Keith Johnson - IR Uzi Yemin - Chairman, CEO Assi Ginzburg - CFO Danny Norris - CAO Mark Smith - EVP.

Analysts:.

Good morning. My name is Karina, and I’ll be your conference operator today. At this time, I would like to welcome everyone to the Delek Logistics Partners Q4 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. Mr. Keith Johnson, you may begin your conference..

Thank you, Karina. Good morning. I would like to thank everyone for joining us on this webcast to discuss Delek Logistics Partners’ fourth 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 -- as well as 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 fact 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 the 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..

Thank you, Keith. Our DCF was approximately $18.5 million in the fourth quarter of 2016, compared to $18.9 million in the fourth quarter of 2015. The DCF coverage ratio was 0.9 times for the fourth quarter 2016 and 1.09 on an annual base for 2016.

During the fourth quarter of 2016, the maintenance and regulatory capital expenditures were higher as spending shifted into the period due to the timing of the projects. EBITDA was $24.4 million for the fourth quarter of 2016, compared to $23.6 million in the prior-year period.

For 2016, our EBITDA was $97.3 million compared to $96.5 million in the prior year period. The DCF was $81.7 million compared to $81.3 million in 2015. In 2016 our joint venture crude oil Pipeline project were under construction and provided no benefit to EBITDA.

With the pipelines in operation, we have substantially completed our investment and look forward to the contribution from these projects in 2017. Based on our performance, we increased our quarterly distribution to $0.68 per limited partner unit for the quarter ended December 31, 2016.

This distribution was paid on February 14, 2016, and is a 3.8% increase from our third quarter 2016 distribution per unit. This is our 16th consecutive increase and is 15.3% higher than our fourth quarter 2015 distribution.

During the fourth quarter of 2016, DKL continued to maintain a flexible financial position with approximately $301 million of availability on their credit facility with a leverage ratio of 3.85 times, which is well below our 4.75 times currently allowable under our credit facility.

Now, I will turn the call over to Danny to discuss the financial results..

Thank you, Assi. For the fourth quarter of 2016, Delek Logistics reported net income attributable to all partners of $15.3 million, which was in line with the prior year period.

Limited partner interest and net income was $11.4 million or $0.47 per diluted common limited partner unit compared to $13.5 million or $0.55 per diluted common limited partner unit in the prior-year period. Our contribution margin was $27.2 million compared to $26.2 million in the fourth quarter of 2015.

Fourth quarter of 2016 contribution margin in our pipelines and transportation segment was $16.8 million compared to $17.5 in the fourth quarter of last year. This decline was primarily attributable to lower performance from the pipeline due to decline in both the amount of capacity that is leased and the leased revenue on a year-over-year basis.

Also, lower volume on the SALA gathering system, reduced contribution margin. Those factors were partially offset by lower operating expenses that declined to $6.9 million in the fourth quarter 2016 from $10.7 million in the prior year period.

The operating expense decline was primarily due to a lower level of project work as compared to the prior year period and 2016 cost saving initiatives. Contribution margin in our Wholesale Marketing and Terminalling Segment was $10.3 million in the fourth quarter of this year, which is an increase from $8.7 million in the prior-year period.

This increase was due to an improvement in the gross margin in West Texas, higher volumes at the older rate of the terminal and improvement from the East Texas marketing agreement, which was partially offset by higher operating expenses on a year-over-year basis.

Our West Texas wholesale gross margin was $1.96 per barrel in the fourth quarter of 2016 compared to $1.05 per barrel in the fourth quarter of 2015. Throughput in West Texas increased to 13,906 barrels per day compared to 12,488 barrels per day in the prior year period.

Our performance benefited from increased drilling activity in the Permian Basin during the second half of this year. As we have moved into the first quarter of 2017, activity in the Permian Basin has continued to increase.

[History] and benefits volume in our West Texas markets and our gross margin per barrel has been approximately $2 during January and February even in our lower price environment for [indiscernible]. Capital expenditures were approximately $6.8 million in the fourth quarter of 2016 and for the year, we spent approximately $11.8 million.

Our 2016 capital expenditures included $3.1 million of discretionary spending and $8.7 million of maintenance. For 2017, our total gross capital expenditure forecast is $18.1 million, which includes $3.1 million of discretionary and $15 million of maintenance before reimbursements by DelekUS.

We expect approximately $5.3 million of the maintenance capital expenditures to be reimbursed in 2017. As of December 31, we have invested approximately $103 million in our joint venture pipeline projects with both projects now operating, our initial investment in these pipeline projects is substantially complete.

With that, I'll turn the call over to Uzi for his closing comments..

Thank you, Danny. As you know, on January 3 our sponsor DelekUS reached in a definitive agreement to acquire the remaining outstanding stock of our U.S. in all stock transaction.

We believe that as DelekUS continues to grow in activity in the Permian Basin increases, we should have opportunities to build or purchase logistics assets that support DelekUS larger operations as well as third party. We continue to maintain financial flexibility at DKL and remain focused on our growth initiatives.

Our growth opportunities are further enhanced by the potential for increased dropdown inventory at our sponsor. We believe that all the following DelekUS closing their loan transaction, there is a potential for the alpha terminal to be first dropped down to DKL.

Our financial flexibility should allow us to utilize our credit facility to complete this purchase.

We continue to focus on creating long term value for our shareholders or unitholders and believe that the combination of an increase dropdown inventory at our sponsor contribution from our joint venture pipeline projects and growth initiative, especially at the Permian Basin should continue to support our annual distribution growth per limited partner unit of at least 10% through 2019.

With that Karina, would you please open the call for questions?.

[Operator instructions] Your first question is from the line of Gabe Moreen from BoA ML. Please go ahead. Your line is open..

Hi everyone. This is Keith on for Gabe..

Hey, good morning..

So, I just had a quick question. There is a news report that came out last night that refiners in a biofuel group reached an agreement on shifting the point of obligation for the RFS.

So, I was just wondering if you could provide some color on implications for DKL for West Texas marketing operations if the point of obligation does end up switching to [lenders]?.

You talking about the West Texas operation?.

Correct..

I don't see big impact on that..

Okay. Great. Thank you..

[Operator instructions] There are no further questions on the phone at this time..

I would like to thank everybody on the call. I would like to thank my colleagues around the table here. I would like to thank our employees who are making this company what it is. Have a great day. We'll talk to you in the future..

This concludes today's call. You may now disconnect..