Earnings call transcript: Delek Logistics misses Q2 2025 forecasts, stock dips

Delek Logistics Partners LP reported its earnings for the second quarter of 2025, revealing a slight miss on both earnings per share (EPS) and revenue forecasts. The company posted an EPS of $0.83, falling short of the expected $0.87, and reported revenue at $246.35 million, below the forecasted $255.98 million. Following the announcement, Delek’s stock dropped by 2.09% in pre-market trading. According to InvestingPro data, the company maintains strong fundamentals with a healthy 33.93% gross profit margin and has consistently raised its dividend for 12 consecutive years.

Key Takeaways

• Delek Logistics missed its EPS forecast by 4.6%.
• Revenue came in 3.76% below expectations.
• Stock price fell by 2.09% in pre-market trading.
• The company reaffirmed its full-year EBITDA guidance.
• Focus remains on expanding gas processing capabilities.

Company Performance

Delek Logistics showed resilience despite missing analyst expectations, with a significant increase in adjusted EBITDA to $120 million, up from $102 million in the same quarter last year. The company continues to leverage its strategic position in the Permian Basin, focusing on growth in its gas processing and sour gas handling capabilities.

Financial Highlights

• Revenue: $246.35 million, below forecast
• Earnings per share: $0.83, below forecast
• Adjusted EBITDA: $120 million, up from $102 million in Q2 2024
• Distributable Cash Flow: $73 million
• DCF Coverage Ratio: 1.22x

Earnings vs. Forecast

Delek Logistics’ EPS of $0.83 missed the forecasted $0.87, a surprise of -4.6%. Revenue also fell short, coming in at $246.35 million compared to the expected $255.98 million. This represents a revenue surprise of -3.76%, marking a deviation from the company’s recent trend of meeting or exceeding expectations.

Market Reaction

The stock price of Delek Logistics dropped by 2.09% in pre-market trading following the earnings announcement, with shares trading at $44.82. This decline reflects investor disappointment due to the earnings miss, although the stock remains within its 52-week range of $34.59 to $48. The broader market trend remains stable, indicating that the drop is more company-specific rather than sector-wide. InvestingPro analysis suggests the stock is slightly overvalued at current levels, though it offers an attractive 9.91% dividend yield and has demonstrated low price volatility with a beta of 0.63.

Outlook & Guidance

Delek Logistics reaffirmed its full-year EBITDA guidance of $480-$520 million. The company is optimistic about its ongoing projects, particularly the Libbey II gas plant, which is expected to reach full capacity by the end of 2025. InvestingPro data reveals the company’s strong financial position, with liquid assets exceeding short-term obligations and a solid track record of maintaining dividend payments for 13 consecutive years. The firm continues to focus on expanding its sour gas processing infrastructure and maintaining flexibility in mergers and acquisitions.

Executive Commentary

"We expect to continue on our value creation path moving forward," stated Abigail Sorek, President of Delek Logistics. Rohit emphasized the company’s comprehensive system for natural gas, highlighting its capabilities in sour gas gathering and processing. Sorek reiterated, "Our only purpose in life is to create value," underscoring the firm’s commitment to shareholder returns.

Risks and Challenges

• Market volatility could impact revenue streams.
• Potential delays in ramping up the Libbey II plant.
• Competitive pressures in the Permian Basin.
• Fluctuations in commodity prices affecting margins.
• Regulatory changes impacting operational costs.

Q&A

During the earnings call, analysts inquired about the commissioning and ramp-up of the Libbey II plant, the company’s M&A strategy, and recent asset transactions in the Delaware Basin. Executives expressed confidence in achieving full-year guidance, addressing concerns about operational efficiency and market opportunities.

Full transcript - Delek Logistics Partners LP (DKL) Q2 2025:

JL, Conference Operator: Thank you for standing by. My name is JL, and I will be your conference operator today. At this time, I would like to welcome everyone to the Delek Logistics Partners Second Quarter twenty twenty five Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question and answer session.

I would now like to turn the conference over to Robert Wright, Chief Financial Officer. You may begin.

Robert Wright, Chief Financial Officer, Delek Logistics Partners: Good morning, and welcome to the Delek Logistics Partners second quarter earnings conference call. Participants joining me on today’s call will include Abigail Sorek, President Ruben Spiegel, EVP. 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 Abagal for opening remarks. Abagal?

Abigail Sorek, President, Delek Logistics Partners: Thank you, Robert. Direct Logistics Partners had another record quarter. We reported approximately $120,000,000 in quarterly adjusted EBITDA. DKL is on track to deliver its full year EBITDA guidance of $480,000,000 to $520,000,000 Delek Logistics continued to make substantial progress in improving its position as a premier full service crude, natural gas and water provider in the most prolific areas of the Permian Basin. During the quarter, we successfully completed the commissioning of the new Libbey plant.

We are very excited about the opportunities this expansion has opened for us and expect to fill the plant to capacity in the 2025. This expansion and our ongoing efforts on acid gas injection and sour gas handling capabilities will further improve our natural gas offering in the Delaware Basin. I’m also very pleased with our crude and water gathering operations. Both DPG and DDG crude gathering operations have started the second half of the year strong with both showing significant rise in volumes. We look forward to continue building on its strength through the remainder of 2025 and beyond.

Between our two water acquisitions and increasing dedication, we expect to grow our competitive position in both Midland and the Delaware Basin. As we have demonstrated in the past, we will continue to grow our partnership to prudent management of leverage and coverage. We not only intend to remain good stewards of stakeholder capital, we also intend to continue to reward them through our peer leading distributions. I am pleased to announce that our Board of Directors have approved the fiftieth consecutive increase in quarterly distribution to $1.115 per unit. This is an extraordinary achievement and we’re extremely proud of our team and financial prudence that have gotten us here.

To conclude, we are very excited about the prospect of Delek Logistics. We expect to continue on our value creation path moving forward and we will continue to grow our distribution in the future. I will now hand it over to Ruben, who will provide more details on our operations.

Ruben Spiegel, EVP, Delek Logistics Partners: Thank you, Abigail. As Abigail mentioned, our excitement about DKL’s future is growing and we continue to work diligently to strengthen our advantaged Varymion position. As I mentioned on our last call, we had begun commissioning our Libbey II gas plant. Since then, we have completed the commissioning and transferred the plant to operation. The plant is performing according to expectations.

And as Avigal mentioned, we expect to fill up the plant up over the remainder of the year. As we also mentioned in our last call, planned CapEx for Libbey 2 included investments that will support future expansions of the Libbey Complex. Our current focus around Libbey Complex is to continue progressing our sour gas treating, gathering and acid gas injections capabilities. We continue to believe that our expanded gas processing and sour gas handling capabilities provide a unique offering to our customers and provides us with a long runway of growth in the Delaware Basin. Additionally, since we are one of the few companies which can handle all three streams, crude, gas and water, our natural gas G and P expansion is opening additional opportunities for us on crude and water gathering in the Delaware Basin.

As Abhaygo mentioned, we have seen our crude gathering volumes rise to start the third quarter and we expect to continue to see this trend going forward. On the Midland side, the integration of the two water gathering systems from H2O and Gravity is progressing well and we expect to use our larger footprint to enhance our combined crude and water offering in the Howard, Martin and Glasgow Counties. Finally, we continue to look for opportunities to make our operations more efficient with target to improve margins across our operations. With that, I will pass it on to Robert.

Robert Wright, Chief Financial Officer, Delek Logistics Partners: Thank you. As both Abigail and Ruben have mentioned, we are continuing the growth story of Delek Logistics. We remain focused on maintaining healthy liquidity to support this growth while ensuring that our leverage aligns with our long term targets. Specifically, the success of our high yield notes offering completed earlier this summer increased our availability by $700,000,000 to over $1,000,000,000 Moving on to our second quarter results. The second quarter adjusted EBITDA was approximately $120,000,000 compared to $102,000,000 in the same period of twenty twenty four.

Distributable cash flow as adjusted was $73,000,000 and the DCF coverage ratio was approximately 1.22 times. We expect this ratio to continue to rise throughout the remainder of the year as our growth projects, including the Levy 2 gas plant, start to meaningfully contribute to our results. For the Gathering and Processing segment, adjusted EBITDA for the quarter was $78,000,000 compared to $55,000,000 in the 2024. The increase was primarily due to the acquisitions of H2O and Gravity. Wholesale Marketing and Terminalling adjusted EBITDA was $23,000,000 compared to $30,000,000 in the prior year.

The decrease was primarily due to the impact of last summer’s amend and extend agreements with DK. Storage and transportation adjusted EBITDA in the quarter was $17,000,000 compared with $17,000,000 in the 2024. And lastly, the investments in pipeline joint venture segment contributed $11,000,000 this quarter compared with $8,000,000 in the 2024. The increase was primarily due to the Wink to Webster dropdown in August. Moving on to capital expenditures.

The capital program for the second quarter was approximately $119,000,000 $115,000,000 of this capital spend relates to growth CapEx, with around $48,000,000 attributed to the completion of the Libbey II gas processing plant. The project was very successful and finished on track from both a timing and cost perspective. The remainder of the capital spend for the period was other growth projects, namely advancing new connections in the Midland and Delaware gathering systems. As to our outlook for the balance of the year, we continue to remain on track for the EBITDA guidance we laid out for the full year of $480,000,000 to $520,000,000 With that, we can now open the call for questions.

JL, Conference Operator: Thank you. The floor is now open for questions. Your first question comes from the line of Doug Irwin of Citi. Your line is open.

Doug Irwin, Analyst, Citi: Thanks for the questions. I wanted to start with the processing plant here. I realize you talked about ramping to capacity in the second half of the year, but just wondering if you could share where you’re seeing volumes trending today as commissioning was completed. And then the press release pointed to further expansions here potentially. Just curious how you’re thinking about any timing of those expansions and whether those would also include more treating capacity along with with more processing.

Abigail Sorek, President, Delek Logistics Partners: Yeah. Taghi, thank you for joining us. As you as we said on the prepared remarks, we are really excited about the the operation and what we have done there both on the capital side and the operation side, and it’s all coming together very, very nicely, and we are very happy about that. So with that said, I will let the woven that takes the lead around that activity give some more color.

Ruben Spiegel, EVP, Delek Logistics Partners: Thank you, Abigail, and thanks for the question. As Abigail said, plant was completed on time. The commissioning phase takes some time, but it was done according to our planned schedule and with a big focus on reliability. As we’re speaking right now, we are flowing gas. We’re doing it gradually and we expect to run full by year end.

The execution of this project within the timeline and the budget is what gives us the confidence and the comfort to reaffirm our guideline of $480,000,000 to $520,000,000 In addition to that, our focus is now on the sour gas processing and we’re working we already constructed the I mean unit and now we’re working on drilling the AGI wells and executing on other infrastructure related projects associated with the sour. So we are on track on that project as well and we are coordinating the timeline and the efforts with their producers.

Abigail Sorek, President, Delek Logistics Partners: More development, we have to stay tight. We obviously have the opportunity. We said in the previous call that we have made some investment, but we will but we will announce it once we feel that we are ready to announce it, not not announce it before. So that’s very much on our mind.

Doug Irwin, Analyst, Citi: Understood. And maybe just a follow-up on the sour gas treating side. We obviously saw some assets change hands in the Delaware recently. Just curious your view of that deal, how kind of those assets might compare to your footprint right there in the Delaware as well and just your views to some of the broader competitive environment for treating capacity in the Delaware as it seems like it’s becoming an increased focus for for some players in the basin.

Abigail Sorek, President, Delek Logistics Partners: Yeah. Doug, I think you’re absolutely right. You cover the sector very well, and you are you are dead on. Obviously, Northwind, you’re probably referring to that is a very close system to us. There is some similarity in configuration, but we also have capabilities that are not necessarily in Northwind and Mohit will cover that in a second.

With that said, every time that we see such a high multiply in our neighborhood, it’s a good thing for us and it showed the intrinsic value that we see in the DKL asset. And we are very proud and excited to develop them to full capacity to the benefit of the unit holder. Rohit, do want to explain the difference between the systems?

Rohit: Yeah. Regal, thanks. So Doug, I think, you know, we’ve talked about this multiple times in the past. This transaction is a great reaffirmation of our strategy and as far as the gas processing gathering and our entire business and the delivery is concerned. So we’re very happy to see that benchmark.

And I think I mentioned this on an earlier Delek call. I don’t know if you got a chance to listen to it. Northwind just has treating capacity. They don’t have processing capacity. We have a much bigger, fuller strategy around natural gas, including sour gas gathering, treating, processing, and we like our comprehensive system a lot better.

But, you know, this definitely provides us a benchmark. We we followed the transaction very closely, and and I think it’s a great reaffirmation of our strategy, as I mentioned before.

Doug Irwin, Analyst, Citi: Understood. That’s all for me. Thanks for the time. Thank you, Doug.

JL, Conference Operator: Your next question comes from the line of Gabe Moreen of Mizuho. Your line is open.

Abigail Sorek, President, Delek Logistics Partners: Hey Gabe, how are you? Good.

Gabe Moreen, Analyst, Mizuho: How are you doing? I’m doing well. Thank you. Good. Just wanted to stay on the M and A topic.

Just kind of wondering your latest thoughts in terms of what you’re seeing out there in the market. Obviously, you’ve got a lot of liquidity now on the DKL side post the high yield offerings. So just wondering what you’re seeing out there, whether in the Delaware, Midland, water, crude or gas or otherwise?

Abigail Sorek, President, Delek Logistics Partners: So thank you, Gabe. We do have liquidity, but our thought in mind is to create value for investors. We have done that through increasing distribution. We have done that in organic development and we are doing that by reducing our cost of capital. That was very big initiative for that high yield.

Specifically on the high yield markets, when we are looking on M and A, we are looking and these things. It needs to be free cash flow accretive. It needs to be accretive to leverage ratio. It needs to be accretive for coverage ratio. And it needs to fit our strategy.

We are always looking. And if the opportunity presents itself, are not trying to make a move. But we are also on the sell side, if the opportunity presents itself on the other side, we can do the other way around. So we are not I want you to fully understand that we are not made to an asset. All purpose in life is to create value and we can as we demonstrate in the last year, can play on each side of the table by creating a huge value to investors.

So I think that’s the message.

Gabe Moreen, Analyst, Mizuho: Perfect. Thanks, Aravikal. And then maybe if we can talk about just what you’re hearing from producers and their plans. Clearly, there’s been a lot of commodity price volatility, where you’re feeling about where you may come in, in the $480,000,000 to $520,000,000 range for guidance. Just maybe your latest thoughts there, given all the shifting background there.

Abigail Sorek, President, Delek Logistics Partners: Yes, absolutely. So let’s start with the easy one. Let’s talk about producers. So we are as I said many times in the past, we are in the most prolific area of the Permian Basin. We feel very good with our guidance April to 05/20.

And I think we are one of the few that reiterated guidance versus the sector that took some some breather room on the guidance and took them down down just a little bit. So you need to feel very good with that. You probably also heard me saying on the prepared remark that we see uptick in volume on Q3 on crude, both from the Delaware system, the DDG and Midland system DPG. So that’s another thing that you need to feel good about. We are very we have a very good relationship with our customer.

We have a mature customer. We have a great rock to work with. Our breakeven in our area are low. So I don’t think that any there is no where crude is 65 stable kind of a deal. I don’t see any problem with where where we are giving the lowest breakeven.

So we feel very good with where we are.

Gabe Moreen, Analyst, Mizuho: Perfect. Thanks, Avigal.

Abigail Sorek, President, Delek Logistics Partners: Thank you, Matt.

JL, Conference Operator: There are no further questions. That concludes our Q and A session. I’ll now turn the conference back over to Avigal Sodak for closing remarks.

Abigail Sorek, President, Delek Logistics Partners: Thank you. So I would like to thank my colleagues here around the table. I would like to thank you, the investors, sell side, buy side. And I would like to thank the Board of Directors and mostly to thank our entire employees that make our partnership as good as it is. So thank you.

JL, Conference Operator: This concludes today’s conference call. You may now disconnect.

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