Delek US Holdings, Inc. 2026 Q2 Earnings Call

Robert, go ahead. Good morning, welcome to the Delek US second quarter earnings conference call.

Participants joining me on today's call will include Avigal Soreq, President and CEO, Mohit Bhardwaj, EVP New Energy, Strategy, and Investor Relations, as well as other members of our management team. Today's presentation material can be found on the Investor Relations section of the Delek US website. Slide two contains our safe harbor statement regarding forward-looking information. As a reminder, this conference call will contain forward-looking information as defined under the federal securities laws, including statements regarding guidance and future business outlook. Any forward-looking statements made during today's call involve risks and uncertainties that may cause actual results to differ materially from today's comments. Factors that could cause actual results to differ are included in our SEC filings. The company assumes no obligation to update any forward-looking statements.

I will now turn the call over to Avigal for opening remarks.

Avigal? Thank you, Robert. Good morning, thank you for joining us today.

I am extremely pleased with our strong execution in the second quarter. The quarter further demonstrate our enhanced execution capabilities. First, we successfully navigate the volatility in crude end-product markets caused by the event in the Middle East. Second, we made further progress in increasing our free cash flow profile and reducing our overall cost structure. This quarter reinforced the importance of discipline in maintaining safe and reliable operation and making thoughtful capital allocation decisions. This is especially important during period of strong margins. We'll continue to apply the same prudent approach across our business, capital deployment, and corporate culture as we are creating sustainable long-term shareholder value. As I mentioned during the last earning call, the event in the Middle East and East Europe have created many ripple effects in the markets.

We continue to see steep backwardation, swing in crude differentials, and shortage of transportation fuels. In the current environment, we continue to believe that access to crude, high distillate yield, and most importantly, the ability to respond quickly to changing in the market condition are critical to maintaining operational flexibility and delivering strong performance. We plan to continue navigating this environment with measured approach by, first, mitigating risk, and second, capturing the opportunities offered by the market. I will cover some of our second quarter highlights and strategic initiatives in detail. Starting with refining. Our refining system operated well, demonstrated by all four refineries. Big Spring has been running to our expectation since its turnaround. Post-turnaround, we are seeing improved reliability, higher crude slate flexibility, improvement in overall product yields, and higher octane and blending capabilities.

We are very pleased with this improvement and are looking at finding additional opportunities to further improve this important asset in our portfolio. With no planned turnaround for the rest of the year, our refining system is well-positioned to capture the strength in the market. Moving to EOP. Enterprise Optimization Plan continue to drive significant value. As a reminder, our Enterprise Optimization Plan target to increase our cash flow by at least $220 million on an annual run rate basis. During the second quarter of 2026, we estimate approximately $60 million of EOP contribution to our P&L. We are currently working on further advancing EOP to create an additional meaningful step change to our free cash flow profile. We'll provide more details on this in the near future. Our sum of the part initiative also continue to progress with raising strength of our midstream business.

DKL today reaffirmed its 2026 EBITDA guidance of $520 million-$560 million. The tailwind we have been seeing in DKL business continue to rise, and we are working hard to capture these opportunities. DKL is close to completing its comprehensive gathering, treatment, processing, and AGI solution. This sour gas solution will provide DKL the ability to fully capitalize on its growth opportunities in the Delaware Basin and maintain its best-in-class EBITDA growth and yield. In 2026, on a pro forma basis, we continue to expect DKL third-party EBITDA to exceed 80%. This level of economic separation is a cornerstone of our sum of the parts strategy and continue to bring us closer to our deconsolidation goal. DKL is on the right path, and we continue to work hard to write the next chapter in its growth story.

As mentioned last quarter, we are pursuing a proactive strategy to manage our obligation under the RFS. The SRE provision in the RFS served the important purpose of mitigating the impact felt on small refineries from the RFS burden. RVO costs remain elevated, and the absence of SREs created a significant burden on small refineries like us. We expect the EPA to continue to provide relief to small refineries for the year of 2025 and beyond. Finally, we believe that the current administration, Senate, Congress, and EPA realize the importance of Small Refinery Exemptions, not only for the refineries which qualify under the program, but also for the local communities they serve. The final piece of our strategy is being shareholder-friendly and having a strong balance sheet. During the quarter, we paid approximately $16 million in dividends and $20 million in buybacks.

Our strong balance sheet, improved reliability, EOP, and confidence in our outlook continue to support a disciplined approach to capital allocation through continued dividends and buybacks. We remain committed to a balanced and disciplined capital allocation strategy and look forward to continuing to reward our shareholders. In closing, thank you to our team for their hard work and dedication. I'm immensely proud of the progress Delek has made, and I look forward to building on the momentum for the remainder of the year and beyond. I will turn the call over to Robert, who will provide additional color on the quarter.

Thank you, Avigal. For the second quarter, Delek reported net income of approximately $170 million, or $2.71 per share. On an adjusted basis, net income came in at approximately $344 million, or $5.48 per share, with adjusted EBITDA of approximately $639 million. Turning to slide four, we provide the breakout of adjusted EBITDA and adjusted EPS for the quarter. When we exclude the 50% RVO adjustment, adjusted EBITDA was approximately $490 million, and adjusted EPS was approximately $3.64 per share. Slide five walks through the bridge in adjusted EBITDA, excluding the 50% RVO adjustment from the first quarter to the second quarter. The breakdown shows that there were three main drivers for the increase in EBITDA. Quarter-over-quarter performance was led by stronger refining margins, helped by our robust distillate yields, along with higher throughput following the successful completion of the turnaround at Big Spring.

In supply and marketing, we saw a $60 million increase versus the prior quarter. This improvement was driven primarily by wholesale marketing, which contributed $25 million to the improved results, partially offset by a $3 million reduction in asphalt contribution, with the remainder of the change coming from supply. Our logistics segment posted its best quarterly results in our history, delivering approximately $144 million in adjusted EBITDA as momentum continued across all three of our Permian Basin offerings, crude, gas, and water. Let's move to slide 15 for a review of cash flow. Cash flow from operations was $263 million for the quarter. This reflects net income for the period, adjusted for non-cash items, along with $138 million net outflow from changes in working capital. Investing activities was a use of $176 million, reflecting our continued investment in growth.

This includes second quarter capital purchases of $61 million at Delek Logistics, primarily for growth projects, and $55 million of purchases in refining, along with a quarter-over-quarter reduction of capital accruals, primarily related to the payments on the final expenditures of the Big Spring turnaround, which we completed safely, on schedule, and on budget. Financing activities was an outflow of $82 million, which reflects the paydown associated with the successful refinancing of our term loan from $920 million down to $850 million. It also includes approximately $16 million in dividend payments and approximately $22 million in DKL distribution payments to public unitholders. Slide 16 breaks out our net debt position between Delek and Delek Logistics. On a standalone basis, excluding Delek Logistics, Delek's net debt declined by $72 million, driven primarily by the term loan paydown completed as part of the successful refinancing of that facility.