Delek US Holdings, Inc. (DK) Q2 2024 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. My name is Desiree, and I will be your conference operator today. At this time, I would like to welcome everyone to the Delek 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] I would now like to turn the conference over to Robert Wright, Deputy CFO. Please go ahead.

Good morning. And welcome to the Delek US second quarter earnings conference call. Participants joining me on today's call will include Avigal Soreq, President and CEO; Joseph Israel, EVP Operations; Reuven Spiegel, EVP and Chief Financial Officer; and Mark Hobbs, EVP Corporate Development. Today's presentation material can be found on the Investor Relations section of the Delek US website. Slide 2 contains our safe harbor statement regarding forward-looking statements. 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 here as well as 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 Soreq?

Thank you, Robert. Good morning, and thank you for joining us today. During the second quarter, our adjusted EBITDA was $108 million. Despite a challenging market environment, we are in our operations well. I'm proud of the ongoing progress our team is making. Turning to our strategic priorities. As I have outlined on our previous calls, Delek key focus area are safe and reliable operations; second, unlocking the sum of the parts value inherent in our system; and third, being shareholder friendly and having a strong balance sheet. I will now focus on each one of these key priorities in detail. Sales and reliable operation is the core of everything we are trying to achieve. We have made further progress and achieved our highest throughput ever this quarter. Big Spring showed additional strong improvement and it's on track to meet previously communicated throughput and OpEx guidance. Joseph and Robert will provide more details on this. Next, I would like to talk about the progress that we have made in our sum-of-the-part efforts. We have announced a series of transactions that will allow us to further improve our position as a safe, reliable and efficient refinery. On August 1, we announced the sale of our retail business for a total price of around $385 million. We are pleased with the transaction and the value it unlocks for DK shareholders. Our supply agreement with FEMSA is for 10 years. We are building a great relationship with the company and exploring additional strategic opportunities. We intend to use the proceeds from the sale to improve our balance sheet and return cash to stakeholders. Now, I would like to cover the transaction between DK and DKL. We execute and amend and extend agreement. We've also decided to drop our interest in Wink to Webster into DKL. These agreements are win-win for stakeholders of both companies. From a DK perspective, it will bring value back to DK refineries. And from a DKL perspective, it allows DKL acquire high-quality assets without significant strength on its balance sheet. Today, we also announced a number of transactions for DKL. This transaction will enhance detail position as a full service crude, natural gas and water provider in the most prolific areas of the Permian Basin. DKL announced the FID of a new gas processing plants. The plant is synergetic, highly subscribed and expected to exceed 20% cash-on-cash return. We expect the plant to come online during the first half of 2025. On the M&A front, DKL announced the acquisition of H2O Midstream for around $160 million of cash and $70 million of convertible preferred. The transaction is immediately accretive to DKL on an EBITDA and free cash flow basis. Post synergies, the transaction should be in the acquire multiple of around five times. This transaction puts us on a path to Midstream independence and allow us to enhance the margin profile of our refineries and the asset quality of our midstream businesses. The overall impact of the transaction announced by DK and DKL is cash infusion to DK of over $500 million on a stand-alone basis for little to no loss in EBITDA. For DKL, it’s a high-quality third party EBITDA of around $70 million, making DKL largely independent third party midstream service provider. This transaction move us closer along our path to midterm deconsolidation. We look forward to sharing with the market further steps we are taking on this road over the coming months. Next, I would like to highlight the progress we are making on our cost reduction efforts. When we announced our ZBB effort, we had a target to reduce our cost by around $100 million. I am pleased to announce that we have completed this process ahead of time and are exceeding our regional estimates. Robert will provide more details around that. In addition, we are looking at ways to further increase the order of profitability of our company. The new project is not just about cost reduction, but it's about making details structurally leaner and more profitable company. We look forward to providing you with more details in the near future. The final piece of our strategy is our commitment to shareholder returns and maintaining strong balance sheet. During the quarter, we paid $16 million in dividends. On July 31, the Board approved another 0.5% per share increase to regular dividend. Our quarterly dividend is now $0.25 per share. Before closing, I also want to highlight that this circuit overturn the EPA denial of the small refinery exemption petition under the RFS last week. Our petition has been sent back to the EPA for reconsideration. The case along with the Chevron deference ruling, give us important direction to the EPA as it reconsiders our request. We believe the EPA should grant us the exemption we deserve under the RFS rules. In closing, I would like to thank our entire team of the 3,500 employees, especially our DKL Retail employees. On a personal note, I started my journey in Delek back in 2011 in the Retail division and have special appreciation for the hard work and dedication. Now I would like to turn the call over to Joseph, who will provide additional color on our operation.

Thank you, Avigal. We haven’t discussed operations excellence in the past several quarters. And today, I'm very proud to share with you operating data results, which clearly reinforce our progress as operators and demonstrate improved capabilities of our assets. Bottom line for our second quarter, safe, compliant and reliable operations led the way to a record high throughput of 316,000 barrels per day and a favorable $5.02 per barrel cost structure for our refining system. In Tyler, total throughput in the second quarter was approximately 76,000 barrels per day. Production margin in the quarter was $10.11 per barrel and operating expenses were $4.83 per barrel. For the third quarter, the estimated total throughput in Tyler is in the 74,000 to 77,000 barrels per day range. In El Dorado, total throughput in the quarter was approximately 85,000 barrels per day. Our production margin was $2.79 per barrel, driven by low margin environment, increased vacuumization and a relatively weak output market. Operating expenses were $4.12 per barrel. After successfully demonstrating our crude oil flexibility in the first quarter, the team is pushing forward initiatives on the product side, including product diversification and logistics to support new market access optionality. Estimated throughput for the third quarter is in the 79,000 to 82,000 barrels per day range. In Big Spring, the successful execution of the recovery plan is well reflected in our results. Total throughput for the quarter was approximately 74,000 barrels per day. Our production margin was $8.92 per barrel, and our operating expenses were $6.35 per barrel as we approach our $5.50 per barrel target range later this year. We successfully completed a benzene triple project [ph] at the Big Spring refinery, which supports consent requirements related to benzene in wastewater. We remain focused on people, process and equipment to ensure focus and operation stability. Estimated throughput for the third quarter is in the 69,000 to 73,000 barrels per day range. In Krotz Springs, total throughput was approximately 82,000 barrels per day. Our production margin was $7.02 per barrel and operating expenses in the quarter of $4.95 per barrel. Planned throughput for the third quarter is in the 79,000 to 83,000 barrels per day range. The team is in final stages of preparations for our fourth quarter turnaround. Our implied system throughput target for the third quarter is in the 301,000 to 315,000 barrels per day range. Moving on to the commercial front, improved the challenged supply/demand balances in the Midwest negatively impacted second quarter growth differentials for products and upfront netbacks. For the quarter, we reported a $34 million loss for Supply and Marketing. Of that, approximately $17 million loss was generated by wholesale marketing $5 million loss was contributed by asphalt, leaving approximately a negative $12 million contribution for supply. In summary, after successfully addressing reliability gaps, our teams continue to focus on operational excellence and at the same time, advance process logistics and commercial optimization initiatives for each one of our sites. I will now turn the call over to Robert, for the financial variance.

Thank you, Joseph. I will now move to Slide 10. For the second quarter, Delek had a net loss of $37 million or negative $0.58 per share. Adjusted net loss was $59 million or negative $0.92 per share and adjusted EBITDA was $108 million. On Slide 11 the waterfall of adjusted EBITDA from the first quarter of 2024 to the second quarter of 2024, shows that the primary driver for lower results was from Refining. The $64 million decrease in refining is primarily attributable to a lower margin environment in the second quarter relative to the first quarter. Logistics had another strong quarter delivering $101 million in EBITDA. Finally, the lower expenses in Corporate are primarily due to our cost reduction efforts. Moving to Slide 12 to, discuss cash flow. Cash flow from operations was negative $48 million. Within this amount is our net loss for the period in addition to an outflow of $37 million related to working capital movements, including the Inventory Intermediation Agreement. Investing activities of $63 million is largely for capital expenditures. Financing activities of $15 million reflects the 2029 DKL tack-on offering, in addition to timing of accruals. This also includes $16 million in dividend payments and $14 million in distribution payments. On Slide 13, we show the actual results of the 2024 capital program and full year 2024 forecast. Second quarter capital expenditures were $71 million. Half of this spend was in refining, primarily addressing sustaining and regulatory projects. As for the full year outlook for 2024, the original capital plan is on track, at $330 million outside of the recent Gas Plant announcement. Net debt is broken out between Delek and Delek Logistics on Slide 14. During the quarter, we drew $96 million of cash and paid down $35 million of debt, ending the quarter with a net debt position of $243 million, including a cash balance of $658 million. Slide 15 covers outlook items. In addition to the guidance Joseph provided for the third quarter of 2024, we expect operating expenses to be between $205 million and $215 million, and G&A to be between $60 million and $65 million. Our third quarter outlook for operating expenses and G&A is around $272 million. As Avigal mentioned, this exceeds our original target of $100 million in savings through our cost reduction efforts on a run rate basis. As to other guidance, D&A is expected to be between $90 million and $95 million and net interest expense to be between $80 million and $85 million. We will now open the line for questions.

We will now begin the question-and-answer session. [Operator Instructions] Your first question comes from the line of Manav Gupta with UBS. Your line is open.

Hey, guys, since you just spoke about it, I'm going to start with Slide 14 itself. I'm trying to understand here, obviously, there's a big difference between Delek debt and consolidated debt. And so what more can be done in this year. And so eventually, you basically get to a situation where those two numbers start kind of converging and you're not holding on to this additional debt. So trying to understand what can more be done to deconsolidate that debt care?

Yes. Manav, thank you for joining us today. I will start with giving highlights overview of what we are trying to do, and I will get exactly to the point you just mentioned. As you see in this quarter, we have an unwavering commitment to show investor both the DK, DKL, the value of some of the parts and what -- and we were driving to this target very aggressively. We are able to do in the same quarter to build, buy, sell and deal with a complex conflicted transaction between DK and DKL, all of that at the same time. That's a huge testimony of the -- our commitment to bring that value to stakeholders along with strong execution to do all of that on the same time. To be more specific, Manav, you remember, I've said that over another last quarter that the availability of over $800 million we created during March, March and April of – March and April earlier this year will create the ability to go to the next step. That's exactly what we did this quarter. From a DKL standpoint, we improved cash balance. We have a minimal impact on EBITDA. And what we basically did on the third point on the DKL, we did economical swap of assets, basically move one asset from one company and to another company in vice versa economically and put everything on the right bucket and making ourselves deconsolidation ready. That's huge. From a DKL standpoint, we have -- while doing all of that, we're able to grow the EBITDA, increase third-party income and have seven-year amend and extend, huge steps. In the future, you will see us taking additional steps towards deconsolidation. So that was a huge quarter for us and more to come.

Perfect. Sir, you kind of mentioned about putting the right assets in the right bucket. And one of the things that Delek has flagged out is like the EBITDA per barrel is less competitive versus some of your peers. So trying to understand, based on the transactions you have done with DKL, are some of those assets now want to fit within refining. So the capture or for the patent that – on a same crack environment, would we -- should we expect a better EBITDA per barrel now that the assets are in the right buckets.

Yes, Manav, you got it exactly right. We were bringing back the value over time, while growing DKL, and that's going to improve the DK capture rate in the refining. So that's exactly what we have to do, and you got it exactly right. So DK and DKL going to be deconsolidation ready. You got it exactly right.

Okay. And sorry for the last very quick one. On SREs, help us understand what your position is? Why you feel you should be given those SREs? And to be honest, like does it really, really matter if the real is price is $0.50 a gallon?

Yes. So we were very pleased with the court ruling. 10 days ago, it was on Friday. I think the court made the right decision, and that's something we need to get, and I hope we will get. But Mohit, why don't you give some more color around that?

Yes, Manav, I think from our company standpoint, if you look at the Fridays rolling from DC Circuit Court, it was a very positive move from 2018 to 2020. I just want to give you some facts about how it has played out for us. From 2018 to 2020, nine petitions were denied for us. And in order for us to meet the requirements under the RFS, we spent approximately $300 million during that time. We are still eligible after 2021 to apply for more SREs, but we have not done that. But between 2018 and 2020, we spent $300 million to meet our obligations under the RFS requirement. We don't know what's going to happen from here. EPA can appeal more, but we think this court ruling is extremely positive, and that's how we are doing it so far.

So congrats on all the restructure and congratulations to Mohit on his new role. Thanks, guys.

Yes. We're excited about the team. We excited about you. Excited about that we are in good shape.

Our next question comes from the line of Joe Leach with Morgan Stanley. Your line is open.

Hey. Hi. Thanks for taking my question and congrats on progressing the sum of the parts efforts here. So I know you touched on it a bit in the prepared remarks, but I'm just hoping to dive into a little bit more on the use of proceeds from the transaction. So just I know you mentioned putting on -- towards the balance sheet, how much is there to go on that front? Thank you.

Yes, absolutely. I will touch on that gladly. We have communicated in the past about our cash allocation strategy. Just to remind everyone, dividend maintained strong growing dividend throughout the cycle. We just increased our dividend again by 2% this last few days, so we are very proud of our ability to maintain, sustain and grow our dividend. We have a balanced approach between improving the balance sheet and the buyback. We see a lot of value in our share price, and we'll give more details on that once transactions are closed late Q3 early Q4. Thank you for the question.

Thank you. Just a quick follow-up. How should we think about the tax implications from the recent transactions? Thank you.

Absolutely. So Reuven, do you want to take that?

Sure. On the retail front, there will be some tax leakage, it's not material, but we are working on the structure to minimize that. As far as the related party transaction, the taxes are residual..

Right. Thank you, all.

Next question comes from the line of Neil Mehta with Goldman Sachs. Your line is open.

Yes. Good morning, team and congrats on the announcement today. I guess the new corporate structure really does help to simplify things in a way that I think it could be easier to do larger scale M&A at the DKL level. I'd just be curious on does this get you one close step closer to deconsolidation?

Yes, absolutely, Neil. That's the whole point of this deal. We are putting the right asset economically under the right ownership and rights structure. So that make DKL, and we prepared a full deck for DKL, I think was the first time that chose the DKL by the second half of 2020 -- by the second quarter of 2025 is going to be largely two-thirds third-party income. So that's a huge step in making a real full value for those assets. So the answer is absolutely. That's our intention. We have an asset in a premier location in the Permian Basin, and we are providing all products around the crude, water and gas and very proud of the clear strategy that we have for DKL and that value and M&A will reflect itself over time.

Thanks, Avigal. And the follow-up is on Slide 9, it is helpful to see the margins by asset. There's a lot of dispersion here. I mean El Dorado seems like it had a little bit of a tougher quarter and Tyler, Big Spring performed very well. So when you look at that spread, what stands out to you? And how does that affect the way we should think about the go forward?

Yes, absolutely. There is extreme focus of El Dorado in terms of commercial improvement because the asset is performing very well operationally. But Joseph will give more color around it.

Yes. Similar to our peers in the second quarter, we faced the following headwinds. One was low margin, including the lower capture that comes with that. Two is increased backwardation, which increased our acquisition price. Three is co-product weakness, which for us in El Dorado is mainly asphalt. Similar to our Midwest refining fields, we faced an over-supplied Midwest market with the under-seasonal trends for a good list. On a strategic level, I want to make it very clear, we're very happy with our configuration. We believe it's healthy upstream and downstream, doing a great job operating and optimizing the plants on a consistent basis. Our opportunity is clearly around alternative market access when the growth is low. So what we have done so far, we identified those strategic market destinations, and we are now executing on the logistics and product offering aspect of that execution. I'm really --0, this is not rocket science, and I'm expecting in the next earning call, we will be able to demonstrate actual progress and talk about how we'll pass forward. And one last thing, I'll say the obvious, we are five weeks into the third quarter and the Midwest balances have improved, and we definitely see the positive impact on both the refinery and the wholesale margins. I'll leave it there.

Thanks, Joseph.

Next question comes from the line of Matthew Blair with TPH. Your line is open.

Thank you, and good morning. I wanted to jump into the supply and marketing improvement in the second quarter. Could you talk about what helps you out there? And then, Joseph, I think you touched on it a little bit. It sounds like the outlook for Q3 is improving on the wholesale side. What about the asphalt side? Do you expect some tailwind from lower crude prices in Q3?

Yeah. Thank you for the question, Matt. We do see an improvement, but Joseph will touch on that a bit more. Please, Joseph.

Yes. On the wholesale marketing, again, when the Midwest market is not flooded with markets, we have better options on pricing and moving the product, and you will see our results improving. On the asphalt side, we had a rough start of the asphalt season this year with wet weather conditions that made roofing and paving challenging. We're expecting to go back to the normal range.

Sounds good. And then on the renewable diesel side, I think at one point there was hope that that plant in Bakers deal would start up in the first half of the year. Has that happened yet?

So it didn't happen yet, and maybe I will let Robert, our Deputy CFO, to answer that question. He's closer to that.

Yes, I think it's something we are monitoring. We have ongoing dialogue with them. Obviously, we're monitoring their publicly filed information, and today no decision has been made, until they meet some of the requirements of the plant coming up and running.

Great. Thank you.

Thank you.

Thank you, Matt.

Our next question comes from the line of John Royall with JPMorgan. Your line is open.

Hi. Good morning. Thanks for taking my question, and congrats on the transactions today. I want to start with just a high-level, some-of-the-parts question. It's been a flurry of announcements with retail and several incremental items with this print. How close to complete do you think you are with this some-of-the-parts effort after these deals are closed? You've mentioned more to do on the deconsolidation side of DKL, and presumably also on the third-party side to get that entity that's fully third-party. So you can talk about what inning you're in and anything else you can offer on the next steps.

Yes, absolutely. So in order to get all of those deals done, and you know that you're close to the story long enough, you need to make sure the right assets are on the right bucket, and we are starting to make those separations as we speak. While doing that, we maintain and grow the DKL EBITDA to make it third-party dominant and to make it ready for next steps. All of those steps were completed, and we are ready to deconsolidation when the right opportunity presents itself. Mark, please, if you want to add anything on this. Marco, he was very close to those deals and was able to build, buy, sell, and deal with all those intercompany transactions, all of that at the same time. So great job.

Yeah, absolutely. Thanks, Avigal, and thanks for the question, John. I think you highlighted it and appreciate that, but the transactions that we've announced at DK and DKL last week and today, they do mark significant progress on our sum-of-the-parts journey. As you know, we've highlighted and are extracting the value of our retail operations, but I think importantly, which has already been cited on this call, is through the DK-DKL-related announcements, we're reducing that interdependence between DKL and DK, with Wink to Webster dropping, the expansion of the gas processing capacity into Delaware, the purchase of H2O Midstream. Combined, they will add substantial third-party business to DKL. I think as we consider deconsolidation kind of down the road and the pathway for that, we're in a much better position than we were prior to these announcements.

Great. Thank you. And then my follow-up is just on the cost side. I think you've mentioned moving into kind of a Phase 2 of taking out cost after completing the $100 million early. Is there any detail you can give us on that second phase? And what might be some of the components of those savings? And anything in order of magnitude relative to the first $100 million?

So we are taking that very seriously. It's going to impact more aspect of the business. We didn't give guidance around that, but everything is in motion and we'll be more specific around that very, very soon. So stay tight.

Thank you.

Next question comes from the line of Roger Read with Wells Fargo. Your line is open.

Yes. Thank you. Good morning and I have my congratulations on progressing some of the parts restructuring here. Maybe this question is for Joseph. You've been working hard to get Big Springs up. You had made the comments here earlier about some work around El Dorado. But as we think about bringing the support pieces back into, I believe, three of the four refineries, what's the right way for us to think about that in terms of enhancing the cash flow or EBITDA generation of these units?

Are you asking about all refineries or El Dorado, Big Spring, specifically?

Well, I was more citing the -- I think, the progress at Big Spring. You mentioned El Dorado, but I was just curious, as we think about deconsolidating DKL and bringing the assets back in, I'm presuming that's also going to be margin enhancing. So the progress you've made, the other changes you want to make and then what's the right way to think about margin enhancement from bringing the support assets back into DK?

Yes, Roger. So it is amazing when fixed reliability, not only the throughput aspect in the calculation and the OpEx are more favorable in the contribution. It is amazing what we can do and what we are doing with our leadership teams as far as handling all the optimization opportunities for each one of the sites. And this is what we basically switch to do. We have more octane capability where we can drive more other box from Big Spring to the right pay market. We can sell more higher octane products including aviation fuel from Tyler. We can convert some of the diesel we make to jet fuel. And this is what the system is driving this optimization. Mark, do you have more to add?

Yes, Roger, I guess to your question, and I know Avigal has stressed it a little bit earlier on the call, but the announcements between DK and DKL, you're exactly right. I mean they're effectively an economic exchange of assets, sort of not a physical exchange of assets, but amending and extending the contracts accomplished a couple of things, right? The extension of the contracts for up to seven years, frankly, removes a pretty big overhang on the DKL units and the uncertainty that we know existed in the market with respect to those contracts. But importantly, it also means that we're through the amendment of the contracts that we're improving the overall DK refining profitability going forward and enhancing future capture rates, right? And to your point, that does touch specifically Big Spring, El Dorado and Tyler over time through the moves that we've announced today.

Okay. Appreciate it.

Did we answer your question?

Well, I think it's going to be something that evolves, but I'll take it offline with -- and -- but I appreciate your clarity here. Thanks.

Perfect. Thank you.

Next question comes from the line of Paul Cheng with Scotiabank. Your line is open.

Hi, good morning guys.

Hey Paul.

I have to first apologize. I still want to go back into [indiscernible]. Can you quantify for us -- or share with us with the contract expansion, how much is the lower fee that the DK were paid to DKL on a per year basis? And also that did you -- I think maybe either I missed it or you didn't disclose, what's the price that you sell the wind and Webster pipeline down to DKL? We saw in your presentation, you're saying that DK-DKL transaction, net cash, $130 million. Should we assume that is the selling price? And what is the EBITDA associated with wind investment that you're currently are receiving? That's the first question.

Yes, Paul, thank you for the detailed question. And you cannot assume that the W-to-W value is basically it's a one-off series of transaction between DK and DKL, and we provide you guys the net the net number. So, you cannot just assume that number. So, the value of W2W, there is a market for that, and it's a pretty straightforward but the valuation of that asset. You need to assume that we reduced over time, the contract between DK to DKL in the order of -- it's going to be over time order of magnitude of $60 million that's going to come between DK -- from DKL back to DK, while DKL is building the EBITDA with the deal we announced. So, all-in-all, DKL EBIT are going to grow. The capture rate in DK is going to look and be better because of the valuation of $60 million that we have. And we still have like 20% of the contract down the road to a team between DK to DKL. That's the full picture.

Okay. So, you're not going to disclose to us that what's the actual selling price or drop-down price for Webster and also the contract extension, I suppose?

Unfortunately, I can't.

Okay. The second question is for Joseph. Big Spring that you've been working on the restructuring and improved optimization. As of now, that is all the effort essentially done? And other than, say, you're talking about how you may be still looking at same different products or different markets. Other than that, from a manufacturing standpoint, there's all the changes or order improvement you're trying to make is already done it at this point?

Yes. So, I think on the cost structure, we guided the market the 550 target. And this quarter, we had about $0.85 per barrel over that in Big Spring. So, the reason is we have several special programs still going on for long-term improvements. As they go away by year-end, we will be at the 550 target, and we believe that will be sustainable. Now to the point I made before, when you stop playing defense, you can start working on your offense. And we have a lot of great ideas and Big Spring it's a great asset, and we have a lot of room there on the octane side and the feedstock side that we will look very closely and move forward.

All right. I agree with you. Thank you.

Thank you.

And we do have our last question comes from the line of Jason Gabelman with TD Cowen. Your line is open. Q – Jason Gabelman: Yes. Hi. Thanks for taking my question. Apologies, I'm going to try this again on what Paul just asked in terms of some of the EBITDA contributions. And if I look at what you've disclosed for the DKL transactions, H2O is $45 million of EBITDA. The gas processing plant, call it, $25 million, $30 million of EBITDA. So that kind of gets you to that projected $70 million of EBITDA for DKL. And it implies that then Wing to WEX divestiture [ph] offsets the DK contract amend and extend. Is that the right math? Or is there something off there?

Yes. So Jason, I think it's a good opportunity to do a follow-up with Mohit [ph]. We see more value in the gas spend, for example. And there is more EBITDA that comes back between DKL back to DK. I said that to Paul, it's around $60 million over time. It's not all of that day one. So we didn't give specific numbers on each one of the transactions, and that's the reason we made sure that the strategy is clear to you and others that we want to make sure that the right ownership is on the right place, and we are improving capture rate while growing DKL. That's the objective. And if you look at that holistically, we are tried, I think we achieved for the most part to achieve on the same quarter deconsolidation-ready while making a clearer separation between companies. That's what we're after. That's in our mind, a very, very important step, both for stakeholder and unit holder. Q – Jason Gabelman: Okay. And when you say $60 million of value over time, how many years do you expect that to take?

We're not going to get into the details, but I encourage you to get with Mohit and get some more detailed questions. Q – Jason Gabelman: Okay. And then my other question is just once again on use of proceeds. Your interest expense is -- it looks pretty high right now and in terms of improving the cash flow of the parent company. It seems like that's a great place to attack. So is that kind of priority one. And why is there hesitant right now and just kind of talking through the user proceeds? Thanks.

So there is a proceed according to our strategy. And obviously, when we are looking on free cash flow, we always look at it on mid-cycle. So mid-cycle free cash flow looks great to our expectation. We have ability to do everything we need and to have a good return to investors. So we are very confident in where we are and looking forward. Q – Jason Gabelman: Okay. Thanks for the answers and I'll follow up offline.

Thank you.

That concludes the question-and-answer session. Mr. Avigal Soreq, our CEO, I turn the call back over to you.

Okay. So thank you for joining us today. Thank you for the management team and on the table for the extreme focus and execution around here. Thank you for our employees, the Board of Directors, you, the investor, and a special thank you for the retail employees for a long time being with us. And welcome to the H2O team that joining our family today. We'll talk again in the next quarter. Thank you.

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