Delek US - Earnings Call - Q2 2025

Executive Summary

• Q2 2025 revenue was $2.7646B, up 4.6% sequentially and down 16.5% year over year; revenue beat Wall Street consensus by ~$80M (+3.0%)*.
• Adjusted EPS of -$0.56 beat consensus (-$0.83) by ~$0.27; diluted GAAP EPS was -$1.76*.
• Adjusted EBITDA improved to $170.2M, driven by stronger refining margins and record system throughput; logistics posted another record quarter at $120.2M.
• Management raised Enterprise Optimization Plan (EOP) run-rate cash flow improvement target to $130–$170M (from $80–$120M) and highlighted ~$30M flowing through Q2 results; quarterly dividend of $0.255/share maintained.
• Narrative catalysts: increased EOP target and operational execution (record throughput), progress on midstream economic separation (DKL commissioning Libby 2 gas plant and $700M debt offering), and reiterated DKL 2025 EBITDA guidance ($480–$520M).

What Went Well and What Went Wrong

What Went Well

• EOP progress: “we have increased our run-rate cash flow improvement target to $130 to 170 million... we recognized ~$30 million of improvements in 2Q'25”.
• Operational execution: record throughput across the system; Big Spring and Krotz Springs strong quarter; El Dorado showing EOP benefits (gross margin uplift ~$1.45/bbl).
• Logistics strength: Adjusted EBITDA reached $120.2M; Libby 2 gas plant commissioned; DKL successfully executed $700M high yield offering; 50 consecutive distribution increases.

What Went Wrong

• Year-over-year revenue decline (-16.5%) amid weaker YOY pricing; WTI/Brent and crack spreads materially below 2024 levels.
• GAAP net loss widened to -$106.4M (vs -$37.2M LY), driven by interest expense and other items; adjusted net loss remained -$33.1M.
• Corporate costs and restructuring charges persisted (Q2 restructuring $25.5M pre-tax), and EOP gains still ramping to full run-rate.

Transcript

Speaker 4

Thank you for standing by. My name is Jael and I will be your conference operator today. At this time, I would like to welcome everyone to the Delek US second quarter earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, simply press star one again. I would now like to turn the conference over to Robert Wright, Deputy Chief Financial Officer. You may begin.

Speaker 2

Good morning and welcome to the Delek US second quarter earnings conference call. Participants joining me on today's call will include Avigal Soreq, President and CEO; Joseph Israel, EVP Operations; and Mark Hobbs, EVP and Chief Financial Officer. Today's presentation material can be found on the Investor Relations section of the Delek US website. Slide two contains our safe harbor statement regarding forward-looking comments. 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 here as well as within our SEC filing. The company assumes no obligation to update any forward-looking statements. I will now turn the call over to Avigal for opening remarks. Avigal?

Speaker 0

Thank you, Robert. Good morning and thanks for joining us today. Delek US continues on its transformational journey during the second quarter by making progress on several key strategic initiatives. We have made excellent progress on our enterprise optimization plan. Given the progress we have made so far, we are increasing our guidance on EOP to $130 to $170 million on a run rate basis. Sum-of-the-parts effort also continues to progress well. During the quarter, we completed our intercompany agreement, worked on raising liquidity at Delek Logistics Partners, and made great progress in increasing the economic separation between Delek US and Delek Logistics Partners. As I always do, I will give an update on our key long-term priorities in more detail. First, safe and reliable operations. We have made further progress in improving the operations throughout our company and reported record throughput in the quarter.

The Big Spring refinery had a strong quarter with a strong overall throughput and operational performance. We have continued to make a liability investment that will serve us well in the future. Tyler, El Dorado, and Krotz Springs also had strong operations during the quarter. El Dorado has shown additional benefits from EOP improvements. With most of our capital projects complete in the first half of the year, we look forward to capture the advantage of our operational EOP and strategic progress during the remainder of the year and beyond. Now, I would like to discuss the progress we have made on our EOP efforts. As a reminder, we started EOP with an aim to improve Delek US cash flow by $80 to $120 million starting the second half of 2025. We focus on improving overall free cash flow generation through this cycle.

The basis of this EOP improvement was further cost reduction, but more importantly, by making structural changes in the way we ran our company. These structural changes are tied to our cost base, the way we run our refineries, the way we buy our crude, and the way we sell our products. During the quarter, we estimate approximately $30 million of this EOP cash flow improvement have flowed through our P&L. As you can see, we have already achieved our prior target of $120 million of run rate EOP benefits one quarter ahead of schedule. Today, we are further increasing our range of EOP improvements to $130 to $170 million on a run rate basis starting the second half of this year. I'm extremely proud of the team for adopting a culture of continuous improvement. While there is still more work ahead, I like the direction we are heading.

We also continue to make progress toward some of the part goals. With the commissioning of DKL's LB2 gas plant and the completion of intercompany agreements, we are making great progress in making Delek US and Delek Logistics Partners economically independent. During the quarter, we increased the financial liquidity at Delek Logistics Partners through a very successful high-yield offering. Both our intercompany agreements and the latest high-yield offering result in over $1 billion of liquidity at Delek Logistics Partners. This financial flexibility will allow Delek Logistics Partners to continue on its growth journey and complete the economic separation from Delek US. As I've highlighted in the past, Delek Logistics Partners has a strong runway of growth in both the Midland and Delaware Basins. Delek Logistics Partners is making great progress in developing its sour gas gathering and acid gas injection capabilities.

These capabilities will provide Delek Logistics Partners the ability to fully capitalize on all of its growth opportunities in the Delaware Basin. Delek Logistics Partners is also having a lot of success increasing its crude gathering business both in the Midland and Delaware Basins. During the third quarter, we see a material increase in volumes in both Midland and Delaware systems. Delek Logistics Partners is on track to meet its 2025 adjusted EBITDA guidance of $480 to $520 million. We continue to work on additional steps to unlock the value of approximately $400 million in third-party adjusted EBITDA at Delek Logistics Partners such that it's fully reflected in Delek US share price and Delek Logistics Partners unit price. We'll complete the Delek Logistics Partners sum-of-the-parts initiatives in a methodical manner that will create value for both Delek US shareholders and Delek Logistics Partners unit holders.

The final piece of our strategy is being shareholder-friendly and having a strong balance sheet. During the quarter, we paid approximately $16 million in dividends and bought back approximately $13 million of our shares. Our strong balance sheet, improved reliability, and confidence in the enterprise optimization plan has allowed us to continue the counter-cyclical buyback in 2025. We remain committed to a disciplined and balanced approach to capital allocation. Now, I would like to make a comment about small refinery exemptions. As you know, small refinery exemption petitions are an important focus area for Delek US as our pending petitions are worth more than our current market cap. The Supreme Court and the District Circuit Court have made it clear that the EPA must thoughtfully address this problem.

We believe the EPA understands the issues small refiners like Delek US face in the absence of clear policy around small refinery exemptions. As a reminder, since 2019, while our SRE petition has been pending, Delek US has remained in full compliance. We are confident in a favorable outcome on our petitions based upon the principle laid in the RFS law ruling from the District Circuit Court and the EPA understanding of the issues involved. In closing, I would like to thank our entire team for their hard work and dedication. We are optimistic about Delek US trajectory in the second half of 2025 and beyond, with a strong momentum and promising opportunities on the horizon. I will now turn the call over to Joseph, who will provide additional color on our operations.

Speaker 1

Thank you, Abigail. Second quarter operations performance was strong from a safety, reliability, and optimization standpoint. Starting with reliability, record throughput results were set in Big Spring, Krotz Springs, and for the entire system. With regards to optimization, our refining teams have been successful in debottlenecking, improving liquid yield recovery, maximizing production value, and optimizing sulfur and benzene balances. Process efficiency improvement is well reflected in our numbers. Our realized refining margins increased by $0.96 per barrel compared to the second quarter of 2024, despite an $0.18 per barrel decline in the benchmark net margin. Our commercial team has reworked contracts and optimized our new logistics to expand market optionality. Overall, we made good progress operationally, and we are well positioned to meet or exceed our EOP goals. Starting with Tyler, total throughput in the second quarter was 74,000 barrels per day.

Our production margin was $9.95 per barrel, and operating expenses were $4.58 per barrel. For the third quarter, our estimated total throughput in Tyler is in the 73,000 to 77,000 barrels per day range. In El Dorado, total throughput in the second quarter was approximately 81,000 barrels per day. Our production margin was $5.21 per barrel, and operating expenses were $4.38 per barrel. The El Dorado system is one of our top operational EOP priorities. In the second quarter, our estimated EOP impact on gross margin is $1.45 per barrel, which is in line with our approximately $2 per barrel run-rate target. Plant throughput for the third quarter is in the 79,000 to 83,000 barrels per day range. In Big Spring, total throughput in the second quarter was approximately 76,000 barrels per day, reflecting our progress with people, process, and equipment.

Our production margin was $9.65 per barrel, and operating expenses were $6.67 per barrel. In the third quarter, the estimated throughput is in the 69,000 to 72,000 barrels per day range. In Krotz Springs, we continue to demonstrate improved capacity capabilities since the major turnaround. Total throughput in the second quarter was approximately 85,000 barrels per day. Our production margin was $7.59 per barrel, and operating expenses in the quarter were $5.13 per barrel. Our plant throughput for the third quarter is in the 81,000 to 85,000 barrels per day range. Our implied system throughput target for the third quarter is in the 302,000 to 317,000 barrels per day range. Moving on to the commercial front, in the second quarter, supply and marketing contributed a gain of $26 million. Of that, approximately $19 million was generated by wholesale marketing. Asphalt contributed a gain of approximately $0.2 million.

Both were positively impacted by seasonal trends and structural EOP improvements in our business. Approximately $7 million gain was attributed to supply. In summary, we delivered strong performance in the second quarter, driven by operational excellence and strategic execution. We are well positioned to further enhance efficiency while upholding our commitment to safe and reliable operations. Mark will now address the financial variance.

Speaker 2

Thank you, Joseph. Referring to slide 16, for the second quarter, Delek US had a net loss of $106 million, or negative $1.76 per share. Adjusted net loss was $33 million, or negative $0.56 per share, and adjusted EBITDA was $170.2 million. On slide 18, the waterfall of adjusted EBITDA from the first quarter of 2025 to the second quarter shows that there were two main drivers for the increase in EBITDA. First, a $141 million increase in refining was primarily driven by a higher margin environment in the second quarter relative to the first quarter, along with sequentially higher throughputs. Second, in the logistics segment, we continue to have another strong quarter delivering approximately $120 million in adjusted EBITDA, about a $4 million increase over our previous record of quarterly adjusted EBITDA achieved in the first quarter.

These improvements were mitigated by slightly higher costs in the corporate segment of $1 million compared to the prior period. Moving to slide 19 to discuss cash flow. Cash flow provided by operations was $51 million. This includes our net loss for the period, in addition to an inflow of approximately $51 million of timing-related working capital movements, which includes the impact of our inventory intermediation agreement, as well as an outflow of $30 million of restructuring and other one-time charges. Investing activities of $163 million include approximately $115 million for growth projects, primarily at Delek Logistics Partners. Financing activities of $103 million reflect $13 million in share repurchases, approximately $16 million in dividend payments, and approximately $22 million in Delek Logistics Partners distribution payments to public unit holders. On slide 20, we show our actual progress under the 2025 capital program. Second quarter capital expenditures were $164 million.

Approximately $119 million of this spend was in the logistics segment. This includes the $115 million in growth capital at Delek Logistics Partners, of which $48 million was associated with completing the LB2 gas plant. Primarily, all of the remaining capital spend during the quarter was in the refining segment, addressing planned sustaining capital initiatives. Our Delek US refining and corporate capital spending outlook for 2025 remains consistent with prior guidance. Our net debt position is broken out between Delek US and Delek Logistics Partners on slide 21. Excluding Delek Logistics, we spent approximately $74 million on cash return to shareholders and capital expenditures in the second quarter, while our Delek standalone net debt remained relatively flat, around $275 million at the end of the quarter. Moving now to slide 22, where we cover third quarter outlook items.

In addition to the guidance Joseph provided, for the third quarter of 2025, we expect operating expenses to be between $210 and $225 million. Our operating expense guidance for the third quarter incorporates both higher expected throughput across our refining segment, as well as increased operating expenses associated with the ramp-up of our new LB2 gas plant at DKL. G&A to be between $52 and $57 million. D&A is expected to be between $100 and $110 million, and net interest expense to be between $85 and $95 million. With that, we will now open the call for questions.

Speaker 4

Thank you. The floor is now open for questions. If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star one again. If you're called upon to ask a question and are listening via a loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. We do request for today's session that you please limit yourself to one question and one follow-up. Your first question comes from the line of Doug Liggett of Wolfe Research. Your line is open.

Hi, it's Nick Bailey, Trust Letter Owner for Doug Liggett this morning. He's here to join us at the top. Our first question is going to start with the SRE. You guys have definitely expressed some confidence around what looks to be a favorable outcome. I want to know if your confidence has kind of picked up and increases as we get closer to a final decision. Along with that, should you be granted the exemption, I guess I was trying to form or understand what do you see as the best use of proceeds and how could that allow Delek US to improve structurally on an operational level?

Speaker 0

Yeah, absolutely, Doug. Thank you for the question. Listen, we are very optimistic about the small refinery exemption. Delek is on our side. The District Circuit Court is on our side. We are the only public refiners that all of our assets can apply to a small refinery exemption. We stay in full compliance during the last six years that our petitions are pending. As you can easily calculate, it's bigger than our market cap. It is very clear around the economic harm that we're having because of that pending lingering issue. EPA understands the issue and we are confident in a favorable outcome. With one comment about the last part of your question about what is the positive, I'm not going to comment around it, but I'm sure the EPA understands that it cannot compensate someone that stays in compliance. We were in compliance.

I hope that that comment makes a lot of sense to you.

Thank you. My follow-up is going to be around the enterprise optimization plan. Of course, we kind of talked about this last quarter, and hearing the fact there was some definite opportunity to revise to the upside, that definitely tended to be the case in this quarter. My question is, I guess I'll ask again, is there any continued room to the upside and some opportunities there? What were the drivers that you guys were able to identify that moved the guide forward? The last part of that question is, where do you see sustaining capital for refining now? Should you be able to execute on this target of between $130 million and $170 million?

Yeah, Doug, that's very nice of you to ask that question because we are extremely, extremely proud of the enterprise optimization plan focus and the momentum we have here in our shop. EOP is not a project. It's a lifestyle. When I'm saying it's a lifestyle, we have a weekly meeting about that. We have 83 projects. We are auditing that, internal audit, external audit, and have accounting look over that. It's a very tight process that allows everyone to take a part and be contributing for that. The whole essence of EOP is free cash flow and below mid-cycle and reduce our break-even. We are very proud of that. As you probably saw on our press release and also on my prepared remark, we increased the guidance of EOP from $120 million prior to this call to $130 million to $170 million.

The reason is that we were one quarter ahead of time and we see more projects coming in in the queues for that EOP. We are extremely optimistic and see a lot of value in it. Mohit, do you want to chime in?

Speaker 3

Yeah, thanks, Abigail. All I would say on the enterprise optimization plan, as Abigail just mentioned, it's a free cash flow improvement exercise for the company. If you look at the second quarter, $30 million flowed through our financials, and that allows us to have a $120 million run rate. I just want to remind everybody that we started with the $80 to $120 million guidance. Now, to your specific question around where is this improvement or higher confidence in a higher rate coming from, if you remember, the $120 million had two components to it. One was cost, and the other one was margin. Our confidence in our margin improvement is increasing, and that is where most of the increase has come from. If you look at the $150 million at the midpoint of the enhanced increased guidance that we have provided today.

Speaker 4

Thank you. Your next question comes from a line of Alexa Petrick of Goldman Sachs. Your line is open.

Hey, good morning, team, and thank you for taking our question. I wanted to ask, there's been great progress in EOP free cash flow generation. How do we then think about the allocation of that cash? Can you remind us of your strategy there, how you're balancing between capital returns and balance sheet efforts?

Speaker 0

Yeah, absolutely, Alexa. Thank you for that question. We are very consistent with our capital allocation program. You can see that, first of all, we said that we're going to maintain dividends throughout the cycle. We can definitely check that box very nicely. We said that we have a balanced approach between balance sheet and buyback. We have done that as well. We are very consistent and confident around those abilities. We have done buyback in Q1 countercyclical. We've done buyback Q2. We have done buyback Q3. As you see, you can see in the last 12 months, we have more of around $150 million of total return to shareholders, and we are number one versus our peers around return to investors in terms of capital return to investors. We are very proud and consistent about the way we look at capital and we plan to maintain it.

Thank you for that question.

Okay, great. Thank you. Maybe just as a follow-up, I know it's a bit early, but how's Q3 shaping up? What demand trends are you seeing? What's your view for accrued differentials going forward? Any thoughts around the quarter ahead would be great.

Yeah, absolutely. We just seen a DOE, I think, like 54 minutes ago, and we see still a positive trend in terms of diesel. Diesel, it's in five years low, and we see a decent demand on diesel and gasoline. Gasoline had a draw of $1.2. You saw that as well. In terms of inventory, we're in a good shape. In terms of supply, we've seen more closer than we actually expected, even in the last couple of weeks, shaking out to around 900 during 2025, which balances the opening that we have seen but doesn't compensate for increasing demand. When we are putting all of that together, we see a pretty structural constructive market ahead of us in the short term and also in the midterm, all the way probably until the end of the decade.

We do not see the demand of gasoline and diesel coming off as people first feel. Mohit, you want to chime in?

Speaker 3

Yeah, Abigail, I just want to add, Alexa, if you look at where PAD2 specific inventories are, we've seen PAD2 distillate inventories are way below their five-year averages, which is a very relevant metric for us. If you look at the utilization in PAD2, it's been very, very high. Despite very high utilization, we see inventories remaining low, and we expect demand to pick up as the ag season starts. You would also see some turnarounds going forward. As far as PAD2 specific inventories are concerned, I think the outlook remains very optimistic, especially on the diesel side.

Speaker 4

Your next question comes from the line of Matthew Blair of TD Cowen. Your line is open.

Thank you, and good morning. You mentioned some of the positive drivers in supply and marketing in Q2. I think the wholesale side in particular was quite strong. Could you talk about how supply and marketing is trending so far in the third quarter? Do you think a positive EBITDA contribution is likely in Q3? Thank you.

Speaker 0

Thank you, Matt. Thank you for that question. Obviously, the line of supply and marketing is part of the enterprise optimization plan effort. We've improved that with better logistics around it. We got to gain market access to a new market, and we made a long-term contract that allowed us to, over time, make that line better and better. We're obviously enjoying that. We have some seasonal helping us in Q2, and we are extremely optimistic about the way the markets are positioning. I don't know, Mohit, if you want to chime in and give some more color specifically.

Speaker 3

No, I think Abigail, you're right. And Matt, if you look at our overall commercial strategy, DKTS, or what we call DK Trading and Supply, which is the line item that you're talking about, our commercial strategy is flowing through. During the quarter, as you know, Q2 and Q3 are also seasonally stronger. We did get some help from the market. Abigail rightly described our strategy as far as our commercial operations are concerned. As we have said in the past, this has three components to it. First is wholesale, second is asphalt, and third is supply.

We are making sure all three businesses, the ones that we can control, the parts of these three businesses that we can control, are doing better through contractor negotiations to improve markets, to enhanced market access, and through our refineries making new products that we can sell in these markets through this refined and enhanced market access. These results are showing through, and we look forward to continue improving this business and going forward.

Sounds good. Just on sum-of-the-parts monetization, slide 12 lists some various avenues and options for you. What do you think are the more likely options and what are the less likely options? As far as timing, do you think investors can expect or hope for an economic separation of DKL by the end of 2025, or is this looking more likely 2026 or even later? Thank you.

Speaker 0

Yeah, that's another great question for us. We are walking on steps of sum-of-the-parts as we speak. We are not standing still even for one second and more to come, and I will leave it at that. With that said, we can just take one step back and say what we did in the last 12 months, right? The last 12 months we sold retail, allowed us to maintain a strong balance sheet and to do counter-cyclical buyback. On the midstream side, we're making DKL economically independent, grew the adjusted EBITDA from below $400 million to $500 million of EBITDA 2025 guidance midpoint, increased third-party business from 40% to 80%, which is a huge achievement. I don't think that many companies like us have done that in the past.

Increased that while we are doing all of that, we reduced our ownership from 79% to the low 60%, but increased the distribution DK gets. That's another thing we are very, very proud of. In the end of the day, we see that there are not many mid-sized midstream companies left, which gives a lot of merit for DKL, and we see the opportunities flowing to us as we speak. On the intrinsic value, another very important point to watch is what is the intrinsic value of the assets in DKL. We have just seen the Medallion system sold at a very good multiple. It's a sister system to our DPG that we mentioned, we see volume going up in the prepared remarks. We have just seen last week, Northwind sold for also a very nice multiple as well, and that's a sister system to our DDG.

Going forward, we've said many, many times in the past the four outlets that we have to complete sum-of-the-parts. We are doing that as we speak and more to come. Thank you for that question.

Speaker 4

Your next question comes from the line of Joel Lish of Morgan Stanley. Your line is open.

Hey, good morning, and thanks for taking my questions. I wanted to ask a couple on the refining side. At Big Spring, you mentioned it had record throughputs and capture rates also look like they're pretty strong there as well. Could you talk to what you're seeing from that asset post the turnaround in the first quarter? As part of that, could you also talk to the path to achieving the, I think it was $5.50 per barrel OpEx goal at that refinery?

Speaker 0

Yeah, absolutely. Thank you for the question. I'm extremely proud of the Big Spring progress we have done, throughput and margin, and I will let Joseph, that is very close to it, take the credit here.

Speaker 1

Yeah, Big Spring has been on a very positive journey, as you all know. We focused first on risk mitigation and reliability with very good results. Going from 2023 to 2024, to remind you, throughput increased by 10%, and the favorable trends continue in 2025 with a record high throughput here in the second quarter. Safe and reliable operations really allow us to focus now on process efficiency and commercial optimization, and to be more specific, maximizing liquid yield recovery and product value. In Big Spring, we really mainly go after the high octane, Arizona specs type of gasoline and improving asphalt grades. We also optimize benzene and sulfur balances. All of that is very visible in our gross margin improvement. Considering the leadership team, capabilities, and execution thus far, we are very bullish about the plant forward outlook.

Great, thanks. That's helpful. Shifting to El Dorado, it had a nice step up quarter-to-quarter in capture rates. From a throughput margin perspective, it still lags some of the other refineries within the system. If you expand a bit on slide nine, which shows the margin improvements, and then between logistics, cost improvements, and product yield, where are you in that improvement process, and is there more to go there?

It's very similar to the Big Spring story as far as EOP and structural improvements. It's all about liquid yield recovery and product value. In El Dorado, we are going after jet fuel, which is a new product over there. High octane gasoline components after replacing a couple of units catalyst, and really premium asphalt is a big deal for El Dorado. We are expecting the strength to continue, and we like the outlook of the plant.

Speaker 4

Your next question comes from the line of Jean Ann Salisbury of BofA Securities. Your line is open.

Hi, good morning. I wanted to ask about the net crack metric that I think is new here, how it's constructed, and if that's a metric that you'll continue to track yourselves against.

Speaker 0

Yeah, absolutely. Mohit, you want to take it?

Speaker 3

Jean Ann, thanks for the question. The way we define a net crack, and we can obviously talk offline as well, the way we define a net crack is we take Gulf Coast 5-3-2 on a WTI basis, and we take out RBO, and we take out back prediction, the CMA impact on it, and we also take out Midland Cushing to get to our net margin number, which is the right way to look at our business because we are a completely inland refiner, and we run mostly TI exposed groups.

Perfect. Thank you. I kind of wanted to go back to a comment that was made earlier. Do you think that the recent sale of Northwind is a good read across to your assets, especially the acid gas injection capability that you're building? I guess on that, do you think that once you have the acid gas injection capability up and running, that's kind of what it takes to make it attractive for sale?

Speaker 0

Yeah, as we said many times in the past, all options are on the table, and we are very much committed to make sure that our unitholder and shareholder get the full value for their head. Obviously, we are working very hard in order to complete all of that and maximizing the value over there. That just shows the investor the full potential in our asset. Having always your neighbor selling a high price is a good thing if you are living next door, and we were very happy about it. Mohit, you want to chime in?

Speaker 3

Jean Ann, I know that you understand the midstream business well, so I'll just say this: as far as Northwind is concerned, Northwind is primarily a treating operation. We have a much more comprehensive operation in our DKL, which includes gathering, treating, and processing. We have a much more comprehensive, full suite product over there as far as gas is concerned. We think it's a very good benchmark, but we also have a better business.

Speaker 4

Your next question comes from the line of Jason Daniel Gabelman of TD Cowen. Your line is open.

Yeah, hey, morning. Thanks for taking my questions. I wanted to first go back to the enterprise optimization plan, and I'm just trying to understand a couple of things. One, how much was actually reflected in Q2 results? I know you kind of referenced a run-rate exiting the quarter, but wondering how much on a gross basis was kind of realized in Q2. How should we think about the amount of the margin capture uplift that's captured in the supply line versus the site unit margins that you referenced? Should we think about that kind of moving back and forth depending on how the environment shapes up?

Speaker 0

Yeah, thank you. That's a very nice question of feeling. Obviously, EOP, we said it very clearly in order to make it easier for everyone, the $30 million benchmark, and we are very proud of the progress we are doing. As you well know, Jason, that's pretty much agnostic to market, the $30 million we outlined, we obviously added one slide to make it easier for everyone to calculate on a similar market environment. You can easily see that in our presentation. That's even making it easier to calculate how that flows through, and that's a very, very simple way on a very similar market environment to see the improvement on the capture rate and on trading and supply. Obviously, the other part of the business, the other part of the business, very easy to see is the G&A.

You see that we are in the low 50s versus low 60s in Q2 of 2024. I think that answers most of the questions, but if you have anything, Mohit, you want to chime in, so please.

Speaker 3

Yeah, I think Abigail, I'll just reiterate what he said. Jason, for the second quarter, $30 million were actually included in our financials. The entire $30 million flowed through it, through our second quarter financials. As Joseph mentioned, $10 million of that was at El Dorado, and the rest was distributed between our DKTS, the trading and supply line item, and the cost improvements that we have made.

Okay, got it. That's clear. My follow-up is hopefully a quick one just on financing cash flows, which were a benefit in the quarter. You referenced a number of outflows from that bucket, but wondering what contributed to the net inflow from the financing cash flow line item.

Speaker 0

Yeah, Jason, in reality, the story here is very simple. EOP is all about improving free cash flow, and that's a very, very important part in our equation. I will let Mark chime in.

Yeah, yeah, thanks, Abigail. You know, Jason, I want to step back and talk about just because you're focusing in on kind of EOP and kind of where you can see that in our results. I want to be very clear that, as Abigail mentioned, we're seeing this already show up in our results. I want to be pretty specific around this. Despite a slightly lower margin environment versus the second quarter of last year, our EBITDA has increased to over $170 million this quarter versus only $107 million last quarter. Our cash flow from operation was approximately $100 million higher than what we generated in the second quarter of last year. Keep in mind that of the $164 million of CapEx in the second quarter, about $115 million of that was growth CapEx, largely at DKL for higher term projects like LB2, which will benefit us going forward.

As Abigail mentioned in his prepared remarks, this year our CapEx in 2025 is very much first half weighted. As we go through the year with lower CapEx and even more EOP benefits coming through, we feel very good about how we're positioned as we move through the remainder of the year. If, as you talk about the financing on the cash flow statement, keep in mind we've done some things to improve our balance sheet on a consolidated basis. We had a successful high-yield offering at DKL, which allowed us to pay down our revolver because we made the gravity acquisition. We've been investing $100 million in the LB2 gas plant thus far in the first half of the year. We added critical liquidity to the balance sheet by doing a very successful, oversubscribed high-yield offering at a very good rate.

It was an eight-year piece of paper, so we're very happy with that.

Speaker 4

That concludes our Q&A session. I'm now turning the conference back over to Abigail Yates for a closing remark.

Speaker 0

Yeah, I want to thank my friends around the table, our Board of Directors, our investors, and most importantly, our employees. It makes our company unique and great as it is. We'll talk again in the next quarter. Thank you.

Speaker 4

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