DK earnings call transcript, November 6, 2026

Hello, everyone. Thank you for joining us and welcome to the Delic U.S. Holdings. Third quarter, 2026 earnings call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. I will now hand the conference over to Robert Wright, EVP and CFO. Robert, please go ahead.

Thank you and good morning, everyone. We appreciate you joining us today. Participants joining me on today's call will include Avigal Sorek, President and CEO, Mohit Bardwaj, EVP, Strategy and Investor Relations, as well as other members of our manager. Today's earnings release and management call presentation material can be found on the Investor Relations section of the DELIC US website. Before we get started, I want to remind everyone that our comments today may include forward-looking statements reflecting management's current expectations and assumptions. These statements involve risk and uncertainties, and actual results may differ materially from those discussed today. For additional information regarding the factors that could cause actual results to differ, please refer to our filings with this Securities and Exchange Commission. Except as required by applicable law, we do not undertake any obligation to update these forward-looking statements. I will now turn the call over to Avigal for opening remarks. Avigal?

Thank you, Robert.

Thank you, Avigal. For the third quarter, DELEC reported DEN income of approximately 1.13 billion dollars or $18.22 per share with EBITDA of approximately 1.64 billion dollars. On an adjusted basis, net income came in at approximately 843 million dollars or $13.55 per share with adjusted EBITDA of approximately 1.28 billion dollars. Turning to our investor presentation on slide four, we show the breakdown of adjusted EBITDA and adjusted EPS for the quarter. Excluding the 50% RVO adjustment and the impact of small refinery exemptions. or SREs granted during the quarter, adjusted EBITDA was approximately 1.04 billion dollars and adjusted EPS was approximately 10 dollars and 53 cents per share. On slide five, we walk through the bridge and adjusted EBITDA from the second quarter to the third quarter on the same basis. excluding the 50% RVO adjustment and the impacts of SREs. Quarter-over-quarter performance was led by stronger refining margins and higher capture rates. Supply and marketing margin was approximately 37 million dollars in the quarter. With wholesale marketing contributing 36.7 million dollars, driven by continued success of our EOP efforts and strong market environment. Asphalt was a loss of 4.6 million dollars, fully offset by a 4.6 million dollar profit from our supply business. Our logistics segment continues to deliver strong results, posting approximately 143 million dollars in adjusted EBITDA for the third quarter, as momentum continued across our crude, gas, and water offerings. Let's move to slide 6 for a review of cash flow. Cash flow from operations was 567 million dollars for the quarter. This reflects net income adjusted for non-cash items.

As shown on slide 8, on a run rate basis post the term loan payout, we expect interest expense on a DK stand loan basis to be around 10 million dollars. With that, we will now open the call for questions.

We will now begin the question and answer session. Please limit yourself to one question and one follow up. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. You pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster.

Our first question is on RINs. Can you provide any update on legacy RINs, the status of the court case, and any visibility on expectations you have for RINs, say, for the remainder of the current administration EPA? Yeah, absolutely, John, and our regards to that. So I will answer a small refinery exemption in a broader context, and I will get into the cases just a little bit. So we need to remember SREs are disproportionate economic harm. It's the essence of the law, right? And we need to make it clear that it's not a delicate issue. It's between, we've seen in that in August 31st, that it's big companies, small companies, it's 40 refineries around the nation. It's maintaining fuel supply, maintaining... ...jobs in rural areas, and it's very important. And obviously, we have seen very important litigation happening, the Chevron Deference, the District Circuit, the Supreme Court, which the bottom line that you need... ...you probably understand that, but you need to remember that that's reduced the EPA discretionary going forward. So that's something that is very, very important. Around the question, a bit more specific of the cases we have, what the slang says, zombie rings. We need to remember, I want to make one statement that everyone needs to remember, that relief and eligibility are not discretionary. They are coming together. And we believe that we have a very, very strong case. We gave...

guidance about it in the past in terms of how much we believe in it. And we are very optimistic about it. And even in any calculation of our valuation, this is not showing up at all. So there is a huge upside here for investor. You can see today that we are not related to the SREs, but we are rewarding investors with the increase in dividend by 18 percent. And obviously do a very. You can buy back Q3 and Q4. You want to add anything? Appreciate it. And then for our follow up question here, it's really on use of cash. So if we look at your free cash flow. For 4Q, it looks like it could be significant. And it's not even included in your deleveraging guidance. And 2027 could be significant as well. So the question is, what do you do with the cash? Is DKL restructuring even a consensus? given the value gap you perceive? Yeah, so let's start with what we are not going to do. We are not going to be not disciplined. As you can see that we stay very disciplined to our capital guidance. We ran the course. We improved our balance sheet. We increased dividend. We did a significant buyback. We are among our peers. Actually, you can see the numbers better than I can see. We are a leading peer in terms of return to investors. It's now close to 10% of our market cap, and there is a tremendous amount of value. I think that, you know, by every map that I've seen, we are probably the cheapest refinery in the U.S. and maybe even beyond that,

so we are very cheap. And so what- What we are going to do is going to stick to what we said we're going to do. We're going to stick to a strong dividend through the cycle. We're going to stick to a balance sheet and the buyback, balance the approach between them. And that's the focus we have. We are in a biopolar industry and it's very easy to get confused on those times and make investment that doesn't make sense on a downturn. So we're going to stay disciplined and going to stick to the capital allocation. Yeah, John, I just want to add what Avigal is talking about. You know, the transformation that this company has had in terms of what our free cash flow generating power is and you're talking in terms of, you know, fourth quarter 20. 26 and 2027. But even on a mid cycle basis, you know, the transformation is completely different versus where we were in the past. We expect to generate seven to $800 million of mid cycle free cash. And on a 10% free cash flow yield, that is a triple digit stock price. So as Abigail just mentioned that, you know, we are the cheapest refining stock. Our multiple is the lowest. And, you know, we are not going to be holding. This cash on our balance sheet and our capital allocation strategy is pretty straightforward.

Thank you very much for taking our questions. Thank you.

Your next question comes.

Morning, team, and thanks for taking our question. We wanted to just dig a little deeper on the last question around capital allocation. and free cash flow. Can you just talk a little bit? The buybacks this quarter were notable as well as the commentary for 4Q. As we think about 27 balance sheet in a very strong place, SRE, RIN monetization, any color on how we can think about that buyback number on a run rate basis in 27 or what the approach is there? Yeah, first of all, Alexa, thank you so much for joining our call. And as I said, we're going to stay disciplined and we are not going to do something that's going to be great on a bad cycle. That's my commitment to you and the rest of the market. Obviously, that's the first time this quarter that we're going to talk about. We are giving guidance for buyback going forward. I think the markets need to see it as a positive change. Obviously, 2027 is still ahead of us. We are still putting all our ducks in a row. So you need to stay tuned for that. But as Mohit just said, a very important comment. We don't have any strategy to hold any excess cash on our balance sheet just for having that cash. We want to reward investors. We want to make sure that we have a strong balance sheet. And we have a very good buyback program. among our peers and we are very proud of that. Mohit do you want to chime in? Yeah, Alexa and from a balance sheet standpoint, as we have highlighted in our materials, you know, we have done most of our work very

little debt, if any, left on on our balance sheet apart from the convert and our interest expense, you know, on a go forward basis on a DK standalone basis is going to be sub $10 million on a quarterly run rate. That is around $10 million of interest expense, you know, on a go forward basis. So you know, a lot of the stuff that we have, we will be rewarding our shareholders. That is the commitment that we have had. And we don't want to hold any excess cash in our balance. But you know, as you said, 2027, we still have to see how the year plays out. And you know, we'll be rewarding our shareholders. That's a commitment that we have given in the past. Thanks. Appreciate the color. And then just to follow up. You know, captures have improved this year. When we just look at that improvement, can you walk us through how much you would attribute to structural changes you've made in the system? And then how much has that been a function of some of the macro backdrops? Yeah, so... I'm so happy that you asked that question. That's a very important aspect in our structural change that we did in the company. And I would say the first reasoning for that is obviously UP enterprise optimization plan. And you have seen that, Alexa, that our UP is a lifestyle. It's someone that everyone in this company is taking pride of. It's someone that everyone in this company wants to excel. And there is no limit to our imagination around.

And how far we can take it. We are very happy about the progress we have done. We have more than 90 projects we are running around. We are working on a daily, weekly basis. And I'm very proud. There is a small project, a big project. One is taking part of that. I think we raised the EOP target of a free cash flow basis mid-cycle like six times, seven times, sorry. And now it's at least $250 million. That's an extraordinary achievement. And I'm proud. It's not me. It's the organization that I'm proud of. And everyone of our employees. They take part of that. That's important initiative. I just want to say to take the opportunity to say thank you for all of you because the safe and reliable operation together with UOP is a very key foundation of this company and something that we really. Our employees are leading and we're really excelling in. So that's the that's the essence of this. Yeah. And Alexa, that's the structural change is why we have so much confidence in our mid cycle free cash flow. And that's why we want to talk about that.

Thank you both.

We'll turn it over. Thank you.

Your next question comes from the line of Matthew Blair with TPH research. Matthew, your line is open. Please go ahead.

Your next question comes from Manav Gupta with UBS. Manav, your lineman is open. Please go ahead.

Your next question comes from the line of Jason Gableman with TD Cowan. Jason, your line is open. Please go ahead.

Your next question comes from the line of Joe Leitch with Morgan Stanley. Joe, your line is open. Please go ahead.

Great. Thanks. Helpful. Appreciate it. As a reminder, if you would like to ask a question, please press star one to raise your hand.

Hi, good morning.

Thanks for taking my question.

So my first question is on the sum of the parts on lock. You're currently at 58%. I think DKL ownership, that's been coming down pretty steadily. Can you talk about your path to hitting below 50% at this point? Do you have a time frame in mind for when you may get there? Yeah. First of all, I'm surprised that that question hit the conference so late. So, thank you for bringing it up. I'm really proud of what we did this quarter. I'm very proud of the primary that Robert and Mark led. Very nice. And I'm very happy about that. But let's take a step back and look at the progress we have done, right? We've done two very good acquisitions on the right timing before water became in the spotlight. We have done another. We built another gas plant. I said today on the call, and I'm saying that again, that we might need to expand the capacity that we have in Libya even more to serve. Our producers and our customers, and we actually developed a very clear, clean strategy of providing crude gas and water in the most prolific area of the Permanent Basin, and that strategy is working very well for us. You can see, if you are looking on each one, one of our assets, and you're extremely smart, and do the math, and you can see that our intrinsic value, John, is the number. It needs to have nine handles on the DKL unit. We are not there just yet, but... with one of the best units in the space in terms of return and growth. I think it's actually the best one, but let's call it one of the best one. We are very happy about our company. We are very happy about the trajectory. Mark and his leader...

The leadership team in DKL are doing a very good job, and we made it bigger. And it's going to be one fourth way. One, for the right value, we are always open to sell it. For the right value, we are open to sell assets, like we have done in the past. We did a bolt-on acquisition that was very good for us, and we did also tax-efficient buyback between DK and DKL. As you can see, we steadily, smartly, not rushly, we didn't rush, reduce our interest from 79 to 58, and stay tuned, more to come.

Great, thank you. And then my follow-up is just on turnarounds. I know you're done with your 26 program at this point. I'm not sure if you're going to answer this, but do you have any early view on what 27 could look like from a turnaround perspective? Yeah, so we are still putting our DAC4 in a row for 27. cycle is to give guidance about it in the in the next turning call, and we'll stick to our cadence. Understood. Thank you. We have reached the end of our Q&A session, and we'll now turn the call back to Abigail Sorek, CEO, for closing remarks. Thank you.

Thank you for my colleagues around this table and the management team. I want to thank our board of directors in trusting us and mostly and to our employees that make this company as good as we all can.

You may now disconnect.