Delek Logistics Partners, LP (DKL)·Q1 2025 Earnings Summary

Executive Summary

• Q1 2025 was a record quarter on an adjusted basis: Adjusted EBITDA rose 15% YoY to $116.5M, driven by H2O and Gravity contributions and W2W dropdown, offset by lower wholesale margins and contract changes; management reaffirmed full-year Adjusted EBITDA guidance of $480–$520M .
• Mix improved materially: intercompany contract changes and acquisitions lifted third-party EBITDA contribution to ~80% pro forma, furthering economic separation from DK .
• Balance sheet/liquidity stable: leverage ~4.21x; ~$444.9M revolver availability; Q1 distribution raised to $1.110/unit (49th consecutive increase) and $10M of unit buybacks executed under the DK repurchase authorization .
• Near-term catalysts: commissioning and ramp of Libby 2 (100–120 MMcf/d) plus sour gas/AGI capabilities in the Delaware Basin; integration of H2O and Gravity enhancing the combined crude+water offering in the Midland Basin .

What Went Well and What Went Wrong

• What Went Well

  • Strong adjusted performance: Adjusted EBITDA grew to $116.5M (+15% YoY), with Gathering & Processing Adjusted EBITDA up to $81.1M on H2O/Gravity contributions and higher Midland throughput .
  • Strategic progress on independence: intercompany transactions and acquisitions increased third-party EBITDA mix to ~80% pro forma, de-risking DK exposure; “another important milestone in our journey to be an independent company” .
  • Capacity and capability build-out: “started the commissioning of our Libby 2 gas plant” (adds 100–120 MMcf/d) and advancing sour gas treating/AGI wells—key differentiators in the Delaware Basin .

• What Went Wrong

  • Wholesale margin pressure and rate headwinds: Wholesale Marketing & Terminalling Adjusted EBITDA fell to $17.8M (vs $25.3M YoY) on lower wholesale margins and intercompany agreement impacts; Storage & Transportation Adjusted EBITDA declined to $14.5M on decreased rates .
  • Operating cash flow down YoY: CFO fell to $31.6M (from $43.9M), reflecting working capital and timing dynamics amid rapid growth/integration .
  • Coverage ratio compressed vs prior year: DCF coverage was 1.21x (1.27x as adjusted) vs 1.35x in Q1 2024, though management expects improvement through 2025 .

Financial Results

• Summary results vs prior quarters and estimates

• Adjusted profitability and cash flow

• Segment breakdown (Adjusted EBITDA)

• Selected operating KPIs

Estimate values and margin percentages marked with * are values retrieved from S&P Global.

Interpretation versus estimates:

• Q1 revenue beat: $249.93M vs $211.62M consensus (benefits from sales-type lease reclass, H2O/Gravity, W2W dropdown) .
• Q1 EPS missed: $0.73 vs $0.809 consensus, reflecting weaker wholesale margins and rate headwinds; the mix shift and accounting reclassification (sales-type leases recorded as interest income) also change P&L optics .
• Adjusted EBITDA outperformed consensus (~$116.5M vs ~$113.4M), but note definitional differences in EBITDA across sources .

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• “We reported approximately $117 million in quarterly adjusted EBITDA, placing DKL on track to deliver on its full year EBITDA guidance of $480 million to $520 million.” — Avigal Soreq .
• “Intercompany transactions… increased this economic separation, bringing third-party contribution to our cash flow… to around 80%.” — Avigal Soreq .
• “We have started the commissioning of our Libby 2 gas plant… adding 100–120 million standard cubic feet per day of incremental capacity.” — Reuven Spiegel .
• “DKL repurchased a total of $10 million worth of units… we currently have approximately $450 million of available liquidity.” — Robert Wright .
• On intercompany actions: “No net material impact to our EBITDA of either entity… increased DKL’s third-party EBITDA to approximately 80% on a pro forma basis.” — Robert Wright .

Q&A Highlights

• Intercompany agreement changes: Re-contracting shifted refining-related activities to DK and midstream activities to DKL; no net material EBITDA impact but increased third-party mix to ~80% .
• Macro/customer activity: Stable volumes in Midland; water volumes rising; Delaware remains highly economic with significant undrilled inventory—supportive for G&P and combined crude+water offering .
• Contracting/commodity exposure: Limited direct commodity exposure; strong counterparties on water assets .
• Capex cadence: Heavy in 2024 and 1H 2025; lower run-rate expected in 2H 2025 as Libby 2 completes .

Estimates Context

• Q1 2025 vs S&P Global consensus: Revenue beat ($249.93M vs $211.62M*), EPS miss ($0.73 vs $0.809*). Adjusted EBITDA ($116.5M) above consensus EBITDA mean ($113.4M*), though EBITDA definitions may differ .
• Prior quarters: Q4 2024 revenue missed ($209.86M vs $240.04M*) while EPS beat ($0.68 vs $0.683*, effectively in line); Q3 2024 revenue missed ($214.07M vs $264.05M*) but EPS beat ($0.71 vs $0.838*, on non-GAAP performance and mix) .

Estimate values marked with * are values retrieved from S&P Global.

Where estimates may adjust:

• Revenue trajectories likely to be revised upward given the stronger reported revenue (in part reflecting sales-type lease accounting reclass to interest income and strong third-party contributions) .
• EPS may see mixed revisions as lower wholesale margins and decreased rates in S&T persist, partially offset by G&P growth and JV income (W2W) .

Key Takeaways for Investors

• Adjusted EBITDA momentum continues; reaffirmed $480–$520M FY25 sets a constructive backdrop; execution on Libby 2 and AGI should support 2H ramp and medium-term growth .
• Mix quality improving: ~80% third-party EBITDA pro forma reduces sponsor concentration risk and may support multiple expansion over time .
• Wholesale margin volatility and S&T rate headwinds are the main near-term profit drags; watch West Texas margin normalization into the summer driving season .
• Coverage poised to improve through 2025 as growth projects ramp and capex tapers in 2H; levered at 4.21x with ample liquidity ($445M revolver capacity) to fund near-term initiatives and distributions .
• Continued capital return: 49th consecutive distribution increase to $1.110/unit plus targeted unit buybacks from DK provide support to unitholder returns .
• Strategic narrative shift toward a Permian full-suite midstream (crude, gas, water) with differentiated sour gas handling—an important customer value proposition in growth areas .

Notes:

• All estimate values and margin percentages marked with an asterisk (*) are values retrieved from S&P Global.
• Company financials, segment details, KPIs and guidance are sourced from the Q1 2025 8-K/press release and earnings call transcript .