10-Q: Delek Logistics Reports Strong Q3, Boosted by Acquisitions

Delek Logistics Partners reports significant increases in net income and EBITDA for Q3 2025, driven by strategic acquisitions and organic growth initiatives.

Summary

• Net revenues increased by $47.2 million (22.1%) to $261.3 million for the three months ended September 30, 2025, compared to $214.1 million in the prior year period.
• Net income rose by $11.9 million (35.3%) to $45.6 million for the three months ended September 30, 2025, up from $33.7 million in the same period last year.
• EBITDA increased by $32.8 million (47.4%) to $102.0 million for the three months ended September 30, 2025, compared to $69.2 million in Q3 2024.
• Distributable cash flow grew by $20.3 million (38.1%) to $73.6 million for the three months ended September 30, 2025, from $53.3 million in Q3 2024.
• Year-to-date net income increased by $21.8 million (20.3%) to $129.2 million, and EBITDA increased by $4.5 million (1.6%) to $277.6 million.
• The Gravity Acquisition, completed on January 2, 2025, contributed $20.7 million in revenue and $6.1 million in net income for Q3 2025, and $67.5 million in revenue and $24.0 million in net income year-to-date.
• The H2O Midstream Acquisition, completed in September 2024, added $11.0 million in revenue for Q3 2025 and $42.8 million year-to-date.
• Issued $700.0 million in 7.375% senior notes due 2033, using net proceeds to repay a portion of the DKL Revolving Facility.
• Declared a quarterly cash distribution of $1.120 per unit, payable on November 13, 2025, representing a 1.8% increase over the Q3 2024 distribution.
• Repurchased 243,075 common units from Delek Holdings for $10.0 million year-to-date, with $140.0 million remaining authorization under the program through December 31, 2026.
• Contractual rate adjustments on July 1, 2025, increased FERC regulated pipeline tariffs by 2.0%, CPI-adjusted fees by 2.6%, and PPI-adjusted fees by approximately 1.4%.

Sentiment

Score: 8

Explanation: The company reported strong financial performance with significant increases in net income, EBITDA, and distributable cash flow, driven by successful strategic acquisitions and organic growth initiatives. The increase in distributions and unit repurchase program further underscore positive sentiment. While debt increased, it was tied to growth, and some segment revenue reclassification is an accounting change rather than an operational decline. The outlook remains confident despite market uncertainties.

Positives

• Significant increases in net revenues (22.1%), net income (35.3%), EBITDA (47.4%), and distributable cash flow (38.1%) for the third quarter of 2025.
• Successful integration and positive contributions from the Gravity and H2O Midstream acquisitions, diversifying revenue streams and expanding footprint in Permian and Bakken basins.
• Enhanced liquidity to over $1.0 billion following a $700.0 million debt issuance, strengthening financial position for organic growth and bolt-on acquisitions.
• Increased quarterly cash distribution to $1.120 per unit, demonstrating commitment to unitholder returns and distribution growth.
• Execution of the DPG Dropdown, assuming crude oil purchasing and blending activities and cancelling $58.8 million in receivables from Delek Holdings.
• Expansion of natural gas processing capabilities in the Delaware Basin with a new plant in its initial phase of operation, expected to increase throughput.
• Contractual rate adjustments (2.0% to 2.6% increases) on various agreements help maintain compliance with regulations and reflect current market conditions.
• Unit repurchase program from Delek Holdings signals confidence and potential for value creation for public unitholders.
• Maintained strong safety protocols, achieving four years without lost time injuries, protecting employees, assets, and operations.

Negatives

• Operating income for the nine months ended September 30, 2025, decreased by $19.4 million (11.8%) compared to the prior year period.
• Total equity decreased by $18.05 million from December 31, 2024, to September 30, 2025.
• Wholesale marketing and terminalling segment EBITDA decreased by $6.0 million (29.8%) for Q3 2025 and $29.3 million (38.8%) year-to-date, primarily due to accounting reclassification of certain throughput fees as interest income under sales-type leases.
• Storage and transportation segment EBITDA decreased by $1.3 million (17.0%) for Q3 2025 and $24.7 million (58.3%) year-to-date, also attributable to sales-type lease accounting reclassification.
• Long-term debt, net of current portion, increased by $412.9 million to $2.288 billion as of September 30, 2025, compared to $1.875 billion at December 31, 2024.

Risks

• Substantial dependence on Delek Holdings and their ability to pay under commercial agreements.
• Uncertainty regarding future coverage, leverage, financial flexibility, and ability to achieve distribution growth.
• Risks associated with the age and condition of assets, operating hazards, spills, releases, and tank failures.
• Changes in insurance markets impacting costs and coverage availability.
• Volatility in commodity prices and demand for refined products, exacerbated by geopolitical instability (Ukraine, Middle East) and potential public health crises.
• Potential shift from hydrocarbon energy sources to alternative energy sources.
• Risk of suspension, reduction, or termination of commercial agreements with Delek Holdings or third parties.
• Ability to attract and retain key personnel.
• Performance and results of investments in joint ventures.
• Ability to secure new commercial agreements upon expiration of existing ones.
• Inefficiencies, curtailments, or shutdowns in refinery operations or pipelines.
• Disruptions due to equipment interruption or failure, terrorism, sabotage, or cyber-attacks.
• Changes in the availability and cost of debt and equity financing.
• Reliance on information technology systems in day-to-day operations.
• Changes in general economic conditions, including uncertainty from widespread tariffs and potential economic downturns.
• Impact of existing and future environmental and safety laws and regulations, including those related to greenhouse gas emissions.
• Competitive conditions in the industry, including capacity overbuild in operating areas.
• Inability to complete growth projects on time and within budget.
• Challenges in successfully integrating acquired businesses and achieving anticipated benefits.
• Disruptions from acts of God, natural disasters, severe weather patterns, and other uncontrollable events.
• Fluctuations in the price of Renewable Identification Numbers (RINs).
• Future decisions by OPEC+ regarding oil production and pricing.
• Changes or volatility in interest and inflation rates.
• Labor relations issues.
• Defaults by large customers.
• Changes in tax status and regulations.
• Future litigation or environmental liabilities not covered by insurance.

Future Outlook

The company anticipates 2025 to be a transformational year, driven by the Libby gas processing plant expansion and the integration of the H2O Midstream and Gravity acquisitions, which are expected to increase overall cash flow and improve the distribution coverage ratio. The company is well-positioned to manage through economic downturns due to minimum volume commitments and dedicated acreage agreements. It expects continued high demand for liquid transportation fuels and plans to leverage strong cash flows and balance sheet for organic growth and bolt-on acquisitions, aiming to increase economic separation from Delek Holdings and enhance third-party revenue. The company also plans to continue investing in ESG-conscious initiatives to reduce its carbon footprint.

Management Comments

• "We made significant strides in our commitment to being a full-suite crude, gas and water midstream services provider in the Permian Basin, in addition to diversifying our customer base to include more third-party customers."
• "These transactions significantly enhance our competitive position in the Midland basin and serve to further our economic separation from our sponsor and contribute to an increase in third party revenue."
• "As producers continue to ramp up production within the Permian Basin, the Partnership is well positioned to continue to add value through our gathering and processing services as we have expanded our dedicated crude acreage in our Midland Gathering system."
• "Our disciplined approach to cost control, coupled with a focus on margin enhancements, supported EBITDA growth and improved cash flow, while our capital deployment remained aligned with our strategic priorities."
• "We are well positioned to manage through an economic downturn because of built-in recessionary protections which include minimum volume commitments on throughput and dedicated acreage agreements."
• "We expect that liquid transportation fuels will continue to be in high demand, and we expect to continue to leverage the strength of our cash flows and balance sheet in order to continue maximizing unitholder returns and the long-term prospects for return on investment."
• "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

The company is strategically expanding its midstream services in the Permian Basin, a prolific region for crude oil, natural gas, and water operations. Its acquisitions of H2O Midstream and Gravity Water Holdings align with the industry trend of integrated service offerings and diversification away from single-customer dependence. The focus on increasing third-party revenue and expanding gas processing capabilities positions the company to capitalize on continued production growth in the Permian. While acknowledging near-term economic uncertainty due to tariffs and geopolitical instability, the company's long-term, fee-based contracts with minimum volume commitments provide a degree of resilience against commodity price volatility, a common challenge in the energy sector. The company also notes the ongoing shift towards renewables but anticipates sustained demand for liquid transportation fuels in the near term.

Comparison to Industry Standards

• The company's strategy of increasing third-party revenue and diversifying its customer base through acquisitions like Gravity and H2O Midstream aligns with broader midstream industry trends where companies seek to reduce reliance on a single sponsor or customer, similar to how other master limited partnerships (MLPs) have pursued greater independence from their parent companies.
• The expansion of natural gas processing capabilities in the Delaware Basin, including AGI and sour gas processing, positions the company to compete with other major midstream players in the Permian Basin that offer comprehensive gas services, such as Energy Transfer LP or Targa Resources Corp., by providing integrated solutions to producers.
• The company's emphasis on maintaining an attractive distribution growth profile and healthy coverage/leverage ratios is a common objective among MLPs, aiming to provide competitive yields to unitholders while ensuring financial stability, comparable to the strategies of peers like MPLX LP or Plains All American Pipeline, L.P.

Corporate Governance

Legal Proceedings

• The company is subject to ordinary course lawsuits, investigations, and claims, including environmental and employee-related matters, which are not expected to have a material adverse effect on financial statements.
• Recovered an additional $4.3 million in 2025 related to a settlement from litigation with the Texas Department of Transportation regarding the Nettleton Station, which was settled in Q2 2024.

Related Party Transactions

• Commercial agreements with Delek Holdings for gathering, transportation, storage, offloading, wholesale marketing, and terminalling services, with fees subject to annual adjustments based on inflation indices.
• Omnibus Agreement with Delek Holdings, requiring an annual fee of $4.4 million for centralized corporate services, amended on May 1, 2025, to increase the Administrative Fee and include transition service obligations upon a change of control.
• DPG Management Agreement: The Partnership manages long-term capital projects for Delek Holdings in the Permian Basin, receiving monthly operating and construction services fees (totaling $0.5 million for the nine months ended September 30, 2025).
• DPG Dropdown: On May 1, 2025, Delek Holdings transferred Permian Gathering purchasing and blending activities to the Partnership, which included the cancellation of $58.8 million in existing receivables owed by Delek Holdings.
• El Dorado Purchase Agreement: On May 1, 2025, the Partnership and Delek Holdings entered into an agreement for Delek Holdings to purchase the El Dorado rail facility assets from the Partnership for $25.0 million cash, expected to close January 2, 2026.
• Unit Repurchase: During the nine months ended September 30, 2025, 243,075 common units were repurchased from Delek Holdings and cancelled for $10.0 million.
• Delek Holdings owned a 63.3% interest in the Partnership as of September 30, 2025.
• Affiliate revenues were $131.0 million for Q3 2025 and $371.4 million for YTD 2025.
• Purchases from Affiliates were $85.5 million for Q3 2025 and $259.9 million for YTD 2025.
• Cash distributions paid to Delek Holdings were $37.763 million for Q3 2025 and $113.050 million for YTD 2025.

Stakeholder Impact

• Shareholders/Unitholders: Positive impact from increased distributions, unit repurchase program, and strong financial performance, indicating potential for continued returns and value growth.
• Employees: Increased employee costs and focus on safety protocols (four years without lost time injuries) suggest a stable and safe working environment.
• Customers: Expansion of services (full-suite crude, gas, and water midstream) and integrated offerings in key basins (Permian, Bakken) provide enhanced value and optionality.
• Creditors: Debt issuance and repayment of revolving facility demonstrate active debt management, while compliance with covenants and improved liquidity maintain creditworthiness.
• Suppliers: Increased operating expenses and cost of materials suggest continued business activity and demand for supplier services.

Next Steps

• Continue to increase throughput at the Libby natural gas processing plant through the end of 2025.
• Finalize valuations for the Gravity Acquisition assets and liabilities within the allowable measurement period (not to exceed one year from acquisition date).
• Phase in the increase in the Administrative Fee under the Omnibus Agreement over two years, starting July 1, 2025.
• Close the El Dorado Purchase, where Delek Holdings will acquire the El Dorado rail facility assets for $25.0 million cash, currently set for January 2, 2026.
• Terminate the East Texas Marketing Agreement in its entirety, effective January 1, 2026.
• Continue to evaluate and pursue attractive organic growth opportunities and bolt-on acquisitions.
• Continue to engage in mutually beneficial transactions with Delek Holdings to increase economic separation and third-party cash flows.
• Optimize existing assets and expand the customer base by adding incremental throughput volumes and improving operating efficiencies.
• Expand ESG consciousness and lower the carbon footprint through ESG-conscious investments and innovative technologies.
• Continue to manage long-term capital projects on behalf of Delek Holdings under the DPG Management Agreement through December 2025.
• Potentially repurchase up to an additional $140.0 million in common units from Delek Holdings through December 31, 2026.

Key Dates

Recommendation

Delek Logistics Partners demonstrates strong operational and financial momentum, with significant increases in net income, EBITDA, and distributable cash flow driven by strategic acquisitions (Gravity, H2O Midstream) and organic growth projects. The company's enhanced liquidity, increased distributions, and unit repurchase program signal a commitment to unitholder value. While debt has increased, it is tied to accretive growth initiatives. The reclassification of certain revenues to interest income is an accounting change, not an operational decline. The company's strategic positioning in the Permian Basin and diversification efforts provide a robust growth profile and resilience against market uncertainties, making it an attractive investment.

Keywords

Midstream, Oil and Gas, Permian Basin, Water Disposal, Pipeline, Gathering and Processing, Wholesale Marketing, Terminalling, Storage and Transportation, SEC Filing, 10-Q, Acquisition, Debt Issuance, Distributions, EBITDA, Delek Logistics