Delek Logistics Partners Q1 2025 Earnings Report

Delek Logistics Partners EPS Results

• Actual EPS: $0.73
• Consensus EPS: $0.73
• Beat/Miss: Met Expectations
• One Year Ago EPS: N/A

Delek Logistics Partners Revenue Results

• Actual Revenue: $249.93 million
• Expected Revenue: $237.17 million
• Beat/Miss: Beat by +$12.76 million
• YoY Revenue Growth: N/A

Delek Logistics Partners Announcement Details

• Quarter: Q1 2025
• Date: 5/7/2025
• Time: Before Market Opens
• Conference Call Date: Wednesday, May 7, 2025
• Conference Call Time: 12:30PM ET

Delek Logistics Partners (NYSE:DKL) provides gathering, pipeline, transportation, and other services for crude oil, intermediates, refined products, natural gas, storage, wholesale marketing, terminalling water disposal and recycling customers in the United States. The Gathering and Processing segment consists of pipelines, tanks, and offloading facilities that provide crude oil and natural gas gathering and processing, water disposal and recycling, and storage services, as well as crude oil transportation services to third parties. The Wholesale Marketing and Terminalling segment includes refined products terminals and pipelines in Texas, Tennessee, and Arkansas. This segment provides marketing services for the refined products and terminalling services at refined products terminals to independent third parties. The Storage and Transportation segment comprises tanks, offloading facilities, trucks, and ancillary assets, which provide crude oil, intermediate, and refined products transportation and storage services. Delek Logistics GP, LLC serves as the general partner of the company. Delek Logistics Partners, LP was incorporated in 2012 and is headquartered in Brentwood, Tennessee. Delek Logistics Partners, LP operates as a subsidiary of Delek US Holdings, Inc.

Delek Logistics Partners Q1 2025 Earnings Call Transcript

Key Takeaways

• Record first quarter results with $117 million of adjusted EBITDA (up from $102 million) and $75 million of DCF, achieving a 1.27× coverage ratio and on track for full-year guidance of $480–520 million.
• An intercompany transaction increased third-party EBITDA contribution from 70% to about 80%, furthering Delek Logistics’ economic separation from its sponsor, DK.
• Libbey II gas plant commissioning in under seven months will add 100–120 MMcfd of capacity, and new acid gas injection and sour-gas treating capabilities are expected to reach full utilization by H2 2025.
• Integrations of the H2O and Gravity water systems are exceeding expectations, strengthening the combined crude and water offering in the Midland Basin.
• The Board approved the 49th consecutive distribution increase to $1.11 per unit, repurchased $10 million of common units in Q1, and maintains approximately $450 million of available liquidity.

Presentation

[Operator]

Thank you for standing by. My name is JL, and I will be your conference operator today. At this time, I would like to welcome everyone to the Delek Logistics Partners First Quarter twenty twenty five Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

[Operator]

I would now like to turn the conference over to Robert Wright, Senior EVP and Chief Financial Officer. You may begin.

[Robert Wright, EVP & CFO at Delek Logistics Partners]

Good morning, and welcome to the Delek Logistics Partners first quarter earnings conference call. Participants joining me on today's call will include Abigail Torek, President and Ruben Stiegel, EVP. As a reminder, this conference call will contain forward looking statements as defined under the federal securities laws, including statements regarding guidance and future business outlook. Any forward looking information shared during today's call will involve risks and uncertainties that may cause actual results to differ materially from today's comments. Factors that could cause actual results to differ are included in our SEC filings.

[Robert Wright, EVP & CFO at Delek Logistics Partners]

The company assumes no obligation to update any forward looking statements. I will now turn the call over to Abigail for opening remarks. Abigail?

[Avigal Soreq, President at Delek Logistics Partners]

Thank you, Robert. Delek Logistics Partners had another record quarter. We reported approximately $117,000,000 in quarterly adjusted EBITDA, facing DCL on track to deliver on its full year EBITDA guidance of $480,000,000 to $520,000,000 After transformational 2024, Delek Logistics continued to make substantial progress in improving its position as a premier full service crude, natural gas and water provider in the most prolific area of the Permian Basin. As we have communicated in the past, we are in a process of increasing our economic separation from DK. This week, we announced intercompany transaction, which further increased this economic separation, bringing third party contribution to our cash flow from 70% to around 80% on a pro form a basis.

[Avigal Soreq, President at Delek Logistics Partners]

This intercompany transaction, along with our acquisition of H2O and Gravity, significantly enhance our competitive position in the Midland Basin. In the Delaware Basin, we are in the commissioning phase of the new Libbey plant expansion and we expect to fill the plant to capacity in the second half of twenty twenty five. We are also making progress on acid gas injection and sour gas handling capabilities in the Libbey Complex. We expect to start spudding our AGI gas well shortly. AGI wells and sour gas treating capabilities enhance our competitive position in the Dalla Basin and will provide good runway of growth for Delek Logistics in the future.

[Avigal Soreq, President at Delek Logistics Partners]

Despite the near term volatility in crude prices, we like our competitive position in the Delaware Basin, which we believe will continue to grow. As the Delaware Basin grows, we will continue to grow the partnership through prudent management of leverage and coverage. I'm also pleased to announce that the Board of Directors has approved a forty ninth consecutive increase in the quarterly distribution to $1.11 per unit. To conclude, we are very excited about the prospects of direct logistics. We expect to continue our value creation path moving forward and will continue to grow our distribution in the future.

[Avigal Soreq, President at Delek Logistics Partners]

I will now hand it over to Ruben, who will provide more details on our operations.

[Reuven Spiegel, EVP at Delek Logistics Partners]

Thank you, Abigail. As Abigail mentioned, we are excited about the future for Delek Logistics and continue to work diligently to strengthen our advantaged Permian position. Let me start with the Delaware Basin. We are pleased to announce that we have started the commissioning of our Libbey II gas plant, a timeframe that is less than seven months following the commencement of construction. We are very proud of our team for this outstanding accomplishment.

[Reuven Spiegel, EVP at Delek Logistics Partners]

As a reminder, at Libbey II, we are adding 100,000,000 to 120,000,100 cubic feet per day of incremental capacity, which we expect to realize through the course of the year. Our planned CapEx for Libbey 2 does include investments that will allow us to utilize for future expansion of the Libbey complex. As Avigal mentioned, we're also adding sour gas treating and gathering capabilities. We are in the process of activating the first of two AGI wells, which will allow us to sequester acid gas. We believe we have differentiated ourselves in the market because of our unique offering of expanded gas processing in addition to our sour gas handling capabilities.

[Reuven Spiegel, EVP at Delek Logistics Partners]

Additionally, since we are one of the few companies which can handle crude, gas and water in the Delaware, our natural gas G and P expansions are opening opportunities for us on crude and water gathering. Furthermore, our two recent water acquisitions are exceeding our expectations. We are currently in the process of integrating the two water gathering system from H2O and Gravity and this integration has helped us enhance our combined crude and water offering in the Howard, Martin and Glasscock Counties in the Midland Basin. Finally, we continue to look for opportunities to make our operations more efficient with the target to improve margins across our operations. With that, I will pass it on to Robert.

[Robert Wright, EVP & CFO at Delek Logistics Partners]

Thank you, Ruben.

[Robert Wright, EVP & CFO at Delek Logistics Partners]

As both Abigail and Ruben have mentioned, we are continuing the growth and deconsolidation story of Delek Logistics, while maintaining focus on a healthy management of liquidity and leverage. As previously announced, DKL has authorization to buy back common units of up to $150,000,000 from DK through 2026. During the first quarter, DKL repurchased a total of $10,000,000 worth of units under this authorization. Post the closing of our acquisition of Gravity and the significant progress we have made on the Libbey II construction, we currently have approximately $450,000,000 of available liquidity. As Abigail mentioned, we closed the acquisition of Gravity on January 2.

[Robert Wright, EVP & CFO at Delek Logistics Partners]

This acquisition was made through a combination of cash and units, which Gravity's sponsors have subsequently liquidated in the market as of the April. These additional units in the market helped to improve DKL's overall trading liquidity. Moving on to our first quarter results. The first quarter adjusted EBITDA was $117,000,000 compared to $102,000,000 in the same period of 2024. Distributable cash flow as adjusted was $75,000,000 and the DCF coverage ratio was approximately 1.27 times, which we expect to continue to rise throughout the remainder of this year.

[Robert Wright, EVP & CFO at Delek Logistics Partners]

For the Gathering and Processing segment, adjusted EBITDA for the quarter was $81,000,000 compared to $50,000,000 in the first quarter of twenty twenty four. The increase was primarily due to the acquisitions of H2O and Gravity Midstream. Wholesale marketing and terminalling adjusted EBITDA was 18,000,000 compared to $25,000,000 in the prior year. The decrease was primarily due to the seasonal weather impacts driving lower wholesale margins. Storage and transportation adjusted EBITDA in the quarter was $14,000,000 compared with $18,000,000 in the first quarter of twenty twenty four.

[Robert Wright, EVP & CFO at Delek Logistics Partners]

The decrease was primarily due to the amend and extend renegotiation we completed last summer. And lastly, the investments in pipeline joint venture segment contributed $10,000,000 this quarter compared with $8,000,000 in the first quarter of twenty twenty four. The increase was primarily due to the contribution from the Wink to Webster dropdown in August of last year. Moving on to capital expenditures. The capital program for the first quarter was approximately $72,000,000 of which $52,000,000 was due to the significant progress made in the construction of the Libbey II gas processing plant.

[Robert Wright, EVP & CFO at Delek Logistics Partners]

This amount includes $15,000,000 for future potential expansion opportunities at the Libbey site. The Libbey II gas plant remains on track from a timing and cost perspective. The remainder of the capital spend for the period was growth projects, namely advancing new connections in the Midland and Delaware gathering systems. As to our outlook for the balance of the year, we continue to remain on track for the EBITDA guidance we laid out for the full year of $480,000,000 to $520,000,000 With that, we can open the call for questions.

[Operator]

Thank you. The floor is now open for questions. Your first question comes from the line of Doug Irwin of Citi. Your line is open.

[Doug Irwin, Vice President at Citi]

Hey, team. Thanks for the question. I hoping to start by just getting a little more detail on the intercompany agreements that you announced. Did this actually involve assets changing hands? Or was it more driven by recontracting?

[Doug Irwin, Vice President at Citi]

And then just looking forward, are there more opportunities to optimize the footprint internally? Or are most of the remaining deconsolidation steps probably more external at this point?

[Avigal Soreq, President at Delek Logistics Partners]

Hey, Doug. It's Avigal. Good morning. Thank you for joining us today and thank you for your support. I'll let Robert, our partnership CFO to pick up on that. Please, Robert.

[Robert Wright, EVP & CFO at Delek Logistics Partners]

Yeah. Thanks, Avigal. What we announced today was another important milestone in our journey to be an independent company.

[Robert Wright, EVP & CFO at Delek Logistics Partners]

The related party transaction enabled us to clean up some of our contracts between DK and DKL. The effort helped to advance our deconsolidation efforts as we were able to move some of the refining related activities from DKL back to DKL. And importantly to DKL, we also moved some midstream related activities from DK to DKL. It's important to note that as a result of this transaction, there was no net material impact to our EBITDA of either entity. One of the other important benefits of this transaction was that it helped increase DKL's third party EBITDA to approximately 80% on a pro form a basis, which should help further drive the mutual goal of economic separation with DK.

[Doug Irwin, Vice President at Citi]

Okay. Understood. That's helpful. And then maybe a follow-up more on the macro side. You're obviously more dependent on third party producer activity today than you've been in the past.

[Doug Irwin, Vice President at Citi]

Just wondering if you could talk about what you're hearing from customers on your acreage given the current macro environment. And then just any detail you're willing to share around your overall contract mix, particularly for the water assets you've acquired over the last year would be helpful.

[Avigal Soreq, President at Delek Logistics Partners]

Yes, absolutely. I will take that question. So if you are looking holistically on our activity, we look at the Midland I will start with the Midland Basin, right? Midland Basin, we have a very strong customer base produced over there. We see stable volume, and we are happy with what we see. And as you know, we just finished two very timely acquisitions that allow us to have a combined offer. And why is that so important? Because we see as we speak water volume goes up, not down.

[Avigal Soreq, President at Delek Logistics Partners]

And that give us the compelling offering that we are giving is very, very good for us in that basin. In the Delaware, it's probably the lowest, especially in our area, the lowest breakeven for Shell in the entire nation. You have seen I think we provide a slide that shows that most of our acreage in this area is still didn't was not drilled. So that's a very good positive as well. And when we are sure and we had gas that we didn't really able to drill because of size that we are moving into the plant we're just finishing on the order of 20,000,000 to 30,000,000 scaff a day.

[Avigal Soreq, President at Delek Logistics Partners]

The combined offer in this area of these streams give us definitive competitive advantage and a lot of other opportunities. So we're in a good spot. We are happy about the offering we have and we look forward. But I love Ruben that is very close and making a lot of great progress in this business to chime in, please.

[Reuven Spiegel, EVP at Delek Logistics Partners]

Yeah. Thank you, Abigail. Just maybe some color on a couple of points. As far as our contracts, we have limited direct commodity exposure with strong counterparties.

[Reuven Spiegel, EVP at Delek Logistics Partners]

In the Midland Basin, we actually forecast that even in some volatility the produced water volumes to increase. As far as our CapEx, it was heavy twenty four percent and first half at 25%. We don't have material investment for the second half. So that should give us a lower run rate as far as CapEx and expenses. And the gas plant ramp up was actually the whole idea of the Libbey II was twofold.

[Reuven Spiegel, EVP at Delek Logistics Partners]

One to fulfill demand that already existed that we weren't able to suffice. And the second one is dedicated acreage growth, which Abigail just addressed. And in addition to all that, bring one more component to the formula, which is the sour and water handling capabilities. So all that together makes us feel very comfortable about where we are.

[Avigal Soreq, President at Delek Logistics Partners]

Doug, I want to emphasize the style of capability we have. The long time on that on New Mexico is very long, and we are very fortunate about that. And that give us a very good competitive advantage that most of the plant in there doesn't just doesn't have and probably will not have.

[Doug Irwin, Vice President at Citi]

Understood. That's all. Really helpful detail. Appreciate the time.

[Avigal Soreq, President at Delek Logistics Partners]

Thank you, Doug.

[Reuven Spiegel, EVP at Delek Logistics Partners]

Thank you.

[Operator]

With no further questions, that concludes our Q and A session. I'll now turn the conference back over to Avigal Sodak for closing remarks.

[Avigal Soreq, President at Delek Logistics Partners]

Absolutely. So I would like to thank management here around the table, our Board of Directors, our investors that they like the story and invest in our unit. And most importantly to our great employees that make our partnership so good. Thank you.

[Operator]

This concludes today's conference call. You may now disconnect.

Participants

Executives

• Robert Wright, EVP & CFO
• Avigal Soreq, President
• Reuven Spiegel, EVP

Analysts

• Doug Irwin, Vice President at Citi