Good morning. My name is Kim, and I’ll be your conference operator today. At this time, I would like to welcome everyone to the Delek Logistics Partners Q3 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session.

[Operator Instructions] Thank you. Keith Johnson, Investor Relations. You may begin your conference, sir..

Thank you, Kim. Good morning. I would like to thank everyone for joining us on this webcast to discuss Delek Logistics Partners’ third quarter 2016 financial results. Joining me on today’s call will be Uzi Yemin, our General Partners Chairman and CEO; Assi Ginzburg, CFO; Danny Norris, CAO; and other members of our management team.

As a reminder, this conference call may contain forward-looking statements as that term is defined under Federal securities laws. For this purpose, any statements made during this call that are not statements of historical facts may be deemed to be forward-looking statements.

Without limiting the foregoing, the words believes, anticipates, plans, expects, and similar expressions are intended to identify forward-looking statements. You are cautioned that these statements may be affected by important factors set forth in our filings with the Securities and Exchange Commission and in our latest earnings release.

As a result, actual operations and results may differ materially from these results discussed in the forward-looking statements. We undertake no obligations to publicly update any forward-looking statements, whether as a result of new information, future events, or otherwise.

On today’s call, Assi will begin with a few financial comments and Danny will review our financial performance. Then Uzi will offer few closing strategic remarks. With that, I’ll turn the call over to Assi..

Thanks, Keith. Our DCF was approximately $19.1 million in the third quarter 2016, compared to $22.6 million in the third quarter of 2015. The DCF coverage ratio was 0.99 for the third quarter 2016 and 1.16 for the nine months ended September 30 2016.

During the third quarter of 2016, the Paline Pipeline hydro test reduced our DCF by $1 million through a combination of expenses and capital spending for the work done while the partner was done. EBITDA was $22 million for the third quarter 2016, compared to $26.1 million in the prior-year period.

Based on our performance, we’re pleased to announce an increase in our quarterly distribution to $0.655 per limited partner unit for the third quarter ended September 30, 2016. This distribution is payable on November 14, 2015, and is a 4% increase from our second quarter 2016 distribution per unit.

This is our 15th consecutive increase and is 14.9% higher than our third quarter 2015 distribution of $0.57 per limited partner unit.

During the third quarter of 2016, DKL continued to maintain a flexible financial position with $318.5 million of available capacity on our $700 million credit facility and a leverage ratio of 3.7 times, which was well below our 4.75 times currently allowable under our current facility.

Also before I turn the call over to Danny, I wanted to provide an update related to my role as a CFO of DKL. As you may be aware after further discussion with our sponsor Delek U.S., I will continue as a CFO through May 2017. The general partner and I have agreed that I will remain as CFO during this time period for DKL as well.

I’m looking forward to continuing this role and I’m excited about the initiative we have ahead of us. Beyond May 2017, I will continue working for the company as an officer in a different role. Now, I will turn the call over to Danny to discuss the financial results..

Thank you, Assi. For the third quarter of 2016, Delek Logistics reported net income attributable to all partners of $13.2 million, or $0.41 per diluted common limited partner unit, compared to net income attributable to all partners of $18.6 million, or $0.70 per diluted common limited partner unit in the prior-year period.

Our contribution margin was $24.7 million compared to $29.1 million in the third quarter 2015. This decrease on a year-over-year basis is due to lower performance in the Pipelines and Transportation segment.

Third quarter 2016 contribution margin in our Pipelines and Transportation segment was $16.1 million compared to $20.4 million in the third quarter of last year.

This decline was primarily attributable to lower performance in the Paline Pipeline due to a decline in both the amount of capacity that is leased and the lease revenue on a year-over-year basis. Also, lower volume on the SALA gathering system reduced contribution margin.

These factors were partially offset by lower operating expenses that declined to $7.7 million in the third quarter of this year from $8.4 million in the prior-year period. The operating expense decline was primarily due to lower tank maintenance costs and utilities.

Tank maintenance costs are lower due to the completion of projects in the prior-year period in 2016 cost saving initiatives. Expenses in the third quarter of 2016 included approximately $500,000 of expense related to the hydro testing of the Paline Pipeline.

Contribution margin in our Wholesale Marketing and Terminalling Segment was $8.6 million in the third quarter of this year, which is in line with the prior-year period. A decline in gross margin in west Texas and lower volumes in the east Texas marketing agreement was offset by reduced operating expenses on a year-over-year basis.

Operating expenses declined to $1.6 million from $3.2 million in the prior period due to a combination of lower tank maintenance work at the terminals. Utilities and supplies. Similar to the Pipelines and Transportation segment, tank maintenance costs are lower due to the completion of projects in the prior-year period.

Our west Texas wholesale gross margin was $1.16 per barrel in the third quarter of this year, compared to $1.50 per barrel in the third quarter of last year. Throughput in west Texas during the third quarter of 2016 was 12,162 barrels per day, compared to 18,824 barrels per day in the prior-year period.

Demand in the region continue to be affected by a low crude oil price environment, as we moved into the fourth quarter with experienced increased volume and gross margin per barrel above $2 during October. Capital expenditures were approximately $3.1 million in the third quarter of this year.

For 2016, our total capital expenditure forecast is $10.6 million, which includes $2.1 million of discretionary and $8.5 million of maintenance spend. This compares to our previous 2016 forecast of $14.3 million.

We have invested approximately $95.8 million as of September 30, in our joint venture pipeline projects and the estimated total investment for the RIO and Caddo pipelines is expected to be approximately $101 million. With that, I will turn the call over to Uzi for his closing comments..

Thank you. Danny. During the third quarter, we successfully completed the hydro testing of the Paline Pipeline, which is required every five years, resulting in limited repair work. We have filed a FERC tariff on this pipeline and are actively marketing the excess capacity to third-party shippers, which have shown some interest for spot shipments.

With the completion of the RIO pipeline in September, we’re looking forward to contribution from this investment in the fourth quarter and as we move into 2017.

The joint venture continues to explore growth projects around the pipeline in west Texas and recently began construction on another storage tank in the system that should be completed by mid-2017. Our Caddo joint venture is expected to be completed in January 2017 and should provide additional growth for DKL in the next few years.

We continue to maintain financial flexibility at DKL and remain focused on our growth initiatives. These initiatives include the joint venture pipeline projects, evaluating third-party acquisitions, and exploring options to partner with Delek U.S.

We believe that the combination of our growth initiative and financial position should continue to support our distribution growth. Based on expected contribution from our joint venture project and improvement in our existing assets, our focus for 2017 distribution growth target is, at least, 10%. As you know, on October of 14, our sponsor Delek U.S.

made a non-binding proposal to acquire the remaining outstanding stock of the – of Alon USA in all stock transactions. I’m sure that there are many questions related to this proposal and how it may benefit DKL. But we do not intend to make any comments related to this proposal at this time. With that, Kim, could you please open the call for questions..

Thank you. [Operator Instructions] And your first question comes from the line of Gabriel Moreen with Bank of America Merrill Lynch. Your line is open..

Hey, good morning, everyone.

So, Uzi, on the last comment you made about double-digit growth in 2017, just to clarify, that’s not contingent on additional M&A occurring at the DKL level or dropdowns to DKL, is that correct?.

That’s a great question. That’s not contingent on additional M&A. As you know, third quarter was impacted by Paline that’s behind us and based on the organic growth that we see in the system.

We are expecting, at least, double, or would expect, at least, 10%, if you will, not contingent on any M&A, obviously M&A, or any new dropdowns may increase that number..

Great. Thanks, Uzi. And then in terms of the $2, you had mentioned, there’s a number out there for October for west Texas margins.

Can you just elaborate sort of what maybe occurred in October? Is it just the rig counts gotten to a certain level? And do you see that kind of $2 as sustainable number if things keep going as we’re going in the Permian?.

Yes, this is Mark Smith. What’s happened is, we’ve seen actual, I think, the rig counts are starting to take effect with some of the upticks in rig counts. We’ve seen our volumes grow up by almost two a day in October versus the third quarter average. And both the disciplined [ph] margins, which had been suffering most of the year are pretty decent.

They’re actually positive versus most of the year being flat and gasoline margins have stayed strong out there, as the spec change happened between September and October..

Thanks, Mark. And then just last broader question maybe for management team is around just thinking about dropdowns in light of cost of capital include some other refinery linked dropdown MLPs of kind of, I think taking a look at that issue.

Can you just talk about how you’re broadly thinking about cost of capital and dropdowns in the current environment?.

The good news for us, as I mentioned, this is Assi, as I mentioned on the – in my comment is that, we are well below our level ratio on our debt to EBITDA, and we can probably borrow tomorrow more than $100 million and stay within that ratio.

So while the unit has been suffering probably in my mind for no reason down increasing the cost of capital, our cost of debt stays very, very low, probably the lowest in the industry. And as you remember, we have $318 million available under our credit facility. So we have that ability again for the next few dropdowns to use debt only..

And just remind me, Assi, are you comfortable with the 4.5, or what was level on the debt to EBITDA are you kind of comfortable up to?.

We usually target – to be half a time below the allowable by the bank, which is 4.25. Without being said for an acquisition, if we can deleverage later, and as you know, we in general, every year as we were not paying everything is a dividend, we think that we can still have enough of financial flexibility.

In addition to that, our credit facility does allow us to put some kind of a no to a high yield or term loan above our revolver and to inch up the deliverance. Without being said, Delek U.S. is usually and Delek Logistics is our conservative companies. And I think 4.25 is doable, maybe 4.5 just to – as a short period of time between acquisition..

Understood. Thanks very much..

Thank you..

And your next question comes from a line of Brian Gamble with Simmons. Your line is open..

Good morning, everybody. Just on Paline you talk about negotiations ongoing, interest being shown there for the hydro test.

I guess any other details you can provide as far as how the near-term growth opportunities maybe and/or the magnitude that we could potentially expect could be there either in Q4, or by next year?.

Let me take the first part of it and then Mark, I’m sure will add some color as he talks to many companies in the area. Just to refresh everybody’s memory, Longview is where the line starts and it goes to Nederland. The Longview area is about to get more barrels coming from different sources.

So more and more we hear from people that they have interest in shipping on the line, because of the amount of barrels that we see in Longview. We need to look at the job carefully, which we’re doing it almost every day.

But we are extremely optimistic that when job opens because of the amount of barrels that are coming to Longview, that line would continue to perform the way it performed until few months ago. Mark, do you want to add..

Yes, I think, Uzi – Brian, I think, Uzi said it pretty well. We have – there’s a pipeline starting up in the first part of next year bringing a significant amount of barrels into Longview. We’ve gotten a lot of interest from the major players in the Nederland area that are looking for alternative ways to get crude.

And when things open up, I think they’ll be there to ship..

Great. And then maybe next on the OpEx run rates both segments performed well for the quarter. You mentioned some maintenance in some utilities that were beneficial on a year-over-year basis, or maybe quarter-on-quarter basis.

Are those run rates appropriately used both in Q4 and as we approach next year, or are there any sort of one-off in Q3 that may do a little bit better than we should expect to continue going forward?.

Brian, varying incidence, which again, this was a clean quarter varying avoiding incidence, if you will, in the future, that’s what we expect to be our OpEx going forward. It may inch up just a little to make sure that we are maintaining integrity of the system. But generally speaking that delivery we’re comfortable with..

Great..

Brian [Multiple Speakers] this quarter are $0.5 million of the cost of the hydro test, it’s part of the OpEx. So if any this quarter was OpEx was higher than it would have been otherwise. So, we can actually can’t perform if everything goes well at even lower rate..

Even better would like to hear that.

And then lastly, Uzi you mentioned it, I’ll just throw back at you just in case you changed your mind in the last 10 minutes, anything you want to say on along in DKL?.

I didn’t change my mind..

Okay, just checking. Thanks, guys. I appreciate it. Have a good day..

And your next question comes from the line of [Lin Chen with High] [ph]. Your line is open..

Hi, good morning. Thanks for taking the question. I’m glad to hear that you guys do commit to go a decision 10% percent or double-digit next year. Unfortunately, I think that DKL is really underwriting the market. I’m just wondering, there are some MLP acquisitions [ph] before like, they’re closely as depend on how the market treat them.

How should we think about DKL as well or disciplined growth?.

I’m not sure. I – could you please clarify the question? I’m not sure I….

I – just like – the distribution growth is function of their cost of capital for DKL not like, how should we think about, they’re like how DKL, their equity is trading worth, it’s – how do you plan to grow distribution?.

Okay, perfect. Now I understand the question. First of all, it’s not dependent on the cost of capital, this is the question. Second, I want to clarify something you gave –askedearlier, and maybe I did good job answering his question.

We are comfortable with the double-digit growth regardless of dropdowns or M&A activity just because of the activity that we see increasing in our different assets. So there’s no new capital coming in to support this 10% or more than 10%. Obviously, if we are doing M&A or new dropdowns then that number can grow.

But then it’s a function of cost of capital obviously. But for the basic 10% percent, we don’t do anything unusual in terms of capital. I hope I answered your question..

Great. Thank you. That’s what I want. Thank, Ezra. Thank you..

There are no further questions at this time..

Thank you very much, Kim. I’d like to thank my friends around the table. I’d like to thank Board of Directors and new investors for supporting our company. But mainly, I’d like to thank our employees for making this company what it is. Thank you and have a great day..

Ladies and gentlemen, this concludes today’s conference call. You may now disconnect..