Delek Logistics Partners, LP 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management’s Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is management’s analysis of our financial performance and of significant trends that may affect our future performance. The MD&A should be read in conjunction with our condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and in the Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission ("SEC") on March 1, 2021 (the "Annual Report on Form 10-K"). Those statements in the MD&A that are not historical in nature should be deemed forward-looking statements that are inherently uncertain. See "Forward-Looking Statements" below for a discussion of the factors that could cause actual results to differ materially from those projected in these statements. Unless otherwise noted or the context requires otherwise, references in this report to "Delek Logistics Partners, LP," the "Partnership," "we," "us," "our," or like terms, may refer to Delek Logistics Partners, LP, one or more of its consolidated subsidiaries or all of them taken as a whole. Unless otherwise noted or the context requires otherwise, references in this report to "Delek Holdings" refer collectively to Delek US Holdings, Inc. and any of its subsidiaries, other than the Partnership and its subsidiaries and its general partner. Effective August 13, 2020, the Partnership closed the transaction contemplated by a definitive exchange agreement with the general partner to eliminate all of the incentive distribution rights ("IDRs") held by the general partner, such transaction the "IDR Restructuring Transaction." See Note 3 of the accompanying condensed consolidated financial statements for further information. Effective May 1, 2020, the Partnership, through its wholly-owned subsidiary DKL Transportation, LLC, acquired Delek Trucking, LLC consisting of certain leased and owned tractors and trailers and related assets (the "Trucking Assets") from Delek Holdings, such transaction the "Trucking Assets Acquisition." See Note 2 of the accompanying condensed consolidated financial statements for further information. Effective March 31, 2020, the Partnership, through its wholly-owned subsidiary DKL Permian Gathering, LLC, acquired from Delek Holdings a crude oil gathering system located in Howard, Borden and Martin Counties, Texas (the "Big Spring Gathering Assets"), and certain related assets, such transaction the "Big Spring Gathering Assets Acquisition." See Note 2 of the accompanying condensed consolidated financial statements for further information. The Partnership announces material information to the public about the Partnership, its products and services and other matters through a variety of means, including filings with the Securities and Exchange Commission, press releases, public conference calls, the Partnership's website (www.deleklogistics.com), the investor relations section of the website (ir.deleklogistics.com), the news section of its website (www.deleklogistics.com/news), and/or social media, including its Twitter account (@DelekUSLogistics). The Partnership encourages investors and others to review the information it makes public in these locations, as such information could be deemed to be material information. Please note that this list may be updated from time to time. Forward-Looking Statements This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements reflect our current estimates, expectations and projections about our future results, performance, prospects and opportunities. Forward-looking statements include, among other things, statements regarding the effect, impact, potential duration or other implications of, or expectations expressed with respect to, the COVID-19 Pandemic and the actions of members of the Organization of Petroleum Exporting Countries ("OPEC") and other leading oil producing countries (together with OPEC, "OPEC+") with respect to oil production and pricing, and statements regarding our efforts and plans in response to such events, the information concerning our possible future results of operations, business and growth strategies, financing plans, expectations that regulatory developments or other matters will not have a material adverse effect on our business or financial condition, our competitive position and the effects of competition, the projected growth of the industry in which we operate, the benefits and synergies to be obtained from our completed and any future acquisitions, statements of management’s goals and objectives, and other similar expressions concerning matters that are not historical facts. Words such as “may,” “will,” “should,” “could,” “would,” “predicts,” “potential,” “continue,” “expects,” “anticipates,” “future,” “intends,” “plans,” “believes,” “estimates,” “appears,” “projects” and similar expressions, as well as statements in future tense, identify forward-looking statements. Forward-looking statements should not be read as a guarantee of future performance or results, and will not necessarily be accurate indications of the times at, or by, which such performance or results will be achieved. Forward-looking information is based on information available at the time and/or management’s good faith belief with respect to future events, and is subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in the statements. Important factors that, individually or in the aggregate, could cause such differences include, but are not limited to: • our substantial dependence on Delek Holdings or its assignees and their support of and respective ability to pay us under our commercial agreements; 23 | Management's Discussion and Analysis • our future coverage, leverage, financial flexibility and growth, and our ability to improve performance and achieve distribution growth at any level or at all; • Delek Holdings' future growth, financial performance, share repurchases, crude oil supply pricing and flexibility and product distribution; • industry dynamics, including Permian Basin growth, ownership concentration, efficiencies and takeaway capacity; • the age and condition of our assets and operating hazards and other risks incidental to transporting, storing and gathering crude oil, intermediate and refined products, including, but not limited to, costs, penalties, regulatory or legal actions and other effects related to spills, releases and tank failures; • changes in insurance markets impacting costs and the level and types of coverage available; • the timing and extent of changes in commodity prices and demand for refined products and the impact of the COVID-19 Pandemic on such demand; • the wholesale marketing margins we are able to obtain and the number of barrels of product we are able to purchase and sell in our West Texas wholesale business; • the suspension, reduction or termination of Delek Holdings' or its assignees' or third-party's obligations under our commercial agreements including the duration, fees or terms thereof; • the results of our investments in joint ventures; • the ability to secure commercial agreements with Delek Holdings or third parties upon expiration of existing agreements; • the possibility of inefficiencies, curtailments, or shutdowns in refinery operations or pipelines, whether due to infection in the workforce or in response to reductions in demand as a result of the COVID-19 Pandemic; • disruptions due to equipment interruption or failure, or other events, including terrorism, sabotage or cyber attacks, at our facilities, Delek Holdings’ facilities or third-party facilities on which our business is dependent; • changes in the availability and cost of capital of debt and equity financing; • our reliance on information technology systems in our day-to-day operations; • changes in general economic conditions, including uncertainty regarding the timing, pace and extent of economic recovery in the United States due to the COVID-19 Pandemic; • the effects of existing and future laws and governmental regulations, including, but not limited to, the rules and regulations promulgated by the Federal Energy Regulatory Commission ("FERC") and state commissions and those relating to environmental protection, pipeline integrity and safety as well as current and future restrictions on commercial and economic activities in response to the COVID-19 Pandemic; • competitive conditions in our industry; • actions taken by our customers and competitors; • the demand for crude oil, refined products and transportation and storage services; • our ability to successfully implement our business plan; • inability to complete growth projects on time and on budget; • our ability to successfully integrate acquired businesses; • disruptions due to acts of God, including natural disasters, weather-related delays, casualty losses and other matters beyond our control; • severe weather patterns, such as freezing conditions, might cause damage to our pipelines, terminal facilities and other assets and could impact our operating results through increased costs and/or loss of revenue; • changes in the price of RINs could affect our results of operations; • future decisions by OPEC+ regarding production and pricing and disputes between OPEC+ regarding such; • changes or volatility in interest and inflation rates; • labor relations; • large customer defaults; • changes in tax status and regulations; 24 | Management's Discussion and Analysis • the effects of future litigation; and • other factors discussed elsewhere in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K. Many of the foregoing risks and uncertainties are, and will be, exacerbated by the COVID-19 Pandemic and any worsening of the global business and economic environment. In light of these risks, uncertainties and assumptions, our actual results of operations and execution of our business strategy could differ materially from those expressed in, or implied by, the forward-looking statements, and you should not place undue reliance upon them. In addition, past financial and/or operating performance is not necessarily a reliable indicator of future performance, and you should not use our historical performance to anticipate results or future period trends. We can give no assurances that any of the events anticipated by the forward-looking statements will occur or, if any of them do, what impact they will have on our results of operations and financial condition. All forward-looking statements included in this report are based on information available to us on the date of this report. We undertake no obligation to revise or update any forward-looking statements as a result of new information, future events or otherwise. Business Overview The Partnership primarily owns and operates crude oil, intermediate and refined products logistics and marketing assets. We gather, transport, offload and store crude oil and intermediate products and market, distribute, transport and store refined products primarily in select regions of the southeastern United States and Texas for Delek Holdings and third parties. A substantial majority of our existing assets are both integral to and dependent upon the success of Delek Holdings' refining operations, as many of our assets are contracted exclusively to Delek Holdings in support of its Tyler, El Dorado and Big Spring refineries. The Partnership is not a taxable entity for federal income tax purposes or the income taxes of those states that follow the federal income tax treatment of partnerships. Instead, for purposes of such income taxes, each partner of the Partnership is required to take into account its share of items of income, gain, loss and deduction in computing its federal and state income tax liabilities, regardless of whether cash distributions are made to such partner by the Partnership. The taxable income reportable to each partner takes into account differences between the tax basis and the fair market value of our assets and financial reporting bases of assets and liabilities, the acquisition price of the partner's units and the taxable income allocation requirements under the Partnership's Second Amended and Restated Agreement of Limited Partnership (the "Partnership Agreement"). The on-going impact of the COVID-19 Pandemic, the restrictions imposed to prevent its spread, the challenges with the vaccination rollout, and the spread of new variants of the virus, continue to cause significant economic disruption globally, including in the U.S. and specific geographic areas where we operate. Compared to the prior year, the first quarter of 2021 has witnessed economic recovery trends including resumption of flights by major airlines and increased motor vehicle use, as the government continues to ramp up the vaccination rollout. This has in turn resulted in increased demand for, thus also the market prices of, crude oil and certain products, particularly refined petroleum products that we receive revenue for the transportation and storage services we provide and an increase in demand and sales volumes in our wholesale marketing business. As of March 31, 2021, there is continued uncertainty about the duration and future impact of the COVID-19 Pandemic. Additionally, increased infection rates could impact our logistics operations, particularly in high-infection states, if our employees are personally affected by the illness, both through direct infection and quarantine procedures. In February 2021, our operations and those of our customers were temporarily impacted by the severe freezing weather, which affected certain regions around the country including areas where we operate. Our customers’ volumes were significantly impacted by the prolonged freezing conditions that occurred, resulting in lower throughput in our pipeline and transportation operations. In addition, the freezing conditions led to significant increases to energy prices resulting in increases to the related expenses. Severe weather patterns such as the freezing conditions might cause damage to our pipelines, terminal facilities and other assets and could impact our operating results through additional costs and/or loss of revenue. During the three months ended March 31, 2021, both our West Texas wholesale marketing business and many of our pipeline and transportation customers experienced an increase in demand and pricing due to the resumption of some economic activities as discussed above. The impact of this positive trend was netted by the reduced volumes during the severe freezing conditions experienced in February 2021 as discussed above. Our pipelines and transportation revenue streams were largely protected by minimum volume commitments under existing throughput contracts with customers during the current and prior periods, but continued pressure on our customers could present risks to our existing and new business opportunities as well as on collectability on our receivables. Our management continues to monitor the COVID-19 infections in the communities around our company locations, the impact on our operations and whether there is a need to update our remote policies and quarantine protocols. We continue to be exposed to risk from our suppliers and customers who are facing similar challenges. To the extent that uncertainties related to the COVID-19 Pandemic have been identified and are believed to have an impact on our current period results of operations or financial position based on the requirements for assessing such financial statement impact under U.S. generally accepted accounting principles, we have considered them in the preparation of our condensed consolidated financial statements as of and for the three months ended March 31, 2021, which are included in Item 1. of this Quarterly Report on Form 10-Q. 25 | Management's Discussion and Analysis Other uncertainties related to the impact of the COVID-19 Pandemic and other events may exist that have not been identified, and could impact our future results of operations and financial position, the nature of which and the extent to which are currently unknown. The U.S. Federal Government's passage and/or enactment of additional stimulus and relief measures, may impact the extent to which the risk underlying these uncertainties are realized. In addition, management continues to actively respond to the impact of the COVID-19 Pandemic and other events on our business. Such efforts include (but are not limited to) the following: • Reducing planned capital expenditures for 2021; • Identifying alternative financing solutions to enhance our access to sources of liquidity; • Enacting cost reduction measures across the organization, including reducing contract services, reducing overtime and reducing or eliminating non-critical travel which serves the dual purpose of also complying with recommendations made by the state and federal governments because of the COVID-19 Pandemic; • Implementing regular site cleaning and disinfecting procedures; • Adopting remote working where possible. Where on-site operations are required, appropriate safety precautions taken; and • Working with our employees to implement other site-specific precautionary measures to reduce the risk of exposure. The extent to which our future results are affected by the COVID-19 Pandemic will depend on various factors and consequences beyond our control, such as the duration and scope of the Pandemic; additional actions by businesses and governments in response to the COVID-19 Pandemic; and the speed and effectiveness of responses to combat the virus. The COVID-19 Pandemic, and the volatile regional and global economic conditions stemming from the Pandemic, could also exacerbate the risk factors identified in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K. The COVID-19 Pandemic may also materially adversely affect our results in a manner that is either not currently known or that we do not currently consider to be a significant risk to our business. See also 'Risk Factors' in Part I, Item 1A. of our Annual Report on Form 10-K for further discussion of risks associated with the COVID-19 Pandemic. Our Reporting Segments and Assets Our business consists of two reportable segments: Pipelines and Transportation The assets and investments in our pipelines and transportation segment consist of pipelines, tanks, offloading facilities, trucks and ancillary assets, which provide crude oil gathering and crude oil, intermediate and refined products transportation and storage services primarily in support of Delek Holdings' refining operations in Tyler, Texas, El Dorado, Arkansas and Big Spring, Texas. Additionally, the assets in this segment provide crude oil transportation services to certain third parties. In providing these services, we do not take ownership of the products or crude oil that we transport or store. Therefore, we are not directly exposed to changes in commodity prices with respect to this operating segment. Wholesale Marketing and Terminalling The assets in our wholesale marketing and terminalling segment consist of refined products terminals and pipelines in Texas, Tennessee, Arkansas and Oklahoma. We generate revenue in our wholesale marketing and terminalling segment by providing marketing services for the refined products output of the Tyler and Big Spring refineries, engaging in wholesale activity at our terminals in West Texas and at terminals owned by third parties, whereby we purchase light products for sale and exchange to third parties, and by providing terminalling services at our refined products terminals to independent third parties and Delek Holdings. 2021 Strategic Developments Exclusivity Supply Agreement In May 2021, we executed a strategic exclusivity supply agreement with Baker Petrolite LLC (an affiliate of Baker Hughes Company) ("Baker"), for the supply of chemicals to meet IMO regulations through blending competencies utilizing proprietary intellectual property.The agreement has a 5-year initial term and a 5-year extension option. Terms of the agreement are intended to incentivize a cooperative arrangement relating to strategic blending activities to be operated by the Partnership, and provides an exciting growth opportunity. See Note 15 to our accompanying condensed consolidated financial statements for additional information 26 | Management's Discussion and Analysis How We Generate Revenue The Partnership generates revenue by charging fees to Delek Holdings and third parties for gathering, transporting, offloading and storing crude oil and for marketing, distributing, transporting, throughputting and storing intermediate and refined products. We also wholesale market refined products primarily in the West Texas market. A substantial majority of our contribution margin, which we define as net revenues less cost of materials and other and operating expenses, excluding depreciation and amortization, is derived from commercial agreements with Delek Holdings with initial terms ranging from five to ten years, which gives us a contractual revenue base that we believe enhances the stability of our cash flows. As more fully described below, our commercial agreements with Delek Holdings typically include minimum volume or throughput commitments by Delek Holdings, which we believe will provide a stable revenue stream in the future. The fees charged under our agreements with Delek Holdings and third parties are indexed to inflation-based indices. In addition, the rates charged with respect to our assets that are subject to inflation indexing may increase or decrease, typically on July 1 of each year, by the amount of any change in various inflation-based indices, including FERC, provided that in no event will the fees be adjusted below the amount initially set forth in the applicable agreement. Commercial Agreements with Delek Holdings The Partnership has a number of long-term, fee-based commercial agreements with Delek Holdings under which we provide various services, including crude oil gathering, crude oil, intermediate and refined products transportation and storage services, and marketing, terminalling and offloading services to Delek Holdings, and Delek Holdings commits to provide us with minimum monthly throughput volumes of crude oil, intermediate and refined products. Generally, these agreements include minimum quarterly volume, revenue or throughput commitments and have tariffs or fees indexed to inflation-based indices, provided that the tariffs or fees will not be decreased below the initial amount. See our Annual Report on Form 10-K filed with the SEC on March 1, 2021 for a discussion of our material commercial agreements with Delek Holdings. Other Transactions Starting in 2018, the Partnership manages a long-term capital project on behalf of Delek Holdings pursuant to a construction management and operating agreement (the "DPG Management Agreement") for the construction of a 250-mile gathering system in the Permian Basin (the "Delek Permian Gathering Project"). As of March 31, 2021, approximately 183 miles of the gathering system were completed and operational, however, additional costs pertaining to a pipeline connection that was not contributed to the Partnership continue to be incurred and are still subject to the terms of the DPG Management Agreement. The Partnership is also considered the operator for the project and is responsible for the oversight of the project design, procurement and construction of project segments and for providing other related services. See Note 3 to our accompanying condensed consolidated financial statements for additional information on the DPG Management Agreement. How We Evaluate Our Operations We use a variety of financial and operating metrics to analyze our segment performance. These metrics are significant factors in assessing our operating results and profitability and include: (i) volumes (including pipeline throughput and terminal volumes); (ii) contribution margin per barrel; (iii) operating and maintenance expenses; (iv) cost of materials and other; and (v) EBITDA and distributable cash flow (as such terms are defined below). Volumes The amount of revenue we generate primarily depends on the volumes of crude oil and refined products that we handle in our pipeline, transportation, terminalling, storage and marketing operations. These volumes are primarily affected by the supply of and demand for crude oil, intermediate and refined products in the markets served directly or indirectly by our assets. Although Delek Holdings has committed to minimum volumes under certain of the commercial agreements, as described above, our results of operations will be impacted by: • Delek Holdings' utilization of our assets in excess of its minimum volume commitments; • our ability to identify and execute acquisitions and organic expansion projects, and capture incremental volume increases from Delek Holdings or third parties; • our ability to increase throughput volumes at our refined products terminals and provide additional ancillary services at those terminals; • our ability to identify and serve new customers in our marketing and trucking operations; and • our ability to make connections to third-party facilities and pipelines. 27 | Management's Discussion and Analysis Contribution Margin per Barrel Because we do not allocate general and administrative expenses by segment, we measure the performance of our segments by the amount of contribution margin as generated in operations. Contribution margin is defined as net revenues less cost of materials and other and operating expenses, excluding depreciation and amortization. For our wholesale marketing and terminalling segment, we also measure gross margin per barrel. Gross margin per barrel reflects the gross margin (net revenues less cost of materials and other) of the wholesale marketing operations divided by the number of barrels of refined products sold during the measurement period. Both contribution margin and gross margin per barrel can be affected by fluctuations in the prices and cost of gasoline, distillate fuel, ethanol and RINs. Historically, the profitability of our wholesale marketing operations has been affected by commodity price volatility, (specifically as it relates to changes in the price of refined products between the time we purchase such products from our suppliers and the time we sell the products to our wholesale customers), and the fluctuation in the value of RINs. Commodity price volatility may also impact our wholesale marketing operations when the selling price of refined products does not adjust as quickly as the purchase price. Our wholesale marketing gross margin may also be impacted by fixed price ethanol agreements that we enter into to fix the price we pay for ethanol. Operating and Maintenance Expenses We seek to maximize the profitability of our operations by effectively managing operating and maintenance expenses. These expenses include the costs associated with the operation of owned terminals and pipelines and terminalling expenses at third-party locations, excluding depreciation and amortization. These costs primarily include outside services, allocated employee costs, repairs and maintenance costs and energy and utility costs. Operating expenses related to the wholesale business are excluded from cost of sales because they primarily relate to costs associated with selling the products through our wholesale business. These expenses generally remain relatively stable across broad ranges of throughput volumes, but can fluctuate from period to period depending on the mix of activities performed during that period and the timing of these expenses. Additionally, compliance with federal, state and local laws and regulations relating to the protection of the environment, health and safety may require us to incur additional expenditures. We will seek to manage our maintenance expenditures on our pipelines and terminals by scheduling maintenance over time to avoid significant variability in our maintenance expenditures and minimize their impact on our cash flow. Cost of Materials and Other These costs include: (i) all costs of purchased refined products in our wholesale marketing and terminalling segment, as well as additives and related transportation of such products; (ii) costs associated with the operation of our trucking assets, which primarily include allocated employee costs and other costs related to fuel, truck leases and repairs and maintenance; (iii) the cost of pipeline capacity leased from any third parties; and (iv) gains and losses related to our commodity hedging activities. Financing The Partnership has declared its intent to make a cash distribution to its unitholders at a distribution rate of $0.920 per unit for the quarter ended March 31, 2021 ($3.680 per unit on an annualized basis). Our Partnership Agreement requires that the Partnership distribute all of its available cash (as defined in the Partnership Agreement) to its unitholders quarterly. As a result, the Partnership expects to fund future capital expenditures primarily from operating cash flows, borrowings under our DKL Credit Facility and any potential future issuances of equity and debt securities. See Note 8 to the accompanying condensed consolidated financial statements for a discussion of historic cash distributions. 28 | Management's Discussion and Analysis Market Trends Business Environment Fluctuations in crude oil prices and the prices of related refined products impact our operations and the operations of other master limited partnerships in the midstream energy sector. In particular, crude oil prices and the prices of related refined products have the ability to influence drilling activity in many basins and the amounts of capital spending that crude oil exploration and production companies incur to support future growth. During the first quarter of 2021, although the on-going COVID-19 Pandemic continues to negatively affect economic trends, signs of economic recovery are starting to show resulting in increases in consumption and demand for crude oil and refined products. Compared to the first quarter of 2020, where reduced demand for crude oil and refined products related to the COVID-19 Pandemic, combined with production increases from OPEC+, had led to a significant reduction in crude oil prices, crude oil prices during the first quarter of 2021 have been increasing. Commodity prices are showing signs of recovery and are expected to continue recovering in 2021 as the U.S. federal and state governments increase the rollout of vaccinations. The opening January 2021 price of oil (WTI Cushing) was $47.62 and reached the January 2021 high closing price of oil of $53.57 per barrel, which further increased to close at $59.16 per barrel on March 31, 2021. Oil prices reached a high of $66.09 on March 5, 2021. Due to the stabilization in oil prices, during the first quarter of 2021, we experienced improved margins in the West Texas area, and better throughput for our assets with improved gross margins, when compared to the first quarter of 2020. We believe we are strategically positioned, in these tougher market conditions to continue developing profitable growth projects that are needed to support future distribution growth in the midstream energy sector for the Partnership. West Texas Marketing Operations Overall demand for gathering and terminalling services in a particular area is generally driven by crude oil production in the area, which can be impacted by crude oil prices, refining economics and access to alternate delivery and transportation infrastructure. Additionally, volatility in crude oil, intermediate and refined products prices in the West Texas area and the value attributable to RINs can affect the results of our West Texas operations. For example, as discussed above, drilling activity and the prices of crude oil and related refined products increased in the first half of 2019 and in spite of a slight decrease in prices in the third quarter of 2019, demand for refined products from our West Texas operations to industries that support crude oil exploration and production began to rebound early in the first quarter of 2020. However due to the impact of the COVID-19 Pandemic there was lower demand and sales of refined products during the latter part of the first quarter of 2020 and remained largely depressed during most of 2020. In the first quarter of 2021, demand for and prices of crude oil and related refined products increased as economic activity began to recover due to the increase in vaccinations. See the chart below for the high, low and average price per barrel of WTI crude oil for each of the quarterly periods in 2020 and for the three months ended March 31, 2021. The volatility of refined products prices may impact our margin in the West Texas operations when the selling price of refined products does not adjust as quickly as the purchase price. See the charts below for the range of prices per gallon of gasoline and diesel for each of the quarterly periods in 2020 and for the three months ended March 31, 2021. 29 | Management's Discussion and Analysis Our West Texas operations can benefit from RINs that are generated by ethanol blending activities. As a result, changes in the price of RINs can affect our results of operations. The RINs we generate are sold primarily to Delek Holdings at market prices. We sold approximately $2.4 million and $0.8 million of RINs to Delek Holdings during the three months ended March 31, 2021 and 2020, respectively. See below for the high, low and average prices of RINs for each of the quarterly periods in 2020 and in the three months ended March 31, 2021. 30 | Management's Discussion and Analysis All of these factors are subject to change over time. As part of our overall business strategy, management considers aspects such as location, acquisition and expansion opportunities and factors impacting the utilization of the refineries (and therefore throughput volumes), which may impact our performance in the market. 31 | Management's Discussion and Analysis Contractual Obligations There have been no material changes to our contractual obligations and commercial commitments during the three months ended March 31, 2021 from those disclosed in our Annual Report on Form 10-K. Critical Accounting Policies The preparation of our condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. The SEC has defined critical accounting policies as those that are both most important to the portrayal of our financial condition and results of operations and require our most difficult, complex or subjective judgments or estimates. Based on this definition and as further described in our Annual Report on Form 10-K, we believe our critical accounting policies include the following: (i) evaluating impairment for property, plant and equipment and intangibles, and (ii) evaluating potential impairment of goodwill. Non-GAAP Measures Our management uses certain "non-GAAP" operational measures to evaluate our operating segment performance and non-GAAP financial measures to evaluate past performance and prospects for the future to supplement our GAAP financial information presented in accordance with U.S. GAAP. These financial and operational non-GAAP measures are important factors in assessing our operating results and profitability and include: • Earnings before interest, taxes, depreciation and amortization ("EBITDA") - calculated as net income before net interest expense, income tax expense, depreciation and amortization expense, including amortization of customer contract intangible assets, which is included as a component of net revenues in our accompanying condensed consolidated statements of income. • Distributable cash flow - calculated as net cash flow from operating activities plus or minus changes in assets and liabilities, less maintenance capital expenditures net of reimbursements and other adjustments not expected to settle in cash. The Partnership believes this is an appropriate reflection of a liquidity measure by which users of its financial statements can assess its ability to generate cash. EBITDA and distributable cash flow are non-U.S. GAAP supplemental financial measures that management and external users of our condensed consolidated financial statements, such as industry analysts, investors, lenders and rating agencies, may use to assess: • our operating performance as compared to other publicly traded partnerships in the midstream energy industry, without regard to historical cost basis or, in the case of EBITDA, financing methods; • the ability of our assets to generate sufficient cash flow to make distributions to our unitholders; • our ability to incur and service debt and fund capital expenditures; and • the viability of acquisitions and other capital expenditure projects and the returns on investment of various investment opportunities. We believe that the presentation of EBITDA and distributable cash flow provide information useful to investors in assessing our financial condition and results of operations. EBITDA and distributable cash flow should not be considered alternatives to net income, operating income, cash flow from operating activities or any other measure of financial performance or liquidity presented in accordance with U.S. GAAP. EBITDA and distributable cash flow have important limitations as analytical tools because they exclude some, but not all, items that affect net income and net cash provided by operating activities. Additionally, because EBITDA and distributable cash flow may be defined differently by other partnerships in our industry, our definitions of EBITDA and distributable cash flow may not be comparable to similarly titled measures of other partnerships, thereby diminishing their utility. For a reconciliation of EBITDA and distributable cash flow to their most directly comparable financial measures calculated and presented in accordance with U.S. GAAP, please refer to "Results of Operations" below. 32 | Management's Discussion and Analysis Summary of Financial and Other Information A discussion and analysis of the factors contributing to our results of operations is presented below. The financial statements, together with the following information, are intended to provide investors with a reasonable basis for assessing our historical operations, but should not serve as the only criteria for predicting our future performance. The following table and discussion present a summary of our consolidated results of operations for the three months ended March 31, 2021 and 2020, including a reconciliation of net income to EBITDA and net cash flow provided by operating activities to distributable cash flow. Statement of Operations Data (in thousands, except unit and per unit amounts) Three Months Ended March 31, 2021 2020 Net revenues: Pipelines and transportation $ 64,975 $ 47,967 Wholesale marketing and terminalling 87,938 115,434 Total 152,913 163,401 Operating costs and expenses: Cost of materials and other 81,171 101,293 Operating expenses (excluding depreciation and amortization) 14,056 14,744 General and administrative expenses 4,860 6,130 Depreciation and amortization 10,739 6,299 Other operating income, net (83) (107) Total operating costs and expenses 110,743 128,359 Operating income 42,170 35,042 Interest expense, net 9,737 11,824 Income from equity method investments (4,049) (5,553) Other expense, net 31 — Total non-operating costs and expenses 5,719 6,271 Income before income tax expense 36,451 28,771 Income tax expense 184 975 Net income attributable to partners $ 36,267 $ 27,796 Comprehensive income attributable to partners $ 36,267 $ 27,796 EBITDA (1) $ 58,730 $ 48,697 Less: General partner's interest in net income, including incentive distribution rights — 9,077 Limited partners' interest in net income $ 36,267 $ 18,719 Net income per limited partner unit: Common units - basic $ 0.83 $ 0.76 Common units - diluted $ 0.83 $ 0.76 Weighted average limited partner units outstanding: Common units - basic 43,443,336 24,480,570 Common units - diluted 43,449,059 24,485,336 (1) For a definition of EBITDA, please see "Non-GAAP Measures" above. 33 | Management's Discussion and Analysis Non-GAAP Reconciliations The following table provides a reconciliation of EBITDA and distributable cash flow to the most directly comparable U.S. GAAP measure, or net income and net cash from operating activities, respectively. Reconciliation of net income to EBITDA (in thousands) Three Months Ended March 31, 2021 2020 Net income $ 36,267 $ 27,796 Add: Income tax expense 184 975 Depreciation and amortization 10,739 6,299 Amortization of customer contract intangible assets 1,803 1,803 Interest expense, net 9,737 11,824 EBITDA (1) $ 58,730 $ 48,697 Reconciliation of net cash from operating activities to distributable cash flow (in thousands) Three Months Ended March 31, 2021 2020 Net cash provided by operating activities $ 61,732 $ 34,834 Changes in assets and liabilities (10,863) 1,654 Distributions from equity method investments in investing activities 3,924 110 Non-cash lease expense (2,018) (274) Maintenance and regulatory capital expenditures (2) (515) (857) Reimbursement from Delek Holdings for capital expenditures (3) 359 39 Accretion of asset retirement obligations (115) (107) Deferred income taxes (65) — Other operating income, net 83 107 Distributable cash flow (1) $ 52,522 $ 35,506 (1) For a definition of EBITDA and distributable cash flow, please see "Non-GAAP Measures" above. (2) Maintenance and regulatory capital expenditures represent cash expenditures (including expenditures for the addition or improvement to, or the replacement of, our capital assets, and for the acquisition of existing, or the construction or development of new, capital assets) made to maintain our long-term operating income or operating capacity. Examples of maintenance and regulatory capital expenditures are expenditures for the repair, refurbishment and replacement of pipelines and terminals, to maintain equipment reliability, integrity and safety and to address environmental laws and regulations. (3) For the three month periods ended March 31, 2021 and 2020, Delek Holdings reimbursed us for certain capital expenditures pursuant to the terms of the Omnibus Agreement (as defined in Note 3 to our accompanying condensed consolidated financial statements). 34 | Management's Discussion and Analysis Results of Operations Consolidated Results of Operations — Comparison of the three months ended March 31, 2021 compared to the three months ended March 31, 2020 The table below presents a summary of our consolidated results of operations. The discussion immediately following presents the consolidated results of operations (in thousands): Consolidated Three Months Ended March 31, 2021 2020 Net Revenues: Affiliates $ 96,194 106,699 Third-Party 56,719 56,702 Total Consolidated 152,913 163,401 Cost of materials and other 81,171 101,293 Operating expenses (excluding depreciation and amortization presented below) 14,056 14,744 Contribution margin 57,686 47,364 General and administrative expenses 4,860 6,130 Depreciation and amortization 10,739 6,299 Other operating income, net (83) (107) Operating income $ 42,170 $ 35,042 Net Revenues Q1 2021 vs. Q1 2020 Net revenues decreased by $10.5 million, or 6.4%, in the three months ended March 31, 2021 compared to the three months ended March 31, 2020, primarily driven by the following: • decreases in the average volumes of gasoline and diesel sold partially offset by increases in the average sales prices per gallon of gasoline and diesel sold in our West Texas marketing operations: ◦ the volume of gasoline and diesel sold decreased by 13.9 million gallons and 9.2 million gallons, respectively. ◦ the average sales prices per gallon of gasoline and diesel sold increased by $0.24 per gallon and $0.12 per gallon, respectively. • decreases in throughputs due to the impact of the severe freezing conditions that affected most of the regions where we operate resulting in lower volumes outside of contractual minimum volume commitments during the three months ended March 31, 2021 when compared to the three months ended March 31, 2020. • decreases in throughputs at the Paline pipeline due to scheduled pipeline maintenance. Such decreases were partially offset by the following: • increased revenues associated with agreements executed in connection with the Big Spring Gathering System and Delek Trucking acquisitions, which were effective March 31, 2020 and May 1, 2020, respectively. See Note 2 of the condensed consolidated financial statements in Item 1. Financial Statements, for additional information. • increased revenues at our Big Spring Refinery Crude Pipeline (the "BSR Crude Pipeline"), as a result of new contracts executed in the second quarter of 2020, during the three months ended March 31, 2021 when compared to the three months ended March 31, 2020. Cost of Materials and Other Q1 2021 vs. Q1 2020 Cost of materials and other decreased by $20.1 million, or 19.9%, in the three months ended March 31, 2021 compared to the three months ended March 31, 2020, primarily driven by the following: • decreases in the average volumes of gasoline and diesel sold, partially offset by increases in the average cost per gallon of gasoline 35 | Management's Discussion and Analysis and diesel sold in our West Texas marketing operations: ◦ the average volumes of gasoline and diesel sold decreased by 13.9 million gallons and 9.2 million gallons, respectively. ◦ the average cost per gallon of gasoline and diesel sold increased by $0.27 per gallon and $0.10 per gallon, respectively. Operating Expenses Q1 2021 vs. Q1 2020 Operating expenses decreased by $0.7 million, or 4.7%, in the three months ended March 31, 2021 compared to the three months ended March 31, 2020, primarily driven by the following: • decrease in employee and outside services costs due to measures implemented to respond to the COVID-19 Pandemic including delaying non-essential projects; • lower operating costs associated with allocated contract services pertaining to certain of our assets; • decreases in variable expenses such as maintenance and materials costs due to lower throughput; and • partially offset by the increase in utility costs as a result of significantly higher energy costs during the February 2021 severe freezing conditions that affected most of the regions where we operate. General and Administrative Expenses Q1 2021 vs. Q1 2020 General and administrative expenses decreased by $1.3 million, or 20.7%, in the three months ended March 31, 2021 compared to the three months ended March 31, 2020, primarily driven by the following: • decrease in legal and professional consulting fees due to fewer transactions undertaken by the Partnership compared to prior year; and • decrease in employee and outside services costs due to measures implemented to respond to the COVID-19 Pandemic. Depreciation and Amortization Q1 2021 vs. Q1 2020 Depreciation and amortization increased by $4.4 million, or 70.5%, in the three months ended March 31, 2021 compared to the three months ended March 31, 2020, primarily driven by the following: • addition of assets to our asset base as a result of the Trucking Assets Acquisition and the Big Spring Gathering Assets Acquisition. Interest Expense Q1 2021 vs. Q1 2020 During the three months ended March 31, 2021 we incurred $9.7 million of interest expense, compared to $11.8 million during the three months ended March 31, 2020, a decrease of $2.1 million, or 17.7%. This decrease was primarily driven by the following: • lower floating interest rates applicable to the DKL Credit Facility; and • partially offset by increased borrowings under the DKL Credit Facility as a result of our Big Spring Gathering Assets Acquisition, the Trucking Assets Acquisition and the IDR Restructuring Transaction. Results from Equity Method Investments Q1 2021 vs. Q1 2020 During the three months ended March 31, 2021 we recognized income of $4.0 million from equity method investments, compared to $5.6 million for the three months ended March 31, 2020, a decrease of $1.5 million, or 27.1%. This decrease was primarily driven by the following: 36 | Management's Discussion and Analysis • decrease in income from our equity method investments due to lower volumes as the impact of the February 2021 severe freezing conditions was pervasive across all of our equity method investments' pipeline systems; • our equity method investments includes our investment in the Red River Pipeline Joint Venture and our investments in Andeavor Logistics and CP LLC (as defined in Note 10 of the accompanying condensed consolidated financial statements), which operate the Rio Pipeline and the Caddo Pipeline System, respectively. 37 | Management's Discussion and Analysis Operating Segments We review operating results in two reportable segments: (i) pipelines and transportation and (ii) wholesale marketing and terminalling. Decisions concerning the allocation of resources and assessment of operating performance are made based on this segmentation. Management measures the operating performance of each reportable segment based on the segment contribution margin. Segment reporting is discussed in more detail in Note 11 to our accompanying condensed consolidated financial statements. Segment contribution margin = Net revenues - Cost of materials and other - Operating expenses, excluding depreciation and amortization Pipelines and Transportation Segment Our pipelines and transportation segment assets provide crude oil gathering and crude oil, intermediate and refined products transportation and storage services to Delek Holdings and third parties. These assets include: • the pipeline assets used to support Delek Holdings' El Dorado refinery (the "El Dorado Assets") • the gathering system that supports transportation of crude oil to the El Dorado Refinery (the "El Dorado Gathering System") • the Paline Pipeline System • the East Texas Crude Logistics System • the Tyler-Big Sandy Pipeline • the El Dorado Tank Assets and El Dorado Rail Offloading Racks • the Tyler Tank Assets and Tyler Crude Tank • the Greenville-Mount Pleasant Pipeline and Greenville Storage Facility • refined product pipeline capacity leased from Enterprise TE Products Pipeline Company ("Enterprise") that runs from El Dorado, Arkansas to our Memphis terminal and the Big Spring Pipeline • pipelines and storage assets acquired in the Big Spring Logistic Assets Acquisition • assets acquired in the Big Spring Gathering Assets Acquisition • assets acquired in the Trucking Assets Acquisition In addition to these operating systems, we own or lease 264 tractors and 353 trailers used to haul primarily crude oil and other products for related and third parties. The following tables and discussion present the results of operations and certain operating statistics of the pipelines and transportation segment for the three months ended March 31, 2021 and 2020: Pipelines and Transportation Three Months Ended March 31, 2021 2020 Net Revenues: Affiliates $ 63,048 $ 38,502 Third-Party 1,927 9,465 Total Pipelines and Transportation 64,975 47,967 Cost of materials and other 13,079 6,098 Operating expenses (excluding depreciation and amortization presented below) 10,172 11,456 Segment contribution margin $ 41,724 $ 30,413 Throughputs (average bpd) Three Months Ended March 31, 2021 2020 El Dorado Assets: Crude pipelines (non-gathered) 44,118 55,471 Refined products pipelines to Enterprise Systems 26,349 54,106 El Dorado Gathering System 11,880 34,906 East Texas Crude Logistics System 26,075 14,174 Big Spring Gathering System 73,724 — Plains Connection System 108,361 — 38 | Management's Discussion and Analysis Comparison of the three months ended March 31, 2021 compared to the three months ended March 31, 2020 Net Revenues Q1 2021 vs. Q1 2020 Net revenues for the pipelines and transportation segment increased by $17.0 million, or 35.5%, in the three months ended March 31, 2021 compared to the three months ended March 31, 2020, primarily driven by the following: • increased revenues associated with agreements executed in connection with the Big Spring Gathering Assets Acquisition and the Trucking Assets Acquisition, which were effective March 31, 2020 and May 1, 2020, respectively. See Note 2 of the condensed consolidated financial statements in Item 1. Financial Statements, for additional information; • increased revenues at our BSR Crude Pipeline, as a result of new contracts executed in the second quarter of 2020, during the three months ended March 31, 2021 when compared to the three months ended March 31, 2020; and • partially offset by, decreases in throughputs due to the impact of the severe freezing conditions that affected most of the regions where we operate resulting in lower volumes outside of contractual minimum volume commitments and decreases in throughputs at the Paline pipeline due to scheduled pipeline maintenance during the three months ended March 31, 2021 when compared to the three months ended March 31, 2020. Cost of Materials and Other Q1 2021 vs. Q1 2020 Cost of materials and other for the pipelines and transportation segment increased by $7.0 million, or 114.5%, in the three months ended March 31, 2021 compared to the three months ended March 31, 2020, primarily driven by the following: • increases in transportation costs related to our Trucking Assets due to the Trucking Asset Acquisition which was effective May 1, 2020; and • increases in driver wages and benefits and fuel expense proportionate to increases in fees, insurance, supplies and maintenance expenses. Operating Expenses Q1 2021 vs. Q1 2020 Operating expenses for the pipelines and transportation segment decreased by $1.3 million, or 11.2%, in the three months ended March 31, 2021 compared to the three months ended March 31, 2020, primarily driven by the following: • decreases in employee and outside services costs due to measures implemented to respond to the COVID-19 Pandemic including delaying non-essential projects; and • partially offset by the increase in utility costs as a result of significantly higher energy costs during the February 2021 severe freezing conditions that affected most of the regions where we operate. Contribution Margin Q1 2021 vs. Q1 2020 Contribution margin for the pipelines and transportation segment increased by $11.3 million, or 37.2%, in the three months ended March 31, 2021 compared to the three months ended March 31, 2020, primarily driven by the following: • increases in revenues associated with agreements executed in connection with the Big Spring Gathering Assets Acquisition, the Trucking Assets Acquisition and the BSR Crude Pipeline; • decreases in operating expenses; and • partially offset by the increase in cost of materials and other in connection with the Trucking Assets Acquisition. 39 | Management's Discussion and Analysis Wholesale Marketing and Terminalling Segment We use our wholesale marketing and terminalling assets to generate revenue by providing wholesale marketing and terminalling services to Delek Holdings' refining operations and to independent third parties. The tables and discussion below present the results of operations and certain operating statistics of the wholesale marketing and terminalling segment for the three months ended March 31, 2021 and 2020 : Wholesale Marketing and Terminalling Three Months Ended March 31, 2021 2020 Net Revenues: Affiliates $ 33,146 $ 68,197 Third-Party 54,792 47,237 Total Wholesale Marketing and Terminalling 87,938 115,434 Cost of materials and other 68,092 95,195 Operating expenses (excluding depreciation and amortization presented below) 3,884 3,288 Segment contribution margin $ 15,962 $ 16,951 Operating Information Three Months Ended March 31, 2021 2020 East Texas - Tyler Refinery sales volumes (average bpd) (1) 71,963 72,650 Big Spring marketing throughputs (average bpd) 72,927 66,386 West Texas marketing throughputs (average bpd) 10,138 16,081 West Texas gross margin per barrel $ 3.42 $ 2.70 Terminalling throughputs (average bpd) (2) 144,539 135,329 (1) Excludes jet fuel and petroleum coke. (2) Consists of terminalling throughputs at our Tyler, Big Spring, Big Sandy and Mount Pleasant, Texas, El Dorado and North Little Rock, Arkansas and Memphis and Nashville, Tennessee terminals. Comparison of the three months ended March 31, 2021 compared to the three months ended March 31, 2020 Net Revenues Q1 2021 vs. Q1 2020 Net revenues for the wholesale marketing and terminalling segment decreased by $27.5 million, or 23.8%, in the three months ended March 31, 2021 compared to the three months ended March 31, 2020, primarily driven by the following: • decreases in the average volumes of gasoline and diesel sold, partially offset by increases in the average sales prices per gallon of gasoline and diesel sold in our West Texas marketing operations: ◦ the volume of gasoline and diesel sold decreased by 13.9 million gallons and 9.2 million gallons, respectively. ◦ the average sales prices per gallon of gasoline and diesel sold increased by $0.24 per gallon and $0.12 per gallon, respectively. 40 | Management's Discussion and Analysis The following charts show summaries of the average sales prices per gallon of gasoline and diesel and refined products volume impacting our West Texas operations. Cost of Materials and Other Q1 2021 vs. Q1 2020 Cost of materials and other for our wholesale marketing and terminalling segment decreased by $27.1 million, or 28.5%, in the three months ended March 31, 2021 compared to the three months ended March 31, 2020, primarily driven by the following: • decreases in the average volumes of gasoline and diesel sold, partially offset by increases in the average cost per gallon of gasoline and diesel sold in our West Texas marketing operations: ◦ the average volumes of gasoline and diesel sold decreased by 13.9 million gallons and 9.2 million gallons, respectively. ◦ the average cost per gallon of gasoline and diesel sold increased by $0.27 per gallon and $0.10 per gallon, respectively. The following chart shows a summary of the average prices per gallon of gasoline and diesel sold in our West Texas operations for the three months ended March 31, 2021 and 2020. Refer to the Refined Products Volume chart above for a summary of volumes impacting our West Texas operations. 41 | Management's Discussion and Analysis Operating Expenses Q1 2021 vs. Q1 2020 Operating expenses increased by $0.6 million, or 18.1%, in the three months ended March 31, 2021 compared to the three months ended March 31, 2020, primarily driven by the following: • increase in utility costs as a result of significantly higher energy costs during the February 2021 severe freezing conditions that affected most of the regions where we operate; and • this increase partially offset by lower operating costs associated with allocated contract services pertaining to certain of our assets. Contribution Margin Q1 2021 vs. Q1 2020 • The decrease of $1.0 million, or 5.8%, in contribution margin for the three months ended March 31, 2021 compared to the three months ended March 31, 2020 was due to decreases in revenue netted off with decreases in cost of materials and other and operating expenses as described above. 42 | Management's Discussion and Analysis Liquidity and Capital Resources We consider the following when assessing our liquidity and capital resources: (i) cash generated from operations; (iii) potential issuance of additional equity; and (ii) borrowings under our revolving credit facility; (iv) potential issuance of additional debt securities. At March 31, 2021 our total liquidity amounted to $125.9 million, comprised of $112.5 million in unused credit commitments under the DKL Credit Facility and $13.4 million in cash and cash equivalents. We have the ability to increase the DKL Credit Facility to $1.0 billion subject to receiving increased or new commitments from lenders and meeting certain requirements under the credit facility. Historically, we have generated adequate cash from operations to fund ongoing working capital requirements, pay quarterly cash distributions and operational capital expenditures, and we expect the same to continue in the foreseeable future. Other funding sources, including the issuance of additional debt securities, have been utilized to fund growth capital projects such as dropdowns. In addition, we have historically been able to source funding at rates that reflect market conditions, our financial position and our credit ratings. We continue to monitor market conditions, our financial position and our credit ratings and expect future funding sources to be at rates that are sustainable and profitable for the Partnership. However, there can be no assurances regarding the availability of any future financings or additional credit facilities or whether such financings or additional credit facilities can be made available on terms that are acceptable to us. We believe we have sufficient financial resources from the above sources to meet our funding requirements in the next 12 months, including working capital requirements, quarterly cash distributions and capital expenditures. Nevertheless, our ability to satisfy working capital requirements, to service our debt obligations, to fund planned capital expenditures, or to pay distributions will depend upon future operating performance, which will be affected by prevailing economic conditions in the oil industry and other financial and business factors, including the current COVID-19 Pandemic and crude oil prices, some of which are beyond our control. Our largest customer is Delek Holdings, a related party, with whom we have various commercial agreements. Delek Holdings has initiated several steps as part of a strategic plan to navigate the current volatile markets and preserve or enhance its liquidity, including re-negotiating and extending financing arrangements, temporary suspension of growth and non-essential projects, reductions in capital and operating expenditures, divesting of non-strategic and underperforming assets, suspension of its stock repurchases and dividends, and exploring other potential financing opportunities. We believe such actions will allow Delek Holdings to continue to honor its commercial agreements with us. In addition, we eliminated the IDRs which helped lower our cost of capital and preserve our liquidity. We continuously review our liquidity and capital resources. If market conditions were to change, for instance due to a significant decline in crude oil prices or uncertainty created by the COVID-19 Pandemic, and our revenue was reduced significantly or operating costs were to increase significantly, our cash flows and liquidity could be reduced. Additionally, it could cause the rating agencies to lower our credit ratings. There are no ratings triggers that would accelerate the maturity of any borrowings under our debt agreements. Management continues to actively respond to the impact of the COVID-19 Pandemic to enhance our liquidity position. Such actions include reducing planned capital expenditures for 2021, seeking alternative financing solutions and enacting cost reduction measures. Refer to the Business Overview section of this MD&A for a complete discussion of the uncertainties identified by management and the actions taken to respond to the COVID-19 Pandemic. We believe we were in compliance with the covenants in all our debt facilities as of March 31, 2021. After considering the current and potential effect of the significant decline in oil prices and uncertainty created by the COVID-19 Pandemic on our operations, we currently expect to remain in compliance with our debt covenants. See Note 7 to our accompanying condensed consolidated financial statements for a complete discussion of our third-party indebtedness. Cash Distributions On April 29, 2021, our board of directors declared a distribution of $0.920 per common unit (the "Distribution"), which equates to approximately $40.0 million per quarter, based on the number of common units expected to be outstanding as of May 10, 2021. The Distribution is expected to be paid on May 14, 2021 to common unitholders of record on May 10, 2021 and represents a 3.4% increase over the first quarter 2020 distribution. We have set a range for distribution growth guidance of $0.005 - $0.015 per unit each quarter for 2021. This increase in the distribution is consistent with our intent to maintain an attractive distribution growth profile over the long term. Although our Partnership Agreement requires that we distribute all of our available cash each quarter, we do not otherwise have a legal obligation to distribute any particular amount per common unit. 43 | Management's Discussion and Analysis The table below summarizes the quarterly distributions related to our quarterly financial results: Quarter Ended Total Quarterly Distribution Per Limited Partner Unit Total Quarterly Distribution Per Limited Partner Unit, Annualized Total Cash Distribution, including general partner interest and IDRs (in thousands) Date of Distribution Unitholders Record Date March 31, 2020 $ 0.890 $ 3.56 $ 30,878 May 12, 2020 May 5, 2020 June 30, 2020 $ 0.900 $ 3.60 $ 35,969 August 12, 2020 August 7, 2020 September 30, 2020 $ 0.905 $ 3.62 $ 39,308 November 12, 2020 November 6, 2020 December 31, 2020 $ 0.910 $ 3.64 $ 39,533 February 9, 2021 February 2, 2021 March 31, 2021 $ 0.920 $ 3.68 $ 39,968 May 14, 2021 (1) May 10, 2021 (1) Expected date of distribution. Cash Flows The following table sets forth a summary of our consolidated cash flows for the three months ended March 31, 2021 and 2020 (in thousands): Three Months Ended March 31, 2021 2020 Net cash provided by operating activities $ 61,732 $ 34,834 Net cash used in investing activities (3,965) (112,176) Net cash (used in) provided by financing activities (48,633) 75,973 Net increase in cash and cash equivalents $ 9,134 $ (1,369) Operating Activities Net cash provided by operating activities was $61.7 million for the three months ended March 31, 2021, compared to $34.8 million for the three months ended March 31, 2020, resulting in a $26.9 million increase in net cash provided by operating activities. The cash receipts from customer activities decreased by $8.0 million and cash payments to suppliers and for allocations from Delek Holdings for salaries decreased by $34.1 million. In addition, cash dividends received from equity method investments decreased by $1.2 million and cash paid for debt interest decreased by $2.0 million. Investing Activities Net cash used in investing activities decreased by $108.2 million during the three months ended March 31, 2021 compared to the three months ended March 31, 2020. The decrease in cash used in investing activities was primarily due to lower contributions to equity method investments and no acquisitions during the three months ended March 31, 2021 compared to the three months ended March 31, 2020. We disbursed $1.4 million in additional contributions to our equity method investments during the three months ended March 31, 2021 compared to $8.2 million during the three months ended March 31, 2020.The Big Spring Gathering Assets Acquisition, effective on March 31, 2020, was partially financed with cash from drawdown of the DKL Credit Facility amounting to $100.0 million which was recorded in investing activities. Transaction costs paid amounting to $1.0 million were capitalized for the Big Spring Gathering Assets Acquisition. There was no asset acquisition during the three months ended March 31, 2021. In addition there were additions to property, plant and equipment amounting to $6.1 million and distributions from equity method investments amounting $3.9 million during the three months ended March 31, 2021 compared to additions to property, plant and equipment amounting to $4.2 million and distributions from equity method investments amounting to $0.1 million during the three months ended March 31, 2020. Financing Activities Net cash provided by financing activities decreased $124.6 million during the three months ended March 31, 2021 compared to the three months ended March 31, 2020. The decrease in cash provided by financing activities was primarily due to the decrease in net proceeds under the revolving credit facility (defined below). We repaid $9.1 million under the revolving credit facility during the three months ended March 31, 2021, compared to net proceeds of $106.6 million under the revolving credit facility during the three months ended March 31, 2020. In addition, we paid quarterly cash distributions totaling $39.5 million during the three months ended March 31, 2021, compared to quarterly cash distributions totaling $30.6 million during the three months ended March 31, 2020. 44 | Management's Discussion and Analysis The sources of cash during the three months ended March 31, 2020 primarily consisted of the $100.0 million drawdown under the DKL Credit Facility to part-finance the Big Spring Gathering Assets Acquisition. The Big Spring Gathering Assets Acquisition was also financed by the issuance of 5.0 million units to Delek US Energy, Inc. (a wholly owned subsidiary of Delek Holdings). Debt Overview As of March 31, 2021, we had total indebtedness of $983.4 million comprised of $737.5 million under the amended and restated senior secured revolving agreement (the "DKL Credit Facility") and $245.9 million of 6.75% senior notes due 2025 (the “2025 Notes”), the latter net of deferred financing costs and original issue discount. Deferred financing costs and original issue discount on the 2025 Notes amounted to $3.1 million and $1.0 million, respectively. The decrease of $8.9 million in our long-term debt balance compared to the balance at December 31, 2020 resulted from the payments under the DKL Credit Facility during the three months ended March 31, 2021 partially offset by amortization of the deferred financing costs and original issuance discount under our 2025 Notes. As of March 31, 2021, our total indebtedness consisted of: • An aggregate principal amount of $737.5 million under the DKL Credit Facility ("revolving credit facility"), due on September 28, 2023, with an average borrowing rate of 2.45%. • An aggregate principal amount of $245.9 million, under the 2025 Notes (6.75% senior notes), due in 2025, with an effective interest rate of 7.25%. We believe we were in compliance with the covenants in all our debt facilities as of March 31, 2021. See Note 7 to our accompanying condensed consolidated financial statements for a complete discussion of our third-party indebtedness. Agreements Governing Certain Indebtedness of Delek Holdings Although we are not contractually bound by and are not liable for Delek Holdings' debt under its credit arrangements, we are indirectly affected by certain prohibitions and limitations contained therein. Specifically, certain of Delek Holdings' credit arrangements require that Delek Holdings meet certain minimum covenant levels for (i) consolidated shareholders’ equity and (ii) a ratio of consolidated shareholders' equity to adjusted total assets. Delek Holdings, due to its majority ownership and control of our general partner, has the ability to prevent us from taking actions that would cause Delek Holdings to violate these and any other covenants in its credit arrangements or otherwise be in default under any of its credit arrangements. As a result we cannot assure you that such covenants will not impact our ability to use the full capacity under our revolving credit facility in the future. Delek Holdings' level of indebtedness, the terms of its borrowings and any future credit ratings could adversely affect our ability to grow our business, our ability to make cash distributions to our unitholders and our credit profile. Our current and future credit ratings may also be affected by Delek Holdings' level of indebtedness, financial performance and credit ratings. Equity Units Overview On August 13, 2020, we closed the IDR Restructuring Transaction. To effect this transaction, our partnership agreement was amended and restated. See Note 3 to our accompanying condensed consolidated financial statements for additional details. In August 2020, we filed a shelf registration statement, which subsequently became effective, with the SEC for the proposed re-sale or disposition from time to time by Delek Holdings of up to 14.0 million common limited partner units representing limited partner interests in the Partnership. We will not sell any securities under this shelf registration statement and we will not receive any proceeds from the sale of the securities by Delek Holdings. On March 31, 2020, we issued 5.0 million units to Delek Holdings as part of the consideration for the Big Spring Gathering Assets Acquisition. In connection with the issuance of these units and in accordance with the Partnership Agreement, we issued additional general partner units in an amount necessary to maintain the 2% general partner interest as defined in the Partnership Agreement. Contemporaneous with the above issuance, the Board of the general partner waived distributions in respect of the IDRs associated with the 5.0 million Additional Units for at least two years, through at least the distribution for the quarter ending March 31, 2022 ("IDR Waiver"). The IDR Waiver essentially reduced the distribution made to the holders of the IDRs during this period, as the holders would not receive a share of the distribution made on the Additional Units. An additional waiver letter was signed that waived all of the distributions for the first quarter of 2020 on the Additional Units with respect to base distributions and the IDRs. The IDR Restructuring Transaction on August 13, 2020 permanently eliminated all of the IDRs. See Note 3 to our accompanying condensed consolidated financial statements for additional details. 45 | Management's Discussion and Analysis Capital Spending A key component of our long-term strategy is our capital expenditure program. The following table summarizes our actual capital expenditures for the three months ended March 31, 2021 and planned capital expenditures for the full year 2021 by segment and by major category (in thousands): Full Year 2021 Forecast Three Months Ended March 31, 2021 Pipelines and Transportation Regulatory (2) $ 4,839 $ 443 Maintenance (1) 2,221 34 Discretionary projects (2) 9,670 5,368 Pipelines and transportation segment total $ 16,730 $ 5,845 Wholesale Marketing and Terminalling Regulatory (3) $ 3,559 $ 37 Maintenance (1) 2,480 2 Discretionary (3) 5,026 1,915 Wholesale marketing and terminalling segment total $ 11,065 $ 1,954 Total capital spending $ 27,795 $ 7,799 (1) Maintenance capital expenditures represent cash expenditures (including expenditures for the addition or improvement to, or the replacement of, our capital assets, and for the acquisition of existing, or the construction or development of new, capital assets) made to maintain our long-term operating income or operating capacity. Examples of maintenance capital expenditures are expenditures for the repair, refurbishment and replacement of pipelines, tanks and terminals, to maintain equipment reliability, integrity and safety and to address environmental laws and regulations. Delek Holdings has agreed to reimburse us with respect to certain assets it has transferred to us pursuant to the terms of the Omnibus Agreement (as defined in Note 3 to our accompanying condensed consolidated financial statements). (2) The majority of the $4.8 million budgeted for regulatory projects in the pipelines and transportation segment is expected to be spent on certain of our pipelines to maintain their operational integrity. The majority of the $9.7 million for discretionary projects in the pipelines and transportation segment is expected to be spent on scheduled maintenance and improvements to certain of our tanks and development of our DPG assets. These expenditures have historically been and will continue to be financed through cash generated from operations. (3) The majority of the $3.6 million and $5.0 million budgeted for regulatory and discretionary projects in the wholesale marketing and terminalling segment relates to scheduled maintenance and improvements on our terminalling tanks and racks at certain of our terminals. These expenditures have historically been and will continue to be financed through cash generated from operations. The amount of our capital expenditure budget is subject to change due to unanticipated increases in the cost, scope and completion time for our capital projects. For example, we may experience increases in the cost of and/or timing to obtain necessary equipment required for our continued compliance with government regulations or to complete improvement projects. Additionally, the scope and cost of employee or contractor labor expense related to installation of that equipment could increase from our projections. Off-Balance Sheet Arrangements We have no off-balance sheet arrangements through the date of the filing of this Quarterly Report on Form 10-Q. 46 | Management's Discussion and Analysis