Delek Logistics Partners, LP - 10-Q Summary (Q2 2025)
Business Context and Reporting Period
This report covers the quarterly period ended June 30, 2025. Delek Logistics Partners, LP (DKL) operates as a midstream energy provider offering gathering, pipeline, transportation, storage, wholesale marketing, terminalling, and water disposal services, primarily in the Permian Basin and Gulf Coast regions. The company maintains significant commercial agreements with its sponsor, Delek US Holdings, Inc. ("Delek Holdings"), though it is actively pursuing third-party diversification through recent acquisitions.
Key Financial Metrics
| Metric | Q2 2025 (3 Months) | Q2 2024 (3 Months) | YTD 2025 (6 Months) | YTD 2024 (6 Months) |
|---|---|---|---|---|
| Net Revenues | $246.4 million | $264.6 million | $496.3 million | $516.7 million |
| Net Income | $44.6 million | $41.1 million | $83.6 million | $73.7 million |
| Net Income Per Unit (Diluted) | $0.83 | $0.87 | $1.56 | $1.61 |
| EBITDA | $90.1 million | $102.4 million | $175.6 million | $203.9 million |
| Operating Cash Flow | N/A | N/A | $139.0 million | $131.5 million |
| Total Debt (Principal) | $2,230.9 million | $1,885.4 million | $2,230.9 million | $1,885.4 million |
| Liquidity | $1,070.6 million | N/A | $1,070.6 million | N/A |
Note: Liquidity includes $1.4 million in cash and $1,069.2 million in unused revolving credit commitments.
Material Changes vs. Prior Period
- Revenue Decline: Net revenues decreased 6.9% in Q2 2025 compared to Q2 2024. This was driven by lower West Texas marketing revenues (due to lower sales prices and volumes) and a reclassification of certain throughput fees from revenue to interest income under sales-type lease accounting. These decreases were partially offset by incremental revenue from the Gravity and H2O Midstream acquisitions.
- Net Income Growth: Despite lower revenues, Net Income increased 8.6% in Q2 2025. This was supported by a significant increase in interest income ($23.5 million) resulting from the sales-type lease accounting changes and lower cost of materials.
- EBITDA Decrease: Consolidated EBITDA decreased 12.0% in Q2 2025, primarily due to the revenue reclassification mentioned above. However, the Gathering and Processing segment saw a 16.9% EBITDA increase due to acquisitions.
- Debt Issuance: On June 30, 2025, the company issued $700 million in 7.375% Senior Notes due 2033. Proceeds were used to repay borrowings under the revolving credit facility.
- Acquisitions: The company integrated the Gravity Acquisition (closed Jan 2025) and H2O Midstream Acquisition (closed Sept 2024), which added significant water disposal and recycling capacity.
Guidance, Outlook, and Risks
- Strategic Focus: Management is focused on achieving strong cash flow growth, pursuing bolt-on acquisitions, and increasing economic separation from Delek Holdings by expanding third-party revenue streams.
- Distribution: On July 29, 2025, the General Partner declared a quarterly distribution of $1.115 per unit, payable August 14, 2025. This represents a 2.3% increase over the Q2 2024 distribution.
- Capital Spending: The full-year 2025 capital expenditure forecast is approximately $235.3 million, with the majority allocated to growth projects in the Gathering and Processing segment.
- Risks: Key risks include dependence on Delek Holdings for a significant portion of revenue, volatility in commodity prices affecting wholesale marketing margins, and regulatory changes regarding environmental compliance. The company also faces interest rate risk on its floating-rate debt.
- Unusual Items: The filing notes a significant accounting change where certain commercial agreements with Delek Holdings were reclassified as sales-type leases, moving revenue recognition to interest income. Additionally, the company recorded a $58.8 million cancellation of receivables from Delek Holdings in connection with the Delek Permian Gathering Dropdown.
Investor Verification Checklist
- Revenue Reclassification Impact: Verify the long-term impact of reclassifying throughput fees as interest income on reported revenue trends and EBITDA calculations.
- Third-Party Diversification: Monitor the actual growth rate of third-party revenue versus affiliate revenue to assess the success of the deconsolidation strategy.
- Acquisition Integration: Review the performance of the Gravity and H2O Midstream assets to ensure they meet projected EBITDA accretion targets.
- Debt Service Coverage: Assess the ability to service the increased debt load ($2.23 billion) given the current interest rate environment and the company's reliance on floating-rate borrowings.
- Wholesale Margins: Track West Texas wholesale marketing margins, as this segment is exposed to commodity price volatility and showed a decline in revenue.