Delek Logistics Partners Q1 2026 Earnings Call - Distribution Streak Extends to 53 Quarters Amid Permian Expansion

Operator: I will now hand the conference over to Robert Wright, Executive Vice President and Chief Financial Officer. Robert, please go ahead.

Robert Wright, Executive Vice President and Chief Financial Officer, Delek Logistics Partners: Good morning, welcome to the Delek Logistics Partners first quarter earnings conference call. Participants joining me on today’s call will include Avigal Soreq, President and Chairman, Reuven Spiegel, EVP, as well as other members of our management team. As a reminder, this conference call will contain forward-looking statements as defined under the Federal Securities laws, including statements regarding guidance and future business outlook. Any forward-looking statements made during today’s call involve risks and uncertainties that may cause actual results to differ materially from today’s comments. Factors that could cause actual results to differ are included in our SEC filings. The company assumes no obligation to update any forward-looking statements. I will now turn the call over to Avigal for opening remarks. Avigal?

Avigal Soreq, President and Chairman, Delek Logistics Partners: Thank you, Robert. DKL reported $132 million in Adjusted EBITDA in the quarter. We are very confident about achieving full-year EBITDA guidance of $520 million-$560 million. DKL saw a strong execution in the first quarter, despite some challenges associated with Winter Storm Fern. These results are a reflection of strengths 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’ve increased our overall gathering capacity and look forward to further optimizing and growing the business over the rest of the year. Our water business continues to perform strongly, and we’re exploring additional opportunities in this space. Reuven will share further insight on these developments. The combined gas, crude, and water offering in the Permian Basin has increased our competitive position and built 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 steward to our stakeholders’ capital. Our board of director have 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 firmly 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 Reuven, who will provide more details on our operations.

Reuven Spiegel, Executive Vice President, Delek Logistics Partners: Thank you, Avigal Soreq. As Avigal Soreq mentioned, we are excited about DKL’s future, recent rally in crude prices, along with the strength of our three-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 Avigal Soreq mentioned, we have completed the drilling of our first AGI well, 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 the producer needs. As we have mentioned in the past, while our ramp-up has been slower versus our initial expectation, post our sour gas system build-out, we expect to see 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 Fern 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 am 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 Gravity 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, Executive Vice President and Chief Financial Officer, Delek Logistics Partners: Thank you, Reuven. As Avigal Soreq and Reuven 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 were 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-$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 4.05 times, 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 remains stable at approximately 1.2 times.

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 impacts of the 2024 amended extend agreement with Delek. Storage and transportation Adjusted EBITDA in the first quarter was $25 million, compared with $14 million in the first quarter of 2025. The increase primarily reflects the impacts 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 Wink to Webster joint venture. Moving now to capital expenditures. Total capital spending for the first quarter was approximately $50 million. Of this amount, $42 million was growth capital, primarily related to the drilling of our first AGI well, 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 Soreq mentioned, we remain confident in our earnings trajectory and are reaffirming our full year 2026 EBITDA guidance to a range of $520 million-$560 million.

With that, we can open the call for questions.

Operator: We will now begin the question and answer session. If you would like to ask a question, please press star one on your telephone keypad. To withdraw your question, please press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Doug Irwin from Citigroup. Your line is now open.

Doug Irwin, Analyst, Citigroup: Hey, thanks for the question. I just wanted to start with the guidance.

Avigal Soreq, President and Chairman, Delek Logistics Partners: Hey, Doug Irwin. How are you?

Hey, I’m good. How are you guys? 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 kinda earlier in the year? 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.

Yeah. Doug, you nailed it, right? Our optimism around our guidance is being driven from two things, right? One is the macro environment. I will talk about it in a second. Second is our execution, our strategy. On the macro side, obviously the premium risk that you have between Brent WTI is gonna change. It’s very obvious that the premium risk that we had last year on Brent is not the premium risk we see today. 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 shale, the U.S. shale as a safe harbor for a crude supply around the globe.

That’s put us in a very good position, both in the Midland area and on the Delaware area. Our combined offering of crest, gas, crude, and water is a unique offering that give our customer a offering that not many does, and that positions us very well. Also the development we see around our gas business, with giving a comprehensive solution is also, we are seeing a very encouragement development. With that, I will leave it to Reuven to give his insights. Thank you, Avigal Soreq. 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.

Reuven Spiegel, Executive Vice President, Delek Logistics Partners: Crude is solid, we are seeing opportunities in our Delaware business, in addition, we enjoy some tailwind from the Iran conflict. Finally, gas will ramp up in the second half of the year. With that said, we feel very comfortable at our guidance range.

Mohit, Management Team Member, Delek Logistics Partners: Great. Thanks for that. 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? Then just curious how soon after with the two 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.

Avigal Soreq, President and Chairman, Delek Logistics Partners: Yeah, 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 multi-step process. One of the critical path was drilling the AGI 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 month. 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.

Doug Irwin, Analyst, Citigroup: Got it. Thanks for the time.

Operator: Thank you for your question. Your next question comes from the line of Gabe Moreen from Mizuho. Your line is now open.

Gabe Moreen, Analyst, Mizuho: Okay. Good morning, everyone. How are you, Avigal Soreq?

Avigal Soreq, President and Chairman, Delek Logistics Partners: How are you, Gabe?

Gabe Moreen, Analyst, Mizuho: Good, thanks.

Avigal Soreq, President and Chairman, Delek Logistics Partners: I’m doing good.

Gabe Moreen, Analyst, Mizuho: You can. Ha. You tantalized a little bit with some, I think, growing in water comments. Can you maybe just talk about what you’re seeing? Are there some systems, whether it’s private equity, producer-backed, what you might be seeing out there size-wise, materiality? Just curious on those thought of those comments.

Avigal Soreq, President and Chairman, Delek Logistics Partners: Yeah, yeah. Absolutely. I will give some higher view around it, Mohit, some energy around the topic, he will chime in. Obviously we’re not gonna be specific about deals and size until we are fully ready to say it. The combination of crude water and gas in the area we’re operating in a meaningful and sizable way is giving us a tailwind. We are very happy about that. We have a very good strategic discussion, I think that the strategies and location and execution, that’s the combination we are trying to achieve. We’re very happy about that. Reuven, you wanna chime in?

Reuven Spiegel, Executive Vice President, Delek Logistics Partners: Thank you, Avigal. We’re 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. 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. We’re looking at ways to come up with creative solution around this, and we’ll probably give more color and updates when we are ready in the near future.

Gabe Moreen, Analyst, Mizuho: Thanks, Reuven. Thanks, Avigal. You mentioned, I think, the impacts 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?

Avigal Soreq, President and Chairman, Delek Logistics Partners: Yeah. You are right. The observation, it was a event that was, it was close event. It was not a lingering event, but it was when it happened, it was meaningful, and then it came back to normalcy. Robert, our CFO, will chime in and give you more color around it.

Robert Wright, Executive Vice President and Chief Financial Officer, Delek Logistics Partners: Thanks, Abigail. Primary impacts were on crude, both in the Midland and Delaware basins, and also a little bit on the gas processing side. You know, as we stated in our remarks, very limited impact, if any, to our water business overall. 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 Fern behind us. I’ll pass to Mohit as well to talk about the Waha question.

Mohit, Management Team Member, Delek Logistics Partners: Yeah, Gabe, we’ve discussed this in the past. Waha is an important piece of the Permian story, and you covered this very well. You know that a lot of residue gas pipelines are going to start coming up in the second half of this year, which is going to relieve, you know, a lot of pressure that some of our producer customers are faced in terms of take away capacity on the natural gas side.

Overall, these two developments, as Avigal Soreq mentioned at the beginning of this call, higher call on shale crude, you know, as a result of the Iran conflict, Waha gas prices and finding a floor based upon incremental residue gas take away capacity that’s going to come online is a very positive development for DKL because we are in the right neighborhood. As producers have capacity to put this gas into the right market, you will see more production come in. All three of our businesses, gas, water, and crude, will benefit from that. We are excited about how this year plays out as far as the residue gas take away capacity is concerned.

Gabe Moreen, Analyst, Mizuho: Got it. Thanks, Mohit. Appreciate the time.

Mohit, Management Team Member, Delek Logistics Partners: Thank you.

Avigal Soreq, President and Chairman, Delek Logistics Partners: Thank you. Appreciate you.

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 Soreq, President and Chairman, for closing remarks.

Avigal Soreq, President and Chairman, Delek Logistics Partners: Thank you. I wanna thank my colleagues around the table. I wanna thank the investor that join us for today and believe in us and sticking to the story. 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.