Holly Energy Partners, L.P.

Welcome to Holley Energy Partners' fourth quarter 2021 conference call and webcast. At this time, all participants have been placed in the listen-only mode. The floor will be open for your questions following the presentation. If you would like to ask a question at that time, please press star, then the number one on your touch-tone phone. If at any point your question has been answered, you may remove yourself from the queue by pressing star one again. If you should require operator assistance, please press star zero. We ask that you please pick up your handset to allow optimal sound quality. Please note that this conference is being recorded. It is now my pleasure to turn the floor over to Trey Shunter. Trey, you may begin.

Thanks, Audra, and thank you all for joining our fourth quarter 2021 earnings call. I'm Trey Shunter with Investor Relations for Holley Energy Partners. Joining us today are Rich Vala, President, and John Harrison, Senior Vice President and CFO. Hello. This morning, we issued a press release announcing the results for the quarter ending December 31, 2021. If you would like a copy of today's press release, you may find one on our website at HolleyEnergy.com. Before Rich and John proceed with their remarks, please note the Safe Harbor disclosure statement in today's press release. In summary, it says statements made regarding management expectations, judgments, or predictions are forward-looking statements. These statements are intended to be covered under the safe harbor provisions of federal securities laws. There are many factors that could cause results to differ from expectations, including those noted in our SEC filings. Today's statements are not guarantees of future outcomes. Also, please note that information presented on today's call speaks only as of today, February 22nd, 2022. Any time sensitive information provided may no longer be accurate at the time of any webcast replay or reading of the transcript. Finally, today's call may include discussion of non-GAAP measures. Please see today's press release for reconciliation to GAAP financial measures. And with that, I'll turn the call over to Rich.

Thanks, Trey, and thanks to each of you for joining the call this afternoon. HEP finished 2021 with another quarter of consistent results. We completed the year without an employee recordable injury. We are incredibly proud of our team for achieving this significant accomplishment. Overall transportation volumes were down slightly quarter over quarter, primarily due to planned turnaround and unplanned maintenance at Holly Frontier's Navajo Refinery, partially offset by a full quarter's contribution from the Cushing Connect pipeline. We are happy to announce the Frontier pipeline expansion came online in January and expect the expansion to provide approximately $6 million in annualized EBITDA, underpinned by long-term minimum volume commitments. We also announced a $0.35 per LP unit quarterly cash distribution to be paid on February 11th to unit holders of record as of February 1st. For 2022, we expect to hold the quarterly distribution constant at $0.35 per LP unit or $1.40 on an annualized basis while we continue to reduce financial leverage. Looking forward into 2022, we remain focused on completion of the pending acquisition of Sinclair's logistics assets and our commitment to strong operational performance. I'll now turn the call over to John.

Thanks, Rich. For the fourth quarter of 2021, net income attributable to Holley Energy Partners was $45.6 million, compared to $51.3 million in the fourth quarter of 2020. The year-over-year decrease was mainly due to lower volumes on our pipeline systems, lower ongoing revenues from our Cheyenne assets as a result of the conversion of Holley Frontier's Cheyenne refinery to renewable diesel production, and higher operating expenses. partially offset by lower interest expense and an increase in joint venture earnings. Fourth quarter 2021 adjusted EBITDA was $80 million, compared to $88 million in the same period last year. A reconciliation table reflecting these adjustments can be found in our press release. During the quarter, HEP generated distributable cash flow of $63 million, with a quarterly distribution coverage ratio of 1.7 times and 1.8 times for the full year. Capital expenditures and joint venture investments during the quarter were approximately $18 million, including $6 million in maintenance capex and $5 million for the Cushing Connect joint venture. For 2022, we expect to spend between $35 and $50 million for refinery processing unit turnarounds, $15 to $20 million for maintenance capital, and $5 to $10 million in expansion capital. As of December 31st, HEP had approximately $1.3 billion of total debt outstanding, consisting of $500 million of senior notes due 2028 and $840 million drawn on our $1.2 billion revolving credit facility. Our liquidity at the end of the year was approximately $360 million, and our debt to trailing 12-month adjusted EBITDA ratio was 3.9 times. During the year, we repaid over $70 million in debt, and we expect to continue using retained cash flow to further reduce leverage down to our target range of 3.0 to 3.5 times. Now I'd like to turn the call over to the operator for any questions.

Thank you. The floor is now open for questions. If you would like to ask a question at this time, please press the star and then the number one on your touchtone phone. And we will go first to Spiro Dunas at Credit Suisse.

Thanks, Operator. Afternoon, guys. If we could maybe just start with CapEx. I've got a few on that. Starting with the guidance, it seems to point to kind of a heavier turnaround year in 2022. Can you speak to maybe roughly when we should expect some of those turnarounds and then how we should think about the ultimate impact at HEB and EBITDA there?

Sure, Spiros, John. So the turnaround that we have scheduled this year is for the Woods Cross Refinery Processing Units. And that's scheduled to begin in March and will essentially be down for about 40 days or so. And you can think about the impact of not only the CapEx, but also the lost revenue associated with the downtime. So the MVCs won't apply while that asset is down for service.

Okay, got it. And is that the only one or that's just the closest one coming up?

That's the only one.

Got it. Perfect. And then sticking with CapEx, switching to expansion CapEx, seeing that come in a little bit later here in 2022. But if I go back to your slides from December, you guys have pointed out several avenues for growth. You gave a few sort of generic examples of what that could look like. I was wondering if you could give us a little bit more color on that front and maybe focus our attention on what you see as maybe more of the near-term tangible areas for you guys to grow.

Rich Kedzioriakos, Hey, Sarah. It's rich. So yeah, generally speaking, right. I think what we're seeing this year is a lot of the smaller projects that we typically find in a year. So normally year will find 30 $40 million of Rich Kedzioriakos, Of, you know, seven to nine times multiple type spending. These are projects in the half million to $2 million type range. So none of them are worth spiking out from your perspective. We don't have anything larger this year, at least currently scheduled. I'll say the frontier expansion of the Cush and Connect line. Looking forward, right, we're really excited about what we think we're going to be able to do when we get Sinclair closed and in the portfolio. So a lot of our attention and focus in this area is going to be there, I think, once we get the deal completed.

Yep, that makes sense. And I guess on that, anything you could share in terms of the timing around Sinclair, some milestones to look for going forward? And then while you're on that point, if you go back to the original slides, I think you guys had talked about sort of pro forma EBITDA in the $400 million to $450 million range. Curious if that's still a good benchmark to use for now.

Yep. So with regards to the closing... We are working diligently with Sinclair to satisfy all the closing conditions. Currently, the primary or the gating factor is the FTC process. And we're cooperating with the FTC. Sinclair is working with us. We expect to close the transaction as soon as possible. And right now, kind of our best guidance would be sometime in 2022. To your question on the earnings power of the deal, yeah, I think that's still a good number. Broadly speaking, right, we expect the Sinclair assets to add $70-plus million of EBITDA a year to our existing base.

Perfect. Thanks for the color, guys. Be well. Thank you.

And as a reminder, if you would like to ask a question, please press star 1. We'll pause just a moment. And at this time, we have no further questions. I'll turn the conference back over to management for any additional remarks.

All right. Well, thanks all for joining the call today. Feel free to reach out to Investor Relations if you have any questions.

And this concludes today's conference call. You may now disconnect. Thank you for joining and have a great day.