Delek US Holdings, Inc.

Good morning and welcome to the DELAC U.S. Holdings 2023 First Quarter Conference Call. All participants will be in a listen-only mode for the duration of the call, and should you need any assistance during that time, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your telephone keypad. To withdraw a question, please press star, then two. We ask in advance that you please limit yourself to one question and one follow-up for today's call. And please also note that this event is being recorded today. I would now like to turn the conference over to Rosie Zuklik, Vice President of Investor Relations. Please go ahead.

Good morning and welcome to the DELIC U.S. First Quarter Earnings Conference Call. Participants on today's call will include Abigail Sorek, President and CEO, Joseph Israel, EVP Operations, Reuven Spiegel, EVP and Chief Financial Officer, Mark Hobbs, EVP, Corporate Development. Today's presentation material can be found on the Investor Relations section of the DELIC U.S. website. Slide 2 contains our Safe Harbor Statement. We'll be making forward-looking statements during today's call and actual results may differ materially from today's comments. Factors that could cause actual results to differ are included here as well as in our SEC filings. With that, I'll turn the call over to Abigail.

Good morning and thank you for joining us today. We reported a strong first quarter. Adjusted EBITDA was $285 million, a first quarter record for DELEC-US. We generated $395 million cash from operation. In addition, we reduced consolidated debt by $281 million. Our team executed well in the quarter. We generated significant earning in the refining segment. This was achieved despite the refinery major plan turnaround during the quarter. With this turnaround behind us, we are well positioned to capture market opportunities as they present themselves. We do not have a major turnaround in our system scheduled until late Q4 of 2024. Our logistics segment delivered strong in adjusted EBITDA. This is the result of the investment we have made in our midstream businesses. As an example, compared with last year, we have more than doubled the volume in the midland gathering system. We remain focused on our key priorities. I will now take a few minutes to provide an update on each and every one of them. First, returning value to shareholders and optimizing our balance sheet. During the first quarter, we used excess cash to do what we committed to do. At the Delac US holding, we paid down $327 million of debt. Given the strong performance, we started buying back our shares in the second quarter. we have, up to today, we have repurchased $40 million of DK shares. Also, on May 2nd, our board of directors approved 4.5% increase to the regular dividend. Second strategic is the vision to create a long-term value to our shareholders. Our team is dedicated. We are working night and day on the sum of the parts initiative. We continue to make progress. We are committed to make a long-term good decision that drives shareholder value. A key focus area since becoming a CEO has been safe and reliable operation. We moved in the right direction during the first quarter. The Tyler turnaround was completed with zero recordable and on time and on budget. As of the end of March, DKL employees and contractors have worked combined four million man hours with zero lost time injuries. We are being proactive in our approach to improve safety. We are developing and implementing plans that will drive the improvements toward our long-term goal of a top quartile safety and reliability performance. Our final key priority is improving efficiency in our cost structure. We remain focused on this goal. Rosie will provide additional updates on this effort. To accomplish our key priorities, we must make sure we have the right people in the right roles. Over the past several months, we have made strategic additions to our team that will position ourselves for future success. In March, we welcomed Joseph Israel as EVP of Operation. Joseph is a well-rounded industry veteran with over 25 years of energy experience and proving track records of driving safe and reliable operation. Please join me in welcoming Joseph to the call today. Patrick Riley has joined us as EVP and Chief Commercial Officer. He brings wealth of experience from best-in-class businesses. His experience and background align well with our vision for future growth. We have also pranked our team with Tommy Chavez, joining us as SVP refining operation. Tommy brings over 35 years of refining experience. Our team is strong and well positioned to execute on our strategic plans. In closing, I would like to thank our entire team of over 3,500 employees. Their hard work and dedication are driving our success. I appreciate their effort and look forward to a strong future together. I would also like to thank our investor and board of directors for their continued support. Now, I will turn the call over to Joseph, who will provide additional color on our operation.

Thank you, Abigail. I'm thrilled to join the Delik family, and I have no doubt our strong talent and competitive position across the system are positioning us well for future success. Our safe and reliable operations in the first quarter allowed us to leverage favorable market conditions and deliver strong results. I will now provide additional details about our operations in a slightly modified format with the objective to provide more visibility regarding our performance and plans going forward. Starting with our Tyler Refinery, as Abigail mentioned, the team successfully executed a 49-day oil-to-oil major turnaround. Beyond routine maintenance and reliability upgrades, the scope included yield improvement projects, mainly around the FCC and DHT, with an estimated $0.40 per barrel of margin capture improvement going forward. Turnaround costs was consistent with our plan at approximately $100 million. Due to the turnaround, total throughput in Tyler in the first quarter was approximately 35,000 barrels per day. Production margin in the quarter was $21.65 per barrel, and operating expenses were $8.70 per barrel, including approximately $1.25 per barrel of accelerated maintenance due to the turnaround. In the second quarter, the estimated total throughput in Tyler is in the 74 to 77,000 barrels per day range, and OPEX is expected to go back to the normal range of $4.50 to $5 per barrel. In El Dorado, Total throughput in the first quarter was approximately 77,000 barrels per day. Our production margin was $13.38 per barrel and operating expenses were $4.47 per barrel. Estimated throughput for the second quarter is in the 78 to 81,000 barrels per day range. In Big Spring, Total throughput for the quarter was consistent with plan at approximately 73,000 barrels per day. Production margin was $18.33 per barrel and operating expenses were $5.80 per barrel, including approximately 60 cents per barrel of maintenance activities. The estimated throughput for the second quarter is approximately 70,000 barrels per day after completing maintenance work in the month of April. In Crowdsprings, total throughput was approximately 84,000 barrels per day. Our production margin was $15.47 per barrel, and operating expenses were $5.21 per barrel, including $0.35 per barrel maintenance in our reformer and our key units. Plant throughput in the second quarter is in the 80 to 82,000 barrels per day range. Overall, estimated system throughput in the second quarter is in the 301 to 311,000 barrels per day range, compared with approximately 269,000 barrels per day in the first quarter. We continue to focus on safety, reliability, and environmental compliance as our top priorities, and we expect margin capture and cost performance to follow. As far as market conditions, good day to be an inland refinery in the U.S. Gasoline is tight, going to the summer, and specifically for DELEC, crude oil pricing dynamics are favorable. and demand for products is strong across our system. I will now turn the call over to Rosie for the financial variance.

Thank you, Joseph. Starting on slide four, for the first quarter of 2023, Delic US had net income of $64 million, or 95 cents per share. Adjusted net income was $93 million, or $1.37 per share, and adjusted EBITDA was $285 million. Cash flow from operations was $395 million. On slide five, we provide a waterfall of our adjusted EBITDA by segment from the fourth quarter of 2022 to the first quarter of 2023. The significant improvement over last quarter was primarily from higher results in refining. As Abigail and Joseph mentioned, during the quarter we operated well and were positioned to capture favorable market conditions. In addition, corporate contributed a $16 million benefit over last quarter primarily due to lower G&A costs. For your reference, we have provided a year-over-year waterfall slide in the backup. Moving to slide six to discuss cash flow. We built $24 million in cash during the quarter. The $395 million in operating activities reflects the strong cash from operations. In addition, it includes approximately $180 million of the $240 million of cash associated with the two year-end timing events disclosed during the fourth quarter earnings call. Investing activities of $222 million is primarily for capital expenditures, the majority being for the Tyler Refinery turnaround. Financing activities includes the debt pay down during the quarter, partially offset by approximately $60 million cash inflow for the year-end timing events. On slide 7, we show capital expenditures first quarter compared with our full year estimate. For 2023, capital expense will be heavily weighted to the first half of the year. We still estimate the full year to remain at approximately $350 million. Net debt is broken out between Dellick and Dellick Logistics on slide 8. During the quarter, consolidated net debt improved approximately $303 million, and Dellick U.S., excluding Dellick Logistics, improved $346 million. The last slide covers outlook items for the second quarter of 2023. In addition to the throughput guidance Joseph provided, we expect operating expenses to be between $195 million and $205 million, G&A to be between $70 and $80 million, D&A to be between $80 and $90 million, and we expect net interest expense to be between $70 and $80 million. For interest expense, we have updated our guidance to include non-cash deferred financing costs. Prior to the fourth quarter of 2022, when we refinanced various debt facilities, the impact of deferred financing costs was less significant. Before we move on to Q&A, a few updates. As Abigail mentioned, we have made progress on our cost reduction and process improvement effort. During the quarter, we completed the first phase of this initiative, We realized 3 million of G&A cost savings, which is 12 million on a run rate basis. The next phase is scheduled to start in the second quarter, and we expect to see G&A improvements in the second half of this year. Part of our assessment on costs has been a deep dive to drive industry standard on G&A and OPEX classification. This quarter, we made an adjustment of approximately $6 million between these costs. This adjustment was retrospective. We have provided two years of history in our supplemental slides. Finally, during the quarter, we changed the benchmark for Krotz Springs Refinery to better reflect its product mix. This was also a retrospective change. We have provided two years of history in our supplemental slides and detailed disclosures in the supplemental tables of the earnings release. We will now open the line for questions.

We will now begin the question and answer session. Again, to ask a question, you may press star, then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. And to withdraw a question, please press star, then two. Again, we ask that you please limit yourself to one question and one follow-up for this call. At this time, we will take our first question, which will come from Neil Meta with Goldman Sachs. Please go ahead with your question.

Yeah, thanks so much. And congrats on some good progress here this quarter. And that's where I want to start off on the refining segment. It looks like even when you adjust for the GNA, it was better captures than expected. And our model in particular was at Kratz and Tyler as well. And so just as you're curious on anything you could talk about in terms of the refining business, if you're seeing underlying improvements and Now that we're in a little bit of a tougher margin environment than where we were in Q1, do you think that strength and capture can flow through?

Hey, Neil. Good morning. It's Avigal. Thanks for the question, and thank you for the support. Yes, we have experienced good progress with our initiatives. First of all, we had the safe, reliable operation always is a key driver, and I think that the team we have is extremely focused around that. So that was a focus. The execution of the turnaround was a great success and a focus, and a few small projects that helped us as well. That's a good opportunity for me to welcome Joseph live and allow him to give some more color around it. Please go with that, Joseph.

Thank you, and good morning, Neil. Yeah, the system executed well from a safety and reliability standpoint, like Abigail mentioned. throughput capture optics for the four refineries were in the planned range with Tyler obviously under turnaround. We sourced our domestic crude oil efficiently with the more favorable midland differentials and the right market structure. We blended low-cost butane in our gasoline. And then on the distillate side, We all know the jet fuel was a good capture component this quarter for all refiners, including ourselves, HSD, and Octane priced well to support our capture. So good quarter all in all, and we're looking forward for the next one.

And welcome, Joseph. Thank you. And that's the follow-up. You know, you talked a lot about the path towards some of the parts realization and and there's no update here, so can you talk a little bit about where we stand on the plan and what are the different things that you've ruled in and ruled out?

Hey, Neil, again, thank you. So, listen, I can tell you that the team, and Mark is here as well, and he can chime in after I finish, is extremely focused on working on day very extensively. We continue to make, in our mind, great progress meaningful progress. But we all understand that those type of transactions take time, and more than anything, we want to get it right. We do not want to make something quick, which is not right. I'm very optimistic about it. The progress is being done very, very, very well, and we are very satisfied with that. And we'll keep you posted. I don't know, Mark, you want to say anything?

No, I think that was well... articulated. We continue to work on it. We see opportunities out there for us that we're evaluating. As I said on our fourth quarter call, the thing that we're focused on is positioning all of our businesses to pursue accretive growth and have financial flexibility. That continues to be a focus in anything and everything we do.

Just a quick follow-up on that, Mark. Is it fair to say that the area where you see the best opportunity to unlock value is still around logistics assets? Is that what you believe the market is undervaluing?

Yeah, I think that's a fair statement, Neil. I mean, we obviously have a value benchmark, sort of a marker, if you will, out there that trades sort of every day. And we feel like that... Just given how we're structured right now, we're not getting adequate look-through value to our midstream business.

Thanks, Tim.

And our next question will come from Manav Gupta with UBS. Please go ahead with your question.

Hey, guys, a little bit of a follow-up here. Crops used to be one of your weaker assets. It's clearly one of the stronger assets at this point of time. Help us understand... what has changed in the last one and a half or two years to make this a much more competitive asset than what it used to be?

Yeah, absolutely. Joshua, you want to take it?

Yeah, I'll start. Talking about reliability again, Crocs is a very unique, special place. It was just certified as a VPP plant, and I think the story is right there. So, One cue, we have seen a great reliability, which was reflected in our yield. In addition, we have a new catalyst and a reformer that really helps our yields and providing us more gasoline components. Butane blending is very efficient at crop springs, and we make a lot of jet fuel in our crude units. When JET is strong and recovering, Crotspring is going to do well. So, great team, favorable market conditions, gave us good results.

And we cannot undermine the improvement of the ALKI over the last few years. You know, Crots used to be a fund without ALKI. ALKI pricing was good, and we see a nice return to our investment we did years ago.

Makes sense, guys. A quick follow-up here. You mentioned a little bit of this, but looks like you have made some improvements at Tyler during the 1Q turnaround, which is giving you more confidence of a higher capture. Help us understand what was executed and what gives you confidence that the capture at Tyler will improve and make it more competitive.

Thank you, Manav. Like we said in our prepared remarks, beyond just reliability projects and addressing risk, we have done some research Upgrades, I think the most significant one is a revamp of our vacuum tower, which helps the feed quality to the FCC. So the FCC is performing much better with better conversion, better yields. In addition, we replaced the catalyst in the DHT that gives us a much better liquid recovery and better swell. So we think this 1Q story is just a snapshot. We are here to capture those benefits in the future. And I think personally, 40 cents is probably on the conservative side.

Perfect, guys. I'll leave it there. But I do want to say one thing. We are seeing the way you report earnings. is improved a lot. There's a lot more consistency. And I think the feedback we're getting from shareholders is that this is exactly what they wanted. So all those who are involved in making it a lot more consistent and easier to understand reporting would like to congratulate them. Thank you.

Manav, point taken. Thank you.

And our next question will come from John Royal with JP Morgan. Please go ahead with your question.

Hi, good morning. Thanks for taking my question. I'd also like to echo Manav's comments on the reporting. I think it's been much easier to get through on earnings days. So my first question is on capital allocation, and specifically being out of the buyback market in 1Q, despite a big quarter from the cash flow perspective. I assume it had to do with the turnaround, but any color on that. And then The $40 million pace for 2Q to date is pretty robust. Is there some catch up there? Should we think of that as a good pace going forward? And I think $75 to $100 million was something you had said for the full year. And maybe if you could just comment on that, if that's still a good number.

Yeah, thank you, John, for the question. Obviously, I would take a bit broader look on our capital location. Obviously, we cannot lose sight from the fact that we are increasing dividend for three or four quarters in a row now. So we see that dividend going through the cycle, and we are committed as much as we can to continue that through the cycle. So that's point number one. Point number two, around the buyback, we obviously wanted to make sure that we are clearing any risk from our profile this year, or a pretty significant risk with the Tyler Teran behind us. And as you probably can know, we are taking ourselves as a first tier return to shareholder company. And we are there, right? You can see us there on the 19% last 12 months, which is where we want to be. We want to be very competitive and to give a good return to our investor, both on the short term and on the long term. I'm not going to change the guidance we gave today on 75 to 100, but I'm going to say that we're actively looking on that, and we are using the buyback as a flex, if I can say, as a flex tool. When we have a solid site for margin and operation, we're still going to do it. So that's something we keep looking at, and obviously if something changes, we'll come back.

Great. Thanks, Abigail. And then maybe on the cost reduction program, maybe just a little more detail on the 12 million captured of the 30 to 40 million you expect this year. And what are the key sources of what you've captured so far and this year's portion of the program in general?

Yeah, absolutely, John. I will let Reuven, our CFO, to comment on that, if it's fine.

Thank you, Abigail. First of all, our guidance that we gave in the fourth quarter for the year was 30 to 40 million savings and on a run rate of 90 to 100 million based on Q4 slash Q1 24. That number is divided around 65% between OPEX and 35% between GNA. The three million that we have materialized in the first quarter are initiatives that we took late in the fourth quarter, early in the first quarter, and will impact, obviously, the run rate of 30 to 40 for this year. There are additional, I mean, the program goes throughout the year. We have additional segments that we're going to implement in the second quarter and in the fourth quarter. Some of them are IT-related. Some of them are not. The initial effort was around GNA org and structure. As we progress in the second and third quarter, it will be more focused on the operation.

Thank you.

And our next question will come from Doug Leggett with Bank of America. Please go ahead with your question.

Thank you. Thanks for taking my question. Let me welcome to Joe. It's nice to see you back, Joe. Thank you. I wonder if I could just hit, first of all, Abigail, the sum of the parts question again. To the extent you can, if midstream is seen as the problem, what are the range of options available? that you are considering in terms of, obviously the balance sheet is one question mark, but how do you see that playing out to the extent you can share at this point of your review?

Yeah, so Doug, it's a great question, but I'm not going to give too much color about it. All I'm going to say is that we have a line of sight that is going to be very accretive to both DK and DKL, and I'm sure that you're going to be very happy.

Okay, and retail, is that part of the discussion as well or no?

So we want to tackle first what moves the needle the most, right? So we have priorities, and the priority is to do what is the most meaningful as first priority, and that's how we work here to make sure that we are being as meaningful as we possibly can with creating value to shareholders.

I understand. Just one last one on this topic. Timing, when would you expect to be able to reveal to the market your plan?

I'm more aggressive than you. I want it more badly than you are. We are on the same side of the equation, but this is not a simple plain vanilla. It requires some work and planning and details. We are on the same camp and we want it sooner than later. We will watch with interest.

My follow-up is maybe for Ruben. I guess it's a housekeeping question that we already tried to walk through with Rosie, but I think it would be good for everyone to hear this. Your cash flow was obviously pretty strong, but you don't break out, at least not on the release, the working capital move. So we're trying to understand what the underlying cash flow was in the quarter. More importantly, how much of the working capital is will reverse in the future? In other words, is this a one-time benefit or is it something we can look to as more of an underlying improvement? So the underlying cash flow, I guess, is the question and the nature of the working capital move.

Right. So thank you for the question. I think the one number to remember is on the fourth quarter call, we mentioned that we had a timing issue with the intermediation agreement with Citi, and $180 million are supposed to come in in January. And they did come in. And I think that is the number that probably should be taken out of the reported number, because that was a fourth quarter event that reconciled itself in the first quarter. Other than that, what impacted the working capital slash cash flow was the Tyler turnaround. And, you know, on the negative side, the capital expenditure, which was higher in the first quarter, as expected.

And below the operating line, Ruben?

the difference ends up in the financing activities, right?

Yeah.

Yeah. That makes up the full 240. Right. Yeah.

Got it. Okay. Thanks so much.

Yeah.

Thank you. Appreciate it.

And our next question will come from Matthew Blair with Tudor Pickering Holt. Please go ahead with your question.

Hey, good morning. Thanks for taking my questions. Joseph, it looks like Southwest cracks are still at new five-year highs, whereas Most other regions are roughly around five-year averages or even a little bit below. Could you talk about the drivers that are supporting the strong margin environment in the Southwest? Is that something that you can capitalize on in Q2, or does the big spring maintenance in April take you out of the picture there?

Yeah, thanks for the question. Actually, we are very optimistic about what we see on the demand side. We see a strong netbex and a strong pull from our racks. And the demand in our side of the world looks as solid as this can be. There is a different discussion between the macro and the micro. And the micro in our inland is solid and robust, and we see that on the results.

Yeah, and if I can add, the Southwest market you write is probably the strongest in the country these days. And fortunately, this is where a lot of our business is. So you can see it in the office, Iraq versus Gulf Coast, and we capture that, and it's coming back to the refining, not through the big spring number, but definitely through our profitability strategy. As far as the second quarter dynamics and us specifically in Big Spring, look, we think the fundamentals are favorable from inventory standpoint, right? I mean, gasoline is tight going to the summer. Global economic trends are still a concern, but we don't have a crystal ball to predict future trends. But the great thing about our system, we are well insulated within our niche markets. We have seen strong demand. going into April, and the marketing uplifts really reflect our location advantage. We continue to leverage our advantage, the crude pricing, octane capabilities, and now asphalt capabilities as we move to the second quarter.

Okay, sounds good.

And then on the retail side, it looks like your same store volumes were down 1.7% in Q1. Do you have a rough number on what that's looking like so far in Q2?

So we are not going to give a forecast for Q2, but we are going to say on the other side, merchandise was higher.

So all in all, retail is doing good.

Okay, thank you very much.

And our next question will come from Paul Chen with Scotiabank. Please go ahead with your question.

Hey, guys. Good morning. Good morning. Two questions, please. One, hopefully that's simple. Maybe it's for Ruben. Trading and supply in the first quarter is a loss of about $18 million, and last year is $105 million. Is it a real loss or it's just one side of the two trades that you lost on? You report a loss there and then you actually have the VNI hedge gain on the other side on the physical market, in the physical barrel. So just trying to understand whether it's a real loss or that it's just sort of like the accounting, how you report it. If it is a real loss, what contributes to the loss? The second question maybe is for Aragon, that how important is M&A acquisition for your strategy over the next three years in refining, logistics, and retail? And if it is important or even if it is not, what kind of financial matrix you would be using when you're looking at potential targets? Thank you.

Yeah, so Paul, with your permission, I will start with the strategic question and then we'll go to the tactics. So M&A is obviously a tool that served ELEC in the past very successfully and very good. But M&A, we're going to do it only if we're going to be disciplined, right? And when I mean disciplined, it needs to be accretive for investors. We are not going to do M&A just to check the box. We're going to do it when it makes sense. strategic, synergetic, and we can drive value to shareholder. Period, end of story. That's what's going to drive us. Obviously, on the refining side, it's more accretive versus retail, which is 10 times, so we are not probably going to do M&A on the retail side because it's not accretive. So that's on the strategic side, but we are obviously looking, and if we find something that will make sense on the short term and on the long term, we are not shy about that. We were not shy about that in the past, But again, it needs to be accretive and makes sense. Around the split between refining, I don't have all the technicalities in front of me, Paul, but there is nothing weird in that. It's mainly the way we split between refining and the different assets. So I can ask Rosie to look into that and come back to you with more color.

I don't have it in front of me.

Can I ask that on...

refining, if you do go into any acquisition, is there a particular region that you would be interested or that you are not really focusing on the region?

Again, we are not going to be specific, but I think the rules that we have is we need to have add value to any assets, need to be accretive, And we are not going to rush ourselves, right, Paul? We're going to make something that's going to make sense for the long term and going to be accretive for our share price. So there is no rush, but if something is going to come up, we'll do it right.

Okay. Thank you.

You bet. Thank you.

Thank you, Paul.

And our next question will come from Jason Gabelman with Cowan. Please go ahead with your question.

Good morning. Thanks for taking my questions. Good morning. I want to first go back to capital allocation and pay down a lot of debt in one queue. Does that get the parent balance sheet in an appropriate place excluding MLP debt or do you want to pay down additional debt? And kind of on the topic of the balance sheet and capital allocation, you had previously discussed a one-to-one ratio between buybacks and debt pay down. Is that kind of the right split moving forward, or do you have a different allocation plan going forward? Thanks.

Yeah, so thank you for the question. I will start, and Ruben will continue. So on the decay side, we probably have the best balance sheet among our peers with only $200 million of debt. most of our debt, as you well know, is on the DKL side and have a completely different level of income against it. So it's two different ballgames, and we cannot lose sight out of that. And obviously, we have a very high level of third-party income. So that's the philosophy behind it. So we said in the past, and we are sticking to it, especially on a higher interest environment that we are at, that we will have a balanced approach between reducing debt and buyback. We demonstrate in the last four months that we are not shy of doing buyback and the market continues to be good. We will use that tool in the future like we used it in the past. Ruben, maybe you can... Sure, thank you.

As you recall, during the fourth quarter, we had to increase our debt as a result of the intermediation agreement timings. So going into the first quarter, we had two priorities. One is to pay down back that debt, and the other one was to support the elevated capital expenditure level of the first quarter, which were mainly as a result of the Tyler turnaround. Once we realized we can accomplish that, and it's a very strong quarter, we did additional $60 million of debt from the original plan, which put us at the $300 million range, and we started the buyback program, and we bought $40 million.

Got it. And just one clarifying question on that. So going forward, do you expect to be balanced between buybacks and debt paydown, or does it swing back the other way, just given 1Q debt paydown was so high?

Yeah, so we didn't change the philosophy, but it doesn't mean that if the market condition changes, we'll not change versus what we do. As we said, the philosophy is to have a great Return to shareholder, and we are a first tier around that, and we'll keep being first tier around that. So we are taking a buyback as a priority. Obviously, interest rate is where it is. So we're going to do both as effective as we possibly can.

Okay, understood. And my follow-up is on corporate expenses. Those came in a lot lower than expected in one queue. What drove that? It doesn't seem like you expect that. to repeat in second quarter. So just wondering what the variance was in the first quarter. Thanks.

Yes. Robin, you want to take that? Yeah, thank you. So it's actually a composition of three numbers. As part of our cost reduction efforts, we review every line item and we reclassified 6 million from GNA to OPEX, which is in line with industry practices and our peers. In addition to that, there were $3 million of timing expense. And the last component, which is the $3 million that is directly related to the cost efficiency steps that we have taken late in the fourth quarter, early in the first quarter, which will impact the GNA for the remainder of the year with about $12 million.

Great. Thanks.

Thank you. And our next question will be a follow-up from Paul Chen with Scotiabank. Please go ahead with your follow-up.

Hey, guys. Real quick. Eric and Devin, you're looking at logistics. Have you guys ever considered something similar to what some of your peers that you roll up that to and you sell? They spin it off or doing other things that actually take out the minority public unit holder? And secondly, that do you have a number you can share what is the VMI gain and the wind expense in the quarter, whether those are any meaningful number? And also that if you can talk about what is your hedging strategy going forward?

Thanks Paul for the follow up. Let's start one by one. Around buying back the asset, we said that we believe that we have a good vehicle I understand, we understand why other peers did what we did, what they do, and we'll come back to you again when we have something meaningful to share. We believe that we have much more creative way for everyone going forward with that. We have seen others that did it and was not as successful as they expected. So we believe we have a more meaningful way to do it that's gonna be better from a leverage and accretive for both to DK and DKL. Regarding the RIN, we historically didn't provide special guidance or information around it. But this quarter, I'm sure that you are very pleased from all the new information we got. So we are moving very fast on the right direction to give a lot of clarity.

All right.

Thank you. You bet. Thank you for the question.

And that concludes our question and answer session. I'd like to turn the conference back over to Avigol Sorek for any closing remarks.

Yeah, so thank you, the investor, the board of directors, and mainly our employees for a great course and great execution. Our priority is to have safe and reliable operation and to have a great return to shareholders, and we are committed to do so.

Thank you for your time and effort. Appreciate it.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.