8-K: Delek Logistics Announces Unit Repurchase Program and Record Q4 2024 Results; Issues Strong 2025 Guidance

Delek Logistics Partners announces a $150 million unit repurchase program, record Q4 2024 Adjusted EBITDA, and provides strong Adjusted EBITDA guidance for 2025.

Summary

• Delek Logistics Partners, LP (DKL) announced a common unit repurchase program with Delek US Holdings, Inc. (DK) for up to $150 million through December 31, 2026.
• The repurchase price will be based on the 30-day volume weighted average price prior to the closing date.
• DKL reported record Adjusted EBITDA of $107.2 million for the fourth quarter of 2024, a 6% increase year-over-year.
• Net income for Q4 2024 was $35.3 million.
• The company announced a quarterly cash distribution of $1.105 per common limited partner unit.
• DKL issued a strong full-year Adjusted EBITDA guidance of $480 to $520 million for 2025, expecting approximately 20% year-over-year growth.
• Capital expenditures for 2025 are projected to be $220-$250 million.
• The company expects a coverage ratio of approximately 1.3x by year end 2025.
• DKL aims to continue growing distributions in 2025.

Sentiment

Score: 8

Explanation: The document presents a positive outlook with strong financial results, a unit repurchase program, and promising guidance for 2025. The company's strategic focus and commitment to unitholder value contribute to a favorable sentiment.

Positives

• The $150 million unit repurchase program signals management's confidence in the company's future performance.
• Record Adjusted EBITDA in Q4 2024 demonstrates strong operational performance.
• The increased quarterly distribution reflects a commitment to returning value to unitholders.
• Strong Adjusted EBITDA guidance for 2025 indicates continued growth and profitability.
• The company's strategic focus on the Permian Basin and full suite midstream services positions it for long-term success.
• The completion of the acquisition of Gravity Water Midstream in January 2025 pushes third party cash flow contribution at Delek Logistics to ~70%, a significant step in increasing economic separation from its sponsor Delek US.
• The company has a strong distribution coverage ratio.

Negatives

• Net cash provided by operating activities was $49.9 million in the fourth quarter 2024 compared to $114.7 million in the fourth quarter 2023.
• Wholesale Marketing and Terminalling Segment Adjusted EBITDA in the fourth quarter 2024 was $21.2 million, compared with fourth quarter 2023 Adjusted EBITDA of $28.4 million.
• Corporate Adjusted EBITDA in the fourth quarter 2024 was a loss of $9.0 million compared to a loss of $6.9 million in the fourth quarter 2023.

Risks

• The company's reliance on Delek US for a significant portion of its revenue exposes it to Delek US's business risks.
• Adverse market conditions could affect the utilization of Delek Logistics' assets and business performance.
• Integration risks associated with recent acquisitions, such as H2O Midstream and Gravity Water Midstream, could impact expected benefits.
• Changes in laws and regulations, including tax and regulatory matters, could negatively affect the company.
• The company's leverage ratio is approximately 4.06x.

Future Outlook

Delek Logistics expects approximately 20% year-over-year growth in Adjusted EBITDA for 2025, driven by strong business fundamentals in the Permian Basin and recent acquisitions. The company plans to continue growing distributions and investing in expansion projects.

Management Comments

• Avigal Soreq, President of Delek Logistics' general partner, stated that the completion of the acquisition of Gravity Water Midstream pushes third party cash flow contribution at Delek Logistics to ~70%, a significant step in increasing economic separation from its sponsor Delek US.
• Mr. Soreq also mentioned that they look forward to completing the Libby plant expansion, adding AGI & Sour gas treating capabilities at the Libby complex, and making their combined crude and water offering in the Midland basin more accretive.
• Mr. Soreq concluded that DKL continues to enhance its full suite strategy and is committed to being the preferred crude, gas, and water midstream services provider in the Permian Basin.

Industry Context

The announcement reflects the ongoing strength of the Permian Basin as a key driver for midstream growth. Delek Logistics' focus on expanding its service offerings and increasing its economic independence aligns with broader industry trends of consolidation and diversification.

Comparison to Industry Standards

• DKL's distribution coverage ratio of 1.13x for the quarter ended December 31, 2024, is comparable to other midstream MLPs such as MPLX (1.63x) and Energy Transfer (1.79x).
• The projected 20% year-over-year growth in Adjusted EBITDA is a strong indicator of future performance, potentially outperforming some peers in the midstream sector.
• The company's focus on the Permian Basin aligns with the strategic priorities of many other midstream companies, such as Plains All American Pipeline and Enterprise Products Partners, who have significant operations in the region.
• DKL's leverage ratio of approximately 4.06x is within a reasonable range for midstream companies, but higher than some of its peers.

Related Party Transactions

• The Partnership may repurchase common units of limited partnership interest in the Partnership (Common Units) from time to time from the Company in one or more transactions for an aggregate purchase price of up to $150 million through December 31, 2026 (each such repurchase, a Repurchase and all Repurchases, the Repurchase Transaction).

Stakeholder Impact

• Shareholders will benefit from the unit repurchase program and continued distribution growth.
• Employees can expect continued investment in the company's growth and operations.
• Customers will benefit from the expansion of midstream services in the Permian Basin.
• Suppliers and creditors can expect continued financial stability and operational success.

Next Steps

• Complete the Libby plant expansion.
• Add AGI & Sour gas treating capabilities at the Libby complex.
• Make the combined crude and water offering in the Midland basin more accretive.
• Continue to strengthen and grow Delek Logistics through a prudent management of liquidity and leverage.
• Continue growing the distributions in 2025.

Key Dates

Keywords

Delek Logistics, Midstream, Adjusted EBITDA, Repurchase Program, Permian Basin, Distribution, Financial Results, Guidance