DKL — Delek Logistics Partners, LP

Summary of Delek Logistics Partners (DKL) Q2 2026 Earnings Call

1. Key Financial Results and Metrics

• Adjusted EBITDA: $144 million, a record for the quarter, compared to $127 million in Q2 2025.
• Distributable Cash Flow (DCF): Approximately $81 million, with a coverage ratio of 1.33x.
• Quarterly Distribution: Increased to $1.135 per unit, marking the 54th consecutive increase.
• Leverage Ratio: 4.23x, slightly up from the previous quarter, attributed to growth capital investments.
• Capital Expenditures: Total spending of $61 million, with $51 million directed towards growth initiatives.

2. Strategic Updates and Business Highlights

• Operational Performance: All segments (gas, crude, and water) performed well, with notable increases in gas volumes and crude gathering.
• Gas Segment: Nearing completion of the Libby gas complex, which will enhance sour gas processing capabilities and support customer growth in the Delaware Basin.
• Crude Segment: Record volumes achieved in crude gathering, particularly in the Delaware Basin.
• Water Segment: Strong performance following the integration of recent acquisitions, with ongoing exploration of growth opportunities.
• Management Changes: Mark Hobbs transitioned to lead DKL, with Kris Kindrick appointed as SVP of Commercial, indicating a focus on growth and operational excellence.

3. Forward Guidance and Outlook

• Full-Year EBITDA Guidance: Reaffirmed at $520 million to $560 million for 2026, with expectations for continued growth driven by increased demand for midstream services.
• Growth Initiatives: Anticipated return of up to $75 million in EBITDA from a $180 million to $190 million growth capital program.
• Market Position: Strong demand from producers in the Northern Delaware region is expected to drive further growth.

4. Bad News, Challenges, or Points of Concern

• Declining Metrics in Certain Segments: The Wholesale Marketing and Terminalling segment reported a decrease in adjusted EBITDA to $13 million from $23 million year-over-year, attributed to an amend and extend agreement with Delek.
• Leverage Management: The current leverage ratio of 4.23x raises concerns about maintaining long-term targets, although management expressed confidence in managing this as growth materializes.
• Market Risks: Ongoing geopolitical tensions affecting crude prices could introduce volatility; however, management remains optimistic about demand and pricing trends.

5. Notable Q&A Insights

• Commodity Prices: Management indicated that higher crude prices and improved Waha pricing are positively impacting customer activity and demand for services.
• Future Growth: There is optimism regarding the addition of rigs and increased drilling activity in the area, which could enhance DKL's service demand.
• Contracting Strategy: While specifics were not disclosed, the company is focused on maintaining a balanced approach between volumetric and take-or-pay contracts in its water business.
• Inorganic Growth: Management remains open to acquisitions but emphasizes discipline in capital allocation, ensuring any potential deals are accretive to financial metrics.

Overall, DKL reported strong quarterly results and reaffirmed its growth outlook while addressing some challenges in specific segments and maintaining a cautious approach to leverage management.