Delek US Holdings, Inc.

My name is Desiree and I will be your conference operator today. At this time, I would like to welcome everyone to the Dellix 2nd 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. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press the star one. I would now like to turn the conference over to Robert Wright, Deputy CEO. Please go ahead.

Good morning and welcome to the Dellix 2nd quarter earnings conference call. Participants joining me on today's call will include Avigal Sorik, President and CEO, Joseph Israel, EVP Operations, Reuben Spiegel, EVP and Chief Financial Officer, and Mark Hobb, EVP Corporate Development. Today's presentation material can be found on the investor relations section of the Dellix 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?

Thank you, Robert. Good morning and thank you for joining us today. During the 2nd quarter, our adjusted EBITDA was $108 million. Despite a challenging market environment, we ran our operation well. I'm proud of the ongoing progress our team is making. Turning to our strategic priorities. As I've outlined on our previous calls, Dellix key focus areas are, first, safe and reliable operations, second, unlocking the sum of the parent value inherent in our system, and third, being shareholder friendly and having a strong partnership. I will now focus on each one of these key priorities in detail. Safe and reliable operations 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 OPEC's 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 series of transactions that will allow us to further improve our position as a safe, reliable and efficient refiners. On August 1st, 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 unlocked for DK shareholders. Our supply agreement with Pemza 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 an amend and extend agreement. We have also decided to drop our interest in Wigged 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 to acquire high quality assets without significant strain on its balance sheet. Today, we also announced a number of transactions for DKL. This transaction will enhance DKL's position as a full service crude natural gas and water provider in the most prolific areas of the Permanent Basin. DKL announced the FID of a new gas processing plant. The plant is synergistic, 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. For synergies, the transaction should be in the acquired multiple of around 5 times. This transaction put us on a path to midstream independence and allowed 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 standalone 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 moves us closer along our path to midstream 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 overall profitability of our company. The new project is not just about cost reduction, but it's about making DKL a 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 return and maintaining strong balance sheets. During the quarter, we paid $16 million in dividends. On July 31, the Board approved another .5% per share increase to regular dividends. Our quarterly dividend is now $0.25 per share. Before closing, I also want to highlight that the DGC circuit overturned 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 difference ruling, give us important direction to the EPA as it reconsidered 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 over 3,500 employees, especially our DKL retail employees. On a personal note, I started my journey in DELEC back in 2011 in the retail division, and I have special appreciation for their 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 have discussed operations excellence in the past several quarters, and today I am 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 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 by coordination, and a relatively weak asphalt 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 markets' access optionality. Estimated throughput for the third quarter is in the 79 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 stripper project at the Big Spring refinery, which supports consent decree requirements related to benzene in wastewater. We remain focused on people, process, and equipment to ensure progress and operation stability. Estimated throughput for the third quarter is in the 69 to 73,000 barrels per day range. In Crod Springs, total throughput was approximately 82,000 barrels per day. Our production margin was $7.02 per barrel, and operating expenses in the quarter were $4.95 per barrel. Plan throughput for the third quarter is in the 79 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 to 315,000 barrels per day range. Moving on to the commercial front, improved but challenged supply demand balances in the quarter group differentials for products and asphalt netbacks. For the quarter, we reported $34 million loss for supply and marketing. Of that, approximately $17 million loss was generated by Wholson Marketing. $5 million loss was contributed by asphalt, leaving approximately a negative $12 million loss contribution for supply. In summary, after successfully addressing the liability 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, Dellic had a net loss of $37 million for negative 58 cents per share. Adjusted net loss was $59 million for negative 92 cents 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-TACON offering in addition to timing of accrual. 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 to 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 Delic and Delic 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 and $250 million, and G&A to be between $60 and $65 million. Our third quarter outlook for operating expenses and G&A is around $272 million. As Abigail 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, G&A is expected to be between $90 and $95 million, and net interest expense to be between $80 and $85 million. We will now open the client for questions.

Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to redraw your question, simply press star 1 again. If you are called upon to ask your question and are listening via speakerphone on your device, please be copy your handset to ensure that your phone is not on mute when asking your question. Again, press star 1 to join the queue. 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. Trying to understand here, obviously there's a big difference between delict depth and consolidated depth. 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 depth. So trying to understand what can be done, more be done to deconsolidate that depth here.

Manav, thank you for joining us today. I will start with giving a highlight overview of what we're trying to do and I will get exactly to the points you just mentioned. As you see in this quarter, we have an unwavering commitment to show investors both the decay, decay of the value of some of the parts and we were driving to this target very aggressively. We were able to do in the same quarter to build, buy, sell and deal with the complex conflicted transaction between decay and decay. All of that on the same time. That's a huge testimony of our commitment to bring that value to stakeholders along with a strong execution to do all of that on the same time. To be more specific, Manav, you remember I've said that over and over last quarter that the availability of over $800 million we created during March and April, earlier this year will create us the ability to go to the next step. That's exactly what we did this quarter. From a decay standpoint, we improved cash balance, we have a minimal impact on EBITDA and what we basically did on the third point of the decay, we did economical swap of money. We basically moved one asset from one company to another company and vice versa economically and put everything on the right bucket and making ourselves deconciliated, deconciliated, consolidation ready. That's huge. From a decay standpoint, we were able to do while doing all of that, we were able to grow 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 deconciliations. That was a huge quarter for us and more to come.

Perfect. You kind of mentioned about putting the right assets in the right bucket. One of the things where Dellic is flagged out is like the EBITDA per barrel is less competitive versus some of your peers. Trying to understand based on the transactions you have done with DGL, are some of those assets now going to sit within refining? So the capture or for the same crack environment, should we expect a better EBITDA per barrel now that the assets are in the right bucket? Yeah,

Manav, you got it exactly right. We were bringing back the volume over time while growing DGL and that's going to improve the decay capture rate in the refining. So that's exactly what I have to do and you got it exactly right. So decay and DGL are going to be deconciliation ready. You got it exactly right.

Okay, 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, does it really matter if the rim price is 50 cents a gallon?

Yeah, so we were very pleased with the court ruling ten days ago. It was on Friday. I think the court made the right decision. 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?

Yeah, Manav, I think from our company standpoint, if you look at Friday's ruling from DC Circuit and the court, it was a very positive move from 2018 to 2020. I'm just going 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're 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 restructuring and congratulations to Mohit on his new role. Thanks, guys.

Yeah, we're excited about it. He's excited about it. You're excited about it. We're in good shape.

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

Hey, thanks for taking my questions and congrats on progressing some of the parts effort here. So I know you touched on it a bit in the preparatory remarks, but I just was hoping to dive into a little bit more on the use of proceeds from the transactions. I know you mentioned putting it towards the balance sheet. How much is there to go on that front? Thank you.

Yeah, absolutely. I will touch on that gladly. We have communicated in the past about our cash allocation strategy just to remind everyone dividend maintain strong growing dividend throughout the cycle. We just increased our dividend again by 2% these last few days. So we are very proud of our ability to maintain, sustain and grow our 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 transaction are closed later Q3, early Q4. Thank you for the question.

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

Absolutely. So, Ruben, 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. Great. Thank you all.

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

Yeah. Good morning. Good morning, team. And congrats on the announcements 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 step closer to deconsolidation?

Yeah, absolutely. That's the whole point of this deal. We are putting the right assets economically under the right ownership and right structure. So that makes DKL and we prepared a full deck for DKL. I think for the first time they chose the DKL by the second quarter of 2025 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 assets in a premier location in the Permanent Basin and we are providing all products around it, crude water and gas and very proud of the clear strategy that we have for DKL and that value in M&A will reflect itself over time.

Thanks, Avigal. And the follow up is on slide nine. It is helpful to see the margins by asset. There's a lot of dispersion here. I mean Dorado seems like it had a little bit of a tougher quarter and Tyler's 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 to go forward?

Yes, absolutely. There is an extreme focus of El Dorado in terms of commercial improvement because the we have a lot of 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 backaudition, which increased our acquisition price. Three is co-product weakness, which for us in El Dorado is mainly asphalt. Similar to our Midwest refining pills, we faced an oversupplied Midwest market with the under seasonal trends for a group this. 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. The team is doing a great job operating and optimizing the plans on a consistent basis. Our opportunities clearly around alternative market access when the group this are 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, 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 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 helped 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 to retail in from lower crude prices in Q3?

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

Yes, on the wholesale marketing, again, it's 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 and the conditions that made the 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 Bakersfield 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.

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

Great. Thank you. Thank you.

Our next question comes from the line of John Royale with JP Morgan. 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 some of the parts separate after these deals are closed? You've mentioned more to do on the deconsolidation side at DKL and presumably also on the third party side to get to 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.

Yeah, 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 that right assets are on the right bucket and we are starting to make those separation 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 around that, Mark. So 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, Avigol. 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, you know, they do mark significant progress on our some 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. And with Wink to Webster dropping, the expansion of the gas processing capacity in the Delaware, the purchase of H2O Midstream, combined, they will add substantial third party business to DKL. I think as we consider deconsolidation, you know, 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 two of taking out costs 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 aspects 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 Reed with Wells Fargo. Your line is open.

Yeah, thank you. Good morning and I'll add my congratulations on progressing some of the parts restructuring here. Maybe this question is for Joseph. You know, you've been working hard to get big springs up. You made the comments here earlier about, you know, 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 springs 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, you know, deconsolidating DKL and bringing the assets back in, I'm presuming that's also going to be margin enhancing. So, you know, 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? Yeah,

Roger. So, you know, it is amazing when fixed reliability, not only in the throughput aspect, in the calculation and the optics 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 Azarbab from big spring to the right markets. 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 these days, this optimization. Mark, do you have more to add?

Yeah, Roger. I guess to your question, and I know Avigol 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, you know, accomplished a couple of things, right? The extension of the contracts for up to seven years, you know, 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, you know, DK refining profitability going forward and enhancing future capture rates, right? And to your point, that does touch specifically Big Spring, you know, El Dorado and Tyler over time through the moves that we've announced today.

Okay. Do we answer your question, Roger? Well, I think it's going to be something that evolves, but I'll take it offline with Moa and, but I appreciate your clarity here. Thanks.

Perfect. Thank you.

Next question comes from the line of Paul Chang with Kosher Bank. Your line is open.

Hi. Good morning, guys. Hey, Paul. I have to first apologize. I still want to go back into what Roger asked. Can you quantify for us or just share with us with the contract extension, how much is the lower fee that the DK will pay 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 will, you sell the wind and west pipeline down to DKL? We saw on your presentation, you're saying that DKL transaction net cash 130 million. So we assume that is the selling price and what is the EBITDA associated with wind and west that you currently are receiving? That's the first question.

Yeah, Paul. Thank you for the detailed question. And you cannot assume that the W to W value is basically, it's a one of series of transactions between DK and DKL and we provide you guys the net number. So you cannot just assume that number. So the value of W to W, there is a market for that and it's a pretty straightforward evaluation 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 of order of magnitude of 60 million dollars 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 EBITDA is going to grow. The capture rate in DK is going to look and be better because of the valuation of 60 million dollars that we have. And we still have like 20% of the contract down the road to a deal 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. Brick Spring that you've been working on restructuring and improved optimization. As of now that all the effort is essentially done and other than say you're talking about how you may be still looking at different products or different markets, other than that from a manufacturing standpoint, is all the changes or all the improvement you're trying to make is already done at this point?

Yeah, so I think on the cost structure we guided the market to 550 target and this quarter we have about 85 cents per barrel over that in Brick 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 in Brick 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, we do. Thank you.

Thank you.

And we do have our last question comes from the line of Jason Gableman with TD Cowan. Your line is open.

Yeah, hey, thanks for taking my questions. 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, 30 million of EBITDA. So that kind of gets you to that projected 70 million dollars of EBITDA for DKL and it implies that then Wink to Webster offsets the DK contract amendment extent. Is that the right math or is there something off there?

Yeah, so Jason, I think it's a good opportunity to do a follow up with Mohit. We see more value in the gas plant, for example, and there is more EBITDA that comes back between the DKL back to DK. I said that to Paul, it's around 60 million dollars over time. It's not all of that they won. So we didn't give a specific number on each one of the transaction. 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 trying, I think we achieve for the most part to achieve on the same quarter, deconciliation ready while making a clear 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. We're not going to get into the details, but I encourage you to get with Mohit and get some more detailed questions.

The expenses, 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 hesitance right now and just kind of talking through the user proceeds? Thanks.

So the user proceeds is according to our strategy. Obviously when we're 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 the 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.

Okay. Thanks for the answers and I'll follow up offline. Thank

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

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

This concludes the conference call. You may now disconnect.