DKL

Delek Logistics Partners, LP - 10-Q Summary (Q3 2025)

Business Context and Reporting Period

This report covers the quarterly period ended September 30, 2025. Delek Logistics Partners, LP (DKL) operates as a midstream energy provider focused on gathering, processing, storage, transportation, and wholesale marketing of crude oil, natural gas, and refined products. The company's assets are primarily located in the Permian Basin and Gulf Coast regions. A significant portion of its business remains tied to its sponsor, Delek US Holdings, Inc. ("Delek Holdings"), though strategic initiatives in 2025 aim to increase third-party revenue and economic separation.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Q3 2025 net revenues increased 22.1% year-over-year, driven by the Gravity Acquisition ($20.7M), H2O Midstream Acquisition ($11.0M), and the Delek Permian Gathering (DPG) Dropdown ($15.5M). YTD revenue grew 3.7%.
• Profitability: Net income rose 35.3% in Q3 and 20.3% YTD. EBITDA increased 47.4% in Q3 and 1.6% YTD.
• Accounting Reclassification: Significant revenue decreases in the Wholesale Marketing and Storage segments were offset by increases in Interest Income due to the reclassification of certain throughput and storage fees as sales-type leases under ASC 842.
• Acquisitions: The Gravity Acquisition (closed Jan 2025) and H2O Midstream Acquisition (closed Sept 2024) contributed significantly to the Gathering and Processing segment EBITDA, which grew 64.1% in Q3.
• Debt Structure: In June 2025, the company issued $700 million in 7.375% Senior Notes due 2033, using proceeds to pay down the revolving credit facility. Total debt increased by $421.5 million compared to year-end 2024.

Guidance, Outlook, and Risks

• Strategic Focus: Management is prioritizing economic separation from Delek Holdings, expanding third-party customer base, and growing cash flow through organic projects (e.g., Libby gas plant expansion) and bolt-on acquisitions.
• Distribution: A quarterly distribution of $1.120 per unit was declared on October 28, 2025, representing a 1.8% increase over Q3 2024. This equates to an annualized run rate of approximately $239.6 million.
• Capital Allocation: The company has a $150 million unit repurchase program with Delek Holdings; $10 million was utilized in the first nine months of 2025, with $140 million remaining.
• Risks: Key risks include dependence on Delek Holdings' refining operations, volatility in commodity prices (specifically in wholesale marketing), regulatory changes (environmental/safety), and the ability to secure commercial agreements upon expiration. Geopolitical instability and potential tariffs are also noted as macroeconomic uncertainties.

Investor Verification Checklist

• Third-Party Revenue Mix: Verify the actual percentage of revenue derived from third parties versus Delek Holdings to assess the progress of economic separation.
• Sales-Type Lease Impact: Confirm the long-term impact of reclassifying throughput fees as interest income on reported revenue trends and segment EBITDA comparisons.
• Acquisition Integration: Review the integration status and performance of the Gravity and H2O Midstream assets against pro forma expectations.
• Debt Covenants: Monitor leverage ratios and compliance with debt covenants, particularly given the increased debt load from the 2033 Notes issuance.
• Wholesale Margins: Track West Texas wholesale marketing margins and volumes, as this segment is exposed to commodity price volatility and saw a decrease in EBITDA YTD.