Delek Logistics Partners, LP - Q2 2024 Filing Summary
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended June 30, 2024. Delek Logistics Partners, LP (DKL) operates midstream assets primarily in the Permian Basin and Gulf Coast, providing gathering, pipeline transportation, storage, wholesale marketing, and terminalling services. A significant portion of the Partnership's assets are contracted exclusively to its parent company, Delek US Holdings, Inc. ("Delek Holdings"), supporting its refining operations in Tyler, El Dorado, and Big Spring.
Key Financial Metrics
| Metric | Q2 2024 | Q2 2023 | YTD 2024 | YTD 2023 |
|---|---|---|---|---|
| Net Revenues | $264.6 million | $246.9 million | $516.7 million | $490.4 million |
| Net Income | $41.1 million | $31.9 million | $73.7 million | $69.3 million |
| EBITDA (Non-GAAP) | $102.4 million | $92.8 million | $203.9 million | $185.9 million |
| Diluted EPS | $0.87 | $0.73 | $1.61 | $1.59 |
| Cash from Operations (YTD) | $131.5 million (2024) vs $63.8 million (2023) | |||
| Total Debt (Principal) | $1,580.2 million (as of June 30, 2024) | |||
| Liquidity | $824.9 million (Cash + Unused Revolver) |
Material Changes vs. Prior Period
- Revenue Growth: Net revenues increased 7.2% in Q2 2024 and 5.4% YTD 2024 compared to the prior year. Growth was driven by increased volumes in West Texas marketing operations and terminalling services, partially offset by lower RINs revenue and decreased average sales prices for gasoline and diesel.
- Profitability: Net income rose 28.7% in Q2 2024. EBITDA increased 10.4% in Q2 2024, with improvements across all segments: Gathering and Processing (+3.8%), Wholesale Marketing (+7.9%), and Storage and Transportation (+11.8%).
- One-Time Items: "Other operating income, net" increased significantly due to an $8.3 million gain from condemnation proceeds related to a Texas Department of Transportation settlement.
- Capital Structure: The Partnership issued $850 million in 8.625% Senior Notes due 2029 in March 2024. Proceeds were used to redeem the 2025 Notes, pay off the DKL Term Loan Facility, and reduce revolver borrowings. Total debt principal decreased by $131.6 million from year-end 2023.
- Equity: Completed a public offering of 3.58 million common units in March 2024, raising $132.2 million net of costs.
Guidance, Outlook, and Subsequent Events
Management Commentary: Management highlights strong operational performance and increased third-party diversification through Delaware Gathering assets. The Partnership expects to maintain stable cash flows due to long-term fee-based contracts with minimum volume commitments.
Subsequent Events (Post-June 30, 2024):
- H2O Midstream Acquisition: On August 2, 2024, DKL agreed to acquire H2O Midstream's water disposal and recycling operations in the Midland Basin for $230 million ($160 million cash, $70 million preferred equity). Closing is expected by year-end 2024.
- Wink to Webster Pipeline Investment: On August 5, 2024, DKL acquired a 50% interest in W2W Holdings LLC (15.6% indirect interest in Wink to Webster Pipeline) from Delek Holdings. Consideration included $86.6 million cash, forgiveness of a $60 million receivable, and issuance of 2.3 million common units.
- Contract Renewals: On August 5, 2024, DKL amended and extended 12 commercial agreements with Delek Holdings, extending terms by 5 to 7 years with options for further extension.
- Distribution: A quarterly distribution of $1.090 per unit was declared on July 30, 2024, payable August 14, 2024.
Risks: Key risks include dependence on Delek Holdings, integration risks associated with the H2O Midstream acquisition, commodity price volatility affecting wholesale margins, and regulatory changes regarding environmental and safety standards.
Investor Verification Checklist
- Verify the closing conditions and timeline for the H2O Midstream acquisition and the Wink to Webster pipeline investment.
- Review the specific terms of the 12 amended commercial agreements with Delek Holdings, particularly regarding fee adjustments and minimum volume commitments.
- Monitor the impact of the new 2029 Notes on interest expense and leverage ratios.
- Assess the sustainability of West Texas marketing margins given the reported decrease in RINs revenue and average sales prices.
- Confirm the status of the new natural gas processing plant project, estimated to cost $90-$100 million and generate ~$40 million in EBITDA.