DELEK LOGISTICS PARTNERS, LP 2026 Q2 Earnings Call

Welcome to the Delek Logistics Partners second quarter earnings conference call. Participants joining me on today's call will include Avigal Soreq, President and Chairman, Mark Hobbs, EVP, as well as other members of our management team. As a reminder, this conference call will contain forward-looking statements as defined under the Federal Securities laws, including statements regarding guidance and future business outlook. Any forward-looking statements made during today's call involve risks and uncertainties that may cause actual results to differ materially from today's comments. Factors that could cause actual results to differ are included in our SEC filings. The company assumes no obligation to update any forward-looking statements. I will now turn the call over to Avigal for opening remarks.

Avigal? Thank you, Robert. Today, DKL reported $144 million in adjusted EBITDA in the second quarter, reaffirming full-year EBITDA guidance of $520 million-$560 million.

DKL's strong results are a reminder of our advanced position as a premier full-service provider of crude gas and water in the Permian Basin. As of July 1st, Mark moved from his CFO position at Delek to lead role at Delek Logistics, and we recently brought on Kris Kindrick as our new SVP of Commercial. I am highly confident that Mark, Kris, and the rest of the Delek Logistics team will deliver the next chapter of growth for DKL. All three of our segments are doing well, and I will provide more detail on each one of these segments. Starting with gas. We are nearing the completion of our integrated sour gas processing, treating, and enhancing solution of Libby Gas Complex.

The comprehensive system will serve our customer by further supporting long-term oil and gas production growth in the Delaware Basin. Moving to crude. Both DPG and DDG continue to see strong performance, with DDG crude gathering delivering a record quarter. We look forward to further optimize and growing the system. Our water business continues to perform well, and we are continuing to explore growth opportunities in this space. Our combined gas, crude, and water offering in the Permian Basin has improved our competitive position and established a platform for future growth. We will continue to pursue growth opportunities in a disciplined manner while maintaining a focus on leverage and coverage. We will also intend to remain a good steward of our stakeholders' capital. Our board of directors has approved our 54th consecutive quarterly distribution increase, raising the distribution to $1.13 and a half per unit.

This is an extraordinary milestone. It reflects the exceptional work of our team and the financial discipline that has brought us to this point. With the foundation we have built and the opportunities ahead, we are confident in our ability to continue delivering sustainable growth and long-term value for our unitholders. I will now turn it over to Mark, who will provide additional detail on our operations.

Thank you, Avigal. I'm excited about the opportunity to join Delek Logistics and to work with the exceptional team that we have at DKL. I see tremendous growth potential for Delek Logistics as we are uniquely positioned to meet our customers' increasing needs for midstream services across crude gas and water in the Permian Basin. We continue to see heightened activity by producers in securing undeveloped acreage and future drilling locations in the northern Delaware in Lea and Eddy counties. Higher crude prices as a result of the ongoing conflict in the Middle East, combined with strengthening Waha prices as additional takeaway capacity comes online by early next year, should drive increased demand for our three-stream service platform, strategically centered in Lea County. As Avigal mentioned, our competitive position as a three-stream provider sets us up well for future growth.

Our strong and growing third-party business continues to increase our economic separation from our sponsor, DK. In 2026, on a pro forma basis, we continue to expect approximately 80% of our run rate EBITDA will come from third parties. Turning to our business, we operated well in the second quarter, delivering safe and reliable performance for our customers. We continue to see an increasing need for incremental sour gas gathering and processing capabilities in New Mexico to support our customers' growth plans. During the second quarter, we made great progress advancing our industry-leading sour gas solution in the Delaware Basin. With the increased capacity at our Libby processing complex and the completion of our first AGI well, we are focusing our efforts on building out our sour gas gathering infrastructure, including compressor stations.

We are aligned with our customers. Our sour solution will unlock future growth for producers in the region and demand for our services. We achieved higher volumes in the second quarter in our gas business versus the first quarter and are expecting to see a step change in our utilization as our sour gas solution comes online later this year.

We continue to evaluate options for future investments that will support further expansions of the Libby Complex based on anticipated customer needs for additional sour gas processing in the region. Moving to crude. Our Delaware crude gathering business achieved record volumes in the second quarter. Our crude gathering business in both the Delaware and the Midland are well-positioned, and our combined crude and water offering continues to yield great results. In our water business, we are seeing strong operating performance, driven by the successful integration of the H2O and Gravity acquisitions in late 2024 and early last year, respectively. Produced water handling and disposal continues to be a critical and increasing need of our customers.

Our scale and capabilities across the Delaware and Midland basins present us with unique opportunities to drive future growth in our water business, and I look forward to updating the market as we advance these solutions. With that, I will pass it on to Robert.

Thank you, Mark. As Avigal and Mark highlighted, we are pleased to report another exceptionally strong quarter for the partnership with adjusted EBITDA reaching a quarterly record of approximately $144 million. Importantly, we are delivering this growth while staying focused and disciplined on our long-term leverage and coverage targets. We ended the quarter with a leverage ratio of 4.23 times, up modestly from the first quarter. This uptick reflects capital investments we are making that are expected to generate up to $75 million of run rate EBITDA, a highly attractive return on our $180 million-$190 million growth capital program for the year. We exited the quarter with a strong balance sheet. During the quarter, we proactively refinanced our high-yield capital structure to lower our cost of debt, issuing a new $800 million senior note due 2034, fully retiring our 2028 notes and partially redeeming our 2029 notes.

Together, these transactions reduce annual interest costs and extend our maturity profile. Liquidity remains robust at approximately $1.1 billion. Turning to our results, adjusted EBITDA for the quarter was approximately $144 million, compared to $127 million in the same period last year. Distributable cash flow, as adjusted, came in at approximately $81 million, and our DCF coverage ratio held steady at approximately 1.33 times. We are also proud to announce our 54th consecutive distribution increase, which brings the quarterly distribution to $1.135 per unit. As to our segment results, starting with gathering and processing, adjusted EBITDA for the second quarter was $104 million, up from $78 million in the second quarter of 2025. The improvement was driven primarily by higher utilization at the Libby Gas Complex, along with stronger realized margins in our Permian Basin crude business.

In wholesale marketing and terminaling, adjusted EBITDA was approximately $13 million versus $23 million a year ago, with the decline largely attributable to the effects of the 2024 amend and extend agreement with Delek. Storage and transportation delivered adjusted EBITDA of $16 million, compared with $17 million in the prior period. The modest decrease primarily reflects the January 2026 related party transaction. Finally, our investments in pipeline joint venture segment contributed $21 million this quarter, up from $17 million in the second quarter of 2025, led by continued strong results from the Wink to Webster joint venture. Moving now to capital expenditures. Total capital spending for the second quarter was approximately $61 million, of which $51 million was for growth capital. That spend was primarily directed toward the drilling of our first AGI well and continued build-out of newer sour gas gathering infrastructure.