Delek US Holdings, Inc. 10-Q

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management’s Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is management’s analysis of our financial performance and of significant trends that may affect our future performance. The MD&A should be read in conjunction with our condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and in the Annual Report on Form 10-K filed with the Securities and Exchange Commission ("SEC") on March 1, 2023 (the "Annual Report on Form 10-K"). Those statements in the MD&A that are not historical in nature should be deemed forward-looking statements that are inherently uncertain. Delek US Holdings, Inc. is a registrant pursuant to the Securities Act of 1933, as amended ("Securities Act") and is listed on the New York Stock Exchange ("NYSE") under the ticker symbol "DK". Unless otherwise noted or the context requires otherwise, the terms "we," "our," "us," "Delek" and the "Company" are used in this report to refer to Delek US Holdings, Inc. and its consolidated subsidiaries for all periods presented. You should read the following discussion of our financial condition and results of operations in conjunction with our historical condensed consolidated financial statements and notes thereto. The Company announces material information to the public about the Company, its products and services and other matters through a variety of means, including filings with the SEC, press releases, public conference calls, the Company’s website ( www.delekus.com ), the investor relations section of its website ( ir.delekus.com ), the news section of its website ( www.delekus.com/news ), and/or social media, including its Twitter account ( @DelekUSHoldings ). The Company encourages investors and others to review the information it makes public in these locations, as such information could be deemed to be material information. Please note that this list may be updated from time to time. Forward-Looking Statements This Quarterly Report on Form 10-Q contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934 ("Exchange Act"). These forward-looking statements reflect our current estimates, expectations and projections about our future results, performance, prospects and opportunities. Forward-looking statements include, among other things, statements that refer to the acquisition of 3 Bear Delaware Holding – NM, LLC ("3 Bear") (subsequently renamed to Delek Delaware Gathering ("Delaware Gathering")) (the "Delaware Gathering Acquisition"), including any statements regarding the expected benefits, synergies, growth opportunities, impact on liquidity and prospects, and other financial and operating benefits thereof, the information concerning possible future results of operations, business and growth strategies, including as the same may be impacted by any ongoing military conflict, such as the war between Russia and Ukraine ("the Russia-Ukraine War"), financing plans, expectations that regulatory developments or other matters will or will not have a material adverse effect on our business or financial condition, our competitive position and the effects of competition, the projected growth of the industry in which we operate, and the benefits and synergies to be obtained from our completed and any future acquisitions, statements of management’s goals and objectives, and other similar expressions concerning matters that are not historical facts. Words such as "may," "will," "should," "could," "would," "predicts," "potential," "continue," "expects," "anticipates," "future," "intends," "plans," "believes," "estimates," "appears," "projects" and similar expressions, as well as statements in future tense, identify forward-looking statements. Forward-looking statements should not be read as a guarantee of future performance or results, and will not necessarily be accurate indications of the times at, or by, which such performance or results will be achieved. Forward-looking information is based on information available at the time and/or management’s good faith belief with respect to future events, and is subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in the statements. Important factors that, individually or in the aggregate, could cause such differences include, but are not limited to: • volatility in our refining margins or fuel gross profit as a result of changes in the prices of crude oil, other feedstocks and refined petroleum products; • reliability of our operating assets; • actions of our competitors and customers; • changes in, or the failure to comply with, the extensive government regulations applicable to our industry segments, including current and future restrictions on commercial and economic activities in response to future public health crises; • our ability to execute our long-term sustainability strategy and growth through acquisitions such as the Delaware Gathering Acquisition and joint ventures, including our ability to successfully integrate acquisitions, complete strategic transactions, safety initiatives and capital projects, realize expected synergies, cost savings and other benefits therefrom, return value to shareholders, or achieve operational efficiencies; • diminishment in value of long-lived assets may result in an impairment in the carrying value of the assets on our balance sheet and a resultant loss recognized in the statement of operations; • the impact on commercial activity and other economic effects of any widespread public health crisis, including uncertainty regarding the timing, pace and extent of economic recovery following any such crisis; • general economic and business conditions affecting the southern, southwestern and western U.S., particularly levels of spending related to travel and tourism; • volatility under our derivative instruments; • deterioration of creditworthiness or overall financial condition of a material counterparty (or counterparties); • unanticipated increases in cost or scope of, or significant delays in the completion of, our capital improvement safety initiative and periodic turnaround projects; • risks and uncertainties with respect to the quantities and costs of refined petroleum products supplied to our pipelines and/or held in our terminals; • operating hazards, natural disasters, weather related disruptions, casualty losses and other matters beyond our control; • increases in our debt levels or costs; • possibility of accelerated repayment on a portion of our Inventory Intermediation Obligation if the purchase price adjustment feature triggers a change on the re-pricing dates; • changes in our ability to continue to access the credit markets; • compliance, or failure to comply, with restrictive and financial covenants in our various debt agreements; • changes in our ability to pay dividends; • seasonality; • earthquakes, hurricanes, tornadoes, and other weather events, which can unforeseeably affect the price or availability of electricity, natural gas, crude 28 | Management's Discussion and Analysis oil, and other feedstocks, critical supplies, refined petroleum products and ethanol; • increases in costs of compliance with, or liability for violation of, existing or future laws, regulations and other requirements; • societal, legislative and regulatory measures to address climate change and greenhouse gases emissions; • our ability to execute our sustainability improvement plans, including greenhouse gas reduction targets; • acts of terrorism (including cyber-terrorism) aimed at either our facilities or other facilities; • impacts of global conflicts such as the Russia-Ukraine War; • future decisions by the Organization of Petroleum Exporting Countries ("OPEC") and the members of other leading oil producing countries (together with OPEC, “OPEC+”) regarding production and pricing and disputes between OPEC+ members regarding the same; • disruption, failure, or cybersecurity breaches affecting or targeting our IT systems and controls, our infrastructure, or the infrastructure of our cloud-based IT service providers; • changes in the cost or availability of transportation for feedstocks and refined products; and • other factors discussed under Item 1A. Risk Factors and Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations and in our other filings with the SEC. In light of these risks, uncertainties and assumptions, our actual results of operations and execution of our business strategy could differ materially from those expressed in, or implied by, the forward-looking statements, and you should not place undue reliance upon them. In addition, past financial and/or operating performance is not necessarily a reliable indicator of future performance, and you should not use our historical performance to anticipate future results or period trends. We can give no assurances that any of the events anticipated by any forward-looking statements will occur or, if any of them do, what impact they will have on our results of operations and financial condition. All forward-looking statements included in this report are based on information available to us on the date of this report. We undertake no obligation to revise or update any forward-looking statements as a result of new information, future events or otherwise. 29 | Management's Discussion and Analysis Executive Summary: Management's View of Our Business and Strategic Overview Management's View of Our Business We are an integrated downstream energy business focused on petroleum refining, the transportation, storage and wholesale distribution of crude oil, intermediate and refined products and convenience store retailing. Our operating segments consist of refining, logistics, and retail, and are discussed in the sections that follow. During the fourth quarter 2022, we realigned our reportable segments for financial reporting purposes to reflect changes in the manner in which our chief operating decision maker, or CODM, assesses financial information for decision-making purposes. The change primarily represents reporting the operating results of wholesale crude operations within the refining segment. Prior to this change, wholesale crude operations were reported as part of corporate, other and eliminations. In addition, during the fourth quarter 2022, the CODM determined that EBITDA is the key performance measure for planning and forecasting purposes and discontinued the use of contribution margin as a measure of performance. We define EBITDA for any period as net income (loss) to add back interest expense, income tax expense (benefit), depreciation and amortization. While these reporting changes did not change our consolidated results, segment data for previous years has been restated and is consistent with the current year presentation throughout the financial statements and the accompanying notes. Business and Economic Environment Overview Our focus on safe and reliable operations is a pillar which underlines all of our business activities. We continue to identify opportunities to mitigate market risk and focus on efforts that improve our overall cost structure while not compromising operational excellence. Although crack spreads were lower than the historic highs in the second quarter of 2022, refining margins remain strong and demand for refined products has been robust driven by the continued constrained supply in the markets we serve. During the second quarter 2023, we experienced reduced throughputs at our refineries as a result of unplanned downtime including a catalyst change at our Big Spring refinery requiring additional operating and capital expenditures and weather related operational disruptions at our El Dorado refinery, partially offset by improved throughputs at our Tyler refinery as a result of turnaround activities completed in the first quarter 2023. The favorable domestic crack spreads and increased U.S. export demand has encouraged expansion in domestic refining capacity. The domestic WTI differentials compared to Brent continued to be favorable during the second quarter of 2023, while the WTI Midland differential to Cushing remained relatively flat coming off the first quarter 2023. Additionally, our integration of Delek Delaware Gathering (formally 3 Bear) has expanded our existing crude oil gathering throughput capacity in the Permian while also extending our product offering to include natural gas gathering and processing as well as wastewater recycling and disposal. Our retail operations have benefited from seasonal demand from U.S. drivers and present several high-growth opportunities for future investment which will complement our existing operations and build brand equity. Although the near term economic outlook appears favorable, we are positioning the Company for potential economic headwinds that coincide with a potential global downturn in the economy. We continue to progress our business transformation focused on enterprise-wide opportunities to improve the efficiency of our cost structure. The expectation of reduction in the reliance of liquid fuels, a tightening of capital markets, increased regulatory pressures, and volatility in the commodity markets, are considerations that Delek must balance as we move forward with our strategic initiatives. The energy-related legislation passed with the Inflation Reduction Act ("IRA") encompasses clean energy financial incentives that are expected to increase capital investment opportunities that focus on the development of production capacity for liquid fuels with lower greenhouse gas emissions ("GHG"). Gulf coast industries should be well positioned for growth, particularly if global trade becomes tied to environmental attributes. Our focus on reduction of greenhouse gas emissions is a key objective as we strive to be a leader in the transition to a carbon neutral future. Delek formed the Sustainable Operations Team ("SOT") in 2022 which is led by our EVP, Operations. The SOT will coordinate execution of our sustainability improvement plans (beginning with GHG reduction targets) ensuring enterprise strategies, business unit operations, capital spending plans, supply chain and personnel pipeline are in alignment and operating as needed to meet established goals. Delek prioritizes stewardship of the environment, and we focus on how to positively impact our shareholders, employees, customers, and the communities where we operate. Our near-term focus is centered around safe and reliable operations, shareholder returns including debt reductions and unlocking the "sum of the parts" value of our existing business while identifying growth opportunities to enhance the Company's scale and diversify revenue streams, including in the alternative energy markets and creating a long-term sustainable business model. We believe these strategic priorities will maximize the value of our shareholders while optimizing our asset portfolio and balance sheet. See further discussion on macroeconomic factors and market trends, including the impact on 2023 and the outlook for the rest of the year, in the ‘Market Trends’ section below. 30 | Management's Discussion and Analysis Refining Overview The refining segment (or "Refining") processes crude oil and other feedstocks for the manufacture of transportation motor fuels, including various grades of gasoline, diesel fuel, aviation fuel, asphalt and other petroleum-based products that are distributed through owned and third-party product terminals. The refining segment has a combined nameplate capacity of 302,000 bpd as of June 30, 2023. A high-level summary of the refinery activities is presented below: Tyler, Texas refinery (the "Tyler refinery") El Dorado, Arkansas refinery (the "El Dorado refinery") Big Spring, Texas refinery (the "Big Spring refinery") Krotz Springs, Louisiana refinery (the "Krotz Springs refinery") Total Nameplate Capacity (bpd) 75,000 80,000 73,000 74,000 Primary Products Gasoline, jet fuel, ultra-low-sulfur diesel, liquefied petroleum gases, propylene, petroleum coke and sulfur Gasoline, ultra-low-sulfur diesel, liquefied petroleum gases, propylene, asphalt and sulfur Gasoline, jet fuel, ultra-low-sulfur diesel, liquefied petroleum gases, propylene, aromatics and sulfur Gasoline, jet fuel, high-sulfur diesel, light cycle oil, liquefied petroleum gases, propylene and ammonium thiosulfate Relevant Crack Spread Benchmark Gulf Coast 5-3-2 Gulf Coast 5-3-2 (1) Gulf Coast 3-2-1 (2) Gulf Coast 2-1-1 (3) Marketing and Distribution The refining segment's petroleum-based products are marketed primarily in the south central and southwestern regions of the United States, and the refining segment also ships and sells gasoline into wholesale markets in the southern and eastern United States. Motor fuels are sold under the Alon or Delek brand through various terminals to supply Alon or Delek branded retail sites. In addition, we sell motor fuels through our wholesale distribution network on an unbranded basis. (1) While there is variability in the crude slate and the product output at the El Dorado refinery, we compare our per barrel refined product margin to the U.S. Gulf Coast ("Gulf Coast") 5-3-2 crack spread because we believe it to be the most closely aligned benchmark. (2) Our Big Spring refinery is capable of processing substantial volumes of sour crude oil, which has historically cost less than intermediate, and/or substantial volumes of sweet crude oil, and therefore the West Texas Intermediate ("WTI") Cushing/ West Texas Sour ("WTS") price differential, taking into account differences in production yield, is an important measure for helping us make strategic, market-respondent production decisions. (3) The Krotz Springs refinery has the capability to process substantial volumes of light sweet crude oil to produce a high percentage of refined light products. Our refining segment also owns and operates three biodiesel facilities involved in the production of biodiesel fuels and related activities, located in Crossett, Arkansas, Cleburne, Texas, and New Albany, Mississippi. In addition, the refining segment includes our wholesale crude operations. Logistics Overview Our logistics segment (or "Logistics") gathers, transports and stores crude oil and natural gas; markets, distributes, transports and stores refined products; and disposes and recycles water in select regions of the southeastern United States, West Texas and New Mexico for our refining segment and third parties. It is comprised of the consolidated balance sheet and results of operations of Delek Logistics (NYSE: DKL), where we owned a 78.7% interest at June 30, 2023. Delek Logistics was formed by Delek in 2012 to own, operate, acquire and construct crude oil and refined products logistics and marketing assets. A substantial majority of Delek Logistics' assets are currently integral to our refining and marketing operations. The logistics segment's gathering and processing business owns or leases capacity on approximately 400 miles of crude oil transportation pipelines, approximately 450 miles of refined product pipelines, and an approximately 1,120-mile crude oil gathering system. The storage and transportation business owns or leases associated crude oil storage tanks with an aggregate of approximately 10.3 million barrels of active shell capacity. It also owns and operates ten light product terminals and markets light products using third-party terminals. Logistics has strategic investments in pipeline joint ventures that provide access to pipeline capacity as well as the potential for earnings from joint venture operations. The logistics segment owns or leases approximately 264 tractors and 353 trailers used to haul primarily crude oil and other products for related and third parties. Retail Overview Our retail segment (or "Retail") at June 30, 2023 includes the operations of 247 owned and leased convenience store sites located primarily in West Texas and New Mexico. Our convenience stores typically offer various grades of gasoline and diesel under the DK or Alon brand name and food products, food service, tobacco products, non-alcoholic and alcoholic beverages, general merchandise as well as money orders to the public, primarily under the 7-Eleven and DK or Alon brand names pursuant to a license agreement with 7-Eleven, Inc. In November 2018, we terminated the license agreement with 7-Eleven, Inc. and the terms of such termination and subsequent amendments require the removal of all 7-Eleven branding on a store-by-store basis by December 31, 2023. Merchandise at our convenience store sites will continue to be sold under the 7-Eleven brand name until 7-Eleven branding is removed pursuant to the termination. As of June 30, 2023, we have removed the 7-Eleven brand name at 145 of our store locations. Substantially all of the motor fuel sold through our retail segment is supplied by our Big Spring refinery, which is transferred to the retail segment at prices substantially determined by reference to published commodity pricing information. Corporate and Other Overview Our corporate activities, results of certain immaterial operating segments, and intercompany eliminations are reported in 'corporate, other and eliminations' in our segment disclosures. Additionally, our corporate activities include certain of our commodity and other hedging activities. 31 | Management's Discussion and Analysis Strategic Overview A New Framework: Long-Term Sustainability The emphasis on environmental responsibility and long-term economic and environmental sustainability is accelerating, with increased demand for transparency evolving out of the Environmental, Social and Governance ("ESG") movement. As we evaluate our current ESG positioning in the market, we also must integrate a broader sustainability view to all of our activities, both operational and strategic. For these reasons, we have developed a Long-Term Sustainability Framework , which will help us to formulate our strategic objectives and initiatives. Long-Term Sustainability Framework: Overarching Objectives Certain fundamental principles are foundational to our Long-Term Sustainability Framework, and direct us as we develop our guiding objectives. With that in mind, we have initially identified the following overarching objectives : I. Redirect Corporate Culture towards Innovation, Excellence, and Operating Discipline. II. Focus on Operational Optimization and Improved Margin Capture. III. Implement Digital Transformation Strategy. IV. Identify ESG-Conscious Investments with Clear Value Propositions and Sustainable Returns. V. Evaluate Strategic Priorities and Redefine Long-term Sustainable Business Model. 32 | Management's Discussion and Analysis Long-Term Sustainability Framework: Key Initiatives Safe and Reliable Operations We are committed to maintaining safe, reliable, and environmentally responsible operations. We are continuously looking to reduce costs, increase reliability and safety, improve efficiency, and pursue operational improvements. Delek prioritizes stewardship of the environment, and we focus on how to positively impact our shareholders, employees, customers, and the communities where we operate. For 2023, we will be focused on the following: • Focus on operational excellence by implementing and sustaining a low operating cost model through spending discipline, supply chain management, and innovative solutions. • Improve discipline around outage spend and optimizing downtimes. • Continue our progression of digital system implementations that will improve our ability to understand all aspects of our business as well as our ability to make real-time and forward-looking operational decisions. Automate processes and shift operational roles to higher value-added activities. Shareholder Returns We believe shareholder value is strengthened through, among other things, a stable dividend complemented by share repurchases and debt reductions. We also want to reward our shareholders with a competitive long-term capital allocation framework. One of our near-term initiatives is centered around unlocking the "sum of the parts" value of our existing business while identifying growth opportunities to enhance the Company's scale and diversify revenue streams, including in the alternative energy markets. We are also committed to lowering costs and improving the efficiency of our cost structure in all aspects of our business and will continue to focus on operational excellence. We are continuously looking to improve our operating and general and administrative cost structure. For 2023, we will be focused on the following: • Explore opportunities to monetize our retail operations or some of our investment in Delek Logistics, which will help us to better capture tangible value in the Delek valuation, while also improving liquidity in the market for DKL units without dilution of overall DKL market capitalization. • Reward our shareholders with a competitive long-term capital allocation framework including share repurchases and an evaluation of debt reductions which will continue to strengthen our balance sheet. • Monitor performance of our first phase of a zero-based budget for 2023 by setting clear mechanisms for tracking costs, including how to address variances and reallocate funds. Long-Term Sustainable Business Model It is vitally important that our strategic process, especially in view of the evolutionary direction of our macroeconomic and geopolitical environment, involves a continuous evaluation of our business model in terms of long-term economic and operational sustainability. We are operating in a mature industry, with increasingly difficult operational and regulatory challenges and, likewise, pressure on operating costs/gross margins as well as the availability and cost of capital. More consolidation in our industry is expected as the regulatory environment continues to move towards reducing carbon emissions and transitions to renewable energy in the long-term. Additionally, evolving consumer and capital markets sentiment, regulations, supply chain constraints and customer demand are expected to cause disruption and increasing pressure in the intermediate term. In order to compete under historic environmental and regulatory changes, companies in our industry will need to be adaptive, forward-thinking and strategic in their approach to long-term sustainability. For 2023, we will be focused on the following: • Continue our retail rebranding efforts and retail growth plans with additional new-to-industry locations in the planning phase. In addition, invest in industry leading digital technology which will improve brand image and customer experience. • Identify and evaluate investment opportunities that fit our sustainability view and integrate into our current asset footprint, including strategic investments or joint ventures in renewables, incubator investments in new technologies, and other core-business investments that could improve our scalability and agility. • Deploy integrated solutions to simplify architecture, data management, and cybersecurity. • Pursuit of strategic investments and acquisitions with a focus on diversifying revenue streams. 33 | Management's Discussion and Analysis 2023 Strategic Developments The following table highlights our 2023 Strategic Developments: 2023 Key Initiatives 2023 Strategic Developments Safe & Reliable Operations Shareholder Returns Long Term Sustainable Business Model Improving Discipline Around Outage Spend and Optimizing Downtime: Successfully completed the Tyler refinery turnaround in the first quarter of 2023 with zero process or safety incidents. The turnaround was completed substantially on time and on budget and positions us to capture market opportunities. ü Implementing Phase 1 of Our Zero-Based Budget: We have taken steps to improve the efficiency of our cost structure and to align with our strategic priorities to drive cost efficiencies, which include cost reductions in general and administrative expenses. ü Reducing Debt to Provide Shareholder Value: During the six months ended June 30, 2023, we reduced our long-term obligations by approximately $246.7 million. ü Focus on Leadership: In March 2023, Joseph Israel was named Executive Vice President, Operations and will be responsible for refining operations at Delek and for logistics operations at Delek Logistics. Mr. Israel has 25 years of energy experience and a proven track record of driving operational excellence. Also in March 2023, Patrick Reilly was appointed Executive Vice President and Chief Commercial Officer. Mr. Reilly will work closely with Delek's management team to lead the Company's strategies to achieve its short and long-term objectives. Mr. Reilly has over 20-years of energy oil refining and trading experience. In April 2023, Tommy Chavez was named Senior Vice President, Refining Operations. Mr. Chavez brings over three decades of refining experience. ü ü ü Improving Safety Through a Safety Action Plan: As part of an ongoing review of safety practices across our refining system, we have developed a Safety Action Plan which will require previously un-budgeted capital expenditures and additional labor resources and subject matter experts. The execution of the Safety Action Plan will address a broad range of items, some of which were delayed in implementation due to the pandemic, or for other reasons. ü Increasing Shareholder Value through Payment of Dividends: We maintained our quarterly cash dividend including the quarterly cash dividend of $0.235 per share of our common stock which was declared by our Board of Directors on August 4, 2023 and payable on August 21, 2023. In addition, a cash dividend of $0.23 per share of our common stock was paid on May 22, 2023. ü Increasing Shareholder Value through Share Repurchases: During the three months ended months ended June 30, 2023, 1,795,335 shares of our common stock were repurchased for a total of $40.0 million . Subsequent to June 30, 2023, 981,690 shares of our common stock were repurchased for a total of $25.0 million . ü Market Trends Our results of operations are significantly affected by fluctuations in the prices of certain commodities, including, but not limited to, crude oil, gasoline, distillate fuel, biofuels, natural gas and electricity, among others. Historically, the impact of commodity price volatility on our refining margins (as defined in our "Non-GAAP Measures" in MD&A Item 2.), specifically as it relates to the price of crude oil as compared to the price of refined products and timing differences in the movements of those prices (subject to our inventory costing methodology), as well as location differentials, may be favorable or unfavorable compared to peers. Additionally, our refining margin profitability is impacted by regulatory factors, including the cost of renewable identification numbers ("RINs"). Market Outlook for the Remainder of 2023 We have positioned the Company to continue to run safely, reliably and environmentally responsibly at near nameplate capacity while leveraging our new Delek Delaware Gathering lines of business with an eye towards the One Delek vision. Many uncertainties remain with respect to the global supply and demand of the crude oil and refined products markets and it is difficult to predict the ultimate economic impacts this may have on our operations. We expect gasoline and diesel demand to continue to follow typical seasonal patterns resulting from the summer driving season. Crude oil and refined product supply continues to be restricted and should support the continued increased utilization of refining capacity which we expect to result in continued strong market conditions in downstream refining. See below for further discussion on how certain key market trends impact our operating results. 34 | Management's Discussion and Analysis Crude Prices WTI crude oil represents the largest component of our crude slate at all of our refineries, and can be sourced through our gathering channels or optimization efforts from Midland, Texas or Cushing, Oklahoma or other locations. We manage our supply chain risk to ensure that we have the barrels to meet our crude slate consumption plan for each month through gathering supply contracts and throughput agreements on various strategic pipelines, some of which include those where we hold equity method investments. We manage market price risk on crude oil through financial derivative hedges, in accordance with our risk management strategies. The table below reflects the quarterly average prices of WTI Midland and WTI Cushing crude oil for each of the quarterly periods in 2022 and for the two quarterly periods in 2023. Crude Pricing Differentials Historically, domestic refiners have benefited from the discount for WTI Cushing compared to Brent, a global benchmark crude. This generally leads to higher margins in our refineries, as refined product prices are influenced by Brent crude prices and the majority of our crude supply is WTI-linked. Because of our positioning in the Permian basin, including our access to significant sources of WTI Midland crude through our gathering system, we are even further benefited by discounts for WTI Midland/WTI Cushing differentials. When these discounts shrink or become premiums, our reliance on WTI-linked crude pricing, and specifically WTI Midland crude, can negatively impact our refining margins. Conversely, as these price discounts widen, so does our competitive advantage, created specifically by our access to WTI Midland crude sourced through our gathering systems. The chart below illustrates the key differentials impacting our refining operations, including WTI Cushing to Brent, WTI Midland to WTI Cushing, and Louisiana Light Sweet crude oil ("LLS") to WTI Cushing for each of the quarterly periods in 2022 and for the two quarterly periods in 2023. 35 | Management's Discussion and Analysis Refined Product Prices We are impacted by refined product prices in two ways: (1) in terms of the prices we are able to sell our refined product for in our refining segment, and (2) in terms of the cost to acquire the refined products to meet Refining production shortfalls (e.g., when we have outages), or to acquire refined fuel products we sell to our wholesale customers in our logistics segment and at our convenience stores in our retail segment. These prices largely depends on numerous factors beyond our control, including the supply of, and demand for, crude oil, gasoline and other refined petroleum products which, in turn, depend on, among other factors, changes in domestic and foreign economies, weather conditions, domestic and foreign political affairs, production levels, the availability of imports, the marketing of competitive fuels and government regulation. Our refineries produce the following products: Tyler Refinery El Dorado Refinery Big Spring Refinery Krotz Springs Refinery Primary Products Gasoline, jet fuel, ultra-low-sulfur diesel, liquefied petroleum gases, propylene, petroleum coke and sulfur Gasoline, ultra-low-sulfur diesel, liquefied petroleum gases, propylene, asphalt and sulfur Gasoline, jet fuel, ultra-low-sulfur diesel, liquefied petroleum gases, propylene, aromatics and sulfur Gasoline, jet fuel, high-sulfur diesel, light cycle oil, liquefied petroleum gases, propylene and ammonium thiosulfate The charts below illustrate the quarterly average prices of Gulf Coast Gasoline ("CBOB"), U.S. High Sulfur Diesel ("HSD") and U.S. Ultra Low Sulfur Diesel ("ULSD") for each of the quarterly periods in 2022 and for the two quarterly periods in 2023. Crack Spreads Crack spreads are used as benchmarks for predicting and evaluating a refinery's product margins by measuring the difference between the market price of feedstocks/crude oil and the resultant refined products. Generally, a crack spread represents the approximate refining margin resulting from processing one barrel of crude oil into its outputs, generally gasoline and diesel fuel. The table below reflects the quarterly average Gulf Coast 5-3-2 ULSD, 3-2-1 ULSD and 2-1-1 HSD/LLS crack spreads for each of the quarterly periods in 2022 and for the two quarterly periods in 2023. 36 | Management's Discussion and Analysis RIN Volatility Environmental regulations and the political environment continue to affect our refining margins in the form of volatility in the price of RINs . We enter into future commitments to purchase or sell RINs at fixed prices and quantities, which are used to manage the costs of our credits for commitments required by the EPA to blend biofuels into fuel products ("RINs Obligation"). On a consolidated basis, we work to balance our RINs Obligation in order to minimize the effect of RINs prices on our results. While we obtain RINs in our refining and logistics segments through our ethanol and biodiesel blending and generate RINs through biodiesel production, our refining segment still must purchase additional RINs to satisfy its obligations. Additionally, our ability to obtain RINs through blending is limited by our refined product slate, blending capabilities and market constraints. The cost to purchase these additional RINs is a significant cash outflow for our business. Increases in the market prices of RINs generally adversely affect our results of operations through changes in fair value to our existing RINs Obligation, to the extent we do not have offsetting RINs inventory on hand or effective economic hedges through net forward purchase commitments. RINs prices are highly sensitive to regulatory and political influence and conditions, and therefore often do not correlate to movements in crude oil prices, refined product prices or crack spreads. Because of the volatility in RINs prices, it is not possible to predict future RINs cost with certainty, and movements in RINs prices can have significant and unanticipated adverse effects on our refining margins that are outside of our control. The chart below illustrates the volatility in RINs for each of the quarterly periods in 2022 and for the two quarterly periods in 2023. Energy Costs Energy costs are a significant element of our Refining EBITDA and can significantly impact our ability to capture crack spreads, with natural gas representing the largest component. Natural gas prices are driven by supply-side factors such as amount of natural gas production, level of natural gas in storage and import and export activity, while demand-side factors include variability of weather, economic growth and the availability and price of other fuels. Refiners and other large-volume fuel consumers may be more or less susceptible to volatility in natural gas prices depending on their consumption levels as well as their capabilities to switch to more economical sources of fuel/energy. Additionally, geographic location of facilities make consumers vulnerable to price differentials of natural gas available at different supply hubs. Within Delek’s geographic footprint, we source the majority of our natural gas from the Gulf Coast, and secondarily from the Permian, coinciding with the physical locations of our refineries. We manage our risk around natural gas prices by entering into variable and fixed-price supply contracts in both the Gulf and Permian Basin or by entering into derivative hedges based on forecasted consumption and forward curve prices, as appropriate, in accordance with our risk policy. The chart below illustrates the quarterly average prices of Waha (Permian Basin) and Henry Hub (Gulf Coast) per million British Thermal Units ("MMBtu") for each of the quarterly periods in 2022 and for the two quarterly periods in 2023. 37 | Management's Discussion and Analysis Non-GAAP Measures Our management uses certain “non-GAAP” operational measures to evaluate our operating segment performance and non-GAAP financial measures to evaluate past performance and prospects for the future to supplement our GAAP financial information presented in accordance with U.S. GAAP. These financial and operational non-GAAP measures are important factors in assessing our operating results and profitability and include: • Earnings before interest, taxes, depreciation and amortization ("EBITDA") - calculated as net income (loss) attributable to Delek adjusted to add back interest expense, income tax expense, depreciation and amortization; and • Refining margin - calculated as gross margin (which we define as sales minus cost of sales) adjusted for operating expenses and depreciation and amortization included in cost of sales. We believe these non-GAAP operational and financial measures are useful to investors, lenders, ratings agencies and analysts to assess our ongoing performance because, when reconciled to their most comparable GAAP financial measure, they provide improved comparability between periods through the exclusion of certain items that we believe are not indicative of our core operating performance and they may obscure our underlying results and trends. Non-GAAP measures have important limitations as analytical tools, because they exclude some, but not all, items that affect net earnings and operating income. These measures should not be considered substitutes for their most directly comparable U.S. GAAP financial measures. Non-GAAP Reconciliations The following table provides a reconciliation of segment EBITDA to the most directly comparable U.S. GAAP measure, net income attributable to Delek: Reconciliation of segment EBITDA to net (loss) income attributable to Delek (in millions) Three Months Ended June 30, Six Months Ended June 30, 2023 2022 2023 2022 Refining segment EBITDA $ 110.5 $ 587.9 $ 302.6 $ 667.9 Logistics segment EBITDA 90.9 62.6 182.3 126.8 Retail segment EBITDA 15.0 12.5 21.4 22.8 Corporate, Other and Eliminations EBITDA (58.7) (89.2) (108.6) (127.3) EBITDA attributable to Delek $ 157.7 $ 573.8 $ 397.7 $ 690.2 Interest expense, net (80.4) (43.6) (156.9) (82.0) Income tax benefit (expense) 3.8 (100.4) (12.0) (103.5) Depreciation and amortization (89.4) (68.0) (172.8) (136.3) Net (loss) income attributable to Delek $ (8.3) $ 361.8 $ 56.0 $ 368.4 The following table provides a reconciliation of refining margin to the most directly comparable U.S. GAAP measure, gross margin: Reconciliation of refining margin to gross margin (in millions) Refining Segment Three Months Ended June 30, Six Months Ended June 30, 2023 2022 2023 2022 Total revenues $ 4,052.5 $ 5,874.9 $ 7,847.0 $ 10,267.2 Cost of sales 3,996.9 5,315.8 7,651.4 9,681.5 Gross margin $ 55.6 $ 559.1 $ 195.6 $ 585.7 Add back (items included in cost of sales): Operating expenses (excluding depreciation and amortization) 153.8 169.4 292.9 292.1 Depreciation and amortization 59.8 49.9 116.4 102.7 Refining margin $ 269.2 $ 778.4 $ 604.9 $ 980.5 38 | Management's Discussion and Analysis Summary Financial and Other Information The following table provides summary financial data for Delek (in millions): Summary Statement of Operations Data (1) Three Months Ended June 30, Six Months Ended June 30, 2023 2022 (2) 2023 2022 (2) Net revenues $ 4,195.6 $ 5,982.6 $ 8,119.9 $ 10,441.7 Cost of sales: Cost of materials and other 3,766.6 5,082.6 7,206.2 9,235.1 Operating expenses (excluding depreciation and amortization presented below) 188.7 192.7 359.5 335.1 Depreciation and amortization 82.6 62.8 159.4 125.5 Total cost of sales 4,037.9 5,338.1 7,725.1 9,695.7 Operating expenses related to retail and wholesale business (excluding depreciation and amortization presented below) 31.1 34.0 58.1 61.4 General and administrative expenses 75.8 122.3 147.3 172.5 Depreciation and amortization 6.8 5.2 13.4 10.8 Other operating income, net (6.1) (10.3) (16.9) (38.7) Total operating costs and expenses 4,145.5 5,489.3 7,927.0 9,901.7 Operating income 50.1 493.3 192.9 540.0 Interest expense, net 80.4 43.6 156.9 82.0 Income from equity method investments (25.5) (15.7) (40.1) (26.6) Other expense (income), net 0.5 (3.6) (6.6) (2.3) Total non-operating expenses, net 55.4 24.3 110.2 53.1 (Loss) income before income tax (benefit) expense (5.3) 469.0 82.7 486.9 Income tax (benefit) expense (3.8) 100.4 12.0 103.5 Net (loss) income (1.5) 368.6 70.7 383.4 Net income attributed to non-controlling interests 6.8 6.8 14.7 15.0 Net (loss) income attributable to Delek $ (8.3) $ 361.8 $ 56.0 $ 368.4 (1) This information is presented at a summary level for your reference. See the Condensed Consolidated Statements of Income in Item 1. to this Quarterly Report on Form 10-Q for more detail regarding our results of operations and net income (loss) per share. (2) In the first quarter 2023, we reassessed the classification of certain expenses and made certain reclassification adjustments to better represent the nature of those expenses. Accordingly, we have made reclassifications to the prior period in order to conform to this revised current period classification, which resulted in a decrease in the prior period general and administrative expenses and an increase in the prior period operating expenses of approximately $4.2 million and $7.1 million for the three and six months ended June 30, 2022. We report operating results in three reportable segments: • Refining • Logistics • Retail Decisions concerning the allocation of resources and assessment of operating performance are made based on this segmentation. Management measures the operating performance of each of its reportable segments based on the segment EBITDA. Results of Operations Consolidated Results of Operations — Comparison of the Three and Six Months Ended June 30, 2023 versus the Three and Six Months Ended June 30, 2022. Net Income (Loss) Q2 2023 vs. Q2 2022 Consolidated net loss for the second quarter of 2023 was $1.5 million compared to net income of $368.6 million for the second quarter of 2022. Consolidated net loss attributable to Delek for the second quarter of June 30, 2023 was $8.3 million, or $(0.13) per basic share, compared to a net income of $361.8 million, or $5.11 per basic share, for the second quarter 2022. Explanations for significant drivers impacting net income as compared to the comparable period of the prior year are discussed in the sections below. 39 | Management's Discussion and Analysis YTD 2023 vs. YTD 2022 Consolidated net income for the six months ended June 30, 2023 was $70.7 million compared to a net income of $383.4 million for the six months ended June 30, 2022. Consolidated net income attributable to Delek for the six months ended June 30, 2023 was $56.0 million, or $0.84 per basic share, compared to income of $368.4 million, or $5.12 per basic share, for the six months ended June 30, 2022. Explanations for significant drivers impacting net income as compared to the comparable period of the prior year are discussed in the sections below. Net Revenues Q2 2023 vs. Q2 2022 In the second quarter of 2023 and 2022, we generated net revenues of $4,195.6 million and $5,982.6 million, respectively, a decrease of $1,787.0 million, or 29.9%. The decrease in net revenues was primarily driven by the following factors: • in our refining segment decreases in the average price of U.S. Gulf Coast gasoline of 31.1%, ULSD of 40.2%, and HSD of 57.4%; • in our logistics segment, decreases in the average volumes of gasoline and diesel sold and in the average sales price per gallon of diesel and gasoline sold in our West Texas marketing operations, partially offset by increased volumes from the Midland Gathering operations and incremental revenues from the Delaware Gathering Acquisition; and • in our retail segment, a decrease in total fuel sales primarily attributable to a decrease of $1.06 in average price charged per gallon sold, partially offset by an increase in merchandise sales primarily driven by the same-store sales increase of 0.1%. YTD 2023 vs. YTD 2022 We generated net revenues of $8,119.9 million and $10,441.7 million during the six months ended June 30, 2023 and 2022, respectively, a decrease of $2,321.8 million, or 22.2%. The decrease in net revenues was primarily due to the following: • in our refining segment, decreases in volume sold and decreases in the average price of U.S. Gulf Coast gasoline of 22.5%, ULSD of 25.0%, and HSD of 44.7% and decreases in wholesale activity; and • in our retail segment, a decrease in total fuel sales primarily attributable to a $0.69 decrease in average price charged per gallon sold, partially offset by an increase in merchandise sales primarily driven by the same-store sales increase of 2.4%. These decreases were partially offset by the following: • in our logistics segment, increased volumes from the Midland Gathering operations and incremental revenues from the Delaware Gathering Acquisition, partially offset by decreases in the average volumes of diesel and gasoline sold and in the average sales price per gallon of diesel and gasoline sold in our West Texas marketing operations. Total Operating Costs and Expenses Cost of Materials and Other Q2 2023 vs. Q2 2022 Cost of materials and other was $3,766.6 million for the second quarter of 2023 compared to $5,082.6 million for the second quarter of 2022, a decrease of $1,316.0 million, or 25.9%. The net decrease in cost of materials and other was primarily driven by the following: • decreases in cost of crude oil feedstocks at the refineries, including a 32.3% decrease in the average cost of WTI Cushing crude oil and a 32.2% decrease in the average cost of WTI Midland crude oil; • decreases in the average volumes sold and average cost per gallon of gasoline and diesel sold in our logistics segment; and • a decrease in retail cost of materials and other due to 26.9% decrease in average cost per gallon sold applied to higher fuel sales volumes. YTD 2023 vs. YTD 2022 Cost of materials and other was $7,206.2 million for the six months ended June 30, 2023, compared to $9,235.1 million for six months ended June 30, 2022, a decrease of $2,028.9 million, or 22.0%. The net decrease in cost of materials and other primarily related to the following: • a decrease in the cost of crude oil feedstocks at the refineries, including a 26.7% decrease in the average cost of WTI Cushing crude oil and a 26.6% decrease in the average cost of WTI Midland crude oil and decreased wholesale activity; • decreases in the average volumes sold and average cost per gallon of gasoline and diesel sold, partially offset by incremental cost of materials and other from the Delaware Gathering Acquisition in our logistics segment; and • a decrease in retail cost of materials and other due to 18.5% decrease in average cost per gallon sold applied to higher fuel sales volumes. 40 | Management's Discussion and Analysis Operating Expenses Q2 2023 vs. Q2 2022 Operating expenses (included in both cost of sales and other operating expenses) were $219.8 million for the second quarter of 2023 compared to $226.7 million for the second quarter of 2022, a decrease of $6.9 million, or 3.0%. The decrease in operating expenses was primarily driven by the following: • lower natural gas prices in 2023. These decreases were partially offset by the following: • an increase in maintenance costs including costs related to our Safety Action Plan, which we expect will continue at least through the end of 2023. YTD 2023 vs. YTD 2022 Operating expenses (included in both cost of sales and other operating expenses) were $417.6 million for the six months ended June 30, 2023 compared to $396.5 million in six months ended June 30, 2022, an increase of $21.1 million, or 5.3%. The increase in operating expenses was primarily driven by the following: • an increase in maintenance costs including costs related to our Safety Action Plan, which we expect will continue at least through the end of 2023; and • an increase in employee costs. These increases were partially offset by the following: • lower natural gas prices in 2023. General and Administrative Expenses Q2 2023 vs. Q2 2022 General and administrative expenses were $75.8 million for the second quarter of 2023 compared to $122.3 million for the second quarter of 2022, a decrease of $46.5 million, or 38.0%. The decrease was primarily driven by a decrease in employee costs including incentive compensation costs and no transactions costs related to the Delaware Gathering Acquisition in the 2023 period. YTD 2023 vs. YTD 2022 General and administrative expenses were $147.3 million for the six months ended June 30, 2023 compared to $172.5 million in six months ended June 30, 2022, a decrease of $25.2 million, or 14.6%. The decrease was primarily driven by a decrease in employee costs including incentive compensation costs and no transactions costs related to the Delaware Gathering Acquisition in the 2023 period. Depreciation and Amortization Q2 2023 vs. Q2 2022 Depreciation and amortization (included in both cost of sales and other operating expenses) was $89.4 million for the second quarter of 2023 compared to $68.0 million for the second quarter of 2022, an increase of $21.4 million, or 31.5%. The increase was a result of a general increase in our fixed asset base due to capital projects and turnarounds completed since the first quarter of 2022 and depreciation and amortization attributable to the Delaware Gathering Acquisition. YTD 2023 vs. YTD 2022 Depreciation and amortization (included in both cost of sales and other operating expenses) was $172.8 million and $136.3 million for the six months ended June 30, 2023 and 2022, respectively, an increase of $36.5 million, or 26.8%. The increase was a result of a general increase in our fixed asset base due to capital projects and turnarounds completed since the first quarter of 2022 and amortization attributable to the Delaware Gathering Acquisition. Other Operating Income, Net Q2 2023 vs. Q2 2022 Other operating income, net decreased by $4.2 million in the second quarter of 2023 to $6.1 million compared to $10.3 million in the second quarter of 2022. The decrease was primarily due to a $3.9 million decrease in insurance recoveries related to the fire and freeze events that occurred during the first quarter 2021. 41 | Management's Discussion and Analysis YTD 2023 vs. YTD 2022 Other operating income, net was $16.9 million and $38.7 million for the six months ended June 30, 2023 and 2022, respectively, a decrease of $21.8 million, primarily due to an $8.8 million decrease in insurance recoveries related to the fire and freeze events that occurred during the first quarter 2021 and decreased hedge gains realized in 2023 compared to 2022 associated with our trading derivatives. Non-Operating Expenses, Net Interest Expense, Net Q2 2023 vs. Q2 2022 Interest expense, net increased by $36.8 million, or 84.4%, to $80.4 million in the second quarter of 2023 compared to $43.6 million in the second quarter of 2022, primarily driven by the following: • an increase in the average effective interest rate of 492 basis points in the second quarter of 2023 compared to the second quarter of 2022 (where effective interest rate is calculated as interest expense divided by the net average borrowings/obligations outstanding); and • an increase in net average borrowings outstanding (including the obligations under the supply and offtake agreements which have an associated interest charge) of approximately $92.6 million in the second quarter of 2023 (calculated as a simple average of beginning borrowings/obligations and ending borrowings/obligations for the period) compared to the second quarter of 2022. YTD 2023 vs. YTD 2022 Interest expense, net was $156.9 million in the six months ended June 30, 2023, compared to $82.0 million for six months ended June 30, 2022, an increase of $74.9 million, or 91.3% primarily due to the following: • an increase in the average effective interest rate of 444 basis points during the six months ended June 30, 2023 compared to the six months ended June 30, 2022 (where effective interest rate is calculated as interest expense divided by the net average borrowings/obligations outstanding); and • an increase in net average borrowings outstanding (including the obligations under the supply and offtake agreements which have an associated interest charge) of approximately $283.0 million during the six months ended June 30, 2023 (calculated as a simple average of beginning borrowings/obligations and ending borrowings/obligations for the period) compared to the six months ended June 30, 2022. Results from Equity Method Investments Q2 2023 vs. Q2 2022 We recognized income from equity method investments of $25.5 million during the second quarter of 2023, compared to $15.7 million for the second quarter of 2022, an increase of $9.8 million. This increase was primarily driven by the following: • an increase in income from our asphalt terminal equity method investment due to higher volumes and resulting revenue increases; and • an increase in income from our investment in W2W Holdings LLC to $6.8 million in the second quarter of 2023 from $2.1 million in the second quarter of 2022. YTD 2023 vs. YTD 2022 We recognized income from equity method investments of $40.1 million for the six months ended June 30, 2023, compared to $26.6 million for the six months ended June 30, 2022, an increase of $13.5 million. This increase was primarily driven by the following: • an increase in income from our asphalt terminal equity method investment due to higher volumes and resulting revenue increases; and • an increase in income from our investment in W2W Holdings LLC to $11.3 million during the six months ended June 30, 2023 from $4.2 million in the six months ended June 30, 2022. Income Taxes Q2 2023 vs. Q2 2022 For the second quarter of 2023, we recorded an income tax benefit of $3.8 million compared to income tax expense of $100.4 million for the second quarter of 2022, primarily driven by the following: • a decrease in pre-tax net income of $474.3 million; and • Our effective tax rates were 71.7% and 21.4% for the three months ended June 30, 2023 and 2022, respectively, due to the impact of fixed dollar favorable permanent differences on the tax rate and changes in the second quarter estimated annual effective tax rate applied to year to date earnings. 42 | Management's Discussion and Analysis YTD 2023 vs. YTD 2022 For the six months ended June 30, 2023, we recorded income tax expense of $12.0 million compared to $103.5 million for the six months ended June 30, 2022, primarily driven by the following: • a decrease in pre-tax net income of $404.2 million, and • Our effective tax rates were 14.5% and 21.3% for the six months ended June 30, 2023 and 2022, respectively, due to the impact of fixed dollar favorable permanent differences on the tax rate. 43 | Management's Discussion and Analysis Refining Segment The tables and charts below set forth selected information concerning our refining segment operations ($ in millions, except per barrel amounts): Selected Refining Financial Information Three Months Ended June 30, Six Months Ended June 30, 2023 2022 2023 2022 Revenues $ 4,052.5 $ 5,874.9 $ 7,847.0 $ 10,267.2 Cost of materials and other 3,783.3 5,096.5 7,242.1 9,286.7 Refining Margin $ 269.2 $ 778.4 $ 604.9 $ 980.5 Operating expenses (excluding depreciation and amortization) $ 153.8 $ 169.4 $ 292.9 $ 292.1 Refining segment EBITDA $ 110.5 $ 587.9 $ 302.6 $ 667.9 Factors Impacting Refining Profitability Our profitability in the refining segment is substantially determined by the difference between the cost of the crude oil feedstocks we purchase and the price of the refined products we sell, referred to as the "crack spread", "refining margin" or "refined product margin". Refining margin is used as a metric to assess a refinery's product margins against market crack spread trends, where "crack spread" is a measure of the difference between market prices for crude oil and refined products and is a commonly used proxy within the industry to estimate or identify trends in refining margins. The cost to acquire feedstocks and the price of the refined petroleum products we ultimately sell from our refineries depend on numerous factors beyond our control, including the supply of, and demand for, crude oil, gasoline and other refined petroleum products which, in turn, depend on, among other factors, changes in domestic and foreign economies, weather conditions such as hurricanes or tornadoes, local, domestic and foreign political affairs, global conflict, production levels, the availability of imports, the marketing of competitive fuels and government regulation. Other significant factors that influence our results in the refining segment include operating costs (particularly the cost of natural gas used for fuel and the cost of electricity), seasonal factors, refinery utilization rates and planned or unplanned maintenance activities or turnarounds. Moreover, while the fluctuations in the cost of crude oil are typically reflected in the prices of light refined products, such as gasoline and diesel fuel, the price of other residual products, such as asphalt, coke, carbon black oil and liquefied petroleum gas ("LPG") are less likely to move in parallel with crude cost. This could cause additional pressure on our realized margin during periods of rising or falling crude oil prices. Additionally, our margins are impacted by the pricing differentials of the various types and sources of crude oil we use at our refineries and their relation to product pricing. Our crude slate is predominantly comprised of WTI crude oil. Therefore, favorable differentials of WTI compared to other crude will favorably impact our operating results, and vice versa. Additionally, because of our gathering system presence in the Midland area and the significant source of crude specifically from that region into our network, a widening of the WTI Cushing less WTI Midland spread will favorably influence the operating margin for our refineries. Alternatively, a narrowing of this differential will have an adverse effect on our operating margins. Global product prices are influenced by the price of Brent which is a global benchmark crude. Global product prices influence product prices in the U.S. As a result, our refineries are influenced by the spread between Brent and WTI Midland. The Brent less WTI Midland spread represents the differential between the average per barrel price of Brent crude oil and the average per barrel price of WTI Midland crude oil. A widening of the spread between Brent and WTI Midland will favorably influence our refineries' operating margins. Also, the Krotz Springs refinery is influenced by the spread between Brent and LLS. The Brent less LLS spread represents the differential between the average per barrel price of Brent and the average per barrel price of LLS crude oil. A discount in LLS relative to Brent will favorably influence the Krotz Springs refinery operating margin. Finally, Refining EBITDA is impacted by regulatory costs associated with the cost of RINs as well as energy costs, including the cost of natural gas. In periods of unfavorable regulatory sentiment, RINs prices can increase at higher rates than crack spreads, or even when crack spreads are declining. This can be particularly impactful on smaller refineries, where the operating cost structure does not have as much scalability as larger refineries. Additionally, volatility in energy costs, which are captured in our operating expenses and impact our Refining EBITDA, can significantly impact our ability to capture crack spreads, with natural gas representing the most significant component. Within Delek’s geographic footprint, we source the majority of our natural gas from the Gulf Coast, and secondarily from the Permian, and we do not currently have the capability at our refineries to switch our energy consumption to utilize alternative sources of fuel. For this reason, unfavorable Gulf Coast (Henry Hub) differentials can impact our crack spread capture. The cost to acquire the refined fuel products we sell to our wholesale customers in our logistics segment and at our convenience stores in our retail segment largely depends on numerous factors beyond our control, including the supply of, and demand for, crude oil, gasoline and other refined petroleum products which, in turn, depend on, among other factors, changes in domestic and foreign economies, weather conditions, domestic and foreign political affairs, production levels, the availability of imports, the marketing of competitive fuels and government regulation. 44 | Management's Discussion and Analysis In addition to the above, it continues to be a strategic and operational objective to manage price and supply risk related to crude oil that is used in refinery production, and to develop strategic sourcing relationships. For that purpose, from a pricing perspective, we enter into commodity derivative contracts to manage our price exposure to our inventory positions, future purchases of crude oil and ethanol, future sales of refined products or to fix margins on future production. We also enter into future commitments to purchase or sell RINs at fixed prices and quantities, which are used to manage our RINs Obligation. Additionally, from a sourcing perspective, we often enter into purchase and sale contracts with vendors and customers or take physical or financial commodity positions for crude oil that may not be used immediately in production, but that may be used to manage the overall supply and availability of crude expected to ultimately be needed for production and/or to meet minimum requirements under strategic pipeline arrangements, and also to optimize and hedge availability risks associated with crude that we ultimately expect to use in production. Such transactions are inherently based on certain assumptions and judgments made about the current and possible future availability of crude. Therefore, when we take physical or financial positions for optimization purposes, our intent is generally to take offsetting positions in quantities and at prices that will advance these objectives while minimizing our positional and financial statement risk. However, because of the volatility of the market in terms of pricing and availability, it is possible that we may have material positions with timing differences or, more rarely, that we are unable to cover a position with an offsetting position as intended. Such differences could have a material impact on the classification of resulting gains/losses, assets or liabilities, and could also significantly impact Refining EBITDA. Refinery Statistics Three Months Ended June 30, Six Months Ended June 30, 2023 2022 2023 2022 Total Refining Segment Days in period 91 91 181 181 Total sales volume - refined product (average bpd) (1) 305,688 305,300 288,795 304,587 Total production (average bpd) 291,715 295,457 279,230 290,784 Crude oil 282,493 294,702 265,441 283,491 Other feedstocks 12,988 2,602 16,642 8,703 Total throughput (average bpd): 295,481 297,304 282,083 292,194 Crude Slate: (% based on amount received in period) WTI crude oil 75.9 % 62.2 % 73.2 % 62.4 % Gulf Coast Sweet Crude 4.0 % 10.8 % 4.3 % 10.1 % Local Arkansas crude oil 3.9 % 4.3 % 4.2 % 4.4 % Other 16.2 % 22.7 % 18.3 % 23.1 % Crude utilization (% based on nameplate capacity) 93.5 % 97.6 % 87.9 % 93.9 % 45 | Management's Discussion and Analysis Refinery Statistics (continued) Three Months Ended June 30, Six Months Ended June 30, 2023 2022 2023 2022 Tyler, TX Refinery Days in period 91 91 181 181 Products manufactured (average bpd): Gasoline 37,672 32,645 28,276 34,924 Diesel/Jet 33,029 30,271 23,091 29,644 Petrochemicals, LPG, natural gas liquids ("NGLs") 3,031 1,983 1,890 2,116 Other 1,829 1,824 1,803 1,748 Total production 75,561 66,723 55,060 68,432 Throughput (average bpd): Crude Oil 72,955 66,681 51,501 66,559 Other feedstocks 3,955 552 4,323 2,128 Total throughput 76,910 67,233 55,824 68,687 Per barrel of throughput: Operating expenses (2) $ 3.78 $ 6.20 $ 5.29 $ 5.40 Crude Slate: (% based on amount received in period) WTI crude oil 86.5 % 83.8 % 78.7 % 85.4 % East Texas crude oil 13.5 % 16.2 % 21.3 % 14.6 % El Dorado, AR Refinery Days in period 91 91 181 181 Products manufactured (average bpd): Gasoline 34,220 39,347 36,121 38,118 Diesel 27,948 32,855 27,830 31,027 Petrochemicals, LPG, NGLs 1,521 1,549 1,406 1,285 Asphalt 6,641 8,181 7,177 7,655 Other 1,185 805 967 795 Total production 71,515 82,737 73,501 78,880 Throughput (average bpd): Crude Oil 71,449 81,510 72,040 76,827 Other feedstocks 2,011 2,221 3,278 3,079 Total throughput 73,460 83,731 75,318 79,906 Per barrel of throughput: Operating expenses (2) $ 5.00 $ 5.07 $ 4.73 $ 4.63 Crude Slate: (% based on amount received in period) WTI crude oil 68.4 % 53.1 % 65.2 % 43.2 % Local Arkansas crude oil 16.6 % 15.6 % 15.6 % 16.4 % Other 15.0 % 31.3 % 19.2 % 40.4 % 46 | Management's Discussion and Analysis Refinery Statistics (continued) Three Months Ended June 30, Six Months Ended June 30, 2023 2022 2023 2022 Big Spring, TX Refinery Days in period 91 91 181 181 Products manufactured (average bpd): Gasoline 33,582 34,918 36,032 33,912 Diesel/Jet 20,774 27,043 23,194 24,877 Petrochemicals, LPG, NGLs 3,034 3,537 3,083 3,436 Asphalt 1,630 1,406 1,636 1,642 Other 1,907 1,410 2,272 1,345 Total production 60,927 68,314 66,217 65,212 Throughput (average bpd): Crude oil 59,240 70,662 63,590 65,675 Other feedstocks 3,020 (1,093) 3,818 315 Total throughput 62,260 69,569 67,408 65,990 Per barrel of refined throughput: Operating expenses (2) $ 8.91 $ 7.58 $ 7.24 $ 6.86 Crude Slate: (% based on amount received in period) WTI crude oil 66.7 % 68.2 % 71.0 % 67.5 % WTS crude oil 33.3 % 31.8 % 29.0 % 32.5 % Krotz Springs, LA Refinery Days in period 91 91 181 181 Products manufactured (average bpd): Gasoline 41,191 31,298 41,517 31,979 Diesel/Jet 31,968 32,419 32,373 31,711 Heavy Oils 3,725 845 3,618 1,690 Petrochemicals, LPG, NGLs 6,588 7,152 6,730 7,040 Other 240 5,970 214 5,840 Total production 83,712 77,684 84,452 78,260 Throughput (average bpd): Crude Oil 78,848 75,849 78,309 74,430 Other feedstocks 4,002 922 5,224 3,181 Total throughput 82,850 76,771 83,533 77,611 Per barrel of throughput: Operating expenses (2) $ 4.74 $ 6.14 $ 4.97 $ 5.12 Crude Slate: (% based on amount received in period) WTI Crude 77.4 % 49.4 % 78.5 % 56.6 % Gulf Coast Sweet Crude 15.0 % 40.6 % 14.7 % 38.2 % Other 7.6 % 10.0 % 6.8 % 5.2 % (1) Includes inter-refinery sales and sales to other segments which are eliminated in consolidation. See tables below. (2) Reflects the prior period conforming reclassification adjustment between operating expenses and general and administrative expenses. 47 | Management's Discussion and Analysis Included in the refinery statistics above are the following inter-refinery and sales to other segments: Inter-refinery Sales Three Months Ended June 30, Six Months Ended June 30, (in barrels per day) 2023 2022 2023 2022 El Dorado refined product sales to other Delek refineries — 1,531 — 1,201 Big Spring refined product sales to other Delek refineries — 470 — 554 Krotz Springs refined product sales to other Delek refineries — 1,061 — 783 Refinery Sales to Other Segments Three Months Ended June 30, Six Months Ended June 30, (in barrels per day) 2023 2022 2023 2022 El Dorado refined product sales to other Delek segments — 9 — 8 Big Spring refined product sales to other Delek segments — 22,647 9,663 22,209 Pricing Statistics (average for the period presented) Three Months Ended June 30, Six Months Ended June 30, 2023 2022 2023 2022 WTI — Cushing crude oil (per barrel) $ 73.57 $ 108.74 $ 74.78 $ 102.02 WTI — Midland crude oil (per barrel) $ 73.56 $ 108.50 $ 74.77 $ 101.81 WTS — Midland crude oil (per barrel) $ 73.55 $ 109.06 $ 74.48 $ 101.92 LLS (per barrel) $ 75.67 $ 110.25 $ 77.27 $ 103.92 Brent (per barrel) $ 77.74 $ 111.84 $ 79.94 $ 104.93 U.S. Gulf Coast 5-3-2 crack spread (per barrel) - utilizing HSD $ 9.79 $ 34.05 $ 13.22 $ 26.12 U.S. Gulf Coast 5-3-2 crack spread (per barrel) (1) $ 25.54 $ 44.03 $ 29.04 $ 33.77 U.S. Gulf Coast 3-2-1 crack spread (per barrel) (1) $ 25.42 $ 42.44 $ 28.32 $ 32.56 U.S. Gulf Coast 2-1-1 crack spread (per barrel) (1) $ 11.32 $ 36.23 $ 15.23 $ 26.71 U.S. Gulf Coast Unleaded Gasoline (per gallon) $ 2.34 $ 3.40 $ 2.37 $ 3.05 Gulf Coast Ultra low sulfur diesel (per gallon) $ 2.38 $ 3.98 $ 2.62 $ 3.50 U.S. Gulf Coast high sulfur diesel (per gallon) $ 1.45 $ 3.39 $ 1.68 $ 3.04 Natural gas (per MMBtu) $ 2.33 $ 7.50 $ 2.53 $ 6.05 (1) For our Tyler and El Dorado refineries, we compare our per barrel refining product margin to the Gulf Coast 5-3-2 crack spread consisting of (Argus pricing) WTI Cushing crude, U.S. Gulf Coast CBOB gasoline and U.S. Gulf Coast Pipeline No. 2 heating oil (ultra low sulfur diesel). For our Big Spring refinery, we compare our per barrel refining margin to the Gulf Coast 3-2-1 crack spread consisting of (Argus pricing) WTI Cushing crude, U.S. Gulf Coast CBOB gasoline and Gulf Coast ultra-low sulfur diesel. Starting in Q1 2023, for our Krotz Springs refinery, we compare our per barrel refining margin to the Gulf Coast 2-1-1 crack spread consisting of (Argus pricing) LLS crude oil, (Argus pricing) U.S. Gulf Coast CBOB gasoline and 50% of (Argus pricing) U.S. Gulf Coast Pipeline No. 2 heating oil (high sulfur diesel) and 50% of (Platts pricing) U.S. Gulf Coast Pipeline No. 2 heating oil (high sulfur diesel). Historical Gulf Coast 2-1-1 crack spread measures have been revised to conform to current period presentation. The Tyler refinery's crude oil input is primarily WTI Midland and East Texas, while the El Dorado refinery's crude input is primarily a combination of WTI Midland, local Arkansas and other domestic inland crude oil. The Big Spring refinery’s crude oil input is primarily comprised of WTS and WTI Midland. The Krotz Springs refinery’s crude oil input is primarily comprised of LLS and WTI Midland. 48 | Management's Discussion and Analysis Refining Segment Operational Comparison of the Three and Six Months Ended June 30, 2023 versus the Three and Six Months Ended June 30, 2022. Revenues Q2 2023 vs. Q2 2022 Net revenues for the refining segment decreased by $1,822.4 million, or 31.0%, in the second quarter of 2023 compared to the second quarter of 2022. The decrease was primarily driven by the following: • a decrease in the average price of U.S. Gulf Coast gasoline of 31.1%, ULSD of 40.2%, and HSD of 57.4%; and • a decrease in wholesale activity. Net revenues included sales to our retail segment of $111.5 million and $160.1 million, sales to our logistics segment of $92.0 million and $143.9 million, and sales to our other segment of $0.0 million and $8.3 million for the three months ended June 30, 2023 and June 30, 2022, respectively. We eliminate this intercompany revenue in consolidation. YTD 2023 vs. YTD 2022 Revenues for the refining segment decreased $2,420.2 million, or 23.6%, in the six months ended June 30, 2023 compared to the six months ended June 30, 2022. The decrease was primarily driven by the following: • a decrease in the average price of U.S. Gulf Coast gasoline of 22.5%, ULSD of 25.0%, and HSD of 44.7%; • a decrease in total sales volumes primarily driven by turnaround activities at the Tyler refinery in the first quarter 2023; and • a decrease in wholesale activity. Revenues included sales to our retail segment of $214.1 million and $271.9 million, sales to our logistics segment of $183.1 million and $249.8 million and sales to the other segment of $0.0 million and $16.4 million for the six months ended June 30, 2023 and 2022, respectively. We eliminate this intercompany revenue in consolidation. Cost of Materials and Other Q2 2023 vs. Q2 2022 Cost of materials and other decreased by $1,313.2 million, or 25.8%, in the second quarter of 2023 compared to the second quarter of 2022. The decrease was primarily driven by the following: • decreases in the cost of WTI Cushing crude oil, from an average of $108.74 per barrel to an average of $73.57, or 32.3%, and decreases in the cost of WTI Midland crude oil, from an average of $108.50 per barrel to an average of $73.56, or 32.2%; and • a decrease in wholesale activity. YTD 2023 vs. YTD 2022 Cost of materials and other decreased $2,044.6 million, or 22.0%, in the six months ended June 30, 2023 compared to the six months ended June 30, 2022. This decrease was primarily driven by the following: • decreases in the cost of WTI Cushing crude oil, from an average of $102.02 per barrel to an average of $74.78, or 26.7%, and decreases in the cost of WTI Midland crude oil, from an average of $101.81 per barrel to an average of $74.77, or 26.6%; • a decrease in sales volumes; and • a decrease in wholesale activity. 49 | Management's Discussion and Analysis Our refining segment purchases finished product from our logistics segment and has multiple service agreements with our logistics segment which, among other things, require the refining segment to pay terminalling and storage fees based on the throughput volume of crude and finished product in the logistics segment pipelines and the volume of crude and finished product stored in the logistics segment storage tanks, subject to minimum volume commitments. These costs and fees were $132.6 million and $123.8 million during the three months ended June 30, 2023 and 2022, respectively. These costs and fees were $257.2 million and $247.2 million during the six months ended June 30, 2023 and 2022, respectively. We eliminate these intercompany fees in consolidation. Refining Margin Q2 2023 vs. Q2 2022 Refining segment margin decreased by $509.2 million, or 65.4%, in the second quarter of 2023 compared to the second quarter of 2022, with a refining margin percentage of 6.6% as compared to 13.2% for the second quarter of 2023 and 2022, respectively, primarily driven by the following: • a 42.0% decrease in the 5-3-2 crack spread (the primary measure for the Tyler refinery and El Dorado refinery), a 40.1% decrease in the average Gulf Coast 3-2-1 crack spread (the primary measure for the Big Spring refinery), and a 68.8% decrease in the average Gulf Coast 2-1-1 crack spread (the primary measure for the Krotz Springs refinery); and • a decrease in utilization. YTD 2023 vs. YTD 2022 Refining margin decreased by $375.6 million, or 38.3%, for the six months ended June 30, 2023 compared to the six months ended June 30, 2022, with a refining margin percentage of 7.7% as compared to 9.5% for the six months ended June 30, 2023 and 2022, respectively, primarily driven by the following: • a 14.0% decrease in the 5-3-2 crack spread (the primary measure for the Tyler refinery and El Dorado refinery), a 13.0% decrease in the average Gulf Coast 3-2-1 crack spread (the primary measure for the Big Spring refinery) and a 43.0% decrease in the average Gulf Coast 2-1-1 crack spread (the primary measure for the Krotz Springs refinery); and • a decrease in total sales volumes primarily driven by turnaround activities at the Tyler refinery in the first quarter of 2023. 50 | Management's Discussion and Analysis Operating Expenses Q2 2023 vs. Q2 2022 Operating expenses decreased by $15.6 million, or 9.2%, in the second quarter of 2023 compared to the second quarter of 2022. The decrease in operating expenses was primarily driven by the following: • lower natural gas in 2023. These decreases were partially offset by the following: • increase in outside service and maintenance costs including costs related to our Safety Action Plan, which we expect will continue at least through the end of 2023. YTD 2023 vs. YTD 2022 Operating expenses increased $0.8 million, or 0.3%, in the six months ended June 30, 2023, compared to six months ended June 30, 2022. The increase in operating expenses was primarily driven by the following: • higher employee, outside service and maintenance costs including costs related to our Safety Action Plan, which we expect will continue at least through the end of 2023. These increases were partially offset by the following: • lower natural gas prices in 2023. EBITDA Q2 2023 vs. Q2 2022 EBITDA decreased by $477.4 million, for the three months ended June 30, 2023 compared to the three months ended June 30, 2022, primarily due to a decrease in refining margin driven by decreased crack spreads, partially offset by lower natural gas prices. YTD 2023 vs. YTD 2022 EBITDA decreased by $365.3 million, for the six months ended June 30, 2023 compared to the six months ended June 30, 2022, primarily due to a decrease in refining margin driven by decreased crack spreads and decreased sales volume, partially offset by lower natural gas prices. 51 | Management's Discussion and Analysis Logistics Segment The table below sets forth certain information concerning our logistics segment operations ($ in millions, except per barrel amounts): Selected Logistics Financial and Operating Information Three Months Ended June 30, Six Months Ended June 30, 2023 2022 2023 2022 Revenues $ 246.9 $ 266.7 $ 490.4 $ 473.3 Cost of materials and other $ 128.1 $ 176.4 $ 254.2 $ 302.6 Operating expenses (excluding depreciation and amortization) $ 29.0 $ 21.0 $ 53.7 $ 39.1 EBITDA $ 90.9 $ 62.6 $ 182.3 $ 126.8 Operating Information: Gathering & Processing: (average bpd) Lion Pipeline System: Crude pipelines (non-gathered) 61,260 84,699 62,131 78,818 Refined products pipelines 44,966 64,821 49,957 62,186 SALA Gathering System 13,041 17,961 13,509 17,064 East Texas Crude Logistics System 30,666 19,942 26,690 18,010 Midland Gathering Assets (1) 221,876 101,236 221,993 100,783 Plains Connection System 255,035 154,086 247,856 158,025 Delaware Gathering Assets: (2) Natural Gas Gathering and Processing (Mcfd) (3) 73,309 51,292 74,008 51,292 Crude Oil Gathering (average bpd) 117,017 78,011 110,408 78,011 Water Disposal and Recycling (average bpd) 127,195 57,625 107,848 57,625 Wholesale Marketing & Terminalling: East Texas - Tyler refinery sales volumes (average bpd) (4) 69,310 63,502 52,158 67,021 Big Spring wholesale marketing throughputs (average bpd) 75,164 78,634 76,763 77,100 West Texas wholesale marketing throughputs (average bpd) 9,985 10,073 9,454 9,994 West Texas wholesale marketing margin per barrel $ 3.23 $ 2.67 $ 2.89 $ 2.85 Terminalling throughputs (average bpd) (5) 134,323 130,002 113,926 136,808 (1) Formerly known as the Permian Gathering System. Excludes volumes that are being temporarily transported via trucks while connectors are under construction. (2) Formally known as 3 Bear, which was acquired June 1, 2022. (3) Mcfd - average thousand cubic feet per day. (4) Excludes jet fuel and petroleum coke. (5) Consists of terminalling throughputs at our Tyler, Big Spring, Big Sandy and Mount Pleasant, Texas terminals, El Dorado and North Little Rock, Arkansas terminals and Memphis and Nashville, Tennessee terminals. Logistics revenue is largely based on fixed-fee or tariff rates charged for throughput volumes running through our logistics network, where many of those volumes are contractually protected by minimum volume commitments ("MVCs"). To the extent that our logistics volumes are not subject to MVCs, our Logistics revenue may be negatively impacted in periods where are customers are experiencing economic pressures or reductions in demand for their products. Additionally, certain of our throughput arrangements contain deficiency credit provisions that may require us to defer excess MVC fees collected over actual throughputs to apply toward MVC deficiencies in future periods. With respect to our equity method investments in pipeline joint ventures, our earnings from those investments (which is based on our pro rata ownership percentage of the joint venture's recognized net income or loss) are directly impacted by the operations of those joint ventures. Items impacting the joint venture net income (loss) may include (but are not limited to) the following: long-term throughput contractual arrangements and related MVCs and, in some cases, deficiency credit provisions; the demand for walk-up nominations; applicable rates or tariffs; long-lived asset or other impairments assessed at the joint venture level; and pipeline releases or other contingent liabilities. With respect to our West Texas marketing activities, our profitability is dependent upon the cost of landed product versus the rack price of refined product sold. Our logistics segment is generally protected from commodity price risk because inventory is purchased and then immediately sold at the rack. 52 | Management's Discussion and Analysis Logistics Segment Operational Comparison of the Three and Six Months Ended June 30, 2023 versus the Three and Six Months Ended June 30, 2022. Q2 2023 vs. Q2 2022 Net revenues decreased by $19.8 million, or 7.4%, in the second quarter of 2023 compared to the second quarter of 2022, primarily driven by: • decreased revenue of $50.9 million in our West Texas marketing operations primarily driven by decreases in the average sales prices per gallon and the average volumes sold: ◦ the average sales prices per gallon of gasoline and diesel sold decreased by $0.93 per gallon and $1.53 per gallon, respectively; and ◦ the average volumes of gasoline and diesel sold decreased by 0.6 million and 1.5 million gallons, respectively. • partially offset by an increase in revenue as a result of our Delaware Gathering operations, which began in June 2022. Net revenues included sales to our refining segment of $132.6 million and $123.8 million for the three months ended June 30, 2023 and June 30, 2022, respectively. We eliminate this intercompany revenue in consolidation. YTD 2023 vs. YTD 2022 Revenues increased by $17.1 million, or 3.6%, in the six months ended June 30, 2023 compared to the six months ended June 30, 2022 primarily driven by the following: • increase in revenue as a result of our Delaware Gathering operations, which began in June 2022; • increase in volumes associated with Midland Gathering operations due to new connections finalized during 2022; and • partially offset by decreased revenue in our West Texas marketing operations primarily driven by decreases in the average sales prices per gallon and the average volumes of gasoline and diesel sold in our West Texas marketing operations: ◦ the average sales prices per gallon of gasoline and diesel sold decreased by $0.58 per gallon and $0.79 per gallon, respectively; and ◦ the average volumes of gasoline and diesel sold decreased by 3.4 million gallons and 2.4 million gallons, respectively. Revenues included sales to our refining segment of $257.2 million and $247.2 million for the six months ended June 30, 2023 and 2022, respectively, and sales to our other segment of $0.8 million and $0.9 million for the six months ended June 30, 2023 and 2022, respectively. We eliminate this intercompany revenue in consolidation. 53 | Management's Discussion and Analysis Cost of Materials and Other Q2 2023 vs. Q2 2022 Cost of materials and other for the logistics segment decreased by $48.3 million, or 27.4%, in the second quarter of 2023 compared to the second quarter of 2022. The decrease was primarily driven by the following: • decrease in costs of materials and other in our West Texas marketing operations primarily driven by decreases in the average cost per gallon and the average volumes of gasoline and diesel sold: ◦ the average cost per gallon of gasoline and diesel sold decreased by $0.32 per gallon and $0.12 per gallon, respectively; and ◦ the average volumes of gallons and diesel sold decreased by 0.6 million and 1.5 million gallons, respectively. • partially offset by increase in costs of materials and other as a result of our Delaware Gathering operations, which began in June 2022. Our logistics segment purchased product from our refining segment of $92.0 million and $143.9 million for the three months ended June 30, 2023 and June 30, 2022, respectively. We eliminate these intercompany costs in consolidation. YTD 2023 vs. YTD 2022 Cost of materials and other for the logistics segment decreased by $48.4 million, or 16.0%, in the six months ended June 30, 2023 compared to the six months ended June 30, 2022. This decrease was primarily driven by the following: • decrease in costs of materials and other in our West Texas marketing operations primarily driven by decreases in the average cost per gallon and the average volumes of gasoline and diesel sold in our West Texas marketing operations: ◦ the average cost per gallon of gasoline and diesel sold decreased by $0.27 per gallon and $0.11 per gallon, respectively; and ◦ the average volumes of gasoline and diesel sold decreased by 3.4 million gallons and 2.4 million gallons, respectively. • partially offset by increase in cost of materials and other as a result of our Delaware Gathering operations, which began in June 2022. Our logistics segment purchased product from our refining segment of $183.1 million and $249.8 million for the six months ended June 30, 2023 and 2022, respectively. We eliminate these intercompany costs in consolidation. 54 | Management's Discussion and Analysis Operating Expenses Q2 2023 vs. Q2 2022 Operating expenses increased by $8.0 million, or 38.1%, in the second quarter of 2023 compared to the second quarter of 2022, driven by incremental expenses associated with Delaware Gathering Acquisition YTD 2023 vs. YTD 2022 Operating expenses increased by $14.6 million, or 37.3%, in the six months ended June 30, 2023 compared to the six months ended June 30, 2022, primarily driven by incremental expenses associated with Delaware Gathering Acquisition. EBITDA Q2 2023 vs. Q2 2022 EBITDA increased by $28.3 million, or 45.2%, in the three months ended June 30, 2023 compared to the three months ended June 30, 2022, primarily driven by the following: • higher throughput volumes; and • incremental EBITDA from the Delaware Gathering Acquisition. YTD 2023 vs. YTD 2022 EBITDA increased by $55.5 million, or 43.8%, in the six months ended June 30, 2023 compared to the six months ended June 30, 2022, primarily driven by the following: • higher throughput volumes; and • incremental EBITDA from the Delaware Gathering Acquisition. 55 | Management's Discussion and Analysis Retail Segment The tables below set forth certain information concerning our retail segment operations (gross sales $ in millions): Selected Retail Financial and Operating Information Three Months Ended June 30, Six Months Ended June 30, 2023 2022 2023 2022 Revenues $ 232.7 $ 277.1 $ 437.7 $ 486.6 Cost of materials and other 188.5 233.8 $ 358.5 $ 406.8 Operating expenses (excluding depreciation and amortization) 25.9 25.1 $ 50.5 $ 47.8 EBITDA $ 15.0 $ 12.5 $ 21.4 $ 22.8 Operating Information Three Months Ended June 30, Six Months Ended June 30, 2023 2022 2023 2022 Number of stores (end of period) 247 248 247 248 Average number of stores 247 248 247 248 Average number of fuel stores 242 243 242 243 Retail fuel sales $ 148.4 $ 193.6 $ 279.5 $ 333.5 Retail fuel sales (thousands of gallons) 45,687 44,911 85,651 84,416 Average retail gallons per average number of stores (in thousands) 189 185 354 348 Average retail sales price per gallon sold $ 3.25 $ 4.31 $ 3.26 $ 3.95 Retail fuel margin ($ per gallon) (1) $ 0.342 $ 0.329 $ 0.307 $ 0.322 Merchandise sales (in millions) $ 84.3 $ 83.4 $ 158.2 $ 153.1 Merchandise sales per average number of stores (in millions) $ 0.3 $ 0.3 $ 0.6 $ 0.6 Merchandise margin % 33.9 % 34.0 % 33.5 % 34.3 % Same-Store Comparison (2) Three Months Ended June 30, Six Months Ended June 30, 2023 2022 2023 2022 Change in same-store retail fuel gallons sold (1.5) % 5.8 % (1.6) % 3.4 % Change in same-store merchandise sales 0.1 % 0.1 % 2.4 % (2.4) % (1) Retail fuel margin represents gross margin on fuel sales in the retail segment, and is calculated as retail fuel sales revenue less retail fuel cost of sales. The retail fuel margin per gallon calculation is derived by dividing retail fuel margin by the total retail fuel gallons sold for the period. (2) Same-store comparisons include year-over-year changes in specified metrics for stores that were in service at both the beginning of the year and the end of the most recent year used in the comparison. Our retail merchandise sales are driven by convenience, customer service, competitive pricing and branding. Motor fuel margin is sales less the delivered cost of fuel and motor fuel taxes, measured on a cents per gallon basis. Our motor fuel margins are impacted by local supply, demand, weather, competitor pricing and product brand. 56 | Management's Discussion and Analysis Retail Segment Operational Comparison of the Three and Six Months Ended June 30, 2023 versus the Three and Six Months Ended June 30, 2022. Revenues Q2 2023 vs. Q2 2022 Net revenues for the retail segment decreased by $44.4 million, or 16.0%, in the second quarter of 2023 compared to the second quarter of 2022, primarily driven by the following: • a decrease in total fuel sales which were $148.4 million in the second quarter of 2023 compared to $193.6 million in the second quarter of 2022, primarily attributable to a decrease of $1.06 in average price charged per gallon sold. These decreases were partially offset by the following: • an increase in merchandise sales to $84.3 million in the second quarter of 2023 compared to $83.4 million in the second quarter of 2022, primarily driven by the same-store sales increase of 0.1%. YTD 2023 vs. YTD 2022 Revenues for the retail segment decreased by $48.9 million, or 10.0%, for the six months ended June 30, 2023 compared to the six months ended June 30, 2022, primarily driven by the following: • a decrease in total fuel sales which were $279.5 million for the six months ended June 30, 2023 compared to $333.5 million for the six months ended June 30, 2022, primarily attributable to a $0.69 decrease in average price charged per gallon sold. These decreases were partially offset by the following: • an increase in merchandise sales to $158.2 million for the six months ended June 30, 2023 compared to $153.1 million for the six months ended June 30, 2022, primarily driven by the same-store sales increase of 2.4%. 57 | Management's Discussion and Analysis Cost of Materials and Other Q2 2023 vs. Q2 2022 Cost of materials and other for the retail segment decreased by $45.3 million, or 19.4%, in the second quarter of 2023 compared to the second quarter of 2022, primarily driven by the following: • a decrease in average cost per gallon of $1.07, or 26.9%, applied to fuel sales volumes that increased period over period. Our retail segment purchased finished product from our refining segment of $111.5 million and $160.1 million for the three months ended June 30, 2023 and June 30, 2022, respectively, which is eliminated in consolidation. YTD 2023 vs. YTD 2022 Cost of materials and other for the retail segment decreased by $48.3 million, or 11.9%, for the six months ended June 30, 2023 compared to the six months ended June 30, 2022, primarily driven by the following: • a decrease in average cost per gallon of $0.67, or 18.5%. Our retail segment purchased finished product from our refining segment of $214.1 million and $271.9 million for the six months ended June 30, 2023 and 2022, respectively. We eliminate this intercompany cost in consolidation. Operating Expenses Q2 2023 vs. Q2 2022 Retail segment operating expenses increased by $0.8 million, or 3.2%, in the second quarter of 2023 compared to the second quarter of 2022, primarily due to driven by higher employee cost in 2023. YTD 2023 vs. YTD 2022 Operating expenses for the retail segment increased by $2.7 million, or 5.6%, for the six months ended June 30, 2023 compared to the six months ended June 30, 2022 primarily driven by higher employee cost in 2023. EBITDA Q2 2023 vs. Q2 2022 EBITDA for the retail segment increased by $2.5 million, or 20.0%, for the three months ended June 30, 2023 compared to the three months ended June 30, 2022, primarily driven by the following: • an increase in average fuel margin of $0.013 per gallon and an increase in fuel sales volume; and • a 1.0% increase in merchandise sales, partially offset by a decrease in merchandise margin percentage of 0.1%. YTD 2023 vs. YTD 2022 EBITDA for the retail segment decreased by $1.4 million, or 6.1%, for the six months ended June 30, 2023 compared to the six months ended June 30, 2022, primarily driven by the following: • a decrease in average fuel margin of $0.015 per gallon, partially offset by an increase in fuel sales volume; and • an increase in operating expenses due to higher employee costs. 58 | Management's Discussion and Analysis Liquidity and Capital Resources Sources of Capital Our primary sources of liquidity and capital resources are • cash generated from our operating activities; • borrowings under our debt facilities; and • potential issuances of additional equity and debt securities. At June 30, 2023 our total liquidity amounted to $1.6 billion comprised primarily of $787.5 million in unused credit commitments under our revolving credit facilities (as discussed in Note 9 of our condensed consolidated financial statements in Item 1. Financial Statements, of this Quarterly Report on Form 10-Q) and $821.6 million in cash and cash equivalents. Historically, we have generated adequate cash from operations to fund ongoing working capital requirements, pay quarterly cash dividends and fund operational capital expenditures. On August 4, 2023, our Board of Directors approved a quarterly cash dividend of $0.235 per share of our common stock. Other funding sources including borrowings under existing credit agreements, and issuance of equity and debt securities have been utilized to meet our funding requirements and support our growth capital projects and acquisitions. In addition, we have historically been able to source funding at terms that reflect market conditions, our financial position and our credit ratings and expect future funding sources to be at terms that are sustainable and profitable for the Company. However, there can be no assurances regarding the availability of future debt or equity financings or whether such financings can be made available on terms that are acceptable to us; any execution of such financing activities will be dependent on the contemporaneous availability of functioning debt or equity markets. Additionally, new debt financing activities will be subject to the satisfaction of any debt incurrence limitation covenants in our existing financing agreements. Our debt limitation covenants in our existing financing documents are usual and customary for credit agreements of our type and reflective of market conditions at the time of their execution. Additionally, our ability to satisfy working capital requirements, to service our debt obligations, to fund planned capital expenditures, or to pay dividends will depend upon future operating performance, which will be affected by prevailing economic conditions in the oil industry and other financial and business factors, including oil prices, some of which are beyond our control. As of June 30, 2023, we believe we were in compliance with all of our debt maintenance covenants, where the most significant long-term obligation subject to such covenants was the Delek Term Loan Credit Facility (see further discussion in Note 9 of our condensed consolidated financial statements in Item 1. Financial Statements, of this Quarterly Report on Form 10-Q). Additionally, we were in compliance with incurrence covenants to the extent triggered during the quarter ended June 30, 2023. Failure to meet the incurrence covenants could impose certain incremental restrictions on our ability to incur new debt and also may limit whether and the extent to which we may pay dividends, as well as impose additional restrictions on our ability to repurchase our stock, make new investments and incur new liens (among others). Such restrictions would generally remain in place until such quarter that we return to compliance under the applicable incurrence based covenants. In the event that we are subject to these incremental restrictions, we believe that we have sufficient current and alternative sources of liquidity, including (but not limited to): available borrowings under our existing Delek Revolving Credit Facility, and for Delek Logistics, under its Delek Logistics Revolving Facility; the allowance to incur an additional $400.0 million of secured debt under the Delek Term Loan Credit Facility (see further discussion of these facilities in Note 9 of our condensed consolidated financial statements in Item 1. Financial Statements, of this Quarterly Report on Form 10-Q); as well as the possibility of obtaining other secured and unsecured debt, raising capital through equity issuance, or taking advantage of transactional financing opportunities such as sale-leasebacks or joint ventures, as otherwise contemplated and allowed under our incurrence covenants. Cash Flows The following table sets forth a summary of our consolidated cash flows (in millions): Consolidated Six Months Ended June 30, 2023 2022 Cash Flow Data: Operating activities $ 490.2 $ 585.9 Investing activities (279.9) (720.9) Financing activities (230.0) 523.1 Net (decrease) increase $ (19.7) $ 388.1 Cash Flows from Operating Activities Net cash provided by operating activities was $490.2 million for the six months ended June 30, 2023, compared to $585.9 million for the comparable period of 2022. Decreases were a result of an increase in cash paid for debt interest of $84.5 million, partially offset by an increase in dividends received of $5.0 million. Additionally, cash receipts from customers and cash payments to suppliers and for salaries increased resulting in a net $18.8 million increase in cash provided by operating activities. 59 | Management's Discussion and Analysis Cash Flows from Investing Activities Net cash used in investing activities was $279.9 million for the six months ended June 30, 2023, compared to $720.9 million in the comparable period of 2022. The decrease in cash flows used in investing activities was primarily due to the $621.7 million Delaware Gathering Acquisition in 2022 and a $5.6 million increase in distributions from equity method investments, partially offset by a $179.5 million increase in purchases of property, plant and equipment, substantially driven by maintenance projects associated with the Tyler turnaround, other refinery additions and various interconnects associated with Logistics assets and payments of $9.0 million for equity interests investments. Cash Flows from Financing Activities Net cash used in financing activities was $230.0 million for the six months ended June 30, 2023, compared to cash provided of $523.1 million in the comparable 2022 period. The decrease in cash provided was primarily due to net payments on long-term revolvers and term debt of $248.0 million during the six months ended June 30, 2023, compared to net proceeds of $595.5 million in the comparable 2022 period, dividend payments of $29.7 million made during the six months ended June 30, 2023 and proceeds received of $16.4 million in the comparable 2022 period for the sale of Delek Logistics common limited partner units. These decreases in cash flows were partially offset by a decrease in share repurchases of $23.6 million, combined with the impact of the following: net proceeds from product financing arrangements of $52.8 million for the six months ended June 30, 2023 compared to net payments $2.8 million in the comparable 2022 period, and the receipt of settlement proceeds of $58.0 million during the first quarter of 2023 associated with the termination of the J. Aron Supply & Offtake Agreements and origination of the Citi Inventory Intermediation Agreement. Cash Position and Indebtedness As of June 30, 2023, our total cash and cash equivalents were $821.6 million and we had total long-term indebtedness of approximately $2,810.9 million. The total long-term indebtedness is net of deferred financing costs and debt discount of $62.9 million. Additionally, we had letters of credit issued of approximately $251.5 million. Total unused credit commitments or borrowing base availability, as applicable, under our revolving credit facilities was approximately $787.5 million. The decrease of $246.7 million in total long-term indebtedness as of June 30, 2023 compared to December 31, 2022 resulted primarily from a decrease in net borrowings under the Delek Revolving Credit Facility and the United Community Bank Revolver, partially offset by an increase in net borrowings under the Delek Logistics Revolving Facility. As of June 30, 2023, our total long-term indebtedness (as defined in Note 9 of the condensed consolidated financial statements in Item 1. Financial Statements) consisted of the following: • aggregate principal of $150.0 million under the Delek Revolving Credit Facility (maturity of October 26, 2027 and average borrowing rate of 6.45%); • aggregate principal of $945.3 million under the Delek Term Loan Credit Facility (maturity of November 19, 2029 and effective interest of 9.95%); • aggregate principal of $811.0 million under the Delek Logistics Revolving Facility, (maturity of October 13, 2027 and average borrowing rate of 7.95%); • aggregate principal of $292.5 million under the Delek Logistics Term Loan Facility (maturity of October 13, 2024 and average borrowing rate of 8.41%); • aggregate principal of $250.0 million under the Delek Logistics 2025 Notes (due in 2025, with effective interest rate of 7.17%); • aggregate principal of $400.0 million under the Delek Logistics 2028 Notes (due in 2028, with effective interest rate of 7.39%); and • aggregate principal of $25.0 million under the United Community Bank Revolver (maturity of June 30, 2024 and average borrowing rate of 7.50%). See Note 9 to our accompanying condensed consolidated financial statements in Item 1. Financial Statements, of this Quarterly Report on Form 10-Q for additional information about our separate debt and credit facilities. Additionally, we utilize other financing arrangements to finance operating assets and/or, from time to time, to monetize other assets that may not be needed in the near term, when internal cost of capital and other criteria are met. Such arrangements include our inventory intermediation arrangement, which finances a significant portion of our first-in, first-out inventory at the refineries and, from time to time, RINs or other non-inventory product financing liabilities. On June 21, 2023, DKTS entered into a letter agreement to the Inventory Intermediation Agreement with Citi to temporarily increase its letter of credit issued to Citi by $100.0 million which will allow DKTS to defer payments of certain obligations under the Inventory Intermediation Agreement until July 2023. These deferred obligations will be subject to applicable interest charges. Our inventory intermediation obligation with Citi was $453.4 million at June 30, 2023, none of which is current. See Note 8 of the accompanying condensed consolidated financial statements in Item 1. Financial Statements, of this Quarterly Report on Form 10-Q for additional information about our inventory intermediation agreement. Our product financing liabilities consisted primarily of RIN financings as of June 30, 2023, and totaled $322.4 million, all of which is due in the next 12 months. See further description of these types of arrangements in the Environmental Credits and Related Regulatory Obligations accounting policy disclosed in Note 2 to our accompanying consolidated financial statements included in Item 8. Financial Statements and Supplementary Data, of our December 31, 2022 Annual Report on Form 10-K. For both arrangements and the related commitments, see also our "Cash Requirements" section below. Debt Ratings We receive debt ratings from the major ratings agencies in the U.S. In determining our debt ratings, the agencies consider a number of qualitative and quantitative items including, but not limited to, commodity pricing levels, our liquidity, asset quality, reserve mix, debt levels and seniorities, cost structure, planned asset sales and production growth opportunities. 60 | Management's Discussion and Analysis There are no "rating triggers" in any of our contractual debt obligations that would accelerate scheduled maturities should our debt rating fall below a specified level. However, a downgrade could adversely impact our interest rate on new credit facility borrowings and the ability to economically access debt markets in the future. Additionally, any rating downgrades may increase the likelihood of us having to post additional letters of credit or cash collateral under certain contractual arrangements. Capital Spending A key component of our long-term strategy is our capital expenditure program. The following table summarizes our actual capital expenditures for the six months ended June 30, 2023, by segment, as well as planned capital expenditures for the full year 2023 by operating segment and major category (in millions): 2023 Forecast Six Months Ended June 30, 2023 Actual Refining Regulatory $ 21.5 $ 2.7 Sustaining maintenance, including turnaround activities 174.0 174.3 Growth projects 6.3 0.1 Refining segment total 201.8 177.1 Logistics Regulatory 13.0 1.2 Sustaining maintenance 2.2 1.3 Growth projects 66.1 53.0 Logistics segment total 81.3 55.5 Retail Regulatory — — Sustaining maintenance 26.9 6.2 Growth projects 4.2 1.8 Retail segment total 31.1 8.0 Corporate and Other Regulatory 2.1 1.5 Sustaining maintenance 32.1 9.5 Growth projects 2.1 1.7 Other total 36.3 12.7 Total capital spending $ 350.5 $ 253.3 The amount of our capital expenditure budget is subject to change due to unanticipated increases in the cost, scope and completion time for our capital projects and subject to the changes and uncertainties discussed under the 'Forward-Looking Statements' section of Item 2. Management Discussion and Analysis, of this Quarterly Report on Form 10-Q. For further information, please refer to our discussion in Item 1A. Risk Factors, of our December 31, 2022 Annual Report on Form 10-K. 61 | Management's Discussion and Analysis Cash Requirements Long-Term Cash Requirements Under Contractual Obligations Information regarding our known cash requirements under contractual obligations of the types described below as of June 30, 2023, is set forth in the following table (in millions): Payments Due by Period < 1 Year 1-3 Years 3-5 Years >5 Years Total Long-term debt and notes payable obligations $ 49.5 $ 546.5 $ 1,380.0 $ 897.8 $ 2,873.8 Interest (1) 228.7 401.2 312.9 124.3 1,067.1 Operating lease commitments (2) 57.0 75.8 35.4 20.6 188.8 Purchase commitments (3) 562.3 — — — 562.3 Product financing agreements (4) 322.4 — — — 322.4 Transportation agreements (5) 215.0 420.2 292.8 364.1 1,292.1 Inventory intermediation obligation (6) 41.6 474.4 — — 516.0 Total $ 1,476.5 $ 1,918.1 $ 2,021.1 $ 1,406.8 $ 6,822.5 (1) Expected interest payments on debt outstanding at June 30, 2023. Floating interest rate debt is calculated using June 30, 2023 rates. For additional information, see Note 9 to the condensed consolidated financial statements in Item 1. Financial Statements, of this Quarterly Report on Form 10-Q. (2) Amounts reflect future estimated lease payments under operating leases having remaining non-cancelable terms in excess of one year as of June 30, 2023. (3) We have purchase commitments to secure certain quantities of crude oil, finished product and other resources used in production at both fixed and market prices. We have estimated future payments under the market-based agreements using current market rates. Excludes purchase commitments in buy-sell transactions which have matching notional amounts with the same counterparty and are generally net settled in exchanges. (4) Balances consist of obligations under RINs product financing arrangements, as described in Note 12 to the condensed consolidated financial statements in Item 1. Financial Statements, of this Quarterly Report on Form 10-Q and further discussed in the ''Environmental Credits and Related Regulatory Obligations' accounting policy included in Note 2 to our consolidated financial statements in Item 8. Financial Statements and Supplementary Data, of our December 31, 2022 Annual Report on Form 10-K. (5) Balances consist of contractual obligations under agreements with third parties (not including Delek Logistics) for the transportation of crude oil to our refineries. (6) Balances consist of contractual obligations under the Citi Inventory Intermediation Agreement, including principal obligation for the Baseline Volume Step-Out Liability and other recurring fees. For additional information, see Note 8 to the condensed consolidated financial statements in Item 1. Financial Statements, of this Quarterly Report on Form 10-Q. Other Cash Requirements Our material short-term cash requirements under contractual obligations are presented above, and we e xpect to fund the majority of those requirements with cash flows from operations. Our other cash requirements consisted of operating activities and capital expenditures. Operating activities include cash outflows related to payments to suppliers for crude and other inventories (which are largely reflected in our contractual purchase commitments in the table above) and payments for salaries and other employee related costs. Cash outlays in 2023 included incentive compensation payments that were earned and accrued in 2022. In line with our long-term sustainable strategy, future cash requirements will include initiatives to build on our long-term sustainable business model, ESG initiatives and sum of the parts initiatives. Refer to the cash flow section for our operating activities spend during the six months ended June 30, 2023. While many of the expenses related to the operating activities are variable in nature, some of the expenditures can be somewhat fixed in the short-term due to forward planning on our level of activity. Refer to the 'Capital Spending' section for our capital expenditures for six months ended June 30, 2023 and our anticipated cash requirements for planned capital expenditures for the full year 2023.