Good morning, ladies and gentlemen, and welcome to the Delek Logistics Partners' Fourth Quarter 2023 Conference Call. This call is being recorded on Tuesday, February 27, 2024. I would now like to hand the conference over to Rosy Zuklic, VP of Investor Relations. Please go ahead.

Good day, and welcome to the Delek Logistics Partners fourth quarter earnings conference call. Participants on today's call will include Avigal Soreq, President; Joseph Israel, EVP Operations; Reuven Spiegel, EVP and Chief Financial Officer; and Odely Sakazi, SVP Delek Logistics. As a reminder, this conference call will contain forward-looking statements as defined under the federal securities laws, including without limitation, statements regarding guidance and future business outlook. These statements involve risks and uncertainties that may cause actual results to differ from our forecast. For more information, please refer to the risk factors discussed in the partnership’s most recently filed annual report on Form 10-K and quarterly report on Form 10-Q filed with the SEC, along with the press release associated with this call. The partnership assumes no obligation to update any forward-looking statements or information, which speak as of their respective dates. I'll now turn the call over to Avigal for opening remarks.

Thank you, Rosy. Delek Logistics Partners finished 2023 strong. We delivered another record quarter and achieved a record year. DKL exceeded $100 million in adjusted EBITDA this quarter. We saw substantial growth from our new connections in our mid and gathering operations further validating our strong position in the Permian Basin. I'm very proud of our employees, who are dedicated to making Delek Logistics succeed. It is their dedication to safe and reliable operation that makes our results possible. The team has gone without a lost time injury for four years in a row and counting. We are also focused on growing third-party revenues, allocating capital in a disciplined manner, and exploring natural gas opportunities in the Delaware Basin, where we see significant growth. In January, the Board approved the 44th consecutive increase in the quarterly distribution to $1.055 per unit. Delek Logistics has shown a strong track record of delivering value to unitholders. We feel confident in our ability to maintain competitive distribution to our investors. I will now hand it over to Reuven.

Thank you, Avigal. The fourth quarter of 2023 adjusted EBITDA was $100.9 million compared with $92.5 million in the same period of 2022. The fourth quarter EBITDA was $86.1 million, which included a $14.8 million goodwill impairment related to some of our Delaware Gathering and processing assets. The impairment was primarily driven by a significant increase in interest rates. Our long-term outlook of the Delaware Gathering System remains unchanged. Distributable cash flow was $65 million and the DCF coverage ratio was 1.4%. For the Gathering and Processing segment, adjusted EBITDA for the quarter was $53.3 million compared with $48.1 million in the fourth quarter of 2022. The increase was primarily due to higher throughput from Delek Logistics Premium Basin assets. Wholesale Marketing and Terminalling adjusted EBITDA in the fourth quarter of 2023 was $28.4 million compared with $23.3 million in the prior year. The increase was primarily from higher terminal utilization. Storage and Transportation adjusted EBITDA in the quarter was $17.5 million compared to $16.1 million in the fourth quarter of 2022. The increase was mainly driven by higher storage and transportation rates. And lastly, the investment in pipeline joint venture segment contributed $8.5 million this quarter compared with $9 million in the fourth quarter of 2022. Moving on to capital expenditures. The capital program for 2023 was $74 million. This includes $7 million of proceeds from producers to partially fund growth projects. Most of the spend throughout the year was for growth projects, namely advancing new connections in the Midland and Delaware gathering systems. For 2024, Delek Logistics Partners expects the capital program to be about $70 million. This includes approximately $20 million of sustaining and regulatory capital and $50 million of growth capital. We will continue to advance new connections in our gathering system for the volume growth at the partnership. With that, we can open the call for questions.

Thank you. Your first question comes from Doug Irwin from Citi. Please go ahead.

Hi. Thanks for the question. I just want to start with the Delaware Gathering and Processing assets. Understanding the long-term outlook is still on track. Can you maybe just talk about how the three Bear assets are trending today just versus the initial expectations when you acquired them, I think the initial target for these assets when they were acquired was $100 million of annual EBITDA. Is that still a good number to work with here near term?

Hey, Doug, it's Avigal. Good morning. Thank you for joining our call. Generally speaking, the three Bear now DDG is meeting our expectations. Being over there in that area gives us insight for more opportunities we see in the region. And as you probably picked up on my prepared remarks, there are additional opportunities mainly on natural gas. So that was a very good acquisition to get into, and we are happy about it.

Okay. Got it. Thanks. And then just a second question just on the broader 2024 outlook. Last quarter you talked about exiting 2023 at a $100 million quarterly EBITDA run rate, which you achieved this quarter. Are there any similar targets you can point to moving forward, whether that's on EBITDA volume growth or some other metric just to help frame the growth outlook for 2024?

Yeah. So we are focusing on having consistent improvement, and we are committed to keeping our business improving. We are very optimistic about what we see in the business, the opportunities we have seen, and a significant CapEx plan into the business that will enhance additional opportunities. So that's going to be what we can provide moving forward.

Got it. I'll visit there. Thank you.

Okay. Thank you for joining us today.

There are no further questions at this time. I will turn to Paul Langlois from Lord Abbett. Please go ahead.

Yes. Hi. I was curious; it looked like the Midland volumes were down a little bit sequentially. And some of the gas and the water and the Delaware volumes were down a little bit sequentially. Forgive me if I missed that. What was the reason for that? And should we expect that trend to continue?

Yeah. So thank you, Paul, for joining us today. The gathering, the Delaware volume is pretty much in line quarter-over-quarter. What we see in the Permian Basin is a touch lower. You can expect that after producers add new production; the new production in the beginning goes very high and then stabilizes over time. So that's what we see. As you probably picked up, we have a significant capital budget that will enhance additional volume and connection in the DPG, the Midland area, and we will see volume pickup along the year. Odely, do you want to add anything to that?

Sure. This is Odely. Hi, Paul, good morning. I want to provide a bit more detail on the Delaware side as Avigal mentioned. In the fourth quarter, we accelerated some maintenance work that was initially scheduled for the first quarter, which helped us maintain and improve our volumes. This is why you see a slight decrease in gas production between the fourth and third quarters of this year. However, if you look at both DPG and DDG year-over-year, we have clearly continued to enhance our social performance. In the fourth quarter, the expedited work was significant, and we are already seeing an improvement in the first quarter compared to both the third and fourth quarters.

And that improvement is for both Midland and Delaware?

Primarily, the improvement is in Delaware and Midland. As Avigal mentioned, we do see the natural decline in the business compared to the peak we've seen or compared to the volume we've seen in Q3. With that said, we do have a capital program, as Avigal mentioned, also Reuven, in his remarks of $50 million on connection. So we should start to see an increase in Permian in the second half of the year, as we increment this project.

Okay. Great. And then I noticed corporate expenses were down a little bit sequentially. Could you talk about that?

So it's an effort we are making across the company to streamline expenses. We had a big initiative on the parent company to reduce expenses recorded through a zero-based budget with a target of $100 million. Some of that went all the way to DKL. So you see the fruits of that. We were pleased with the results.

Okay. Great. So we should expect expenses to kind of stabilize or maybe even continue to improve going forward?

Yes. I don't think we are giving guidance, but there is no reason for it to go back.

Okay. And then you have a few debt maturities coming up in 2025. Any thoughts on those at this point in time?

Yes, absolutely. Maybe Reuven, CFO could elaborate.

Yes. We are actively examining various instruments. We will probably be in the market in the next few months to refinance some of the debt, especially the one that is coming due, including the term loan A and the $250 million yield. So some form of refinancing will happen this year.

Okay. Great. And then my last question you probably won't be able to say too much on it. But as you look at the sum of the parts and the strategic. Are there ways – what are your thoughts on leverage here at DKL? And are there ways that that could be improved as part of that? Anything you can kind of say on that subject?

You can probably see the trend; the leverage ratio has been improving quarter-over-quarter. We will continue this trend; that's our plan. And obviously, there are more ideas on the table, but once we get into a higher level of resolution we will communicate with the market. But I think that if you connect the dots based on what you have seen in the last year or so, you can be very pleased with the improvement in the leverage ratio. We are doing that consistently, quarter-after-quarter.

Great. And should we think of your goal as four times or any thoughts on that?

Yes, we started – we are communicating to the market that we want to be below four, and we're eventually going to get there.

Excellent. Okay. Thank you very much.

Thank you, Paul.

There are no further questions at this time. I will turn the call back over to Avigal for closing remarks.

Thank you. I would like to thank my colleagues around the table, our Board of Directors, our investors, and mostly our employees who are making this a great company. We'll talk again next quarter. Thank you so much.

Ladies and gentlemen, this concludes your conference call for today. Thank you for joining, and you may now disconnect your lines. Thank you.