Delek Logistics (DKL) Q1 2026 Earnings Transcript

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DATE

Wednesday, April 29, 2026 at 12:30 p.m. ET

CALL PARTICIPANTS

• President and Chairman — Avigal Soreq
• Chief Financial Officer — Robert Wright
• Chief Operating Officer — Reuven Spiegel

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TAKEAWAYS

• Adjusted EBITDA -- $132 million for the fiscal first quarter ended March 31, 2026, up from $123 million in the same period last year.
• EBITDA guidance -- Management reaffirmed full-year guidance of $520 million-$560 million, expressing a "very confident" outlook despite macro and weather headwinds.
• Distributable cash flow (DCF) as adjusted -- $72 million for the quarter, with a DCF coverage ratio of 1.2x.
• Quarterly distribution -- Increased for the 53rd consecutive quarter to $1.13 per unit, as approved by the Board of Directors.
• Gathering and Processing Segment adjusted EBITDA -- $83 million, up from $81 million in the fiscal first quarter of 2025, attributed to higher margins.
• Wholesale Marketing and Terminalling Segment adjusted EBITDA -- $14 million, down from $18 million in the prior year, due to impacts of the amended 2024 contract with Delek.
• Storage and Transportation Segment EBITDA -- $25 million, up from $14 million in the fiscal first quarter of 2025, primarily driven by a January 2026 related party transaction.
• Pipeline Joint Venture EBITDA -- $18 million, compared to $17 million in the same period last year, reflecting performance from the Wing to Amster joint venture.
• Total capital expenditures -- $50 million for the quarter, with $42 million allocated to drilling the first AGI well and building out sour gas infrastructure; the balance targeted toward crude gathering expansions.
• Liquidity -- Revolving credit facilities increased to $1.3 billion with availability of $1.1 billion, maturity extended to 2031.
• Adjusted leverage ratio -- 4.05x at quarter-end, supporting continued growth investment alongside a disciplined capital structure.
• Third-party revenue -- Management projects "approximately 80%" of run-rate EBITDA will be sourced from third parties for 2026 on a pro forma basis.
• Operational update -- Winter Storm Fern resulted in roughly $10 million in negative impact, mainly on crude and gas volumes, but volumes have recovered in the second quarter.
• Sour gas solution -- First AGI well successfully drilled; compressor station build-out ongoing and full system utilization expected in the next three to six months.
• Water business expansion -- Larger footprint from Citi and H2O Midstream acquisitions; management cites above-expected performance and "growing need for water" treatment and disposal services in the Permian Basin.

SUMMARY

Delek Logistics Partners (NYSE:DKL) delivered record fiscal first quarter adjusted EBITDA and completed major operational milestones in gas gathering infrastructure, despite a $10 million weather-related headwind. Management highlighted a shift toward third-party revenues expected to comprise 80% of run-rate EBITDA and finalized an expansion of available credit, strengthening liquidity. A multiyear streak of distribution increases continued, with the latest quarterly payout reaching $1.13 per unit.

• Management stated, "The step change in utilization is likely to bring forward the need for additional processing capacity," as infrastructure ramps up.
• Reuven Spiegel projected produced water gathering will require "a platform approach as permitting for new SWDs remain limited and producer activity shifts across the basin."
• Plans for $180 million-$190 million in 2026 growth capital spending are expected to yield $75 million in incremental EBITDA on a run-rate basis.
• Management expects gas gathering system utilization to reach full capacity within three to six months.

INDUSTRY GLOSSARY

• AGI well: Acid Gas Injection well, used for disposing of sour (hydrogen sulfide-containing) gas underground as part of gas processing operations.
• Sour gas: Natural gas containing significant amounts of hydrogen sulfide, requiring specialized processing and disposal infrastructure.
• SWD: Saltwater Disposal well, used for injection of produced water from oil and gas production into deep underground formations.
• DCF coverage ratio: Distributable cash flow divided by total distributions paid, indicating how well current cash flow supports unit-holder payouts.

Full Conference Call Transcript

Avigal Soreq: Thank you, Robert. DKL reported $132 million in adjusted EBITDA in the quarter, and we are very confident about achieving full year EBITDA guidance of $520 million to $560 DKL saw a strong execution in the first quarter despite some challenges associated with Winter Storm Fan. These results are a reflection of strength in all segments, advancing our position as a premier full-service provider of crude, gas and water in the Permian Basin. Now let me talk about each one of the business in detail. Starting with gas. We have successfully completed the drilling of our first AGI well, taking additional step towards completing our industry-leading comprehensive sour gas solution.

We are very excited about providing a comprehensive capability to our customer, further supporting long-term oil gas production growth in the Delaware Basin. Moving to crude. Both DPG and DGG crude gathering operations continue to see strength despite some challenges tied to well shut-in related to winter storm fern. We have increased our overall gathering capacity and look forward to further optimizing and growing the business over the rest of the year. Our water business continued to perform strongly, and we are exploring additional opportunities in this space. Rouven will share further insight on these developments. The combined gas, crude and water offering in the Permian Basin has increased our competitive position and build a strong platform for growth.

We will continue to capture the growth opportunities in a disciplined manner, managing leverage and coverage. We also intend to remain good stewards to our stakeholders' capital. Our Board of Directors has approved our 53rd consecutive quarterly distribution increase. raising the distribution to $1.13 per unit. This is an extraordinary achievement, and we're extremely proud of our team and the financial prudence that brought us here. Delek Logistics is thermally positioned as a strong independent full suite midstream service provider. 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 hand it over to Robin, who will provide more details on our operations.

Reuven Spiegel: Thank you, Avigal. As Avigal mentioned, we are excited about DKL's future and recent rally in group prices, along with the strength of our 3 service platform is presenting incremental opportunities to further increase our advantage Permian position. The strength in third-party business continues to increase our economic separation from our sponsor DK. In 2026, on a pro forma basis, we expect approximately 80% of our run rate EBITDA will come from third parties. Turning to our business. We continue to work hard to bring an industry-leading sour gas solution in the Delaware basin. The first step in the process was to complete our processing capacity expansion. As Abigail mentioned, we have completed the drilling of our first AGI well.

And currently, we're in the process of completing the build-out of the sour gas gathering infrastructure such as compressor stations before transferring the system to operations. We are in sync with our producer customers and the system is expected to be in line with producer needs. As we have mentioned in the past, while our ramp-up has been slower versus our initial expectation, both our Sargas system build out, we expect to see a step change in our utilization. The step change in utilization is likely to bring forward the need for additional processing capacity.

We are looking at our options and continue to explore innovative ways to add capacity along with making selected investments that will support future expansion of the Libby complex. Our Delaware crude gathering volumes were impacted by well shut-ins because of winter storm firm and the colder than normal temperature during the quarter. We have seen these volumes recover in the second quarter and expect Delaware crude gathering volumes to continue to increase over the rest of the year. Our crude gathering business is in a very strong place, and our combined crude and water offering is yielding great results. Moving to our Water business. I'm very pleased with the start we have had in our produced water gathering business.

Our larger water footprint in the Permian Basin post our acquisition of Citi and H2O Midstream, along with the rising water cuts in the basin, accentuating the need for increased innovation to meet customer needs. We believe produced water gathering and disposal will require a platform approach as permitting for new SWDs remain limited and producer activity shifts across the basin. We look forward to updating the market as we bring forward these solutions. With that, I will pass it on to Robert.

Robert Wright: Thank you, Ruben. As Avago and Ruben noted, we began 2026 with strong momentum, continuing to advance the Delek Logistics growth story. While we are delivering meaningful financial and operational progress across the partnership, we remain equally focused on achieving our long-term leverage and coverage targets. Despite approximately $10 million in headwinds from Winter Storm Fern, we outperformed expectations in our growth trajectory, and we're able to achieve our best first quarter results to date. This performance reinforces our confidence in the outlook for the balance of the year. .

We continue to make solid progress on our planned growth capital spend of $180 million to $190 million, which we expect will yield approximately $75 million in incremental EBITDA on a run rate basis. From a balance sheet perspective, we exited the first quarter in a position of strength, having upsized and extended our revolving credit facilities to $1.3 billion, now maturing in 2031. This increased available liquidity to approximately $1.1 billion. We ended the quarter with an adjusted leverage ratio of 4.05x, providing meaningful financial flexibility to execute on our growth agenda while maintaining a disciplined capital structure. Turning to our results.

Adjusted EBITDA for the quarter was approximately $132 million compared to $123 million in the same period last year. Distributable cash flow as adjusted totaled $72 million, and our DCF coverage ratio remained stable at approximately 1.2x. We are also pleased to announce our 53rd consecutive distribution increase, bringing the quarterly distribution to $1.13 per unit. In the Gathering and Processing segment, adjusted EBITDA for the quarter was $83 million compared to $81 million in the first quarter of 2025. The increase was primarily due to increased margins recognized within the segment. Wholesale Marketing and Terminalling adjusted EBITDA was $14 million compared to $18 million in the prior year.

The decrease was primarily due to the impact of the 2024 amended extend agreement with Delek. Storage and tranportation adjusted EBITDA in the first quarter was $25 million compared with $14 million in the first quarter of 2025, the increase primarily reflects the impact of the January 2026 related party transaction. Finally, the investments in pipeline joint venture segment contributed $18 million this quarter in adjusted EBITDA compared with $17 million in the first quarter of 2025 driven by strong performance from the Wing to Amster joint venture. Moving now to capital expenditures. Total capital spending for the first quarter was approximately $50 million.

Of this amount, $42 million was gross capital, primarily related to the drilling of our first AgeWell in addition to the build-out of new sour gas gathering infrastructure. The remainder of the spend was directed towards other growth projects, including advancing new connections across our crude gathering systems. Looking ahead to 2026, as Avigal mentioned, we remain confident in our earnings trajectory and are reaffirming our full year 2026 EBITDA guidance to a range of $520 million to $560 million. With that, we can open the call for questions.

Operator: [Operator Instructions] Your first question comes from the line of Doug Erwin from Citi.

Douglas Irwin: I just wanted to -- First question, just wanted to start with the guidance range and how you're thinking about it in today's macro environment. Does the low end of that range look like an easier lift today than when you gave it kind of earlier in the year. I'm just curious what you're hearing from producers on your acreage as well as if you might have any pockets of direct commodity or spread exposure you might be able to take advantage of in the current environment.

Unknown Executive: Yes, Doug, you nail it, right? So our optimism around our guidance is being driven from 2 things, right? One is the macro environment, and I will talk about it in a second. And second is our execution, our strategy. So on the macro side, obviously, the premium risk that you have between brand TI is going to change. It's very obvious that the premium risk that we had last year on brand is not the premium risk we see today.

And the second, obviously, is that we see a lingering effect for the macro, even after the kinetic event is over, which will emphasize probably the Shell -- the U.S. shale as a safe harbor for crude supply around the globe. So that's put us in a very good position, both in the Midland area and on the Dara area. Our combined offering of gas, crude and water is a unique offering that gives our customer offering that not many does, and that position us very well and also the development we see around our gas business. was giving a comprehensive solution. It's also where we are seeing a very encouragement development.

With that, I will levittoRuven to give his insights.

Reuven Spiegel: Thank you, Avigal. If we look at our -- at the segments, water is performing above our expectations. And the combined water and crude option is opening opportunities for continued growth. Crude is solid, and we are seeing opportunities in our Delaware business. And in addition, we enjoy some tailwinds from the Iran conflict. And finally, gas will ramp up in the second half of the year. So with that said, we feel very comfortable at our guidance range. .

Douglas Irwin: Great. And maybe just following up on the gas ramp in the second half of the year. Could you maybe just provide a little more detail around kind of what's left to do on the gathering side and what that timing might look like? And then just curious how soon after Web 2 ramps you might be positioned to be able to announce the next expansion and just what that build cycle might look like, just given that you've already spent some of that early CapEx on future expansions.

Reuven Spiegel: Yes. Thank you for the question. We actually made a lot of progress this quarter, as we mentioned in the prepared remarks, it has been a multistep process. One of the critical path was drilling the AGL well. which we completed successfully. And now we're focusing on completing all the associated infrastructure like the compressor stations. We do expect our gas utilization to reach capacity in the next 3 to 6 months. In addition, as you mentioned, we have already made some selective investments and we're looking at different ways to make additional processing capacity available in the most cost-effective manner. .

Operator: Your next question comes from the line of Gabe Moreen from zoo.

Gabriel Moreen: You catalyzed a little bit with some, I think, growing in water comments. So can you maybe just talk about what you're seeing? Is there some systems whether it's private equity, producer backed, what you might be seeing out there size-wise, materiality, Just curious on those comments.

Unknown Executive: Yes, absolutely. I will give some higher view around it and Mario energy around the topic, he will chime in. So obviously, we're not going to be specific about deals and size until we are fully ready to say. But the combination of crude, water and gas in the area we're operating in a meaningful and sizable way is giving us a tailwind, and we are very happy about that. We have a very good strategic discussion. And I think that the strategies and location and execution, that's the combination we are trying to achieve and we're very happy about that. oven, do you want to chime in?

Reuven Spiegel: Yes. Thank you, Avigal. We are likely to see continued growing need for water with each barrel of produced oil. Water is already produced on a very large scale and the demand keeps growing. So we believe there is a need for effective treatment, a more comprehensive approach for gathering treatment and disposal in particular with the length of time and complexities that needed to get permits today. So we're looking at ways to come up with creative solutions around this, and we'll probably give more color and updates when we are ready in the near future. .

Gabriel Moreen: And then you mentioned, I think, the impact on volumes from some of the winter storms that I think they're recovered at this point. I'm just curious also WAHA seems to be a fairly big factor based on where natural gas is pricing in the basin. Are you seeing any shut-ins that are Waha related or producer timing delays because of pricing in the basin?

Unknown Executive: Yes. So you're right, your observation. It was an event that was -- it was a close event. It was not a lingering event but it was when it happened, it was meaningful and then it came back to normalcy. But Robert, our CFO, will chime in and give you more color around it.

Robert Wright: Yes. Thanks, Avigal. Primary impacts were on crude, both in the Midland and Delaware Basins and also a little bit on the gas processing side. as we stated in our remarks, very limited impact, if any, to our water business overall. But it did have an approximate $10 million headwind to our results for the period. That said, as you saw, we did have very strong performance throughout the partnership for the first quarter. and our outlook for the remainder of the year remains strong with firm behind us. But I'll pass to Mohit as well to talk about the Waha question.

Avigal Soreq: Gabe, so we've discussed this in the past. Waha is an important piece of the Permian story, and you covered this very well. And you know that a lot of resides pipelines are going to start coming up in the second half of this year. which is going to relieve a lot of pressure that some of our producer customers have faced in terms of takeaway capacity on the natural gas side. Overall, these 2 developments, as Avigal mentioned at the beginning of this call, higher call on shale crude as a result of the Iran conflict.

And the Waha gas prices and finding a floor based upon incremental restogas takeaway capacity that's going to come online is a very positive development for DKL because we are in the right neighborhood. And as producers have capacity to put this gas into the right market, you will see more production to come in. And all 3 of our business, gas water and crude will benefit from that. So we are excited about how this year plays out as far as the gas take capacity is considered.

Operator: Thank you for the questions. There are no further questions at this time, and we have reached the end of the Q&A session. I will now turn the call back to Avigal Surek, President and Chairman, for closing remarks.

Avigal Soreq: Thank you. I want to thank my colleagues around the table. I want to thank the investor that join us today and believing us and sticking to the stories. -- to the story, and I want to thank our Board of Directors and most importantly, our employees that does nights and days to make our company the best we can. Thank you, guys.

Operator: This concludes today's call. Thank you for attending. You may now disconnect.

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