Par Pacific Holdings, Inc. (NYSE:PARR) Q1 2024 Earnings Call Transcript May 7, 2024

Par Pacific Holdings, Inc. isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good day, and welcome to the Par Pacific First Quarter 2024 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Ashimi Patel, Vice President of Investor Relations. Please go ahead.

Ashimi Patel: Thank you, Danielle. Welcome to Par Pacific's first quarter earnings conference call. Joining me today are Will Monteleone, President and Chief Executive Officer; Richard Creamer, EVP of Refining and Logistics; and Shawn Flores, SVP and Chief Financial Officer. Before we begin, note that our comments today may include forward-looking statements. Any forward-looking statements are subject to change and are not guarantees of future performance or events. They are subject to risks and uncertainties, and actual results may differ materially from these forward-looking statements. Accordingly, investors should not place undue reliance on forward-looking statements, and we disclaim any obligation to update or revise them. I refer you to our investor presentation on our website and to our filings with the SEC for non-GAAP reconciliations and additional information. I'll now turn the call over to our President and Chief Executive Officer, Will Monteleone.

Will Monteleone: Thank you, Ashimi, and good morning, everyone. Before discussing quarterly results, I want to thank Bill Pate for his many contributions to Par Pacific's success over the last 10 years. Bill has been a terrific partner and a guiding force in the company's formation and strategic direction. I'm grateful for his leadership and honored to build upon our strong foundation as a leading conventional and renewable fuel provider to the Western United States. Moving on to quarterly results. Our first quarter adjusted EBITDA was $95 million, and adjusted net income was $0.69 per share. Our Retail and Logistics business units delivered stable earnings contributions while strong operational execution in the Refining segment positions us to increase production during the profitable summer driving season.

Our Billings refinery is in the process of restarting, further improving our summer operating position. Richard will provide more details. Global product inventories are presently low to well-balanced, supply side support appears limited, incremental Chinese exports are expected to be flat to down year-over-year, and national policies remain focused on adequate local market supply for both transportation fuels and petrochemicals. In addition, we see refined product freight costs remaining elevated, inflating the cost arbitrage between markets and highlighting the benefits of local manufacturing. This is likely to become a larger factor as we enter the summer driving season, and marginal supply will need to stretch further to solve for marginal demand.

Our retail brands continue to build momentum with same-store fuel and merchandise sales growth of 6% and 5%, respectively. The retail team is focused on growing food service gross margin, rolling out core systems to better manage in-store costs, and building a pipeline of remodel and new to industry sites. Our relatively young brands continue to be well received in the local markets we serve as demonstrated by the above-trend growth rates. Progress continues on our renewable fuel initiatives. In Hawaii, the $90 million renewable hydrotreater project is tracking on time and on budget, and the renewable fuel cogeneration project with Hawaiian Electric is progressing towards a potential power purchase agreement. In Tacoma, we are pivoting from the larger SAF and green hydrogen project to assess lower-capital high-return opportunities.

Our balance sheet remains well-positioned. Thus far this year, we further reduced our cost of debt capital and repurchased more than $70 million of our stock at attractive prices. With more than $575 million of liquidity, our balance sheet remains strong, allowing us to both opportunistically repurchase our stock and pursue our strategic objectives. Looking forward, we are focused on safe and reliable operations, crisp project execution, and thoughtful capital allocation. We are committed to managing risks and also positioning our enterprise to generate strong returns through the cycle. I'll now turn the call over to Richard to discuss our Refining and Logistics operational performance.

Richard Creamer: Thank you, Will. Turning to the Refining segment, first quarter combined throughput was 181,000 barrels per day, reflecting winter seasonality and maintenance activities. In Hawaii, throughput was 79,000 barrels per day and production costs were $4.89 per barrel. The crude rate was reduced for 10 days in March as we resolved a fouling issue in our crude vacuum tower. We have restored operations and demonstrated a return to full crude capability. For Billings, first quarter throughput was 53,000 barrels per day. Despite seasonality, crude rates were elevated as we built inventory ahead of the second quarter turnaround. First quarter production costs were $12.44 per barrel, elevated by approximately $5 million due to increased electricity costs and pre-turnaround related OpEx. Billings crude and reformer blocks have been in turnaround since early April.

The turnaround has progressed to plan and is on schedule and on budget. We are currently in the beginning stages of startup operations. Shifting to Wyoming, refinery availability has been excellent. Throughput was a first quarter record of 17,000 barrels per day and production costs were $7.86 per barrel. Finally, in Washington, first quarter throughput was 31,000 barrels per day and production costs were $6.07 per barrel, elevated by approximately $1 million due to a 15-day planned March maintenance event. The refinery is back to full rates and operating well in the second quarter. Looking ahead, each of our assets are positioned to optimize throughput heading into the summer season. For the second quarter, we expect Hawaii throughput between 81,000 and 84,000 barrels per day, Wyoming between 18,000 and 20,000 barrels per day, Washington between 39,000 and 41,000 barrels per day, and Billings between 34,000 and 38,000 barrels per day, reflecting the second quarter turnaround activities.

I'll now turn the call over to Shawn to cover our financial results.

Shawn Flores: Thank you, Richard. First quarter adjusted EBITDA and adjusted earnings were $95 million and $42 million, or $0.69 per share. The Refining segment reported adjusted EBITDA of $81 million compared to $107 million in the fourth quarter of last year. In Hawaii, the Singapore Index averaged $18.67 per barrel, and our land accrued differential was $6.60, resulting in a combined index of approximately $12 per barrel. Hawaii margin capture was 116%, reflecting the benefits of elevated clean product freight and strong commercial execution. Looking ahead to the second quarter, we expect our Hawaii crude differential to land between $5 and $5.50 per barrel, and we have continued our product crack hedging framework with approximately 26% of our second quarter sales hedged at $20 per barrel.

In Billings, our Gulf Coast Index averaged $21.34 per barrel. Margin capture was 65%, reflecting seasonally soft market conditions. Upper Rockies gasoline and diesel cracks relative to the Gulf Coast have rebounded quarter-to-date, improving by approximately $9 and $16 per barrel, respectively. The second quarter Billings turnaround is expected to impact gross margin by $4 to $5 per barrel, and we expect operating costs to remain flat relative to the first quarter. In Wyoming, capture to the Gulf Coast Index was 70%, reflecting similar seasonal dynamics as Billings. Lower Rockies markets were particularly weak during the first quarter, reflecting strong refinery utilization and softer demand in January. Rapid City gasoline spreads to the Gulf Coast have improved $10 per barrel quarter-to-date and we are well positioned ahead of the peak summer season.

Lastly, in Washington, the P&W Index averaged $20.48 per barrel during the first quarter. Margin capture was 30%, including an approximate $2 per barrel impact from the planned refinery outage. Looking to Q2, our P&W Index has improved $7.50 per barrel quarter-to-date, driven by expanding gasoline margins in the region. The Logistics segment reported adjusted EBITDA of $28 million in the first quarter compared to $24 million in the fourth quarter, reflecting strong system utilization and lower operating costs. Our Retail segment reported adjusted EBITDA of $14 million in the first quarter compared to $17 million in the fourth quarter. Same-store sales growth was partially offset by softer retail fuel margins due to rising wholesale prices. Corporate expenses and adjusted EBITDA were $29 million in the first quarter compared to $26 million in the fourth quarter.

First quarter expenses include $5 million related to advancing our renewable development activities. With our pivot from the larger SAF and green hydrogen project in Tacoma, we expect our renewable spending to reduce to $2 million to $3 million per quarter for the remainder of the year. Cash provided by operations in the first quarter totaled $83 million, excluding a $44 million working capital outflow related to an increase in trade receivables and $13 million in turnaround expenditures. Cash used in investing activities totaled $23 million, primarily related to CapEx. Total liquidity as of March 31st was $575 million, made up of $228 million in cash and $347 million in availability. We further reduced our cost of debt capital with recent refinancing activities.

In April, we repriced our $545 million term loan, reducing annual interest expense by $3 million. In March, we expanded the capacity of our asset-based loan from $900 million to $1.4 billion, as we plan to refinance our existing Hawaii intermediation with a combination of borrowings under the ABL and a smaller crude-only intermediation. The shift towards ABL financing in Hawaii is expected to reduce working capital costs by $10 million annually, with Hawaii gross margin improving by approximately $20 million per year, partially offset by a $10 million increase in annual interest costs. Lastly, we've continued our opportunistic approach to share repurchases with $32 million during the first quarter and $73 million year-to-date at an average price of $34 per share.

With a strong balance sheet heading into the summer driving season, we're well-positioned to pursue our strategic growth objectives while opportunistically repurchasing our common stock at attractive prices. This concludes our prepared remarks. Operator, we'll turn it to you for Q&A.

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