facility in renewable diesel, something we're keenly focused on without committing excessive capital.

Yes, sure. Around the renewable option, John, we are monitoring it closely. Based on publicly available information, we understand they intend to commission the facility in the first quarter. We will observe how it performs in the first quarter and second quarter. Once they achieve a run rate for 90 days at 80% utilization, that will be when we have the opportunity to evaluate it further. We believe this could be an attractive and low-cost opportunity for us to establish a meaningful position in a well-located renewable diesel facility.

Thank you.

Thank you, John. Appreciate it.

Yes, thank you. Good morning.

Good morning, Roger.

Just two questions from me, both on the operational side. Just again, to follow up on supply and marketing, let's call it headwinds in Q4. Is there anything as you look forward to Q1 that suggests a reversal? I mean, I know it's market conditions. There's a limit to what you can change, but could you give us an idea of how this has evolved in the first couple of months of the year?

So, we are not going to give guidance on this line of business as market conditions change. I will say that we see a positive trend related to seasonal factors. We’re all aware of the macroeconomic indicators we're observing regarding gasoline and diesel. For gasoline, we are looking at a five-year average below expected outcomes, and for diesel, we are at the lower end of the five-year average. So both markets are looking constructive, but beyond general market information, we are not giving guidance for supply and marketing. Do you have anything to add?

I can add that one thing. I think the only thing I would mention, Roger, is the fact that some of the weather impacts that Joseph referred to in his prepared remarks were persistent through January, and I think others saw that as well. So, that’s the only point I would bring up, which will obviously reflect on the results in that line.

Okay. Fair enough. Although I guess it seems the weather is more benign here as we're two-thirds of the way through, so if you get a tailwind. The other question I have, and this is on slide 7, is about the Big Spring refinery which we've typically considered one of the better units overall in the Company. However, it's faced challenges recently. You've outlined the reliability improvement and the $100 million effort this year; the final third next year. What indicators should we look for in the coming two quarters that might hint at progress, such as the capture rate exceeding 70%? Is it just that the unit should run more consistently, or will there be actual changes in the facilities improving yield, or will the changes in crude input influence this?

Definitely, Roger. Joseph will provide a detailed answer, but from a high-level view, Big Spring is a refinery that we’ve recently acquired that processes 70,000 barrels a day. With operational capabilities around $525 per barrel, we believe that we can restore its operational excellence. Our focus on the $100 million effort should yield tangible improvements. If we can maintain the operations at Big Spring as effectively as we did in the past, we expect no barriers to returning to 2023 levels for throughput.

As mentioned in the remarks, Big Spring’s positioning should serve the market well through the upcoming gasoline season. We are on a clear execution path focused on people, processes, and equipment improvements. This will help mitigate rate variability. We expect to see improvements in knowledge and capture, as well as cost structure metrics. As we've communicated before, we are expecting throughput to stabilize above 70,000 barrels, having come from a baseline of 17%. Clearly, on a mid-cycle basis, OpEx run rate should stabilize around $5 per barrel by the end of the year, and we are inclined to say we'll see linear reductions from quarter to quarter, based on reasonable expectations. So on the bottom line, we will focus on all these aspects, and we are optimistic about Big Spring's future capabilities.

All right. Appreciate that. Thanks.

Your next question comes from Matthew Blair with TPH. Please go ahead.

Thank you, and good morning. I wanted to follow up on the sum of the parts efforts and appreciate your hard work here. My question is could you talk about your openness to a sale of your retail assets and how attractive would a retail sale be relative to some other options that you might have?

Yeah, Matthew, it's a great question. Everything is on the table, and we are actively evaluating various options, including the potential sale of retail assets.

Okay. And then my follow-up is on your trading and supply activities. What do you think normalized annual EBITDA for this line item should be? I have an old note that suggests roughly $130 million to $210 million as an annual ballpark figure. I think that compares to roughly $50 million in 2023. So what do you think supply and trading will contribute on an annual basis going forward?

We don't provide guidance for that line, and we will remain consistent about it. The categories have shifted, and what we previously referred to as trading and supply is now classified as supply and marketing. Now in that spectrum, we have three components: wholesale marketing, asphalt marketing, and our supply business. The wholesale marketing and asphalt areas tend to have more stability, albeit with some market condition fluctuation. We can see variations based on market dynamics, but those areas are better aligned with expectations. What might be more difficult to model is the supply business since it involves supplying crude to refineries while also servicing our DKL system, which can experience variances based on system disruptions. Nevertheless, the two areas are more predictable.

Great. Thank you.

Your next question comes from Kelly Ackerman with Bank of America. Please go ahead.

Hey, guys. Doug sends his regards from the West Coast. I've just got a couple also on slide number 6 here. I guess the first question is on the crop turnaround. Just hoping that you can give us some idea of the scope of the work that you're performing and how that could potentially drive better commercial performance on the back end, whether that's reliability or whether that's in yield. I'm curious if there's a similar question for El Dorado, as you're thinking about the commercial opportunity there.

I'll step in if we start with the Krotz turnaround, then I will elaborate more on El Dorado's opportunities.

First, I'd like to remind everyone that we projected an annualized $18 million improvement ahead of the final turnaround, and we achieved $24 million, with margins performing better than anticipated. In terms of the Krotz turnaround, we expect a $30 million increase coming from three main areas. One is a code unit piping scope that will improve our yield and rate flexibility. In other words, we will produce more jet fuel and enhance our capture capacity. A second focus is on the LCCU, where we will implement a new reactor and make regenerative upgrades that will enhance our conversions and yield performance. Finally, we anticipate better energy efficiency by replacing coupled turbines and improving catalyst activity post-turnaround.

I appreciate that. I guess the next — go ahead.

For El Dorado, Joseph outlined in his remarks that we plan to run more of a heavy slate and leverage the observed weakness in Canadian grades. By executing operational excellence and adapting to the local market, we aim to capture those opportunities moving forward.

That limit in El Dorado’s configuration enables us to effectively utilize heavy grades to enhance asphalt quality and optimize share positions while benefiting from various margin improvement factors.

I'm sorry for interrupting, guys. My follow-up question is trying to understand the scope of the work. The plan seems to extend through 2025. I'm trying to gauge if this suggests that 2025 CapEx will resemble 2024, and I'll leave it there.

Are you asking about the 2025 scope for El Dorado?

Well, you provided a capital commitment for 2023 through 2025 on slide number 7. Given the work plan is predominantly established for 2025, I’m trying to ascertain if the expectations for 2025 capital expenditures align with 2024.

The entire scope mentioned for Krotz will conclude with the $115 million we referred to, as part of our capital program for the year. There is no firm cost estimate for El Dorado at this moment. It's mostly related to commercial excellence and optimization efforts. We'll provide further details in the future regarding potential upgrades.

Regarding slides 24 to 25, there is no capital commitment for 2025 intended to discourage expectations. The timeline suggests the benefits will accrue over time, but our heavy turnaround capital efforts will conclude in 2024.

I get it. That's very clear. Thank you.

Your next question comes from Jason Gabelman with TD Cowen. Please go ahead.

Yes. It's Jason Gabelman. Thanks for taking my questions. I wanted to ask about shareholder returns. That topic hasn't been addressed yet. I believe in previous press releases, you disclosed your buybacks quarter-to-date at the time of the earnings press release. You didn’t provide that information this quarter, so I'm wondering if you have executed any buybacks quarter-to-date and what your outlook for repurchases looks like through 2024.

Hey, thanks for the question. I’ll give an overview of our capital return to investors. First, we are very committed to shareholder return. We returned over $146 million of free cash flow to shareholders this year, with $85 million going towards buybacks and $61 million in dividends. We plan to maintain this same approach into 2024. You can probably appreciate that we've repurchased 8% of our stock in 2023, and none of what we disclose suggests any deviation from our commitment. We are serious about shareholder returns, and we aim to take a leading position in this regard while continually demonstrating that through our actions.

Okay, I understand. So does that 8% figure seem achievable either in 2024 or in a mid-cycle environment?

That was not in a mid-cycle environment. We achieved that from free cash flow. We are committed to this, and the extent will depend on market conditions more than project conditions. I’m optimistic, but I do not want to commit to a number tied to unpredictable market conditions. The important thing is our commitment to return shareholder value both in the short term and long term, and we have proven our capacity in this regard last year.

Okay. Understood. And could you provide your perspective on the demand seen in the niche markets in which you operate?

Outside of the weather-related impacts, we think the markets present good opportunities, and we feel optimistic about the future.

Thank you.

There are no further questions at this time. I would now like to turn the conference over to Avigal. Please proceed.

Thank you. I would like to thank my colleagues around the table for a great quarter, to thank the Board of Directors, and to our investors who joined us for this call. Most importantly, I want to express my gratitude to our employees who make this company what it is. We will talk to you again in the next call. Thank you, operator.

Thank you. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.