DKL — Delek Logistics Partners, LP

Summary of Delek Logistics Partners (DKL) Q4 2025 Earnings Call

1. Key Financial Results and Metrics

• Record Adjusted EBITDA: $536 million for the full year 2025, with Q4 adjusted EBITDA at approximately $142 million, up from $114 million in Q4 2024.
• Distributable Cash Flow (DCF): Adjusted DCF totaled $73 million for Q4, with a coverage ratio of approximately 1.22x.
• Segment Performance:
  • Gathering and Processing: Q4 adjusted EBITDA of $71 million, up from $66 million year-over-year.
  • Storage and Transportation: Q4 adjusted EBITDA increased to $35 million from $18 million in Q4 2024.
  • Investments in Pipeline Joint Venture: Q4 contribution of $26 million, compared to $18 million in the prior year.
• Capital Expenditures: Total spending for Q4 was approximately $32 million, with $26 million allocated to growth initiatives.

2. Strategic Updates and Business Highlights

• Operational Expansion: Successful commissioning of the Libby 2 processing plant, increasing capacity to around 160 million scf per day.
• Acquisitions: Integration of H2O and Gravity has strengthened DKL's position in the Permian Basin, enhancing its competitive edge.
• Sour Gas Solutions: Ongoing development of sour gas handling capabilities, with expectations for increased utilization as new infrastructure is completed.
• Economic Separation: Approximately 80% of run-rate EBITDA expected to come from third-party businesses in 2026, enhancing operational flexibility.

3. Forward Guidance and Outlook

• 2026 EBITDA Guidance: Projected range of $520 million to $560 million, reflecting growth opportunities while managing leverage and coverage.
• Long-Term Growth Strategy: Focus on expanding crude, gas, and water services in the Permian Basin, with a commitment to maintaining financial discipline and rewarding unitholders.

4. Bad News, Challenges, or Points of Concern

• Sour Gas Project Delays: The ramp-up for sour gas solutions has been slower than initially expected, although the urgency for such solutions is recognized.
• Market Valuation Concerns: Management noted that DKL's valuation remains below peers, indicating potential competitive pressures and the need for strategic acquisitions to enhance market position.
• Economic Conditions: The company is vigilant about macroeconomic factors and customer behaviors that could impact future performance.

5. Notable Q&A Insights

• Growth Expectations: Management emphasized a clear strategy for growth in the Gathering and Processing segment, with a focus on the ramp-up of sour gas capabilities.
• Future Acquisitions: While open to further acquisitions, management stressed the importance of ensuring that any deal is accretive to free cash flow and aligns with their financial principles.
• Market Dynamics: Management acknowledged recent M&A activity in the sour gas midstream sector but highlighted DKL's cautious approach to ensure value-accretive transactions.

Overall, DKL reported strong financial results and strategic advancements in Q4 2025, positioning itself well for future growth while navigating challenges related to project timelines and market valuation.