10-Q: Delek US Holdings Reports Strong Q3 Profit, Boosted by Refining Margins and EPA Exemptions

Delek US Holdings posted a significant turnaround to profit in Q3 2025, driven by improved refining margins and a substantial benefit from small refinery exemptions, despite a year-to-date loss.

Summary

• Net income attributable to Delek for Q3 2025 was $178.0 million ($2.96 per basic share), a significant improvement from a net loss of $76.8 million ($(1.20) per basic share) in Q3 2024.
• Year-to-date net loss attributable to Delek narrowed to $101.1 million ($(1.66) per basic share) for the nine months ended September 30, 2025, compared to a loss of $146.6 million ($(2.29) per basic share) for the same period in 2024.
• Consolidated net revenues decreased by 5.1% to $2,887.0 million in Q3 2025 and by 12.5% to $8,293.5 million year-to-date, primarily due to lower average product prices and sales volumes in the refining segment.
• Refining segment EBITDA surged by 3525.8% to $464.1 million in Q3 2025 and by 301.6% to $543.0 million year-to-date, largely due to increased crack spreads and a $280.8 million reduction in Cost of materials and other from small refinery exemptions (SREs).
• Logistics segment EBITDA increased by 48.7% to $102.0 million in Q3 2025 and by 3.2% to $277.6 million year-to-date, benefiting from incremental contributions from the H2O Midstream and Gravity acquisitions.
• The Gravity Acquisition, completed on January 2, 2025, added water disposal and recycling operations in the Permian Basin and Bakken for $300.8 million, contributing $20.7 million in Q3 2025 revenue and $6.1 million in net income.
• The EPA granted full and partial SREs for 2019-2024 compliance years, resulting in a $280.8 million reduction in Cost of materials and other in Q3 2025, with an expected $75 million monetization of retained RIN assets in Q4 2025.
• Total liquidity stood at $2,304.6 million as of September 30, 2025, including $630.9 million in cash and cash equivalents and $1,673.7 million in unused credit commitments.

Sentiment

Score: 7

Explanation: The company demonstrated a strong turnaround in Q3 profitability, driven by favorable refining margins and a significant one-time benefit from SREs. Strategic acquisitions are contributing positively to the Logistics segment, and capital allocation is balanced. However, year-to-date results still show a loss, and the outlook acknowledges ongoing geopolitical and commodity market volatility, as well as regulatory uncertainties regarding RINs.

Positives

• Net income attributable to Delek significantly improved to $178.0 million in Q3 2025 from a $76.8 million loss in Q3 2024.
• Refining segment EBITDA saw a substantial increase of 3525.8% in Q3 2025 and 301.6% year-to-date, driven by higher crack spreads and SRE benefits.
• Logistics segment EBITDA grew by 48.7% in Q3 2025 and 3.2% year-to-date, bolstered by recent acquisitions.
• The company received small refinery exemptions from the EPA for 2019-2024 compliance years, resulting in a $280.8 million reduction in Cost of materials and other in Q3 2025 and an expected $75 million monetization in Q4 2025.
• Strategic acquisitions like Gravity and H2O Midstream are contributing incremental revenue and net income to the Logistics segment.
• The Inventory Intermediation Agreement was amended to extend its term to January 31, 2027, and increase flexibility, reducing interest expense and associated fees.
• Delek Logistics is commissioning a new natural gas processing plant with an estimated annual EBITDA contribution of $40.0 million.
• The company returned $106.1 million of capital to shareholders in 2025 through dividends and share buybacks, with $484.2 million remaining under the share repurchase program.

Negatives

• Consolidated net revenues decreased by 5.1% in Q3 2025 and 12.5% year-to-date, primarily due to lower average product prices and sales volumes in the refining segment.
• The company reported a net loss of $101.1 million for the nine months ended September 30, 2025, despite the strong Q3 performance.
• Cash and cash equivalents decreased to $630.9 million at September 30, 2025, from $735.6 million at December 31, 2024.
• Total long-term indebtedness increased by $414.4 million to $3,177.3 million as of September 30, 2025.
• Asset impairment charges of $16.3 million were recorded year-to-date 2025, including an $11.6 million impairment of software development costs in Q3 2025.
• Interest expense, net, increased by 18.1% in Q3 2025 and 7.8% year-to-date, driven by increased net average borrowings and hedge losses.
• Income from equity method investments decreased by $10.7 million year-to-date 2025, primarily due to a decrease from the Red River Pipeline Company LLC investment.

Risks

• Volatility in refining margins or fuel gross profit due to changes in crude oil, feedstock, and refined petroleum product prices.
• Reliability of operating assets and potential for operational disruptions.
• Changes in, or failure to comply with, extensive government regulations, particularly RFS-2, and the availability and cost of RINs.
• Uncertainty regarding the EPA's timeliness and decisions on future small refinery exemption petitions, which could increase compliance costs.
• Diminishment in value of long-lived assets, including goodwill, potentially leading to impairment charges.
• Impact of widespread public health crises on commercial activity and economic recovery.
• General economic and business conditions affecting the southern, southwestern, and western U.S., especially travel and tourism spending.
• Volatility under derivative instruments and deterioration of counterparty creditworthiness.
• Unanticipated increases in cost or scope of, or significant delays in, capital improvement and turnaround projects.
• Increases in debt levels or costs, and the possibility of accelerated repayment on the Inventory Intermediation Agreement obligation.
• Ability to access credit markets and compliance with restrictive and financial covenants in debt agreements.
• Seasonality and the impact of weather events on commodity prices and operations.
• Societal, legislative, and regulatory measures to address climate change and greenhouse gas emissions.
• Acts of terrorism (including cyber-terrorism) targeting facilities or IT systems.
• Impacts of global conflicts such as the Israel-Iran War, Israel-Hamas War, and the Russia-Ukraine War.
• Future decisions by OPEC+ regarding production and pricing.
• Changes in the cost or availability of transportation for feedstocks and refined products.

Future Outlook

The company expects to monetize approximately $75 million in retained RIN assets in Q4 2025. The near-term economic outlook remains uncertain due to geopolitical instability and commodity market volatility. Refining capacity rationalization is expected to lower refined products inventory and crude oil demand is projected to continue rising, balancing the market over the next 6 to 12 months. The company will continue to evaluate the full impact of the One Big Beautiful Bill Act (OBBBA) legislative changes as additional guidance becomes available. Restructuring activities are anticipated to conclude by the end of fiscal year 2026. The company's strategic objectives include operational excellence, financial strength and flexibility, and strategic initiatives such as unlocking 'sum of the parts' value and identifying growth opportunities in renewables or carbon capture.

Management Comments

• Our focus on safe and reliable operations is a pillar which underlines all of our business activities.
• We continue to identify opportunities to mitigate market risk and focus on efforts that improve our overall cost structure while not compromising operational excellence.
• The increased refining margins compared to the third quarter of 2024 continues to demonstrate that demand for refined products continues to be strong.
• Logistics continued to contribute strong results driven by incremental contributions from H2O Midstream and Gravity.
• We will continue to execute on our priorities of running safe and reliable operations, making further progress on our 'sum of the parts' efforts, and delivering shareholder value while maintaining our financial strength and flexibility.
• The near term economic outlook still has uncertainty due to geopolitical instability and commodity market volatility.
• By executing on our initiatives to optimize our cost structure, we are positioning the Company in the event of lower crack spreads and volatility in the commodity markets.
• We want to reward our shareholders with a disciplined and balanced capital allocation framework.
• As we strengthen our relative financial position, we believe a balanced approach between shareholder returns and balance sheet improvement is appropriate.
• It is vitally important that our strategic objectives, especially in view of the evolutionary direction of our macroeconomic and geopolitical environment, involve a process of continuous evaluation of our business model in terms of cost structure, as well as long-term economic and operational sustainability.
• We believe we are uniquely positioned as a leader in operating and excelling in niche markets and could continue capitalizing on our niche position by being the supplier of choice in our markets.

Industry Context

The refining segment experienced higher margins in Q3 2025 due to increased crack spreads, demonstrating strong demand for refined products. Domestic West Texas Intermediate (WTI) differentials compared to Brent remained favorable, though the WTI Midland to Cushing differential widened unfavorably. The industry faces ongoing challenges from RFS-2 regulations and RINs costs, which significantly impact refining margins. Geopolitical instability and commodity market volatility contribute to an uncertain near-term economic outlook. The company anticipates refining capacity rationalization to lower refined products inventory and crude oil demand to continue rising, balancing the market. Broader industry trends suggest increased cost pressures and a move towards reducing carbon emissions and transitioning to renewable energy, potentially leading to more consolidation.

Comparison to Industry Standards

• The company compares its per barrel refined product margin for the Tyler and El Dorado refineries to the U.S. Gulf Coast 5-3-2 crack spread.
• For the Big Spring refinery, the per barrel refining margin is compared to the Gulf Coast 3-2-1 crack spread.
• The Krotz Springs refinery's per barrel refining margin is compared to the Gulf Coast 2-1-1 crack spread.
• The company also monitors key differentials such as WTI Cushing to Brent, WTI Midland to WTI Cushing, and Louisiana Light Sweet (LLS) to WTI Cushing to assess competitive advantage and market influence on refining operations.

Legal Proceedings

• Delek is pursuing litigation against the EPA based on its August 2025 small refinery exemption decisions.
• In September 2025, Alon Refining Krotz Springs, Inc. filed suit in the D.C. Court of Appeals (case no. 25-1180) seeking review of the EPA's decision that the Krotz Springs refinery was ineligible for an exemption for the 2024 compliance year.
• In October 2025, Alon Refining Krotz Springs, Inc., Delek Refining, Ltd., Lion Oil Company, LLC and Alon USA, LP filed suit in the D.C. Court of Appeals (case numbers 25-1229, 1230, 1231, 1245) seeking review of the EPA's decision to refund expired RINs for the 2019 to 2023 compliance years.
• Separately, in October 2025, Alon USA, LP filed suit in the 5th Circuit Court of Appeals (No. 25-60584) with a protective petition filed in the D.C. Court of Appeals (case no. 25-1246) seeking review of the EPA's decision denying an exemption on the 2020 exemption petition of the Big Spring Refinery.
• The company has recorded an environmental liability of approximately $36.6 million, primarily for remediating environmental issues at refineries and terminals.

Related Party Transactions

• Revenues from related parties (primarily asphalt sales to equity method investees) totaled $31.5 million in Q3 2025 and $88.9 million year-to-date 2025.
• Cost of materials and other from related parties (primarily pipeline throughput fees and asphalt purchases) totaled $46.0 million in Q3 2025 and $132.6 million year-to-date 2025.
• Intercompany sales and purchases between the refining and logistics segments are eliminated in consolidation.

Stakeholder Impact

• Shareholders: Benefited from improved Q3 profitability, continued quarterly dividends ($0.255 per share), and ongoing share repurchase program ($59.4 million YTD 2025).
• Employees: Impacted by cost optimization plan initiated in 2022 to improve efficiencies and align workforce.
• Customers: Benefited from expanded footprint and diversified product mix in the Logistics segment through acquisitions.
• Creditors: Increased long-term debt ($3,177.3 million) and ongoing compliance with debt covenants.
• Regulatory Bodies: Engaged in ongoing litigation with the EPA regarding small refinery exemptions and RINs compliance.

Next Steps

• Monetize approximately $75 million in retained RIN assets in Q4 2025.
• Close the El Dorado Purchase (acquisition of El Dorado rail facility assets from Delek Logistics) on January 1, 2026.
• Continue to evaluate the full impact of the One Big Beautiful Bill Act (OBBBA) legislative changes as additional guidance becomes available.
• Continue to progress business transformation focused on enterprise-wide opportunities to improve the efficiency of the cost structure.
• Execute on priorities of running safe and reliable operations, making further progress on 'sum of the parts' efforts, and delivering shareholder value while maintaining financial strength and flexibility.
• Seek relief from the EPA for the hardship imposed by the RFS for the 2025 compliance year.
• Conclude restructuring activities by the end of fiscal year 2026.
• Identify and execute on low-capital organic growth projects that improve yield and increase utilization.
• Continue progression of digital system implementations to improve business understanding and automate processes.
• Identify and evaluate investment opportunities that fit the sustainability view and integrate into the current asset footprint, including strategic investments or joint ventures in renewables or carbon capture and incubator investments in new technologies.
• Pursue ongoing litigation against the EPA regarding small refinery exemption decisions for the Krotz Springs and Big Spring refineries, and the refund of expired RINs.

Key Dates

Recommendation

The company demonstrated a strong operational turnaround in Q3 2025, with significant improvements in net income and refining EBITDA, largely due to favorable crack spreads and a substantial one-time benefit from small refinery exemptions. The Logistics segment also shows consistent growth from strategic acquisitions. However, the company still reported a net loss year-to-date, and total long-term debt has increased. The future impact of RINs compliance and ongoing litigation with the EPA, coupled with broader geopolitical and commodity market volatility, introduces considerable uncertainty. While the Q3 performance is encouraging, the reliance on one-time benefits and persistent market risks suggest a 'hold' position until there is clearer visibility on sustained profitability and reduced leverage.

Keywords

Refining, Logistics, Crude Oil, Refined Products, EBITDA, RINs, Small Refinery Exemptions, Crack Spreads, Permian Basin, Bakken, Water Disposal, Share Repurchase, Dividends, SEC Filing, 10-Q, Energy, Midstream