00:04 Good day, and welcome to the Delek Logistics Partners First Quarter 2022 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today’s presentation there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded.

00:30 I would now like to turn the conference over to Mr. Blake Fernandez. Please go ahead, sir..

00:35 Good morning. I would like to thank everyone for joining us on today's webcast to discuss Delek Logistics Partners first quarter '22 financial results. Joining me on today's call will be Uzi Yemin, our General Partners' Chairman and CEO; and Reuven Spiegel, CFO, as well as other members of our management team.

00:52 As a reminder, this conference call will contain forward-looking statements as that term is defined under federal securities laws, including without limitation, statements regarding guidance and future business outlook.

These statements involve risks and uncertainties that may cause actual results or trends to differ materially from our forecast. For more information, please refer to the risk factors discussed in the company's most recent filing, Annual Report or Form 10-K and Form 8-K filed with the SEC, along with the associated press release.

The company assumes no obligation to update any forward-looking statements or information which speak of respective dates. 01:32 On today's call, Reuven will begin with financial overview, I will review results, and Uzi will offer a few closing strategic remarks. 01:39 With that, I will turn the call over to Reuven..

01:42 Thank you, Blake. Our distributable cash flow was approximately $52 million in the first quarter of 2022 compared to $53 million in the first quarter of '21. Our DCF coverage ratio was 1.21 times for the first quarter compared to 1.31 times in the prior year period. EBITDA was $66 million, which represents 12% increase over prior year period.

02:06 Our Board approved an increase in the quarterly distribution to $0.98 per limited partner unit for the quarter ended March 31. This distribution will be paid on May 12 to unit holders of record on May 5 and represent 0.5% increase from the fourth quarter of 2021 and 6.5% increase from the first quarter of 2021.

02:29 At March 31, DKL had $586 million of available capacity on our $850 million credit facility. Our total debt was $906 million and the total leverage ratio was approximately 3.3 times, which is well within the 5.25 times currently allowable under our credit facility. 02:49 Now, I will turn the call over to Blake to discuss the results..

02:52 Thanks, Reuven. In our Pipelines and Transportation segment, the first quarter '22 contribution margin was $43.2 million, which is broadly in line compared to $41.7 million in the first quarter of last year.

In our Wholesale Marketing and Terminalling segment, the contribution margin was $19 million for the first quarter of this year compared to $15 million in the first quarter of '21. The increase was primarily driven by stronger volumes in the Big Spring marketing and terminalling facilities.

03:22 During the first quarter of '22, equity income from our crude oil joint venture pipelines was approximately $7 million compared to $4 million in the prior year period. This increase was largely driven by strong volumes at both Caddo and Red River joint ventures.

Capital expenditures were approximately $9.1 million in the first quarter of '22, which consisted of $7 million of growth spending and $2.1 million of sustaining maintenance. The outlook for '22 includes total gross capital expenditures of $73 million, including $59 million of growth and $14 million of maintenance capital.

03:54 As a reminder, growth capital is predominantly being allocated toward the Permian Gathering business. Please note, full year guidance excludes capital associated with the planned 3Bear acquisition in the second half of the year. 04:07 With that, I will turn the call over to Uzi for his closing comments..

04:11 Thanks, Blake, and good morning, everybody. DKL is well-positioned moving into 2022. Our legacy Permian Gathering business is seeing strong producer nominations where we expect to at least double volumes from the fourth quarter of last year to the fourth quarter of this year.

This robust level of industry activity provides us with confidence to move forward with the planned acquisition of 3Bear.

This acquisition provides us with multiple benefits, including more size and scale, significant increase in third-party fixed fee revenue, diversification into the Delaware portion of the Permian Basin, and expanding our product mix into natural gas and more.

We see this as an attractive valuation multiple and the transaction is expected to be immediately accretive to our DCF ratio. 04:59 Finally, the recent increase in the quarterly distribution of $0.98 per unit marked 37 consecutive quarters of distribution growth for our company.

Based on macro indicators and the lack of plant maintenance at the Delek US refining system, we remain confident in our ability to continue rewarding our unitholders.

05:19 With that, operator, can you please open the call for questions?.

05:24 Yes, sir. We will now begin the question-and-answer session. [Operator Instructions] And the first question will come from Spiro Dounis with Credit Suisse. Please go ahead..

05:55 Hi. This is Chad on for Spiro. It sounds like financing 3Bear acquisition will primarily be debt.

So with leverage increasing in the future, are you targeting getting back near that 3.3 times leverage ratio reported in 1Q '22? Or are you comfortable running leverage at a higher rate than that longer-term?.

06:18 That's a great question. Good morning. Let's take it into two phases.

First of all, the leverage is going up but because of the 3Bear acquisition, but the business -- the underlying business because of the growth in the Permian and the Gathering and the fact that there is no maintenance in DK refineries, the leverage over the next year with the underlying business, the basic business will be fine.

Then that makes us comfortable with the 3Bear acquisition to be financed with debt. 06:55 With that being said, we always said that we can go up, but then quickly tried to deleverage that we did in the last two years after several dropdowns.

So what we expect to happen is, we will go up with the leverage and then because of the performance of the business, because of the DK refinery is performing well, and because of the growth in the Permian, also in 3Bear, we expect that leverage to come down..

07:31 Okay, that's helpful. And then just second question.

Does this financing changed the way you think about the timing of dropdowns going forward? Or is your prior messaging around the two identified asset drop still intact?.

07:48 Well, we said all along that we need to look at growth carefully. But the Wink to Webster, we said that -- it's going to be fully vetted and fully utilized, which we expect sometimes in '23. And of course, at that time, the differentials are starting to open, we expect this event to happen over the next 12 to 18 months.

So sometimes in '23 if things go the right way, we should expect the dropdown of W to W..

08:24 Okay, great. That’s really helpful. Thanks for the time today..

08:29 [Operator Instructions] This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Uzi Yemin for any closing remarks. Please go ahead, sir..

08:51 Well, first, thank you for taking the time to talk to us this morning. I'd like to thank the people around the table and my colleagues. I'd like to thank the Board of Directors. I'd like to thank you, investors for your interest and confidence in us as our performance, both in EBITDA and share performance looks really good.

But mostly, I'd like to thank the employees of this great company that make it what it is. Thank you. Have a great morning..

09:29 The conference has now concluded. Thank you for attending today's presentation. You may now disconnect..