10-Q: Delek Logistics Partners LP Q1 2026 Earnings Report

Delek Logistics Partners LP reported a 19% increase in net revenues for Q1 2026, driven by West Texas marketing and gathering/processing segments, despite a decrease in net income.

Summary

• Delek Logistics Partners, LP (DKL) reported net revenues of $297.5 million for the first quarter of 2026, a 19.0% increase compared to $249.9 million in the same period of 2025.
• Net income for the quarter was $32.4 million, a decrease from $39.0 million in Q1 2025, primarily due to increased depreciation and interest expenses.
• EBITDA for the quarter was $94.9 million, an increase from $92.2 million in Q1 2025.
• The Gathering and Processing segment saw a 30.4% increase in net revenues to $154.7 million and a 3.9% increase in Segment EBITDA to $70.6 million.
• The Wholesale Marketing and Terminalling segment's net revenues increased by 10.4% to $117.8 million, but Segment EBITDA decreased by 26.3% to $9.8 million due to the termination of the East Texas Marketing Agreement.
• The Storage and Transportation segment reported a slight increase in net revenues to $25.0 million and a 30.4% increase in Segment EBITDA to $5.8 million.
• Investments in Pipeline Joint Ventures segment EBITDA increased by $1.5 million to $18.3 million.
• The company declared a quarterly cash distribution of $1.130 per unit, an increase from $1.110 per unit in the prior year's quarter.
• As of March 31, 2026, the company had $1,138.9 million in unused credit commitments under its revolving credit facility and $9.9 million in cash and cash equivalents.

Sentiment

Score: 6

Explanation: StockSavvy.ai views this as a moderately positive filing, with strong revenue growth and EBITDA expansion, offset by a decline in net income and the impact of a terminated marketing agreement. The company's strategic positioning and financial flexibility remain positive indicators.

Positives

• Net revenues increased by 19.0% to $297.5 million, driven by strong performance in the West Texas marketing operations and the gathering and processing segment.
• EBITDA increased by $2.7 million to $94.9 million, indicating improved operational profitability.
• Gathering and Processing segment EBITDA grew by 3.9% to $70.6 million, supported by increased crude activity and the DPG Dropdown.
• Storage and Transportation segment EBITDA increased by 30.4% to $5.8 million, driven by lower trucking costs.
• Investments in Pipeline Joint Ventures segment EBITDA increased by $1.5 million to $18.3 million.
• The company declared a quarterly cash distribution of $1.130 per unit, a 1.8% increase from the prior year's quarter, signaling a commitment to unitholder returns.
• Total liquidity is strong at $1,148.8 million, comprising $1,138.9 million in unused credit commitments and $9.9 million in cash.
• The new DKL Revolving Facility provides $1,300.0 million in aggregate commitments, maturing in March 2031, offering enhanced financial flexibility.
• The company reported no lost time injuries for four years, highlighting a strong commitment to safety.

Negatives

• Net income decreased by $6.7 million to $32.4 million compared to the prior year period, primarily due to increased depreciation and interest expenses.
• Wholesale Marketing and Terminalling segment EBITDA decreased by 26.3% to $9.8 million due to the termination of the East Texas Marketing Agreement.
• Cost of materials and other increased by 30.7% to $250.6 million, largely driven by increased activity in West Texas marketing and gathering/processing segments.
• Interest expense increased by $10.5 million due to the issuance of a senior note in the second quarter of 2025.
• Depreciation and amortization increased by 31.7% to $36.5 million, mainly due to additional assets from gas plant expansion and finance leases.
• Other operating income, net decreased by $5.3 million due to condemnation proceeds received in the prior year's quarter.
• The company's substantial dependence on Delek Holdings for commercial agreements and support remains a key risk factor.

Risks

• Substantial dependence on Delek Holdings for commercial agreements and their ability to fulfill obligations.
• Fluctuations in commodity prices (crude oil, natural gas, refined products) can impact drilling activity, refinery utilization, and demand for services.
• Geopolitical instability, including conflicts in Ukraine, the Middle East, and potential U.S.-Iran tensions, can lead to market volatility, supply chain disruptions, and adverse impacts on energy prices.
• The age and condition of assets, coupled with operating hazards like spills, releases, and tank failures, pose risks.
• Changes in insurance markets could impact costs and coverage availability.
• The shift from hydrocarbon energy sources to alternative energy sources presents a long-term risk.
• Potential for inefficiencies, curtailments, or shutdowns in refinery operations or pipelines.
• Disruptions due to equipment failure, terrorism, sabotage, or cyber-attacks.
• Changes in the availability and cost of capital (debt and equity financing).
• Reliance on information technology systems.
• Changes in general economic conditions and the pace of economic recovery.
• Existing and future laws and governmental regulations, including those related to environmental protection and pipeline safety.
• Competitive conditions in the industry, including potential capacity overbuilds.
• Changes in the price of Renewable Identification Numbers (RINs) could affect results.
• Future decisions by OPEC+ regarding production and pricing, and disputes between members.
• Changes or volatility in interest and inflation rates.
• Labor relations, large customer defaults, and changes in tax status and regulations.
• Future litigation or environmental liabilities not covered by insurance.

Future Outlook

The company is well-positioned to continue adding value through its gathering and processing services, with expected cash flow growth in 2026 driven by the ramp-up at the Libby gas processing plant and ongoing completion of sour gas gathering and acid gas injection capabilities. The company maintains a disciplined approach to cost control and margin enhancement, supporting EBITDA growth and improved cash flow, with capital deployment aligned with strategic priorities. Organic growth is being pursued alongside exploration of bolt-on acquisition opportunities. The company believes its asset base and contractual protections position it to operate effectively amid evolving market and economic conditions, despite near-term economic uncertainties due to geopolitical instability and commodity market volatility.

Management Comments

• "Our strategic acquisitions over the past few years served to significantly enhance our competitive position in the Midland Basin and further our economic separation from our sponsor and contribute to an increase in third party revenue."
• "The Partnership is well positioned to continue to add value through our gathering and processing services."
• "Our disciplined approach to cost control, coupled with a focus on margin enhancements, supported earnings before interest, taxes, depreciation and amortization ("EBITDA") growth and improved cash flow, while our capital deployment remained aligned with our strategic priorities."
• "The near-term economic outlook remains uncertain due to the introduction of widespread tariffs by the U.S., ongoing geopolitical instabilityincluding escalating conflict involving Iranand heightened commodity market volatility."
• "Despite these challenges, we are well positioned to manage through an economic downturn because of built-in recessionary protections within our business, including feebased arrangements supported by minimum volume commitments on throughput and dedicated acreage agreements."
• "We believe our asset base and contractual protections position us to continue operating effectively amid evolving market and economic conditions."
• "The Partnership prioritizes safe and reliable operation of its assets to maintain financial stability and growth."
• "We have successfully avoided lost time injuries for four years, demonstrating our strong safety protocols and adherence to regulations."
• "Additionally, we have prioritized reducing our leverage ratio, providing us with more financial flexibility to pursue opportunities and expand operations."

Industry Context

StockSavvy.ai notes that Delek Logistics Partners, LP operates within the midstream energy sector, a critical link in the oil and gas value chain. The company's focus on gathering, processing, transportation, and storage services, particularly in the Permian Basin, aligns with the ongoing production activity in this key U.S. shale play. The reported revenue growth and segment EBITDA performance reflect the demand for these essential midstream services. The company's strategic initiatives to diversify its customer base and increase third-party revenue are crucial for reducing reliance on its sponsor, Delek Holdings, and enhancing its independent financial profile, a trend observed across the midstream sector seeking greater market diversification.

Comparison to Industry Standards

• Compared to peers in the midstream energy sector, Delek Logistics Partners' revenue growth of 19.0% in Q1 2026 is robust, though specific comparisons require detailed analysis of competitors' Q1 2026 results.
• The increase in EBITDA to $94.9 million is positive, but its comparability to industry benchmarks is limited by differing definitions of EBITDA and segment reporting structures.
• The company's focus on fee-based contracts with minimum volume commitments provides a degree of stability, which is a common and preferred business model in the midstream sector, offering resilience against commodity price volatility compared to more commodity-exposed businesses.
• The declared distribution of $1.130 per unit represents a yield that investors in midstream partnerships typically seek, and the 1.8% increase signals a commitment to distribution growth, a key performance indicator for this industry segment.
• The company's leverage ratio and credit facility terms are subject to industry norms, with the new $1.3 billion revolving credit facility providing significant liquidity, a common feature for midstream operators managing large asset bases and capital expenditure programs.

Management Changes

Legal Proceedings

• The company is subject to lawsuits, investigations, and claims in the ordinary course of business, including environmental and employee-related matters. Management does not believe any currently pending legal proceedings will have a material adverse effect on the company's financial statements.

Related Party Transactions

• Significant commercial agreements with Delek Holdings for gathering, transportation, storage, and marketing services, with fees subject to inflation-based index adjustments.
• An Omnibus Agreement with Delek Holdings obligates the Partnership to pay an annual fee of $13.0 million for centralized corporate services, increasing to $21.0 million effective July 1, 2026. Delek Holdings waived $4.0 million of these fees for the first two quarters of 2026.
• Asset purchase agreements with Delek Holdings for the sale of a Tyler refinery tank ($19.0 million, closed April 1, 2026) and El Dorado tank and terminal assets ($66.0 million, expected to close October 1, 2027).
• The El Dorado rail facility assets were sold to Delek Holdings for $25.0 million, closing on January 2, 2026.
• Delek Holdings returned 359,372 Partnership common units to the Partnership as consideration for the Tyler Tank Sale.
• Affiliate revenues and purchases are significant, with revenues from Delek Holdings totaling $166.7 million and purchases from affiliates totaling $108.2 million for the three months ended March 31, 2026.

Stakeholder Impact

• Shareholders: The declared cash distribution of $1.130 per unit, an increase from the prior year, is positive for unitholders seeking income. The company's strategy to increase third-party revenue aims to enhance economic separation from Delek Holdings, potentially increasing value for public unitholders.
• Employees: The company highlights its commitment to safety, with four consecutive years without lost-time injuries, indicating a positive impact on employee well-being and operational stability.
• Creditors: The new DKL Revolving Facility provides significant liquidity and flexibility, with covenants that the company believes are customary and allow for additional flexibility compared to prior agreements. Compliance with covenants is stated.
• Suppliers: No specific impact on suppliers is detailed, but increased activity in gathering and processing segments may imply increased demand for services and materials from suppliers in those areas.

Next Steps

• Completion of sour gas gathering equipment construction and commencement of finance lease in Q2 2026.
• Expected closing of the El Dorado Terminal Sale on October 1, 2027.
• Continued pursuit of organic growth opportunities and bolt-on acquisitions.
• Focus on achieving strong cash flow growth, pursuing expansion opportunities, engaging in mutually beneficial transactions with Delek Holdings, optimizing existing assets, expanding customer base, and enhancing sustainability efforts.

Key Dates

Recommendation

The company demonstrates solid revenue growth and operational performance in key segments, alongside a commitment to increasing distributions. However, the decrease in net income, the impact of a terminated marketing agreement, and ongoing risks related to commodity price volatility and geopolitical instability warrant a cautious approach. The strategic focus on third-party revenue and economic separation from Delek Holdings is positive, but the full realization of these benefits and mitigation of risks requires further observation. Therefore, a 'hold' recommendation is appropriate, pending clearer visibility on the long-term impact of these factors and continued execution of the company's growth strategy.

Keywords

Delek Logistics Partners, DKL, Form 10-Q, Quarterly Report, Midstream Energy, Gathering and Processing, Wholesale Marketing, Storage and Transportation, Pipeline Joint Ventures, EBITDA, Net Revenues, Net Income, Cash Flow, Permian Basin, Delek Holdings