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Delek Logistics Partners, LP (DKL)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 2024 delivered record Adjusted EBITDA of $107.2M (+6% YoY) despite lower reported revenues due to sales-type lease accounting changes; diluted EPS was $0.68 and adjusted DCF was $69.5M .
  • Strength in Gathering & Processing (Adjusted EBITDA $66.0M) and JV pipelines (W2W dropdown) offset weaker wholesale margins; coverage ratio improved sequentially to ~1.17x (as adjusted) but remains below the 1.3x long-term target .
  • 2025 outlook initiated: Adjusted EBITDA $480–$520M, YE coverage ~1.3x, capex $220–$250M; Board authorized up to $150M buyback of Delek US-owned units through 2026 to advance deconsolidation and reduce units/distributions .
  • Distribution increased for the 48th consecutive quarter to $1.105/unit; liquidity remains solid with $714.6M revolver availability and leverage ~4.06x at year-end .

What Went Well and What Went Wrong

What Went Well

  • Strong segment mix: Gathering & Processing Adjusted EBITDA rose to $66.0M (+24% YoY) on higher Permian throughput and H2O Midstream contribution; JV income increased to $11.3M with W2W .
  • Strategic milestones: Completed Gravity Water acquisition in January; expanded Midland acreage to ~400k; advancing Libby gas plant expansion and AGI/sour gas capabilities to deepen Permian “full suite” offering .
  • Management confidence and capital returns: First-time 2025 guidance and $150M sponsor unit repurchase to accelerate economic separation; “We are proud of the 48th consecutive increase in our distribution…” (Avigal Soreq) .

What Went Wrong

  • Reported revenues fell (Q4: $209.9M vs $254.1M YoY) driven by reclassification under ASC 842 to sales-type leases (MVC payments recognized as interest income vs revenue), complicating top-line comparability .
  • Wholesale Marketing & Terminalling softness: Adjusted EBITDA declined to $21.2M (vs $28.4M YoY) on lower wholesale margins and intercompany impacts .
  • Coverage below target: Q4 distributable cash flow coverage ratio, as adjusted, was 1.17x (target 1.3x), with management guiding a recovery in 2H25 as projects and acquisitions ramp .

Financial Results

MetricQ4 2023Q3 2024Q4 2024
Net Revenues ($USD Millions)$254.1 $214.1 $209.9
Operating Income ($USD Millions)$52.5 $31.8 $38.0
Net Income Attributable to Limited Partners ($USD Millions)$22.1 $33.7 $34.5
Diluted EPS ($)$0.51 $0.71 $0.68
EBITDA ($USD Millions)$86.1 $69.2 $73.8
Adjusted EBITDA ($USD Millions)$100.9 $106.8 $107.2
Net Cash from Operating Activities ($USD Millions)$114.7 $24.9 $49.9
Distributable Cash Flow, as adjusted ($USD Millions)$64.6 $62.0 $69.5
MarginQ4 2023Q3 2024Q4 2024
Operating Margin %20.7% (52.5/254.1) 14.9% (31.8/214.1) 18.1% (38.0/209.9)
Net Income Margin %8.7% (22.1/254.1) 15.7% (33.7/214.1) 16.5% (34.5/209.9)
EBITDA Margin %33.9% (86.1/254.1) 32.3% (69.2/214.1) 35.2% (73.8/209.9)
Adjusted EBITDA Margin %39.7% (100.9/254.1) 49.9% (106.8/214.1) 51.1% (107.2/209.9)

Segment Adjusted EBITDA ($USD Millions)

SegmentQ4 2023Q3 2024Q4 2024
Gathering & Processing$53.3 $55.0 $66.0
Wholesale Marketing & Terminalling$28.4 $24.7 $21.2
Storage & Transportation$17.5 $19.4 $17.8
Investments in Pipeline JVs$8.5 $15.6 $11.3
Corporate & Other$(6.9) $(7.9) $(9.0)
Total Adjusted EBITDA$100.9 $106.8 $107.2

Key Operating KPIs

KPIQ4 2023Q3 2024Q4 2024
Midland Gathering System throughput (bpd)229,179 185,179 200,705
Plains Connection System (bpd)254,224 188,421 360,725
Delaware NG Gathering & Processing (Mcfd)67,292 75,719 71,078
Delaware Crude Gathering (bpd)112,522 125,123 123,346
Delaware Water Disposal & Recycling (bpd)95,175 123,856 144,414
Midland Water Gathering System (bpd)— 100,335 274,361
Terminalling throughputs (bpd)105,933 160,849 151,309
East Texas Tyler sales volumes (bpd)68,735 70,172 63,022
West Texas gross margin ($/bbl)$4.73 $3.38 $4.35
Big Spring marketing throughputs (bpd)76,408 22,700 —

Notes on non-GAAP adjustments and ASC 842:

  • Adjusted EBITDA adds back $30.7M of “throughput and storage fees for sales-type leases” and $2.7M transaction costs in Q4; EBITDA excludes these .
  • Amendments in Q3 triggered sales-type lease accounting, shifting MVC cash receipts from revenue to interest income (Q4 interest income: $24.3M), reducing reported revenue but not cash economics .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Adjusted EBITDA (non-GAAP)FY 2025N/A (first-time)$480–$520M Initiated
DCF Coverage RatioFY 2025 YEN/A~1.3x by year-end Initiated
Capital ExpendituresFY 2025N/A$220–$250M incl. expansion projects Initiated
Quarterly Distribution per UnitQ4 2024$1.100 (Q3’24) $1.105 (Q4’24) Raised
Sponsor Unit Repurchase AuthorizationThrough 12/31/2026N/AUp to $150M; 30-day VWAP pricing; funded via cash/RCF within covenants New Program

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 2024)Previous Mentions (Q3 2024)Current Period (Q4 2024)Trend
Permian “full suite” (crude/gas/water) strategyAnnounced H2O Midstream, W2W dropdown, Libby plant FID to enhance comprehensive offering Integration progress; cross-sell opportunities in Midland; continued strength in Delaware Closed Gravity; expanded acreage; management reiterates “best combination of yield and growth” Strengthening
Libby plant expansion & AGI/sour gasHighly subscribed; >20% cash-on-cash returns; H1’25 timing On time/on budget; sour gas treating opportunity On track for H1’25; AGI & sour gas capabilities emphasized On track/upside
Deconsolidation from DK (economic separation)Contracts amended/extended; majority of EBITDA to be third-party post transactions Growing third-party mix; liquidity to support growth ~$70% third-party EBITDA pro forma; $150M buyback from DK to reduce units/distributions Accelerating
Distribution policy & coverage46th increase; DCF coverage 1.32x in Q2 47th increase; coverage dipped on timing, targeted recovery in 2H25 48th increase; ~1.17x coverage (as adjusted); YE 2025 ~1.3x guide Gradual recovery
Liquidity & leverageLeverage improved to 3.81x; strong revolver capacity ~$780M liquidity post offering; capex ramp ~$714.6M revolver availability; leverage ~4.06x YE Stable to slightly higher with growth
Wholesale marginsHealthy terminalling; wholesale margin variability Lower wholesale margins pressuring segment Continued margin softness and intercompany impacts Persistent headwind
Throughput trends (Midland/Delaware)Strong volumes; new connections planned Midland dipped on project timing; expected >200k bpd in 2025 Midland rebounded QoQ; Delaware water/crude volumes higher YoY Improving overall

Management Commentary

  • “Delek Logistics made great strides in 2024 in becoming a premier midstream provider in the Permian basin… The completion of the acquisition of Gravity Water Midstream in January 2025 pushes third party cash flow contribution… to ~70%.” — Avigal Soreq .
  • “We are growing Delek Logistics with a prudent management of liquidity and leverage… Post the close of our acquisition of Gravity Water Midstream, we have approximately $530 million of liquidity.” — Mark Hobbs .
  • “Our Board of Directors have authorized up to $150 million buyback from our sponsor, DK… We will continue to strengthen and grow Delek Logistics through a prudent management of liquidity and leverage.” — Avigal Soreq .

Q&A Highlights

  • Guidance philosophy: First-time FY2025 guidance seen as conservative at the low-end; management confident and will update as projects/acquisitions ramp .
  • Buyback execution and funding: Two-year program; will comply with covenants and leverage targets; potential to use revolver given debt cost (~7%) vs equity yield (~11%) for accretive FCF .
  • EBITDA drivers: Gravity/H2O acquisitions, W2W dropdown, Libby plant expansion, AGI/sour gas, additional acreage dedications; synergies expected across crude/water .
  • Asset demand/utilization: Strong Delaware demand underpinning Libby expansion; comprehensive crude/gas/water offering proving effective in both Delaware and Midland .

Estimates Context

  • Wall Street consensus estimates (S&P Global) were unavailable due to data access limits at time of analysis; therefore, comparisons to consensus could not be provided. Values would be retrieved from S&P Global when available.

Key Takeaways for Investors

  • Mix shift matters: Adjusted EBITDA growth (+6% YoY) driven by Permian gathering and W2W JV income, while reported revenue was impacted by sales-type lease accounting—focus on EBITDA/DCFs, not GAAP revenue .
  • Wholesale margin caution: Segment softness persisted; monitor pricing/margin recovery and intercompany impacts that weighed on Q4 wholesale results .
  • Capital deployment: 2025 capex $220–$250M targeting Libby completion and growth projects; expect second-half ramp in coverage towards 1.3x as assets come online .
  • Structural evolution: $150M sponsor unit buyback accelerates deconsolidation, reduces units/distributions, and may improve trading liquidity—execution within leverage covenant is key .
  • Throughput strength: QoQ improvements in Midland and YoY increases in Delaware crude/water volumes support the 2025 EBITDA guide trajectory .
  • Balance sheet and liquidity: YE leverage ~4.06x with ~$715M revolver availability provides flexibility to fund growth and buybacks; monitor leverage trend as capex peaks .
  • Watch catalysts: Libby H1’25 start, AGI/sour gas facilities, continued acreage dedications, and integration synergies from H2O/Gravity and W2W should underpin EBITDA growth and coverage normalization .

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