Keith Johnson - Vice President-Investor Relations Kevin Kremke - Chief Financial Officer Uzi Yemin - Chairman and Chief Executive Officer.

Justin Jenkins - Raymond James Ned Baramov - Wells Fargo.

Good morning. My name is Nora, and I will be your conference operator today. At this time, I would like to welcome everyone to the Delek Logistics Partners Second Quarter Earnings 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. Speaker Keith Johnson, you may begin your conference..

Thank you, Nora. Good morning. I’d like to thank everyone for joining us on this webcast to discuss DKL’s second quarter 2018 financial results. Joining me on today’s call will be Uzi Yemin, our General Partner’s Chairman and CEO; Kevin Kremke, CFO; 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 press release.

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

In addition to reporting financial results in accordance with the generally accepted accounting principles or GAAP, we also report certain non-GAAP results.

Investors are encouraged to review the reconciliation of these non-GAAP financial measures to the comparable GAAP results, which can be found in the press release, which is posted on the Investor Relations section of our website. On today’s call, Kevin will begin with a financial overview, and then Uzi will offer a few closing strategic remarks.

With that, I’ll turn the call over to Kevin..

Thanks, Keith. We had a strong second quarter performance supported by our Permian Basin position. Our record results enabled us to both increase our DCF coverage ratio and lower our leverage ratio.

The benefit from the Big Spring logistics assets acquired effective March 1, 2018, the year-over-year increase in the West Texas gross margin and improved performance on the Paline Pipeline, drove the second quarter 2018 improvement compared to the prior year period.

Our distributable cash flow was approximately $33.5 million in the second quarter of this year compared to $23 million in the second quarter last year. Our DCF coverage ratio was 1.34x for the second quarter, which is an increase from 1.14x in the first quarter of this year.

EBITDA increased to $45.4 million compared to $30.3 million in the prior year period. Based on our performance, we increased our quarterly distribution to $0.77 per limited partner unit for the quarter ended June 30.

This distribution is to be paid on August 13 to unit holders of record as of August 3, and is a 2.7% increase from our first quarter 2018 distribution per unit. This is our 22nd consecutive quarterly increase and is 9.2% higher than our second quarter 2017 distribution per unit.

At June 30, DKL had approximately $206 million of available capacity on our $700 million credit facility. Our total debt was approximately $737 million and total leverage ratio of 4.4x as well within the 5.5x currently allowable under our credit facility, is also a reduction on a sequential basis from 4.6x in the first quarter of this year.

For the second quarter of 2018, Delek Logistics reported net income attributable to all partners of $25.6 million, which compares to $19 million in the prior year period. Limited partners interest in net income was $19.4 million or $0.79 per unit compared to $14.4 million or $0.59 per unit in the prior year period.

Next, I’ll review our operating segments. In our Pipelines and Transportation segment the second quarter 2018 contribution margin was $22.6 million compared to $17.9 million in the second quarter of 2017. This increase was primarily attributable to improve performance from the Big Spring acquisition and the Paline Pipeline.

Operating expenses increased to $9.9 million in the second quarter from $7.9 million in the prior year period, primarily due to the acquisition. In our Wholesale Marketing and Terminalling segment, the contribution margin was $22.7 million in the second quarter of this year, which was an increase from $13.9 million in the prior year period.

This increase was primarily due to the Big Spring acquisition and an improvement in West Texas gross margin. Operating expenses increased to $5 million in the second quarter of 2018 from $2 million in the prior year period, primarily due to the acquisition.

Our West Texas wholesale gross margin was $8.06 per barrel in the second quarter of 2018 compared to $4.26 per barrel in the second quarter of last year. Throughput in West Texas was 12,261 barrels per day compared to 13,422 barrels per day in the prior year period.

We have continued to see strong margins in West Texas into the third quarter as drilling activity in the Permian Basin has increased. During July, the gross margin in West Texas averaged approximately $7 per barrel and volumes averaged just over 12,000 barrels per day.

During the second quarter of this year, our equity income from our joint venture crude oil pipelines was approximately $1.9 million compared to income of $1.2 million in the prior year period.

Capital expenditures were approximately $2.3 million in the second quarter of this year and included $1.3 million of discretionary spending and $1 million of maintenance. During the second quarter approximately $300,000 was reimbursed by Delek US.

For 2018, our total gross CapEx forecast is $19 million, which include $6.6 million of discretionary and $12.3 million of maintenance capital for reimbursement by Delek US. We expect approximately $2.1 million of the maintenance capital to be reimbursed in 2018.

As you may recall Delek Logistics and an affiliate of Green Plains Partners, LP announced the formation of a 50-50 joint venture, DKGP Energy Terminal LLC in February 2018. DKGP signed a membership interest purchase agreement to acquire terminal assets from an affiliate of America Midstream Partners LP.

I wanted to give you an update on this transaction. After delays in receiving federal regulatory approval both partners felt that it was not in the interest of their unit holders to move forward with efforts to obtain regulatory approval given the uncertainty of the outcome.

On August 1, the membership interest purchase agreement between DKGP and America Midstream was terminated according to the terms of the agreement. While this was not our desired outcome we are focused on continuing to grow Permian Basin platform. With that, I'll turn the call over to Uzi for his closing comments..

Thank you, Kevin, and good morning. Our strategy to build our Permian Basin platform is widening results for DKL. We are benefiting through our West Texas marketing operations and by supporting the refinery system at Delek US that purchases approximately 200,000 barrels per day of Permian crude.

Also our Paline Pipeline provides a route for shippers to take advantage of the crude oil price differentials in the markets for Permian crude.

With the initiatives completed in the first quarter of 2018, through the acquisition of Big Spring Logistics assets and the expansion of the Paline Pipeline, we have further enhanced our Prmian Basin platform.

This led to a record quarterly EBITDA of $45.4 million in the second quarter of 2018 and which would equate to approximately $182 million on an annual basis. We are aggressively exploring opportunities to leverage this growing position.

By partnering with our sponsor Delek US, we're evaluating options to further support the Permian crude as they continue to increase the amount of crude oil that they are gathering.

In addition, Delek US has logistics assets at its Krotz Springs refinery that can be future potential dropdown with the ability to generate approximately $32 million of annual EBITDA.

By combining the potential growth options we are partnering with Delek US with organic project and third-party acquisitions, we believe that we should be able to create long-term value for our unit holders.

These initiatives should continue to support our annual distribution growth per limited partner unit of at least 10% through 2019, while maintaining sufficient distribution coverage.

With that, Nora, will you open the call for questions?.

[Operator Instructions] We have our first question from the line of Justin Jenkins from Raymond James. Your line is open sir..

I guess starting on the growth side, Uzi, you just cemented this in your comments, but anything incrementally you can share in terms of the types of projects you are looking at there? Or maybe the timeframe we should expect to see before an announcement?.

Well, we are, obviously, our backbone at DKL is the logistics status in the Permian Basin with the growth of the production in the area. And the need for both crude gathering also the need for marketing and wholesale are growing. And I have been to Midland yesterday actually, and you see the growth everywhere.

So I wouldn’t be surprise in the next few months will come with something that is a combination of different things that we discussed like third-party, like organic and other initiatives in the area..

And maybe on the balance sheet leverage picked down by 2/10th from return from last quarter and now without the terminal joint venture.

I’m curious if we should expect leverage to continue to work its way down a little further in the yearend Kevin?.

Absolutely. That’s our goal. As we said, when we make an acquisition, the leverage goes up and then we work it down. We had healthy EBITDA in the quarter. We don't expect material change to the bad in the upcoming quarters. So the leverage will continue to work its up down..

And then last one from me, if I could, just to that relates to the structure of DKL. Simplification has been a big trend recently.

Any thoughts on the GPLP relationship and IDR structure here?.

Absolutely. It's heavy on our minds. We are looking into that. I wouldn’t expect this to happen over the next 18 months because we still have room to grow as you will see in the upcoming quarters. But eventually we will simplify the structure..

[Operator Instructions] We have one from Ned Baramov of Wells Fargo. Your line is open sir..

So given the termination of the purchase agreement with AMID, are there any other initiatives that the JV could pursue with Green Plains?.

Not at this point, vis-a-vis any terminal. Obviously we have the ethanol terminal in North Little Rock to get with the GPRE or GPP, and we think that they are wonderful partners, but nothing that is coming to mind at this point..

Got it. And then this is the first full quarter of owning and operating the Big Spring Logistics assets.

Would you say that contributions from these assets are tracking in line with your original plan?.

Absolutely. And they are pretty much in line. We expected that in regard -- that's the time to mention -- we mentioned that on the call that we have the next step as we continue to improve -- DKL continues to improve their Krotz Springs refinery then there will be another dropdown, but performance so far is in line..

And then one more for me.

Could you maybe talk about the potential further expansion of the Paline Pipeline?.

Yes, that’s another opportunity that we are looking at. As you know, we said that we've expanded that to 42,000. It is depends on the appetite of third-parties to sign up. We are looking at that. There is a process that is being done in-house and with potential shippers.

And we will notify you in the next, probably in the next few months on the results of that..

And maybe just one last question on West Texas. I think this quarter marked a record margin per barrel, but volumes were somewhat down on a year-over-year basis and sequentially. So I think you noted the activity in the Permian remain strong.

So maybe you can kind of help me understand why volumes were down?.

Well, couple of reasons. First of all the Big Spring refinery ran just a tad less this quarter. And second, as we all know, we are constrained by -- in the capacity of Big Spring refinery other merger in pipeline. So whatever they give us, we sell. So it's not that we can sell much more and that’s the reason DKL is benefiting from high margins.

But this is the supply that’s existing in the area at this point..

[Operator Instructions] There are no further questions at this time. Please proceed presenters..

Thank you, Nora. I’d like thank my friend around the table here for supporting or supporting the company. I’d like to thank the Board of Directors and the executives of the great company for their efforts. I’d like to thank you, investors for believing in us, but mostly I’d like to thank our employees for making this company what it is.

We will talk to you in the future. Thank you. Bye..

This concludes today’s conference call. You may now all disconnect..